As deflation sets in globally from Europe to the U.S. there is one Caribbean British Territory that has become a tax haven and finance centre, the Cayman Islands.
In January ABC News reported how Mitt Romney has put millions of dollars of his personal wealth in investment funds set up in the Cayman Islands. The figure that was reported was a total of between $20.7 million and $101 million in a tax-exempt IRA accounts. Out of this report, it only represents a small amount in the total figure, indicating that It does not stop here.
In fact the IMF has discovered the global elite are holding a total of $18 trillion dollars in offshore bank accounts not including accounts in Switzerland. This is staggering when you look at the fact that in 2010 the U.S. GDP represented only $14.58 trillion dollars.
The reason for interest in places like the Cayman Islands is that the global elite are stashing their money in offshore bank accounts for the sake of privacy, and another reason being low taxation. This is where the term “offshore banking” derived and where banks now have essentially established themselves on Channel Islands “offshore” from the United Kingdom. Most of these banks are still located on islands today like Cayman, Bermuda, Bahamas, and the Isle of Man.
It is out of these offshore accounts that international banking transactions occur thus making them global financial centers. Of the the significant dollars in offshore account holdings, Cayman Islands represent $1.4 trillion spread across 138 different offshore funds. These international transaction fund accounts are managing, investing money and deferring the income for reinvesting of which are not getting taxed.
In addition to the offshore account holdings, there is a lower investment income tax rate being paid is why political candidates like Mitt Romney is spreading $8 million across 12 funds (such as Bain funds) all housed in the Cayman Islands.
Cayman Islands has been able to weather recent financial crisis of 2008 and early 2009 with their efforts in producing 100 new funds monthly. From total liabilities and assets held among the financial institutions, these figures have made the Cayman Islands the sixth largest international banking centre.
Cayman Islands status has come to their current standing through the presence of a stable political and economic climate, tax neutrality, responsive legal system, solid banking environment, sound regulatory regime, the absence of regulatory controls and the local presence of sophisticated service providers. These factors are in addition to Cayman Islands establishing itself as an overseas territory of the United Kingdom providing tax information exchange, law enforcement regulations all leading to the financial environment and status that exists.
In 2000, Cayman Islands in cooperation with the Organization for Economic Cooperation and Development (OECD) eliminated harmful tax practices and joined the Global Forum on Taxation. To further show their commitment to OECD, Cayman Islands signed a tax information exchange agreement, the European Union Savings Directive. This directive is a 27 EU member bilateral agreement in reporting to all the interest income earned by the EU citizens in Cayman Island bank accounts.
Since this time there have been numerous signings of other informational exchange agreements with G-20 or OECD, all modeling on the bilateral tax standard in negotiating of additional agreements. All of these agreements have enabled 22 countries like United Kingdom, Germany, India, Japan, South Africa, as well as others in their economic and financial efforts.
With the tax neutrality comes the banking standard of the Cayman Islands called the Cayman Islands Monetary Authority (CIMA) and is comprised of about 600 banks totaling nearly $500 billion in over 40,000 companies registered. These banks are separated in two classes of A & B which determine those able to carry out local and international trade business. B Class banks are restricted to offshore transactions for non-residents.
In 2011, the hedge fund investment groups of these banks reported in the first quarter 9,261 CIMA registered funds. With only a 2% or less decline in total funds over the last several years, Cayman Islands has established itself as a solid consumer confidence market for hedge funds even during difficult global economic events.
Although, the Cayman Islands is able to maintain its tax haven status it is not able to produce the amount of goods to sustain its population. Evidenced by the fact that 90% of consumable goods and food is imported. Despite the living standard challenge this represents, Cayman citizens still enjoy one of the highest per capita living standards in the world.
With the constant support of millions of dollars in economic wealth this is why the Cayman Islands have now become a global international financial centre.