Kenneth Rijock

Kenneth Rijock

Sunday, December 20, 2015

CAYMAN NATIONAL BANK AND THE $5m FINE FOR FACILITATING US TAX EVASION


It is not so much the disclosure, by Cayman National Bank, that it faces a $5m fine, from the United States, due to allegations that two of the bank's subsidiaries engaged in facilitating tax evasion of American customers, as the way in which it publicly reported it. Read the complete text of the announcement, which was buried in the bank's Fourth Quarter Report, and judge for yourself whether the bank's attitude about breaking the law is disturbing. a portion of the statement has been reproduced here, with no corrections or editing:

" Like many financial institutions around the world, including others in the Caribbean, two of Cayman National's businesses, Cayman National Trust Co. Ltd. and Cayman National Securities Ltd., have been under investigation by the US Department of Justice (DOJ) with respect to potential violations of United States criminal laws relating to the evasion of tax by US taxpayers.

 The investigation focuses on mainly past wrong-doing by Cayman National Securities Ltd. and Cayman National Trust Co. Ltd. necessary remedial action within these companies is nearly complete, We have cooperated with the investigation as far as we are able, given the laws of the Cayman Islands...

As a result of our on-going discussions and negotiations with the US DOJ, for this present year reported, we will be obliged to accrue and expense of CI$5 million as a potential settlement amount. This amount is not yet reflected in the unaudited results for the year to 30 September 2015 reported in this announcement....
 
   ... the Board of Directors has decided that it would not be prudent to declare a dividend at this time. "

A few observations:

(1) The amount of the fine may be linked to the bank's net profits for the year, CI$5.6m, which is an increase of 68%, according to the bank. Perhaps the shareholders, who will not be receiving their dividends this year, as the result, will agitate for reform.

(2) Why are "necessary remedial actions" not complete at this time ? Obviously, those who engaged in this conduct must be terminated, but I fear that they were merely reassigned to another department or division.  And why is there no mention of changes to the Compliance program ?

(3) Stating that other banks have also been targeted sounds like the bank is seeking to place blame on the United States; I see no apology here, or anywhere else in print.

Read the above, and judge for yourself. It appears that the bank's statement infers not that it is sorry about its conduct in the matter, but it is sorry that its subsidiaries were caught.



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