FACULTY OF BUSINESS AND MANAGEMENT

DIPLOMA IN BANKING (BA119)

INTERNATIONAL BANKING
(FIN 365)

INDIVIDUAL ASSIGNMENT: ARTICLE REVIEW

PREPARED FOR:
MISS WAN ASMA HANIM BINTI WAN MUSTAPHA

PREPARED BY:
MUHAMMAD SYAHMIE BIN AB AZIZ ( 2018442408)

DATE OF SUBMISSION: 25 NOVEMBER 2020 (WEDNESDAY)

 TABLE OF CONTENTS

NO CONTENTS PAGES
1. INTRODUCTION: OFFSHORE FINANCIAL 1-2
CENTER OF CAYMAN ISLAND
2. SERVICES OFFERED IN CAYMAN ISLAND 3-5
OFFSHORE FINANCIAL CENTER
3. THE ANGLO-AMERICA/ANGLOSPHERE 6
APPPRACH
4. IDEA: BENEFITS OF CAYMAN ISLAND 7-8
OFFSHORE FINANCIAL CENTER
5. CONCLUSION 9
6. REFERENCE 10
INTRODUCTION

Cayman Island is one of the major offshore financial centers (OFCs) in the world. A
joint policy-making mechanism involving local leaders, expatriate professionals, and
British officials resulted in their growth from almost a barter economy in 1960 to a
leading OFC for the location of hedge funds, captive insurance firms, yacht
registrations, special purpose vehicles, and international banking today. The Cayman
OFC can be analytically divided into three distinct but interrelated segments:
banking, direct investment, and portfolio investment. In addition, the idea that being
discussed in this report related to Cayman OFC were the benefits of incorporating in
Cayman Island. Cayman Island has developed a political structure over several
decades that has allowed it to compete successfully in global financial markets for
transactions, to engage in major international efforts to regulate financial crimes, and
to escape the political economic, racial and social problems plaguing many of its
neighbors in the Caribbean.

The Cayman Islands are one of the world's biggest financial hubs and a main node
in modern global finance. The Cayman Island have more foreign reserves than
advanced developed countries such as Japan, Canada, or Italy. In recent decades,
Cayman has played a central role in financial innovation. Hedge funds have
contributed to the growth of the global financial crisis, as have opaque CDOs, and
hence financial innovation has serious ramifications for international financial
stability, Wójcik reports. The paper compiles the pivotal Cayman OFC's first
'anatomy.' This attempts to conduct a banking, direct investment, and portfolio
investment analysis. The author believes that the most intensive OFC with foreign
reserves amounting to over 1500 times its domestic economy is the Cayman of the
world's offshore financial hub.

The Anglo-America/Anglosphere approach to the study of the Cayman OFC from

international relations (IRs) and International Political Economy (IPE) were
addressed in this article. The literature is also somewhat scarce, considering the
value of the Cayman Islands OFC. Economic Geography academics have
undoubtedly contributed the most to the development of our understanding. Roberts
(1995) believes that the Caymans have 'strategically placed themselves at the
intersection of the swift and fungible financial capital circuits This position as a
subordinate territory of the United Kingdom is the central importance to Cayman's
performance as an OFC. Between 1972 and 1982, the number of foreign banks
operating in Cayman rose at an annual average rate of 23 percent. This is partly
attributed to the rapid growth of the City of London Euromarkets (Palan 1998; Burn
1999, Burn 1999), which later included OFCs such as the Bahamas, Cayman and
the Bahamas (Ridley 2007). Hudson (1998a) concludes that only by observing the
actions of transnational actors may become the unique growth of these OFCs to be
understood.

Freyer and Morriss (2013) claim that the Cayman legal system's high stability, based
on English common law, and its capacity to innovate were critical to its rise. Cayman
considered to be 'largely compliant' by the OECD with international tax information
sharing requirements. A significant comparative advantage in this jurisdiction is the
locally accessible experience in financial law and accounting matters, primarily
supported by major multinational advanced business services companies. The
biggest challenge to the success of a. According to the IMF, the Cayman Islands
OFC is a 'reputational risk' which means the possible lack of confidence by
foreigners. From investors. The GAO has published a report on the variables and
triggers of US residents and c Corporations to move financial functions to the
Caymans.
SERVICES OFFERED IN CAYMAN ISLAND OFFSHORE FINANCIAL CENTER

BANKING

The historical basis on which Cayman has built its OFC is banking. The Cayman
Islands enacted a series of laws during the 1960s designed to attract financial
business from abroad, especially banks. Many Cayman laws were written by
expatriate lawyers from Britain and Canada, either translating them from the
Bahamas or modifying British laws. When Jamaica became independent in 1962, the
key option that enabled the later creation of Cayman's OFC was to remain under
British sovereignty. It is quick to set up new financial 'innovations' (such as ABS,
CDOs, or hedge funds) because stringent legislation is only enforced in the event of
obvious corruption or heavy interference by influential international players, writes
John Nugee. In the 60s, the Bahamas was one of the main offshore banking centres,
but when it became independent in 1973, Cayman was ready and took over most of
the fleeing business. Nugees said Cayman has seen strong development in offshore
banking due to liberalization and deregulation.

DIRECT INVESTMENT

Direct investment is classified as stock or debt instruments which are owned to make
financial returns in a passive manner. FDI is the investor's target of exercising power
over a foreign company. Globally, the portfolio investment group is far higher than
direct investment. For the Cayman Islands, this difference is much more distinct
since a large part of global FDI, i.e. the development of new infrastructure, is
engaged in greenfield projects. The small scale of the domestic Cayman economy
precludes essential greenfield FDI inflows.

CDIS data has only been available since 2009. In just five years, direct Cayman
investment has more than doubled (IMF 2015). The gross Cayman IDI was around
US$550 in 2014, or about 180 times the GDP of the Cayman Islands. With 52
percent of the cumulative IDI in Cayman, the United States is by far the main
recipient of direct investment. UNCTAD reports that, owing to the role of OFCs and
SPEs in foreign direct investment, developed countries face tax revenue losses of
US$100 billion a year. According to Weyzig (2013), the Netherlands is the dominant
foreign direct investment conduit, specialized in 'Special Purpose Corporations'
(SPEs) and enables multinational corporations to escape withholding taxes in
several developed and EU nations, enabling multinational companies (MNEs) to
avoid paying withholding taxes and allow profit shifting by royalty payments, he says.
The Cayman Islands, he states, are interested in this process by direct investment
from/to the Netherlands.

From 2009 to 2014, Cayman ODI to China-Hong Kong more than doubled (US$41
billion to US$94 billion) from 2009 to 2014, Chinese MNEs were found to channel
direct investment via OFCs (directly and indirectly through Hong Kong). The BVI
(also under UK sovereignty) is by far the largest offshore jurisdiction for Chinese
direct investment. An astonishing US$780 billion traveled from the BVI to Hong Kong
in 2013. The second largest destination for Cayman O DI will be a joint China-Hong
Kong. John Defterios writes that the role of the Cayman Islands for Chinese
investment seems to be more focused on M NEs from China finding entry to US
capital markets. He claims that the regulatory system forms a gray zone with a major
hidden danger to investors. Defterio: The whole system is based on the Chinese
authorities' readiness to accept it. It is a concern that needs to be corrected.

In 2014, with its initial public offering (IPO) in the USA, the Chinese e-commerce
company Alibaba raised a whopping US$25 billion. However, there is no “de jure”
control over the Chinese company by investors in Alibaba, since they only own
shares in the Cayman holding. The Chinese government tends to tolerate the use of
VIEs in restricted fields, but only if Chinese individuals manage the offshore
holdings. Cayman is at the forefront of emerging financial innovations that also entail
major losses for certain groups (in this case, shareholders) while helping others.

PORTFOLIO INVESTMENT

Majority of foreign cross-border portfolio transactions are equity and debt securities
(e.g., stock and bonds). 234 jurisdictions are targeted by the IMF's Coordinated
Investment Survey (CPIS). In mid-2015, (outward) portfolio investment assets of
US$61 billion were announced by the Cayman Islands. Related portfolio investment
liabilities, however, show that Cayman (inward) investment is over US$2574
billion-42 times more than the official Cayman information indicates. With US$9790
billion, the United States was the main jurisdiction, followed by the United Kingdom
(US$3728 billion), France (US$3049 billion), Luxembourg (US$2926 billion), and
Germany, with US$2835 billion. In Cayman portfolio investments, the hedge fund
sector plays a key role (Zucman 2013). The financial geography of the hedge fund
market in Cayman is further analyzed in depth below. In mid-2015, the volume of US
securities owned in Cayman by the US Treasury data amounted to a whopping US$
1506 billion, making Cayman the third-largest counterpart jurisdiction after Japan
and China.

Cayman is the biggest issuer of US securities in the world as it excludes long-term

US Treasuries. Cayman's stake in the U.S. portfolio is US$300 billion bigger than
vice versa. Japanese and Hong Kong investors who use Cayman as a fund gateway
to provide Japanese investors with a degree of confidentiality while investing in the
U.S.
THE ANGLO-AMERICA/ANGLOSPHERE APPROACH

The English-speaking approach draws on constructivism and conceptualizes the

English-speaking culture based on a common Anglo-Saxon ethnic identity. For most
traditional IR hypotheses, Vucetic suggests, how the 'Anglo-American War is'
impossible 'and stability and harmony became reliable is obviously a mystery.
Empirical support for the presence of a single Anglo-American type of capitalism has
been sought by academics. The disclosures about the extraordinary collaboration of
the English-speaking countries in the highly sensitive intelligence sector have greatly
corroborated the strategy of the Anglo-American/Anglosphere Cogency. Roberts
(1995) and Hudson (2000) have seen Cayman's position as fundamental to the fact
that Cayman is under British jurisdiction, which ensures political stability.

Cayman OFC's rise is inextricably related to its sovereign entity, the United Kingdom.
It is possible to conceive the Cayman Islands as a quintessentially Anglo-American
OFC. Anglo-Americans are nearly all leading advanced professional services
corporations, such as PriceWaterhouseCoopers, KPMG, Ernst&Young, and Deloitte,
as well as other major multinational law firms. From such businesses, which are
active in the formation of most Cayman laws relating to finance, two former heads of
Cayman regulator CIMA were recruited. The volume of exports of British services to
Cayman in 2013 amounted to approximately US$3.5 billion.

The word 'Second British Empire' would mean that London is securely in power.
There is shared Anglo-American leadership in international finance in many
instances. Cayman mainly represents the needs of American investors (and to a
lesser extent, Japanese as well).
IDEA

THE BENEFITS OF INCORPORATING IN CAYMAN ISLAND

Minimal demands on monitoring and auditing

The ease of holding a business there is one of the key advantages of integrating into
the Cayman Islands. There are no cumbersome and time-consuming accounting,
filing, or auditing rules, unlike certain other countries which means you do not
continuously have to send paperwork to the authority every year, or even every six
months. None of these are required by the Cayman Islands, ensuring you save
money and time when it comes to running company in the Cayman Islands.

Free from tax

There is virtually zero direct taxation, no income tax, no property tax, no capital gains
or withholding tax in the Cayman Islands. The government has ensured this
zero-rate of tax for at least 30 years from the time the corporation is incorporated.
This means that consumers can not only achieve peace of mind but can prepare
accordingly without having to think about the abrupt implementation of taxation.

Enforcement and honesty society

In an age of rising financial services openness, consumers are of course, worried

that international expectations are being followed. The Cayman Islands are
committed to international tax disclosure requirements and have put them on their
'white list' of compliant jurisdictions in appreciation of the Organization for Economic
Co-operation and Development (OECD).

There is a good collaboration and knowledge sharing process for the Cayman
Islands. The Cayman Island Monetary Authority (CIMA) is a full member of IOSCO,
the principal global standard-setting body for stock market supervision. Its priorities
include collaboration and sharing of information, standard setting and supervision,
and mutual assistance.

Geo-political security

The Cayman Islands Administration, as a British Overseas Territory, is headed by

Her Excellency, The Governor, who is a senior British civil servant, appointed by the
British Crown and accountable to it. The British Government holds, through it, direct
responsibility for domestic and external security, the judiciary, and external affairs.
However, with a Legislative Council consisting of both elected and official members,
responsible for enacting municipal legislation, the Islands enjoy a high degree of
self-government. The Premier and the Cabinet, who are responsible for the
day-to-day functioning of the government, are selected from the elected officials.

With appeals to the Cayman Islands Court of Appeal, and finally to the Privy Council
in the United Kingdom, there is a widely successful and valued local court structure
based on English law. A substantial portion of the local economy is dependent on
financial services, so the Financial Services Section at the Grand Court has relevant
regulations relating to the sector. The Islands have an important tourism industry in
addition to the highly competitive banking market, and together they constitute a
thriving local economy, offering virtual full employment and a high standard of living.
CONCLUSION

In conclusion, The Cayman Island plays a big role within the international banking
and financial system. It increases the credit supply and fosters competitiveness in
the domestic banking and financial sector. The essence of its operations helps
improve investment in the major economies, which in turn encourages job
production, declines in inflation and economic growth.

The direct investment and portfolio investment of Cayman Island being managed by
U.S.A but it is not solely catering of OFC’s for the U.S.A. Cayman Island were differs
from other OFC’s countries due to its function as a conduit for major international
financial institution for big corporation to invest funds.

The benefits of Cayman Island can also influence the investor to invest in Cayman
Island because there were zero tax implement in Cayman Island thus, they can live
in peace. Furthermore, the time needed to complete the file to be send to the
authority is less compared to another country and this will ease the process for the
company and saving the money for the company due to less of paperwork.
REFERENCES

https://www.tandfonline.com/doi/full/10.1080/09692290.2016.1243143