I heard a story some years back about a court case that involved following a blizzard of cross-border financial payments. Apparently, even the lawyers were having a hard time tracking, and the jury was completely at sea. But the lawyers and the judge all knew that only one thing actually mattered in the trial. Would the prosecution at some point be able to say the words “Cayman Islands” in front of the jury? If so, the jury would very likely draw an inference that “Cayman Islands finance” meant “guilt,” and thus find the defendant guilty of something-or-other. But if the defense could prevent the words “Cayman Islands” from being spoken in the courtroom,, the blizzard of confusion meant that the defendant would be found “not guilty.” Much legal maneuvering resulted.
I was reminded of the story by a few figures in a paper called “International finance through the lens of BIS statistics: offshore activity,” by Iñaki Aldasoro, Bryan Hardy, Goetz von Peter and Philip Wooldridge (BIS Quarterly Review, March 2026, pp. 81-96). These figures are from Appendix A to that paper, credited to von Peter and Wooldridge.
For some financial instruments, the source of the funding comes from within a country and the destination of the funding is used within the country. For other financial instruments, at least some of the funding from sources external to the country and the destination of the funding used outside the country. This is called “external [financial] intermediation.” In the graph below, KY in the upper right of the figure is a country code for “Cayman Islands.”
The amount of external financial intermediation in the Cayman Islands is, as shown on the horizontal axis, about 1,000 times as large as the country’s economy. The total size of external intermediation for the Cayman Islands–a country with a national GDP roughly equal to the size of the metropolitan area of Flagstaff, Arizona, or Bangor, Maine–is about $10 trillion dollars–similar in size to the size of external financial intermediation for the entire US economy. (The alert reader will notice that the horizontal axis is rising by multiples of ten, while the vertical axis is rising by multiples of 1,000).
Thus, the Cayman Islands, along with the British Virgin Islands (VG on the figure) are prototypical examples of what are bloodlessly labeled “cross-border financial centers.” Others on the figure include Luxembourg (LU), Bermuda (BM), Jersey (JE), Guernsey (GG), the Marshall Islands (MH), and others.
The red dots are known as “cross-border financial centers,” roughly defined as those areas where external financial intermediation is more than 10 times the size of the economy. Some of these countries close to the top of the figure can be viewed as financial gateways to a larger region: for example, Ireland (IE) and Netherlands (NL) are gateways to economies of the European Union, and Hong Kong (HK) and Singapore (SG) are gateways to China. This red-dot group of countries represented less than 20% of global external finance back in 2000, but is now up around 30% of the total.
There is of course, nothing fundamentally wrong with financial capital flowing across national borders. In the upper middle of the figure, you can see the “global financial center” countries labelled with hollow circles, like the US, Germany, UK, Japan, France, Switzerland, Canada, and China. But in a spirit of gentle inquiry, it seems fair to ask what causes certain economic actors to do so very much business in the cross-border financial centers. In their article, Aldasoro, Hardy, von Peter and Wooldridge make a start at tracing where the external money comes from and goes to in these countries. Often the financial transactions involve what are called “non-bank financial institutions”–that is, companies that receive funds and loan or invest those funds, but are not subject to national or international banking regulations. The ultimate ownership of such companies (and ownership of the companies that own those companies, and so on) is often very hard to determine, which is almost certainly the point.
