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Cabinet Office: secrecy covenant included in fintech MoUs

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A secrecy clause was included in agreements the Government signed with fintech companies between 2017 and 2020 to keep their existence a secret.

The “covenant” was revealed after The Royal Gazette asked the Cabinet Office for a list of all memoranda of understanding between the Government and digital-asset or fintech businesses.

The public authority initially denied that it had any records of MoUs, insisting that they would be held by the Ministry of Economy and Labour, whose Economic Development Department took over responsibility for the fintech sector from the Cabinet Office in November 2020.

However, after Information Commissioner Gitanjali Gutierrez ordered it to rethink its decision, finding that it had not provided a “reasonable basis for transferring” the request for the records to another public authority, the Cabinet Office changed its stance.

Major Marc Telemaque, the Cabinet Secretary, wrote on April 10 to the Gazette: “A search was conducted for any fintech-related MoUs (not previously disclosed) and signed by the Cabinet Office on behalf of the Government of Bermuda between 2017 and November 2020.

“It should be noted that a term of MoUs from this time included the covenant that ‘confidential information means the terms and existence of this MoU’ and, as such, any record existing pursuant to this request would be exempt from disclosure under sections 25 and 26 of the [Public Access to Information] Act.”

The sections he referred to in the Pati Act allow records to be withheld if they contain commercial information or information received in confidence, but the legislation requires them to be disclosed if doing so would be in the public interest.

The Gazette referred the matter to the Information Commissioner’s Office.

A Cabinet Office spokeswoman said last night: “In 2017, the emergent use of blockchain technology created a fierce competition among start-ups. Jurisdictions were competing to attract this new business and to harness the promise it represented.

“The inclusion of terms like this would have been designed to protect the rapidly changing interests and business privacy of the entities engaged in these new business ventures. This arrangement is specifically contemplated under the Pati Act and is a recognised exemption because of the reality of business, especially with a public authority.

“It is important, in the interest of fairness and public understanding, to note that exemptions afforded under the Pati Act are not absolute; and as previous reporting notes, the existence of these MoUs has been disclosed and reported upon. The Pati request in question has been fully answered in accordance with the law, and any rights of a requester with respect to the initial decision provided are still able to be exercised.”

It was in late 2017 that David Burt, the Premier and Minister of Finance, first unveiled a plan to develop and encourage the growth of a fintech sector to give Bermuda a new pillar of economic activity.

There followed a flurry of staged photo ops, during which Mr Burt signed MoUs with various companies that pledged millions of dollars in investment and jobs for the island.

A memorandum of understanding is a non-binding agreement between two or more parties that outlines terms and details of each participant and their requirements and responsibilities.

Most of the agreements did not result in tangible outcomes.

The highest-profile signatory was Binance founder Changpeng “CZ” Zhao, who pleaded guilty in the United States in November to anti-money laundering and sanctions violations and agreed to pay a $50 million fine.

The Department of Justice said in a court filing last week that it was seeking a 36-month prison sentence for Zhao.

The EDD shared a list of six MoUs with the Gazette last March, and added a further two to the list last week, revealing for the first time the existence of two memoranda of understanding with Bahamian bank Deltec (see sidebar).

Table of fintech MoUs signed by the Government of Bermuda

The list showed that the MoU with Binance, the purpose of which was to “further the diversification of Bermuda’s economy and equip Bermudians to fully benefit from the development of new streams of economic growth”, was terminated on December 17, 2021.

An MoU with Omega One — the first firm to get a licence from the Bermuda Monetary Authority under the Digital Business Asset Act — was terminated on July 12, 2021.

Four other MoUs had no termination date but of the companies involved, only one is operating on the island: healthcare technology firm MAPay Ltd.

MAPay founder and CEO Michael Dershem said yesterday the company would celebrate its fifth anniversary as a Bermuda company on May 3 and was “currently aggressively looking to expand our local talent on the account management and technology development fronts”.

He said MAPay was still focused on the tenets of its MOU and on using Bermuda as a “microcosm for what is possible in digital, blockchain, AI in healthcare”.

Medici Ventures, a subsidiary of Overstock.com, and Shyft Network Inc signed agreements in April and May 2018, respectively, with the same purpose as Binance.

In April 2021, Overstock said it planned to exit its blockchain-related investments, as it completed a deal to convert Medici into a fund managed by another company.

Shyft Network Inc’s efforts to set up here were hampered by the pandemic and it appears to have done little more than register a company.

An MoU signed in June 2018 with B-Seed Partners, Finhigh Capital and BFS Holdings Ltd to launch an initiative called the Bermuda Fintech Accelerator did not get off the ground.

The Gazette’s Pati request sought records showing the number of jobs in the fintech sector and a list of fintech or digital-asset companies with a physical presence and staff on the island.

The EDD’s information officer initially said “no such record” existed for either category.

Last week, the officer wrote again, stating: “Regarding the number of jobs in Bermuda's fintech sector, as a department we had not kept track of that.

“There was no record or log, as requested. However, the Department of Statistics now does collect data relevant to the employment of Bermudians in fintech.”

The officer said the figures were shared in its recent FinTech Year End Report 2023 and in a statement by economy minister Jason Hayward.

Mr Hayward said last month that the industry employed 35 staff, including 20 Bermudians or spouses of Bermudians, and that 28 financial technology companies had been licensed here since 2017.

Companies licensed under the Digital Asset Business Act are listed on the Bermuda Monetary Authority’s website. Three on the list of 28 have been wound up — CrossTower, BlockFi and Bittrex — while Jewel Bank is not yet operating.

Mr Hayward said that 72 companies “engaged in activities related to financial technology” were listed with the Registrar of Companies.

Deltec MoUs revealed for the first time

A Bahamian bank that serves crypto companies and which came under scrutiny by American authorities amid an investigation into international money laundering signed agreements with the Government of Bermuda in 2020 and 2022.

The existence of the memoranda of understanding with Deltec Bank and Trust Limited and Deltec International Group, both since terminated, was disclosed by the Economic Development Department in response to a public access to information request.

Previously, David Burt, the Premier and finance minister, announced in March 2020 that Relm Insurance Ltd, which was owned by Deltec International Group, was granted a licence by the Bermuda Monetary Authority.

Mr Burt said then: “I am pleased that Relm has chosen Bermuda for its digital-asset insurance business. Insurance is one of the most sought-after services for digital assets and the choice of Bermuda as their domicile reaffirms our continued strong position in insurance and our developing position in fintech.”

In July last year, it was reported by Offshore Alert and, later, CoinDesk that the US Secret Service had executed several seizure warrants to confiscate funds from Deltec’s US accounts amid an inquiry, according to court papers, into “international criminal money-laundering syndicates operating cryptocurrency investment and other wire fraud scams”.

Deltec denied any wrongdoing and said it was proactively co-operating with a related investigation by the US Attorney’s Office for the Eastern District of Virginia.

A spokesman for Relm told the Gazette: “Relm was owned by Deltec International Group in March 2020.

“In December 2022, Relm was spun out from the Deltec International Group and is no longer part of the Deltec Group of Companies.

“Relm is owned by a Bermuda-based holding company with private ownership.”

Relm revealed in December 2022 that it provided insurance coverage to the US and Australian entities of FTX, the crypto currency exchange that collapsed, as well as companies compromised due to their relationship with FTX and the affiliated entity Alameda.

° This article was amended after Relm advised the Gazette that it was no longer owned by Deltec International Group, although its website stated that was the case. The company has now updated its website.

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Published April 29, 2024 at 8:01 am (Updated April 30, 2024 at 12:02 pm)

Cabinet Office: secrecy covenant included in fintech MoUs

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