An offshore bank is suing the Cayman Islands government for the return of a mysterious $2.5m (£1.72m) payment related to obtaining its banking licence.
Recently filed court documents refer to the payment as a "mistake" and show that lawyers acting for the Euro Bank Corporation are seeking "repayment by the Crown of the sum of $2.5m paid to the Crown under a mistake or otherwise". Speculation on the islands is that the payment relating to the acquisition of a banking licence which costs only $150,000 was, at best, irregular. The Cayman Islands is among the jurisdictions facing pressure to reform from international groups including OECD and G7.
It was on the Financial Action Task Force blacklist in June 2000 but the CI government has improved the anti-money-laundering legislation and toughened regulation and CI is no longer on the list.
The Cayman Islands is a UK Overseas Territory still technically run by the Crown. It has no direct taxation and 580 banks, 516 licensed insurance companies and 45,000 registered companies ostensibly to serve a population of just 38,000.
As elsewhere in the Caribbean the crackdown of dubious banks has proved embarrassing for the CI government. In this case the Euro Bank Corporation, then a class B bank, obtained a rarely awarded class A banking licence in October 1997.
But in 1999 the bank was forced into "voluntary" liquidation by the CI government as part of their tough stance on financial regulation. Government regulators acted after the bank was caught up in a US investigation of a credit card fraud involving one of Euro Bank Corporation's clients, Kenneth Taves of California. Three of Euro Bank Corporation's officers, Brian Cunha, Ivan Burgess and seven other individuals are facing trial. Details of the mysterious payment came to light when liquidators Deloitte & Touche (Cayman) issued a lawsuit last month. The documents do not explain what the $2.5m was for.
David Marchant, the publisher of the Miami-based Offshore Alert newsletter, said yesterday: "The questions that scream to be answered are, 'Why did Euro Bank Corporation pay the Cayman Islands government $2.5m when the total fees for a class A banking licence are only $150,000 and where did the money go?'"
He added: "Also, the litigation suggests that Euro Bank Corporation was supposed to receive an unspecified benefit from the Cayman government as consideration for this payment. What was this benefit?" The complaint says that, in return for the payment, the Cayman government was supposed to do unspecified things for the bank that then never happened.
The nature of the payment and the "consideration" is expected to be made public in the next month. Mr Marchant said: "If the Cayman Islands truly wants to become a more transparent jurisdiction, as it has indicated, this secretive payment to the government would be as good a place as any to start."
* The trial subsequently collapsed and all the defendants were acquitted.Reuse content