Thursday, June 28, 2012

Channel Islands threaten to split from UK



With more than one year to go before a referendum on Scottish independence, yet another insurrection is brewing in a different part of the UK. In the south, the Channel Islands are threatening to split from London and become independent of the British government, and politicians have not stopped their political attacks and clampdowns on the islands’ finance industry.

The Isle of Jersey, the largest of the group, leads the way.
One of Jersey’s most senior politicians has already called for preparations to be made to break the “thrall of Whitehall” and declare independence from the UK. Sir Philip Bailhache, the island's assistant chief minister, recently told The Guardian: “The island should be prepared to stand up for itself and should be ready to become independent if it were in Jersey's interest to do so.” He added that strained relations with the UK over the past five years have made it “very plain” that Jersey's interests are not always aligned with those of Britain.
There are five islands in the group: Jersey, Guernsey, Alderney, Sark and Herm (the last one is so tiny that not many people in the archipelago even know it exists). These British crown dependencies, as they are legally defined, have their own elected parliaments and are responsible for their own public finances but, as the name suggests, they are not constitutionally independent. The islands lie less than 20 miles from the coast of Normandy.
For the British, European, American, and now the Arab super-rich, the trust funds, offshore banks and residences on these islands have for decades been a sort of a “flag of convenience”. The local finance industry offers complex tax structures to help big business and super-rich individuals cut their tax bills, a practice known as tax avoidance.
Tax avoidance is not actually illegal and should not be confused with tax evasion, which is a crime. To put it in layman’s terms, it's like the difference between shoplifting and shopping around. If you are in a shop and you think the prices are too high, one way to “evade” the high prices is to steal the product altogether. Of course, that can land you in jail. You could, however, also “avoid” the high prices by leaving the shop and going to other places, i.e. shopping around. This method is legal in a free market.
The differences notwithstanding, both are considered an evil vice by any government whose coffers are being “avoided” in this manner.
Jersey's tax and regulatory framework has been structured to draw in the financial activities of multinational businesses and wealthy individuals. However, a growing financial and economic backlash has seen politicians in the UK and elsewhere lashing out at aggressive schemes leeching tax revenues from increasingly stretched public wallets. Bad times, as they say, always produce bad feelings.
British Prime Minister David Cameron took the unusual step last week of condemning the personal tax affairs of comedian Jimmy Carr, who was found to be using a controversial avoidance structure involving a Jersey trust company. Cameron called Carr’s actions “morally wrong”.
In private, many Jersey politician and bankers argue that – of all people – David Cameron should be the last one to point out the “immorality” of offshore banking. The British Prime Minister’s family fortunes as it now turns out were made in tax havens with all possible tax avoidance schemes applied. David's father, Ian Donald Cameron, was instrumental in establishing in 1982 (while David was still at Eton, his father’s school as well) Blairmore Holdings Inc. The investment fund in Panama is valued today at £25m. The Blairmore Holdings prospectus, published in 2006 (when David Cameron was already leader of the opposition) promised investors that their money would be beyond the reach of Her Majesty's Revenue & Customs and “not subjected to United Kingdom corporation tax or income tax.”
The islanders are so good at finding all sorts of tax loopholes that finance now dominates life in Jersey and Guernsey, where it accounts for almost half of all economic activity. The island capitals of Saint Helier and Saint Peter Port are dotted with familiar-named banks, many of them institutions that have survived only after bailouts from taxpayers elsewhere in the world.
At its peak five years ago, the value of assets held by Jersey’s offshore banks, trusts and investment funds was estimated at £700bn-£800bn. The figure is equivalent to about half of the UK's annual economic output.
From the start of the 1970s, the Channel Islands enjoyed almost four decades of near-uninterrupted growth, driven by ballooning financial activity. Bank deposits grew from £500m in 1970 to £220bn in 2007.
Over the same period the number of active companies incorporated on the island rose from about 550 to more than 33,000.
The past five years of global financial turmoil have not entirely passed the islands by, but they have left them relatively unscathed. With the boom, Jersey's population has expanded by 40% since 1970 and now stands at 98,000.
Previously relying on Britain to look after its international interests, Jersey last year began forging its own relations in Brussels and opened up an office in the European capital to look out for its interests.
The island’s powerful finance lobbying arm, Jersey Finance, is looking at ways to reduce its heavy dependence on the UK and continental Europe, recruiting representatives in Abu Dhabi and China, and are considering a new bureau in Brazil.
Yet still sensing that the British government would not stop clamping down on their money-making schemes, the inventive Channel islanders have already dreamed up a new controversial venture. If all goes to plan, by the end of 2012 Guernsey will have the world's first ever image rights registry, which will allow celebrities to earn a fortune from not just their face, but also their catchphrases, mannerisms and gestures. Its creators hope that this will make the rich (and the islanders) even richer.
As for the rest of Britain, it does not seem to mind the islanders’ intentions one bit. As one blogger put it: “Why don't we just put all the Channel Islands up on eBay?”

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