Is That What They Mean by Transparency?
By Ron McFadyen, CEO, Temple Trust Company Ltd.

TRANSPARENCY!
The latest “buzzword” in the offshore environs.
What does it mean?
And to whom?

According to Merriam-Webster’s Dictionary, transparency derives from Medieval Latin trans- + parere, to show oneself; fine or sheer enough to be seen through; free from pretense or deceit; easily detected or seen through; readily understood.

For those of us in the public fiduciary profession, transprency has long played an integral role in our relation with those we serve. As company managers and trustees licensed to serve the public, we are placed in a postion of trust. That trust is multi-dimensional. Those who convey assets to our care–contributors/grantors–must be able to trust in our intent and abilities to preserve and enhance those assets. We must, too, fulfill the terms of our fiduciary responsiblity as trustee to those parties who will ultimately share in the assets when our custody is ended –the beneficiaries. We cannot do these things without placing our trust in those very contributors, grantors, and beneficiaries to conduct themselves in a legal and proper manner.

So then, it is clear that transparency has existed in the provision of offshore custodial service from inception. To function properly, the parties and the services must be free from pretense or deceit, with communication between the parties that is readily understood. That is transparency.

There was a day when the easiest, perhaps only, way to get to your service provider was by fax, but “Long ago in a land faraway” is no longer the operative term of the offshore fiduciary. Improved transportation links and communications by optic cable, satellite, and Internet have made the world a smaller place. Technical innovation enhances our ability to maintain clarity in our communications with those to whom we have a duty. From clarity, comes understanding and from understanding comes the ability to trust.

But there are others who wish to be privy to the machinations of the offshore financial world and the people who conduct their financial affairs within that environment. They include the fiscal bureaucracy of the “mature” jurisdictions concerned that the base (income) for their revenue flow (income taxes) is secreted from their influence in the privacy of the offshore.

Let us refer to the OECD (Organization for Economic Co-operation and Development) as a representative body.1 There are also those who endeavor to fight crime by placing an embargo on the proceeds of that crime. Let us refer to the FATF (Financial Action Task Force) as representative of that initiative.2

Now, most may consider these incentives appropriate and necessary, but we need to be concerned when these initiatives attempt to transgress the privacy due individuals and impugn the sovereignty of independent nations. First, consider the issue of proceeds of crime.

In the Turks & Caicos Islands, legislation is in place3 providing mandatory reporting of “suspicious” transactions to the Money Laundering Authority. Let us assume the definition of “suspicious” is appropriate and the universe is unfolding as it should, i.e., only the crooks are prosecuted under the rules. Is there need for further reporting in the name of transparency at the expense of privacy of the individual when no crime has been committed?

Certainly, there are those who would take advantage of the freedoms afforded honest citizenry. But, that does not justify the suspension of those freedoms to all. The right of the individual to privacy in the conduct of his personal affairs is one of those basic freedoms. This area is ripe for confrontation as the two factions are posed in direct conflict. How far do you go? It appears from the latest review and reporting of the FATF, that the Turks & Caicos have gone far enough.4

What then of transparency in support of the fiscal process (the collection of taxes)? It is clear the OECD considers an environment based on financial confidentiality and bank secrecy to be contrary to the public good, offering a place of hiding for those who would avoid payment of taxes illegally.5 Inherent in their arguments in favor of transparency to assist in the collection of taxes are some basic presumptions.

Presumed that taxation provisions are fairly structured and applied–remember a tax on tea started a revolution, and the tax on the number of windows in buildings affected architecture–should those who brick up their windows to avoid the window tax be charged with tax evasion and incarcerated? Or should they simply be denied the warm sunlight shining through the window, having made their decision freely?

Presumed that tax avoidance and evasion are both inherently bad. In several instances, with alarming regularity, the fiscal authorities refer to tax avoidance and tax evasion in the same sentence, conveying a feeling that they are synonymous. This is hardly the case. In common parlance, evasion ignores the law, employing concealment to evade taxes. Avoidance uses specific provisions of the law to structure affairs in a manner that results in the least amount of taxes legally enforceable.

Without rendering judgement on the right to tax, if we but presume the activity to be avoidance, why then should we allow fiscal authorities to contravene the privacy of all individuals? This is basic to the TCI representative discussions with OECD representatives arguing maintenance of confidentiality in civil matters, including taxation. The Turks & Caicos Islands are opposed to the removal of privacy afforded the individual and his right to confidentiality in his financial dealings, assured in the TCI legislation. In addition to the confidentiality provisions of the Companies Ordinance 1981, the Confidential Relationships Ordinance 1979 makes disclosure of confidential information an offense with penalties (of fine and imprisonment) on conviction.

It is apparent to this writer that there are good arguments for abstaining from providing transparency in civil matters. If, however, for the good of civilization, we are to balance the rights of the individual with the good of the whole, we need tools to extract the “bad guys”. While we should assist in the global effort to establish and maintain good law and order, let us not cast the net too wide. Remember, the “bad guys” access information and use it to further their illegal activities. All countries, including the members of the OECD and FATF organizations, should ensure their field is level for play by all. Lest we forget, confidentiality and privacy by their nature are not bad, and there really are myriad good people out there who would be harmed by piercing their confidentiality.

1 http://www.oecd.org/about/

2 http://www.oecd.org/fatf/

3 The Proceeds of Crime Ordinance 1998, the Proceeds of Crime (Money Laundeirng) Regulations 2000, commencement date January 14, 2000, Turks & Caicos Islands.

4 FATFconducted its review of the Turks & Caicos Islands during the past several months and has not included TCI on its “blacklist” of jurisdictions potentially subject to sanctions, citing “The Turks & Caicos have a comprehensive system to combat money laundering with the relevant legislative framework and an established financial intelligence unit.”

5 OECD–Improving Access to Bank Information for Income Tax Purposes, Statement to the Media by Gabriel Makhlouf, Chair of the Committee on Fiscal Affairs, April 12, 2000. Extract: This report is not just about the taxman’s ability to collect taxes. The consequences of not being able to effectively enforce tax laws due to strict bank secrecy go beyond tax collection. The tax laws enacted by parliaments reflect economic and social policy decisions about the tax burden to be borne by taxpayers based on levels of income and types of income. The fact that some taxpayers may be able to successfully hide income and assets in banks in foreign jurisdictions that won’t disclose such information for tax purposes distorts the distribution of the tax burden intended by national parliaments.

Ronald J. (Ron) McFadyen, B.A., TEP, CEO of Temple Trust Company Ltd., is a member of the TCI Association of Licensed Trustees (ALiT) and the Society of Trust and Estate Practitioners (STEP TCI), and has held positions on the board of each association. The Temple Financial Group has a history of 25 years of service in the Turks & Caicos Islands. It encompasses Temple Trust Company Ltd., Temple Securities Ltd., Temple Mortgage Corporation Ltd. and Temple Asset Management Ltd.

Ron can be contacted at mcfadyen@temple-group.com or visit the web site www.temple-group.com.