They call the Cayman Islands, once known, when known at all, for the ferocity of its mosquitos, a "Tax Haven." It is. But that's not all it is. It's also a laundromat. Dirty money flows in, is washed, rinsed and tumble-dried until it emerges all clean and shiny, "investment capital" for cash-hungry hedge funds.
Most KOS readers are up to date on this story, but if you haven't been following it closely, here are a couple of places to start:
An ABC report on some of the connections is here.
Vanity Fair has another account:
Because of his retirement deal with Bain Capital, his finances are still deeply entangled with the private-equity firm that he founded and spun off from Bain and Co. in 1984. Though he left the firm in 1999, Romney has continued to receive large payments from it—in early June he revealed more than $2 million in new Bain income. The firm today has at least 138 funds organized in the Cayman Islands, and Romney himself has personal interests in at least 12, worth as much as $30 million, hidden behind controversial confidentiality disclaimers. Again, the Romney campaign insists he saves no tax by using them, but there is no way to check this.
Back to the Cayman Islands. The Caymans have become the go-to place for nasty money: graft from third-world dictatorships, casino skims, drug profits, proceeds from human trafficking, bankster rake-offs, arms dealers' cash, oil field kickbacks--you get the idea.
All that dirty money goes into banks on Grand Cayman Island and emerges into the accounts of innumerable Cayman corporations--as many as 16,000 listed at a single address--with names like BCSK XXII (I made that one up). Now it's clean money. And it's money that wants to go someplace. Where can it go? How about into hedge funds?
From the ABC report:
Wilkins agreed, saying the "primary advantage to setting those funds up in an offshore jurisdiction like the Cayman Islands or Bermuda is it helps the investors avoid tax."
"It helps U.S. investors avoid U.S. tax," said Wilkins, "it helps foreign investors avoid taxes in their home country, so it's not illegal or improper to set those funds up in a foreign jurisdiction, but it makes it more attractive to investors because it helps them avoid paying taxes on that income."
So once dirty money, now "capital," flows into Bain partnerships, which then invest this pristine money into corporate takeovers. Bain then proceeds to suck the life out of the once healthy companies and remits the profits to entities in the Cayman Islands; rinse, repeat.
So not only do Romney's Bain partners engage in classic Mafia-style corporate stripping, they may be using money acquired Mafia style to do it.
Note: this diary has concentrated on the micro question of Romney and Bain relationship to dirty money, but there are larger issues that need to be investigated, such as the possibility that this kind of money may have contributed to the property bubble in the U.S. Many of these people are so rich that they might consider losing 50% of their capital as a small price to pay for redirecting it into "clean" sources of income.