In early April 2016, the International Consortium of Investigative Journalists (ICIJ) revealed that it had its hands on 11.5 million documents from Panamanian law firm Mossack Fonseca. This vast cache revealed the financial transactions of over 14,000 clients and 200,000 entities, from what was one of the largest providers of offshore companies in the world.
Naturally when these so-called ‘Panama Papers’ leaked, they immediately dominated the headlines, with broadsheets and tabloids around the world revelling in the juicy details – the links to politicians and billionaires on the Forbes Rich List, government-backed companies, alleged financiers of terrorism and arms dealers, plus ties to over 500 banks worldwide, including HSBC and UBS. It was the most staggering data leak since Edward Snowden lifted the lid on NSA surveillance, and led to the resignation of Iceland’s Prime Minister, revealed a suspected billion-dollar money laundering ring involving close associates of Vladimir Putin, and forced David Cameron to defend the stake he had in his late father’s offshore investment fund, amid calls for him to resign.
While the public has a clear right to know that murky networks do exist in certain corners of the globalised financial world, the slew of column inches had an unfortunate side-effect. The majority of media outlets simply lumped all international financial centres (IFCs) together under the banner of ‘tax haven’ – reinforcing the image in the public’s mind that anyone putting their money offshore is doing so to get one over on the tax man (or to hide the identities of the ultimate owners to disguise other duplicitous dealings), and that the sole purpose of IFCs is to facilitate such nefarious goings-on.
But for the Crown Dependencies, this couldn’t be further from the truth. No jurisdiction can ever guarantee it will never be used by a corrupt few determined to play the system, but Jersey, Guernsey and the Isle of Man are all highly-regulated offshore jurisdictions that remain among the most transparent in the world.
In the recently published STEP Research Report, ‘Offshore Perceptions’, which was produced in association with First Names Group, the research revealed that twice the percentage of onshore respondents versus offshore respondents felt the Panama Papers would adversely impact offshore business. Taking Jersey as my focus, I will examine to what extent the Mossack Fonseca scandal has, in fact, impacted business in the offshore jurisdiction.
In reality, despite the unwarranted attention, the fallout could have been a lot worse. While some IFCs reacted by launching internal enquiries that in some ways only served to stir the hysteria, Jersey offered a swift, sensible response, highlighting the strength of the island’s regulation, its adherence to stringent transparency and anti-money laundering regulations, its robust network of tax information exchange agreements, and the double-tax treaties either being negotiated with other parties or already agreed.
One issue that the Panama Papers’ revelations brought into sharp relief is the absolute necessity for fiduciary service providers to have cast-iron security systems and policies – and people who follow them. In the wake of the scandal, there has been a clear flight to well-regulated jurisdictions among top tier clients and advisers. It’s still relatively early days, but it seems increasingly likely that some of those structures will re-domicile to the Channel Islands – drawn by the high standard of regulation and the glowing reports both islands have received from the likes of OECD and Moneyval.
The Moneyval report on Jersey, published in May 2016, gave the island a particularly positive rating, highlighting its ‘mature and sophisticated regime for tackling money laundering and the financing of terrorism’, and ranking Jersey at the top of the global table. In fact, in placing significantly higher than either the UK or the US, Jersey showed that IFCs can be far more transparent than even onshore centres. The island has, for example, held beneficial ownership details via a central registry since 1999. Legitimate tax planning is one thing, but given the strength of Jersey’s anti-corruption laws, regulations and security checks, and the very active role taken by the Jersey Financial Services Commission in supervising practitioners, it’s very difficult for anyone wanting to launder money, finance terror or evade tax to do so in Jersey.
The Panama Papers did, however, put IFCs firmly back on the political agenda, and governments around the world have been placed under great pressure to react to what was a hugely significant data leak. One question that has been raised is whether political response will lead to more legislation that could have a major impact on Jersey’s future as an IFC. This seems unlikely. Since 2008, the UK Government has already introduced a significant number of stringent tax measures on individuals, including the Annual Tax on Enveloped Dwellings (residential property held in non-UK corporate entities), changes to the non-dom regime (with further enhancement to this planned for 2017), the introduction of a General Anti-Avoidance Rule and Disclosure of Tax Avoidance Schemes obligations, together with significantly increased penalties for tax evaders.
The other good news for practitioners in Jersey is that, thankfully, the Panama Papers are unlikely to add to the hefty bundle of red tape they’re already facing. Less well-regulated jurisdictions may soon find themselves being subjected to a blacklisting or sanction under tougher new rules like the Common Reporting Standard (CRS), which comes into force in 2017. But this, again, should actually be a benefit to Jersey – it was an early adopter of this standard too.
All in all, despite the shockwaves caused by the scandal in Panama earlier this year, the demand for the wealth management expertise of Jersey and its fellow Crown Dependencies will only continue, as clients and advisers are pushed towards the IFCs with the best reputations. One could easily argue that these islands, with their robust regulation and top-tier standing, will ultimately benefit from a flight to quality.
Mark Pesco is First Names Group’s CEO, heading up the senior leadership team and overseeing the day-to-day management and leadership of our growing international business. Mark is a chartered accountant and experienced private client practitioner, and the quality of his leadership has been recognised through multiple industry awards.
This article has been issued by First Names Management Limited on behalf of certain companies that form part of the First Names Group. The article has been prepared for general circulation to clients and intermediaries, and does not have regard to the particular circumstances or needs of any specific person who may read it. Nothing in this article constitutes legal, accounting or tax advice or investment advice.
The information contained in this article has been compiled by First Names Management Limited and/or its affiliates from sources believed to be reliable, but no representation or warranty, express or implied is made to its accuracy, completeness or correctness. All opinions and estimates contained in this report are judgements as of the date of publication, and are provided in good faith but without legal responsibility.