Guernsey has emerged in fine fettle from the recent flurry of reports on offshore financial centres ("OFCs"), with praise bestowed upon it by the Financial Action Task Force (the "FATF") and the Financial Stability Forum ("FSF"), particularly with regard to its contribution to the drive against money-laundering.
What Are These Organisations And What Do They Say?
The FATF is an inter-governmental body set up in 1989 by the major financial centres of Europe, North America and Asia with the sole purpose of combating money laundering.
The Financial Stability Forum ("FSF") was also established by the G7 countries and, in April 1999, set up a working group to consider the implications of OFCs for global financial stability. FSF's report made it clear that it did not regard OFCs as inimical to global financial stability provided that they are well-regulated and supervisory authorities co-operated with each other. The FSF placed Guernsey in the top division of OFCs.
The Organisation for Economic Co-Operation and Development (the "OECD") was set up in 1960 to promote sustainable growth in living standards, world trade and economic growth. Its recent report into "harmful tax practices" concentrates upon different issues from those of the FSF and FATF.
The OECD report does not suggest that the conclusions of FATF and FSF are in any way wrong. Indeed, it would have been odd had it done so given that all three organisation are, more or less, constituted of the same states.
The OECD report questions whether the comparative advantage which OFCs such as Guernsey have enjoyed should continue. It assumes that OFCs are, of themselves, harmful to the world economy, notwithstanding that the FSF (also constituted by the G7 countries) concluded that they posed no such threat unless supervisory structures were defective. No report has suggested that Guernsey's structures are in any way defective. The inconsistencies between the conclusions of bodies constituted of virtually the same members are striking.
What is odd about the OECD report is the way in which it fails to particularise precisely what is expected from OFCs by way of co-operation. Guernsey receives fulsome praise from FATF and FSF for its regulatory and other structures whereas other jurisdictions (such as the Cayman Islands) are criticised for failing to have legal requirements for customer identification, record-keeping or ensuring any supervisory authority has access to customer identity information.
However, because the Cayman Islands were prepared to give an "advance commitment", the OECD appears to have overlooked the failings identified in the FATF and FSF Reports. The commitment letter from the Cayman Islands refers to an attachment in which details of the steps and a timetable to eliminate harmful tax practices have been agreed. Oddly in the context of a report urging more transparency, the attachment has not been made public. The commitment letters of other jurisdictions imply the existence of such an agreement but do not refer to it.
The Cayman Islands Press Release dated 19 June 2000 suggests that the OECD was more concerned with issues of transparency and exchange of information than pure "tax practices". Indeed, Minister Truman Bodden, the leader of the Cayman Islands delegation is quoted:-
"It is clearly understood and accepted by the OECD that our commitment letter relating to "harmful tax practices" does not affect the right of the Cayman Islands to maintain its tax neutral regime and its indirect form of taxation."
In light of this press release, it is difficult to see what the OECD has elicited from the Cayman Islands beyond that which it has already elicited from other jurisdictions, including Guernsey, and for which Guernsey has been much praised by the FSF and the FATF.
The All Crimes Legislation
The FSF and FATF Reports were particularly fulsome in their praise of Guernsey's Criminal Justice (Proceeds of Crime) Law 1999 (the "1999 Law") which confers investigatory, confiscatory and enforcement powers and creates specific new offences in connection with money laundering.
Regulations introduced at the same time require financial service businesses to maintain procedures for the identification and verification of new business, keeping records, establish internal reporting procedures, training and other procedures of internal control and communication designed to avoid their being the subject of any money laundering.
The 1999 Law applies where there is complicity in the "proceeds of criminal conduct". It is a matter yet to be decided by the Courts, but it is likely that, if the conduct would amount to criminal conduct in Guernsey, it will be regarded as criminal conduct under the 1999 Law. As a result, Guernsey is perhaps alone amongst the offshore jurisdictions in having regulators prepared to assist other countries in pursuing what might be tax evasion in their own jurisdiction. In that context, the OECD's suggestion that Guernsey is an unco-operative tax haven unwilling to share information with other jurisdictions appears somewhat hollow.
In an age of political spin, it is perhaps understandable that the OECD needed to ensure that some jurisdictions subscribed to commitment letters in order to validate their work. However, it would appear that the Cayman Islands have agreed to do no more than what Guernsey has already done - be more transparent and better regulated. Only when the OECD is itself more transparent can it really expect Guernsey and others to decide how they should respond. In the meantime, Guernsey remains the pre-eminent offshore jurisdiction that it always has been, offering high standards of professional expertise, regulation, supervision and excellent prospects for the future.
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