By Enrico Verga, a writer, consultant, and entrepreneur based in Milan. As a consultant, he concentrates on firms interested in opportunities in international and digital markets. His articles have appeared in Il Sole 24 Ore, Capo Horn, Longitude, Il Fatto Quotidiano, and many other publications. You can follow him on Twitter @enricoverga.
The little-known isle of Jersey – what is it like, and why should London care? Forgive me, dear reader, it will take a little time to explain, especially if you aren’t used to reading about tax havens, money laundering, trusts, and merchant banks.
There is an island 19 miles from the French coast, over which the United Kingdom and France battled for centuries. It is a charming place, with a breezy climate, hard working people, relaxing cafes where you can sip a bit of tea, along with luxury restaurants where you can munch on lobster fished fresh from the bay. This is Jersey, a little paradise of tranquillity as it would seem.
This peaceful island has a couple of problems.
The first problem is that Jersey always makes it onto the list of tax havens.
For example, it shows up on Oxfam’s tax haven blacklist. Similarly, when the explosive Panama Papers were leaked, it was all too easy to find in them plenty of references to Jersey. In fact, according to the Jersey Evening Post, more than 14,500 Jersey businesses, individuals, and trusts were linked to the Studio Fonseca (at the center of the scandal). When in 2017, the Paradise Papers were also leaked, once again Jersey trusts, banks, and individuals appeared prominently.
Oliver Bullough is an investigative reporter specializing in money laundering, tax avoidance, and tax havens/secrecy jurisdictions who recently wrote an in-depth analysis of Jersey’s current problems for the Guardian. He told me:
The business of Jersey is actually trusts. Over the years, the jurisdiction has become fundamentally structured around supporting this particular sector of finance. It is impotant to keep in mind that the entities managed by the trusts (businesses, banks, real estate, etc.) are often not in Jersey. Most commonly they are in the UK.
Which Brings Us to the Second Set of Problems…
It is in fact from the UK that in the last few months a whole series of hammer blows has rained down on Jersey. These broadsides target more generally the Crown Dependencies (Jersey, Guernsey, and the Isle of Man); of these, Jersey is the most significant in terms of financial traffic and influence.
One of the first of these recent attacks came from the Labour deputy John Mann, who in response to the inclusion of Jersey and other British dependencies on the EU “grey-list of unco-operative tax jurisdictions,” declared it a “matter of national shame that the Crown Dependencies […] give shelter to the wealth of the world’ financial elite.” The Jersey Evening Post summarized, “Treasury sub-committee chairman John Mann singled out the Crown Dependencies for criticism as he announced a new six-month tax avoidance and evasion review, which aims to investigate the role of offshore jurisdictions in exploiting ‘holes in the tax system.’”
The response of Geoff Cook, the chief executive of the major lobbying arm of Jersey finance (Jersey Finance Ltd) was to declare that the finance sector “[is] committed to creating a clear and safe environment for investors both now and in the future and [it] welcome[s] any necessary mechanisms and measures to ensure our continued delivery of the highest possible standards.”
At the beginning of May, another blow was delivered by Conservative MP Andrew Mitchell and Labour MP Margaret Hodge, both former ministers, who according to the FT, “successfully pressed the government into accepting an amendment to its sanctions bill that will require UK overseas territories including the Cayman and British Virgin islands to make available to the public details of the beneficial owners of companies registered in their jurisdictions.”
The Crown Dependencies’ reaction was swift and intense. For the time being, they have succeeded in avoiding having their “way of life” devastated.
The Jersey Chief Minister himself, Senator Ian Gorst (a British native and naturalized Jersey citizen) dropped everything and hurried to London to protest that it would “be unconstitutional and impossible for the UK to impose such a measure on our island without our consent. We are not represented in the UK Parliament, and it is an agreed constitutional position that the UK does not legislate for Jersey. We would expect this convention to be observed and would resist the registration of any Order in Council issued in breach of our constitutional arrangements.”
The Problems Coming from Within
The extent of the external challenges facing Jersey is now clear, but there are also internal difficulties. On May 16, Jersey will hold elections.
Few people know that Jersey has no political parties. The stated reason is that parties can create disorder and in order to manage the finances of so many corporations and private citizens (through anonymous trusts), it is better for things to be calm and placid. The island has only two daily newspapers (the Jersey Evening Post, cited above and the Bailiwick Express); of these the Post tends to support the government and for years it was even owned by the Chief Minister.
Nevertheless, the upcoming elections are bubbling energetically with a ferment that can be reasonably described as “populist.” In Jersey, the cost of living is rising rapidly due to the influx of extremely rich residents (well, fiscal residents, at least). But not everyone is as rich as the Russian billionaire Roman Abramovich. Many of the 100,000 residents have a middle to low income relative to the cost of living, and they have begun to become annoyed with this peculiar political regime, so entranced with the well-being of finance (by now basically the only industry on the island).
As we’ve said, there are no political parties, but there are now some movements attempting to change the decades-long status quo. Among these is Reform Jersey, created by the young Sam Mezec, which aims to bring a measure of fairness to a government so often afflicted by scandals and power struggles. Other associations and pressure groups include Jersey Action Group and Alternative for Jersey, who are hoping to bring balance back into the lives of the part of the Jersey population that doesn’t feast on oysters and champagne every day.
The UK in Parallel with Jersey
This wind of populism is blowing in London as well. We see this in Mitchell and Hodge’s proposal to create a public register, notwithstanding denunciations from Jersey politicians who claim that it would destroy their “way of life.” In fact, London is also facing an influx of the extremely rich, and the middle class feels increasingly pushed to the margins. According to Oliver Bullough,
In London and in the United Kingdom there is a growing populist intolerance toward the rich who are coming to the city. Many of the rich come to London to maximize their wealth and they often end up using the financial services of the City to place their wealth in trusts (that might be located in Jersey or other commonwealth territories). I think Dame Hodge’s idea is aimed at appealing to this growing voting bloc and at demonstrating that Parliament doesn’t care solely about the well-being of the rich. Along these lines, asking for a register and greater transparency for trusts located in Jersey, Guernsey, etc. so as to figure out what is in said trusts (possibly London real estate?) is a winning strategy from a democratic and political point of view.
The elections in Jersey will occur tomorrow. And it will be interesting to see if the status quo wins once again, or if the little island will have a new administration.
What happens in Jersey has the potential to change London finance as well, by creating pressure towards greater transparency and democracy.