Cayman and the US Campaign: An Interview with Richard Coles
Above: Georgetown, Grand Cayman
By Alexander Britell
While places like Virginia and Florida will mean the most to the upcoming presidential election in the United States, another location has been popping up disproportionately during the campaign: the Cayman Islands. Since the Republican primary season, Cayman has been at the centre of US media coverage of candidate Mitt Romney, relating to investments reportedly made by the former Massachusetts governor in the British overseas territory. But why has Cayman been mentioned so prominently, and so often? To learn more, Caribbean Journal talked to Richard Coles, the chairman of Cayman Finance, an association tasked with promoting the territory’s financial services industry, about Romney, President Barack Obama, and the frequent mention of the Cayman Islands in the US campaign.
How would you describe the frequent mention of the Cayman Islands during the current US presidential campaign?
“I don’t think we are surprised to find Cayman mentioned, because whenever the offshore financial industry is mentioned, the Cayman Islands is mentioned. We don’t take sides in the campaign, but knowing that the press has taken an interest in presidential candidate Mitt Romney, and his undoubted wealth, and what he does with it, it doesn’t surprise us that they have mentioned Cayman. And we have no problem with them talking about the hedge fund industry in Cayman, and the fact that apparently Mitt Romney has invested in certain hedge funds in the Cayman Islands. We have no problem with that — and we’re not particularly surprised about it. The only thing we are disappointed in is that once again the US press portrays that type of investment in hedge fund as being in some way illegal, in some way undesirable, in some way unpatriotic. And that is so far from the truth, and I believe they know that — but still choose to print it. So we’re disappointed that they continue with that line.”
What do you think is the root of this depiction?
“I would like to say it’s ignorance, because ignorance can always be excused, and you can always be educated. But I’m not sure it’s ignorance. It’s probably more a deliberate attempt to attack Mitt Romney as a presidential candidate, and they use the Cayman Islands. But of course, in trying to portray Mitt Romney as doing something unpatriotic, or, frankly, illegal or undesirable, it obviously, by implication, seems or attempts to show that the Cayman Islands fills those categories, and that is completely wrong. I can tell you that, whenever the US press mentions us [in this manner], we write and contact the mainstream press to point out that this is completely factually incorrect. But 99 times out of 100, they choose not to print those comments, from Cayman Finance, or indeed, from the Cayman Islands government. It’s disappointing, but not unexpected at this point.”
So what would you say in response to this portrayal?
“We say that the Cayman Islands is the home, the domicile of choice, of the hedge fund industry, home to 7,000-plus hedge funds which domicile in Cayman, and draw money from all over the world — the US, certainly, but plenty of other jurisdictions in the world invest through the hedge fund industry through the Cayman Islands. But there is nothing illegal in that. The individuals and corporations that invest in hedge funds in Cayman have to pay whatever their domestic tax is. They certainly don’t pay any further taxation in the Cayman Islands, but whatever tax is due in their home jurisdictions they have to pay, and that’s a matter for them to pay. And Cayman certainly does not encourage anyone not to do that. But the other thing is, the hedge fund industry, very often, invests back into the United States, by investing into US companies, and US government treasury bonds, so, in fact, the hedge fund industry and hedge funds in the Cayman Islands draw in investment capital from all parts of the world, and in many ways channel it into the United States. That is actually inward investment into the United States, whereas it’s always portrayed in the United States media as in some way capital draining out of the United States. Nothing could be further from the truth. In many transactions, the United States are the beneficiaries of overseas capital — by that I mean, from jurisdictions other than the US investing into the United States. So it actually benefits the United States. And that’s the message we’re trying to put out.”
What is the advantage of investing in Cayman, then?
“Well, I think the Cayman Islands are one of the originators for the hedge fund industry. We have been in that business for many years. And it’s a known jurisdiction to the investment professionals who invest there. And I should stress that hedge funds, certainly in the Cayman Islands, are for what we call sophisticated investors. In other words, they’re not for the man in the street trying to save a few dollars. These are for institutions, and large funds and large family offices who have large amounts of capital to invest and understand the risks involved. And they are very familiar with Cayman. We have a very strong legal system, which is, of course, based on the English legal system. We have a good court system, so if there is any problem, any dispute, there is a proper place that everybody understands. And I think it’s a great level of comfort that the industry is well run, well-regulated and understood internationally. That encourages investors and the industry to continue to use the Cayman Islands.”
In 2008, then-candidate Barack Obama referred to Ugland House, an office building in Grand Cayman, as either the biggest building or the “biggest tax scam in the world,” due to the number of companies registered there. How did the Cayman Islands respond to that charge?
“This is something that has been referred to many times, and that is an office that acts as the registered office of a number of companies, which is portrayed as being something outrageous by the US president at the time. But if he had really looked, he would have discovered that in the US state of Delaware, there are buildings with more companies than in the Cayman Islands. And, of course, that doesn’t mean those companies are operating out of that office, it just means that is their registered office, where the statutory books of the company are kept, and that’s all it means. You’d find exactly the same in London and in Delaware. But President Obama elected to use that particular building in the Cayman Islands, and it’s been trotted out many times since.”
What kind of impact does this portrayal have on the Cayman Islands?
“I think the impact it has on the hedge fund business coming to the Cayman Islands is negligible, because the people, the professionals, who do business with Cayman, know that is not the case. So I don’t think it has any impact on business. But it obviously has an impact on what people generally might think about the Cayman Islands, who are unfamiliar with the Hedge Fund industry and don’t understand. They think, well, maybe there’s something wrong going on in the Cayman Islands — which is not the case — so that obviously is disappointing. But it doesn’t affect business to the Cayman Islands.”