As the larger nations around the world continue to battle against the repercussions of the global downturn, it is hardly surprising that they are looking for ways to balance their books.
With that in mind, in recent months, their thoughts have increasingly turned towards International Finance Centres (IFCs) and how ‘clamping down’ on such jurisdictions might help in their efforts to boost tax receipts.
Unfortunately, a great deal of the political rhetoric surrounding these efforts has been ill-judged and unrepresentative of the real role high quality IFCs like Jersey play, the function they have and the positive value they add to economies globally.
The result is that, in order to provide a robust response and help better inform the debate surrounding them, IFCs are finding that they need to place an increasing degree of importance on research and fact-based evidence.
Transparency and the high standards of regulation that IFCs can demonstrate is one area where there is particular public misunderstanding. One of the sound-bites to emerge from the Lough Erne G8 Summit in June this year, for example, was UK Prime Minister David Cameron’s ‘request’ to the British Overseas Territories and Crown Dependencies to ‘get their houses in order’.
The facts, however, reveal a very different picture from the one of secrecy and lax regulation that the Prime Minister and other politicians seem to believe.
The reality is that Jersey remains one of the world’s best regulated IFCs - a position that has been acknowledged by independent assessments from some of the world’s leading bodies including the World Bank, the OECD and the IMF.
Jersey has been fighting tax evasion vigorously since it introduced legislation in the late 90s making it a criminal offence, whilst the Jersey authorities have now signed 39 international tax agreements. Banking secrecy laws do not exist in Jersey, and regulations are in place so that beneficial ownership details of any entity, including a trust, are fully accessible to Jersey’s financial services regulator and under the terms of the tax information exchange agreements.
Add to this Jersey’s commitment to US FATCA, UK FATCA, the G5 multi-lateral pilot, the EU’s information exchange programme, and, following the G8 Summit, Jersey’s intention to sign the OECDs Multilateral Convention on Mutual Administrative Assistance on Tax Matters, this is far from being a jurisdiction that needs to get its house in order, and one where there is an undeniable commitment to transparency and global standards.
Of course, for information exchange to have value, good quality information needs to be captured in the first place. All Jersey corporate service providers (CSPs) are regulated and subject to inspection by the regulatory authority, and must hold detailed client records and know who owns the money. In Jersey, all CSPs have to hold what is technically termed ‘beneficial ownership’ information. For companies, this information is held by Jersey’s company registry and for trusts on the files of the licensed service provider, which is subject to inspection by the regulator through on site supervision visits.
As far as beneficial ownership is concerned, Jersey has been cited in a World Bank report as a model of good practice in capturing the details of beneficial ownership of companies registered in Jersey.
The UK and indeed most large countries, including the US, do not routinely collect this information and in reality have no real idea who owns the companies they allow to be formed. So when the UK Prime Minister promoted the idea of public registries of beneficial ownership at the G8 Summit, in fact, Jersey was doing all of that – and more than the G8 countries - already.
In addition, an independent academic report from Professor Jason Sharman of Griffith University entitled ‘Global Shell Games’ confirmed that Jersey’s application of anti-money laundering laws and beneficial ownership requirements was 100 per cent effective in detecting bogus companies. Jersey ranked first equal for good compliance in the report. The UK and US performed poorly ranking 46 and 50 respectively from the 63 countries in the survey.
Overall, the standards Jersey demonstrates exceed most, if not all, G8, G20, OECD and EU countries. Jersey also remains committed to participating fully in the debate on tax transparency as it evolves, with a view to achieving a global level playing field.
Hence why the offer Ian Gorst, Jersey’s Chief Minister, made following the G8 Summit for Jersey to share its expertise with the G8, G20, OECD and EU nations, with a view to raising global standards in this area, is actually quite plausible and rather turns popular discourse on its head.
Value to the UK
Another area where IFCs can draw increasingly on empirical research is in proving the positive value they provide to global economies. In June this year, a new study showed for the first time the true value of Jersey to the UK economy.
As a home to 42 international banking operations and a skilled finance industry workforce of more than 12,000 people, Jersey attracts billions in banking and investments from around the world.
For a long time we believed that Jersey was a benefit to the UK but did not have the data to demonstrate it. But this new study, which is an independent and detailed analysis commissioned by Jersey Finance, has compiled and analysed the figures that were lacking to show Jersey’s true value to the British economy.
Among its most significant findings are:
Jersey helps the UK generate around £2.3 billion in tax revenues each year and supports an estimated 180,000 British jobs
£1 in every £20 invested by foreign individuals and companies in assets located in Britain reaches the UK via Jersey
Jersey is a conduit for nearly £500 billion of foreign investment into the UK, comprising five per cent of the entire stock of foreign owned assets
The contribution from Jersey banks to parent operations in the UK represents 1.5 per cent of the funding of the whole UK banking system
Two fifths of all assets administered or managed across Jersey’s financial and wealth management sectors come from markets outside the UK and EU
The report, produced by leading independent macro-economic research company, Capital Economics, is the first in-depth analysis of its kind, illustrating that Jersey provides vital liquidity to the UK economy, facilitates inward investment from around the world and consumes UK exports, all of which supports UK jobs.
It estimates that almost one half of the combined value held in the stewardship of the island’s trusts and other structures, funds and banks has been invested in assets located in Britain. The report stresses that this does not simply mean that the assets are intermediated through the City of London, but ultimately located in Britain.
It also demonstrates the truly international nature of Jersey’s finance industry, with global capital flowing to the UK from some of the largest and fastest growing markets in the world. The new study estimates that three quarters of the wealth attracted to Jersey originates from ultimate beneficial owners who are not domiciled in the UK and concludes that Jersey has become a major conduit for non UK domiciled foreign wealth which, says the report, ‘has been a consistent plank of British policy for attracting wealth and talent under successive governments’.
Jersey’s impressive banking contribution is also underlined in the report. Attracting capital from approaching 200 countries around the world, Jersey’s banking model’s security and strength is further complemented by subscribing to the Basel standards and holding an average core capital ratio, across the banking sector, of 14.8 per cent, some 50 per cent higher than the required international standard.
The study also looks at the potential for tax leakage and the broad conclusion drawn from the findings is that substantially more British tax is generated by Jersey than is lost through it. Tax evasion in 2011 was estimated to be no more than £150 million and is probably much less. Whilst still unacceptable, it is set to fall substantially, following the information sharing agreements Jersey has signed up to. However, the amount is far outweighed by the tax receipts that are obtained from Jersey generated activity which is in the region of £2.3 billion per annum.
While many colleagues in the City of London and professionals in other IFCs understand this symbiotic relationship, there is undoubtedly a need for these facts to be more widely appreciated. That is why the report is publically available at www.jerseyfinance.je/valuetobritain, so that people can review the methodologies and detail for themselves.
The Capital Economics report is one example of how Jersey Finance is building a portfolio of research to portray what is, in reality, a positive and compelling proposition. Drawing on third-party, concrete, professional and academic studies are increasingly useful in making sure Jersey can contribute to a meaningful, rational debate on the role of high quality IFCs that is rooted in fact.
As the international, economic and political landscape continues to evolve, doing so will become increasingly important for those IFCs that want, like Jersey, to maintain a key role as a centre of high quality international financial services expertise.
Geoff Cook International Board Director and Consultant - Formerly Chief Executive Officer at Jersey Finance. Geoff Cook is a regular speaker and contributor to conferences and seminars around the world and writes frequently on the issues affecting Jersey and other finance centres. Prior to his role at Jersey Finance, he was Head of Wealth Management for HSBC Bank Plc, based in London, responsible for the delivery of Financial Planning Services to the 10 million HSBC customers in the UK.