Olympus Brings The Cayman Islands Into Global Focus Once Again - Time To Reflect On Weavering!

"It is the Directors' duty to satisfy themselves that the overall structure...was consistent with Cayman Islands industry standards.." - Jones J in Weavering Macro Fixed Income Fund Limited (in Liquidation) v Stefan Peterson & Hans Ekstrom 2011

The reports in the press have covered the continual unravelling of the camera giant Olympus Corp., exposing what is alleged to be many years of misrepresentation, dishonesty and fiscal mismanagement. The recent admission that three of Olympus' top executives in Japan colluded to hide losses from investors, which has resulted in the firing of its Executive Vice President over his role in covering up the losses along with the company's former Chairman and with every indication that its auditor will also step down.

The press however, has taken particular issue that Cayman companies were utilised in the apparent well well-orchestrated mismanagement and less than transparent actions of the Olympus' directors and officers. Perhaps forgetting that the role of the Cayman Islands companies in this saga, could easily have been filled by onshore companies in London or Delaware, with the same outcome. After all it is less about the company, which is nothing more than an inanimate vehicle, or its location, and more about the mind and management behind the company.

Cayman's renowned financial infrastructure for hosting international business has, in fact, never been better! Its ultimate vindication came in November, when the Financial Stability Board (a supranational body which includes amongst its membership the Organisation for Economic Cooperation and Development (OECD) and the Committee on the Global Financial System) made the finding that Cayman has 'sufficiently strong' regulatory and supervisory standards when it comes to cooperation and information exchange on the global stage1. Territories were assessed based on their frameworks for the implementation of:

The Basel Committee on Banking Supervision's Core Principles for Effective Banking Supervision; The International Association of Insurance Supervisors Insurance Core Principles and Methodology; and, The International Organization of Securities Commission Objectives and Principles of Securities Regulation. In that same month the G20 also cleared the Cayman Islands of the long standing myth of 'tax haven' status. In their recently published list of 'tax havens', Cayman was excluded, whilst jurisdictions such as Liechtenstein appeared on the list. This is an interesting and no doubt unwelcomed development for Liechtenstein, fighting to become a player in investment funds. Furthermore, Cayman has held its A3 rating by Moody's whilst competitor jurisdictions such as Guernsey have been downgraded and lost their A3 credit rating2. There is nothing to gloat about here as these are unprecedented times.

All that is needed to do legitimate business efficiently and effectively is available in the Cayman Islands and the Cayman Islands financial industry continues to rival those of its competing onshore jurisdictions and retains its edge.

Olympus' biggest shareholder demanded the resignation of the investor relations head, who allegedly assisted with the funneling of inflated advisory fees to the Cayman company and after his resignation, "the rest of the board must follow". The rationale for the shareholder's statement is logical, "Even if they didn't know how the specific details of where payments were going and exactly why, they knew that cash was going out the door and they also failed to raise their hands to ask questions3,"

Although all the facts on Olympus have yet to be gleaned, the comment made by its main shareholder regarding the directors' obligation seems a valid comment. In this regard it is worth reflecting on the judgment in...