Cayman Islands overview: Leadership, stability and resilience

By Joseph Tompkins, partner, Sidley Austin LLP

My perspective on the Cayman Islands is perhaps unique: I and my firm have served as US and international counsel for the government of the Cayman Islands since 1985. In that capacity, I have worked with six different governors, five different attorneys general, and dozens of other appointed and elected officials in the Cayman government. I have had the good fortune to be involved in most of the major policy and government initiatives that have affected the Islands’ position in the international community.

When I was asked to prepare this introduction to the Cayman Islands supplement for Managing Partner, I asked myself, “How can I best describe what I have observed during the past two decades in an accurate and concise way?” Three words came immediately to mind: leadership, stability and resilience.

Leadership

The Cayman Islands has been, and continues to be, a leader among offshore financial centres. When our firm was retained by the Cayman government in 1985, there were very few Mutual Legal Assistance Treaties (MLATs) between the US and other countries, and none in any offshore jurisdiction. In 1986, the Cayman government, with the assistance of the UK, became the first offshore jurisdiction to agree to an MLAT with the US.

At the time there was a great deal of concern, in both the Cayman public and private sectors, that being the ‘first one in’ would jeopardise the country’s financial position vis-à-vis other offshore financial centres. During one of the many meetings with the Cayman government officials that took place in our Washington office while the MLAT was being negotiated, someone asked the question, “Are we doing what is best for the Cayman Islands?” The quick response by one of the members of the Cayman delegation was, “It is the right time to do this, and it is the right thing to do.” The US-Cayman Islands MLAT became a model for future treaties between the US and countries all over the world and it was extended by diplomatic note to the other British-dependent territories within a short period of time. During the past twenty years, the Cayman government has assisted the US and other jurisdictions in literally hundreds of criminal investigations, prompting US attorney general Alberto Gonzales to praise the Cayman Islands for its role in combatting international crime at a ceremony in Washington, in May 2005.

This philosophy of being willing to do the ‘right thing’, even if it means taking some political and business risks, has characterised the Cayman Islands’ role in the international financial community during the past two decades. In 1996, the Cayman legislature enacted the Proceeds of Criminal Conduct Law, which was and still is one of the most comprehensive anti-money laundering statutes in existence. The Cayman Islands was the first Caribbean jurisdiction to voluntarily open itself to inspection by the Caribbean Financial Action Task Force in 2000. It was among the first jurisdictions to commit to mutually agreed arrangements for assisting the Organisation for Economic Co-operation and Development member states in tax matters. Following the September 11 attacks on the US, the Governor of the Cayman Islands was one of the first international leaders to contact the US government to volunteer assistance in attempting to find out who was financing the terrorists. These are but a few examples of the leadership role that the Cayman Islands has played in being a responsible member of the international financial community.

At the same time, its financial sector has grown considerably, so that today it remains one of the top financial centres in the world, with total bank deposits of over US$1.3tn, over 70 per cent of the world’s offshore hedge funds, and 45 of the top 50 banks licensed to do business there. Why has the Cayman Islands enjoyed this degree of success? There are a number of reasons, but one of the most significant is the second attribute I mentioned earlier.

Stability

During the past two decades, there have not only been new governors and new attorneys general. The locally elected members of the Cayman Legislative Assembly and the ministers who form the cabinet have also changed during the four-year election cycles. As in any free society, there have been disagreements among Caymanian political leaders regarding many social and economic issues. But what has remained constant is the high degree of social and political stability that is a hallmark of Cayman society.

This stability is due both to a strong private sector, which has some of the world’s leading professionals in the financial services and other industries, and also to the high level of professionalism and performance by the government’s civil servants. The key ingredient, however, has been the ability of the public and private sectors to work together in a way that should be the envy of most countries. It is this recognised stability that continues to draw investors, skilled human capital and businesses to the Cayman Islands, not to mention tourists.

Resilience

Finally, I must mention the resilience of the Caymanian people and the Cayman economy that I have observed. This has been shown in a number of ways, including the ability to survive downturns in the US and world economy, particularly after the events of 9/11. The most dramatic example, I think, is the response of the Caymanian people to the devastation of Hurricane Ivan, which struck the Islands in September 2004.

With sustained winds of 150 miles per hour, and gusts of up to 220 miles per hour, Hurricane Ivan caused US$3.4bn in economic damage over a two-day period, according to a United Nations task-force report. According to the same report, the per capita damage and losses in the Cayman Islands following Ivan were US$75,700 per person – the highest figure ever recorded for a hurricane. And this was just the economic loss, not the psychological or human costs. Despite this devastation, both the Cayman economy and the Caymanian people have remained strong, because of the determination and the resilience of the people affected.

I have heard dozens of accounts of how Caymanian businesses and individuals helped each other survive the impact of Hurricane Ivan and its aftermath, and recover from its effects.

The true measure of a person and a country is how they deal with adversity. The Caymanian people and government have shown beyond doubt their courage and their character, and it has been my privilege to watch and admire. I hope you enjoy this supplement.