One minute experts were predicting the demise of, or at least severe damage to, offshore finance centres such as Jersey because their role is on the agenda of the G20 summit next month. Now some experts tell us that Jersey and other co-operative and transparent centres could actually come out of the G20 meeting much stronger.
The reason for this new-found optimism is that the banking secrecy centres in Europe and the Far East, who have always been the main target for criticism, have agreed to adopt the same standards for exchanging tax information that Jersey and other centres more than six years ago. In theory, this should create the level playing field that the compliant centres have been striving for.
How you view these dramatic developments, however, rather depends on where you stand. UK Prime Minister Gordon Brown is reported to have said that this is ‘the beginning of the end of tax havens’.
Experts who work with tax havens take a different view. One of them wrote in a letter to The Financial Times that rather than heralding the end, these developments herald a new beginning for the UK’s offshore jurisdictions.
We will just have to wait and see who is right, but I think it’s a little too early to heave a sigh of relief that we are off the G20 hook. There are still plenty of threats along the road to the London summit.
In particular, the agreement to adopt OECD- approved tax information exchange agreements is only part of the problem the big jurisdictions have with the offshore finance centres. The Americans in particular are concerned about the corporate use of tax havens to deny the US Treasury billions of dollars in tax. That will inevitably lead to arguments about what major US corporations are doing in places like Cayman, and even the Channel Islands.
As the G20 meeting has been called to reform the whole international financial system, it is inevitable that the role of offshore finance centres will be investigated. There is also not likely to be much sympathy for offshore centres when the G20 come up with their blue print. The popularity of offshore centres among the G20 leaders is probably on a par with that of international bankers.
But at least we can rely on the UK fighting our corner, now that we have signed a Tax Information Exchange Agreement with them.
Well, if you believe that you will believe anything. The UK government won’t actually ignore the wishes of Islanders; they simply won’t allow themselves to be put into the position where they have to choose between the best interests of the UK as a whole and the best interests of the islands. Junior ministers and officials might well make soothing noises about recognising Jersey’s commitment to international standards, but that’s not likely to carry much weight in the discussions between Obama, Brown, Sarkozy, Merkel et al.
The signing of the TIEA is a useful indication of Jersey’s readiness to co-operate. Indeed, it is important for both sides, because it gets the UK off the hook of apparently letting one of its Crown Dependencies get away with it for so long. But it doesn’t fundamentally change anything. After all, the UK has known, or should have known, for years that Jersey was keen to adopt international standards. Yet we are still the subject of further investigations by Mr Foot and others.
The signing of the UK TIEA actually illustrates the dilemma facing Jersey and others as offshore centres. Of course we want to comply with international standards on information exchange and transparency, but we also want to reassure clients who use the Island that their financial affairs remain secret.
It is therefore pretty obvious that we will only comply with the strict terms of the TIEA and will go no further. That is precisely what the banking secrecy countries have been doing, and it’s equally obvious that in the brave new world of TIEAs they are adopting, they won’t be giving away more information than they strictly have to.
Some European commentators have already pointed out the limits of the new agreements that have been signed. It will not be open house for tax authorities.
It is also worth noting that while banking secrecy may have acquired a bad name, its purpose is very noble. The original aim was to protect an individual’s assets from the greedy hands of dictators such as Hitler. He is no longer with us, of course, but people still need their assets protecting from modern-day dictators as well as ex-wives, former business partners and sophisticated crooks.
I recently came across a relevant quote from Professor Bruce Zagaris of Washington dating back to 1999. It said: ‘The assault on bank secrecy and financial privacy and
concomitant increases of exchange of tax information will further erode privacy in an era when both law enforcement, electronic commerce and various information gatherers have dismantled much of the foundation of privacy law.’
Ten years later, there’s even less left. So whether the signing of TIEAs will satisfy those who clearly don’t see any benefits in tax havens remains to be seen. At the moment, the OECD model for exchanging tax information is the only game in town, and while we comply, we can take some comfort from that.
It’s what comes next that we have to worry about. And that could come as soon as the
Peter Body is editor of
Business Brief magazine