This is the script for my video posted on July 13, 2026. Watch it on TikTok.
You’ve probably heard that the Cayman Islands are a tax haven for the rich, and there’s a strong chance you’ve never heard anything else about them. But the Cayman Islands are far more important to geopolitics than you’re probably aware because they are the tax-neutral legal plumbing for the global financial system, with funds reporting roughly 16 trillion USD in total assets under management. So what impact do the Cayman Islands really have on the world around us?
The Caymans are a tiny set of low-lying islands just over a hundred miles from Cuba, and they were first sighted by Europeans in 1503 on one of Christopher Columbus’s voyages. He called them Las Tortugas, or The Turtles.
There was no indigenous population on the islands, but by 1530 they began to be called Caymanas, derived from an indigenous Caribbean word for marine crocodiles.
In 1670, after losing the Anglo-Spanish War, Spain ceded the islands to Britain under the Treaty of Madrid, and permanent settlement began in the early 18th century, mostly by British sailors, privateers, shipwrecked mariners, and deserters of Oliver Cromwell’s army in Jamaica.
For most of its history, the Caymans were poor. Turtle hunting was the main early industry until local waters were fished out. Legend says that in 1794, ten ships wrecked on the east end reef of Grand Cayman and local residents rescued the crews and passengers, with King George III rewarding Caymanians with permanent freedom from taxation and conscription because a prince was allegedly saved. The wreck and the rescue really happened, but the royal reward has no historical basis. It’s just a common story told to explain the territory’s tax-neutral status.
The truth is, the islands never introduced direct taxes in the first place, and they later turned that into a selling point, offering companies guarantees of no future taxation for decades at a time to compensate for their lack of natural resources. In 1863, the Cayman Islands were made a dependency of the British Crown Colony of Jamaica, but in 1959 the islands received their first written constitution that ended Jamaica’s legislative control, though the Jamaican governor kept a role for a few more years.
Then in 1962 when the West Indies Federation collapsed, they chose to remain a British territory rather than join an independent Jamaica. This was an incredibly important decision because it preserved British legal continuity, the common law system, and the Judicial Committee of the monarch’s own Privy Council as the final court of appeal for the islands, all of which laid the foundation for the islands to become a financial powerhouse.
In the 1960s, several laws were enacted to create the legal infrastructure for offshore banking and fiduciary services. A key driver at the time was that company registration fees would fund mosquito eradication and create jobs for sailors displaced by the changing shipping industry. But they didn’t expect that political strife in the Bahamas, another British territory at the time known for its financial benefits, would rapidly accelerate growth. By the end of 1976, there were already over 7500 registered companies and 126 banks and trusts holding nearly 22b USD.
In the 1980s, the Caymans developed a reputation for money laundering, particularly drug money from Latin America. And though the territory signed a Narcotics Agreement and a mutual legal assistance treaty with the US, its reputation as a criminal haven solidified into pop culture.
The 1993 Mutual Funds Law made the Caymans the leading domicile for hedge funds, and mounting outside pressure from bodies like the OECD and the Financial Action Task Force pushed the islands to build real regulatory institutions, like the Cayman Islands Monetary Authority and a new stock exchange, feeding into its status today.
As of the end of 2025, the Caymans host over 30000 registered funds, including more than three-quarters of the world’s offshore hedge funds. The Caymans are a British Overseas Territory with a Crown-appointed governor. The UK controls defense, foreign affairs, and internal security, and can intervene in a crisis, but most domestic matters, including financial services and taxation, are run by the elected local government.
The financial benefits of the British system have prevented any serious independence movement from forming, but there have been some conflicts. In 2018 the British Parliament passed the Sanctions and Anti-Money Laundering Act, which set up the power to force territories like the Cayman Islands to adopt publicly accessible beneficial-ownership registers, meaning they'd have to identify the real human beings who ultimately own, control, or profit from a company or legal entity. The EU at the time ruled that unrestricted public access to this information would violate privacy rights, and even after Brexit it runs a legitimate interest system instead where law enforcement and vetted journalists and researchers can apply to see ownership data.
About 2% of all financial activity conducted by multinational corporations around the world enters or exits the Cayman Islands today. By some contested estimates, the UK and its network of overseas territories together account for roughly a third of global corporate tax abuse risk, with the Caymans ranking second in the world on their own and linked to as much as 70 billion USD a year in tax losses. The Caymans and even some independent tax experts dispute those numbers, and the territory insists it is simply tax-neutral.
The Caymans’ economy is deeply dependent on financial flows with the US in particular. Typically, US-based hedge funds pool capital into a master fund that does the actual trading, fed by an onshore feeder in Delaware for taxable US investors and an offshore feeder in the Caymans for tax-exempt entities like pensions and endowments, plus foreign investors, shielding those investors from certain US tax exposure.
Chinese tech companies like Alibaba often circumvent restrictions on foreign ownership of Chinese companies by listing a Cayman-based holding company on the NYSE or Nasdaq that controls the operating company in mainland China through contracts rather than equity. US investors, for example, own shares in the Cayman shell company, not the actual Chinese business.
The Cayman Islands face a constant stream of legal and regulatory pressure globally, but because they sit under Britain's constitutional umbrella and there is simply too much money at stake, they rarely experience major disruption to the way they operate.
Keep reading
- Why does Jamaica help explain geopolitics?
- Why is tiny Luxembourg so important to Europe?
- How does South Africa’s history feed into its geopolitical dynamics?
I’m writing a book called Groundwork about the buried history beneath geopolitics. Join the waitlist to hear when it has a publisher, a cover, and a release date.