Financial Transparency Coalition

Our friend Anthony Travers, chairman of the Cayman Islands Financial Services Association, wrote an opinion piece for the conservative Washington Times yesterday in which he claims that “it is unfair to mischaracterize Cayman as a ‘tax haven’ – a phrase that implies secrecy and wrongdoing – as President Obama and others have done recently.”  Now language like this is to be expected from Mr. Travers – he has been making similar statements for months.  However the surprising part of the article is what follows:

To avoid any further confusion on this issue, we agree the United States should take the opportunity to make its agreement with Cayman even more transparent by making it proactive. What would that mean? Reporting to the U.S. government the opening of a bank account in Cayman the day it is opened – without waiting to be asked by the U.S. authorities. Proactive reporting would assist U.S. policymakers in understanding that no additional U.S. tax revenue is to be derived from the Cayman Islands, because it is not, in fact, a locale used by U.S. citizens to evade tax.

Mr. Travers is correct in that as a zero tax state they provide a mechanism for tax avoidance which is perfectly legal, although that does not mean that proceeds of illegal acts and corruption are not parked in zero tax jurisdictions where it is much more difficult or impossible to identify them.  He appropriately identifies the fact that it is up  to the US to change its domestic laws to minimize tax avoidance, but does not address the more nefarious uses of Cayman accounts.

Mr. Travers has stated, however, that the tax avoidance schemes put in place by companies have benefitted the US financial institutions and markets to the tune of trillions of dollars.  The issue, however, is to what degree that benefits the US as a country and whether these schemes in fact still prevent the US treasury/taxpayer from benefitting from the profits these companies are making instead of just benefiting the people who are employed by the financial institutions that he refers to.  There needs to be a balance between the effects of such arrangements on the financial markets and the responsibility of US companies to contribute to the general welfare of the country through taxation.  This is a domestic issue around which dialogue has now begun under the Obama administration.

It would also be helpful for Mr. Travers to elaborate on his offer of proactive exchange: does he mean that the Caymans will report with respect to bank accounts opened by (a) US entities, (b) direct or indirect subs of US entities organized in the Caymans, (c) direct or indirect subs of any US entity, or (d) all accounts?  His statement refers to all accounts, but I would be surprised if that was what Mr. Travers was offering.  In addition, shouldn’t the IRS also receive information regarding the revenues in these accounts?  Just knowing that an account has been opened is not the same as knowing that an account was opened on day 1, and on day 3 $500mm was deposited into the account and has remained there the entire tax reporting year, and that the interest from that account is being paid to Public Official X.  If companies were required to report their income country-by-country this information would not be so opaque, but in our current world of bilateral tax treaties and investigative legwork that the IRS currently has to do in order to discover this kind of information, an offer by Mr. Travers for automatic reporting of revenues would be a meaningful suggestion.

And does his offer extend to ALL countries?  Shouldn’t all countries have the tools to determine the financial activities of their companies and, unfortunately in some cases, criminals?

Mr. Travers, let’s open up a serious discussion on these issues, shall we?