Bankruptcy threat brings new concept to Caymans … taxes

Level 3 Advanced

1 Warmer
Do this quiz and then check your answers by skim-reading the article.

1. Where are the Cayman Islands?

2. What field of business provides their main source of income?

3. Which country’s government is responsible for the Cayman Islands?

4. What kind of natural disaster poses a constant threat to the islands?

2 Key words
Find key words from the article to complete the definitions below. The paragraph numbers have been given
to help you.

1. to touch someone or something gently in a pleasant way ______________________ (para 1)

2. to gather together in a large group ______________________ (para 1)

3. a financial organization that invests money that has a high risk of being lost but which may make a very large
profit ______________________ (para 2)

4. a situation a person or business is in once they have officially admitted that they have no money and cannot
pay what they owe ______________________ (para 2)

5. to help a person or organization that is having problems, especially financial problems (2 words
______________________ (para 3)

6. people who work for a government department ______________________ (para 4)

7. people or companies whose job is to provide goods or to do work for another person, organization, company,
etc. at a particular price ______________________ (para 4)

8. a small earthquake; or a sudden feeling of fear ______________________ (para 5)

9. the total amount of money paid by a company to the people it employs ______________________ (para 6)

10. a country or area in which a particular legal system operates ______________________ (para 7)

11. a large light brick made from cement and cinders that is used in building ______________________
(para 9)

12. the set of systems within a place or organization that affect how well it operates, for example the telephone and
transport systems in a country ______________________ (para 10)

13. the difference between the amount of money or goods that a country or business has and the amount that it
has spent or that it owes ______________________ (para 11)

14. capable of continuing for a long time at the same level ______________________ (para 13)

15. an amount of money that you owe ______________________ (para 15)

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NEWS LESSONS / Bankruptcy threat brings new concept to Caymans … taxes / Advanced
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Bankruptcy threat brings new concept to Caymans … taxes
Level 3 Advanced
Bankruptcy threat brings new
concept to the Cayman Islands
… taxes
Trouble in paradise: the popular tax haven in the
Caribbean has suffered after the collapse of the
world’s financial system.
Nick Mathiason and James Doran
1 September, 2009
1 The white sands of Seven Mile Beach on Grand
Cayman have long caressed the toes of the
world’s wealthiest financiers, who flock here to
avoid the taxman’s prying eyes.
2 But the world’s biggest hedge-fund venue and
fifth-biggest bank centre is now threatened, as
the government of the Cayman Islands heads
for bankruptcy — unable to pay its own staff
and facing the prospect of introducing taxes
as income from the world’s shrunken financial
system collapses.
3 But the situation is about to get worse after
the British government, which has ultimate
responsibility for the islands, last week refused
to bail out the Caribbean idyll. It is not convinced
the country will have the money to pay it back.
4 At the same time, hundreds of civil servants
found that pension contributions and health
insurance payments were missing from their pay
slips. Contractors and government suppliers also
had bills unpaid.
5 The leader of government business, William
McKeeva Bush, begged the British government
to borrow $310m (£190m) from banks. In a
strongly worded response, Chris Bryant, a junior
Foreign Office minister, has demanded the
Caymans cut its borrowing and debt. And in a
shockwave that will send tremors through the
island’s financial elite, Bryant even suggested
that the tax haven introduce taxes.
6 “I fear you will have no choice but to consider
new taxes – perhaps payroll and property
taxes,” Bryant wrote to Bush. “I understand, of
course, that in so doing you will want to consider
carefully the implications for Caymans’ economy,
© Macmillan Publishers Ltd 2009
NEWS LESSONS / Bankruptcy threat brings new concept to Caymans … taxes / Advanced
including the financial services industry.”
7 The wealth in the Caymans is staggering. Its
hedge funds alone looks after $2.3tn (£1.4tn),
according to figures last year, and its GDP
(Gross Domestic Product) places it as the
world’s twelfth-richest jurisdiction, despite a
population of only 51,900.
8 It made the Caymans a high-profile target as
the global financial storm clouds broke. The
Caymans were singled out by Barack Obama
last year in his presidential campaign. It was also
placed on a “grey list” of harmful tax jurisdictions
by the OECD (Organization for Economic
Co-operation and Development) last April.
9 Chris Johnson, a British accountant who has
lived there since 1968, is worried about his
future for the first time in decades. “I would say
I am pessimistic now. The island is in terrible
trouble financially,” he said.
10 The Cayman Islands, like most Caribbean
island nations, is deeply divided socially and
economically. On the one hand there are the
ultra-wealthy – Microsoft’s Paul Allen and
golf champion Tiger Woods both moor their
yachts there. On the other there are the native
Caymanians, many of whom live in simple
single-storey breeze block homes typical of the
islands, with chickens and goats running about
on scrub-like surrounding land. They are poor
people who largely exist on the island to serve
the wealthy in the hotels, private clubs and
staffed households.
11 Cayman islanders say the previous government
spent a huge amount of money upgrading the
island’s ancient infrastructure, betting it would be
able to pay back a budget deficit of $67.5m as its
financial sector continued to grow. But the global
financial crisis has created a huge black hole in
its budget.
12 The government charges financial institutions
a licence fee based on employee numbers. But
as banks and hedge funds shrink, income has
declined. More seriously, US tourists cannot
afford to visit. To fix the hole, taxes on personal
income, financial transactions and tourism
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Bankruptcy threat brings new concept to Caymans … taxes
Level 3 Advanced
are being discussed. Most likely will be the
introduction of a property tax.
13 Richard Murphy, of the campaign group Tax
Justice Network, said: “Cayman is proving that
tax havens are not sustainable: their business
model is bankrupt and that free-riding the tax
system can’t pay.”
14 One hedge-fund insider who lived in the
Caymans said: “The heavy spending was well-
intentioned because Caymans’ infrastructure –
schools, public health services, social services
– are quite poor, given the assumed wealth of
3 Comprehension check
Choose the correct answer according to the information in the article.
1. Rich bankers and financiers go to the Cayman 4. The financiers are shocked because a British
Islands to ...
a. ... moor their yachts.
b. ... avoid paying taxes.
c. ... avoid the winter weather in New York
and London.
2. The islands are the world’s ...
a. ... biggest hedge fund centre.
b. ... fifth-biggest hedge fund centre
c. ... biggest bank centre.
3. The British government ...
a. ... has said it will bail out the islands.
b. ... does not want to put a lot of money into the
current system.
c. ... wants to sell the islands.
© Macmillan Publishers Ltd 2009
NEWS LESSONS / Bankruptcy threat brings new concept to Caymans … taxes / Advanced
Grand Cayman. The devastating hurricane Ivan
in 2004 didn’t help.
15 The problem was, the debt created to finance
the capital expenditures was only affordable if
the island’s economy continued to grow rapidly.
It was said many times that a US recession
could lead to big problems.” And so it has been
proved. The British government will hope that the
islands’ problems do not wash up on its shores.
© Guardian News & Media 2009
First published in The Guardian, 01/09/09
government officer has suggested ...
a. ... that the islands file for bankruptcy.
b. ... that civil servants and contractors should not
be paid.
c. ... that the islands introduce taxes.
5. The Cayman Islands are ...
a. ... poor.
b. ... being supported by the US economy.
c. ... the world’s twelfth-richest jurisdiction.
6. The native people of the islands ...
a. ... have a share in the island’s wealth.
b. ... mostly work in hotels or as servants.
c. ... have no schools or health services.
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Bankruptcy threat brings new concept to Caymans … taxes
Level 3 Advanced

4 Language
The article contains many financial terms. Look back through the article and underline as many as you
can. Then try to divide them into categories such as: negative financial terms, jobs and positions in the
financial sector, types of payments, other words relating to finance, etc. Some may fit in more than
one category.

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NEWS LESSONS / Bankruptcy threat brings new concept to Caymans … taxes / Advanced
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Bankruptcy threat brings new concept to Caymans … taxes
Level 3 Advanced

5 Discussion
Now that you have read the article a few times, what mental picture do you have of the Cayman Islands?

6 Webquest
The Cayman Islands are not the only tax haven in the world. Can you name some of the others? Are they
having similar problems to those that the Cayman Islands are experiencing? Do some research on one of
them and report back to your group.

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NEWS LESSONS / Bankruptcy threat brings new concept to Caymans … taxes / Advanced
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Bankruptcy threat brings new concept to Caymans … taxes
Level 3 Advanced

KEY

1 Warmer 6 Webquest

1. in the Caribbean Other tax havens include Andorra, Luxembourg, the

2. finance and banking Isle of Man, Monaco, Switzerland and the United Arab
3. Britain’s Emirates.
4. hurricanes

Teacher’s notes
2 Key words
You can listen to a short minute audio report by Nick
1. caress Mathiason about the article at
2. flock http://www.guardian.co.uk/business/audio/2009/sep/02/
3. hedge fund cayman-islands-bankrupt-tax
4. bankruptcy It is possible to download the file in MP3 format and
5. bail out play it in class.
6. civil servants
7. contractors
8. tremor
9. payroll
10. jurisdiction
11. breeze block
12. infrastructure
13. deficit
14. sustainable
15. debt

3 Comprehension check

1. b
2. a
3. b
4. c
5. c
6. b

4. Language

This task could be done as pair work. After the words

have been divided into categories the students could
compare their answers with other pairs and say why
they have categorized the words in the way they have.
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NEWS LESSONS / Bankruptcy threat brings new concept to Caymans … taxes / Advanced
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