The following press comment has been issued by Jersey Finance:
Jersey Finance notes the inaccurate comments made today by the TUC with regard to the UK banking sector's offshore activities.
There is no credible or practical evidence to suggest that international financial centres threaten financial stability. Jersey is a well-regulated jurisdiction which meets or exceeds all of the relevant international financial standards for financial stability and transparency expected from the world's leading financial centres.
Well regulated financial centres such as Jersey provide a broad range of services which are not related in any way to tax evasion. Under the EU Savings Directive all UK resident private individuals with assets in Jersey are subject to either full information exchange with UK tax authorities or withholding tax.
Furthermore, whilst Jersey adheres firmly to the principles of confidentiality for legitimate investors, Jersey has never had banking secrecy laws, and has implemented measures to ensure that it can co-operate with any country in the world when investigations are underway into criminal and fraudulent use of the global financial services system."
Who mentioned tax evasion? The TUC did not. They said:
There is no suggestion that anyone has broken any tax laws
That then leads one to wonder why Jersey threw in a lot of extraneous comment to which they press release by the TUC did not refer, but about which Jersey thought it worth commenting.
First it claims Jersey is well regulated. But as we all now know, the regulation in question was wrong and did not produce financial stability. So what is the benefit that Jersey is claiming?
Second, Jersey did contribute to the failure of Northern Rock amongst other things. If that was not an active contribution to financial instability in the UK what was?
Third, we all know tax evasion is not the only reason for using a secrecy jurisdiction: secrecy is as important. And as a matter of fact corporate disclosure in Jersey is non-existent: nothing can be found out about what any corporation does there, at all. It is also impossible to tell whether the very, very limited information about Jersey companies placed on public record has any bearing to reality at all since the use of nominees is so widespread.
Next, its information exchange is quite different in reality from what it claims in this press release. Just a handful of pieces of information have been exchanged with the USA under Jersey's longest standing information exchange agreement. No one can suggest this is effective information exchange. And elsewhere Jersey goes out of their way to reassure people they are as uncooperative as possible with exchange requests, and have the right to refuse them, which they clearly imply that they use. As they put it:
A high threshold therefore exists before the Jersey authorities will accede to a request under a TIEA.
Some of my tax authority friends might put it differently: the reality is that unless another state can prove it already knows the information it is seeking from Jersey then Jersey will not confirm its existence. That is not what I call information exchange. Jersey knows that, and makes that clear in its marketing offered to those who are concerned that their nefarious activities in the island might be discovered. Contrast that with the observations made above. I know which version I believe. I know which version the facts support.
Given these restrictions on securing data it does not need banking secrecy laws, any more than the UK does: we and Jersey construct them just as effectively (as the Swiss point out, regularly) using trusts and corporate nominee laws. So this is a completely pointless argument: even if technically correct it offers no substance to the debate.
But let's deal with the biggest indication of where Jersey really stands on the issue of openness, transparency, tax evasion and information exchange. That is its approach to the EU Savings Tax Directive (STD). The STD only exists for one purpose, and that is to stop tax evasion. It is otherwise pointless. That's what the EU says. They're right.
Under the STD most participant jurisdictions exchange information on interest income earned within their country which has been paid to persons resident in another EU member state with the government of that other country in which the recipient lives. It is widely known from research in the USA that when people know that information on their earnings is automatically supplied to their government the rate of compliance with tax disclosure rules increase from about 50% to the high 90s. So automatic information exchange is an incredibly effective weapon in tackling tax evasion.
Jersey was forced by the UK to become a party to the STD. It worked very hard to avoid it. There was only one explanation for that: it wanted to preserve the right of people to use its bank accounts to evade tax.
When forced to cooperate Jersey opted for the withholding tax option that is only available in the STD because of the refusal of EU states like Luxembourg, Austria and Belgium to expose the activities of tax evaders. Jersey joined that club of nations who quite deliberately refuse to exchange information but do instead withhold what have been to date relatively nominal sums from the interest paid which are highly unlikely to satisfy the tax liability of the recipient in the state in which they are resident, so allowing them to continue to evade tax in that place.
There is no reason whatsoever for a person to opt to have tax withholding unless they are evading tax in their home state. No one has ever been able to present me with an alternative reason for a person to opt for this arrangement. I would suggest that well over 90% of those opting for withholding do evade. More than half of those given the choice on whether to information exchange or have withholding applied to their Jersey accounts opted for withholding.
Jersey, of course, knows that. It even profits from it: it keeps 25% of the tax withheld. But worse it makes clear what its government's policy is: it is to build a financial services sector populated by the likes of RBS, Lloyds, Barclays and HSBC that deliberately and knowingly profits from tax evasion. That this tax evasion takes place is widely known: it is likely that half of those who declared bank accounts in the Crown Dependencies with those banks and HBOS that were subject to the 2007 UK Revenue tax amnesty were in Jersey. That means up to 20,000 accounts were used for tax evasion with those banks at that time. Another 80,000 accounts are no under investigation. There are 100 more banks to add to the enquiry. And of course, this is only for the UK. Tax evasion is, on the basis of this evidence, rampant in the island. Even a cautious extrapolation would suggests there are hundreds of thousands of accounts in the island on which the income is not declared for tax. Marty Sullivan at Tax Analysts has suggested there may be $500 billion invested in the island on which tax is evaded.
I am absolutely sure its government knows that. And it deliberately facilitates that evasion by refusing to enter into full membership of the STD. This is a choice it makes. It is choice in favour of tax evasion. Everything it says and does has to be seen in this light.
And everything I have said on the STD applies equally to Guernsey and the Isle of Man where massive sums are also held.
These places choose to facilitate tax evasion. It's a fact. Nothing they can say can change that, only radical reform of their financial services sector, meaning that there are full and transparent corporate registers and full, automatic information exchange on all income can change this. They can choose to do that. We're waiting for it to happen.
The UK can demand this. Now. We want them to. The ball is not just in St Helier, St Petr Port and Douglas. It is in London. It's time to kick it and destroy this secrecy forever.
Disclosure: I undertook the research for the TUC. I did not write the press release. The views expressed are my own. The TUC research did not relate to the issues discussed in this blog.