“…China, which was the largest holder of U.S. government debt as recently as 2019, has cut its holdings to the lowest level since 2008, driven by changing trade patterns, geopolitical concerns, and domestic economic pressures.
The Cayman Islands has emerged as an unlikely place to fill the gap. This small British overseas territory held $427 billion in U.S. Treasuries as of November 2025, making it the sixth-largest foreign holder. But a 2025 Federal Reserve analysis revealed that the total figure was actually closer to $1.4 trillion by the end of 2024—with some estimates reaching as high as $1.85 trillion—after nearly 40 percent of new treasury notes and bonds were purchased in the Cayman Islands after 2022.
While these figures suggest that the territory is the largest foreign holder of U.S. debt, the main buyers are not Caymanians or the government, but hedge funds. After the territory passed its Mutual Funds Law in 1993 amid the 1990s hedge fund boom, these vehicles began incorporating in large numbers, drawn by flexible regulation and low taxes. The Cayman Islands today is home to roughly three-quarters of the world’s offshore hedge funds.
Many have used so-called “basis trades,” borrowing heavily to profit from small price gaps between U.S. Treasury bonds and their future equivalents. The strategy has grown so large and opaque that it has triggered a Federal Reserve investigation.
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In 2022, the bankruptcy of cryptocurrency exchange FTX exposed billions in missing customer funds and became one of the largest financial frauds of the decade. Court filings showed that more than a fifth of its registered customer accounts were from the Cayman Islands—greater than any other jurisdiction—highlighting how easily new and risky ventures could be structured.
The territory also plays a central role in shadow banking. After banks pulled back from lending following the 2008 financial crisis, non-bank loans and financing surged, and many such funds have been domiciled in the Cayman Islands, such as Blackstone’s iCapital Offshore Access Fund SPC.
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While the Cayman Islands may be Britain’s most prominent offshore jurisdiction, other British territories in the Caribbean also play influential roles. The British Virgin Islands (BVI) has become a major center for company incorporation. Its International Business Companies Act, introduced in 1984, simplified company formation, and the BVI is now the “leading domicile for corporate registrations.” With roughly 400,000 companies registered there, many of them simple shell companies with often unknown owners, it surpasses even the Cayman Islands in number.
BVI-registered companies hold around $1.5 trillion in assets, while the territory’s GDP is around $1.7 billion. The 2016 Panama Papers, leaked from law firm Mossack Fonseca, revealed that a massive share of the shell companies used by politicians, oligarchs, celebrities, and criminals to shelter wealth were registered in the BVI. Mossack Fonseca was reportedly unaware of the owners of 75 percent of the offshore entities.
Similarly, the Paradise Papers, leaked from law firm Appleby in the British Overseas Territory of Bermuda, highlighted how corporations and individuals used offshore structures for tax planning and asset protection. Bermuda is also the global “leader in captive reinsurance companies,” hosting many of the world’s largest catastrophe insurers and reinsurers. Investors can hedge or speculate on risks ranging from hurricanes to financial shocks.
In 2023, Vesttoo, a Bermuda-based insurtech company, used fake collateral documents to back reinsurance deals, fabricating billions in financial guarantees, in what a Delaware court filing described as Bermuda’s “largest insurance fraud ever.” In October 2024, the Tax Justice UK ranked the BVI and Cayman Islands as the world’s most damaging tax havens, with Bermuda coming in third place…”