Op-Ed: Why Jeffrey Sachs is Wrong on the Cayman Islands

By: Caribbean Journal Staff - May 8, 2013

By Gonzalo Jalles
Op-Ed Contributor

COLUMBIA UNIVERSITY’S finest, Professor Jeffrey D Sachs, has exploded into print for the second time in a week with yet another withering condemnation of The Cayman Islands.  His preferred medium is, once again, the London-based Financial Times.

Last week, I criticized an article by Professor Sachs which appeared in the FT headlined, “Austerity exposes the global threat from tax havens.” This piece threw in the usual horror tales of drug runners, arms traders and terrorist groups which led me to conclude that the professor was more influenced by Hollywood movies than by hard facts.

Now, in his latest outburst, Professor Sachs claims “this house of cards (Cayman) is a mortal threat to the world economy,” but we are also treated to the notion that “a blow-up in the Caymans’ finances would make Cyprus’s crisis look like child’s play.”

For an academic, the professor shows a frightening familiarity with tabloid language and that concerns me as a fellow economist. The headline figures he quotes in his last letter to the FT do not reflect the true size of Cayman’s banking industry nor the completely different structure it has from Cyprus.

Professor Sachs needs to understand that a significant part of the banking assets registered in Cayman are US banks placing overnight deposits in their own Cayman registered branch. The money is effectively being transferred between accounts in NY and not being exposed to how a local banker in Cayman decides to invest it. That is the significant difference with Cyprus. If he doesn’t like it, then he should seek to change the US regulation instead of blaming Cayman.

What we in Cayman find odd is that Professor Sachs needs to cast his net so far when, sitting only 130 miles away from his ivory tower at Columbia University, is 1209 North Orange Street, Wilmington, Delaware.

That unassuming office in Delaware plays host to no fewer than 285,000 separate businesses.  To say that all of these businesses are paragons of corporate virtue would be stretching the truth to its breaking point.

However don’t take my word for this. We defer to Professor Sachs’ fellow traveler and high-taxation advocate, Richard Murphy of the Tax Justice Network. Mr Murphy was quoted (in the New York Times – June 30, 2012) saying, “Two million corporations are formed each year in the United States, more than anywhere else in the world. Delaware, in turn, is the biggest single source of anonymous corporations in the world. Why go to the Caymans when you can just go down the street?”

If Professor Sachs has an issue with corporations having registered offices in a different place than where their main operations are, I suggest he promotes an amendment to United States law.

Strangely, I have found it impossible to find criticism of the USA’s domestic tax havens in Professor Sachs’ oeuvre.

Gonzalo Jalles is the Chief Executive Officer of Cayman Finance.

Note: the opinions expressed in Caribbean Journal Op-Eds are those of the author and do not necessarily reflect the views of the Caribbean Journal.

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