Let's be rational

There is a growing body of evidence that supports the case that International Finance Centres (IFCs) contribute positively and significantly to international investment, jobs, growth, and poverty alleviation.

In fact, allegations that IFCs allow significant illicit capital flows that enable individuals and multinational enterprises to avoid paying a 'fair' amount of tax, rest on poor data and analysis, and on misconceptions about how financial transactions, international taxation, and anti-money laundering rules actually work.

Despite sensationalist reports in some populist media, there is nothing illegal or untoward about anyone (celebrity or not) having a bank account or trust in a well-regulated jurisdiction such as Jersey. In fact, there are many perfectly sensible reasons for doing so.

There is undoubtedly a need for more rational and considered thought around the exact role that IFCs play - particularly given the importance in today's globalised world of moving capital efficiently around the world.

A more balanced view based on proper academic research is incredibly helpful, which is why Jersey Finance commissioned an independent study, published this summer by two leading academics from the United States, who have examined cross border finance and the international free flow of funds around the world.

The report, Moving Money: International Financial Flows, Taxes, and Money Laundering, has provided a powerful answer to the critics of offshore financial centres, and demonstrated the value of having an open global financial market in helping to boost global trade and economic growth.

By exploring different approaches to tax policy and regulation, the study ultimately finds that IFCs help to increase international financial flows, facilitate trade and investment, and allow the reduction of overall financial risk.

The beneficial role played by Jersey as a conduit for investment into the UK is a case in point. In 2013, an independent report carried out by Capital Economics (Jersey's Value to Britain) found that Jersey alone is the conduit for almost £1-2trn of foreign inward investment into the UK, and that £1 in every £20 invested by foreign individuals and companies in assets located in Britain reaches the UK via Jersey.

There are numerous reasons why people and multinationals use IFCs such as Jersey. Often they are chosen for the strength of their legal regimes and management skills, which can ensure an investor's funds are safely and efficiently managed on their way to ultimately being invested in attractive opportunities - an entirely sensible practice.

Another is tax planning. The authors of Moving Money call tax planning a "rational response to tax laws", and go even further to say that it is in fact "the only response possible for an individual or firm faced with the need to comply with the conflicting provisions, definitions and exemptions of multiple jurisdictions' tax laws".

Moreover, IFCs are among the most well-regulated, compliant and transparent market places. Jersey, for example, offers all the protection associated with the British common law legal system, adheres to the highest standards set by international bodies like the IMF and the Financial Action Taskforce (FATF), was an early adopter in signing up to the G5 pilot on automatic exchange of tax information, the OECD's Common Reporting Standard, and has committed to the US FATCA framework of tax reporting.

In short, the authors of Moving Money show that cross border trade in goods and services is simply not possible without the international movement of money, and that IFCs play a crucial part in that. Much more useful than denouncing IFCs would be to devote more resources to helping to create honest, competent governments in jurisdictions where corruption is the norm.

Discussions around international business and tax policy are too important to be debated on the grounds of baseless, emotive arguments. They should be firmly rooted in quantifiable economic research. Fortunately, the positive role of IFCs is being evidenced in a growing body of robust literature, and Moving Money is another important contribution to the international conversation in this area.

Geoff Cook is the CEO of Jersey Finance

He writes a regular blog about Jersey for Private Client Adviser

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