Jeremy Berchem, a specialist in company and banking law at Jersey law firm Voisin, says the review of offshore financial centres ordered by the British government – the latest in a long li
Jeremy Berchem, a specialist in company and banking law at Jersey law firm Voisin, says the review of offshore financial centres ordered by the British government – the latest in a long line of such exercises – is widely viewed as a ploy to distract attention from the failings of onshore governments and regulators.
There was many a wry smile in Jersey when Alistair Darling announced yet another independent review of regulatory arrangements which he says allow offshore centres to ‘attract banking customers with lower taxes – without contributing to the UK exchequer’.
Having seen his rapid U-turn regarding the taxation of wealthy non-domiciled UK residents so as to continue to attract wealthy individuals to continue to live in the UK, it seemed not a little hypocritical of the chancellor to point the finger offshore.
Darling plans to charge long-term ‘non-doms’ a GBP30,000 annual levy in exchange for preserving that status, but what has caused increasing anxiety among non-doms is that it had become clear in the detail of the proposed regulations that there would be increased disclosure requirements regarding financial affairs, which for some of these non-doms would be a considerable undertaking.
In the face of a growing backlash over his plans, with many wealthy individuals considering leaving the UK, Darling appears to have reconsidered his position on these requirements.
Jersey is essentially no different from other financial centres in the world with low tax environments designed to appeal to international investors. Every taxpayer is entitled to manage their tax affairs in the most tax efficient manner possible, and this is something that the House of Lords recognised as long ago as 1936.
The nature of financial services business undertaken in Jersey is, in many respects, broadly similar to that in many of the world’s largest onshore financial centres such as London, New York and Dublin, each of which offers low tax regimes to non-residents.
Regulatory and legal frameworks vary widely from country to country and only some financial centres enact banking secrecy laws. Jersey does not have any such laws, as it takes the view that well regulated centres, like Jersey, co-operate with foreign tax and other authorities and have sound, transparent supervisory controls, which still manage to confer appropriate client privacy. It is – poorly regulated states that hide behind secrecy laws to avoid co-operation with legitimate investigative approaches from foreign authorities.
Jersey regulations require, for example, information to be obtained regarding the beneficial ownership of all companies that are held privately. On the other hand, Delaware has no such disclosure requirements and consequently has more than 300,000 registered corporations.
If an investigator wished to establish who was the beneficial owner of a Jersey entity, it would be a simple matter to establish by enquiring at the Jersey Financial Services Commission. It is unlikely that the investigator would have any success at all in trying to obtain the same information about a Delaware entity. Perhaps President Obama should consider this when he speaks of the need for the offshore world to improve its transparency.
Indeed, Jersey has implemented stricter regulatory controls than many onshore centres, as transparency plays an important role in the way offshore centres differentiate themselves and attract capital from worldwide investors.
A recent International Monetary Fund study found that, on average, supervisory standards in offshore finance centres were ‘superior to those of other jurisdictions’, and a recent assessment by the IMF concluded that the island’s ability to comply with global regulatory standards was high.
The current review of Jersey’s financial and regulatory arrangements is just one of a long line of similar exercises going back to a UK Home Office analysis of the British crown dependencies in 1999. Jersey has consistently received positive reports from these reviews and where recommendations have been made, strenuous efforts have been made to comply.
Despite the impact the announcement of this review and the murmurings among G20 leader may have upon business on the island, as many potential investors will no doubt await the results, the Jersey financial community welcomes the latest review and looks forward to making a positive contribution to the debate.
But while the island has nothing to fear from such a review, that does not take away the sour taste left in the mouth of many Jersey professionals who feel that the whole exercise is simply a ploy to sidestep the core issue – the mismanagement of the global financial crisis. It is a recognised political ploy to point the finger elsewhere to distract attention from problems within.