Government acted unlawfully on Health City Cayman Islands deal

Cayman Islands government acted unlawfully and without proper authority in signing off the Health City Cayman Islands deal. According to the latest report from the UK appointed Auditor General, the Cayman Islands government acted unlawfully and without proper authority in signing off the territory’s largest ever private sector development agreement.

On the Health City Cayman Islands deal, auditors state:

“No approval from the Legislative Assembly was sought, even though the agreement committed government to hundreds of millions of dollars in tax, duty and fee concessions and contained obligations for infrastructure upgrading and expenditure.”

Auditor General Alastair Swarbrick explains that the Health City deal is an example of how the Cayman Islands government fails to properly manage, or in some cases properly participate at all, in the development process. “The governance framework for government expenditure requires that ministers set objectives and policy, but do not become involved in selection of means or in operation implementation. All activity and expenditure must be approved by the Legislative Assembly.”

According to the report, Cayman Islands government officials admit that elected ministers had played a greater role relative to the project than is legally prescribed
The unnamed claim that it is not practical to exclude ministers from deals, regardless of the governance framework of the Cayman Islands government due to the national importance attached to such projects.

Swarbrick has listened to the excuses but points out that as the government has to go cap in hand to the UK government for agreement on major expenditure, and that in recent years the islands have had to be bailed out financially by the UK, this is far more than a technical error, “Ministers and the government in general have not followed the government’s own laws and regulations with regard to the approval of the project. This is a challenging issue and something we continue to see across most of our audits. Where does the political responsibility start and stop? There needs to be an open and frank discussion around that.”

Two studies were undertaken relative to the Health City Cayman Islands project before the hospital opened in East End in February 2014. The private sector company proposing the development completed one, the other was done for the government’s Ministry of Health.

Neither study resulted in a complete, fully documented report, auditors noted. The private sector review focused mainly on potential revenue streams and the company’s own financial forecasts, while the ministry study questioned the competitiveness and profitability of health tourism in the Cayman Islands.

Auditors reveal that when the hospital agreement was discussed in Cabinet, questions were raised about signing such a deal without a full study “Assurance was provided that the proposal had been researched by the former minister and that a full study was in progress. No such study was ever completed.”

The conclusion from auditors was that the government committed to tens of millions of dollars in expenditure for the Health City Cayman Islands project without adequately researching the costs involved.

This is far more than a historic problem as it could affect the future of Health City. The auditors explain: “There is a risk that, should Health City ever expand to its full size, the Cayman Islands government could come under pressure to provide infrastructure which it cannot afford. While employment of Caymanians would increase and there would be private benefits, there would not be a proportionate growth in tax revenues due to the huge concessions given the company.”

The auditors are unhappy about the size of the tax concessions. According to auditors, concessions for the hospital project included US$800 million in customs duty concessions on medical equipment and supplies, an unknown amount in reduced work permit fees, provision of water at a preferential rate by the Water Authority for an unlimited period of time and a commitment to upgrade airport facilities to accommodate an expected increase in traffic due to medical tourism.

The auditors add: “No information was provided to the Legislative Assembly, even though the agreement committed government to hundreds of millions of dollars in tax, duty and fee concessions and contained obligations for infrastructure upgrading and expenditure.”

This may seem theoretical but the UK appointed auditors are effectively warning the Caymans Islands politicians that if they ever have to ask the UK for money that they have illegally committed themselves under this deal, the UK could either refuse to pay up, or negotiate tough conditions.

Local politicians were keen to agree a deal with Health City, supporting financial concessions and non-financial ones, plus agreement to lock out any competition for decades.