Wealth surveys ably demonstrate the shifting patterns of global wealth and the rise and influence of private clients and institutional investors from emerging markets on global finance strategies.

These trends present International Finance Centers with further potential in facilitating cross-border aspirations where developing countries are concerned. But, at the same time, the global transparency debate and the drive to clampdown on tax evasion and aggressive tax avoidance continues to accelerate and this can place IFCS in the firing line, even those able to demonstrate robust regulation, strong legislation and a willingness to cooperate in the introduction of new tax information agreements.

MM_FORNew evidence

Much of the criticism and clamor directed towards IFCs has been generated by NGOs, despite the fact that many of their assertions have been based on data that does not stand up to scrutiny.

It was one of the reasons that Jersey Finance decided to build a strong library of evidence-based research – as we have highlighted in our previous columns – designed to correct some of the misinformation that is often propagated surrounding IFCs.

In summary, we commissioned our first research-based report (“Jersey’s Value to Britain”), carried out by Capital Economics, a leading, independent macro-economic research company, in 2013 in order to showcase the many benefits Jersey provides to the U.K.

Among its findings were that Jersey is a conduit for nearly £500 billion of foreign investment into the U.K., helping generate around £2.3 billion in annual tax revenues and supporting an estimated 180,000 British jobs.

Further reports were then commissioned, including the “Moving Money” paper published by two leading U.S. academics, which provided a powerful answer to the critics of IFCs, and demonstrated the value of having an open global financial market in helping to boost global trade and economic growth. It explored different approaches to tax policy and regulation and ultimately found that IFCs help to increase international financial flows, facilitate trade and investment and allow the reduction of overall financial risk.

In another study, and to focus further on emerging markets, we highlighted the fundamental role that Jersey can play in facilitating foreign direct investment into the African continent to help it fulfil its economic potential by 2040. In the “Jersey’s Value to Africa” report, also conducted by Capital Economics, it was calculated that around US$6.1 trillion of foreign direct investment through trusted IFCs like Jersey is the only way Africa is likely to be able to plug its funding gap of $11.4 trillion.

Most recently, with a growing amount of capital flowing across borders, we explored “Jersey’s contribution to Foreign Direct Investment (FDI).” The report, commissioned by Jersey Finance and published by global management advisory firm, Investment Consulting Associates, concluded that IFCs like Jersey are key providers of investment vehicles, supporting financial services and other essential services, all of which serve to increase the scope and flexibility of capital to make it easier to invest around the world in pursuit of FDI objectives by attracting, pooling and directing economic flows between source and destination jurisdictions.

Where developing countries are concerned, quality IFCs can help bring knowledge, offer a solution, and facilitate much-needed infrastructure investment. By using IFCs’ investment vehicles, investors can reduce the risks of transferring assets across borders, particularly to countries, such as some emerging markets, which are less stable and not as well-regulated.
Without IFCs and their stable fiscal and regulatory regimes, flows to developing economies might not happen since the risks of such investments could outweigh the returns.



Reports like this are serving as a good illustration of how leading IFCs are making a positive contribution to global investment and are helping to bring about a sea change. Such findings enable us for the first time to more effectively challenge the claims of NGOs, especially questioning the integrity of the methodologies, findings, assertions and objectives behind their research.

We have become accustomed to critics distorting or misrepresenting data to claim that the amount of tax involved in tax leakage is very significant in relation to the revenue base of the poorest countries, and that tackling tax dodging would generate enough funding to achieve ambitious development goals.

For example, a common assertion made by NGOs and aid agencies is for the tax gap to be associated with paying for emotive services such as healthcare and education. The Global Alliance for Tax Justice, for example, stated “To tackle tax dodging and to fund free, quality healthcare and education we need tax justice.”

Recent global estimates, such as by the IMF and UNCTAD, put the scale of potential revenues from international tax losses in the region of US$100 billion to US$200 billion across developed and developing countries. Maya Forstater, one of the academics researching how much is really known about multinational tax avoidance, notes in her draft paper on this topic, that on a per-capita basis, this equates to around “US$20 to US$40 per person per year which, whilst by no means an insignificant sum of money, at around 2% of overall tax revenues across those same countries, it is difficult to see how it would be sufficient to meet the need for all investment in modern healthcare, education and infrastructure.”

Furthermore, even if the total estimated tax losses are accurate, the figures are often repurposed to suit an agenda. For example, of the US$100 billion to US$200 billion noted above, a significant proportion will relate to countries such as China, Brazil and South Africa, and additional tax raised in those countries will not result in increased public spending in countries such as Cambodia, Haiti or Malawi.

The contention that just because an asset is held offshore it must be illicit also needs to be challenged. The Tax Justice Network, for instance, estimates that at least US$21 trillion to US$32 trillion of allegedly illicit private wealth is held offshore. However, with the example of Jersey, even a cursory analysis of its finance industry shows that various sovereign wealth funds, U.K. pension funds and other institutional business is undertaken in the jurisdiction and the reality is that these investments are either fully tax compliant or not subject to tax anyway.

As far as complex corporate structures are concerned, they are only an issue if the regulator does not have access to the names of the ultimate beneficial owners. There are still locations where there are no details of beneficial ownership, with such data needing to be traced, and in these circumstances there is merit in calling for adherence to global standards.

In places such as Jersey, where the regulator has access to the names of ultimate owners of companies and a comprehensive network of information exchange platforms, it is difficult to see how accusations of assets being ”secret” or illicit could possibly be true.



Another area of debate has been the idea that cracking down on tax avoidance by multinational companies has the potential to raise large sums of additional finance for infrastructure in developing countries.

Many of the estimates of “illicit outflows” consider trade mispricing to be the main method under which developing countries are stripped of much needed capital and tax revenue.

However, research is increasingly showing that the headline-grabbing calculations which have been put forward are often of limited rigour or are failing to distinguish between legitimate cross-border activity and illicit capital flows.

It is a shame that so much attention has been paid to these claims by NGOs and aid agencies, not least because it does little to address the actual long-term problems for developing countries.

Furthermore there is also the danger that the ongoing criticisms of the role of multi-nationals and IFCs will serve as a disincentive for cross-border investment because of constant haranguing. A better understanding of numbers and facts can help all take a step forward towards a paradigm based on evidence and constructive engagement. There is no desire to attack the valuable frontline work that charities do, but rather we have to question the use of exaggerated statistics used to back up arguments which, when inaccurate, do everyone a disservice.



Overall, as the research produced recently for Jersey shows, there is strong evidence to suggest that IFCs have a constructive role to play in putting capital to work in order to achieve a good profit return for investors, while also benefitting developing nations.

Cross-border business in developing countries is being driven by a need for a quality service, with decisions surrounding IFCs being led less by tax and more by a need for very specific expertise, knowledge, strong case law and the availability of a range of structures. As a result, there will be increasing opportunities for jurisdictions that can demonstrate substance on those factors, to play a key role in meeting the needs of an increasingly diverse and complex cross-border investment landscape. Equally, as we look forward now and with the increasing evidence available to us, there is a real opportunity to move the dialogue about IFCs and their role in the global economy onto a more constructive footing.

Previous articleTransferWise is Skype of fintech by making international transfers faster and cheaper
Next articleChoosing our own money is central to economic freedom
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
Jersey Finance
Channel Islands

T: +44 (0)1534 836000
F: +44 (0)1534 836001
E: [email protected]
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: [email protected]
W: jerseyfinance.je