In the wake of the Panama and Paradise Papers, the media has unfairly lumped the Channel Islands in with more opaque jurisdictions – so it’s no wonder they’ve come out fighting
If you were beginning to doubt whether the publication of the Panama and Paradise Papers would have any tangible effect on the global financial system, the UK’s recent move to force British Overseas Territories – including the Cayman Islands and the British Virgin Islands – to create and publish registers of beneficial ownership should have put those uncertainties to bed.
The fact that the Crown Dependencies of Jersey, Guernsey and the Isle of Man managed to lobby their way to an avoidance of the same fate not only highlights their differing constitutional relationships with the UK, but also the higher esteem in which they’re held by Westminster and the City of London.
While there’s acceptance in Westminster that the Crown Dependencies fall outside of its jurisdiction, the pressure is unlikely to disappear. And, as we’ve seen with the collapse of Mossack Fonseca (the law firm that was the source of the Panama Papers), the prosecution of the Head of the Angolan Sovereign Wealth Fund and the resignation of the Icelandic Prime Minister, the leaked files have had a variety of effects, even if not on the scale some may have expected.
That the Channel Islands weren’t extensively involved in the leaked files that form the Panama and Paradise Papers bolsters the view that these are world-leading jurisdictions in terms of regulatory compliance. But as the debate within Westminster shows, that hasn’t stopped them being caught up in the same net.
“To conflate the two sets of papers is slightly misleading,” says Dominic Wheatley, Chief Executive of Guernsey Finance. “The Panama Papers had a certain amount of substance, but the effect on the Channel Islands was marginal because they weren’t directly involved.
“The Paradise Papers didn’t have anything of substance in terms of bad practice; they were stories of public curiosity rather than public interest. But there’s been collateral damage because people tend to think of international finance centres as being the same. However, in the City, people understand that the Channel Islands are at the quality end of the IFC spectrum.”
Headline grubbing
Having invested large amounts of time and money in both investigations, it’s natural that the media would want to make as much of the leaked files as possible. The problem for the press has been that, particularly in the case of the Paradise Papers, very little evidence of illegality has been found, and so stories have had to focus on name dropping.
A sample of headlines includes: ‘The big names in the leak of offshore secrets’; ‘Scheme that let Gary Lineker avoid tax on Barbados home’; ‘Universities invested tens of millions offshore’; ‘From Harvey Weinstein to Shakira, the celebrities with offshore interests’.
None of these stories suggest that anything illegal has taken place and so, rather than shining a light on criminality, they’re being used to explain, from a particular perspective, how the global financial system works. In the reporting, however, very little attention has been paid to differences between the Channel Islands and other, less reputable jurisdictions.
“We’ve always been of the view that jurisdictions should be assessed based on their ability to meet and demonstrate international standards, rather than on subjective labels,” says Geoff Cook, CEO of Jersey Finance.
“If anything, the coverage has made us more determined to differentiate our position. Jersey is proud of how it’s grown to be a leading IFC and we continue to highlight what sets us apart from other jurisdictions – our world-class regulatory and legal framework, our expert workforce and our economic and political stability.”
As can be seen from the headlines mentioned earlier, the press’s refusal to treat jurisdictions differently extends to confusing legal and illegal activity, at least at the headline level. “Any steps to eradicate tax evasion should be applauded and must continue, but the blurring of the lines between legality and morality, and the confusion of legal tax avoidance with illegal tax evasion, is a concerning trend,” says Tim George, Partner at Withers Worldwide in London.
In part, this trend is a response to people’s preconceptions, which Geoff Cook believes gets in the way of wider, healthier debate. “There will always be a small element who aren’t willing to listen because they’re following a preconceived political agenda,” he says. “That’s a shame, because having a sensible debate about global trade, overseas financial flows and cross-border investment would be helpful.”
Pressing matters
Naturally, the media’s greatest concern is selling newspapers or attracting viewers and these are rarely achieved by going into detail or providing careful explanations in order to ensure the consumer is in command of all of the facts and understands every nuance.
But that isn’t going to stop the Channel Islands from trying to set the record straight. “We’re constantly talking to the press, NGOs, political figures and other prominent people,” says Dominic Wheatley.
“It’s one thing to respond at the times you need to, but I also do media days several times a month at which I remind people of our values, that we do adhere to all international standards of transparency and don’t tolerate aggressive tax evasion or money laundering.
“It’s important we speak up on behalf of our communities and show that we do share other people’s values and believe that people should pay their taxes. But it’s a constant piece of work.”
Following the past two years of negative publicity, it will come as little surprise that the islands are planning to push back as strongly as possible. But rather than limiting their focus to small groups of influential people, they will attempt to reach a much wider audience in 2018.
“We’re working hard to change perceptions,” says Geoff Cook. “Our evidence-based research has been a strong part of our efforts in recent years, and has been increasingly helpful in explaining the positive role Jersey plays in driving cross-border investment, which benefits economies around the world.
“Our strategy this year is to extend our message as widely as we can to the general public and show that, by working with partners in business and the wider global communities, we can help create a better future where everyone benefits.”
As Tim George points out, these are messages that the City doesn’t just understand but also believes, enabling those in the finance sector to differentiate between the Caribbean – including the British Overseas Territories – and the Crown Dependencies.
“The Panama and Paradise Papers had their biggest impact on the Caribbean jurisdictions,” George says. “The Channel Islands appear to have emerged relatively unscathed. Different jurisdictions have different ‘sweet spots’, but the Channel Islands are consistently regarded as the ‘go to’ jurisdiction for most sectors.
“They were ahead of the game in introducing robust regulatory regimes; legislation is generally introduced in a proactive way; the Courts are held in high regard; and there’s an impressive depth of high-quality service providers.”
Guernsey Finance and Jersey Finance will no doubt be delighted to hear such views coming from London – though both are well aware that, when it comes to reputation, they’re preaching to the converted in the City.
It will take a lot longer for them to be confident that the general public, like the City and Westminster, truly understand how to separate the Channel Islands from the Cayman Islands, and tax planning from tax evasion.