|Jersey: The richest offshore tax shelter of them all
The tiny island in the Channel Islands is facing mounting criticism about its culture of secrecy.
Fortune | October 10, 2012
FORTUNE -- Much has been made of the offshore tax havens of Mitt Romney's – one of the wealthiest men to ever to run for U.S. president – but few realize the impact of billions of dollars on the tiny islands that stash them.
Among all the world's offshore tax shelters – the Cayman Islands, Bermuda, Gibraltar – the one at the top of the list is Jersey. While most everyone has heard of New Jersey, "old" Jersey has long eluded the spotlight. A 5-by-9-mile island just off the coast of France belonging to the British Crown, Jersey would rather be known for its delectable Jersey cream, cows and potatoes than its propensity for hiding billions. Yet walk into any bank on the island and anyone, not just the superrich, can open an offshore bank account without depositing a cent.
Private financial wealth grew to $122.8 trillion in the past year, according to the Boston Consulting Group's 2012 global wealth report. Breaking down those numbers, the UK territories and Switzerland, locked in heated competition to store the world's growing pool of riches, house roughly $2 trillion each. Jersey, the largest of the Channel Islands, sits squarely in the driver's seat, conservatively representing at least $5 billion a square mile.
In the island's glittering capital city of St. Helier, surrounded by yachts, champagne lounges and diamond shops, financial services professionals pack the streets, lined with nearly every global bank and a sprinkling of hedge funds -- the multibillion-dollar hedge fund Brevan Howard Asset Management and bulge-bracket bank Morgan Stanley are just two examples.
It's not clear if Romney has money in Jersey, as he's said he's not sure where his money is. The presidential candidate told radio Iowa of his offshore holdings: "My investments have been held by a blind trust, have been managed by a trustee. I don't manage them. I don't even know where they are. That trustee follows all U.S. laws, all the taxes are paid as appropriate, all of them have been reported to the government, there's nothing hidden there." Yet even longstanding politicians from these offshore tax shelters admit they don't fully understand what is happening within their domains.
I first learned of Jersey's tendency toward secrecy when it banned me from the island while researching a book investigating whether police officers and politicians were driven from their jobs while attempting to investigate decades of alleged rape, torture and the possible murder of children at one of the island's most notorious orphanages, Haut de la Garenne. The UK authorities have since invited me back, but only after detaining me for more than 12 hours in the basement of Heathrow Airport, going through my papers and enduring the glare of subsequent national press coverage from the BBC to the Guardian.
This past month, members of both the UK and Jersey parliaments began a campaign to find out exactly how Jersey is run. Its medieval status as a so-called "peculiar possession" of the Crown endows it with some curious traits redolent of a modern-day special-purpose vehicle. Although it ultimately answers to the Queen, it acts autonomously, printing its own currency (pegged to the British pound) and presiding over its own parliament, judicial and financial systems.
In a speech last month, UK Member of Parliament John Hemming bemoaned a lack of transparency and democracy in Jersey, the jewel of the Channel Islands, noting that the UK as a whole faces a "really big problem," particularly in matters "involving a lot of secrecy." A former Jersey senator, Stuart Syvret, appealed to the UK Secretary of State for Justice in September for clarification as to why the UK does not intercede in cases where Jersey's rule of law demonstrably breaks down, citing "very substantial and dramatic human-rights, free-speech and public-interest issues." Syvret, who was targeted this summer with a clandestine gag order in Jersey for blogging about his concerns for the island, received an email back stating that his Freedom of Information request could not be fulfilled because it would cost more than 600 British pounds ($960).
A member of Jersey's parliament, Trevor Pitman, recently released a statement decrying a trend toward secretive legal action in Jersey and the muzzling of free-speech rights. "This situation within our 'democracy' should outrage not only ordinary members of the Jersey public, but every journalist and broadcaster," he said, adding that Jersey's government "squanders millions of pounds from the public purse to try to silence and discredit its critics." In conclusion, he made a bold plea: "On behalf of the people of Jersey, this is quite literally an S.O.S."
Jersey has a single newspaper, but it tends not to focus on questions of good governance, even as the island's voter turnout flags and its residents fall into increased muteness. Amid news of cover-ups in the UK in recent weeks and revelations this summer about what the Guardian dubbed as Jersey's "secrecy culture," Nicholas Shaxson, who wrote about Jersey in his 2011 best-seller, "Treasure Islands," warned last month of the dangerous road Jersey is headed down in potentially putting its image before its own democracy, stating, "This is just the snout of a gigantic black iceberg of global corruption."
Bottom line: if billions of dollars can influence the outcome of a U.S. presidential election, just think of what it can do to the de-democratization of a small island in the English Channel.
Leah McGrath Goodman, a New York-based author and journalist, was banned this year from the island of Jersey by UK authorities while researching her next book.