Jersey

Privacy of financial information in Jersey

Robert Christensen or Simon Perchard of Volaw examine Jersey’s approach to client privacy

During much of this year, the tiny state of Liechtenstein has been the focus of a great deal of media attention, as a result of the decision by the German tax authorities to purchase a list of customers of a Liechtenstein bank, stolen from that bank by a former employee. The same list has since been acquired by the tax authorities in a number of other countries - including the UK, US and Australia. In July 2008, it was revealed that over 300 wealthy Britons who have over £1bn in accounts in Liechtenstein are likely to be facing investigations and possible criminal prosecutions.

The outcome of the media frenzy - and of the pressure from Germany and other countries - was that Prince Alois of Liechtenstein announced in August 2008 that his country would begin co-operating in a constructive manner with the tax authorities of countries around the world. This affair has brought into focus the way in which financial services providers around the world may now, subject to limits, be required to divulge financial information on their clients to government authorities.

Legislators and financial services businesses in Jersey, as in every other international finance centre, have to balance carefully the entirely reasonable desire of individuals to keep confidential all information relating to their financial dealings and wealth, with the need to support efforts to prevent the use of the financial services system by people seeking to launder the proceeds of crime or to finance terrorist activities. Jersey's government, in common with legislatures in other jurisdictions, continues to seek to protect the confidentiality of financial information relating to law-abiding citizens; however, the States of Jersey has over a period of many years introduced numerous laws and regulations and entered into a number of agreements with foreign governments that, in certain circumstances, will remove the privacy of such information.

Many people continue to label centres such as Jersey as tax havens, in the belief that individuals can hide their wealth from the tax authorities in their country of residence, simply by placing it in a bank in such tax havens. However, it has long been recognised that it is unacceptable for people to evade taxes illegally by hiding their assets in such a way and professional advisers in jurisdictions like Jersey have for many years sought to ensure that their clients take advice on their tax position and follow that advice. Effective tax planning is based upon knowledge of the tax laws, not on hiding assets.

In 2002, Jersey (along with other offshore finance centres) entered into an agreement with the OECD that, subject to certain provisos (most particularly, in relation to a level playing field with other countries, especially OECD member states such as Switzerland), committed the island to adopting the OECD's principles of exchange of information and transparency on tax matters. As a consequence, Jersey has since then entered into tax information exchange agreements (TIEAs) with the US, the Netherlands and Germany; and further TIEAs are likely to be signed in the future with other countries.

TIEAs will not adversely impact the rights to privacy of those individuals who use financial services providers in Jersey for properly planned purposes. No automatic or unauthorised exchange of information will take place under these TIEAs and strict confidentiality provisions in each TIEA will prevent any information being passed to third parties without the written consent of the country from which information has been provided. Each request for information made pursuant to a TIEA is dealt with on an individual basis, with the individual the subject of an information request already being under investigation in the requesting jurisdiction.

In addition to cooperating with the international community through the OECD sponsored initiative, Jersey has adopted various laws and regulations that make it an offence for financial services businesses to assist people in hiding or handling the proceeds of crime or terrorist acts.

Among these laws and regulations are:

• Proceeds of Crime (Jersey) Law 1999
• Drug Trafficking Offences (Jersey) Law 1988
• Terrorism (Jersey) Law 2002
• Money Laundering (Jersey) Order 2008 

Financial services businesses in Jersey are obliged to report any suspicious activities across bank accounts or in any other activity that could be seen as money laundering offences or financing of criminal or terrorist activity; this includes suspicions of illegal tax evasion. Privacy of information may be compromised during such investigations.

However, those clients of Jersey-based financial services providers who have obtained proper advice on their tax and other business affairs, can be confident that information on their business and affairs will be kept private and confidential. Businesses in Jersey are obliged by the Data Protection (Jersey) Law 2005 and regulations made under that law, to ensure that data is kept secure from anyone including tax and other investigating authorities, unless a legal demand is made or obligation exists to disclose under the terms of the island's laws.

As one of Jersey's leading trust companies, Volaw is fully supportive of efforts to enhance Jersey's reputation as a well-regulated and highly respected international finance centre. Volaw's services are aimed primarily at international clients who wish to use Jersey as a legitimate place to manage their finances. While respecting our clients' rights to privacy, we take all possible measures to ensure we do not provide assistance to people who wish to evade paying taxes in their own countries by illegal means or to hide the proceeds of other criminal activities.

We advise all potential clients who are considering establishing a structure in Jersey to take specialist legal and tax advice relating to their position from professionals within their own jurisdiction, before proceeding with establishing the structure.

For further information on our wealth structuring services, please contact Robert Christensen or Simon Perchard of Volaw.