Offshore Cayman Islands accounts are commonplace, used statewide by many cities and the State of Utah, according to banking and state officials.
Concerned taxpayers, who first brought the issue to public attention, should rest easy, State Treasurer Richard Ellis told the Daily Herald. The accounts are safe and legal.
The state has three requirements for accounts of this type to be approved. Those are first, safety of the cash, followed by liquid access to the money, and then return on investment, Ellis said. The Cayman accounts provide a return on investment four times greater than other options while also meeting the first two requirements.
The accounts work in a unique way. At the close of business every day, the money is "swept" from the city's everyday checking account into the Cayman Islands account, where it earns interest overnight. The money is then automatically "swept" back into the city's checking account at the opening of business each day, satisfying the state's requirement that the city have access to the money.
The big question is, why is all of this necessary? Why is taxpayer money moving offshore and onshore every day at all?
Because the Cayman Islands accounts, while still being safe, have fewer fees, said both Ellis and Zions Bank officials. This allows the account to pay out an interest rate to cities and the state that they simply cannot get onshore. Eagle Mountain officials have said they are getting about 1 percent interest on their account.
The money is never converted to another currency, and the Cayman Islands are part of Great Britain, so there is no risk of the money being seized by an unfriendly foreign government, Ellis said.
"All the major banks have them," Ellis said of the accounts. Cities and the state have used them for 20 years.
A concerned Eagle Mountain resident brought attention to the existence of such accounts by asking the state auditor to look into the legality of Eagle Mountain's account. Ellis said he understands why, at first glance, taxpayers might be concerned to learn that a city is keeping large amounts of cash -- $2.5 million in the case of Eagle Mountain -- offshore, even if only overnight.
"I agree there is a stigma about a Cayman Islands account and people laundering money," he said, mentioning the popular John Grisham novel "The Firm" as an example. But "these accounts are set up differently" and are fully legal to take advantage of different banking laws in the Cayman Islands.
Jacob Heugly, executive vice president over corporate services for Zions Bank, told the Daily Herald that the Cayman accounts benefit from "different accounting principles and practices" allowed in the Cayman Islands.
"There are fewer fees we are paying on our side," which allows the bank to pay out a higher interest rate on the sweep account, he said.