Cayman Islands: Past and Future of Tax Haven
Our reporter/Du Wei
Published in the 962th issue of China News Weekly on August 31, 2020
Attorneys, accountants, and auditors with briefcases, suits and leather shoes can be seen everywhere, extended luxury cars are speeding on the road, and you can also witness guests attending charity events in private jets, tennis tournaments attended by high-level athletes, and ambitions. , Fortunately, the director of the company who lives in luxury hotels on weekdays... This is the Cayman Islands in the Caribbean. This is a scene recorded here by Uruguayan photographer Federico Estor with his lens in 2012.
In the 16th century, Columbus discovered this "New World" during his fourth voyage. The Cayman Islands was once a paradise for pirates, but now it has developed into the world's fifth largest financial center after London, New York, Tokyo and Hong Kong. Because of its preferential tax policy, it is called "tax haven". Estor found that the Cayman Islands today is similar to its history. Company executives and pirates do the same thing-find a good place to hide their wealth.
From pirate paradise to tax haven
There are leisure scenery of sun, beach, waves, modern office buildings and shops selling luxury goods, and there will be a pheasant call or two occasionally, tourists, financial elites and "modern pirates" coexist. In the Cayman Islands, you will have a complex feeling—the continuity of history and the separation of parallel worlds exist at the same time.
The Cayman Islands are located in the northwest of Jamaica, between Cuba and Honduras. When Columbus arrived by wind and waves, it was still deserted. Due to sparse population, the Cayman Islands quickly became a paradise for piracy in the 17th century. "Pirates are here to supply water, repair ships, and store the results of each battle." Estor said.
The Madrid Treaty of 1670 made Spain assign Jamaica and the Cayman Islands to the United Kingdom. The Cayman Islands were under the jurisdiction of the Governor of Jamaica. Until Jamaica declared independence in 1962, the Cayman Islands were directly taken over by the British Royal Family. British overseas territories. The takeoff of the Cayman Islands also began in the 1960s.
After Jamaica's independence, the British royal family transferred many businesses from Jamaica to the Cayman Islands. At the same time, after the Bahamas launched the independence movement in the 1960s, criminal gangs in the United States and other places also sought new destinations for money laundering operations. With the geographical advantage of being close to Miami and the loose management of the local government, the Cayman Islands became the best place for foreign investment. Choice.
Estor said that initially because the island was full of mangroves and swamps, mosquitoes were rampant, and the environment was not livable. But the influx of funds from the United States, Britain, Canada and other countries gradually changed everything. In 1966, the first bank in the Cayman Islands opened in George Town, the capital, and a mosquito control system was quickly established. Immediately afterwards, the airport and telephone network were built, and the first lawyer was welcomed on the island. William Walker became the founder of the Cayman Islands financial services industry. In 1972, the Cayman Islands promulgated a new constitution that stipulated tax exemptions for non-residents. Later, related laws stipulated that residents and companies of the Cayman Islands were not required to pay direct taxes such as personal and corporate income taxes, and only collected indirect taxes, which was a “tax haven”. The name comes from this.
Huge wealth from the United Kingdom, drug transactions and other suspicious sources of funds began to flow into the island. When passengers arriving by private jet arrive at the Cayman Islands airport, in an emergency, there will be a police patrol escorting the passengers and their funds to the bank. At the same time, more and more global companies began to register and set up offices on the island, and the hotel industry and real estate industry were booming. This former rural pirate paradise has begun to become a global financial service center, providing people all over the world with the luxurious services they have long been accustomed to.
Today, in this archipelago with less than 70,000 inhabitants, there are branches of more than 300 banks and 100,000 registered companies around the world. When I visited Estor that year, the total deposits on the island reached US$2.1 trillion. In 2007, the global financial crisis broke out, and this place became a high ground for hedge funds.
The ending of "blockbuster" will not be satisfactory
Estor went to the Cayman Islands because a socio-political and economic crisis broke out in Uruguay in 2002, and a large amount of funds fled. Estor’s grandmother’s life money was transferred to a branch in the Cayman Islands by the bank, and the money was gone forever. Later, the grandmother passed away and the grandfather gave a gold coin to Estor as a relic. Ten years later, in order to explore the past and present of the Cayman Islands, he sold the gold coin and exchanged it for a plane ticket to the Cayman Islands.
He stayed in the Cayman Islands for a month and saw all kinds of faces from all over the world. In general, apart from pirates, he can be roughly divided into two types: tourists and financial executives. He plays the role of a tourist during the day and ranks among the various important activities of the upper echelons of society at night. The locals account for only a small part, and they lead a peaceful life by the sea.
On the island, Estor feels more or less stressed and uncomfortable. People in the financial industry might walk out of the bank office at 4 in the morning and walk tiredly to the beach. Here, you can also meet the employees of multinational companies, the top rich, and the mafia leaders. "Every year, each company also holds a board meeting to deal with the adjustments and changes in the laws of the Cayman Islands. You can often see the darkest side of the richest group of people in the world." Estor said.
Companies in the Cayman Islands are very mysterious. Because most financial institutions do not advertise, but hide behind the glass mirror wall and strive to serve customers. Those multinational companies are also low-key, with more than 18,000 companies hidden in a five-story building. There are two main purposes for setting up branches here, one is to avoid tax, and the other is to bypass the higher domestic threshold to facilitate overseas listing. Estor believes that it is unfair for large companies to set up offshore companies to avoid taxation for the middle and lower-level citizens of their countries.
Life in the Cayman Islands is pleasant, from attending a cocktail party to traveling in a convertible luxury car, like a movie star, but in Estor's view, the ending of this "blockbuster" on the island will not be satisfactory. In 2019, the "Economic Substance Act" of the Cayman Islands was officially implemented, aiming to clean up the shell companies registered in the jurisdiction that did not carry out core business, and avoid them becoming a channel for cross-border tax avoidance. At present, more than 100 countries in the world have committed to implement common tax declaration standards to promote the automatic exchange of tax information between countries. "When I complete this project, I also hope to do my best to eliminate the unfairness and injustice in this world." Estor said.
China News Weekly, Issue 32, 2020
Statement: The publication of "China News Weekly" manuscript is authorized in writing