Jersey: International Law

Jersey was outraged at its inclusion in 2000 on the OECD's list of harmful tax havens. The island's Financial Services Commission said that if it brought in any new legislation, then it was not to meet the requirements of the OECD but to establish and maintain high standards in the provision of financial services and enhance Jersey's reputation as a top financial centre.

The Jersey Financial Services (Extension) Law, which came into force in 2000, extended the remit of the Commission under the Investment Business (Jersey) Law 1998 over banking, investment funds and insurance activities into trust and company management, if the underlying activity is connected with financial services.

In December 2000, a consultation document was published, entitled 'Overriding Principles For A Revised Know Your Customer Framework', which was essentially a joint initiative from financial regulators in Guernsey, Jersey and the Isle of Man to bolster their existing anti-money laundering regulations.

The areas covered by the Overriding Principles included the following: In the majority of circumstances, financial services businesses would be required to verify the identity of their customers, and if different, the principals behind their customers; no distinction was to be made between accounts opened in person and those opened remotely; and reliable introductions must only be accepted from regulated entities subject to anti-money laundering regulations and resident in "approved" jurisdictions.

In April, 2001, Jersey received compliments on its regulatory regime, when the US Department of State and the Securities Commission in British Columbia "unanimously highlighted the high standards of the Jersey Financial Services Commission in fighting financial crime and its cooperative approach in working with other regulatory authorities".

In the 2001 issue of its annual International Narcotics Control Strategy Report, the US Department of State described Jersey's service industry as "sophisticated", adding: 'Jersey has established a comprehensive anti money laundering programme and has demonstrated its commitment for fighting financial crime. Jersey officials co-operate with international anti money laundering authorities.'

Later in the year, after the horrors of September 11th, Jersey was quick to support international measures to tighten up on money-laundering, and as one of the most compliant jurisdictions expected to find itself in a good position.

In November of that year, Jersey implemented a Terrorist Financing Order, and said it intended to adopt the UN Convention for the Suppression of Terrorist Financing as soon as its domestic law had been amended.

The Terrorist Financing Order came into force on 10 October, and was virtually identical to equivalent legislation introduced in the City of London.

Phil Austin, then Chief Executive of the finance industry's representative body, Jersey Finance, announced at the time that:

"Jersey is also likely to incorporate in domestic law any enhancements to the Financial Action Task Force (FATF) recommendations to deal with terrorist financing adopted at the FATF Plenary at the end of October. We are calling on all jurisdictions both onshore and offshore to examine their regulations against financial crime and, where necessary, improve them as a matter of urgency. The Jersey authorities believe that the timescale now envisaged for this will be well ahead of that in almost all EU Member States.

In November the Jersey authorities signed an information exchange deal with French financial regulators in order to head off accusations that the offshore jurisdiction was lax on financial crime. The agreement covered offences such as market manipulation and unlicensed financial service provision, and was intended as the first in a series of accords with overseas financial authorities.

With regard to tax, in February, 2002, Jersey and Guernsey announced that they had come to an agreement with the Organisation for Economic Cooperation and Development, just hours before the multilateral organisation's deadline for commitment on tax reform and transparency initiatives.

In a joint statement, the Islands revealed that: 'Following clear recognition from the OECD of the essential importance of a level playing field, Guernsey and Jersey have agreed to reflect the OECD's principles of exchange of information and transparency both in a general political commitment and in tax information exchange agreements to be negotiated with individual jurisdictions.'

The jurisdictions stressed in the statement that in both offshore centres there were already information exchange provisions in line with OECD recommendations on criminal tax matters in place.

By April 2002, however, Jersey found itself with a new and unexpected nemesis on the information-sharing front.

With just eight months to go before the EU's self-imposed deadline for agreement on the terms of an information-sharing regime for the taxation of savings interest, politicians were becoming nervous about the Union's failure to persuade major external financial centres to sign up to the proposed system, which would require banks to report interest payments to non-nationals to their home tax authorities.

The EU's Directive, laboriously agreed after years of wrangling, was made dependent on the adherence of non-members such as Switzerland and the US, and also assumed that member states' dependent territories such as Gibraltar and Jersey, in the UK's case, would apply the same rules.

However, negotiations between the UK and its 'rebellious' offshore territories quickly reached crisis point. The UK government accused Jersey of 'wrecking' the Directive, and of putting London's international bond market at risk by failing to move swiftly to improve transparency.

Gordon Brown,then UK Finance Minister, was said to be angry that Jersey's intransigence could allow other non-EU countries to evade signing information agreements.

The Treasury mulled the options it had to force Jersey into line; but the island was in good standing with the OECD, the FATF and the US, so that unilateral sanctions by the UK didn't seem likely, and Jersey's ultimate weapon - independence - always rears up in the background of any spat with the mainland.

Jersey's President of Policy and Resources at the time (and now chairman of Jersey Finance), Senator Pierre Horsfall, urged the States authorities to rise to the challenge of negotiating with the UK and the European Union over the controversial savings tax directive with 'determination and resolve'.

'The exempt company has been a cornerstone of our tax regime for over 40 years and is the foundation on which the success of our finance industry has been built,' he explained. 'Our competitive position on bank deposits would be jeopardised if we moved to automatic information exchange but our two major European competitors, Luxembourg and Switzerland, did not.'

Eventually Jersey agreed, in principle, to make some concessions on information-sharing, but no agreement was reached regarding the European Union Code of Conduct on Business Taxation, which would require the jurisdiction to amend or remove certain tax measures which have been key to Jersey's success as an international financial centre, but which the EU regarded as 'harmful tax practices'.

In September, 2002, Jersey began to face the possibility that it would have to follow the Isle of Man's lead and reduce corporate tax rates to zero in order to comply with the European Union's Code of Conduct on Business Taxation, while still remaining competitive.

The Finance and Economics Committee published its Fiscal Strategy proposals in February 2005 and these were approved by the States Assembly in May 2005.

The States agreed to introduce a broad-based, 3% Goods and Services Tax (GST), with a registration threshold set at GBP300,000 of taxable turnover, in 2008, with a 'zero/ten' tax system to follow.

It also agreed to phase out income tax allowances for those on higher incomes (20% Means 20%) over a five-year period beginning in 2007, and tax exemptions and allowances were frozen for year of assessment 2006.

In November, 2002, Jersey signed a tax information exchange agreement with the US as part of a campaign to tackle tax evasion and the threat of terrorist money laundering. The deal with Jersey, the largest of the Channel Islands, was the latest in a series of agreements being negotiated by the US Treasury with major offshore money centres.

Then US Treasury Secretary Paul O'Neill said cooperation between governments was now "more important than ever. We work to ensure that no safe haven exists anywhere in the world for the funds associated with illicit activities, including terrorism, money laundering and tax evasion," he said.

Returning to the Savings Tax Directive, in June, 2003, Jersey and the Isle of Man revealed that they would both be following Guernsey's example, and would , from January 2005 (later changed to 1st July, 2005), levy a withholding tax rather than exchange information on the savings interest of EU residents.

Senator Walker observed that although Jersey does not belong to the EU, it was in the jurisdiction's best interests to cooperate with the European body and adopt a 'good neighbour' attitude. 'We believe that a high international standing for Jersey brings tangible rewards to our finance industry and to the Island generally,' he explained, continuing: 'This good reputation is best achieved by constructive engagement with international institutions and governments.'

The P&R chief also welcomed the European Union's acceptance of Jersey's proposals and time-frame for coming into compliance with the Code of Business Conduct directive.

Returning to money laundering and regulatory matters, in December 2003, Jersey was able to welcome the publication of an International Monetary Fund (IMF) report commending its regulatory and law enforcement regimes. The jurisdiction was found to have a high level of compliance with each of the international standards against which it was judged. These included the Basel Core Principles for Effective Banking Supervision, the Insurance Core Principles of the International Association of Insurance Supervisors, and the Financial Action Task Force's 40+8 anti-money laundering recommendations.

Jersey won praise from the multilateral body for its legal and supervisory system, the measures which had been put in place to facilitate international cooperation, the number of information exchange agreements entered into with foreign supervisory agencies, the measures put in place by the Jersey authorities in order to preserve the Island's reputation, the fact that Jersey was, in common with Guersey, one of the first jurisdictions to apply a comprehensive regulatory regime for trust and company service providers, and the high levels of anti-money laundering awareness demonstrated by financial services firms visited by the IMF delegation.

In November 2006, the Jersey Financial Services Commission unveiled proposals to tighten anti-money laundering rules governing money service businesses such as bureaux de change, money transmitters and cheque cashers.

Although money service businesses were already required by the Money Laundering (Jersey) Order 1999 to have systems and training to forestall and prevent money laundering, there was no body responsible for ensuring that such businesses implement the requirements of the Money Laundering Order effectively.

According to the JFSC, the absence of such an oversight regime meant that Jersey fell below international standards set by the Financial Action Task Force, a fact which was noted by the International Monetary Fund (IMF) in its 2003 assessment on the supervision and regulation of the financial sector in Jersey.

The proposed legislation, which was set out in a new consultation paper, was targeted at those carrying on the following activities:

• Foreign currency exchange. This will include post offices, travel agents, and hotels.
• Money transmission (or any representation of money, such as travellers’ cheques). This will include banks and those offering money transfer services, including some issuers of electronic money.
• Third party cheque cashing. This will include shops that, by arrangement with a bank, cash cheques made payable to customers, e.g. cashing pay cheques.

Changes to the rules for businesses in these sectors were passed in July 2007.

In May, 2007, Jersey's Council of Ministers said it was considering extending controls to prevent the jurisdiction being used by money launderers or for financing terrorism.

The review was part of the preparation for the following year’s review of Jersey’s performance as a financial centre conducted by the International Monetary Fund (IMF).

A public consultation was launched on extending the law, inviting views from business people. The proposals in the consultation papers would mean that new business sectors, such as estate agents, solicitors and businesses which deal in high value transactions, such as boats, cars and jewellery would be covered by the regulations.

Commenting on the proposals, Martin De Forest-Brown, the States Director of International Finance said:

"It is imperative that Jersey gets a good result from the IMF review next year. We have established an excellent reputation as a well regulated international financial services centre and we must continue to be vigilant and flexible, ensuring that we take all necessary steps to maintain our position.

"Compliance with the highest standards in anti-money laundering and countering the financing of terrorism is the biggest single test for any offshore financial centre wanting to maintain its position in this global industry. We should take all necessary steps to maintain the success of Jersey’s finance industry, because it is so vital for our prosperity and maintains our high standard of living.

"Complying with the standards expected by the IMF, or other similar international agencies, is what we have to do to ensure the future success of our industry. If we want to be a global player, we have to play by their rules. I hope that Island businesses will respond positively to our proposals, because they all benefit from the wealth which the financial services industry brings."

In October 2008, as the OECD published a pair of reports surveying its progress with regard to tax matters, Jersey secured praise from the multilateral body, mainly with regard to legislation brought into force empowering it to fully implement the provisions of bilateral exchange of information arrangements.

It was also held up as a good example to other jurisdictions in May 2008, when the UK House of Commons Committee of Public Accounts published a report arguing that the Foreign and Commonwealth Office (FCO) was not doing enough to manage the risks arising from the UK's liability for the 14 Overseas Territories choosing to remain under British sovereignty, according to Edward Leigh, Chairman of the House of Commons Committee of Public Accounts.

Edward Leigh, Chairman of the Committee, observed that:

'In most of the Territories, the standards of regulation across areas such as banking, money laundering, insurance and securities are not as good as those in the Crown Dependencies. The FCO, actively supported by other relevant agencies, must do more to help the Territories, especially the smaller ones, strengthen regulation. Where necessary, this should include bringing in more UK investigators and prosecutors.'

The report, using evidence from the Foreign and Commonwealth Office and the Department for International Development, examined the oversight of offshore financial services in the Territories; the balance between UK and Territory funding and responsibilities; and governance and management of the Territories' external relations.

While the report noted that the UK government is attempting to increase capacity for oversight of Territories' financial services industries, it argued that regulatory standards in most Territories are not yet up to those in the Crown Dependencies (Jersey, Guernsey and the Isle of Man).

It also found that limited capacity reduced the ability of Territories to investigate and prosecute money laundering.

Echoing this, in late June 2008, the Commons Select Committee on Foreign Affairs in the UK published its seventh report addressing issues surrounding overseas territories and offshore centres.

In an unwelcome revisitation of the Savings Tax Directive in September 2008, meanwhile, the European Commission announced its intention to tighten the rules of the legislation and consequently close existing loopholes and prevent tax evasion.

Germany led the onslaught to review the directive perturbed by the numbers of German investors avoiding tax by pouring millions of euros into investment vehicles which fall outside the scope of the rules, particularly in neighbouring Liechtenstein and Switzerland.

EU Tax Commissioner Laszlo Kovacs was due to issue a formal proposal by November outlining the amendments. However, as in all EU tax matters, in order to ensure that the proposal is adopted, the unanimous backing of all 27 member states would be required.

In October, 2009, Jersey’s regulator, the Financial Services Commission (JFSC), signed a statement of cooperation with four United States' financial regulators.

The statement was signed by the JFSC’s Director General, John Harris, and formalizes existing arrangements for cooperation and information sharing between the respective agencies and Jersey.

Jersey's Chief Minister, Terry Le Sueur, said: “This agreement recognizes that the commission and its counterparts in the United States rely on the quality of each other’s regulatory standards. It is the latest in a number of such agreements between the commission and other regulators around the world, and reflects the cooperation that already exists between Jersey and the United States.”

“Jersey signed a Tax Information Exchange Agreement with the US in 2002, and earlier this year I received a letter from the US Treasury, setting out the importance the US Administration attaches to this transparency agreement,” he continued.

"In the letter, Mr Michael Mundaca, from the US Treasury Department, stated that the US Administration believes it is important to distinguish between those jurisdictions that are adopting international standards for information exchange and those that are not.”

“Close co-operation with the US regulators during the current period of change can only benefit an industry which prides itself on meeting international standards,” Le Sueur concluded.

In November, 2009, Jersey’s Treasury Minister, Philip Ozouf, backed a report, commissioned by Christian Aid, which called for greater transparency and the full retraction of banking secrecy laws internationally to establish a level playing field, calling for greater transparency in what the report called “the most secretive financial centres in the world".

In this regard, it cited: Delaware, London, and white-listed territories Luxembourg, Switzerland and the Cayman Islands.

Referring to the recent report on the Crown Dependencies, compiled by Michael Foot, which included a review of tax transparency, Ozouf observed that: “Foot cited the lack of adequate monitoring of beneficial ownership in Delaware and the lack of regulation for most trusts in the UK.”

Noting that the report endorsed Jersey’s high standing as a "transparent and well-regulated finance centre", Ozouf called for the US and the UK to lead the drive towards enhancing tax transparency:

“We are behind the Foot Review recommendation that the UK should lead improvements to international standards and transparency of beneficial ownership, as it’s right that international standards are improved in both these areas,” he argued.

In January, 2010, Jersey signed a comprehensive double taxation agreement (DTA) with Malta. The agreement is the first negotiated by Jersey that incorporates the Organization for Economic Cooperation and Development (OECD) model convention on tax information exchange within the text of a double tax convention.

The DTA also represents Jersey’s sixteenth international tax agreement to meet the OECD tax standard on transparency and information exchange.

The agreement was signed at the Malta High Commission in London by Jersey’s Chief Minister, Terry Le Sueur, and the High Commissioner to the United Kingdom, Joseph Zammit Tabona, for the government of Malta.

Le Sueur said: “The signing of the DTA with Malta is a significant step. We are keen to develop our business relationships with the EU and therefore we are delighted that, through the DTA, we will be further strengthening our political and business relationship with a member state.”

“It is also further evidence of Jersey’s firm commitment to the international tax standards of transparency and information exchange, and of its willingness to continue to negotiate international tax agreements.”

Jersey is continuing to negotiate further tax agreements and is also playing an important international role as one of four Vice-Chairs of the Peer Review Group, which was set up by the Global Forum on Transparency and Exchange of Information for Tax Purposes. The group is responsible for monitoring and assessing compliance with international standards.

In an additional statement, Geoff Cook, Chief Executive of Jersey Finance, said: “We support the government’s efforts to sign tax agreements, whether in the form of a Tax Information Exchange Agreement or a Double Taxation Agreement. Both demonstrate Jersey’s commitment to meeting international tax standards of transparency and information exchange and demonstrate Jersey as being a cooperative jurisdiction within the international arena. Additionally, a DTA, which is a standard OECD agreement between countries, is designed to protect against the risk of double taxation where the same income is taxable in two states. These agreements pave the way for gaining greater market access with some EU countries and in other regions.”

In February, 2010, the Jersey Financial Services Commission released a consultation paper in respect of an Order – the Banking Business (Reporting and Disclosure) (Jersey) Order 201-. Among several regulatory changes to reporting requirements on Jersey banks, depositors will benefit from greater access to information on the financial standing of banks, and relevant information in respect of Depositor Compensation Schemes.

According to the consultation paper, the proposed order will bring together in one Order the existing requirements for Jersey registered banks in respect of reporting certain financial information to the Commission and the publication of financial accounts. The Proposed Order will also establish new requirements of banks in respect of disclosures to the public, depositors and potential depositors.

Certain changes to the Banking Business (General Provisions) (Jersey) Order 2002 (the GPO) and the Codes of Practice for Deposit-taking Business (the Banking Codes) are proposed that would require disclosures regarding Depositor Compensation Schemes (DCSs), following the recent introduction of a DCS in Jersey. Changes are also proposed to the GPO and Banking Codes to reflect the requirements in the Proposed Order.

The Commission intends to consult with Industry during early 2010 with a view to amending the Banking Law, and other regulatory Laws, to enable the Minister for Economic Development to make Orders (such as the Proposed Order) that will establish requirements in respect of the publication of financial information and powers to object to the appointment of an auditor.

According to the consultation paper, the Proposed Order will bring together existing regulatory requirements in respect of the provision of financial accounts and prudential returns to the Commission. The Order will better establish these as requirements under the Law, set out required timescales for the provision of reports and establish public disclosure requirements.

In accordance with the Deposit-taking Business Fees Notice, first issued in January 2008 and last updated in February 2010, a fee of GBP100 per month will be payable in respect of late filing of reports against the deadlines set out in the Proposed Order.

Existing banks will not be significantly affected by most of these proposals as the requirements in respect of reporting to the Commission already exist. The Commission intends mirroring as far as possible the provisions established by the Financial Services (Trust Company and Investment Business (Accounts, Audits and Reports)) (Jersey) Order 2007. Approximately 70% of banks are already subject to the TCB/IB Order, due to their being multi-licensed, which should reduce the impact on industry.

According to the Commission, the proposals are intended to establish a basis for introducing financial reporting provisions that are consistent with those for other sectors of industry, and their coming into force will be dependent upon the amending Law being adopted by the States and receiving the sanction of Privy Council, the timescale for which is likely to be in the first half of 2011.

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