Not only is Europe’s debt problems bludgeoning the U.S. markets today, but the continent is also on the verge of dealing a huge blow to the hedge fund industry and its favorite tax havens.
Lawmakers in the European Union are close to passing legislation that would prevent European investors from putting money into a hedge fund domiciled in certain offshore tax havens. The proposal would create a “black list” of countries that would be off-limits to EU investors and the Caymans appears to be a prime candidate for the list.
As expected the hedge fund industry is outraged. By some estimates, nearly 80 percent of all U.S. funds have a registered entity in the Caymans.
"It would be pretty sensational if the Cayman Islands were on the black list, because then you would be closing the entire British hedge fund-industry," said one hedge-fund lobbyist, who asked not to be named.
To avoid the black list, countries must have regulations against money laundering and terrorism financing, a deal to share information with EU regulators, laws ensuring access for EU-based depositories and tax agreements with EU nations based on conventions developed by the Organization for Economic Cooperation and Development.