The Evolution of International Finance Centres Labuan IBFC s 25 th Anniversary Conference

Transcription

1 The Evolution of International Finance Centres Labuan IBFC s 25 th Anniversary Conference

2 Agenda John Harris Director-General IFC s a definition IFC s 3 histories, 3 geographies Common development themes 1990s to present the financial crisis and aftermath Tax and transparency The blame game and reputational impacts Regulatory changes Business model changes Potential winners and losers What next for IFC s? Conclusions Parting thought

3 Confidence, courage and determined spirit are vital for surviving hard times Lailah Gifty Akita

4 IFC s Definitions Metropolitan Centres London New York Tokyo Singapore Dubai Medium size, tax treaty based sovereign fiscal dealers Ireland Luxembourg Netherlands Mid-shores conduits Hong Kong Jersey Guernsey Isle of Man Labuan Mauritius Cayman Switzerland? Self-containers BVI Netherlands Antilles Turks and Caicos Cook Islands Cyprus

5 For today s debate, the focus is Jersey Labuan British Virgin Islands

6 Evolution - respective histories Europe - Jersey 1960s Decolonisation and sterling retreat British merchant banks Fiscal neutrality and relative advantage 1984 Trust Law Legal profession and innovation London proximity Common law and court experience Consolidation and globalisation = co-operation Asia - Labuan 1990 First mover advantage in SE Asia niche Major country backing Simple and predictable tax proposition Determined build up of increasingly wide and varied product offering Mid-shore, transparent and cooperative approach Islamic specialism Consistent and forceful marketing Caribbean/North America 1970s International Business Companies Act 1984 Panama exodus Registry core offering Asian and Middle East commodity specialism Non-disclosure advantage Product and service add-ons but what depth? Increasing challenge of transparency and cooperation requirements

7 Common Development Themes Permissive age for IFC s More relaxed attitudes to tax arbitrage and non-disclosure than seen now Strong business build up driven by globalisation, leverage and benign economic condition Some moves from 1998 onwards towards more restrictive approach eg: OECD and EU moves against Harmful Tax Practices and beginnings of information exchange (TIEAs) and EU Savings Tax Directive 1999 Jersey criminalised tax evasion as a predicate offence for Money Laundering Jersey signed its first TIEA with USA Swiss banking secrecy felt largely undisturbed

8 Common Development Themes (continued) Non- retail activities Significant product and service innovations, for example: Protected Cell Companies Limited Liability Partnerships Common Law Foundations Islamic Finance Securitisations In some IFC s at least something of a large parking lot for excess capital flattering profits and GDP performance Geographical extensions of practitioner firms business development activities, for example the multi jurisdictional trust client Cross border fund flows creating new generation of specialist alternative funds for affluent and institutional investors

9 The Financial Crisis impact of IFC s The blame game no evidence that IFC s caused the financial crisis, but

10 The City of London, that state within a state which has never transmitted even the smallest piece of usable evidence to a foreign magistrate Eva Joly, Notaire, from her book Notre affaire á tous We want to put a stop to tax havens. We want results on this, with a list of tax havens and a series of consequences Nicolas Sarkozy, French President, after 2009 G20 summit Secrecy is as vital as the air we breathe The activities engaged in routinely and as a matter of course by these tax havens are hostile acts towards all countries Willem Buiter, FT columnists and former chief economist of the EBRD The Swiss Banking Association The wealth, power and illegality enabled by this hidden system are now so vast as to threaten the global economy s legitimacy Jeffrey Sachs, on tax havens, April 30, 2011 Tax havens aren t just about tax. They are about escape from criminal laws, escape from creditors, from tax, escape from prudent financial regulation above all, escape from democratic scrutiny and accountability Nick Shaxson, Treasure Islands: Tax havens and the men who stole the world We will also target tax evasion and off-shore tax havens... Everyone must pay their share George Osborne, UK Chancellor

11 The Financial Crisis - the reaction Tax and Transparency Sweeping changes Abolition of full blown banking secrecy. Switzerland and Luxembourg never thought the OECD would move against them Swiss problems with the USA the UBS deal Having 12 x TIEAs in 2008 was gold dust TIEAs, Automatic Exchange of Information, various Disclosure Facilities FATCA, UK FATCA OECD Common Reporting Standard early adopters Progressive criminalisation of tax evasion in all centres, eg: Singapore Registers of Beneficial Ownership of Companies (and call for Public Registers) Data thefts and leaks eg: Luxileaks, HSBC Switzerland, others.

12 The Financial Crisis - the reaction UK Designed Tax Scheme UK Marketed Tax Scheme UK Resident Celebrities as Beneficiaries Jersey Trust administrator pure bookkeeping role In the prevailing moral climate the Jersey activity is paraded as the problem

13 The Financial Crisis the reaction: driving regulatory change Broad and sweeping the proverbial blunderbuss! Banking BASEL III, capital and liquidity all centres Funds post Madoff, AIFMD in Europe regulating the Hedge Fund and alternatives space Huge additional requirement in the AML/CFT space probably our single largest burden New doctrine of third country regulatory equivalence eg: access to EU markets only if you do regulation to the EU Standard Massive burden for small IFC s what we are basically being asked to do is major country regulation in small places

14 The Financial Crisis - the reaction A demand for business model change Some examples: FATCA makes IFC s an operational agency of the US internal revenue service More broadly all business lines need to be able to withstand, and in effect to expect, scrutiny and challenge We are now data channels for massive and indigestible information to be sent onshore and this includes cyber and theft risk We need serious work and maintenance on our international relationships Record keeping and record keeping systems now a major requirement, for example: blacklists We need to demonstrate outperformance in international evaluations Pace of change, for example: to full disclosure IFC s need to think about competitive disadvantage

15 The Financial Crisis - the reaction The new IFC model Co-operative Transparent Reputationally clean Tax neutrality Support of a major country in proximity Excellent performance in evaluations (IMF, FATF, etc) Can demonstrate investment flows Seize and repatriate illicit funds Economic integration with major market Contributors not recipients About substance and distributed economic benefits to others Winners/ Survivors Mid-shores Hong Kong, Jersey, Guernsey, Labuan Stronger sovereigns, Singapore, Ireland, Netherlands Losers/ Challenged Switzerland Panama BVI Cyprus Cayman

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17 What next for IFC s Maintain regulatory and fiscal cooperation standards Also need to demonstrate substance, including having the information Maintain relatively lower tax rates than major countries Third party evidence based advocacy Continue to develop markets further afield Continue to innovate, identify niches and develop new products and services Agile and responsive local regulation and legislative speed Facilitate inward and outward investment flows Requires regulatory and fiscal agreements and very good risk management, CDD, supervision, intelligence Co-operation means information and intelligence sharing, credible enforcement, funds freezing and repatriation Play a visible and active role in international organisations and fora Develop own standards and seek to export, for example: TCSP Standard

18 Conclusions IFC s decades of development as players at the margin Under the radar, discrete, undisclosed, little understood but largely unmolested Existentially challenged by the fallout from the financial crisis Agile and adaptable but the burden of demonstrating world class regulatory capability in small places is hurting and affects competitiveness The successful IFC s of the future not only meet the minimum requirements to stay in the game but can, and will, demonstrate their utility to proximate countries and markets and the world community endeavours

19 The future belongs to those who prepare for it today. Malcolm X

20 @JerseyFSC Jersey Financial Services Commission