Floating on a raft of ambiguity: the Cayman Islands drift offshore, unsure of whether they want to follow the fecund currents of capital or set course for land and the relative safety of the state

Risk & Insurance, Oct 1, 2005 by Cyril Tuohy

This reads like great stuff for the academy, but it's hardly the kind of material likely to engage the Risk and Insurance Management Society Inc.'s faithful.

There's a cautionary tale in Brittain-Catlin's work, however, that ought to jolt every corporation with offshore tax shelters and captive insurance vehicles. It is this: When the veil of secrecy and privacy descend on the affairs of a corporation, it's time to worry.

The more a corporation retreats into the unregulated private world of secrecy and silence, the more likely it is to run into trouble in the long run. That alone makes this book worth reading for risk and benefit managers looking offshore for a panacea to rising premiums.

Management, shareholders and customers are better off when they bear the burden of complying with laws like the Sarbanes-Oxley Act and rules issued by regulatory bodies like the U.S. Treasury's Office of Foreign Asset Control or the Occupational Safety and Health Administration.

The Cayman Islands may offer the promise of tax-free returns. But they also expose companies to a state all too happy to comply with the wishes of the dictates of corporate clients.

This has left the Caymans, as well as other tax havens, with spotty records. In reference to the Parmalat scandal, for example, Brittain-Catlin writes: "There was Cayman again at the center of a monstrous fraud, the largest ever in Europe, an instrument of ruin in the collapse of one of Italy's largest industrial groups, the prospect of thousands of lost jobs ahead and billions of dollars in foreign investment scared off by a country unable to lose its reputation for corruption and lawlessness."

Among the tax havens, it should be noted that Cayman has, by and large, a decent reputation. Others, such as Turks and Caicos, don't fare nearly as well, as Brittain-Catlin points out.

Considering how far the Cayman Islands have come in 40 years, it's still a remarkable story. In 1963, cows wandered through George Town, Barclays was the only bank, there was one paved road. There were 8,000 people and no telephones.

Fast-forward four decades and the islands are now home to nearly 40,000 people, 580 bank and trust companies and an astounding 65,000 companies are registered on the islands, "one and a half times more than the current population," Brittain-Catlin wryly notes.

This achievement isn't lost on the author, and it makes for compelling reading. "Forty years ago the Cayman Islands were on the verge of economic extinction," writes Brittain-Catlin. "There was no room in the modern world for an island that made rope and caught turtles and whose wetlands prevented any agriculture. Today the standard of living is the highest in the Caribbean, surpassing the United States and Britain. There is virtually no unemployment. Only the beautiful alliance of capital and state has made this possible."

The Cayman Islands are today the fifth largest banking center in the world, with external assets of $700 billion. Those tiny patches of land, Grand Cayman, Little Cayman and Cayman Brae, are in a league with New York, London and Hong Kong.