Jun 16 2011

Cayman: from obscurity to offshore giant

Posted by: Nick Shaxson in: Thoughts

For those few of us who are offshore history nuts (and boy, is there a lot still to uncover), there’s precious little research around on the subject (though there is some, notably this, and, more specifically, this, if you can get your hands on the material.)

For those interested in the emergence of the Cayman Islands as a tax haven/secrecy jurisdiction, the Cayman Financial Review has run a long and useful history of its emergence as a tax haven, parts of which I used as source material for Treasure Islands. The history comes in five parts, as follows:

Part 1 – The early years – the 1960s

Part 2 – The freewheeling 1970s

Part 3 – The Transitory 1980s

Part 4 – The Booming 1990s

Part 5 – Boom and Gloom in the 2000s

A useful historical account, with not excessive amounts of Cayman spin attached (such as calling the United States a ‘culprit’ for trying to get information from it about U.S. taxpayers).

All sorts of fine quotes such as from Financial Secretary Vassel Johnson, highlighting the historical attitude:

“We found that a system of confidentiality by statutory arrangement was essential for the purpose of strengthening the local operation because there were times when due to legal manipulation, foreign tax authorities could cunningly devise means of extracting the kind of information they needed,” Johnson said.

“Metropolitan countries seem to feel it is a form of dishonesty for offshore financial centres to maintain strict confidence in their financial operation, but the Cayman Islands view confidentiality differently: we treat it with kid gloves, for it is the prime support of the country, of promoting the tax haven business.”

And there’s this gem from Anthony Travers, former chairman of Cayman Finance:

“The key to the success of the legislation was my belief that the only effective regulatory mechanism with respect to the sophisticated institutional business that Cayman attracted… was a caveat emptor system, where full information would be filed with the Monetary Authority, but – provided investors were sophisticated – without the Monetary Authority needing to review the investors’ determination.”

Safeguards were included in the law that provided for full investigative powers by CIMA in the event of a problem with any particular fund.

“So to the responsibility of the Cayman government was managed by avoiding the concept of prudential regulation,” Travers said.

!

5 comments so far

[…] (various) – A history of the Cayman Islands as a tax haven . By Alan Markoff. Original here […]

Alan Hudson 6th June, 2011 4.28 pm

If readers are interested, my Ph.D. (1996, University of Cambridge) was an exploration of the relationship between globalisation and sovereignty looked at through the lense of the Cayman Islands and the Bahamas. Some stuff was published from that – referenced on my web-site or through google scholar.

Nick Shaxson 6th June, 2011 6.51 am

Thanks!
http://www.informaworld.com/smpp/content~db=all~content=a713780046~frm=titlelink
Any chance of getting a pdf of the original? I don’t have access to this database.

AlienEdouard 6th June, 2011 9.24 pm

As you note yourself, and repeat in TI, the Caymans’ business model has changed over the years ans the islands are now mostly involved in hedge funds domiciliation. The vast majority of the capital involved is institutional (or very to ultra- high net worth), and therefore regulated and taxed in the United States (or the rest of the world as applicable). Secrecy is largely irrelevant.

What is your problem with that? Any conspiracy theory to share?

Nick Shaxson 6th June, 2011 6.44 am

What I did in my Treasure Islands research was to actually talk to the people trying to enforce U.S. laws and tax policies, and what I learned from them was that despite Cayman’s efforts to spin its credentials (as it has done since the 1960s) the fact is that it has been hiding U.S. secrets – big time – and not co-operating in the way that is required. And although Wall Street is undoubtedly the biggest user of Cayman (bigger than the City of London), there are plenty of other countries whose elites use Cayman (among many other jurisdictions) to commit crimes. Why would Cayman cling to its notorious Confidential Relationships (Preservation) Law? Just for show?

To get up to speed on some of the ways you can evade tax through Cayman, take a look at this useful, if admittedly slightly out of date series, in Tax Notes.

http://www.tax.com/taxcom/features.nsf/Articles/35244A221EDD1BF7852573D00071118E?OpenDocument

http://www.taxanalysts.com/www/features.nsf/Articles/DE15FD6B5D167E0B852573CB005BB50C?OpenDocument

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