Memorandum from the States of Guernsey
and the Guernsey Financial Services Commission
1. EXECUTIVE
SUMMARY
1.1 Guernsey is a well-regulated financial
centre committed to maintaining international financial stability
and transparency. Guernsey has consistently demonstrated this
commitment through international co-operation and information
exchange. Recent examples include its constructive partnership
with United Kingdom (UK) authorities on the resolution of issues
such as those around split-capital investment trusts (see 4.14),
and those around Northern Rock (see 4.15).
1.2 The classification of financial centres
as "off shore" or "on shore" does not fairly
distinguish between those jurisdictions which are well regulated
and transparent and those which are not. Each jurisdiction should
be considered on its own merits on the basis of objective criteria.
By a number of objective measures, reports and assessments Guernsey
is a well regulated, transparent and co-operative jurisdiction
committed to maintaining international financial stability and
preventing financial crime (see in particular 4.11 to 4.15 and
6).
1.3 Guernsey's reputation as a premier provider
of international financial services has been built on a number
of foundations, including:
— an effective regulatory regime that
meets or exceeds all international standards on financial regulation,
anti-money laundering and combating the financing of terrorism;
— international co-operation on regulation
and the investigation of financial crime;
— competitive taxation and certainty
in its taxation system;
— regular, external, and independent
reviews—in the majority of cases at Guernsey's express invitation
and in all cases with Guernsey's full co-operation and assistance;
— a highly skilled and educated workforce;
and
— proximity to the UK and Europe.
1.4 The authorities in Guernsey have substantial
investigative powers. They work closely with their counterparts
in other jurisdictions (and in particular those in the UK such
as HM Revenue and Customs and the Serious Organised Crime Agency)
in investigating regulatory, taxation, and criminal matters and
assisting in freezing and recovering the proceeds of crime.
2. INTRODUCTION:
GUERNSEY'S
STATUS AND
INTERNATIONAL RELATIONSHIPS
The government of Guernsey[350]
2.1 Guernsey[351]
has its own elected legislature called the States of Guernsey
("the States"). The administration of the 10 government
departments is overseen by a Chief Minister and 10 Ministers which
form the Policy Council. The 10 Departments are each led by a
Minister and four peoples' deputies who are members of the States.[352]
Guernsey's relationship with the UK
2.2 Guernsey is a Crown Dependency. The
Sovereign in Council exercises supreme legislative and judicial
powers in Guernsey and has ultimate responsibility for the good
government of the Island.[353]
The Crown acts through the Privy Council on the recommendations
of the Ministers of Her Majesty's Government in their capacity
as Privy Counsellors. The Ministry of Justice acts as the point
of contact between the States and the Crown but is not otherwise
involved in the Island's internal affairs. The Ministry of Justice
is responsible for ensuring that legislation approved by the States
is placed before the Privy Council for Royal Sanction. The UK
Parliament does not legislate on behalf of Guernsey without first
obtaining the consent of the insular authorities. The extension
of an Act of Parliament to Guernsey is exceptional. Where uniform
legislation is required the ordinary practice is for the States
of Guernsey to enact its own "mirror" legislation.[354]
2.3 Guernsey is not, and has never been,
represented in the UK parliament. The States of Guernsey is, and
always has been, legislatively independent from the UK with the
full capacity to legislate for the Island's insular affairs. Guernsey's
right to raise its own taxes is a long recognised constitutional
principle. The government of the UK does not provide any direct
financial assistance to Guernsey.
2.4 The UK is responsible for Guernsey's
international relations and for its defence. In recent years the
UK has recognised the appropriateness of Guernsey having greater
independence with respect to international relations, particularly
where those affairs relate to matters within the competence of
the States.[355]
Guernsey has never been an overseas territory or a colony and
the constitutional relationship is distinctly different from that
of the British Overseas Territories.
Guernsey's relationship with the European Union
2.5 Under Protocol 3 to the Treaty of Accession,
Guernsey has a special relationship with the European Union and
the majority of EU Directives do not automatically apply in Guernsey.
As far as financial services are concerned Guernsey is a third
country under EU law. Nonetheless Guernsey implements EU laws
when it considers it appropriate to do so and meets the international
standards on which they are based.
3. THE FINANCE
INDUSTRY IN
GUERNSEY
Development of the finance sector
3.1 Guernsey's financial services sector
began to grow in the 1960s with the establishment of operations
in Guernsey by UK merchant banks and of the collective investment
schemes which they sponsored. By 1987 the banking, insurance and
collective investment scheme sectors had developed to such an
extent that the States of Guernsey took the decision that it should
establish an independent regulatory body staffed by dedicated
professionals. This was in accordance with internationally accepted
best practice at the time. The Guernsey Financial Services Commission
("the Commission") was established in 1988. During the
1990s Guernsey became one of the world's largest captive insurance
centres, and today Guernsey is Europe's largest, and the world's
fifth largest, captive insurance centre. The Channel Islands Stock
Exchange (CISX), which is based in Guernsey and is the only stock
exchange in the Channel Islands, commenced operations in 1998.
The CISX has been recognised by the United States Securities and
Exchange Commission, the Financial Services Authority (the FSA)
and Her Majesty's Revenue and Customs (HMRC). As the sector continues
to develop, so an increasing number of professional firms exist
to service the finance industry, particularly in the accounting,
legal and actuarial professions. As at 31 March 2008 there were
7,893 people employed in the finance industry.[356]
3.2 Guernsey has developed considerable
expertise in administering collective investment schemes, captive
insurers and trust and company structures. In addition to expertise
in niche areas, the size and diversity of the finance sector enables
a great diversity and sophistication in the products and services
available. These factors—along with a robust regulatory
framework that marries compliance with international standards
and an effective handling of risk—attract financial services
business to Guernsey.
The banking sector in Guernsey
3.3 At 31 March 2008 there were 47 licensed
banks from 17 jurisdictions based in Guernsey. Deposits as at
31 March 2008 were £129.6 billion. All are part of wider
banking or building society groups operating elsewhere and there
are no indigenous Guernsey banks. The types of business carried
out by banks include:
— community banking carried out by
branches or subsidiaries of Jersey, Isle of Man or UK clearing
banks;
— banks and building societies operating
subsidiary banks in Guernsey offering a range of services, including
deposit-gathering from expatriates and deposit-gathering from
local and foreign depositors;
— international private banking, which
can involve discretionary asset management. The principal products
offered to private clients are call and term deposits, and structured
products which have a guaranteed minimum value but may also participate
in the growth of securities or commodities markets;
— custodial and sub-custodial services
for the funds administration sector; and
— standby letters of credit for the
insurance industry.
Investment business in Guernsey
3.4 The types of investment business carried
out in Guernsey include the management, administration and custody
of open and closed-ended collective investment funds; discretionary
and non-discretionary asset management; stock-broking; and the
provision of investment advice. The total value of assets held
by collective investment funds under management or administration
(including non-Guernsey collective investment schemes administered
within Guernsey) at 31 March 2008 was £203.8 billion. At
that date, there were 290 authorised open-ended schemes with 1,901
pools of assets and 582 closed-ended funds with 645 pools of assets.
These schemes/funds were sponsored by institutions based in 50
countries. Of these, 121 schemes/funds were listed on a stock
exchange in the UK.
Insurance business in Guernsey
3.5 Insurance business in Guernsey can be
divided into three distinct sectors:
— domestic insurance business. As at
31 March 2008 there were 25 insurers engaged in domestic business,
including five local insurers writing domestic insurance business
in the Guernsey and 20 other domestic insurers who have a physical
presence in Guernsey which are incorporated and authorised to
write business within a Member State of the European Union;
— international insurance business
which can be categorised as captive insurance, commercial insurance
or international life and employee benefits. As at 31 March 2008
there were 368 licensed international insurers. The majority of
these international insurance companies have been established
by UK based groups but 135 were established by non-UK based groups
from a wide range of jurisdictions. Specialist insurance management
companies manage most of the international insurers. There were
25 licensed management companies on 31 March 2008; and
— insurance intermediaries, comprising
both insurance brokers and insurance agents. At 31 March 2008
there were 44 registered intermediaries.
Fiduciary services in Guernsey
3.6 Fiduciary services principally relate
to trust management and administration, company management and
administration and, to a lesser degree, the provision of executorship
services. The firms providing fiduciary services in Guernsey are
varied and range from the bank owned trust companies to a number
of independently owned private trust companies. There were 196
licensed full and personal fiduciaries at 31 March 2008. The most
common form of Guernsey trust is the private discretionary trust.
Besides their private use in family situations, trusts are used
as investment vehicles (collective investment funds) and for company
pension schemes and employee benefit schemes. The different forms
of companies operating or registered in Guernsey are companies
limited by shares, companies limited by guarantee, companies limited
by shares and guarantee, protected cell companies and incorporated
cell companies. As at 28 May 2008 there were 19,341 companies
on the Guernsey register of companies.
4. REGULATION
OF THE
FINANCIAL SERVICES
INDUSTRY IN
GUERNSEY
The powers of the Guernsey Financial Services
Commission
4.1 The Commission was one of the world's
first unitary regulatory bodies, and is responsible for the regulation
of banks, insurers and insurance intermediaries, investment firms,
trust companies, company administrators and professional company
directors providing directorship services by way of business in
Guernsey. It has been given wide-ranging powers to supervise and
investigate regulated entities under a variety of regulatory laws.
It also takes appropriate enforcement action when necessary. The
Commission considers that the prevention of financial instability
is one of the key functions of effective regulation.
4.2 Guernsey is one of the few jurisdictions
in the world to regulate trust and company service providers in
a manner consistent with the prudential regulation of banks, investment
firms and insurance companies. It has regulated trust and company
service providers in this way since 2001. Unlike supervisors in
other jurisdictions the Commission also has the role—under
Guernsey's Control of Borrowing legislation—of scrutinising
the establishment of closed-ended collective investment funds.
Meeting international regulatory standards
4.3 In performing its regulatory and supervisory
work the international standards adopted by the Commission are
those established by:
— The Basel Committee on Banking Supervision.
— The International Association of
Insurance Supervisors.
— The International Organization of
Securities Commissions.
— The Offshore Group of Banking Supervisors.
— The Financial Action Task Force.
4.4 The Commission, along with the States
of Guernsey, has invited the International Monetary Fund (IMF)
to provide an independent and external review of Guernsey's compliance
with those international standards. This review is presently scheduled
for January 2009.
4.5 The Commission is actively involved
with international regulatory and supervisory organisations. Guernsey
was a founder member of the International Association of Insurance
Supervisors (IAIS), of the Offshore Group of Insurance Supervisors,
and of the Offshore Group of Banking Supervisors. The Director
General of the Commission sits on the Executive Committee of the
IAIS and officers of the Commission are actively involved with
many of the IAIS's committees and working groups, especially in
those areas where Guernsey has particular expertise such as the
supervision of captive insurance. The Commission is also a full
member of the International Organisation of Securities Commissions
(IOSCO) and a member of the enlarged contact group on the Supervision
of Collective Investment Funds.
The Guernsey Financial Services Commission's licensing
and supervision regime
4.6 Since its establishment, the Commission
has pursued a policy of selectivity when vetting new entrants
to the finance sector. As a result, the Commission has been able
to reduce the risk of poor quality businesses being established
in Guernsey. The laws under which the Commission regulates financial
services businesses contain minimum criteria for licensing. An
applicant must continue to meet these requirements in order to
maintain a licence. The requirements include:
— integrity and skill—the business
must be carried on with prudence, integrity, professional skill
and in a manner which will not bring Guernsey into disrepute;
— fit and proper—the business
and its owners and directors must be fit and proper, ie honest,
competent and solvent;
— "four-eyes"—the business
is to be directed by at least two independent individuals of appropriate
standing and experience;
— composition of the board of directors—the
board shall include an appropriate mix of executive and non-executive
directors; and
— business to be conducted in prudent
manner—the business should maintain an appropriate capital
base, insurance cover, adequate liquidity and provision for depreciation
of assets, liabilities or losses and should maintain adequate
records and systems of control.
4.7 To ensure that licensees continue to
meet these requirements the Commission uses a combination of off-site
and on-site supervision. Off-site supervision consists of evaluating
whether or not licensees meet the requirements of the regulatory
laws and the Commission's rules, codes, guidance and policies
by analysis of information (such as annual reports, business plans,
or notifications of specific events) provided by regulated entities.
On-site supervision comprises inspections by Commission staff
of licensees' activities by visiting their premises (often for
several days). The Commission has issued rules, codes and guidance
to licensees on operational requirements. These cover, for example,
corporate governance, capital adequacy and anti-money laundering
(AML) and combating the financing of terrorism (CFT).
Transparency and Information Exchange
4.8 The Commission has the legal authority
to disclose information to other supervisory authorities. It can
also disclose information to other authorities for the purposes
of preventing, detecting, investigating and prosecuting financial
crime. In addition, the Commission may obtain information from
licensees on behalf of foreign supervisory bodies. The Commission
shares information with supervisory authorities and other bodies
spontaneously as well as on request. Although it has 13 Memoranda
of Understanding (MoUs) with international partners (including
the FSA), an MoU is not required to allow information exchange.
In light of the links between UK financial services businesses
and Guernsey, it is common for the Commission to co-operate and
exchange information with the FSA. The Commission has applied
to become a signatory to the IOSCO multilateral memorandum of
understanding.
4.9 Regarding transparency of transactions,
the AML and CFT legislation and rules made by the Commission require
financial services businesses to undertake customer due diligence
on their potential customers and to look through legal persons
such as companies and legal arrangements such as trusts to undertake
customer due diligence on beneficial owners, settlors, beneficiaries
and other underlying principals and to maintain both customer
due diligence and transaction records. In addition, rules made
under the Protection of Investors Law require investor transaction
records to be maintained (for example, contract notes). HM Procureur
(the Attorney General) and the Commission have powers under the
legislation they administer to obtain that information on behalf
of foreign authorities and to disclose it to those authorities.
4.10 Guernsey is also one of the few jurisdictions
which, when the Companies Law 2008 comes into force on 1 July
2008, will require local companies to appoint a resident agent
who must take steps to ascertain the identity of the persons who
are the beneficial owners of members' interests.
Financial Stability
4.11 Financial stability is a priority for
the Commission, both in terms of reducing the potential domestic
effect of a crisis and in reducing the potential export of instability.
Banking in Guernsey is essentially traditional. It is liability
driven with banks seeking low risk outlets for their deposit balances.
The aggregate balance sheet assets and liabilities of Guernsey
banks were £146.1 billion. At the same date off balance sheet
liabilities were £4.8 billion. These off balance sheet liabilities
represented credit guarantees, undrawn committed credit lines,
and foreign exchange and interest rate hedging contracts. These
contracts exist to manage the risk in the balance sheet and not
for speculative purposes. Banks in Guernsey are either branches
or subsidiaries of Banks elsewhere and they do not take own account
trading positions; positions taken are only minimal intraday foreign
exchange positions. Proprietary positions are taken by parent
banks with extensive dealing rooms in the major trading centres
such as London or New York, where dealers can be close to fast
moving market activity. In that context, there is no opportunity
for rogue traders in Guernsey to have an effect in destabilising
markets elsewhere.
4.12 The size of the collective investment
fund sector is not significant with regard to global financial
stability. In addition, the sector is diverse in terms of its
investments—global equities, global bonds, private equity,
venture capital, debt, funds of hedge funds and, to a more limited
extent, hedge funds. Due to this diversity, potential problems
in any one category of fund will have a limited effect on the
sector as a whole both within and outside Guernsey. Only five
funds, established by different groups, have gearing of greater
than three times net assets. In the insurance area, stability
is enhanced as the majority of Guernsey insurers are captive vehicles,
a significant proportion of the risk of which is reinsured across
the global reinsurance market.
4.13 In recent years, contrary to the widespread
perception that off-shore financial centres are a risk to global
financial stability, the Commission has had to deal with instability
imported into Guernsey by institutions in an "onshore"
jurisdiction—principally the UK. This is perhaps inevitable
in light of the size of the UK financial sector and of the size
and global reach of individual institutions within the sector.
4.14 In 2001 the Commission became concerned
about split capital investment trusts and their levels of gearing
and, in light of the possibility of systemic risk, stepped up
required risk warnings in prospectuses. As indicated in the Treasury
Select Committee's report to Parliament on split capital investment
trusts, the Commission publicly identified risk issues before
the FSA and wrote to the FSA about its concerns.
4.15 More recently, the Commission has had
to deal with the effect of the Northern Rock crisis in Guernsey.
Northern Rock's business model was unsustainable during the credit
crunch and led the need for financial assistance from the UK government.
Northern Rock had (and still has) a subsidiary in Guernsey which
remained solvent throughout the crisis, its principal vulnerability
being its exposure to its UK parent. The Northern Rock crisis
was therefore exported to Guernsey from the UK. The Director General
of the Commission has, in response to invitations, made presentations
to the IMF, the IAIS and the EU Committee of European Insurance
and Occupational Pensions Supervisors on the cross-border implications
and handling of the Northern Rock (Guernsey) case, with particular
reference to cross-border supervisory co-operation.
5. TAXATION
Guernsey's taxation system
5.1 Guernsey has a well developed taxation
system. Taxes in Guernsey are set on the basis of the need to
fund public services and the need to ensure that Guernsey's economy
remains strong. Taxation in Guernsey is managed by the Administrator
of Income Tax who is responsible for administering legislation
relating to, Income Tax, Dwellings Profits Tax,[357]
and Foreign Tax in support of the EU Directive on the Taxation
of Savings Income (2003/48/EC). Apart from dwellings profits tax
there is no tax on capital gains or any other taxes on capital
in Guernsey. Guernsey's personal income tax is set at 20%, a rate
which has remained unchanged for over 40 years. Guernsey does
not have a Value Added Tax but does have a range of indirect taxes
and duties.
Company Tax and the EU Code of Conduct on Business
Taxation
5.2 As part of its commitment to eliminating
harmful tax competition Guernsey has complied fully with the EU
Code of Conduct on Business Taxation, and has fulfilled its commitment
on rollback/standstill under the Code. From 1 January 2008, the
standard rate of company tax is 0% for most company profits. For
certain company profits arising out of licensed institutions that
conduct "banking business" tax is set at 10%. The flat
20% tax rate which existed before 1 January 2008 remains for the
company profits of utilities and on any income that arises from
land or buildings situated in Guernsey.[358]
Guernsey's tax system is relatively uncomplicated and effective
which minimises the compliance costs on business. Globally there
is downward pressure on company tax rates.[359]
Double Tax Agreements
5.3 Guernsey currently has two double tax
arrangements: with the UK, signed in 1952; and with Jersey, signed
in 1955. The agreements provide for the exchange of information
in order to prevent fiscal evasion or avoidance. For many years
Guernsey has been able to provide information from its tax files
to the UK tax authorities, and has done so on a regular basis,
both spontaneously and as requested by the UK. Exchange of information
under the double tax arrangement with the UK has led to the opening
of investigations or advancement of existing investigations by
HMRC.
5.4 Guernsey has implemented measures that
are the same as those contained in the EU Directive on the Taxation
of Savings Income, has entered into bilateral agreements with
each EU Member State, and has introduced legislation to give effect
to those agreements. Those agreements provide for the retention
of tax by Guernsey paying agents in respect of interest and similar
payments made to residents of EU Member States or, where the investor
elects, for exchange of information in respect of the interest
to their Member State of residence. This tax and information is
collected and exchanged on an annual basis, in support of the
Directive.
Tax Information Exchange Agreements (TIEAs)
5.5 For many years Guernsey had been providing
information to other jurisdictions in respect of criminal tax
investigations. Guernsey does not have any banking secrecy legislation.
A person's banking affairs are confidential in much the same way
as they are in the UK. The authorities in Guernsey can access
banking information when necessary.
5.6 In February 2002 Guernsey publicly announced
its commitment to co-operate with the Organisation for Economic
Co-operation and Development (OECD)'s initiative on transparency
and exchange of information, and is a participating partner in
the OECD Global Forum on Taxation. One of the main objectives
of this project was to encourage the implementation of TIEAs between
OECD Members, and between OECD and non-OECD Members. In return
for this public commitment, the OECD agreed to establish a level
playing field between all jurisdictions (OECD members and non-members)
to enable fair competition on tax.
5.7 Guernsey signed its first TIEA with
the United States of America in September 2002. Since 2002 negotiations
have been in progress with a number of other jurisdictions, notwithstanding
that the OECD has yet to ensure that a level playing field is
in fact in place. In April 2008, Guernsey signed a second TIEA
(with the Netherlands[360]),
and is currently in varying stages of negotiations with several
jurisdictions both OECD and non-OECD.
6. ANTI-MONEY
LAUNDERING (AML)/COMBATING
THE FINANCE
OF TERRORISM
(CFT) FRAMEWORK
6.1 The Guernsey authorities are committed
to ensuring that money launderers, terrorists, those financing
terrorism and other criminals—including those seeking to
evade tax— cannot launder those proceeds of crime through
Guernsey, or otherwise abuse Guernsey's finance sector. The AML/CFT
authorities in Guernsey endorse the Financial Action Task Force
(FATF)'s 40 Recommendations on Money Laundering and the Nine Special
Recommendations on Terrorist Financing. The States has introduced
new legislation, amended existing legislation, and the Commission
has introduced rules and guidance in order to meet the FATF's
developing standards. Since 1999, the Commission has undertaken
a programme of on-site inspections to financial services businesses
(which includes trust and company service providers) in order
to assess their compliance with the AML/CFT framework.
6.2 All businesses and individuals are required
by the AML/CFT legislation to report suspicion of money laundering
when they suspect or have reasonable grounds to suspect that funds
are the proceeds of criminal activity (which includes tax evasion).
The same obligation to report suspicion applies to assets where
there are reasonable grounds to suspect or they are suspected
to be linked or related to, or to be used for terrorism, terrorist
acts or by terrorist organisations or those who finance terrorism.
Businesses and individuals reporting suspicion are protected by
law from any breach of confidentiality.
6.3 Extensive AML/CFT countermeasures apply
to all financial services businesses operating in Guernsey, plus
trust and company service providers. The international standards
set by the FATF did not apply to trust and company service providers
until June 2003. However, the revised AML/CFT framework that came
into force in Guernsey on 1 January 2000 subjected trust and company
service providers to the full remit of AML/CFT regulation. As
a result, since 2000 trust and company service providers have
been required by regulations to ascertain the identity of the
beneficial owners of companies, the identity of settlors and beneficiaries
of trusts and the identity of any other underlying principals.
7. FINANCIAL
INTELLIGENCE AND
INVESTIGATION
Guernsey's Financial Intelligence Service
7.1 The Financial Intelligence Service (FIS)
is responsible for the collation and dissemination of intelligence
relating to financial crime in Guernsey. Formed in 2001, the FIS[361]
is operationally independent although staffed and funded by the
law enforcement agencies of the Guernsey Police and the Customs
and Excise, Immigration and Nationality Service ("Customs").
The strategic aims of the FIS are:
— the provision of quality intelligence
with regard to all financial crime, with a special emphasis on
combating money laundering and countering the financing of terrorism;
— the provision of full international
co-operation, within the law, to competent and relevant overseas
authorities; and
— the provision of services to enhance
the co-ordination and the development of criminal intelligence
to combat financial crime.
7.2 The staff of law enforcement (the FIS,
the Fraud and International Team, and the Commercial Fraud and
International Affairs Team) are highly skilled specialists and
experienced in the investigation of financial crime. The FIS also
is the point of contact for those seeking assistance in relation
to financial crime and receives requests for assistance from both
local law enforcement and overseas agencies. Since 1997, law enforcement
in Guernsey has been a member of the Egmont Group of Financial
Intelligence Units. Where the FIS receives intelligence enquiries
of a criminal nature that are proportionate and justified the
the FIS does not require a Memorandum of Understanding (MoU) in
order to exchange information. However where an authority in another
jurisdiction does require an MoU to allow information exchange
the FIS will enter into such an agreement if there is an operational
need. At present the FIS is party to 13 MoUs with international
partners, including the UK Serious Organised Crime Agency (SOCA).
Suspicious Transaction Reports
7.3 The FIS is the designated authority
to receive suspicious transaction reports (STRs) in Guernsey.
The FIS investigates all STRs with most being disseminated to
relevant local and overseas agencies. Over the past five years
the average number of STRs referred to the FIS has been more than
600 per annum. STRs largely relate to suspicions of tax evasion,
large cash transactions, and unexplained lifestyles. STRs relating
to suspected terrorism are relatively rare and comprise only a
small portion of reports received. The high number of reports
demonstrates the high level of awareness of AML/CFT obligations
in the finance industry in Guernsey. Over 75% of STRs do not relate
to local Guernsey residents. Where there is evidence of tax evasion
it is Guernsey policy to disseminate all STRs to the appropriate
jurisdiction as it would any other STR relating to any other criminal
activity. Recent legislation allows intelligence to be disseminated
to the SOCA to assist civil investigations in the UK (and elsewhere).
The FIS also regularly provides STRs to EU member states and OECD
countries.
Co-operation with HM Revenue and Customs
7.4 The Customs Service has very close ties
with HM Revenue and Customs (HMRC). The training of Guernsey Customs
officers is delivered by HMRC and most procedures and standards
used on the Island are equivalent to those used by HMRC. Guernsey
Customs officers meet regularly with representatives of HMRC and
there is a history of co-operation between the two agencies. Historically
HMRC has sought assistance in investigating suspected VAT evasion,
money laundering, income tax evasion, duty evasion and smuggling.
The sums involved in those investigations are significant. The
Commercial Fraud and External Affairs Department of the Guernsey
Police have also dealt with letters of request from HMRC where
appropriate. Guernsey's Police and Customs are trained to the
same standard as their UK counterparts and work closely with officers
of SOCA.
Co-operation with international jurisdictions
7.5 To counter the significant threat posed
by sophisticated international money laundering Guernsey has introduced
new legislation to give law enforcement greater powers to freeze
and recover the proceeds of crime through both criminal and civil
action. The laws also make it easier for law enforcement to prosecute
money laundering offences. Guernsey regularly assists other jurisdictions
who request assistance in obtaining evidence, tracing and freezing
assets, and recovering assets related to criminal proceedings.
Guernsey has had considerable success in freezing and recovering
assets on behalf of many other jurisdictions including the UK,[362]
other EU member States[363]
and the United States of America. In many cases substantial sums
were involved and in several cases substantial sums were repatriated
to the requesting State. A significant portion of matters in which
Guernsey provides assistance relate to taxation.
8. INTERNATIONAL
REVIEWS
Independent reviews and assessments since 1998
8.1 Guernsey's long-standing commitment
to meeting international regulatory and criminal justice standards
has been demonstrated in a range of independent reviews and assessments
undertaken since 1998 on financial regulation, AML/CFT, financial
stability, and harmful tax co-operation. Guernsey has invited
external reviews from the International Monetary Fund (IMF), the
Organisation for Economic Co-operation and Development (OECD),
and other bodies. The reviews include:
— 1998—the UK Home Office's review
of financial regulation in the Crown Dependencies (the Edwards
Report).[364]
— 2000—the FATF's review to identify
non-co-operative countries and territories.
— 2000—the Financial Stability
Forum (FSF) assessment of off-shore finance centres and whether
their regimes could adversely affect global financial stability.
— 2000—the Offshore Group of
Banking Supervisors' mutual evaluation of the anti-money laundering
system in Guernsey.
— 2002—the IMF's assessment of
compliance with international regulatory and supervisory standards,
and compliance with international AML/CFT standards.[365]
8.2 In 1998 the Edwards Report concluded
that: "[The Crown Dependencies] have developed reputations
for stability, integrity, professionalism, competence, and good
regulation ... I have no doubt that the [Crown Dependencies] are
in the top division of offshore centres. Many of the professional
people I consulted commended their standards of regulation, the
absence of corruption, and their co-operation with other Jurisdictions,
especially in the pursuit of drug-trafficking".
8.3 The other inspections carried out since
1998 have confirmed that Guernsey has a well regulated finance
industry and a high level of compliance with all international
standards including AML/CFT standards. In 2000 the FSF assessed
Guernsey as being a jurisdiction which was co-operative and had
a high quality of supervision adhering to international standards.
Guernsey was considered by the FSF to be a Group 1 jurisdiction,
ie the best group alongside Luxembourg, Switzerland, Dublin and
Hong Kong. The FSF concluded that offshore financial centres were
not a threat to financial stability.
International Monetary Fund Report
8.4 In the report issued by the IMF in 2003
Guernsey was assessed as having "a high level of compliance"
for each of the international standards against which the Bailiwick
was judged—the Basel Core principles for Effective Banking
Supervision; the Insurance Core Principles of the International
Association of Insurance Supervisors (IAIS); the Objectives and
Principles of Securities Regulation of the International Organization
of Securities Commissions (IOSCO); and the FATF 40+8 Recommendations
(as they then were—it is now 40+9, see 6.1). Guernsey's
legal framework for company and trust service providers was also
found by the IMF to be "fully consistent with the Offshore
Group of Banking Supervisors (OGBS) Statement of Best Practice".
The IMF's report also commended the Guernsey authorities for the
attention they had given to upgrading the financial regulatory
and supervisory system and stated: "The mission noted in
particular: the comprehensive regulatory framework; the proactive
approach of the regulators to achieve high standards in the financial
services sector; and an off- and on-site supervisory process that
has been addressing the key types of reputational risk to the
Bailiwick".
8.5 Guernsey has invited the IMF to re-assess
the Island's financial, regulatory and criminal justice structure
and that assessment is scheduled for January 2009. The assessment
will also include financial stability elements in the banking
and insurance sectors. Guernsey looks forward to the results of
the IMF's assessment and believes that it will confirm Guernsey's
continuing commitment to meeting international standards.
Guernsey and European Union Directives
8.6 n 2004, in the context of agreements
on the EU Directive on the Taxation of Savings, Guernsey satisfied
the European Commission that its AML/CFT framework is equivalent
to the Second EU Money Laundering Directive. With reference to
the Third EU Money Laundering Directive, in May 2008, the EU Committee
on the Prevention of Money Laundering and Terrorist Financing
agreed a list of equivalent third countries, ie countries that
are considered as having equivalent AML/CFT systems to the EU.
The Committee confirmed that the UK Crown Dependencies may also
be considered as equivalent by Member States. HM Treasury recently
confirmed that it considers the UK Crown Dependencies to have
an AML/CFT regimes equivalent to the Third EU Money Laundering
Directive.[366]
June 2008
www.gov.gg/aboutguernsey
350 This section is drawn from Ogier, D, The Government
and the Law of Guernsey, 2005. Further information on Guernsey
is available at: Back
351
The Bailiwick of Guernsey includes the separate jurisdictions
Guernsey, Alderney and Sark. Sark is a separate jurisdiction for
taxation purposes and levies no tax on income or company profits.
There is no companies' law in Sark. All three jurisdictions are
subject to identical regulation of financial services. For ease
of reference the term "Guernsey" will be used unless
it is necessary to distinguish between the jurisdictions for any
reason. Back
352
Departments may appoint up to two non-States members as non-voting
members of each Department. Back
353
For further information on the constitutional position see the
Report of the Royal Commission on the Constitution 1969-73
(the Kilbrandon Report). Back
354
See pages 3 and 4 of the Review of Financial Regulation in
the Crown Dependencies, Part 3 Bailiwick of Guernsey (hereinafter
"the Edwards Report"). The full text is available here:
http://www.archive.official-documents.co.uk/document/cm41/4109/4109.htm Back
355
For example Guernsey has entered into a number of tax co-operation
and information exchange agreements with other sovereign States
in its own right. Back
356
This represents approximately 25% of Guernsey's workforce. On
31 March 2006 Guernsey' estimated population was 61,000 and its
estimated workforce was 31,930. Back
357
Dwellings Profits Tax is an anti-speculation tax designed to prevent
speculation in the property market. Back
358
Full details on Guernsey's system of company taxation and the
policy behind it are contained in Billet D'Etat XI of 2006 available
at:
http://www.gov.gg/ccm/policy-and-hr/billets--resolutions/2006/blllet-detat-xi-2006.en. Back
359
See for example a lecture given by the Secretary General of the
OECD on 22 April 2008, available at:
http://www.oecd.org/document/23/0,3343,en_2649_201185_40499607_1_1_1_1,00.html.
In that lecture the Secretary General argues that company taxes
discourage entrepreneurship and slow economic growth. Back
360
See: http://www.oecd.org/document/19/0,3343,en_2649_34897_40518675_1_1_1_1,00.html Back
361
See the FIS website available at: http://www.guernseyfis.org/,
also available at that website are the FIS annual reports which
provide data on the FIS' activities in each year. Back
362
The number of requests from the UK amount to 49% of the total
number requests for assistance. Back
363
The number of requests from other EU Member States amount to 30%
of the total number of requests for assistance. Back
364
See note 5 above. Back
365
The full text of the IMF report is available at: http://www.imf.org/external/np/ofca/ofca.aspG Back
366
See HM Treasury's press release available at:
http://www.hm-treasury.gov.uk./documents/financial_services/money/fin_crime_equivalence.cfm Back
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