Eduardo D'Angelo Silva reports how, in the past three decades, the Cayman Islands have emerged as a thriving financial centre.

The Cayman Islands are home to the world's leading banks, trust companies, investment agencies, and accounting and law firms.

The banking and trust industry continues to contribute significantly toCayman's development, as a truly one-stop-shop for experienced institutional and private investors. The catalyst for this development can be traced to the 1960s, when international banking was introduced. A decade later, the trust element was added and estate planning gained in popularity. Today, in financial communities worldwide, the Cayman Islands are recognised as a foremost, sophisticated financial centre.

With more than half a trillion US dollars in bank assets, Cayman is now one of the largest banking centres in the world. There are over 570 banks and trust companies licensed in the Cayman Islands, with 110 having a physical presence, operating offices, here. Forty-five of the 50 largest banks have branches or subsidiaries in the Cayman Islands.

The Cayman Islands are a United Kingdom overseas territory, consisting of three islands located in the northwest Caribbean, in close proximity to both North and South America. There is convenient air access with over 125 direct flights each week from major US cities and London. Modern infrastructure and state-of-the-art telecommunications support the demands of international business; residents enjoy political stability, social harmony and one of the highest standards of living within region.

There are no direct taxes in Cayman – no corporate tax, income tax, property tax, withholding tax, inheritance tax or capital gains tax. These factors, along with Cayman's proven commitment to the highest financial standards, make it an ideal jurisdiction for the accumulation and retention of wealth.

Cayman has been a pioneer and continues to be both innovative and progressive in developing legislation. History will show that the development of the financial industry in the Cayman Islands has created a sophisticated, well regulated environment that is conducive to prudent estate planning and wealth preservation. Although privacy remains a cornerstone of the banker/customer relationship, as it does in other jurisdictions, the recent introduction of the Proceeds of Criminal Conduct Law highlights Cayman's commitment to deal only with bona fide clients.

Factors that have made the Cayman Islands the jurisdiction of choice for offshore finance also include a full range of professional services, from lawyers, chartered accountants and professional corporate managers, to other highly skilled specialists and service providers. The modern infrastructure is also attractive, including state-of-the-art telecommunications facilities and reliable utilities. A cooperative relationship between government and the private sector, together with social, economic and political stability also strongly appeal to the over 40,000 companies currently registered here.

In addition, laws and practices are continuously monitored and updated to ensure that the financial regulatory and supervisory framework remains at the highest international standards.

Recent efforts to enhance regulatory aspects have included the establishment of the Cayman Islands Monetary Authority (CIMA) on 1 January 1997, as a statutory entity responsible for the supervision of all financial services provided in the islands. The authority's banking supervision is strictly modelled on the standards set by the Basle Committee on banking supervision.

As an additional safeguard, only those institutions that are subsidiaries or branches of existing prime international banks are likely to be considered for the grant of a licence, except in rare circumstances. Subsequent to the grant of a licence, the authority maintains routine supervision of each bank, monitoring financial reports, conducting routine meetings, and performing on-site examinations. Similarly, trustees are required by law to be licensed by the monetary authority.In addition to enforcing the Banks and Trust Companies Law 1995 (revised) and other relevant statutory provisions, the authority subscribes to the “know your client” tenet, a legal requirement that all service providers practice due diligence in screening client activity. This coordinated effort results in effective and flexible regulation.

Financial service providers abide by a code of practice that details theparameters and guidelines within which practitioners should operate.

Modelled on provisions within the Proceeds of Criminal Conduct Law, aprogressive piece of legislation which criminalises the laundering of, or assistance in laundering, the proceeds of crime, the code of practice was developed and voluntarily adopted by Cayman's local financial community as an additional preventative measure.

The Cayman Islands have also in place a Mutual Legal Assistance Treaty with the United States and the United Kingdom, to set the rules and conditions for international cooperation in the fight against crime.

Confident in its regulatory regime, Cayman was the first jurisdiction to voluntarily open itself to inspection by the Caribbean Financial Action Task Force, the regional offshoot of the Financial Action Task Force. Its measures to combat international financial crime are recognised by the long list of prestigious institutions whose presence demonstrates continued confidence in Cayman's regulatory environment. British, Canadian, Swiss and US banks rub shoulders with household banking names from South America, Asia and Europe. Among these institutions, the investor in Cayman will find a complete range of retail, wholesale and fiduciary services.

Trust industry
Equally impressive is Cayman's trust industry, with the world's most respected trust companies handling private banking clients and corporate structures, the complexity of which was unheard of until relatively recently As a well established trust jurisdiction, Cayman is equipped to offer the most modern trust arrangements. The effectiveness of Cayman's trust legislation is a crucial aspect of this development, as borne out by the way trusts domiciled in Cayman have remained intact, even during recent significant test cases involving settlor's dependents in cases of forced heirship.

The best overall measure of Cayman's success is found in the first-rate financial centre that has developed around the banking and trust industry; it includes mutual funds, insurance, company and vessel registration and more recently, the Cayman Islands Stock Exchange.

International lawyers have increasingly been directing mutual funds, bond issues and captive insurance business to Cayman, secure in the knowledge that Cayman's professional firms have the capability to respond with a level and depth of experience unparalleled in the offshore world.

To transact business in the Cayman Islands, a prospective client will need to be introduced to a banker, who will ask for references which must clearly confirm previously existing relationships with onshore banking institutions. Cayman bankers will advise on what can be done here and what services are available, but they will emphasise the need to obtain competent tax and legal advice in the home jurisdiction. This is important and may be complex in nature.

For example, for any one seeking long-term wealth preservation, a trust may be the most suitable vehicle. The trust concept has its origins in common law and customers from civil code countries may have a number of potential conflicts to consider. Although the laws in Cayman provide clear direction on such conflicts, a full understanding of exactly what is involved is essential. Similarly, if one wishes to set up a Cayman corporation and have it managed by a local service provider, there are a number of key questions regarding directors, officers and ownership that need to be addressed.

The Cayman Islands Bankers' Association, to which all major banks and trust companies belong, was founded in 1979 and currently has 80 ordinary and 250 associate members. Its main objectives are to further the development of the Cayman Islands as an international banking and financial centre, to preserve the good reputation of the islands, to liaise on behalf of its members with government, business and other professional associations and to foster the education of, particularly, younger persons employed in the financial field. All members of the association adhere to a code of conduct, which ensures adherence to high professional and ethical standards.

Eduardo D'Angelo Silva has been the general manager of Sul America International Bank (Cayman) Ltd. since the opening of its office in Cayman in September 1994. He was elected president of The Cayman Islands Bankers' Association in August 1998.