Brexit has come as an unpleasant shock for the Channel Islands’ trust industries, with a concern, among many that the jurisdictions may find themselves caught between a transparency rock and a privacy hard place. But as Peter Body discovers, it isn’t all doom and gloom…
Nothing appears certain about Brexit, it goes without saying. But among the many areas of uncertainty is what the post-EU future holds for the UK’s trusts industry, in the Channel Islands.
The Brexit vote, and subsequent discussions about how the UK’s break with Europe is likely to be achieved, have been watched with interest by trust industry experts in Jersey and Guernsey, both of which have substantial trust industries.
In particular, there have been concerns that the two islands might end up on the wrong side of the argument between those who will be insisting on total transparency, when it comes to the ownership of companies and trusts, and those who believe privacy is still important to preserve.
‘Transparency has paid off’
Steve Meiklejohn, global senior partner at Ogier, the international law firm founded in Jersey, is among those who believe the two islands’ embracing of transparency and their willingness to adopt strict financial regulations has already paid off for the islands, and should work to their advantage in the coming months of negotiations.
But he believes there may be pressures to go the other way being brought to bear.
“The stance of government has always been to stay on the right side of Europe, and to show that we are responsible, international players, as determined as any jurisdiction to stamp out tax evasion and aggressive tax avoidance,” he says.
“But the nature of the demands put on us by the EU make it [our transparency and financial propriety] something of an outlier to the rest of the world. You don’t see China or even the US imposing quite such rigorous rules that tie people down, as you see from the EU.
“So with Brexit we may have a choice. The Crown Dependencies, the Overseas Territories and even the UK will have to decide whether we align ourselves with the EU – which seems to want to introduce disclosure in a much more rigid way than anywhere else – or do we want to make a bit of a stand, and align ourselves [instead] with the US and China?”
Beneficial ownership debate
One of the biggest issues for both Jersey and Guernsey which has potentially major implications for their trusts industries is how the islands will, ultimately, choose to handle the pressure on them to create a public register of beneficial ownership.
In the absence of a level playing field, those who opt for the EU approach, trust industry experts say, could see their trust businesses slipping away to finance centres not as convinced of the need for freely-available public registers of beneficial ownership.
Unlike the UK, Jersey has had a central register of ownership since 1989, but that is only open to the police and regulators. Jersey Finance, the island’s financial services promotional body, says this has worked well, and it doesn’t believe a fully- public register would work as effectively, and therefore it’s is not needed.
In the meantime, the Crown Dependencies have been urged to agree to what Jersey’s minister for financial services, Senator Philip Ozouf, calls “an enhancement of an already effective functioning system”.
Under this system, trust and company services providers will have to register changes in beneficial ownership within 21 days, and a central register of directors of Jersey companies is being created, with the information exchanged with law enforcement and tax authorities on request.
However, the EU’s draft Fourth Anti-Money Laundering Directive plans to go even further, and would require beneficial ownership of companies, trusts and foundations to be available to anyone with identification who requested it.
Meiklejohn says there may be a let-out for Jersey, at least, because public registers only apply to trusts that suffer local taxation, and Jersey trusts established for international clients pay no tax.
But “if we got to the point where there was a reversal of that position, and we came under pressure to introduce a public register, then other competitive jurisdictions with trust industries – such as Cayman and Bermuda – wouldn’t be under the same obligation,” he notes.
“We could lose a lot of business. After all, if you [are a client and] have a trust, you definitely don’t want to be in a jurisdiction where your name is plastered all over a public register.”
As Brexit will force the UK to focus on getting out of the EU, UK politicians are also unlikely to be terribly concerned about keeping the rest of the EU happy, Meiklejohn adds.
“The hope is that they will then realise that those Crown Dependencies aren’t that bad after all, and don’t need a public register.”
REASONS SOMEONE MIGHT USE AN OFFSHORE TRUST
Succession and estate planning: Trusts can by-pass cumbersome probate and restrictive succession laws, particularly in jurisdictions that have forced heirship
Preservation of wealth: Trusts preserve the continuity of ownership of assets, such as a business, within a family
Asset protection: A trust can secure assets at risk of expropriation or confiscation by a hostile regime
Confidentiality: A trust can preserve the confidentiality of beneficial owners of assets where there is risk of criminality or extortion resulting from disclosure
Operating within exchange controls: A trust helps owners of international assets in a country with exchange controls prevent their global wealth being embroiled in them
Tax neutrality: Trusts can minimise or defer taxes on assets where local rules permit. Trusts are often tax neutral for international clients
(SOURCE: Jersey’s Value to Britain by Capital Economics, October, 2016)