You can’t fail to have noticed the popular uprising against tax avoidance in the last six months – unless you’ve been living in a hole, that is. In the wake of government austerity measures in Britain and across Europe, the private companies’ affairs have suddenly become a very public concern.
At a time when billions are being slashed from public spending, the notion (whether apocryphal or not) that an equal or larger amount of billions are being diverted from the treasury’s coffers is a sure fire way to ignite the public imagination.
UK Uncut has lead the charge with highly visible and headline-grabbing campaign targeting Vodafone, Boots, Barclays, RBS, and Sir Philip Green’s Arcadia empire. While Robin Hood Tax campaigners have introduced their own brand of theatricality into the lobbying process.
Of course, this unwelcome publicity isn’t solely down to tax activists; the interest coincided with HM Revenue & Customs (HMRC) New Disclosure Opportunity (NDO) which offered reduced penalties to businesses and individuals who hand over details of their offshore holdings. To top it all, the G20, OECD, and IMF formally pulled the rug on OFCs in 2009, when ‘taking action’ against non-cooperative jurisdictions was first mooted.
Since the financial firestorm tore through the world markets there has been an inordinate amount of finger-pointing and scapegoating, Offshore Financial Centres (OFCS) became a default bête noire.
You’d imagine all of this might signal the end of the hedge-fund-loving OFC, but you’d be wrong. Well, at least as far as the Channel Islands are concerned – Guernsey, in particular, has become something of a honey pot for investment funds. Against all the odds
You’d imagine all of this might signal the end of the hedge-fund-loving OFC, but you’d be wrong. Well, at least as far as the Channel Islands are concerned – Guernsey, in particular, has become something of a honey pot for investment funds. Against all the odds
In the 12 months from December 2009, the value of Guernsey’s investment fund business grew by £73.2bn. The final quarter increase of £14.3bn made it the sixth quarter in a row to experience growth, taking the total value of Guernsey’s much maligned industry to £257.4bn.
“There was a backlash against Caribbean jurisdictions through the perceived lack of cooperation,” says Paul Wilkes, Group Partner at Collas Crill
“On the fund side, we saw structures migrating from the British Virgin Islands to Guernsey. We also saw funds managers setting up funds in Guernsey when they’d previously just had funds in the Caribbean.”
He explains that many high profile investors has specifically requested that structures were set up in Guernsey: “they wanted somewhere that was perceived to have more protection and a more rigorous regulatory regime.
“It’s a flight to quality - investors are keen to invest in structures based in jurisdictions with reputations for robust regulation. As managers regain confidence in investment opportunities, they are looking to migrate existing structures from the Caribbean to Guernsey.”
Last March, Guernsey was visited by the International Monetary Fund (IMF) for an MOT of its financial services regulatory regime. The island was given a clean bill of health. Backed up with the island’s compliance to tax information exchanges stipulated by the OECD, Guernsey has emerged from the recent financial witch hunts not just unscathed, but with its reputation intact and respect bolstered.
The reports commend Guernsey as having financial sector regulation and supervision of a high standard across all sectors, and a sound legal framework with preventive measures in line with recommendations. The stability of the finance sector was also assessed by evaluation of the vulnerabilities of the banking and insurance industries by stress tests.
Meeting the IMF’s expectations is good news for the 7,000 people in Guernsey – nearly 20% of the workforce - are currently employed in financial services. A further 2,000 of the island’s workforce are employed in professional activities including legal and accounting. Guernsey has no VAT and personal and corporation tax are capped at 20%.
As managers regain confidence in investment opportunities, they are looking to migrate existing structures from the Caribbean to Guernsey.”
“We’re pleased with the IMF’s ratings and its conclusions,” says Nik van Leuven, Director General of the Guernsey Financial Services Commission. “Guernsey, like Jersey and the Isle of Man, has emerged well.
“It’s apparent that Guernsey’s finance sector is robust. The quality of firms in Guernsey, and the effectiveness of our supervision reflect the importance and commitment the Bailiwick attaches to effective supervision, and deterring economic criminals, money launderers and terrorist financiers.”
Mr. Wilkes believes the IMF’s visit has had a palpably positive impact on Guernsey and Jersey. “The regulator has been a lot tougher trying to demonstrate how everything is much more watertight. A much more rigorous approach is being taken to show that a) it’s got all its procedures in place, and b) it’s not afraid to use them.”
The upshot of the IMF’s presence – he says – goes beyond growth figures. The new found confidence has provided the catalyst to get the islands’ powerbrokers working together.
“Local industry, local government, and local businesses have been getting up there and speaking to parliamentarians and explaining Guernsey’s position, why it’s here in the first place, and what benefit Guernsey has to Europe.
“The IFM directive has been good for places like Guernsey. It’s given representatives of the small offshore jurisdictions face time with parliamentarians from Europe who otherwise wouldn’t have a great understanding of the financial centres.
They’ve been given a fair representation of what Guernsey actually stands for, he explains, and exactly what its role will be in a new financial era where the buzzword is transparency: “It’s not a case of setting up structures to hide away from tax - its about setting up structures to facilitate investment and generate wealth, and prove the benefits of Guernsey to Europe.”
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