Treasure Islands - Nicholas Shaxson [62]
That is not all. The U.S. tax authorities often find defenses against some of the impacts of the worst offshore schemes. Yet a developing country, blind and inexperienced to the ever-deepening offshore complexity, is all but defenseless. As it slips further behind in the battle, its elites enjoy ever more opportunities for abuse, and local politics, and people’s faith in their own rulers, rot a little bit further. As this happens, the message from George Town remains the same: “Not our problem. Fix it yourselves.”
One of the more dramatic milestones in this ongoing dance between offshore center and onshore regulator came in 1976 when Anthony Field, the managing director of Castle Bank and Trust (Cayman) Ltd., was served with a subpoena upon arriving at the Miami airport, on suspicion that his bank was facilitating tax evasion by U.S. citizens. They wanted him to testify before a grand jury, but he refused.20 Fearing that Field would spill his clients’ secrets, exposing the Caymans to a major international scandal, an oppressive new secrecy law was drafted, the now infamous Confidential Relationships (Preservation) Law, making it a crime punishable by prison21 to reveal financial or banking arrangements in the Caymans. You can go to jail not only for revealing information but just for asking for it.
It was a giant, fist-pumping “fuck you” aimed squarely at U.S. law enforcement, and it has become a cornerstone of the Caymans’ success until the present day.
When the confidentiality law was enacted, Cayman practitioners remember cash literally flying in on private aircraft. “Money was still coming in large suitcases,” explained Chris Johnson, a veteran accountant. “People arriving with large amounts of money would get a police escort from the airport to the bank if they requested it.” It was happening all across the Caribbean. By the early 1980s, the Colombian Medellin cartel kingpin Carlos Lehder was smuggling industrial quantities of cocaine into the United States from Norman’s Cay in the Bahamas, having turned it into an ultimate male libertarian fantasy. One former Medellin cartel pilot remembers being picked up by naked women at the airport. “It was a Sodom and Gomorrah,” he said. “Drugs, sex, no police . . . you made the rules.”22 Lehder’s goons played hide-and-seek with the U.S. Coast Guard across Biscayne Bay, landing planes on U.S. interstate highways and leaving bodies strewn across Florida. As the cocaine flooded into the United States, money flew out again, in shrink-wrapped bills loaded on wooden pallets; the Cayman Islands monetary authority would then return it to the Federal Reserve. How, the Fed asked, could this tiny island selling trinkets to cruise ships send them such a torrent of money?
The drugs money was, at least, saving Britain’s development ministry tens of thousands of dollars in foreign aid. The authorities in the Caymans simply denied there was a problem and wheeled out the old offshore favorite: The scandals merely represented a case of bad apples, and the system had been cleaned up thoroughly ever since. When the next scandal came, the official response would always be the same.
Johnson remembers being involved in one bank audit where his company pointed out questionable activities, which the government simply ignored. “That, coupled with the leather-clad hot-panted secretarial staff strutting through the deep pile carpets in high heels, might also have been construed as a red flag,” he said. The bank failed two years later.
The fiascos, he added wearily in an interview in 2009 in his George Town