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One only hopes that William Brittain-Catlin doesn't have any money stashed away in the Cayman Islands. It's not likely he's going to win any friends or tax breaks there anytime soon.

Thanks to his enlightening new book called "Offshore: The Dark Side of the Global Economy," (Farrar, Straus & Giroux) he's done the world--if not himself--a service in showing how the rich become filthy rich thanks to offshore tax havens like the Cayman Islands, the Bahamas and Guernsey.

In describing Jean Doucet, for example, the Canadian banker who set out to build the Caymans' prestige, Brittain-Catlin writes: "Doucet was the offshore world's very own Renaissance man--banker, financier, playwright, filmmaker, poet. A man of action, not just dreams. The man who produced films like 'The Cayman Islands,' a feature-length documentary that had premiered to the sight of the 'Sterling Girls' posing in an array of catsuits and miniskirts designed by none other than Mrs. Doucet. So cool, different, modern. So unlike the dull tedium of life onshore, with soaring inflation, rising taxes and unemployment." Shortly thereafter, Doucet's name was linked to the mafia and his bank quickly faced a liquidity cricis. He eventually fled the islands and was never heard from again.

Brittain-Catlin is keenly aware of the clashing interests ripping at the fabric of Cayman society. In one passage, he describes a scene with a seven-year-old girl, celebrating the anniversary of the first sighting of the islands by Columbus more than 500 year ago.

"Little Dorritt was caught between freedom and control, like Cayman itself between the global market economy and colonial dependency on the United Kingdom," the author writes. "With this thought we can begin, if we want to look at hard enough, to glimpse the strange hidden space between capital and state, the secret realm at the ambiguous heart of Western modernity, the ever-kept secret contradiction between the individual and the authority of the law."

And hidden it is.

When he tries to unearth the "public" documents about which companies are registered in the Cayman Islands, he typically finds one or two printouts with hardly anything in them. Corporate sleuths looking for 10-K and 10-Q documents, like the ones typically filed with U.S. regulators, aren't going to find them in the Cayman Islands. Which is exactly the point.

But given his experience as an investigator for Kroll, now owned by Marsh, the world's largest insurance broker with a big presence in the Cayman Islands, Brittain-Catlin was in a perfect position to find out exactly what happened to these companies.

He does that, to a certain extent. For example, he uncovers some of the links among the 692 Cayman-based companies registered by the Enron Corp. and its former CFO Andrew Fastow, who engineered the energy company's notorious special-purpose vehicles, which allowed the utility to temporarily hide its losses from analysts and investors.

Unfortunately Brittain-Catlin doesn't go much beyond that which has already been published and sheds little new light on the Enron scandal and downfall of Long-Term Capital Management, a Cayman-registered Connecticut-based hedge fund that collapsed in 1998.

Brittain-Catlin rarely quotes people involved with the scandal-plagued firms, which indicates that he probably wasn't granted interviews with those involved. It's a shame, because given the author's investigative background, he seems to be just the person with the kind of expertise capable of breaking new ground.

Instead, the author digresses into an "ambitious meditation on the soul of capitalism," in the words of "Publishers Weekly," and exposes readers to his heavy philosophical musings on the nature of capital and state.

Because of this, he isn't likely to elicit much sympathy from insurance managers working for large or midsize companies desperate to bring their premiums under control. Better to skip those chapters entirely.

After all, the job of a corporate risk executive is to find ways to transfer as much risk as possible from one company to another, at the lowest price, even if that means going offshore.

At a time when health-care premiums are rising at a double-digit clip risk executives like Paul Cutler, treasurer of the energy concern FPL Group, which owns the Caymans-registered captive Palms Insurance Col Ltd., are desperate to keep costs in check any way they can.

How would Cutler or Mark Bennage, director of risk management for the food distribution company McLane Co. Inc. which owns the Caymans-registered captive RDM Insurance Group Inc., react to the following passage:

"Secrecy is the radical arm of privacy. It is what privacy becomes when it seeks a haven or refuge from the state to preserve itself. It speaks strong about freedom, rights, and the individual, but it is of course a front for capital, for private ownership and its control of resources, and for corporations that secure immense profits offshore."

This reads like great stuff for the academy, but it's hardly the kind of material likely to engage the Risk and Insurance Management Society Inc.'s faithful.

There's a cautionary tale in Brittain-Catlin's work, however, that ought to jolt every corporation with offshore tax shelters and captive insurance vehicles. It is this: When the veil of secrecy and privacy descend on the affairs of a corporation, it's time to worry.

The more a corporation retreats into the unregulated private world of secrecy and silence, the more likely it is to run into trouble in the long run. That alone makes this book worth reading for risk and benefit managers looking offshore for a panacea to rising premiums.

Management, shareholders and customers are better off when they bear the burden of complying with laws like the Sarbanes-Oxley Act and rules issued by regulatory bodies like the U.S. Treasury's Office of Foreign Asset Control or the Occupational Safety and Health Administration.

The Cayman Islands may offer the promise of tax-free returns. But they also expose companies to a state all too happy to comply with the wishes of the dictates of corporate clients.

This has left the Caymans, as well as other tax havens, with spotty records. In reference to the Parmalat scandal, for example, Brittain-Catlin writes: "There was Cayman again at the center of a monstrous fraud, the largest ever in Europe, an instrument of ruin in the collapse of one of Italy's largest industrial groups, the prospect of thousands of lost jobs ahead and billions of dollars in foreign investment scared off by a country unable to lose its reputation for corruption and lawlessness."

Among the tax havens, it should be noted that Cayman has, by and large, a decent reputation. Others, such as Turks and Caicos, don't fare nearly as well, as Brittain-Catlin points out.

Considering how far the Cayman Islands have come in 40 years, it's still a remarkable story. In 1963, cows wandered through George Town, Barclays was the only bank, there was one paved road. There were 8,000 people and no telephones.

Fast-forward four decades and the islands are now home to nearly 40,000 people, 580 bank and trust companies and an astounding 65,000 companies are registered on the islands, "one and a half times more than the current population," Brittain-Catlin wryly notes.

This achievement isn't lost on the author, and it makes for compelling reading. "Forty years ago the Cayman Islands were on the verge of economic extinction," writes Brittain-Catlin. "There was no room in the modern world for an island that made rope and caught turtles and whose wetlands prevented any agriculture. Today the standard of living is the highest in the Caribbean, surpassing the United States and Britain. There is virtually no unemployment. Only the beautiful alliance of capital and state has made this possible."

The Cayman Islands are today the fifth largest banking center in the world, with external assets of $700 billion. Those tiny patches of land, Grand Cayman, Little Cayman and Cayman Brac, are in a league with New York, London and Hong Kong.

How this came to be, starting with the launch of the Eurodollar market in the 1960s, is worth reading, if for nothing else than as a stunning success story in entrepreneurship. So, if you're looking for something to read on the way down to George Town for the annual meeting of the Cayman Captive Conference in December, put "Offshore: The Dark Side of the Global Economy," at the top of your list.

CYRIL TUOHY is managing editor of Risk & Insurance®.

October 1, 2005

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