The Cayman Islands has been in the news once again in an unflattering light – this time in relation to perceived financial secrecy and our involvement in the US subprime mortgage collapse that triggered the global credit meltdown.

A survey of laws, practices and size of inflows in 60 jurisdictions analysed by the Tax Justice Network found Delaware coming in first in a contest for the most secretive financial jurisdiction, followed by Luxembourg and then Switzerland. The Cayman Islands and the United Kingdom rounded out the top five.

The ranking was based on a composite of total offshore activity and measures such as whether a jurisdiction obtains beneficial ownership information about companies and the degree of cooperation in turning over requested financial information.

Needless to say, much of the overseas media reports focused on the fact that a US “onshore” jurisdiction, Delaware, beat all others – whether offshore or onshore – in the secrecy stakes.

Nevertheless, the Cayman Islands coming in fourth – and the first archetypical offshore “tax haven” in the list – is not going to help the already negative global perception of this jurisdiction.

The group publishing the secrecy ratings, the Tax Justice Network, is looked upon with some disdain in some financial circles and this attitude seems to have rubbed off on the government – who reportedly declined to participate in or cooperate with the survey.

One lesson to be drawn from this incident, therefore, is that it the official attitude towards a particular organisation doesn’t prevent it generating negative press about us that would have best been avoided if possible, playing as it does into the already well-established notions about the Cayman Islands held by the rest of the world.

As we have remarked before, perception is paramount and reality is secondary – a concept that public and private sector stakeholders here constantly seem to have difficulty in grasping.

Compounding the negative press generated by the Tax Justice Network’s secrecy survey is a series of very extensive and detailed investigative reports published by our news partners McClatchy-Tribune chronicling the US subprime mortgage collapse that is widely believed to have precipitated the global credit meltdown.

It has been suggested in several quarters that the Cayman Islands had some involvement or responsibility for the events that led to the crisis and the McClatchy reports now give some factual authority to this possibility.

No doubt some will say that Cayman was just an innocent bystander in the worldwide financial calamity and the real culprits were located in New York, and there may be a good deal of truth in this assertion.

However, once again, it misses the point that public perception is what is going to drive attitudes and belief in this regard, not what might be the reality, unless and until that reality gets an equal or, preferably, a more effective airing than the negative reports.

When the McClatchy reports talk about “secret deals” channelled through Cayman Islands “shell companies” as part of “unregulated” activity on the part of investment banker Goldman Sachs, it does not exactly enhance Cayman’s reputation as a properly regulated, transparent jurisdiction.

According to McClatchy, Goldman’s Cayman deals were outside the reach of US tax laws and free of US regulation. No wonder the US Congress is busy trying to find ways to extend its regulatory oversight to offshore funds.

Furthermore, the numbers involved in the subprime mortgage debacle are almost unimaginably huge. The International Monetary Fund has projected that global write-downs on “US-originated assets” stemming from the subprime disaster could reach $2.7 trillion and a US Treasury Department report found that as of June 30, 2008, $164 billion in US mortgage-backed securities were held in the Cayman Islands

But the apparently deceptive packaging and sale of mortgage-backed securities through Cayman Islands financial vehicles, coupled with the reported buying of AAA investment ratings from credit ratings agencies such as Moody’s, allowed Goldman to become the only major US investment bank to escape the brunt of the subprime meltdown.

When the market collapsed, investors, including major European banks and even governments, were left with billions upon billions of dollars of worthless mortgage-backed securities, often with the Cayman Islands’ name attached to them.

It should, therefore, come as no surprise to anyone that Europe especially has displayed considerable antipathy towards us and this has no doubt been a factor in the recent push on the part of the G20 to shut down what is perceived to be the tax haven activities of jurisdictions such as the Cayman Islands.

Goldman Sachs reportedly earned as much as $1.66 billion in fees and other profits for packaging its offshore deals. How many millions of this found its way into the hands of our own financial institutions and professionals – and how much of that are they spending to help the jurisdiction from which they have so handsomely profited?