From obscurity to offshore giant
Part 2: The freewheeling 1970’s
Part 3: Cayman develops as an Offshore Centre
Part 4: The Cayman Islands: From obscurity to offshore giant
Part 5 The Cayman Islands: From obscurity to offshore giant
The Cayman Islands: A decade of challenges
In the first of a series of articles looking at the development of the Cayman Islands as an offshore financial services centre, Alan Markoff looks at the decade of the 1960s, when the seeds of success first took root.
Legend has it that sometime in the 18th Century, a flotilla of ships wrecked close to Grand Cayman. Cayman Islands’ residents rescued the people on those ships, which included as their passengers some British royalty. To show its appreciation to the brave islanders, Britain decreed Caymanians would never have to pay taxes to the Crown.
Although there is no evidence proving the legend true, the concept of Cayman as a tax haven seems to span centuries. But even as recently as the early 1960s, the world seemed to know very little about the Cayman Islands.
No one here – or elsewhere – back four or five decades ago could have imagined that within the next quarter century, the remote British outpost known as the Cayman Islands would become one of the largest and most dynamic financial service centres in the world.
In the early 60’s, there was no telephone service in the Cayman Islands. Electricity did not extend to all districts of Grand Cayman. There was no piped water supply or sewage system. Mosquitoes were so thick at certain times of the year they suffocated cows. Many of Cayman’s roads were unpaved. There were few restaurants and shops and just the beginnings of a tourism industry, geared mostly toward scuba divers.
Put simply, the Cayman Islands was not a likely place for the makings of a world-class financial centre.
How it happened was not the stuff of legends, but the foresight of some innovative Cayman Islands residents, aided by the troubles of other offshore financial services centres.
Perhaps the most important decision impacting the future of the Cayman Islands was made in 1962, when Jamaica chose independence from the United Kingdom. At the time, the Cayman Islands was a dependency of Jamaica. Given the choice of remaining with the United Kingdom or going with Jamaica, the Cayman Islands decided to remain a British Crown Colony.
Troubled by the direction Jamaica seemed to be heading, a number of business people came to the Cayman Islands from that country, bringing with them money and expertise.
Others, like a young banker named Eric Crutchley, came over to the Cayman Islands from Jamaica as part of their training programmes.
Crutchley, who would later receive an MBE for his contributions to the development of the Cayman Islands financial services industry, was transferred from Jamaica by Barclays Bank to Cayman Brac in 1964.
Barclays, which became the first commercial bank in the Cayman Islands in 1953, was also the first bank with a presence in Cayman Brac. But the banking industry did not deal with international clients back then.
“It was just a country situation,” Mr. Crutchley said. “Most of the men were at sea. Really, the country depended on the allotments from the men at sea to support their families.”
With no telephone service in Cayman Brac at the time, communication between the island and Grand Cayman was conducted by Morse Code, which operated a couple of hours a day.
The working days were short because there simply was not much to do, Crutchley said.
“If we weren’t out of the office by 12:30, something was wrong.”
Crutchley only stayed in the Cayman Islands for 18 months initially, but when he returned about 20 years later in 1985, he found a place much different than the one he left.
In the period between late 1965 and through the end of 1966, several key things occurred that laid the foundation for the Cayman Islands becoming a financial services centre.
The Bank of Nova Scotia Trust Company (Cayman) commenced business in 1965 under the leadership of John Collins, becoming the first trust company in the Cayman Islands. The Canadian Imperial Bank of Commerce also opened a branch office on Grand Cayman that year, making it the third commercial bank in the Cayman Islands along with Barclays and the Royal Bank of Canada.
Late in 1965, Dr. Marco Giglioli arrived from London with a mandate to advise ways to control Cayman’s mosquito problem, a major barrier to economic growth.
By the beginning of the rainy season in 1966, the newly formed Mosquito Control and Research Unit had a vehicle-mounted fogger, which proved very effective in the localised extermination of mosquitoes. More were to follow, as well as the commencement of a dike system to flush swamp lands with salt water.
Another key event in 1966 was the improvement of the runway at Owen Roberts International Airport to allow the landing of jet aircrafts.
Two other important things also happened in 1966 that made Grand Cayman a more inhabitable place. First, Caribbean Utilities Company took over the generation, transmission and distribution of electrical power and Cable & Wireless launched the first telephone service in Grand Cayman. A year later, the company launched its Cayman Brac exchange.
Although there were bankers and lawyers in the Cayman Islands at the end of 1966, there were still no accountants. That changed in January 1967 when a young chartered accountant from the UK named Paul Harris set up the first accountancy firm on Grand Cayman for the London-based company Pannel Fitzpatrick & Co.
“They had a presence in Jamaica and they sent people over to Cayman when they were needed,” Harris said. “I convinced them to put me there instead.”
Harris set up shop in a one-room office in what was then called the Rembro Building on Cardinall Avenue in George Town. Next to him in a two-room office was a 40-year-old Cambridge-educated attorney named William S. Walker from Guyana.
“Bill Walker was really a founder of our financial centre,” Harris said.
One of Walker’s key contributions, with the assistance of a Canadian attorney named Jim MacDonald, was in drafting important legislation that allowed for offshore banking and exempt offshore companies.
In 1966 and early 1967, the government passed several key pieces of legislation, including the Banks and Trust Companies Regulations Law, important revisions to the Companies Law – first passed in 1960 – the Trusts Law and the Exchange Control Regulations Law.
But Harris said Walker was instrumental to Cayman’s fledgling offshore financial services industry in another way, too.
“One real contribution he made was in attracting all the clients,” he said, explaining that Walker had a lot of contacts in the UK because of his Cambridge education.
Harris said John Maples, who was a partner in a law firm with Jim MacDonald that later became known as Maples and Calder, was educated at Oxford, so between Walker and Maples, they had access to most of the influential business people in London.
Although Cayman was moving to improve its physical and business infrastructure, Harris said things were still very basic when he arrived.
“There were no air conditioners in the office, just fans,” he said. “But when you put the fans on, all the papers blew off the desk.”
His meagre office had no telephone, no telex and no electric typewriter. Still, some of the manual bookkeeping methods he set up for clients back in the 60s would be used for decades later.
Harris would become the secretary of the Cayman Islands Chamber of Commerce for eight years starting in 1967, two years after the Chamber was established. He would make more contributions to the development of the Cayman Islands as a financial centre in the 70s, especially when it came to the promotion of the jurisdiction to Americans.
In 1968, two more important developments occurred in the Cayman Islands. First, in August Cayman Airways was established when the government purchased a 51 per cent share in Cayman Brac Airways, which was owned by the Costa Rican airline LACSA. That same month, Cable & Wireless introduced telex services, which became a vital communications method in the Cayman Islands for almost 20 years. By the mid-1970s, it was said the Cayman Islands had more telex machines per capita than anywhere else in the world.
The framework in place, the Cayman Islands only needed to attract financial business. It was something that occurred in another jurisdiction that really provided the fuel for Cayman’s rise as an offshore financial services centre.
Trouble in the Bahamas
In the Bahamas in 1967, Lynden Pindling became the first black premier of the British colony when his Progressive Liberal Party won control of the government. At the time, the Bahamas was one of the well-established offshore financial centres. However, with the PLP’s rise to power came the winds of independence, as well as an increase in racial tensions.
The Bahamas did not go finally independent until 1973, but its financial investors and its offshore banking industry, already nervous because of the uncertainty, started looking to move to other jurisdictions from the late 1960s.
Attorney Tim Ridley explained to attendees of a conference in 1987 why the banks in the Bahamas started looking particularly at the Cayman Islands.
“Many of the banks licensed in the Bahamas had US parents and a jurisdiction in the same or similar time zone as New York, together with geographical proximity to the USA, was highly desirable,” he said. “The Cayman Islands, despite the mosquitoes, met the basic tests and, additionally, could provide the desired political stability, which no longer appeared a certainty in the Bahamas” and was an hour’s flight from Miami, USA.
There was an important element of this “flight capital” – as Paul Harris called it – that came from the Bahamas to Cayman: it was more North American based. Up until that time, most offshore business in the Cayman Islands was conducted with businessmen from the United Kingdom. That began to change in the late 1960s.
“The situation in the Bahamas… really attracted American business to Cayman,” said Harris.
The influx of American and Canadian business would set in motion a construction boom in the 1970s, which aided both the financial services industry and the tourism industry. The Cayman Islands was taking off.