THE Cayman islands is a sun-drenched paradise where drug barons fly in for the weekend, armed with planeloads of dirty money to be laundered by hundreds of willing financial services companies who stash it all in tax shelters. That is the image you get if you read John Grisham's best-selling novel The Firm.
It's an image, which not surprisingly rankles a bit, with the Cayman's traditionally staid banking fraternity. "Sure," says one banker, "10 years ago a lot of dodgy monkey was coming in here, but the authorities cleaned their act up a lot and the situation is completely different now."
Residents on the island say Grisham's novel is the stuff Hollywood is made of, they then fondly recall all the locations which were used for the making of the movie.
But with the Cayman's reputation for being a tax haven and strict secrecy laws regarding the disclosure of financial information, combined with a minimal requirement to file financial information in the first place, it's not hard to make the leap from reality to Hollywood.
The Cayman Islands are a mecca for financial institutions. Of the top 50 banks in the world, 46 are resident in the Caymans. They include the Royal Bank of Canada, Barclays Bank and the Bank of Nova Scotia.
Mutual funds, the islands latest craze, has attracted some of the world's top names including ABN AMRO and Smith Barney, the second largest brokerage in the US. The fastest growing sector in the island's ever-burgeoning financial services sector, over 700 funds are now registered.
Captive insurance is also very active and Cayman now ranks second only to Bermuda in the global market. Almost 400 captive insurance companies, accounting for US $1.3 billion in annual premium income, have made the island their home.
The key to all this frenetic activity is not just the beautiful location just an hour and a half from Miami, deep in the warm Caribbean sea - but the fact that the Cayman Islands is what the financial advisers call a no-tax-jurisdiction. There is no corporate or personal income tax, land or property tax, profits tax, capital gains tax or inheritance tax.
All companies, whether resident or non-resident, have total tax immunity. Another attraction for businesses is that they have to file minimal details when they form an exempted company. For example, the register of members or directors and officers is not open to the public for inspection; only the names of the directors are filed with the Register of Companies - not the shareholders names. Such companies need not hold an annual general meeting.
Those doing business in the Caymans are bound by strict financial secrecy laws, a point made by former banker John Furze, whose name was linked to payments by Ben Dunne of $1.1 million into offshore accounts, and echoed by several other financiers.
"Switzerland has had cases where confidentiality was broken and the authorities here are determined that this will not happen here," says one banking source.
However, the same source stressed that there are provisions for co-operating with the authorities if laundering drug money, for example, is suspected. With all the financial activity taking place, it is unsurprising that company formations is doing a brisk business. There is an average of 3,000 new registrations each year.
The island has no unemployment - around 15,000 of the 30,000 residents are estimated to be Caymanian, the rest are foreigners. They come from 130 different countries and must have work permits. To get a job they must show they are engaged in work a Caymanian cannot do.
Foreigners are attracted by several factors - the year-round good weather, where the temperature averages 25 degrees centigrade; the superb diving and swimming facilities and the no-tax factor.
For its part the island's administration survives through indirect taxes. One Irishman living in the Caymans told The Irish Times that "we pay very heavy taxes you know". When suitable sympathetic noises were not forthcoming, he said that taxation on cars was 27.5 per cent. Average VAT is 20 per cent. The island has little or no industry - except for tourism - and so everything has to be imported. Tourists also pay a $10 levy on leaving the country.
The Cayman Islands does not really have a town centre. The centre is populated by tourist shops and financial institutions. Tourists are disgorged from cruise ships where they are often greeted by a brass band (this week's tune is Jingle Bells, as the sun beats down on visitors). They grab a quick lunch, look at some over-priced or keenly priced goods before heading back to the cruise ship.
Maybe John Grisham had it right after all? "Listen," said one long-time resident, "a few weeks ago, I moved $5,000 from one bank here, to another bank. You wouldn't believe the amount of questions it was asked. You'd think I was a criminal. Besides, there's lots more places and countries who are willing to launder drug money, besides the Cayman Islands," he added. "We don't need that kind of money anymore."