Small can be smart—and smooth: the Cayman Islands' relations abroad and effects at home

The Cayman Islands were among the first micro‐states to establish a thriving offshore financial services industry by exploiting their historical status as a tax‐free jurisdiction. This was threatened when concern about the laundering of the proceeds of drug‐trafficking induced the United States to challenge bank secrecy laws in the Caymans and other financial centres. This article demonstrates how decision‐makers in the islands shrewdly secured the assistance of their protecting power, Britain, to gain leverage in negotiations with the United States, how they developed a negotiating brief and thereby created model arrangements that permit the exchange of certain financial information, while protecting the financial security of the legitimate patrons of their banks. © 1998 John Wiley & Sons, Ltd.