Gordon Barlow

It's not just the British government that has gotten itself into a fiscal mess; it's colonies aren't doing too well either! Formally, we are the responsibility of the Foreign & Commonwealth Office FCO) in London, but it has other irons in the fire and its clerks sometimes take their off their children. It happens in the best of families!

A couple of years ago, Britain lost patience with the ineptitude of the local politicians in the Turks & Caicos Islands (a UK colony, as is Cayman), suspended the Constitution, and imposed direct rule from London. The situation there is only slowly getting back to normal. The same thing seems likely to happen to us any month now, for the same reason. For that to happen in one of the world's richest international tax-havens will be an extraordinary event. Well over half of Cayman's population are expatriates, including a few thousand Brits.

The subject warrants a special report on my blogsite, and I will get around to writing one shortly. Meanwhile, anybody who is interested in the situation might like to pull up my blogpost of 7th September, titled "A day late and a dollar short". Posts on 31st July and 8th August about our fiscal mess are also relevant.

Gordon Barlow

I've just posted a new item on my personal blogsite, titled "Cayman's political impasse". Interesting to those who follow our Islands' politics.

Gordon Barlow

The breaking news this morning is that our Premier has been arrested for (on suspicion of...) corruption. Whooh! A whole new game! It's much too early to tell how this will play out, but the most likely scenario is direct rule from London for the next two or three years. That's what happened in Turks & Caicos in similar circumstances.

Will our Offshore tax-haven survive? Probably, but nothing is at all certain these days. I will be writing an update on my blog in due course.

Gordon Barlow

Next week we elect 18 representatives (Members of the Legislative Assembly - MLAs) for the next four years, and the 18 will then elect a Cabinet from among their number. There are three teams of candidates plus a whole bunch of unaffiliated independents. Because of all the turmoil and drama of the past few months, it's anybody's guess who will end up in control of our tax revenues.

Britain's FCO is monitoring the action, but its clerks' attention wanders from time to time, and if there's one thing our local rulers excel at its taking advantage of the FCO's short attention-span. The bases of our prosperity ought to be safe, but the greed, corruption and incompetence of local governments elsewhere in the world remind us of sod's law: what can go wrong, will go wrong.

Those interested in Cayman and its future should keep a wary eye on developments. My blog will carry occasional reports, and our local web-forum Caymannews service.com will carry frequent ones.

Michael

What do you think of the latest from Cameron about overseas territorial tax havens that there should be transparency and pushes for international action to tackle tax avoidance schemes? Wouldn't that be the death of several of the British territories and crown dependencies if that occurred?

http://www.guardian.co.uk/politics/2...s-transparency

Gordon Barlow

It might do, if he meant it. The solution to international tax avoidance by UK companies is to change the UK tax laws by removing the loopholes. Ain't gonna happen! A blog-post of mine in January this year explains that everything that Offshore havens do is done with the consent of governments like Mr Cameron's.

Michael

He is in pickle. He needs international cooperation since there are many non British territorial tax havens so doing things independently for British territories won't accomplish anything other than hurt the territories. He also seems to be concerned about individual tax avoidance (illegal tax evasion) and new UK laws won't stop that unless tough penalties are enacted. Then there is a problem that affected territories may break away from the UK and become independent if it looks like their livelihood is threatened.

However there appears to be some cracks in the tax haven countries. I was very surprised that Switzerland signed on to the US FATCA reporting since that pretty much eliminates the banking secrecy that lures Americans to put money into Swiss bank accounts. Because of the size of the US, it appears that the Swiss didn't have much of an option except to sign on to FATCA since Swiss companies could be barred from doing business in the US if they didn't and companies such as Credit Swiss with it's First Boston subsidiary and UBS with about 37% of it's employees working in America (Payne Webber) would likely be required to be sold.

However with the Caribbean Islands, the US can't use the FACTA approach with too many since most don't conduct business in the US and unless US law is changed indicating that unless transparency is instituted in those islands, American companies can't setup SPV's or other tax avoidance schemes in those countries.

Gordon Barlow

1. New UK laws are in the gift of Mr Cameron.
2. UK territories that go independent lose most of their Offshore custom. That's why independence is off the agenda in Cayman's politics, despite all the bitching and moaning by the natives about Britain's bossiness.
3. You're quite correct about the Swiss banks' dilemma.
4. Actually, the Caribbean islands do a lot of business in the US, mainly advertising for US tourists whose custom is relied on for most or much of the islands' prosperity. And, in Cayman's case, most of our hedge funds cater overwhelmingly to US clients.

Michael

Actually FATCA can only restrict financial institutions from doing business in the US if the country or financial institution doesn't sign the FATCA reporting agreement. So if a country doesn't sign, the financial institution can sign and still do business in the US and non financial institutions are unaffected whether the country signs or not. The hedge funds are usually the SPV's and I suspect that SPV's and hedge funds are considered financial institutions.

I suspect the EU will try to do something similar to FATCA but will likely get a lot of resistance from some of it's members (Cyprus, Luxembourg, etc.).

Gordon Barlow

I have just posted an item on my blog about our May elections, but this is a quick summary.

Only the names and faces changed. Our MLAs (18 of them now, from 15 before - representing 18,000 citizens) never have actual policies: God forbid! Rather, they run on their personal qualities, good or bad. Their manifestos are just statements to the effect that the existing legal protection of ethnic Caymanians against competition from more experienced and better qualified expats will be strengthened. It's a shit-for-brains platform, but it works every time. The affirmative-action program is forty years old, and will likely be here for another forty. Sooner or later the rising expense of doing business here will destroy our economy, but the politicians are prepared to risk it.

Both parties and all independents in the recent election campaign swore to expand the government's reach even further (we're half-communist already), and to force local employers to hire more ethnics regardless of aptitude or attitude. Britain has forbidden any new long-term borrowing, so the only way the new government will be able to balance its budgets is to increase taxes.

A tax on salaries is increasingly likely. A property-tax will follow, then a tax on local companies, then... Who knows? Most of the expats I speak with think we have only another three or four years of prosperity left, which is sad to report. Much depends on how seriously Britain takes its colonial responsibilities from now on. Fingers crossed.

Gordon Barlow

Here is an excerpt from my latest blog-post, titled "More trouble in paradise". Cayman is a long way from being on its last legs, but many of us long-term expats are saying that the new set of MLAs represent the Islands' last chance. If they fail to get government finances in order, the present trickle of departures will become a flood.

Government’s financial mess has us all worried, who care what happens to Cayman. Certainly there are many, many more worried long-term immigrants than there used to be. Whenever two or three of us are gathered together, the mood is sombre. Collectively, we aren’t feeling as comfortable as we used to do about the economic future.

The loss of confidence among long-term expats may soon reach critical mass. The endemic xenophobia of a large portion of the ethnic Caymanian community is a large factor. It is oppressive, and there are no signs of its abatement. Despite some reformist mumbling in the six months since the last general election, nothing has changed. Political interference with the private sector’s independence will continue as far ahead as we can see. So will the anti-expat sentiment that drives our Islands’ immigration policy.

Let’s be honest about it. Public-sector employment will not be reduced: its heavy hand will not be lifted. State-owned enterprises will not be sold to private investors; state-operated services will not be outsourced. Corruption will not be curtailed; cronyism and nepotism will not be suppressed. The Public Debt will not be paid down to any significant degree; unfunded government pensions and medical expenses will stay unfunded. The rollover policy will come and go according to the whim of the moment.

Gordon Barlow

This post is not an update, really, because there are no new developments! My latest blog-post is on the topic of Privatisation, which is currently being talked about - although with no action likely any time soon. This last week the Compass newspaper has urged the politicians to get rid of their state-owned propaganda organs - the radio and TV stations and the state "news service" whose job is to make our incompetent and over-staffed government employees look good.

In my blog-post, I chose to urge the sale or winding-up of the state-owned Turtle Farm, which ever since its nationalisation decades ago has lost money on operations. The current losses are reported to be between ten and twelve million of our high-value dollars each year - but because no audited accounts are available the figures might be double that.

Britain is still monitoring our Public Expenditure, with a view to eliminating the need for further government borrowing. Some - not all! - of the abuses have been brought under control, but the wastefulness is still horrifying.

Gordon Barlow

It's not a "development" as such, more of a non-development, but privatisation is at least on the local agenda at last. Last month (June) I wrote a piece on the topic for my personal blog, selecting the Turtle Farm as the government operation most in need of privatisation but least likely to be done. For those BE readers who like to follow what's happening in Cayman, here is an extract from my blog:

This Turtle Farm is several things: a commercial farm, an endangered-species refuge, a tourist attraction with bells and whistles, and a zoo with a snack shop. It occupies a block of prime sea-front real-estate, which is the only thing that any private investor is likely to be interested in. All the operations could and would be closed down in a month, if private-sector standards were applied – but will almost certainly take a year or more using civil-service standards. Full privatization of all unnecessary government operations will take the best part of a generation.

Of course selling state-owned assets is a one-off fix at any time, and when bureaucrats are involved in the selling it’s an invitation to fraud on a massive scale. It’s how Russia ended up with so many overnight billionaire oligarchs. It created a few billionaires in Britain, too, during the Thatcher years. The amounts are smaller in Cayman, but there are plenty of bureaucrats and cronies panting for the chance to pick up government assets for cents on the dollar.

Gordon Barlow

A couple of weeks ago I created a special thread (q.v.) on the subject of the ferocious anti-expat outburst by one of our Cabinet Members, supported by our Premier and our ruling political party. There have been no new developments since then. The Islands' immigrant communities are still reeling from the openly anti-expat line taken by the ruling party, and it's highly unlikely that the party or any of its members will ever be trusted again by those communities. The "drift towards the exits" received a boost from the openness of the hostility, and longtime expats in general are re-examining their plans to spend the rest of their lives here. Sad.