Speaking to a group of financial executives on Wednesday in Douglas, Isle of Man, Sir Howard Davies, Chairman of Britain's Financial Services Authority, while generally complimentary about the island's supervisory regime, warned that offshore jurisdictions needed to battle against negative perceptions at a time when there is more pressure than ever for financial institutions to be transparent.
"The US decision on Monday to freeze the assets and transactions of international banks which fail to co-operate with the campaign against terrorism raises the stakes further," said Sir Howard. "It will cause banks to look even harder at whether their branches around the world, and especially in offshore centres are fully compliant with money laundering best practice. Anyone who is responsible for the governance and regulation of offshore centres would do well to be aware of the challenges they face. In short, offshore centres will need to do much more in the coming years to demonstrate that they can and do meet international standards of best practice. If that does not happen, then the future is bleak."
The Isle of Man said the Financial Services Authority had been right to insist on high standards offshore but pointed out that Britain had problems of its own. "In many cases (leading economies) are not in a position to be critical because their standards are below those in some offshore centres," said John Aspden, the Isle of Man's chief financial regulator.
But Sir Howard said his agency was taking powers to deal with shortcomings in London's supervisory arrangements which had been shown up by the Abacha affair. "We have had the particular case of the General Abacha funds which caused us to make a serious root and branch investigation through the London banking system to investigate the quality of money laundering controls and to chase Abacha money," he said. When it became clear that considerably quantities of Abacha money had travelled through London on its way offshore, the British Government had shamefacedly explained that it couldn't do anything to force banks to divulge details without clear evidence that a crime had been committed.
Reporting of Sir Howard's friendly and helpful speech in the Financial Times and other European media was hardly objective, preferring to focus on phrases like 'the heat is on' rather than the considered analysis he gave of the current environment for 'offshore. Sir Howard was careful to distinguish between the effort to combat money-laundering and the question of taxation. "At the FSA we take an agnostic view on taxation," he said. "The OECD harmful tax initiative is not about regulation or money laundering, which are subjects of great concern to me, although that initiative is sometimes, perhaps even deliberately on occasion, mixed up with the Financial Action Task Force work. The arrival of the new US administration has brought a change in the focus of that initiative, in that the US now holds it is the right of any country to establish its own tax régime. But I am sure there will now be a greater concentration on achieving improved exchanges of information on tax matters."
Regulatory authorities in the Channel Islands and the Isle of Man are unhappy about media coverage that encourages many to perceive offshore centres as rogue elements in the global financial system, given how hard they have tried to conform to international requirements. Along with 16 other offshore jurisdictions, the UK's dependent territories are members of the Offshore Group of Banking Supervisors, which says that its members conform to the 40 recommendations of the Financial Action Task Force. The FATF was set up by the G7 alongside the OECD to improve money-laundering standards, and has published lists of countries it deems 'unco-operative' in the fight against money-laundering.
The only three blacklisted members of the Offshore Group - the Cayman Islands, Panama and the Bahamas - were removed from the list this year after making extensive legal changes to conform to the FATF's recommendations.
Colin Powell, chairman of both the group and of Jersey's Financial Services Commission, said standards varied much more widely in offshore centres than many people believed. Rules in the Channel Islands and the Isle of Man were much tighter than in some Caribbean and Pacific centres. The blacklist of 19 countries includes Caribbean and Pacific tax havens as well as onshore centres such as Israel, Russia and Hungary. "There has been some progress, but there is a tendency still for offshore centres to be described as a generic group," Mr Powell said.
Phil Austin, Chief Executive of Jersey Finance, a public/private body which represents the island's finance sector, told Tax-News that Jersey is 'very comfortable in its relationship with America,' and that Richard Pratt, Director-General of the Financial Services Commission, has had satisfactory discussions with the US authorities. 'Jersey is taking a very proactive stance' towards the US counter-terrorist demands, said Austin.
Jersey Finance has encouraged its members to be vigilant, but reminds
them that the island has nothing to be ashamed of: 'Jersey has contacted
the US Authorities directly to offer assistance if required. This has
been recognized and appreciated by the US Authorities. Jersey has the
necessary legislation in place to co-operate
fully with the US Authorities.'
The organisation also points out that a succession of regulators and
international bodies has been complimentary about the island's regulatory
regime, including the FATF, the Financial Stability Forum and indeed the
USA itself. 'In March this year,' it says, '3 key USA regulators, including
the FBI, endorsed Jersey's approach to fighting
financial crime and its co-operative approach in working with other regulatory
authorities. The US State Department described Jersey's service industry
as "sophisticated", saying that 'Jersey has established a comprehensive
anti-money laundering programme and has demonstrated its commitment for
fighting financial crime. Jersey officials co-operate with international
anti-money laundering authorities."
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