Since the Panama Papers, the “offshore industry” has been in a media storm which has questioned the relevance, role and morality of international financial centres (IFCs) collectively. Much has been written about how to bring these “secretive” jurisdictions to heel and to flush out the illicit practices that they allegedly shelter. There have also been several political pronouncements as a result of the papers.
It is not my place to act as an apologist for the entire IFC community. In fact, it is frustrating and misleading to see Jersey lumped into a pejorative “tax haven” bracket and dismissed as secretive and sinister.
What I can say is that Jersey has a better central registry than almost any other jurisdiction, and that the island brings significant investment to the City.
I can also say that independent academic research, published today, questions whether the proposed UK central public registry will be as effective as Jersey’s own registry in combating crime.
At the heart of the Panama Papers controversy was the use of offshore companies to hide the identities of the ultimate company owners – the beneficial owners. Logically, if the individuals are known, the company is far less likely to be used for financial crime.
Jersey’s position on hiding the identities of beneficial owners is very clear: we do not allow it. Jersey has captured beneficial ownership information for more than 20 years. Our Companies Registry provides law enforcement and tax authorities with “adequate, accurate and timely” data – the specific requirement of Recommendation 24 of the FATF Recommendations.
While the beneficial ownership agreement that the UK government recently signed with Jersey may have appeared to be a knee-jerk reaction to the Panama Papers, in fact it was an element of on-going inter-governmental work to combat financial crime, and it re-affirmed our commitment to sharing beneficial ownership information with the UK’s law enforcement agencies. Under the new agreement, Jersey has committed to provide the information within 24 hours, or one hour in some circumstances. These new deadlines underline Jersey’s commitment to combating global financial crime. We already have a well-established registry, and are now determining the logistical requirements needed in order to meet the tighter deadlines.
Today marks the launch of an academic paper into the effectiveness of central registries and licenced intermediaries in combating financial crime. In it, professor Jason Sharman questions whether centralised registries can effectively be used to detect criminal funding, because many are unable or unwilling to verify the information they receive. In short, the planned UK central public registry may look good on paper, but the research released today questions whether it will work in practice.
Professor Sharman is best known as one of a group of academics who, in 2011-2012, strength-tested the regulatory systems of 180 countries by impersonating money launderers, corrupt officials and terrorist financiers. The results, published in the subsequent report, Global Shell Games, demonstrated that, overall, IFCs were less likely to engage with those (fake) criminals than OECD member states.
He also suggests that the “Jersey model”, with both a central registry and regulated corporate service providers, is demonstrably better at combating financial crime. Our regulatory system is an important distinction between us and other jurisdictions; we believe that it is more robust and more effective at combating crime.
So forget the headlines claiming that Jersey has been brought to heel. We were never complacent or uncooperative, and we have been early adopters of legislation. The current furore distracts from the work we have already undertaken in driving international standards, particularly in terms of transparency around beneficial ownership. It also diverts attention from the benefits that well-regulated IFCs bring to the City and the wider UK economy.
Jersey provides vital liquidity to the UK economy, facilitates inward investment from around the world, and consumes UK exports. If Jersey and the other Crown Dependencies ceased to be international financial centres, much of the finance we mediate would no longer find its way to the UK economy.
Research from 2014 showed that Jersey’s financial services sector intermediated almost one pound in every 20 of investment by foreigners into the UK, and supported 180,000 British jobs. This investment into Britain depends upon Jersey’s status.
We are immensely proud of our relationship with the City and of our role within the global financial system. Practitioners, regulators and politicians in Jersey recognise that our reputation for robustness, security and stability is our strongest commercial attribute. Taking on “dubious business” threatens that reputation, which is why it is in the island’s own interest to protect against it.