Thursday, June 03, 2010

Jersey: lobbying Brussels to protect its tax evasion industry

Democracy comes under constant assault from many different angles, but probably the most insidious attacks come from governments themselves, lobbying at international level on behalf of special interests who pull the strings.

Fresh research from Corporate Europe Observatory (CEO), a respected NGO that monitors lobbying in Brussels, throws light on how a variety of non-EU governments use "public affairs" agencies, a.k.a. lobbying firms, to bolster their efforts to secure preferential trade terms, special funding, or de-regulation. And guess what: our esteemed friends in Jersey feature prominently, cited for lobbying to protect the island's tax evasion industry, which is under threat from imminent revisions to the EU Savings Tax Directive, and also lobbying to prevent effective regulation of alternative investment fund managers, i.e. the hedge fund industry which thrives in laxly regulated offshore centres.

According to CEO, the vast majority (99 percent) of lobbying effort in Brussels by secrecy jurisdictions happens behind closed doors. Unusually, however, in October 2008 Jersey and its buddies in the tax evasion industry hosted a lunchtime debate involving EU Tax Commissioner László Kovács, which meant that matters were more on public record. And what is revealed is yet another sordid example of how Jersey's government lobbies against public interest:

The “opening act” of the event was carried out by Richard Hay, an international tax lawyer who strongly advocates tax competition and tax havens. Commissioner Kovacs was exposed to Hay’s highly oriented views and, after his own speech, questioned by a floor mainly composed of tax havens enthusiasts. What was at stakes? Simply the preservation of the Channel Islands’ “market share” in the big EU business of tax evasion and tax fraud.

We don't need to remind you that the government of Jersey has declined to cooperate in tax information exchange on the European model. There is only one possible explanation for not cooperating: the Jersey authorities recognise that tax evasion is a principal attraction (the principal attraction?) for the US$500 billion of financial assets held on accounts in the island by non-residents.

The Jersey authorities are equally desperate to prevent effective regulation of its alternative investment industry. Hedge funds adore places like Jersey: taxes are low or non-existent, and regulation is lax to the point of comatose. Remember that Jersey led the way in 2008 in allowing unregulated funds, and this blogger can confirm that behind closed doors Jersey's regulators boast about their efforts to minimise financial market regulation on request from their clients.

In the case of the EU's Alternative Investment Fund Managers (AIFM) Directive, tabled in April 2009 with the principal objectives of requiring hedge funds, private equity firms, real estate funds and such like to make their activities more transparent and therefore less risky to public interest, the fear in Jersey was that such transparency would undermine the raison d'être of its offshore financial centre, namely tax evasion. So Jersey's lobbyist-in-chief in Brussels, Alistair Sutton, plus the ever obliging men in suits at PwC, swung into action:

Jersey Finance Ltd., the marketing arm of the island’s finance industry also hired PricewaterhouseCoopers (PwC) in London to prepare a battle map for Jersey’s financial services industry lobbyists in Brussels – including White & Case128. Sutton is confident about the outcome of his lobbying work: “The good news is that the doors of the European institutions are relatively open to representations by all economic operators from inside and outside the EU. The AIFM directive has been a steep learning curve for all EU institutions, which continue to need technical and business input from all affected by the measure."

Good news for those who use places like Jersey, but bad news for the world at large. Needless to say, none of this lobbying effort is effectively scrutinised by elected representatives of Jersey's government, nor is there any coverage in the local media. The prevailing attitude is 'what's good for the finance industry is good for Jersey.'

You can download Corporate Europe Observatory's report on lobbying for governments here.


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