From the Washington Post, 31st Aug 1991
By Steve Coll
GEORGE TOWN, CAYMAN ISLANDS -- On this sultry sliver of coral sand due south of Cuba, there are six traffic lights, 25,000 people and 540 banks holding $369 billion in largely secret deposits. Behind those statistics, residents say, lie a thousand tales of deceit, exile and fraud.
Whether those stories will ever be told is a story in itself.
In this British crown colony and tax haven, with an elected local government, it is a crime to discuss confidential business -- defined as matters learned on the job -- in public. It is also against the law to disclose financial records, bank accounts, transaction records or ownership files. Among the islands' 10,000 or so expatriates, nearly everyone seems to have a secret.
The question being debated in the islands these days is how long those secrets will be kept, and from whom. The U.S. government, concerned that the islands' banks have been used by drug smugglers to launder illegal profits, is pressing Britain to insist on greater openness and closer financial regulation. Cayman officials say substantial progress already has been made to satisfy Washington.
Now the bank scandal involving the Bank of Credit and Commerce International, which is accused of using a Cayman subsidiary as part of a multibillion-dollar fraud, is putting even more pressure on Cayman bank regulators.
The colony's bank inspectors did close BCCI's two subsidiaries here July 5 as part of an international seizure of BCCI operations coordinated by the Bank of England. But as details about BCCI's fraud emerge, it is becoming clear that the bank relied on its secretive Cayman subsidiaries to make improper loans that other arms of the bank might not have been able to hide.
The deal that got BCCI in trouble with U.S. authorities, for example, was its acquisition of Washington's First American Bank. In that transaction, BCCI disguised its ownership of First American shares by arranging loans to Middle Eastern front men by one of the bank's two Cayman subsidiaries, according to the Federal Reserve Board.
Cayman bank regulators argue that they should not be blamed for failing to detect carefully hidden fraudulent loans . They point out that they hardly were the only bank regulators fooled by BCCI. Nonetheless, U.S. bank regulators reacting to the scandal already are saying that more must be done to improve regulation and access to information in banking centers abroad like this one.
The problem regulators here face is that the secrecy laws are a key source of the islands' prosperity. Nobody in the Caymans, least of all the approximately 15,000 native islanders -- who lived in poverty before an influx of emerging multinational banks in the early 1970s -- wants to spoil a system that has produced one of the highest per capita incomes in the Caribbean.
The Caymans' bank laws have promoted a culture of secrecy that runs deeper than money. Lounging with young girls on the white beaches are ex-U.S. Air Force pilots with deep tans. When asked about their pasts, they admit only to running "some contract stuff" during the 1980s with a certain air cargo company that made regular flights to rural Honduras -- where the U.S.-backed Nicaraguan contra rebels were based.
There are American men who chuckle about how when their ex-wives back home reached divorce court, they found that marital assets mysteriously had been sold to a Cayman Islands corporation, beyond the reach of U.S. courts.
At the warm, breezy seaside restaurants, there are an inordinate number of older, well-dressed, well-tanned men with slender dates who appear to be only recently of age.
Then there is the story of the orange groves being planted on the east end of Grand Cayman, the only one of the three Cayman Islands that is heavily populated. The groves belong to Scandinavians associated with Tvinds, a self-described leftist humanitarian organization that collects old clothes in European cities and runs farms in different countries purportedly to feed the world's poor.
Some Tvinds directors apparently have chosen to move funds to Cayman banks, despite a notable lack of destitute poor here. Rick Catlin, a reporter who has written extensively about Tvinds for the Cayman Compass, the colony's only newspaper, said he has seen Tvinds officers carry briefcases with large sums of cash into banks. Catlin's reports, and also Scandinavian newspapers and television networks, allege that Tvinds executives here own a $500,000 beachfront condominium, a Mercedes jeep, several boats -- and now, scattered over valuable land on Grand Cayman, scores of orange groves.
The Tvinds officials have declined to explain.
Whether such mysteries will ever be solved depends partly on how the unfolding BCCI scandal plays out on the islands. Officials are anxious to dispel any impression that they sanction illegal activity.
Island bank regulators argue that the colony is thriving not because its secrecy laws shield criminals but because it has worked hard to develop a growing tourist industry and has served as an efficient, politically stable corporate tax shelter. Cayman companies and banks pay no taxes unless they buy or sell land.
The colony signed a mutual assistance treaty with Washington in 1986 that allows disclosure of information about Cayman bank accounts if U.S. law enforcement officials provide specific evidence of wrongdoing. U.S. bank regulators say the treaty is a good start, but not enough. Cayman regulators say they are moving as quickly as they can.
"I don't think there will be any changes in the way we regulate as a result of BCCI, mainly because it was fraud," said Jennifer Dilbert, the colony's deputy inspector of banks and trust companies. "We're not police, we're inspectors. . . . I think at this point in time, the correct infrastructure is in place."
Out on the sands of swank Seven Mile Beach, there are plenty of expatriates who could not agree more.