The Cayman Islands were colonized from Jamaica by the British during the 18th and 19th centuries, and were administered by Jamaica after 1863. In 1959, the islands became a territory within the Federation of the West Indies, but when the Federation dissolved in 1962, the Cayman Islands chose to remain a British dependency. Home for a varied population, with cultures from around the globe. About a third of all residents are non-Caymanians. Most are from the US, Canada, the UK and nearby Jamaica, although a total of 113 nationalities are represented.
The majority of Caymanians are of African and British descent, with considerable interracial mixing. The Cayman Islands’ annual population growth rate of nearly 5% is largely attributable to immigration of the 1992 estimated population of 29,700, only 64% were born on the islands. In contrast, few Caymanians emigrate permanently, although historically many left for extended periods to work as seamen and today many leave for education or training unavailable on the islands. The Cayman Islands have more registered businesses than they have people.
• Country name: Cayman Islands
• Capital Name: George Town (on Grand Cayman)
• Population: 47,862
• Nationality: Caymanian(s)
• Languages: English 95%, Spanish 3.2%, other 1.8% (1999 census)
• Ethnic Groups: Mixed 40%, white 20%, black 20%, expatriates of various ethnic groups 20%
With no direct taxation, the islands are a thriving offshore financial center. More than 68,000 companies were registered in the Cayman Islands as of 2003, including almost 500 banks, 800 insurers, and 5,000 mutual funds. A stock exchange was opened in 1997. Tourism is also a mainstay, accounting for about 70% of GDP and 75% of foreign currency earnings. The tourist industry is aimed at the luxury market and caters mainly to visitors from North America. Total tourist arrivals exceeded 2.1 million in 2003, with about half from the US. About 90% of the islands’ food and consumer goods must be imported. The Caymanians enjoy one of the highest outputs per capita and one of the highest standards of living in the world.
• GDP (purchasing power parity): $1.939 billion (2004 est.)
• GDP – real growth rate: 0.9% (2004 est.)
• GDP – per capita (PPP): $43,800 (2004 est.)
• Inflation rate (consumer prices): 4.4% (2004)
• Exports: $2.52 million (2004)
• Imports: $866.9 million (2004)
Financial Services Industry
The Cayman Islands are a major international financial centre. With the biggest sectors being “banking, hedge fund formation and investment, structured finance and securitization, captive insurance, and general corporate activities.” Regulation and supervision of the financial services industry is the responsibility of the Cayman Islands Monetary Authority (CIMA).
The Cayman Islands are the fifth-largest banking centre in the world; with $1.5 trillion in banking liabilities. They are home to 279 banks (as of June 2008), 19 of which are licensed to conduct banking activities with domestic (Cayman based) and international clients, the remaining 260 are licensed to operate on an international basis with only limited domestic activity.
One reason for the Cayman Islands’ success as an offshore financial centre has been the concentration of top-quality service providers. These include leading global financial institutions, over 80 administrators, leading accountancy practices (incl. the Big Four auditors), and offshore law practices.
Since the introduction of the Mutual Funds Law in 1993, which has been copied by jurisdictions around the world, the Cayman Islands have grown to be the world’s leading offshore hedge fund jurisdiction. In June 2008 it passed 10,000 hedge fund registrations, and over the year ending June 2008 CIMA reported a net growth rate of 12% for hedge funds.
Starting in the mid-late 1990s offshore financial centres, such as the Cayman Islands, came under increasing pressure from the OECD for their supposed “harmful” tax regimes, where the OECD wished to prevent low-tax regimes from having an unfair advantage in the global marketplace, and thus be harmful to the economies of more developed nations. The OECD threatened to place the Cayman Islands and other tax havens on a “black list” and impose sanctions against them. However the Cayman Islands successfully avoided being placed on the OECD black list in 2000 by committing to regulatory reform to improve transparency and begin information exchange with OECD member countries about their citizens.
The Cayman Islands had previously (briefly) appeared on the FATF Blacklist in 2000, although its listing was thought to be harsh, and was criticised at the time.
In 2004, under pressure from the UK, the Cayman Islands agreed in principle to implement the European Union Savings Directive (EUSD), but only after securing some important benefits for the financial services industry in the Cayman Islands. As the Cayman Islands are not subject to EU laws, the implementation of the EUSD is by way of bilateral agreements between each EU member state and the Cayman Islands. The government of the Cayman Islands agreed on a model agreement, which set out how the EUSD would be implemented with the Cayman Islands.
A report published by the International Monetary Fund (IMF), in March 2005, assessing supervision and regulation in the Cayman Islands’ banking, insurance and securities industries, as well as its anti-money laundering regime, recognised the jurisdiction’s comprehensive regulatory and compliance frameworks. “An extensive program of legislative, rule and guideline development has introduced an increasingly effective system of regulation, both formalising earlier practices and introducing enhanced procedures,” noted IMF assessors. The report further stated that “the supervisory system benefits from a well-developed banking infrastructure with an internationally experienced and qualified workforce as well as experienced lawyers, accountants and auditors,” adding that, “the overall compliance culture within Cayman is very strong, including the compliance culture related to AML (anti-money laundering) obligations.”
The Cayman Islands’ physical isolation under early British colonial rule allowed the development of an indigenous set of administrative and legal traditions which were codified into a Constitution in 1959. Although still a British Crown Colony, the islands today are self-governed in nearly all respects. The Constitution, or Cayman Islands Order, that now governs the islands came into effect in 1972 and was amended in 1984. The Cayman Islands’ political system is very stable, bolstered by a tradition of restrained civil governance, sustained economic prosperity, and its relative isolation from foreign policy concerns by virtue of its colonial relationship with the United Kingdom. Public discussion revolves around public sector expenditure and social services, the pace of additional economic development, and the status of the large foreign national community on the islands.
• Administrative divisions: 8 districts; Creek, Eastern, Midland, South Town, Spot Bay, Stake Bay, West End, Western
• Legal system: British common law and local statutes
• Constitution: 1959; revised 1962, 1972, and 1994
• Independence: None (overseas territory of the UK)