I was catching a connecting flight to ultimately arrive at my destination — the Cayman Islands. A woman made small talk with me and she asked about my travel plans. I told her and she asked if it was for vacation or work. I told her work, and she became agitated and grumbled under her breath about money laundering. She asked what I did and I told her I have a startup business for servicing hedge fund companies. She forced a condescending laugh, shook her head, and motioned for me to stop talking with her.
(I work in anti-money laundering, but she didn’t appear to have the appetite for learning.)
There’s a frustration people have with the Cayman Islands. It’s the largest offshore jurisdiction for hedge funds in the world. People are under the assumption that the Cayman Islands represents dwindling tax revenues, making the rich richer and the poor poorer.
The frustration spills out into politics. Once upon a time I worked for the Maples Group, who operate in a building called Ugland House. Barack Obama once stated in a debate with John McCain that the 12,000 companies registered in that building imply it’s either the world’s largest building or the world’s largest tax scam.
There’s always a few misunderstandings I have to clear up when having conversations about what I do, provided the other person doesn’t have pronounced rudeness and shuts the conversation down like my aviation comrade.
The first is that money laundering isn’t tax evasion. There are perfectly legal ways wealthy individuals have to avoid paying enormous taxes, and money laundering is illegal. Money laundering is money derived from criminal activity, or going to criminal activity. Typically, money laundering involves terrorist financing, sex-trafficking, or drug cartels.
On this account, the Cayman Islands is the finest jurisdiction in the world. I was approached by American companies in Delaware asking us to apply the Cayman standards to their investments, even though they were legally compliant with local laws, ethically, they had zero interest in being complicit with criminal behavior.
Their standards for anti-money laundering (AML) are the gold-standard of the industry. Using our AML practices, last November I found some suspicious investors and discovered one of them had a history of sex-trafficking. My team took over the investigation and found several individuals involved, who went on to face justice because of the work we did.
Compare that to Canada, where sex-trafficking is on the rise. Our leaders are notably uninformed on the basics of finance. With the rise of fintech, cryptocurrency, online gaming, and online gambling, money laundering has become complex, while our uninformed leaders haven’t been able to negotiate reasonable AML practices from our financial institutions, attracting the likes of sex-traffickers.
Money in Canada isn’t clean. Meanwhile Canadians are happy to have moral indignation at the Cayman Islands.
For reasons I’ve never fully understood, some individuals are obsessed with governments maximizing their tax revenue. Governments spend their money on corporate welfare, giving our hard-earned paychecks to billionaires, spending it on fossil fuel companies, on military industrial complex contracts, and most-dreaded of all, they spend it on war. Sometimes, they spend it on good things.
For the sake of the argument, I’ll operate under the assumption that governments maximizing tax revenue is a good thing. I once assisted a green tech investment fund and they were investing in a company operating on the margins. If they had to pay their local tax rates, the company wouldn’t be operational.
The company was employing 50-100 people, each of whom had to pay income tax. Shareholders had to pay tax when the Cayman fund did its distributions. The company was itself doing good for society by innovating green technology. In that case, the Cayman investment was tax revenue positive for the local jurisdiction.
It’s incredibly difficult to measure the overall impact on tax revenues that the Cayman Islands has, there are subtractions and additions, unforeseen consequences and benefits, multiplier effects to take into account far beyond our economic modeling’s current capacity.
Money in the Cayman Islands is ethical money. They’ve chosen to abolish income and corporate tax, while at the same time maintaining the highest standards of ethics with their finances. As a result, they enjoy the fruits of capitalism. Other jurisdictions have uncompetitive tax rates with no ethical standards, and as a result, they face dwindling economies with the most egregious suffering of victimized people. The Cayman Islands have done well for themselves, and should be applauded rather than scoffed at.
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