Leading IFCs deserve credit

for their response to shifting regulatory agenda

The British Overseas Territories and Crown Dependencies are coping with increasing amounts of regulation and are working hard to obtain the credit many deserve for their response to the shifting regulatory agenda. 

The debate around transparency and information exchange continues to evolve and has demanded a real focus for everyone working in jurisdictions such as ours, where we are frequently in the front line when there are ill-considered accusations of secrecy and illicit financial flows.

There was a considerable political breakthrough about 18 months ago when U.K. Prime Minister David Cameron made a welcome statement in the House of Commons in which he said it was no longer fair to refer to any of the overseas territories or crown dependencies as tax havens, an announcement, which for Jersey, echoed comments by the Secretary General of the OECD, Angel Gurría,  who had written to Jersey’s chief minister the previous year to congratulate the island on the measures it had taken in support of international tax transparency. Gurria later highlighted Jersey’s efforts in tackling tax evasion at a major conference in Brussels.

Embracing change

It is important that the global debate on regulation and transparency does not rest solely with the actions of the smaller international finance centers (IFCs). We have argued for some years that developments in regulation and information exchange mechanisms need to be implemented in a concerted manner across the globe for them to be fair, as well as effective.

The argument for ‘a level playing field’ has been recognized by influential global bodies such as the OECD. Much more has been achieved in that regard and the latest moves to introduce a common reporting standard, a step towards the implementation of a new single global standard for automatic exchange of information, are welcome.

A total of 51 countries and jurisdictions, including the Cayman Islands and Jersey, are signatories to the ‘early adopters group’ and are committed to the new OECD standard. With so many signatories at one time, it showed that a broad range of other finance centers were also willing to embrace a similar vision of transparency and cooperation.

Undoubtedly, the momentum for greater transparency in financial services is gathering steam and is a development that Jersey fully supports, providing it is done through the adoption of sensible workable global standards and a mature approach to balancing transparency with a legitimate right to an appropriate level of confidentiality.

However, we realize that our commitment to these moves is not enough and that IFCs such as Jersey also need to consistently demonstrate our track record in regulatory and tax exchange matters.

In addition to being an early adopter of the latest OECD model on automatic exchange, Jersey can point to signing more than 40 tax agreements with countries worldwide. We have signed up to U.S. FATCA, an inter-governmental agreement with the U.K. and a European Savings Directive for automatic exchange of information within the E.U. As far as tax evasion is concerned, it has been a criminal offense in Jersey since legislation was introduced in the 1990s.

Tax and politics

The issue of tax evasion and tax avoidance was thrust back into the media spotlight last month when Labour leader Ed Milliband announced that if elected, Labour would demand that crown dependencies and overseas territories introduce an open public register of companies, or face the threat of being blacklisted. His recent intervention in the tax evasion debate sadly bears all the hallmarks of electioneering and is designed to put pressure on the Cameron administration.

It is a shame that the issue has been used as political football since it is a serious one which deserves a rational discussion.

As far as Jersey is concerned, it leads on current international standards through operating a central registry and through regulating all corporate service providers who have a legal obligation to ensure that accurate and up-to-date information is held on the real owners of companies, trusts and bank accounts.

We have captured beneficial ownership information on a corporate registry since 1999. The Jersey Financial Services Commission (JFSC) regularly undertakes rigorous on-site examinations of businesses to assess compliance. Furthermore, Jersey’s ability to capture ownership information of companies is far ahead of those available in other jurisdictions, including the U.K., which is so far alone in calling for a public registry.

We do not believe there is wide support among governments for public registries. Indeed at the last meeting of G20 nations, one of the key findings on beneficial ownership was an endorsement of the current Financial Action Task Force (FATF) approach which is to ensure that the true owners of value are known, that this information is readily available and that it can be exchanged between governments without undue difficulty.

The NGO lobby will be disappointed their campaigning failed to deliver public disclosure of private assets, with rights to compliant confidentiality being maintained.

Given there is ready access and availability of beneficial ownership information to foreign fiscal and investigative authorities, the industry in Jersey does not believe there is further benefit in pursuing a public register.

We believe this is the prudent approach as a public registry will be of dubious value, will be bypassed by criminals and those who misuse companies to launder money and for tax evasion purposes, while data will be unreliable.

In the furor of political media stories in the U.K. during the build up to one of the most keenly fought U.K. elections for years, we should brace ourselves for further ill-informed comments about tax avoidance, tax evasion and the role of places like Jersey and Cayman. While there is no failsafe system anywhere in the world that will pick up every single case of tax evasion or money laundering, many of the leading IFCs have better regulatory measures in place than their onshore counterparts, a point we seek to emphasize whenever possible.

In addition, it is all too conveniently forgotten that there are many legitimate and indeed sensible reasons why an individual would have an offshore account, including protection of cash from corrupt governments in unstable countries, predatory tax officials, or the risk of extortion or kidnap. 

Capital flows

We also have to contend with critics, often with their own political agenda, who allege that IFCs allow significant illicit capital flows which enable individuals and multinational enterprises to avoid paying a ‘fair’ amount of tax.

We believe such assumptions rest on poor data and analysis, and on mistakes about how financial transactions, international taxation and anti-money laundering rules actually work. Critics who single out IFCs have ignored the independent, ongoing assessments of all financial jurisdictions undertaken by bodies such as the OECD, the IMF and the World Bank in which IFCs like Jersey are acknowledged as having some of the most stringent regulatory and supervisory regimes of any jurisdiction, both onshore or offshore.

Increasing evidence has been collated which adds further weight to the arguments about the positive role played by IFCs in global finance.

The World Bank/Jason Sharman report ‘Shell Games,’ which undertook to test the quality of the supervisory capabilities of jurisdictions, concluded that offshore centers were among the most compliant jurisdictions in meeting standards to prevent money laundering and financial crime, ahead of the U.K. and U.S. for example, who were far less compliant. In reality, IFCs have an important role to play in facilitating the free flow of global capital and increasing international investment in a perfectly legitimate and beneficial way.

We have sought to illustrate the role of IFCs through a series of evidence-based reports produced by economists and leading academics, which we have commissioned during the last few years.

The results of such analysis have shown, for example, that Jersey is a net contributor to the U.K. economy, sustaining up to 180,000 jobs and that IFCs generally have a positive role to play in facilitating global capital and in supporting infrastructure projects in new markets where governments are keen for investment to support their expanding economies.

It is our view that responsible IFCs are a key driver in facilitating cross border finance, in safeguarding investments and in contributing to the global economy, whilst meeting regulatory obligations and supporting global initiatives in fighting financial crime and we are accumulating increasing evidence which we can use to defend our role when necessary.

 

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Geoff Cook

In promoting the Finance Industry of Jersey, Geoff visits many of the world's leading finance centres on a regular basis, highlighting the strengths of Jersey as a financial jurisdiction and updating Government officials, regulators, finance professionals and international investors on legal and regulatory developments and service innovations offered by Jersey. In conjunction with the Island's Government, he commissioned an in depth strategic review of the Jersey Finance Industry in partnership with the London Business School providing a roadmap entitled ‘the Future of Finance 2015’.
 

Geoff Cook
CEO
Jersey Finance
Channel Islands

T: +44 (0)1534 836000
F: +44 (0)1534 836001
E: geoff.cook@jerseyfinance.je
W: jerseyfinance.je
 
 

 

Jersey Finance

Jersey Finance is a non-profit making organisation formed in 2001 to represent and promote Jersey as an international financial centre of excellence. We are funded by members of the local finance industry and the States of Jersey government, and also have offices in Hong Kong and Abu Dhabi and representation in London, Mumbai and Delhi.  

 

 

 

4th Floor, Sir Walter Raleigh House,
48-50 Esplanade, Jersey JE2 3QB
Channel Islands

T: +44 (0)1534 836000
F: +44 (0)1534 836001
E: geoff.cook@jerseyfinance.je
W: jerseyfinance.je