Following controversy in the UK over the lack of deposit protection for savers who had placed their money with subsidiaries of failed Icelandic banks in Jersey, Guernsey and the Isle of Ma
Following controversy in the UK over the lack of deposit protection for savers who had placed their money with subsidiaries of failed Icelandic banks in Jersey, Guernsey and the Isle of Man, the British government has decided to launch a review of financial services in the three crown dependencies as well as other UK dependent territories such as the Cayman and British Virgin Islands.
Ostensibly the review has been prompted by the need to examine financial stability and transparency in the offshore jurisdictions, and their crisis management and resolution capabilities, against a backdrop of global instability in the financial system.
That all of the processes and transactions that resulted in the system taking on unsustainable levels of leverage were decided on and largely carried out in onshore financial centres is neither here nor there, at least as far as authorities in the UK and other European countries are concerned.
However, the review is also set to look at issues such as taxation, both in regard to the sustainability and competitiveness of jurisdictions that have all but abolished corporate income tax – prompted in large part by European rules on the consistent application of tax measures – and in their co-operativeness with the efforts of other countries to prevent offshore centres being used to as a conduit for tax evasion.
The offshore centres, of course, have seen it all before, starting around a decade ago when bodies such as the Organisation for Economic Co-operation and Development and the Financial Stability Forum launched reviews of the offshore financial sector and its willingness to play by global fiscal rules.
To this day offshore centres are subjected to regular inspections from the likes of the International Monetary Fund and the Financial Action Task Force, and while these visits tie up officials and often industry members for considerable period of time, they are now considered just part of the cost of doing business.
Many centres are fairly sanguine about the latest UK initiative. ‘The review provides us with an opportunity to again demonstrate the high standards of regulation that are in place in Jersey, together with the actions we have taken to support the drive for greater transparency in global financial services,’ Geoff Cook, chief executive of promotional body Jersey Finance, said last month. ‘Our standards of compliance and governance are world-class, and we have the facts to support this.’
The Cayman Islands, too, points to the number of tax information exchange agreements it has negotiated and signed with countries in Europe and North America as an indication of the efforts it has made to eschew business that essentially depends on tax evasion, as well as its retrospective due diligence for anti-money laundering purposes on all bank account holders – a move the US and UK shied away from as too difficult.
However, one suspects that the new focus on offshore jurisdictions by the EU and national governments (not to mention the OECD, which is threatening to draw up a new blacklist of unco-operative jurisdictions) is less about uncovering failings that have hitherto remained undetected than about looking for useful scapegoats for the global financial misery.
Let’s hope that the confidence in Jersey and Cayman that they will come through the latest inspections with flying colours is not misplaced, and that the various reviews will be conducted with fairness and objectivity. But there is a nagging fear that critics of the offshore world may not let the facts get in the way of a good case.
