Call on Norway to step up fight against tax havens

Illicit financial flows hamper development in poor countries. A government-appointed commission proposes a number of measures to reduce the adverse effects of tax havens.

The Commission on Capital Flight from Developing Countries has studied tax havens and illicit financial flows from poor countries. Today Minister of the Environment and International Development Erik Solheim will receive the commission’s report on tax havens and development.

One of the serious consequences of illicit financial flows is that they undermine development in poor countries. Capital flight from developing countries is about ten times greater than the development aid these countries receive. The report proposes a number of measures to reduce the adverse effects.

“The financial crisis has led to international recognition of the need to take resolute action to put tax havens under international control. The report is important, not least because the proposed measures could lead to a win-win situation for rich and poor countries alike,” said Mr Solheim.

The commission has been chaired by Professor Guttorm Schjelderup, and Eva Joly has been among its members. It calls for a more ambitious development policy aimed at securing poor countries’ tax revenues and reducing the possibilities of extensive corruption. Norway itself should also introduce a mechanism to control the activities of Norwegian nationals who register companies or open accounts in tax havens.

“Tax havens hamper growth in poor countries because they make it easier for the power elites to enrich themselves at the expense of society as a whole and undermine the establishment of effective tax systems in such countries,” said Professor Schjelderup.

Norfund, the Norwegian Government’s investment fund for private sector development in developing countries, is discussed in great depth in the report. It is proposed that the practice of channelling investment funds through tax havens should be discontinued over a three-year period.

“We can’t allow Norfund to channel Norwegian aid funds through tax havens at the same time as we are trying to fight them,” said Mr Solheim.

The proposals made by the Commission on Capital Flight from Developing Countries include:

• considering whether Norwegian multinational companies should be required to submit more detailed annual statements,
• improving the rules for transfer pricing,
• establishing a Norwegian centre of expertise on tax evasion,
• developing networks with a view to increasing international pressure,
• changing tax agreements to ensure that it is a company’s real business that decides in which country it is subject to taxation,
• negotiating an international convention to combat the harmful structures in tax havens,
• supporting efforts to develop new international standards for sound taxation practices under the auspices of the Organisation for Economic Co-operation and Development (OECD).

Read the full report

Global Task Force Releases Recommendations for New Accounting System for Multinational Corporations

The Task Force on Financial Integrity and Economic Development (Task Force)* released a report today detailing a new system of accounting for multinational corporations (MNCs) designed to increase transparency and curtail tax evasion.

Termed “country-by-country reporting” the new protocol would require MNCs to disclose the full details of their commercial transactions by jurisdiction, instead of the current system which requires reporting along product of division lines. As much as 60 percent of global trade currently takes place within MNCs, which are not required to disclose many salient details of their trade practices under the existing regulatory framework.

“Tax evasion by multinational corporations is one of the greatest drivers of illicit capital flight out of the developing world,” said Global Financial Integrity director Raymond Baker. “County-by-country reporting is a low-cost, readily implementable way to ensure better business compliance with tax policy and fair business practices. The Task Force applauds the UK’s announcement earlier this week that it would push for country-by-country reporting at next week’s meeting of the Group of 20 in Berlin.”

*Not all Task Force members agree with every aspect of each report published by the Task Force

Click here to read the report

India: Scheme for the introduction of Exchange Traded Interest Rate Futures

The Report of the RBI-SEBI Standing Technical Committee on Exchange Traded Interest Rate Futures is placed on the websites of Reserve Bank of India (RBI) and Securities and Exchange Board of India (SEBI). The Report details the scheme for the introduction of Exchange Traded Interest Rate Futures (10-year Notional Coupon-bearing GoI security futures contract), jointly agreed upon by RBI and SEBI.

Eligible exchanges desirous of offering Interest Rate Futures (10-year Notional Coupon-bearing GoI security futures contract) may apply to SEBI after fulfilling the conditions mentioned in the Report.

Jersey Finance Welcomes Approval of Foundations

The approval of the Jersey Foundations Law by Privy Council this week has been welcomed by Jersey Finance as a hugely positive step in affirming the Island as a centre of excellence for private wealth management business.

Passed by Privy Council on 10th June, the law will enable the first foundation structures to be established from mid-July. Jersey becomes the first of the British Crown Dependencies to offer foundations as an investment vehicle for financial planning.

Foundations sit alongside existing vehicles such as companies, trusts and limited partnerships for use in financial planning and private wealth management strategies. Whilst similar in design to foundations in other jurisdictions, the Jersey structure introduces the concept of a ‘guardian’ with oversight on the council’s activities in relation to the foundation and ensures that it achieves the broad objectives outlined in its constitutive documents.

Robert Kirkby, Technical Director of Jersey Finance, said:

‘The approval of foundations is a hugely important development for Jersey’s Finance Industry. There has been extensive consultation between Industry, legislator and regulator throughout the development of the Jersey foundation, which offers Jersey-based trust and wealth management providers with a highly attractive addition to their existing range of options.

There has been significant interest in Jersey foundations for some time now. We expect them to be a particularly attractive option for wealthy clients in civil law jurisdictions where the concept of a trust vehicle is not so familiar.’

Lecce G8 finance ministers' communique

We, the G8 Finance Ministers, remain focused on addressing the ongoing global economic and financial crisis. We have taken forceful and coordinated action to stabilize the financial sector and provide stimulus to restore economic growth and there are signs of stabilization in our economies, including a recovery of stock markets, a decline in interest rate spreads, improved business and consumer confidence, but the situation remains uncertain and significant risks remain to economic and financial stability.

Even after output growth begins picking up, unemployment may continue to increase. Our countries will continue to implement actions to reduce the impact of the crisis on employment and maximise the potential for growth in jobs in the period of economic recovery, including by promoting targeted active labor market policies, enhancing skills development, ensuring effective social protection systems and enabling labor markets to respond to broader structural changes.

We must remain vigilant to ensure that consumer and investor confidence is fully restored and that growth is underpinned by stable financial markets and strong fundamentals.

We will continue working with others, taking the necessary steps to put the global economy on a strong, stable and sustainable growth path, including by continuing to provide macroeconomic stimulus consistent with price stability and medium-term fiscal sustainability, and restore lending. We reaffirm our commitment to address liquidity and capital needs of banks, as necessary, and to take all necessary actions to ensure the soundness of systemically important institutions.

We discussed the need to prepare appropriate strategies for unwinding the extraordinary policy measures taken to respond to the crisis once the recovery is assured. These ”exit strategies” which may vary from country to country are essential to promote a sustainable recovery over the long-term.

We asked the IMF to undertake the necessary analytical work to assist us with this process.

While the stabilization of the economy over the short term is critical, we also discussed other challenges ahead of us.

The crisis has revealed that there are some fundamental weaknesses in the global economy related to propriety, integrity and transparency. To address these issues in a comprehensive fashion, we agreed on the need to develop the Lecce Framework - a set of common principles and standards governing the conduct of international business and finance - which builds on existing initiatives and lays the foundation for a stable growth path over the long term.

We are committed to working with our international partners to make progress with this initiative, with a view to reaching out to broader fora, including the G20 and beyond.

We discussed regulatory reform in our countries and at the international level. We are swiftly implementing the decisions taken at the London Summit and call on others to join our efforts to ensure global financial stability and an international level playing field.

We urge the relevant international institutions to closely monitor the implementation of these decisions and we also call on the FSB to develop a toolbox of measures to promote the adherence to prudential standards in cooperation with jurisdictions.

We welcome progress in negotiations of agreements on the exchange of information for tax purposes. We urge further progress in the implementation of the OECD standards and the involvement of the widest possible number of jurisdictions, including developing countries. It is also essential to develop an effective peer review mechanism to assess compliance with the same standards. This could be delivered by an expanded Global Forum.

We also look forward to an update on progress on the G20 agreement to tackle tax havens at the OECD Ministerial meeting.

We welcome FATF engagement with the G20 to fight against money laundering and the financing of terrorism. We are also committed to working with FATF on improving international standards and their global implementation, including preparation for the next round of mutual evaluations, promoting international cooperation and reinforcing actions on jurisdictions with vulnerabilities.

FATF should report back by September on its progress in identifying uncooperative jurisdictions.

We endorse the FATF’s call for countries to protect the financial system from illicit financing and implement counter-measures against Iran, in particular to mitigate the risk posed by correspondent relationships with Iranian financial institutions.

We are committed to the effective and timely implementation of financial measures against North Korea as set out, among other measures, in UN Security Council resolution N.1874.

To facilitate the recovery and sustain growth over the longer term, we reaffirm our commitment to refrain from protectionism and we commit to continue working towards an ambitious conclusion of the Doha round.

The rapid implementation of the trade finance support announced in April in London is essential in restoring international trade flows, particularly to emerging and developing countries.

Excess volatility of commodity prices poses risks to growth. We will consider ways to improve the functioning and transparency of global commodity markets, including considering IOSCO work on commodity derivative markets.

We have led efforts to provide the IMF with the necessary resources to expand its lending capacity and are fully committed to swiftly implement the London Summit commitment, and urge other countries to participate.

We are also exploring ways to substantially increase the IMF capacity for concessional lending through the sale of gold or other means, consistent with the new income model, and we encourage the Fund to explore the scope for increased concessionality to low-income countries. We remain committed to reforming the IMF to enable it to carry out its critical role in the modern global economy. We welcome the actions taken by the World Bank and other Multilateral Development Banks (MDBs) that highlight their important countercyclical role in responding to the global crisis.

London Maintains Leading Role in International Equity Trading Despite Market Volatility in 2008

• London accounted for 28 per cent of international IPOs by number in 2008
• The 681 foreign companies listed on the London Stock Exchange at the end of 2008 was more than on any other exchange
• Secondary issuance in London rose threefold to a record £63.7bn in 2008, with a further £36.9bn raised in the first four months of 2009

London has maintained its role as one of the leading centres for international equity trading despite unprecedented market volatility in 2008 according to International Financial Services London (IFSL), the independent organisation promoting UK financial services worldwide. IFSL’s report Equity Markets 2009 notes that the 25 international IPOs in London accounted for 28 per cent of the global total in 2008. The number of foreign companies listed on the London Stock Exchange at the end of 2008 (681) was ahead of the NYSE (415) and Nasdaq (336). London accounted for 21 per cent of global foreign equity trading in 2008; a share which would be higher if it were to include foreign equity trading executed on, or reported to, other trading venues in London.

The market value of UK Main Market companies on the London Stock Exchange mirrored declines on the global markets in 2008 and fell by a third to £1,288bn. Money raised from IPOs fell to £7.2bn, one third the level in 2007. Money raised on the London Stock Exchange through further issues however, reached record levels of £63.7bn in 2008, up from £19.1 in 2007, as companies shifted to raising capital from equity rather then bank borrowing. Strong secondary issuance has continued into 2009 with a further £36.9bn in money raised in the first four months of the year.

Trading on the London Stock Exchange totalled £3.5 trillion in 2008. Orderbook trading of £2.1 trillion was down 4 per cent on the previous year, due largely to the fall in the price of shares. In addition to the London Stock Exchange and AIM, trading in UK equities is facilitated by PLUS Markets - a recognised exchange and one of a number of Multilateral Trading Facilities (MTFs) - which have gained market share of secondary trading since the introduction of MiFID in 2007. Overall trading in UK equities, including trading on PLUS Markets and MTFs totalled around £5.4 trillion in 2008.

Marko Maslakovic, Senior Economist at IFSL, said: “Securities dealing is an important segment of the UK economy generating 0.66 per cent of GDP and net exports of £4.8bn. Its importance is also illustrated by the 81,500 it employs in London, 4 per cent down on the previous year’s record total.”

Sir Stephen Wright, Chief Executive at IFSL, said: “These record figures demonstrate London’s continued pre-eminence as an international centre for capital raising notwithstanding the global slowdown. The combination of the highest level of professional expertise and the diversity and the range of established markets continues to make London a very compelling choice”.

Click here to view PDF of Equity Markets 2009 report

An Assessment of the City’s ICT Infrastructure

The City of London have commissioned SAMI Consulting to provide insight into the attractiveness to business of the City of London and its fringes in terms of its provision of ICT infrastructure, following on from "The City of London ICT Infrastructure Review” published in 2001 (the last piece of research to be published on the network infrastructure of the Square Mile). There have been many changes in the IT & Telecoms industry since this time, and a number of strategic issues need to be addressed relating to new forms of technology by the City. This report will study existing ICT infrastructure and the future ICT requirements of businesses in the Square Mile and its immediate fringes.

Download An Assessment of the City's ICT Infrastructure (1.86mb)

Privy Council approves Foundations Law

The Privy Council has approved an order allowing Foundations to be set up in Jersey. At a meeting held this week in London, an order was made approving the Foundations (Jersey) Law 2009.

Foundations are commonly used for wealth management, and residents of jurisdictions like the Middle and Far East are more familiar with foundations than with trusts, which do not exist in their legal systems.

Economic Development Minister Alan Mclean has welcomed the Privy Council’s decision: “More than ever, in these difficult times, we need to do what we can to support and diversify the island’s Finance Industry. I am pleased that Jersey is the first of the Crown Dependencies to bring in Foundations, and we hope this kind of innovation will help to protect and develop the industry that pays for more than half of Jersey's essential services.”

Earlier this month the Economic Development Minister lodged Regulations with the States which will allow foundations to move to Jersey from other countries. These regulations are due to be debated by the Assembly on July 14 (2009).

Global conditions hit value of Guernsey funds

Continuing volatility in the global markets has resulted in the value of Guernsey funds falling by £24.5bn (12.2%) during the first quarter of the year.

The contraction took the total value of funds under management and administration in the Island to £175.9bn at the end of March 2009. This represents a decrease of £27.9bn (13.7%) year on year.

The Guernsey Financial Services Commission (GFSC) has reported that the ongoing adverse performance of the global hedge fund sector has been a major contributor to the fall in asset values during the first three months but an improvement in global equity markets since the end of March is expected to result in the value of assets growing during the second quarter.

Peter Niven, Chief Executive of Guernsey Finance – the promotional agency for the Island’s finance industry, said: “When the figures for the quarter to the end of 2008 were published we highlighted that Guernsey’s funds industry was continuing to perform resiliently in the face of extremely difficult market conditions. However, it was also noted that we were likely to see further reductions in asset values in the immediate term because of a continuing lack of investor confidence. That has proven to be the case during the first quarter of this year.

“During the first three months of the year a certain amount of new business was still coming through but clearly this was at lower levels than in the last two or three years when we had record flows. We saw good ideas being proposed across a range of different asset classes but many investors were waiting for further falls in global asset values before coming back into the market.

“The positive news is that while some investors might still not believe that we have reached the bottom there is undoubtedly greater confidence around at the moment, which is reflected in the improvement in global equity markets. As a result we expect to see the value of funds in Guernsey holding up better and growing during the second quarter.”

The figures from the Guernsey Financial Services Commission (GFSC) show that the value of Guernsey domiciled open-ended funds fell by £11.1bn (17.4%) over the quarter and were down £19bn (26.6%) year on year to reach £52.5bn at the end of March.

The closed-ended fund sector also fell in value during the quarter, with a reduction of £9bn (9.8%) but was up £3.5bn (4.4%) during the past 12 months to reach £82.5bn at the end of March.

Non-Guernsey schemes, for which some aspect of management or administration is carried out in the Bailiwick, decreased by £4.4bn (9.8%) over the quarter and were down £12.4bn (23.3%) over the year to reach £40.9bn at the end of March.

Mr Niven added: “Guernsey has been somewhat sheltered from the worst effects of the global economic downturn but we have always said that the Island would not be completely immune. One such example is the impact of the continuing volatility in the global markets on the value of Guernsey funds during the first quarter of the year. However, it is very encouraging to hear that the improvement in the global markets in recent months means that the regulator is expecting to be announcing positive figures for the second quarter.”

New IFSL Working Group, International Regulation

IFSL Members have strongly supported Sir Stephen Wright's proposal to establish an IFSL Working Group on International Regulation. We are pleased to announce that the first meeting will be held at IFSL at 2.30 on July 7. Sir Stephen will chair.

This meeting will discuss the results of the G20 Deputies Meeting (27th & 28th June 2009), the Government's White Paper on Financial Regulation (publication is promised this month), and any other policy developments.

Financial development and trade crucial to making Africa more competitive and riding out current crisis

African businesses can become far more competitive, but African governments and their international partners will need to improve access to finance, resist pressure to erect trade barriers, upgrade infrastructure, improve healthcare and educational systems, and strengthen institutions.

The conclusions, released today at the launch of a major new report, The Africa Competitiveness Report 2009, reflect research efforts of three institutions – the World Economic Forum, the African Development Bank and the World Bank. Limited access to financial services remains a major obstacle for African enterprises, but underdeveloped infrastructure, limited healthcare and educational services, and poor institutional frameworks also make African countries less competitive in the global marketplace. The report also points to a number of success stories in the region that highlight steps countries can take to improve the business environment.

The jointly produced report was released today before the official opening of the World Economic Forum on Africa, from 10 to 12 June in Cape Town, South Africa. It is the second report on the region’s business environment to leverage knowledge and expertise within the three organizations. The report also presents an integrated vision of the policy challenges African nations face as they build a foundation for sustainable growth and prosperity.

The report highlights two short-term and three longer term policy themes for improving the competitiveness of African economies. The two short-term themes are:
1) Increasing access to finance through market-enabling policies. Africa’s financial systems have been deepening and broadening in recent years, but the current global crisis threatens to reverse this trend and undermine recent progress. It is now even more important to upgrade the necessary frameworks for sound, efficient and inclusive financial systems
2) Keeping markets open to trade. Protectionist forces are emerging in response to the global economic crisis, yet, such measures will further reduce demand and restrict growth. Africa’s leaders must resist domestic political pressures to erect trade barriers that would make the region’s recovery even more difficult

The three longer term themes are:

3) Infrastructure remains one of the top constraints to businesses in Africa. Energy and transportation are among the main bottlenecks to productivity growth and competitiveness in Africa. Investment in upgrading infrastructure would both place Africa on a higher growth trajectory as well as serve as a fiscal stimulus at a critical time
4) Inefficient basic education and healthcare systems constrain Africa’s productive potential. This is perhaps the most urgent area in need of attention. Unless educational and healthcare systems are upgraded in Africa, firms will continue to be constrained in their move up the value chain, and economic development will be hindered
5) More examples of good governance and strong and visionary leadership are needed. Strong and transparent institutional environments have contributed to the success of Africa’s most competitive economies. Much has been done in recent years to improve these structures; yet in many parts of the region, institutions need to be more business-friendly to foster competitiveness. This is particularly important at present when the current global economic crisis threatens to induce reversals in governance reform

“This year’s Africa Competitiveness Report is the second comprehensive effort by our three organizations to place the continent in a broader international context and to shed light on the important aspects of development in the region, which are so critical. particularly at this time of global economic crisis” said Klaus Schwab, Founder and Executive Chairman of the World Economic Forum.

“Investment in infrastructure with a regional focus would help cushion the impact of the crisis and position Africa to take advantage of the rebound of the global economy when it occurs,” said Obiageli Katryn Ezekwesili, Vice-President of the Africa Region at the World Bank in Washington, D.C. “The countries that will reap the most benefit and limit the adverse impact of the crisis would be those that sustain reforms, strengthen governance, modernize local capital markets and make the investments needed to tap the immense resourcefulness and creativity of their people."

“The most critical issue for us at this stage is how we strike the balance between short-term crisis response, while remaining focused on the long-term issues, key for sustaining Africa’s growth, such as the development of infrastructure, and a skilled labour force, as well as economic integration,” said Donald Kaberuka, President, of the African Development Bank.

In addition to assessments of the competitiveness and costs of doing business on the continent, the report also includes an analysis of the depth and sophistication of the region’s financial markets, the effective measures that the relatively smaller economies on the continent have introduced to promote their competitiveness and the extent to which African countries have put in place factors facilitating cross-border trade.

Also included in the report are detailed competitiveness and investment climate profiles, providing a comprehensive summary of the drivers of competitiveness in each of the countries covered by the report.

The Africa Competitiveness Report 2009 is an invaluable tool for policy-makers, business strategists and other key stakeholders, as well as essential reading for all those with an interest in the region.

Watch the video interview with Jennifer Blanke, Head of the Forum’s Competitiveness Network

Download the full report (PDF)

JFSC Proposed Fees for Foundations and Changes to Registry Search Fees

The Jersey Financial Services Commission has today published a consultation paper setting out the proposed registration and process fees for foundations.

The Foundations (Jersey) Law 200- was adopted by the States of Jersey on 22 October 2008. This consultation paper is being issued in anticipation that the Law will be sanctioned by the UK Privy Council in June 2009.

Broad agreement from Industry has been obtained via the Foundations Working Group that fees for foundations should track, where similarities exist, those currently set for Jersey companies.

In order to be consistent, amendments are being proposed to other Registry Fees Notices, with respect to searches, to bring them into line with the proposed search fees for foundations.

Responses to the consultation paper are invited and should be provided in writing to either the Commission or Jersey Finance Limited in accordance with the timescales stated in the consultation paper.

The consultation paper may be viewed on the Commission’s website by clicking here and paper copies may be obtained from the Commission’s reception area or the Jersey Library.

AIC consultation response - Review of British offshore financial centres

The Association of Investment Companies (AIC) response to the independent review of British offshore financial cetnres commissioned by the UK Government and led by Michael Foot.

Review of British offshore financial centres - consultation response (PDF 59 KB)

Public comments on Reports Relating to Claims for Treaty Benefits by Portfolio Investors

The Informal Consultative Group on the Taxation of Collective Investment Vehicles and Procedures for Tax Relief for Cross-Border Investors (ICG) prepared for the consideration of the OECD’s Committee on Fiscal Affairs (CFA) two reports relating to claims for treaty benefits by portfolio investors which were released on 12 January 2009. Given the recommendations included in the reports, the CFA decided at the time of their release to invite comments from all interested parties before further consideration of the reports. The OECD has now published the comments received on the reports. These comments were received from:

● French Banking Federation

● International Financial Data Services

● Investment Management Association

● Investment and Financial Services Association

● Irish Funds Industry Association

● Korean CIV Consultation Group

● Property Council of Australia

Towards Sustainable Outsourcing: A responsible competitiveness agenda for IT-enabled services

IISD's primer on Responsible Competitiveness in the Information Technology Enabled Services (ITES) explores an ambitious agenda for countries, cities and firms to create an outsourcing model that is genuinely sustainable. In the past decade, sustainable development proponents and the ITES industry have missed two clear opportunities to engage in developing solutions for sustainable development.

They now have a third chance—ITES 3.0, which recognizes that investment in ITES alone, will not automatically increase resource gains and productivity. Rather, ITES needs to be given its due place as a new industry, while investment promotion agencies need to broker agreements that will increase employment, innovation and entrepreneurship in their own countries.

The current global economic downturn will only increase the momentum for ITES 3.0 as governments create even more streamlined value chains, a more equitable distribution of incomes and design stimulus packages to support new ‘green' jobs and technologies.

The second wave of globalization is here, and it is in services. In the past, , the bulk of services outsourced from one country to another were linked to functions that were repetitive, routine and relatively uncomplicated, such as back office data entry and data processing, back office administration, human resource administration, bookkeeping, facility management, publication layout, and customer calls centres.

Today, “off-shoring” has expanded to include more specialized and expert tasks that have a direct impact of an organization's brand value and bottom line. Hospitals are off-shoring medical transcription, diagnosis and decisions on surgical intervention. Schools and universities are turning to teachers and lecturers in India to provide support with tutorials and thesis supervision. Commodity and consumer product firms are outsourcing accounting, marketing, design and R&D functions. Legal firms are off-shoring litigation and patent research. The insurance and investment industries are off-shoring analysis and actuarial functions.

Is this trend likely to continue? And what are the implications for triple bottom line performance of both firms and the nations involved in these trading transactions?

IISD's primer Towards Sustainable Outsourcing: A responsible competitiveness agenda for IT-enabled services (PDF - 4.5 mb) explores this debate further.

Havens in a storm

Geoffrey Loomer and Giorgia Maffini, Research Fellows at the Oxford University Centre for Business Taxation, examine the role of offshore financial centres in the current financial crisis.

Recent policy statements and media reports might lead one to believe that there is some connection between tax havens and the global financial crisis. However, the connection is rarely explained. Offshore financial centres (OFCs) are certainly relevant to the discredited international financial system, but their role tends to be exaggerated or misconstrued.

The G20 communiqué issued at the London 2009 Summit stated that “major failures in the financial sector and in financial regulation and supervision” were fundamental causes of the financial crisis, and few informed observers would disagree. As one aspect of their commitment to strengthen financial regulation and supervision, the G20 leaders agreed that they would:
“… take action against non-cooperative jurisdictions, including tax havens. We stand ready to deploy sanctions to protect our public finances and financial systems. The era of banking secrecy is over. We note that the OECD has today published a list of countries assessed by the Global Forum against the international standard for exchange of tax information.”

The Organisation for Economic Cooperation and Development (OECD) itself draws a connection between tax havens and the financial crisis when it states: “Removing practices that facilitate tax evasion is part of a broader drive to clean up one of the more controversial sides of a globalised economy”. But these statements leave unexplained the exact role, if any, of tax havens in the crisis.

To understand this issue, one must distinguish between three different concepts: tax evasion, tax avoidance, and financial regulation avoidance. OFCs have been popular with the financial industry in facilitating avoidance, and in some cases evasion, of both taxes and regulatory requirements of larger countries.

Tax evasion

Tax evasion is criminal behaviour – for example, deliberate concealment of taxable income. In most countries evasion is punishable by fines, imprisonment or both. A notorious example is the 2008 investigation of high net-worth individuals from the UK, Germany, US and elsewhere who are alleged to have evaded tax by funnelling billions to secret accounts in Liechtenstein banks.

Developed countries, being justifiably unhappy with international tax evasion, have on various occasions sought to blacklist tax havens. The G20 communiqué refers to the OECD’s latest progress report on jurisdictions which have or have not made progress in implementing its “internationally agreed tax standard”. The essence of this standard is that states agree to exchange tax information when requested for the administration and enforcement of the requesting state’s domestic tax laws. The standard is aimed squarely at transparent information exchange for countering specific cases of tax evasion. It has nothing to do with either international tax avoidance or financial regulation, and no one suggests that tax evasion was a cause of the financial crisis.

Tax avoidance

Tax avoidance (or tax “planning”) is a term used loosely by many commentators but its legal meaning is distinct from tax evasion. It refers to structuring one’s affairs so as to reduce one’s tax liability within the limits of the law. A given form of tax avoidance is legal unless and until otherwise determined by a court. A notable example of tax avoidance is a multinational enterprise choosing to locate intellectual property in a subsidiary based in low tax jurisdiction. Such activity is usually legal, yet some may regard it as unethical given that it can substantially reduce tax contributions and therefore deplete public finances.

Commentators have differing views on whether different forms of tax avoidance are legitimate or illegitimate, depending on their commercial, political and ethical position. When the losses of large financial institutions such as Citigroup, AIG and RBS are met by domestic taxpayers, the tax avoidance activities of these institutions become more controversial than ever. As with evasion, however, tax avoidance cannot be blamed for the near collapse of the financial system.

Financial regulation avoidance

Financial regulation avoidance, sometimes conducted through tax havens, is more closely linked to the recognised causes of the credit crunch. In particular, OFCs with lax regulation were often home to structured investment vehicles (SIVs), conduits, and other off-balance sheet and off-budget vehicles, which were at the heart of events triggering the crisis. SIVs in particular invested mainly in the asset-backed securities at the very centre of the credit crunch. In August 2007, SIVs were the first institutions to encounter problems when liquidity suddenly disappeared from the wholesale asset-backed commercial paper market exposed to US sub-prime mortgages.

The fact that many of these entities were located in OFCs has created confusion about the role of tax havens in the crisis. The location of off-balance sheet and off-budget vehicles in offshore jurisdictions certainly does not contribute to the transparency of the system. But the problems experienced by SIVs at the onset of the crisis were not due to their offshore location but to their off-balance sheet status – leading to information failures and low capital ratios – and their business model – they use short-dated commercial paper to fund investments in longer-dated assets.

Moreover, what is now widely defined as the “shadow banking system” is lightly regulated not only offshore but also in the main onshore financial centres such as London and New York.

The future for offshore financial centres

OFCs may be tax havens, regulatory havens, or both. They have long been used for a variety of purposes, including tax evasion, tax avoidance and regulatory avoidance. Taking action against global tax evasion and improving standards in global financial regulation are both laudable goals, but they are different goals. The OECD’s promotion of exchange of information for combating tax evasion has little to do with the financial crisis. The G20’s commitment to improve financial regulation is very relevant to the financial crisis but has little to do with enforcement of tax. Moreover, success in either of these goals is unlikely to have any effect on international tax avoidance. Only substantial developments in the way international income is taxed will change that. Short of such developments, tax havens will maintain a significant role in attracting corporate capital from higher tax countries.

Jersey: New Regulations for Finance Industry Foundations

The Minister for Economic Development has lodged Regulations with the States today, in preparation for a new law which has already been passed to allow foundations and which is expected to receive Privy Council approval in the near future. The Regulations will allow foundations to move to Jersey from other countries.

Foundations have a long history in continental Europe. In medieval times they were used for charitable or religious purposes. They are now commonly used for wealth management, and residents of jurisdictions like the Middle and Far East are more familiar with foundations than with trusts, which do not exist in their legal systems.

The Regulations which have been lodged with the States today will permit foundations to migrate in and out of Jersey. They also provide for existing Jersey companies to convert to foundations.

Economic Development Minister, Senator Alan Mclean said:

“It is important that we keep working hard to support the Finance Industry in these difficult times. One of the initiatives that we are working on is the new Jersey Foundation. I am pleased to announce that Jersey is the first of the Crown Dependencies to bring in a genuine foundation product. Through such innovative steps we are helping the industry that pays for more than half of Jersey’s essential services, to diversify and develop its global offering.”

Ogiers Global Funds Team earns another industry award

Ogier has earned another endorsement for its funds expertise following the announcement by ACQ Finance Magazine of their Global Award winners for 2009. This time, the firm picked up the title of “Overall Private Funds Law Firm of the Year”.ACQ Finance Magazine canvassed its readership to nominate and vote for those firms they felt had stood out in the various awards categories. Guided by the poll’s results, the editors selected those firms that they felt had the greatest impact on the industry in 2008 as the award winners.

James Bergstrom, Head of Ogier’s Global Investment Funds Team, commented “It is very pleasing to receive another commendation for our professional services. Our strength across continents and our sustained and steady growth has continued to gain us these awards from industry commentators and our clients, and it is a tribute to the quality and standing of our global investment funds team to receive it.”

This is the fourth year that ACQ Finance Magazine has held it’s ACQ Global Awards, which attracted a record number of responses from its industry readership this year, equating to 12%.

Andorra, Liechtenstein and Monaco removed from OECD List of Unco-operative Tax Havens

In the light of recent political commitments made by Andorra, Liechtenstein and Monaco to implement the OECD standards of transparency and effective exchange of information and the timetable set for the implementation, the OECD’s Committee on Fiscal Affairs has decided to remove all three jurisdictions from its List of Unco-operative Tax Havens.

It is now considered that these jurisdictions have committed to the internationally agreed tax standard but not yet substantially implemented it, as shown in the Progress Report initially issued by the OECD Secretariat on 2 April. It is expected that all three jurisdictions will now swiftly implement their commitments.

Ogier named “Best Offshore Law Firm 2009” by HFM Week

Ogier has been named “Best Offshore Law Firm, 2009” at the HFM Week Service Provider Awards held in London.

The HFM Week Awards recognise companies that have outperformed their peer group over the course of 2008/2009. The awards were judged both quantitatively and qualitatively, producing a shortlist of candidates that have demonstrated financial progress, growth and genuine innovation.

Ogier partner and co-head of Ogier’s Investment Funds practice Peter Cockhill, said: “I am delighted that we have been recognised again by industry peers for excelling in the investment funds arena, once again demonstrating that we are a market leader in this area across the globe. One of Ogier’s strong assets is the strength of our investment funds teams in each of our four jurisdictions and this was clearly a differentiating factor for the judges when selecting the recipient of the award.”