Grand Cayman: In 1503, when Christopher Columbus discovered this remote island group between Jamaica and Mexico’s Yucatan, its only inhabitants were crocodiles, turtles, iguana and insects. He named it Las Tortugas.
It didn’t take long for Tortugas to become the most notorious pirate’s lair of the West Indies from where they preyed on Spanish treasure fleets sailing from Panama to Cuba – the legendary sea route known as the Spanish Main.
Sir Francis Drake showed up here in 1586 leading a fleet of 23 privateers (government-sanctioned pirates) preying on Spanish merchantmen. Four years later, Tortuga became the British colony of Cayman and so it has remained ever since.
When I first visited Cayman in 1970, it had only 10,000 inhabitants. There was one modest hotel for skin divers, the Galleon Beach. Dense storm clouds of bloodthirsty mosquitos made it impossible to go out of the hotel after dusk. Anyone who did so without a DDT smoke pot would be eaten alive.
Two things happened to change Cayman from insect hell to the world’s second most important tax haven after Switzerland, and the fifth largest banking center.
First, an intense mosquito control campaign and swamp drainage killed most of the island’s insects. Second, the British Crown colony adopted a no tax policy and removed any restraints on the flow of funds.
The New York and London principals of the West Indies port, land and shipping group for which I was working at the time sent me to Cayman to open up banks. I chartered three, including my favorite brainchild, the German-Atlantic Bank.
Would that I had stayed in the banking business. My principals had remarkable foresight. Forty-four years later, Cayman hosts almost 300 banks, insurance firms of every type, and over 10,000 hedge funds managing some \$36 billion in funds, as well as registries for ships and aircraft.
The population has grown to 56,000, nearly a third of whom are expatriate financial executives. The inflow of bank business has allowed life without personal taxes and a per capita income of \$47,000, giving Cayman the highest living standard in the West Indies. Over 50% of government revenue comes from the finance industry.
With its azure waters, beautiful beaches, fine hotels, well-regarded restaurants, highly developed communications and public infrastructure, Cayman is a paradise for tourists and finance.
By contrast, tax collectors everywhere hate Cayman.
The island’s ultra discreet banks are awash with hot money, particularly from Russia. In fact, almost every major business deal in Russia is run through either Cayman, Switzerland, or Cyprus (though it’s gone bust). This island is a world center for legitimate business but also financial hanky-panky and shielding money from taxes, angry ex-wives and lawsuits.
What makes Cayman so attractive is that it remains a British colony, meaning no revolutions or coups by wild-eyed fanatics. The island offers still largely impenetrable secrecy and a safe place for money. And, to quote Somerset Maugham’s wonderful description of Monaco, “a sunny place for shady people.”
Like London, Cayman pretends to be pukka British and totally legit, but not far behind the scenes it’s as rollicking a pirate stronghold as Tortuga and Jamaica’s Port Royal in the days of the famed buccaneer, Henry Morgan. Except that today’s West Indies pirates are called bankers and hedge fund managers and wear striped shirts and suspenders instead of bandanas and eye patches. Cell phones have replaces cutlasses.
But Cayman, like other tax havens, is now under heavy fire from abroad. Last year, President Barack Obama singled out Cayman as a major financial malefactor. Revenue hungry governments across the globe are closing in on Cayman.
The European Union, of which Britain pretends on occasion to be a member, is beating the war drums over Cayman’s tax haven paradise, but Her Brittanic Majesty’s government refuses to extend EU law to Cayman. Some gestures to control the flow of hot money are being made, but Cayman remains open for business at a time when many other tax havens are being slowly shut down.
Cayman has been a brilliant success story. Columbus and Drake would be proud. What a pity Cayman’s model was not emulated by Jamaica, which is near national bankruptcy and suffering 50% unemployment.