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Banks called to question over Cayman tax dodge

Cayman – the bank’s main loophole?

Three times this week, I’ve come across dodgy dealings by banks in the Caymans to avoid taxation.

The first is the Portuguese Bank BCP, or Banco Comercial Portugues SA to give it its proper name.

In a detailed report in Bloomberg Markets Magazine, they recount the story of billionaire investor Jose Berardo who blew the whistle on the bank’s management team.

The accusation is that, from 1999 to 2003, BCP loaned €590 million ($843 million) to 17 companies based in the Cayman Islands that it controlled, without accounting for the debt on its books. The Cayman firms then purchased 5 percent of the bank’s stock to boost its value, falsely it’s claimed. This all backfired when BCP’s share price dropped, as did most Portuguese stocks, between 2001 and 2002.

The share price drop meant that the Cayman firms couldn’t pay back the loans but he executives at BCP allegedly disguised the bad loans as real estate losses, all of which inflated the bank’s earnings and propped up their flagging share price. Result: five executives received €24 million in bonuses that they didn’t deserve, according to the prosecutors.

This is all being contested by the management team, who have been ousted thanks to Senhor Berardo’s actions.

The second report came up when researching this week’s news about Barclays.

In a deal last September that sounds remarkably like the issues at BCP, Barclays sold off $12.3bn (£7.5bn) of toxic assets to a Cayman Islands fund which it created with 45 of its former staff. The deal is financed largely by Barclays and involved two of its top bankers, Stephen King and Michael Keeley, leaving to set up C12 Capital Management. They also took a team of staff from Barclays Capital with them to C12, and receive a $40m annual management fee from Barclays to run it.

What does C12 do?

Well, it’s based in New York but managing a Cayman Islands fund called Protium, and it’s Protium that purchased the toxic loans from Barclays funded by Barclays.

Finally, in this week’s Private Eye, the old Cayman question came up again.

This time Private Eye notes that one of the banks I like a lot, Nationwide Building Society, were embroiled in a tax issues with Her Majesty’s Revenue & Customs (HMRC) for the last five years, and it finally came to a decision at a tax tribunal last week.

The tribunal reviewed documentation which showed that the Nationwide used an elaborate scheme through ABN AMRO to gain a tax repayment amounting to some £15 million in 2003, by channelling funds through two Cayman Island companies called Bluewater and Blauzoom.

Nationwide has been arguing that the laws HMRC are using to require the £15 million be paid back did not work and, luckily for the Nationwide, the tribunal agreed.

Laws will be changed and Caymen to that!

Mind you, there’s always Costa Rica?

About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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  • Normally, these banks would not spill the beans over anomalies. But a court ruling and order would have them obliged to do so.