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David MarchantEditor at OffshoreAlert
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Cayman Court Secrecy: A Huge Red Flag for Foreign Investors & Clients

August 08, 2018 by David Marchant

As any fule kno, the biggest enemy of fraud, corruption, money laundering, and other forms of financial crime is transparency, while their best friend is secrecy.

That's why the unprecedented mass sealing of cases that's taking place at the Financial Services Division of the Grand Court of the Cayman Islands is repugnant to anyone with a genuine concern for financial crime.Cayman Court Secrecy Growth Chart

Quite what Cayman Chief Justice Anthony Smellie was thinking when he decided it was acceptable to turn the FSD into the most secretive court system I've encountered in more than 30 years as a professional journalist is beyond my comprehension. Josef K. would be mortified.

For Smellie to deprive prospective and existing investors in, and lenders and clients of, Cayman-domiciled hedge funds and other types of companies the right to know about potential problems concerning their collective hundreds of billions of dollars is shameful and disturbing.

It's unworthy of a Third World jurisdiction, much less one that promotes itself as one of the world's leading international financial centers and number one for hedge funds.

Even during Grenada's notorious offshore banking crimewave in the late 1990s/early 2000s, when local lawyers, politicians, and even regulators shamelessly partnered with mainly US fraudsters to rip off foreigners who bought CDs offering 25% per month interest, I could still send a researcher to the local court and obtain copies of writs filed against them to help determine what was going on.

Not so in Cayman, which has set a new low for the judicial transparency bar. More than half of all cases filed at the FSD in recent months are completely sealed (to the point where the public would never know they even exist) and one-third for the year to date. The rate of sealed cases has been creeping up for years.

I should have seen the writing on the wall last summer when Smellie's Court took the ill-thought-out and misguided step of banning the copying of all court filings, a ban that was quickly overturned after OffshoreAlert publicly questioned its legality. Perhaps nursing a bruised ego, Smellie implemented Plan B just a few months later and it was even sillier than Plan A.

Unless this nonsense ends, Cayman will likely suffer significant financial, as well as reputational, damage. After all, what investor, lender, or client in their right mind would put money into a jurisdiction that doesn't allow them to do effective due diligence and doesn't want them to know about potential problems? It's nuts.

Footnote: Shortly after the above blog was published, an article about this topic appeared in the Cayman Compass, which is the jurisdiction's leading source of news. In that article, the Court provided provably false and/or misleading information about its secrecy practices, including claiming that, to quote the story, "only 3 percent of the financial cases in 2017 and 4 percent so far this year have been sealed". In reality, 16% of all FSD cases were sealed last year (i.e. are not publicly available in any way, shape or form), 33% this year, and over 50% in the last few months. The Court also claimed that "winding-up petitions are usually made public within 72 hours of their filing, after a judge determines that they have merit". Again, this is simply not true. OffshoreAlert has the number of every case that's been sealed since the FSD opened on November 1st, 2009. Copies of these cases had been denied us in the past but, as part of our recent investigation, we wanted to see if they had since become publicly available and, a few weeks ago, asked the Court again to provide copies of these cases. A handful were made available, and were taken into account in our investigation, but the overwhelming majority remain sealed months and years after they were first filed. The Court's claim that the sealing of winding up petitions is "a short temporary process", as it told the Compass, is not borne out by the evidence.

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