Cayman Islands

02 Nov 2023 Cayman Islands

This article covers “Daily Current Affairs” and the topic details “ Cayman Islands”. This topic has relevance in the Economy section of the UPSC CSE exam.

GS 3: Economy

Why in the news?

The removal of the Cayman Islands from the Financial Action Task Force (FATF) grey list is anticipated to bring about a favorable effect for international private equity funds looking to make investments in India.

Cayman Islands: A British Overseas Territory

Location: The Cayman Islands, located within the Western Caribbean Sea, is a British Overseas Territory. This territory consists of three main islands: Grand Cayman, Cayman Brac, and Little Cayman. They are positioned to the south of Cuba and northwest of Jamaica.

Historical Background:

• The Cayman Islands were colonized by the British during the 18th and 19th centuries.
• After 1863, these islands were administered by Jamaica.
• In 1959, the Cayman Islands became a territory within the Federation of the West Indies.
• Following the dissolution of the Federation in 1962, the Cayman Islands chose to remain a British dependency.

Language: While English is the predominant language spoken in the Cayman Islands, many inhabitants also communicate in local Creole dialects.

Geography: The Cayman Islands feature a low-lying landscape with extensive coral reefs that contribute to their natural beauty.

Capital: George Town, situated on Grand Cayman Island, serves as the capital of the Cayman Islands.

Currency: The official currency of the Cayman Islands is the Cayman Island dollar. However, American currency is widely accepted throughout the islands.

Government: The government system in the Cayman Islands is based on a parliamentary democracy. The chief of state is the queen of the United Kingdom, while the head of government is the premier.

Economy:

• The Cayman Islands boast a mixed economic system.
• They are renowned as a thriving offshore financial center, attracting international businesses and corporations.
• The Cayman Islands are considered a tax haven due to their lack of corporate taxation, making them an attractive location for multinational companies to establish subsidiary entities and shield their incomes from taxation.
• Notably, the Cayman Islands do not impose taxes on residents. There are no income taxes, property taxes, capital gains taxes, payroll taxes, or withholding taxes.
• The Caymans generate revenue through tourism-related fees, work permits, financial transactions, and import duties.

The Cayman Islands’ unique economic and tax structure make them an intriguing destination for both businesses and tourists.

Financial Action Task Force (FATF):

Overview: The Financial Action Task Force (FATF) is an inter-governmental body established in 1989 at the initiative of the G7 nations.

Mandate: FATF serves as a “policy-making body” focused on generating political will to encourage national legislative and regulatory reforms in various areas.

Secretariat: The OECD headquarters in Paris houses the FATF Secretariat.

Roles and Functions:

• Money Laundering: Initially, FATF was established to examine and develop measures to combat money laundering.
• Terrorist Financing: In October 2001, FATF expanded its mandate to include efforts to combat terrorist financing alongside money laundering.
• Weapons of Mass Destruction: In April 2012, it added efforts to counter the financing of the proliferation of weapons of mass destruction.

Composition: FATF currently consists of 37 member jurisdictions and 2 regional organizations, representing major financial centers worldwide.Additionally, the organization includes observer and associate members.

Objectives: FATF aims to:

• Set standards for and promote effective implementation of legal, regulatory, and operational measures to combat money laundering, terrorist financing, and threats to the international financial system’s integrity.

Blacklist and Grey List:

• Black List: Countries known as Non-Cooperative Countries or Territories (NCCTs) are placed on the blacklist due to their support for terror funding and money laundering activities. The blacklist is periodically revised by FATF, with countries added or removed.
• Grey List: Countries considered safe havens for supporting terror funding and money laundering are placed on the FATF grey list. This inclusion serves as a warning to the country that it may eventually be moved to the blacklist.

Implications of Being in the Grey List: Countries in the grey list may face:

• Economic sanctions from international financial institutions like IMF, World Bank, and ADB.
• Challenges in obtaining loans from international financial organizations.
• Reduction in international trade opportunities.
• Risk of international boycott.

FATF President: The FATF President is a senior official appointed by the FATF Plenary from among its members for a one-year term.

Source:https://www.msn.com/en-in/money/topstories/cayman-islands-exit-from-fatf-grey-list-to-boost-fdi-inflow-in-india/ar-AA1j7tEh

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