A New Stash For Hot Cash

For decades Americans--as well as Canadians and Europeans--have avoided taxes on some or all of their income by placing money in "offshore" real estate developments, banks and other companies located outside the U.S. The principal headquarters for these outfits, many of which reinvest their capital in U.S. securities, has long been Nassau, capital of the Bahamas. It is listed as the place of incorporation for thousands of businesses that actually have their assets elsewhere. Suddenly, much of the world's offshore money--a lot of it hidden from homeland tax men or otherwise "hot"--is fleeing Nassau. Millions of dollars are landing in, of all places, the Cayman Islands, a British crown colony south of Cuba. Once a pirates' stash, the Caymans have existed for the past 300 years mostly by soaking up the Caribbean sun. TIME Correspondent Christopher Byron visited both Grand Cayman Island and Nassau and filed this report:

If you do not have the proper cab fare in Georgetown, the Caymans' capital, the driver will trustingly tell you not to worry, but just to pay him the next time you happen to see him. He is not as naive as he sounds. Since the capital's "downtown" consists of a few square blocks, and the rest of the island contains only four or five hotels, the visitor will almost certainly see the driver again. This casual attitude reflects a life-style that is bound to change as the Caymans undergo the boom, and probably a good deal of battering as well, involved in becoming a tax haven.

Two months ago, a beige five-story building occupied by a branch of the First National City Bank of New York opened on Albert Panton Street, towering above the simple one-story general stores and tiny grocery stands around it. A similar structure housing the Bank of Montreal will open early in 1973, and several other banks are building. In all, 83 banks now do business in Georgetown--33 of them have opened since July--which means that the Caymanians have one bank for approximately every 170 citizens.

"Devoid of Law." The banks are rushing in to service approximately 5,000 corporations registered with the local government. These firms operate by buying stocks through brokerage firms in Manhattan, London and other financial centers. As long as U.S. shareholders do not report the earnings from such investments to the IRS, they can escape--illegally--the taxes due on them. The islands' registrar is several months behind in processing companies' new applications, and planeloads of businessmen arrive daily on flights from Miami, Nassau and Costa Rica to file new ones. Aside from meeting a few rudimentary regulations, they are free to run their firms with no government interference. Says a recently arrived investment banker: "We like the place because it is suitably devoid of law."

It is also suitably devoid, for the time being at least, of the problems that are driving businesses out of the Bahamas. The black nationalist government of Prime Minister Lynden Pindling, which recently negotiated an agreement for full independence from Britain next July, is foundering financially, largely because of a severe drop in tourist revenues. Rumors abound that banks and trust operations, which make up the Bahamas' second largest industry, will be forced to bail out the islands by buying long-term government bonds. Pindling has denied any such plans, but investors are worried because of the atmosphere of heightening black-white tensions, declining real estate values and bad publicity (most recently in the Robert Vesco-IOS case). Says Alan Kimble, deputy manager of the $300 million Bahamas International Trust Co.: "You ask how's business, and I answer, what business?"

By contrast, native Caymanians, mostly light brown descendants of Scotch-Irish and black Jamaican settlers, are blessed with uncomplicated lives and, by Caribbean standards, fairly high prosperity. Many islanders work as sailors aboard foreign ships. The islands have no military service, no taxes and only elementary rules of land ownership. The government is run by a British Governor General, Kenneth Crook, and there is no apparent friction between him and native-born administrators. Indeed, the latter are eagerly accepting the new businessmen. "Oh, sure, some people say being a tax haven is just a gimmick," says Finance Minister Vassel Johnson, a Caymanian. "But you've got to look at the good side, too. We've got new banks and new buildings and jobs for everyone."

Johnson insists that the offshore money pouring into the Caymans is legitimate investment capital. Yet local authorities are hardly equipped to deal with the abuses--including crime--that inevitably follow fast and loose cash. There is not even an economist in the Georgetown government. "We have written away to the United Nations to get one, but we haven't heard back from them yet," explains Johnson. Real estate developers have plans for a deep-water harbor, a resort-marina complex and a forest of condominiums. In short, one of the Caribbean's last untouched spots is rapidly experiencing the uncertain joys of being brought up to date.

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