Home Office, FATF and OECD update

In February 1998, the Home Office announced there would be a review of the Jersey, Guernsey and the Isle of Man financial regulatory laws and infrastructure. Following close consultation and co-operation with the Islands authorities, banks and professionals, the Edwards Report was issued in November 1998.

A number of recommendations were made many of which the Islands wished to see and were in the course of consultation. Notably, the Edwards Report stated:

"I found widespread agreement that the islands are in the top division of offshore centres”

During the course of last year, two major releases were issued by the Organisation for Economic Co-operation and Development ("OECD") and the Financial Action Task Force ("FATF").

It is clearly very important to fully understand the implications of these reports and the reason for the Channel Islands inclusion and categorisation by these respective bodies.

FATF was established after the 1989 meeting of the Group Seven Finance Ministers to review the regulatory standards and practices employed in the finance centres as part of the global initiative against money laundering.

Pleasingly, the Islands have gained the backing of FATF for their impressive regulatory and criminal law framework. This was further enhanced by the Financial Stability Forum which in May placed the Channel Islands in the top division for having legal frameworks and supervisory practices better than those in other jurisdictions.

The OECD came into force in 1961 with the prime objective of achieving the highest sustainable economic growth and employment within member countries, whilst maintaining financial stability. The main purpose of the recent report undertaken by the OECD has been to identify potentially harmful preferential tax regimes. They have identified no less that 47 harmful tax practices currently permitted by 19 of its own member states.

A number of jurisdictions mentioned in the report have issued letters of commitment to the OECD in order to avoid unfavorable commentary in the report however the Islands of Jersey and Guernsey were not prepared to issue such a letter. Responding to the report itself, Laurie Morgan, President of the Guernsey Board of Advisory & Finance, said:

"We have co-operated and of course we will continue in our dialogue with the OECD. But it is no good the OECD asking Guernsey to sign up to vague commitments if they don't tell us what precisely they want us to sign up to. Some jurisdictions have been prepared to give a generalised commitment. One knows what you are signing up to? Guernsey believes in being straightforward. We want the OECD to be straightforward with us".

It is not only offshore centres that have been critical of the OECD but it also recently came under attack by US House of Representatives Majority Leader, Dick Armey. He expressed deep concern over the US Administration's active support for the OECD's effort to stamp out tax competition, claiming that the OECD's efforts are designed in effect to create a tax cartel. "If the OECD succeeds, our nation will be hamstrung in their attempts to promote economic growth" said Armey.

In December 2000, further meetings took place with OECD members and representatives from the Islands’ Governments and it is believed positive announcements will be made later this year on the possible removal of Guernsey and Jersey from the OECD tax haven list.