Corporate Cash and Global Greed Frolic on the Sands of the Caymans
July 10, 2005 | San Francisco Chronicle
The sunny Cayman Islands, by the numbers, are quite a place. The Caymans (population 44,270) are the fifth-largest banking center in the world. More than 65,000 companies are registered there. Some 600 of these are banks and trust companies, holding external assets of $800 billion in U.S. currency — twice as much as all the banks in New York City have on deposit.
The draw, of course, is that there are no income taxes in the Caymans. (The islands raise revenue through import duties and stamp sales.) Neither is there much in the way of business regulation. And the Caymans’ Confidential Relationships (Preservation) Law keeps snooping governments from investigating individuals’ bank accounts or business portfolios.
To William Brittain-Catlin, a former BBC producer and reporter, the Caymans are “a slave to global capitalism.” Pressed to compete in the world economy, the islands found their niche as a tax haven, cleverly snatching up the post of leading Caribbean offshore destination after the Bahamas elected a socialist-leaning president in 1968. Since then, however, the Caymans have been battered by politicized reformers in rich countries, now eager to see their companies exploit the islands for economic growth, now in need of a political victory in the fight against the ugly graft that offshore centers hide.
And the graft is spectacular. Parmalat, an Italian dairy company, masked its growing debts using a Cayman-based subsidiary that had a completely fabricated $5 billion bank account. Enron hid money from the taxman in some 700 offshore partnerships, and raised cash to cover dot-com companies’ investment losses by using overvalued company stock to create Cayman subsidiaries. More darkly, Osama bin Laden financed al Qaeda’s operations with a labyrinth of offshore and onshore holdings spread through private banks, charities and businesses. Even Oliver North set up an offshore shell corporation to raise money for the Iran-Contra arms-for-hostages imbroglio.
Outrageously, legitimate businesses continue to use offshore havens around the world. “Most of the global heavy hitters have offshore networks of tax-exempt and low-tax regimes,” Brittain-Catlin writes; the biggest abusers are Fortune 500 corporations like IBM, Citigroup, Apple Computer, ExxonMobil and Wal-Mart. In 2002, U.S. multinationals had offshore holdings of roughly $639 billion in untaxed earnings.
What is needed is a good bit of muckraking to keep the pressure on policy makers to clean up this mess. If so, readers of Brittain-Catlin’s “Offshore: The Dark Side of the Global Economy” will be disappointed. The book relies heavily on press accounts and breaks no new ground on what actually goes on in the offshore world. Instead, it is a meditation on what Brittain-Catlin sees as the evil of global capitalism, which forces nations like the Cayman Islands to exploit themselves as tax havens to stay competitive.
At the heart of the book is a faintly Marxist attempt to recast human history as a dichotomy between the “onshore” — a metaphor for all that was once good, responsible and interconnected in society — and the “offshore” – – the greedy, underhanded, exploitative “secret realm” that exists at the beginning of the 21st century (think metro versus retro, although here the metro is the retro — the good old days when, apparently, no one cared about money). Thus Menelaus tamed Proteus and was rewarded with the Elysian Fields — “Menelaus’ great return home, or onshore.” The industrial revolution and the birth of modern capitalism was an utterly offshore moment, a fall from Eden even. Beethoven’s romanticism was onshore; Berg’s atonal modernism, offshore. Hegel: onshore. Bush: definitely offshore.
Not all readers will be so philosophically minded. They will stick to the stronger portions of the book, such as the discussion of the way modern companies divide their time between tax havens abroad for maximum earnings, and headquarters at home, close to the ear of a willing politician. Or the section on the Caymans’ Euro Bank scandal in the late 1990s, in which Brittain- Catlin shows real narrative skill. Britain, desperate for a victory against offshore fraud so that the Caymans could shake allegations of aiding criminals and get back to business, used an MI6 spy to gather information for a prosecution against Euro Bank. But the spook was revealed, causing a sensation that led to the defendants’ acquittal.
High jinks aside, the real question prompted by all this is how to keep companies and crooks from using offshore havens to avoid taxes, commit fraud and conceal crime. Brittain-Catlin provides no answers. He dismisses legislative efforts as ineffectual, makes no mention of how nations might use incentives to keep their companies from heading offshore, and generally sneers at would-be reformers for thinking that capitalism “could be preserved from its rotten excesses.” This is unhelpful. The market economy isn’t going anywhere soon, and the offshore problem needs fixing. Readers will have to look elsewhere for a serious solution.