After Brexit, EU blacklists UK’s territory Cayman

From the Financial Times:

The Cayman Islands will join Oman, Fiji, and Vanuatu on an EU blacklist of foreign tax havens, making it the first UK overseas territory to be named and shamed by Brussels

We have lambasted Europe’s blacklists for years, which are based above all on political considerations. In particular, the EU does not seem to want to blacklist EU member states, or powerful countries or . . . any tax haven that really matters. At the time of writing, the list consists of these giants of global finance:

• American Samoa
• Fiji
• Guam
• Oman
• Samoa
• Trinidad and Tobago
• US Virgin Islands
• Vanuatu

The EU even has official excuses for this nonsense. For a more serious list, based on objectively verifiable criteria, see our 2018 Financial Secrecy Index (FSI) – Cayman is at number three, below Switzerland and the United States. The all new Financial Secrecy Index 2020 will be published next week – where will these three jurisdictions be? We can already reveal that there will be significant changes, up and down the index! (And some good news.)

In the tax haven world, Cayman isn’t a minnow. So this latest move by the EU, which needs to be confirmed by EU Finance Ministers next week, is significant.

We also expect, based on conversations we’ve been having, that the forthcoming blacklist will include the current eight, plus Palau, Botswana, Panama and Cayman. Turkey is a question mark. This is an improvement: in 2018, we reckoned that the EU’s blacklist targeted just 1 percent of financial secrecy services threatening EU economies: if our sources are correct, the new list would represent 7.3 percent. Or about one fourteenth of the total problem…

It’s notable, of course, that this comes just a few weeks after Britain’s formal exit as a full member of the European Union, and as it enters a transitional negotiation stage for final exit. Cayman and the British Virgin Islands, another British overseas territory, was already under review and on an EU grey list, (a classification that gives jurisdictions time to shape up). While it could be argued that Cayman had simply failed to address the specific technical criteria laid down by the criteria, there is no doubt that it represents, as the Guardian puts it:

a clear indication of [Britain’s] loss of influence on the EU’s decision-making

Britain has for years fought hard to protect the interests of the offshore financial industry in its Crown Dependencies and Overseas Territories like Cayman, and Brexit certainly weakens their positions. While TJN has not taken a position to support Brexit (far from it), we recognise that the EU’s new freedom to sanction recalcitrant British offshore jurisdictions, without British lobbying, is a positive thing.

The EU has made clear, repeatedly, that the UK will not be allowed to undercut it on financial and other regulations, and keep full access to the single market. While UK politicians may insist on their post-Brexit right to race to the bottom, and profess surprise at the unreasonableness of the EU position, the choice is stark. If Britain is determined to hold onto its grubby role as the master of ceremonies for the financial recalcitrants of its secrecy network, the UK and the City of London financial centre which derives so much wealth from these places will face some uncomfortable truths. Many Europeans don’t have much appetite for compromise, and even see Brexit as an opportunity.

In the words of Sven Giegold, a leading member of the European Parliament (and also, as it happens, a founder of TJN):

The time for special treatment of the UK is over. The British government’s attempt to give its London financial centre permanent and comprehensive access to the European financial system for decades is audacious. The EU will not let the decision as to which British financial market rules are compatible with European rules be taken out of its hands.

We’d fully support that. Interesting times lie ahead.