Treasure Islands - Nicholas Shaxson [63]
Johnson also pointed to something else. Company law statutes in the Caymans date back to English law as far as 1862—with certain democratic provisions removed. One of these carve-outs means that directors of hedge funds or mutual funds are often indemnified from litigation. “So you can’t be sued for negligence. Suppose I’m liquidating a fund and $200 million is gone. Why shouldn’t I be able to sue them? The directors are steering the ship, but when it sinks they can’t be sued.” Other sources indicate that the companies that provide directors owe no duty of care to the company or its creditors to ensure that the directors they provide perform their functions properly.23 No wonder directors and companies—not to mention fraudsters—love the Cayman Islands. And no wonder so many Cayman vehicles have come to so much grief in the latest financial crisis, as we shall see.
The era of suitcases of drug money flooding into the Caymans is pretty much over today. U.S. authorities began to ratchet up the pressure during the drug war, plugging some of the worst leaks. The lawyer Jack Blum explained what happened next on the Cayman Islands: “They say, ‘We don’t do that now.’ Each time they were exposed, they would clean up the thing that was exposed. They’d say things like, ‘We’re in financial deals now; we’re in insurance.’ You go back to Cayman today, and all the guys are in pinstripe suits.”
And yet the crime continues, in different, more sophisticated guises. In March 2001, the U.S. Senate Permanent Subcommittee on Investigations took testimony from a U.S. owner of a Cayman Island offshore bank who estimated that 100 percent of his clients were engaged in tax evasion and 95 percent were U.S. citizens. Dig beneath the Cayman Islands’ sunny spin today, and the incentives to mischief are easy to find. “Client privacy,” a government website notes,24 “is protected by the fact that the Registrar of Companies can only release the name and type of company, its date of registration, the address of the registered office and the company’s status.” You cannot find a list of directors of companies in Cayman, or even a charter that describes what a company is about, without going through a court battle. Trusts do not have to be registered—and there lies another very large and murky tale. The form and the context has changed, for sure, but at root Cayman still does what it always did: finds clever new ways to undermine the rules and laws of other nation-states.
As Britain set up its Caribbean offshore networks, it was doing something else far closer to the British mainland, in the crown dependencies of Jersey, Guernsey, and the Isle of Man. While the Caribbean havens project the City of London’s global reach to cover the North and Latin American markets, the Crown Dependencies are focused on Europe. Still, U.S. businesses are highly active here. The U.S. Government Accountability Office in 2008 listed Caribbean subsidiaries of Citigroup, American Express, Bank of America, Goldman Sachs, Morgan Stanley, JP Morgan, and Wachovia, among others. Most are in Jersey and involve private wealth management services for U.S. citizens in Europe, derivatives businesses, private equity, tax avoidance, and cash management. JP Morgan alone manages well over $100 billion worth of business out of Jersey just for private equity and real estate funds. Average