After the Cayman Islands was forced to accept 'information sharing' under the EU's Savings Tax Directive in 2004, the UK agreed to move discussion of a tax treaty between the United Kingdom and the Cayman Islands to the head of the queue. “The UK has moved the Cayman Islands to the front of the queue of countries and territories wishing to have treaty talks,” the UK’s Paymaster General, Dawn Primarolo told government leader McKeeva Bush in a letter dated May 20. In July, 2005, the UK government reiterated that it was giving a high priority to the question of a Cayman tax treaty.

Cayman has passed other laws dealing with provision of information internationally in respect of crime, but the authorities habitually do not respond to requests for information regarding fiscal matters or tax evasion.
In January 1999 the Cayman Islands government bowed to pressure from the UK and passed the Proceeds of Criminal Conduct (Amendment) (Foreign Offences) Law which introduces fiscal crime as a reason for enforcing foreign blocking and freezing orders - but only if a crime has been committed in Cayman, which has no concept of fiscal crime. It remains to be seen what effect the new law will have.

After the Cayman Islands were included on the FATF's list of 15 jurisdictions having inadequate defences against money laundering in June 2000 (it was subsequently removed) the Government introduced four bills aimed at tightening up supervisory procedures and information exchange arrangements.

The Monetary Authority has bilateral information exchange agreements with eight overseas regulatory authorities, and a multilateral MoU with eight authorities in the Caribbean.

In May, 2006, the Cayman Islands Monetary Authority (CIMA) and the Office of the Superintendent of Financial Institutions Canada (OSFI) signed a memorandum of understanding that will provide a framework for cross border cooperation between the two countries.

The MoU establishes a protocol for the sharing of information and protection of information shared, cooperation regarding on-site inspections carried out by one regulator on supervised financial institutions in the other jurisdiction, and ongoing coordination.

OSFI is responsible for regulating and supervising all federally chartered, licensed or registered banks and insurance, trust and loan companies, as well as cooperative credit associations and fraternal benefit societies in Canada.

CIMA General Counsel, Mr Langston Sibblies, noted that the agreement was important since OSFI, as the federal regulator, has jurisdiction in all of Canada's provinces.

"The MoU will allow us to develop cooperative relationships in a structured and clear way and will further enhance supervision of Canadian entities operating here, particularly in the banking sector," he observed.

The MoU is subject to the domestic laws of both jurisdictions, as with other memoranda.

Mr Sibblies continued: "One area of concern for OSFI in negotiating the MoU was the preservation of confidentiality of information that would be provided under the agreement and the assurance that information received would be used for lawful supervisory purposes.

"On examination of our respective legislation we were both satisfied that our laws governing information exchange and deterring financial crime are equivalent. This facilitated the establishment of the MoU."

CIMA's Managing Director, Mrs. Cindy Scotland, said this latest agreement underscored the importance Cayman, as a major financial centre, placed on international cooperation.

"The MoU with OSFI again demonstrates our commitment to assist overseas regulators in a manner consistent with Cayman's laws as we pursue our mission of creating a competitive and internationally recognised financial services industry," she stated.

The Cayman/US Tax Information Exchange Agreement

The agreement specifies that the Cayman Islands will share with the Bush administration tax information to help the US government trace financial criminals. Former IRS Commissioner Donald Alexander told the US media that the treaty will enable the IRS to overcome the secrecy surrounding the accounts of financial institutions in the Cayman Islands to allow it to launch audits for tax evasion and money-laundering.

'Right now,' said Mr Alexander, 'nothing is a fair description of the cooperation the United States is getting. It's a hotbed of tax evasion. This is a good step in the right direction.'

The agreement covers information relating to 'the administration and enforcement of the domestic laws of the parties concerning the taxes and the tax matters covered by this Agreement, including information that may be relevant to the determination, assessment, verification, enforcement or collection of tax claims with respect to persons subject to such taxes, or to the investigation or prosecution of criminal tax evasion in relation to such persons'.

Information has to be provided by the Cayman Government without regard to whether the person to whom the information relates is, or whether the information is held by, a resident or national of a party; and provided that the information is present within the territory, or in the possession or control of a person subject to the jurisdiction, of the requested party.

The taxes covered by the Agreement are federal income taxes, 'but the types of tax covered may be extended by agreement between the parties in the form of an exchange of letters'. That appears to mean that the Cayman Government can agree with the US to extend coverage to other taxes.

The agreement covers "criminal tax evasion", which means: 'wilfully, with dishonest intent to defraud the public revenue, evading or attempting to evade any tax liability where an affirmative act constituting an evasion or
attempted evasion has occurred. The tax liability must be of a significant or substantial amount, either as an absolute amount or in relation to an annual tax liability, and the conduct involved must constitute a systematic effort or pattern of activity designed or tending to conceal pertinent facts from or provide inaccurate facts to the tax authorities of either party.'

Information must be provided even if the alleged criminal behaviour was not criminal in the Cayman Islands. The signatories agree to provide themselves with the authority to obtain information held by banks, other financial institutions, and any person, including nominees and trustees, acting in an agency or fiduciary capacity; information regarding the beneficial ownership of companies, partnerships and other persons, including in the case of collective investment funds, information on shares, units and other interests; and in the case of trusts, information on settlors, trustees and beneficiaries.

For the US to make a request under the agreement, it must provide:

    * the identity of the taxpayer under examination or investigation;
    * the nature of the information requested;
    * the tax purpose for which the information is sought;
    * reasonable grounds for believing that the information requested is present in the territory of the requested party or is in the possession or control of a person subject to the jurisdiction of the requested party;
    * to the extent known, the name and address of any person believed to be in possession or control of the information requested;
    * a declaration that the request conforms to the law and administrative practice of the requesting party and would be obtainable by the requesting party under its laws in similar circumstances, both for its own tax purposes and in response to a valid request from the requested party under the Agreement.

US officials are permitted under the agreement to 'enter the territory of the requested party in connection with a request to interview persons and examine records with the prior written consent of the persons concerned', or 'attend a tax examination' in the Cayman Islands.

Information need not be provided if it is subject to legal privilege, or if it would not have been obtainable by the US under its own laws, domestically.

The Agreement took effect from 1st January 2004.