Offshore Financial Centres - Treasury Contents

Memorandum from the States of Guernsey and the Guernsey Financial Services Commission


  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.


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.


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.


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.


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.


  6.1  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.


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.


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

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: 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: 

359   See for example a lecture given by the Secretary General of the OECD on 22 April 2008, available at:,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. 

360   See:,3343,en_2649_34897_40518675_1_1_1_1,00.html Back

361   See the FIS website available at:, 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: Back

366   See HM Treasury's press release available at: 

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