Thursday, November 24, 2011

Time for Cayman to take on Plan B?

Cayman News Service (CNS) has published a report on Monday, Cayman ‘let down’ by UK, looking at an official review of the United Kingdom and Cayman Islands relationship produced through a public consultation with the people of the Cayman Islands. The article says:
Among the many issues the review uncovered was the belief in the community that when the Cayman Islands came under pressure from the international financial community, it was let down by a failure on the part of the United Kingdom government to fully represent the interests of Cayman and protect them where necessary.
Richard Murphy comments, on the Tax Research UK blog, looking at an article on the same subject in the UK's Daily Telegraph:
So let’s get this straight. First Cayman thinks it will sink without support from the UK. I think that’s right.
Second, they think the UK should therefore defend Cayman’s right to run a tax haven that deliberately seeks to undermine the UK’s tax system and regulation.
And third they think the UK should support them both against people like me and internationally when that’s what they actually do.
Might the absence of logical flow in that argument have passed them by?
I think so ... But I will support their bail out – on condition the tax haven is swept away. But that will be the pre-condition.
Now in this context let's look at another issue revealed in the review that considers the "captured state" scenario:
"An improved relationship is likely to require a process of mutual education, with the United Kingdom and its people needing to learn about and better understand the various Territories and their distinct features; as opposed to a one-way process where the people of the Territories merely had to come to terms with what the United Kingdom prescribes.”
And then:
"The committee found a significant contradiction in the community, with a desire for more control for Cayman to govern itself but at the same time more checks on the potential excesses of those elected to office and the administrative arm of government...
When it came to good governance, the report says that the community welcomes and wants greater transparency and accountability from its government.
Er ..., so we are hearing, "transparency and accountability"? So the local people of Cayman are in favour of those principles, apparently.

The report goes on to say:
The review heard calls for more stringent application of anti-corruption laws and increased checks and balances to be enshrined in the constitution because, the public said, even the perception of corruption is potentially damaging, not least because this can deter investment and inhibit development.
And makes a crucial point:
When it comes to economic development, the report reveals there are suspicions of the concessions provided to the so-called “big names” and there was a call for more support for small business and innovation.
This latter point speaks of the "crowding out" issue that TJN has been speaking about, such as here.

Next, as Nick Shaxson's Treasure Islands says:
"the political bedrock underpinning the world’s fifth biggest financial centre is Britain’s role. If Caymanians gained full control, most of the money would flee."
Now compare that with this, from CNS:
"The report also found that people believe the relationship with the UK creates an image of stability for the financial services industry and there were concerns that steps towards the independence of the Cayman Islands would almost certainly result in a major loss of confidence in the sector."
Exactly. Britain bears a huge and central responsibility for the financial abuses run out of Cayman.

TJN is aware from quite a number of sources that there is discontent within local populations of island nation tax havens at the wealth gap between fat cats who profit most from the havenry business, and the majority of local people who feel squeezed out of economic opportunity while the trickle down effect of revenue from financial services is minimal.

A recent paper by Dr Mark Hampton (University of Kent) and TJN's John Christensen explores the development options for small island tax havens in the light of sustained international initiatives against offshore secrecy. Titled "Looking for Plan B: What Next for Island Hosts of Offshore Finance" the paper explores the extent to which small island economies (Jersey is used as a case study) are able to shape their destinies in face of extensive state capture and limited development options.

For more information on the history of the Cayman Islands as an offshore centre, see here and here.

In light of all the catastrophes that are happening around the world, everyone seems to be looking for a Plan B. Cayman is no exception.

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