Ethics and the Finance Sector

Is Jersey acting to high ethical standards in its finance sector?

In order to answer this, we need to look at how offshore/onshore operates, and what business over here are actually doing, how money is flowing through the system, and how this fits into the global economy, and then ask - can Jersey make a difference in any way, and what ethical standards can apply?

Client confidentially does not help, as it tends to obscure what is actually going on, and lends itself to accusations of "secrecy" and "tax evasion". I think that there is an awful lot of nonsense talked by those who should know better, but possibly have their own hidden agenda, on the basis of far too little information, and a good deal of supposition and rumour which is treated as fact. One book on offshore practice by a U.K. academic suggests a parallel between Jersey's privateers and what he calls modern day piracy. That sort of approach does not strike me as unbiased or objective.

I have been looking just at banking, which is only one aspect of offshore business, and have the following preliminary notes, which shows how complicated matters are.One fact which appears evident is that tax evasion is possible by going "offshore" from one jurisdiction to another (which does not just mean Jersey and small offshore centres, but any place where banking takes place outside the jurisdiction in which someone lives), but that does not form the only part, or even a significant part, of offshore services. In other words, an American citizen can go offshore by placing money in a Canada bank. He might do this for tax evasion, but he might do this simply because of other considerations - he may have a better rate of return on Canadian investments, he may have property or business in Canada, and wants to avoid losing money on exchange rates, etc. This means that the money goes out of the American economy, and out of American banks, and they lose money from that, and this effects the American money supply, but that has nothing to do with tax evasion.

Because of lower overheads and operating costs, and lower internal tax regimes, offshore banks in places like Jersey can provide cheaper services and higher rates of return. An analogous economic system would be the difference between high street shops in Jersey and internet buying. Because of lower overheads (town rent, staffing, town rates, etc), internet shops can often provide cheaper prices that local stores, so tempting people to buy "offshore", but no one would suggest Jersey people should therefore "buy local" or be forced to do so. "

High ethical standards" have nothing to do with "shopping around", and while Jersey shopkeepers and tax authorities will lose money over internet shopping, I do not know that they could make claims that internet shopping is "unethical" because it is "harmful competition"!

So tax evasion is not the only issue in looking at ethics, there is also the issue of larger governments (who quite happily run their own offshore operations, e.g. the USA with its "International Banking Facilities (IBF)." ) using the excuse of tax evasion to bully smaller jurisdictions into making changes to their tax regimes that have nothing to do with tax evasion, but everything to do with protectionism. If you examine how the IBFs operate in the USA, it is exactly what Jersey is told it cannot do with exempt companies! In Europe, despite the drive towards tax harmonisation in the EU, even France still supplies special tax rates for particular entities with offshore links (i.e. they benefit non-residents!) - one example is the "patent holding company".

In this respect the EU's slogan of "unfair tax competition" looks as if it needs the phrase "from outsiders" added to it!Obviously this is only one aspect of offshore. There is also labour outsourcing, and the reasons why offshore trusts and fund management can provide better vehicles than onshore - but we can see that there are grounds for not taking "offshore" as a euphemism for "tax evasion", and when one begins to examine what is actually going on, the idea of "money stolen from other jurisdictions" while very emotive, is not true to the realities of the economy.

Going back to my internet shopping analogy, the competition means Jersey high street stores have a harder time making ends meet, but to say that internet shopping was "stealing money from local traders and the local economy" is to abuse the word "stealing". If one is a Marxist, that would be fine, and they often use such loaded phrases, but if one holds that a market economy should be open to competition, then it is not.

Is Jersey acting to high ethical standards in its finance sector? Probably, with the new Tax Information Exchange Agreements, better than before, but certainly not much worse than other countries. There is scope for all of them to improve their act. To single out small jurisdictions while avoiding larger ones that are more difficult to tackle - e.g. the U.S.A. - is more suggestive of a strategy of picking on easy targets than making an ethical stance.
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Useful site for details on low tax vehicles - the link gives France, but other jurisdictions are available from the index.

http://www.lowtax.net/lowtax/html/offon/france/fraspec.html

Book of the post:

International Tax Competition, editor Rajiv Biswas