Jersey: Auditors' Liabilities versus People's Rights - Wiley Online Library

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Jersey: Auditors' Liabilities versus People's Rights AUS T I N M IT CH E L L AND P RE M S I KKA The statelets of Jersey, Guernsey and the Isle of Man are Britain's offshore anomalies. Variously described as regulatory safety valve, financial bolt-hole, banana island, tax haven and funny money laundry, Jersey, the richest and most populous of the three Crown dependencies with nearly 90,000 inhabitants, enjoys all the benefits of a `mini-state', controlling its own financial affairs: it is British, certainly, and the islanders are British citizens and subjects of the Crown; but it is independent of the British government in respect of its rules, regulations and taxes. Also, though geographically closer to France than to Britain, it is not fully part of the European Union: the UK signed Jersey up to the Treaty of Rome but for the movement of goods only, not of people or money. Special exemptions from European directives on VAT and fiscal harmonisation allow the island to maintain its own regulatory regime. This unique position enables Jersey to offer a friendly offshore welcome for wealth and those who own and manage it: so friendly, indeed, that some of the wealthiest incomers can agree their tax liabilities in advance of settlement, as Nigel Mansell has just done. Money, its owners and its manipulators are attracted by the secrecy in which financial affairs can be conducted, the 20 per cent tax rate and the relatively relaxed regulatory regime which allows Jersey simultaneously to present a respectable British face to the world and a welcoming wink to offshore finance, which has reasons for going to Jersey far beyond

its lovely climate and situation. The public image is Bergerac; but the reality is complaisance and impenetrability. Other regulatory authorities criticise it: the Americans over the BCCI affair, the British over the AGIP money-laundering scandal and the Asil Nadir case, the German tax authorities over secrecy, and the OECD (in its developing programme to limit damaging offshore tax and regulatory competition) because some banks and island professionals deal with huge sums of money and thousands of offshore banks and bank accounts, companies, trusts and individuals who have no connection with the island but use it as a base to launder money, evade taxes and responsibilities, and fiddle their financial affairs. Offshore finance is a huge empire in its own right and so powerful in Jersey, as in other small host centres, that it has almost captured the puny state.

Parish pump politicsÐwith money This state is, formally, impressive. Jersey has its own Lieutenant-Governor, who represents the Queen. The head of its body politic and legal system is the unelected Bailiff, the appointed representative of Her Majesty, who is head of the judiciary and President of the States, the elected assembly; the States provides a de facto Cabinet in the form of its Policy and Resources Committee. This is democracy, but democracy lacking accountability, openness and rights. The island

# The Political Quarterly Publishing Co. Ltd. 1999 Published by Blackwell Publishers, 108 Cowley Road, Oxford OX4 1JF, UK and 350 Main Street, Malden, MA 02148, USA

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has universal suffrage and regular elections: twenty-eight deputies are elected by constituencies for three years, and twelve senators by the whole island for six. Yet there is no party system to provide accountability, little real choice between programmes and policies, no independent civil service, and no separation of power. The Bailiff and his deputy are Speaker and Deputy Speaker of the States as well as presiding over the legal system, and the Solicitor-General and Attorney-General sit in the States. The civil servants and regulators are all close to and effectively dependent on the politicians. Candidates usually stand as ìndependents', depriving the people of any opportunity to vote for the policies and philosophy by which they are governed. There is no coherent opposition. There are even proposals to abolish the senators, thus preventing island-wide appeals and entrenching the traditional elite. Democracy is not underpinned by protection of rights, checks on discrimination, access to information or employment protection; public welfare support is minimal; and the British government exerts no control or influence beyond meetings to discuss ìnternational matters'. Island legislation is subject to approval by Order in Council but meaningful scrutiny or challenge is rare. The official channel of communication with the UK government is the LieutenantGovernor, whose role as a conduit is monopolised by the establishment, from whom his staff is drawn and among whom he mainly mixes socially. Jersey is fond of claiming that its system of government is the envy of the world. If it is, this can only be because the island does not face the problems that confront mass urban societies. In reality, Jersey is town government writ large, with all its intimacies and inefficiencies. Capital projects routinely run millions over budget. The performance and calibre of the States have something in 4 A u st i n M it ch e ll a nd P re m S i kka

common with those of a third-rate parish council. Politics in Jersey are dominated by an island establishment. This establishment, once the landed interest, is today the financial interest: those money manipulators, businessmen and professional figures who are part of, linked with, service providers to and nameplate posters for the dominant financial sector whose rapid growth has brought so much money to and through the island as a result of Jersey's deliberate decision to put all its eggs in the financial basket and build its future as an offshore money centre. Finance now contributes the great majority of Jersey's GDP. Most of the money passes through, and little of the £200±400 billion or so in offshore bank accounts, managed funds and shell companies on the island trickles down to the people. Jersey has some 40,000 registered companies, of which 24,000 are tax-exempt or non-resident, and the authorities have no idea of the number operating from the island but not formally registered there. Few are engaged in economic activity on the island, where most are churning profits to escape tax obligations in their home countries. Jersey levies minimal charges and does not require audited information, and its people benefit little from and know less of the affairs of organisations operating from the island. Indeed, far from the majority of the population benefiting from the offshore bonanza, manual wages are lower than in the UK while the cost of living, particularly of housing, is much higher. Yet overall Jersey is prosperous and affluentÐunemployment is negligible at 1 per centÐand this affluence dulls any desire for change. Jersey's politics may be as intimate as those of any borough council in Britain, but they are untroubled by ideological and class divisions. The system is run with a view first to the interests of wealth and finance, followed at some distance by those of good government # The Political Quarterly Publishing Co. Ltd. 1999


and good order, and lastly by those of the ordinary islanders. The elite run the island and benefit from both its anomalous position and the offshore financial sector which that position has brought to Jersey. Pressure for reform is weak, but always actively resisted. Indeed, it has usually been primarily pressure from outside, particularly from the British government, rather than any domestic impetus, which has produced the few changes made on the island. This pressure is now beginning to concentrate on the central problem posed by offshore havens. Offshore finance is a huge, obligation-free, unstable and unregulated sector of the world economy, and island institutions and politicians who are essentially of a small-town character can neither regulate nor control the huge sums of money flowing through their economy nor the tens of thousands of companies nominally incorporated on their territory. So will the money power pervade and permeate Jersey, ensuring that the system is run in its interests by an elite who benefit from it, and whose deference is maintained by fear of precipitating an exodus to even more accommodating regimes elsewhere? For whose benefit is the system being run? These are questions difficult to answer in Jersey, where there is no separation of power between legislature, executive, judiciary and regulatory regime, where the regulators are also promoters of inward flows, where regulators and politicians are intimately involved with one another and where institutions are puny compared to the powerful forces with which they have to deal. Such are the questions now being asked by the new British government, by interested media, and by concerned regulators around the world. They are not much discussed in Jersey. To raise them there is treated, in the island's intolerant intimacy, as a form of treason. Jersey prides itself on a politics free of bitter divisions and party clashes. Yet this # The Political Quarterly Publishing Co. Ltd. 1999

is not tolerance; for community presents a different face when the island's elite and its interests are threatened. Internal dissent is usually represented as a threat to Jersey's independence, to the financial interest and to all the benefits which are claimed to flow from it. Should any such dissent rear its head, it finds itself lacking any substantial protection or support. Mavericks face a hostile media and community ostracism. Jersey is in effect a no-party state with conservative politics. The elite controls political power through the States and its committees. The media are not known for seeking confrontation with the island establishment, and the professions are assiduous in their commitment to the dominant financial interest. Dissent has no base, no mouthpiece and no defenders. This is not a tyranny; but intimacy has its sanctions and when threatened can generate its own authoritarianism, while community can be cloyingÐas Salem found. The friendly isle shows its unfriendly face when any threats to its privileged status arise. The worst such threat is anything which endangers its financial independence and the concomitant financial inflows. The elite interprets any challenge to its power as one to the whole system and trundles into action a powerful defensive engine, a machine part legal, part political, part media and in large part community, since it includes denunciation, ostracism, personal abuse, even deprivation of employment. All these weapons were deployed against Gary Matthews, a former Green deputy in the States who challenged the elite and the financial interest and raised the needs of the 5,000 families who, he claimed, were living in poverty on the island. A hate campaign was raised against him until he was driven from the island, having lost first his seat and then his job, while his wife and children were threatened and his life made generally miserable. J e rs ey : Li abi l it i e s and Ri ght s

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Though criticisms and pressures from outside produce sulky resentment on the island, even threats of UDI and an impossible, untenable ìndependence', in fact there has been no real threat to Jersey's independence, its low tax regime or the privileges accorded by both to wealth. No British government has yet threatened any of this, however inconvenient it may have found Jersey's loopholes. Britain's approach can be summed up in the statement in the 1973 Kilbrandon Commission's report: Ànomalies seem to us to be things that should be, if not encouraged, at least accepted so long as they are cherished by those most directly affected and do no harm to others. We have not approached the islands in any spirit of reforming zeal. We have found no sign that this was the desire of the government of the United Kingdom.'1 The British government's concern is not the independent regime in Jersey itself, but the opportunities it offers British residents and British money to evade tax, regulation and obligation. Jersey's perks are morally indefensible. As part of a greater unity the island should contribute its share. Yet that issue is rarely raised on the mainland except by perpetually grumbling and always impotent Labour left-wingers. So for practical purposes the only real threat to the tax regime or to financial independence comes from the pressures from other countries and other institutions such as the EU, the UN and the OECD to do something about the offshore havens of which Britain has more than its fair share. These pressures are growing, but British governments have always preferred to respond to them by persuading the dependencies to clean up their own act. For its part, the elite persists in interpreting any criticism of its role and authority as a threat to the whole island. Demands for rights, regulations, redistribution or environmental decencies raised by the handful of Greens and other critics are 6 A u st i n M it ch e ll a nd P re m S i kka

all treated in this way. Even New Labour is a worry to an island lacking in confidence, dominated by a conservative, greedy elite which feels its privileges constantly under threat in a world where regulation seems to be becoming ever more pervasive. The elite dedicates substantial amounts of time, effort and money to protecting its interests. The States of Jersey are active and respected in the Commonwealth Parliamentary Association. Considerable effort is devoted to charming the Home Office minister responsible for liaison, usually a junior ministerÐand a peer (currently Lord Williams of Mostyn), to impress the natives; though it is usually the peer, well received and entertained by the Jersey establishment, who ends up being the more impressed. Rather than exercising British control, the minister tends to go native, becoming advocate and protector for the island, a process fostered by the inclusion among his senior advisers of a native of Guernsey as the island's channel of communication. This absorption was demonstrated in the Lords' debate on the Human Rights Bill at the beginning of 1998, as former ministers such as Baroness Blatch and Lord Renton queued up to back up the efforts of Lord Williams of Mostyn in defending Jersey's endearing ways. All agreed that the island did not need any provisions so elaborate as the mainland; it should not have rights, or indeed anything else, thrust upon it.2

Spinning for Jersey In today's world fraternal support from one establishment to another is not enough. Regimes which want to win friends and influence people now do so by employing their own public relations consultancy. What Max Clifford does for individuals seeking publicity is done for Guernsey by Lord (Tim) Bell's consultancy and for Jersey by Shandwick, an old-established PR firm whose head # The Political Quarterly Publishing Co. Ltd. 1999


of public affairs (now vice-chairman) was once Lord McNally, Liberal Democrat peer and former adviser to Jim Callaghan, and whose current managing director is Colin Byrne, former chief press officer to the Labour party. Anxious islands, like other less amiable regimes, provide rich pickings for lobbyists, and for an annual fee of £200,000 Shandwick spins for Jersey, providing a basic service of introductions, meetings and meals with British ministers and other helpful politicians, visits to Jersey for journalists and editors to show them the joys of life there, circulation of favourable information and encouragement of sympathetic articles and stories. Shandwick do well for themselves by doing good for the island's elite. Island insecurities offer new prospects of profit to counter imaginary threats, which some consultants are not above fuelling. A particularly inviting prospect was opened up in 1995 when the Jersey elite, ever fearful of mainland intervention, agreed to offer a weapon to UK accountancy houses campaigning to win concessions from the British government on the liabilities of their partners. Eager to expand the range of financial services conducted offshore in Jersey to include audit and the services sold with it, Jersey responded to advances from two of the Big Six accountancy houses proposing that legislation drawn up by them to suit their purposes be passed by Jersey. The island's politicians saw this as a way of luring them to the island; the accountancy houses saw it as a weapon against the British government to persuade it to lure them to stay.3 Here was, in effect, a major interference by Jersey in the affairs of Big Brother across the water. The moment was promising for such an approach because at that time the Big Six were on the defensive. Increasingly dominant in the accountancy business, they had used their statutory right to do audits to build themselves up into profitable service sellers by offering other ser# The Political Quarterly Publishing Co. Ltd. 1999

vices and advice to clientsÐthus, in the view of critics, debasing the audit by cutting the price, and hence the quality, in order to get their foot in the door to sell more profitable services off the back of it. The Big Six felt increasingly threatened by lawsuits against auditors, which in their view were generated more by the prospect of digging into their own deep pockets as rich partnerships rather than by any inadequacies in their audits. In fact, such legal actions were usually initiated by their own insolvency arms when clearing up the affairs of failed companies, for the rights of shareholders and other consumers of audits had been severely curtailed by the House of Lords' decision in Caparo Industries PLC v. Dickson and others (1990) that auditors owe no obligation to individual shareholders. So the main threat to the wealth and possession of partners in the big accountancy houses came from partners in other big houses rather than from vengeful shareholders. No matter. In the view of the Big Six, partners needed protection. Under the Companies Act of 1989 accountancy houses had been enabled to protect their partners from the legal perils of joint and several liability by becoming limited liability companies. That, however, meant losing the secrecy and tax perks conferred by partnership status; so of the Big Six only KPMG took that route. The remaining five, along with the Institute of Chartered Accountants in England and WalesÐformally their regulator, in practice their advocate and defenderÐbegan to campaign for limitation of liability by full proportional liability and `capping' to end the joint and several liability which, theoretically, threatened dire financial consequences for all partners, putting their houses, farms and boats at risk. Initially, the prospects looked good. Lobbying was in the hands of Ian Greer Associates and in Neil Hamilton the industry had a sympathetic minister. Then, in 1996, the government was told by its Law Commission J e rs ey : Li abi l it i e s and Ri ght s

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that full proportional liability was àgainst the public interest', its benefits unproven; that the commission could not find àny principled arguments for a capping system'; and that the auditing industry's demands were also àgainst the public interest'. At this point some of the campaigners for limitation of liability began to toy with the idea of persuading Jersey to pass the legislation they wanted with the aim of forcing the British government to follow suit under threat of a mass exodus of auditors. The response in Jersey, ever anxious to attract new business and hopeful of luring the big auditing houses, was enthusiastic. Price Waterhouse and Ernst & Young therefore initiated discussions through the Jersey law firm Mourant du Feu & Jeune aimed at drafting legislation to suit themselves. They were promised fast track passage for thisÐindeed, they were told it would be `nodded through'Ðso the bill was drawn up by London barristers, at an estimated cost of £1 million, to be finished by the Jersey law draughtsman (who was less than delighted with the task; quoted in the Jersey Evening Post of 26 February 1997, he said of contracting out draughting, Ì dislike it. It's like getting a completed crossword and being asked to write the clues'). In 1996 the legislation was presented to the States with a preface expressing thanks for `the contribution of Price Waterhouse, Ernst & Young and others . . . to the structure and detail of the draft law'. This looked very much like a sponsored piece of privatised legislation. Jersey, it seemed, was for hire. Unfortunately for the accountancy paymasters, the promised untroubled fast track did not materialise: the law took longer to prepare than had been assumed and its passage proved more difficult. Gary Matthews, a Green deputy, worried by the rush to pass legislation most members of the States did not understand, wrote to critics of the accountancy profession on the main8 A u st i n M it ch e ll a nd P re m S i kka

land, the present authors among them. Using the information they supplied about the consequences for consumers of the sweeping limitation of liability proposed and the weakening of auditors' accountability in the performance of their statutory monopoly, Matthews raised these issues and mobilised the case against the legislation, generating an unexpected and unwelcome debate. This highlighted the consequences of the legislation for audit consumers on the island, particularly those hit by the recent Bank Cantrade fraud scandal. The debate became personalised. A leading opponent of the bill, Senator Stuart Syvret, a 28-year-old cabinet maker, pointed out that Senator Reg Jeune, a founding partner of Mourant du Feu & Jeune, had an obvious conflict of interest. Syvret's claim was denied and treated as a breach of privilege; but Jeune had in fact registered his role as a `consultant' with the firm of which he was a founder, listed its address as his own and been briefed on the bill by the firm. Members of the States may have known some of this, but few knew that Mourant du Feu & Jeune were among the instigators of the law, though Jeune chaired the Policy and Resources Committee which gave it the `fast track' on 28 November 1995, and on 2 July 1996 urged members of the States to pass it and ignore the objections, on both occasions without declaring any interest. Syvret was promptly silenced. The Bailiff, Sir Philip Bailhache, invented and imposed the penalty of indefinite suspension without allowing him to speakÐthus depriving Syvret's constituents of serviceÐuntil he should make a full apology and withdrawal, which he stoutly refused to do. The Greffier of the States was sent to London to research procedures for expulsion, but House of Commons clerks told him that the Commons would not expel a member in such circumstances. Meanwhile, Syvret widened and internation# The Political Quarterly Publishing Co. Ltd. 1999


alised the argument, giving a critical interview to the Wall Street Journal, opening up contact with critics of the big accountancy houses in the UK, and going to London, where his suspension was condemned in the Commons, by an Early Day Motion put down by Austin Mitchell, as an unheard-of deprivation of the rights of an elected representative; the fifty-seven signatories demanded his reinstatement. The EDM and the flow of adverse publicity in the Financial Times, Wall Street Journal, Sunday Business and Newsnight (14 November 1996) rattled the Jersey elite. Shandwick promptly proposed to provide àdditional support to the [Finance and Economics] Committee during the current period of bad international publicity', namely extra services, the extension of the existing contract, which ended in December 1996, and the èstablishment of a small committee for practical and publicity matters'.4 Shandwick organised àdvertorials', wrote letters countering the line taken by critical media, put out `good news stories', and invited key journalists to media visits and editors' dinners every two months; Philip Jeune, Jersey-based stringer for the Financial Times and The Times, was ùsed as the main conduit for good new stories' and given interviews resulting in `good coverage in the FT'. In addition, Shandwick replied to articles written by Austin Mitchell, and wrote to him demanding that he withdraw, òtherwise our client will have to consider what further steps to take'. They ènsured that the Labour Party key people have been briefed on the Jersey line (Mr Mitchell is regarded as being a liability by the Labour Party)'.5 Shandwick also drafted brochures about the island, and arranged media training for island spokesmen facing big league television interviews. All this effort was expensive and much of it was ineffectual and unnecessary. Far from providing an effective defence against a real threat, it amounted to # The Political Quarterly Publishing Co. Ltd. 1999

little more than costly reassurance to assuage the insecurities of the island's elite at the expense of the public purse. The only problems looming were those the elite had brought on itself by the illfated limited liability partnerships gambit, and the British government was determined not to intervene. Lady Blatch, the Home Office minister responsible for Jersey, helped by promptings from the island, stuck unwaveringly to the noninterference lineÐeven though the British government is responsible for good government, to which nothing is more basic than the rights of elected representatives. Nevertheless, the Mitchell EDM on Syvret threatened the carefully cultivated democratic image of the island, and despite reassurances from Shandwick that its originator was a `complete maverick' the adverse publicity had some effect in an island which doesn't like publicity at all. In March 1997 Syvret was grudgingly reinstated without making any apology, though he was still subject to the original censure. By that time the force of the reactionary backlash had been felt. Gary Matthews lost his seat in the 1996 general election of deputies, in which the financial interest mobilised against dissent and put up several `business' candidates. The island's media, which had neither questioned nor criticised the Jersey establishment for putting legislation out to hire, now treated its critics as traitors to be harassed and denounced. The Jersey Evening Post ran a `don't rock the boat' campaign, and the atmosphere was turned hostile by a clamour against ùnJersey activities'. This tone helped to return an even more conservative States in which Syvret, still serving his six-year term as senator, was practically a lone dissenting voice. The legislation had completed its passage several months behind schedule. It received Royal Assent on 11 November 1996 but could not be implemented J e rs ey : Li abi l it i e s and Ri ght s

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immediately because it had omitted provisions on the insolvence of major firms. So ninety-five pages of insolvency law were passed in under thirty minutes in May 1998 to complete the measure. It came into force on 9 September 1998.

Unproductive activity The expected flood of accountancy houses seeking refuge in Jersey from the terror of mainland lawsuits did not materialise, despite the cut-price offer of charges limited to a £10,000 registration fee and £5,000 a year. Nor, probably, will it. The enthusiasm of Ernst & Young and Price Waterhouse, by now engaged in their massive merger with Coopers & Lybrand, had cooled. The Inland Revenue announced that those who operated under the Jersey law would lose the tax advantages of partnership status, a decision now being contested in judicial review. The new Labour government proved ready to consider limiting liability in the UK, albeit on a more restricted scale than in Jersey. That process of consideration is now under way and offers a better prospect for accountancy than a move offshore, which could only damage their image of respectability with scrupulous shareholders and could in any event not preclude actions under British law. So all Jersey has got for its trouble is a law which reduces the rights of Jersey shareholders to pursue auditors in the event of further scandals such as the Cantrade affairÐrecently cleared up, as predicted by cynics, by putting most of the blame on an English incomer, Robert Young (whose legal fees of £97,612 were paid, unprecedentedly, by the island authorities6), and none on island associates or regulators. There is the consolation of a rather ambiguous statement from Nick Land, Ernst & Young's senior partner, that Ernst & Young is àctively considering the possibility of registering as a Jersey partnership'.7 Most comment10 A u st i n M i tc he l l a nd P re m S ikka

ators assume that that is as far as anyone will go. However, Shandwick had successfully seized the opportunity of the row and the unfavourable publicity it generated to boost the £225,000 worth of services it already sold to the Finance and Economics Committee. The `public affairs programme' had been extended and expanded by up to £4,000 a month. A `monitoring service' of political intelligence gathering and `strategic council [sic] for crisis management' was provided for £2,500 per month. A database was built up of MPs, advisers and civil servants rated as key figures to be included in the `contact programme', or simply to become targets for information (or, in the Bank of England's case, meals); and the contact programme was focused on a monthly lunch at an additional cost of £1,500 a time.8 The island's taxpayers were shelling out at least £300,000 a yearÐon one estimate put before the Finance and Economics Committee, £425,0009Ðjust to cheer up the elite. All these figures are approximate, because financial control appears to have been disorganised, to say the least; but no one, it seems, suggested that the money might be better spent on properly staffing the regulatory regime, although (such is the cut-throat world of political consultancy) at least one other firm did tell the States that the money would be better spent with them.10 When Labour came to power Shandwick moved into a higher gear. Labour has traditionally been seen as posing a bigger threat to the financial privileges of the island than Conservatives sympathetic to the City of London, which uses Jersey as a handy safety valve and escape route. Occasional onslaughts and sporadic sniper fire from Labour backbenchers such as George Foulkes and Alf Dubs in the early 1980s and a few Old Labour dinosaurs in the early 1990s had caused intermittent anxiety locally. So, despite the fact that the incoming New Labour # The Political Quarterly Publishing Co. Ltd. 1999


administration could hardly be portrayed as a threat to anything or anyoneÐcertainly not to vested interests so long acceptedÐShandwick went into action. It announced that `the States of Jersey needs `àmbassadors'' in Parliament and Whitehall who will put forward Jersey's case and defend Jersey's interests when under attack', and presented an amplified PR programme.11 Briefs were prepared and circulated on the constitutional relationship between the island and the mainland, on the offshore financial services industry and its purported benefits to the British balance of payments. Shandwick wrote to a number of new MPs inviting them to meals with Jersey representatives and other guests `drawn from the highest levels of some of the UK's largest companies, banks and regulatory authorities as well as senior commentators'. They also proposed to arrange for ministers such as Alistair Darling at the Treasury to dine with senior island figures, but the Home Office intervened to make it clear that while Jersey could undertake contacts with MPs, and in particular members of the Treasury Committee, independently, `contact with ministers should be through the Home Office'. Consequently they targeted their efforts to establish contact on lesser lights, such as new stars Yvette Cooper and Ruth Kelly, and old luminary Giles Radice who, the Jersey authorities were told on 5 June 1997, ìs not likely to be made a member of the Government but is worth targeting because of his level of knowledge and because he is still listened to by those in senior positions'. He did indeed later become the chairman of the Treasury Committee and met island representatives; but he never ate their food. This was hardly skilled lobbying, rather activity for the sake of doing something; and, in the end, little was achieved at considerable expense. The target MPs were poorly chosen and approached at a time of maximum pressure. A few # The Political Quarterly Publishing Co. Ltd. 1999

accepted invitations to dinner; most weren't interested, although Gordon Brown's PPS, Don Touhig, `was very interested to hear about Jersey . . . He advised that the States should hold more MPs' briefing meetings . . . and, through select committees, invite more MPs to Jersey.'12 Journalists showed a healthy appetite for both food and information, but critics such as Jeremy Corbyn, `who really is not taken that seriously politically', were blithely dismissed. So was one of the present authors: `he has very little influence within the Labour Party, so we do not need to worry too much.'13 Letters replying to critics shuttled to and fro as they were composed and rewritten by Shandwick and the consultancy set out to put over Jersey's charms. The proposed conferences were badly attended, the diners few, the impact of meals and paper minimal, the politicians barely interested, though a few lesser figures, such as Liberal Democrat Treasury spokesman Malcolm Bruce and Labour MP Tony Coleman, were said to be `sympathetic'. Winning friends and influencing people via professional intermediaries is an expensive and unrewarding art. It might assuage the insecurities of the service purchasers and comfort them by a flurry of activity; yet for the most part it benefits the providers and leaves little residue of goodwill anywhere. Indeed, it may excite suspicion, for the question `What's behind all this?' inevitably hovers.

Whose rights in the `friendly isle'? Syvret, meanwhile, had set out to uphold his rights in his own way by initiating action in the Jersey Royal Court against the Bailiff and Deputy Bailiff for deprivation of his rights as an elected representative. His advocate, Philip Sinel, already a thorn in the flesh of the establishment in the Bank Cantrade case, is pursuing J e rse y : Liab i l it i e s and Ri ght s

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this action on a pro bono basis (the only form of legal aid available), even though the Batonnier, the official who administers Jersey's legal aid system,14 has decided that Syvret is not eligible for such support and that Sinel must spend more of his time on other pro bono work. Sinel risks being struck off for defying this order. The initial verdict in the Jersey Court has gone against Syvret, with the Hon. Michael Beloff QC ruling that the legislature is immune from action because it provided its own remediesÐ though what these were is unclear, as Syvret and others who supported him were prevented from speaking. The court awarded Crown costs (estimated at £40,000) against Syvret, thus putting him under threat of bankruptcy and exclusion from the States. His intention now is to move on to the Jersey Court of Appeal and the Privy Council as the necessary preliminary to taking the case to the European Court of Human Rights, where the file has already been opened. The Batonnier has, however, now agreed with Sinel that there is no need to exhaust all remedies in Jersey before entering upon Strasbourg's slow-moving processes. The case is a test of rights in Jersey. The authorities there have been very reluctant to concede a Bill of Rights in the past, ostensibly on the grounds that such a measure is more relevant to mass societies and did not fit naturally into the Jersey system, but in fact because any entrenchment of rights will be a restriction on rule by the elite to suit its own convenience. The Bailiff, Sir Philip Bailhache, has stated that when he was Attorney-General (before 1992) Jersey had considered a Bill of Rights but that the Conservative government had been reluctant to let the island go it alone. It was not clear whether this was a serious initiative or part of a public relations image-building exercise, for a report commissioned in September 1995 and published in 1997 for the Policy and 12 A u st i n M i tc he l l a nd P re m S ikka

Resources Committee of the States weighed the pros and cons at length and concluded that `Jersey would be well advised not to consider the introduction of a Bill of Rights at this time', adding that `there would be some wisdom in allowing the position in the UK to clarify before Jersey decides how to proceed.' The British position was made clear when the Human Rights Bill, which incorporates the European Convention into British law, passed the Lords in January 1998 to reach the Commons for its second reading on 16 February. Amendments were moved by Lord Lester in the Lords and Austin Mitchell in the Commons to include the Isle of Man, Guernsey and Jersey within its scope. The British government has a clear right to do this, being responsible for good government, external treaties and international agreements, of which this is one. The UK is, in fact, a signatory to the European Convention on behalf of the islands and is answerable for their derelictions. Indeed, Syvret's file in Strasbourg is entitled Syvret v. the United Kingdom. Formidable odds. Given the reluctance of the island to have decisions imposed on it, and the determination of the British government to maintain its position of non-interference, the Home Secretary, Jack Straw, resisted these proposed amendments, but used them as a threat to push the islands into acting on their own account. The Isle of Man announced early that it would act independently, and in May Lord Williams visited Jersey and Guernsey to put the case for incorporation. He found a greater readiness to accept this in Jersey than in Guernsey, where the law and system are even more feudal, the elite more reactionary and even less accommodating. By the end of May both Channel Islands had announced their intention of incorporating the European Convention. All three agreed to put this in writing to the Home Office, and # The Political Quarterly Publishing Co. Ltd. 1999


the letters were placed in the House of Commons Library. The Home Secretary's ploy worked. The British government has maintained the principle of non-intervention on an issue where it had no need to do so. This may delay implementation, for Jersey's legal drafting and legislative processes are notoriously slow (unless speeded up by pressure from accountancy houses), Guernsey's even more so. Delay in legislating means delay in establishing rights and does nothing to help Syvret, while prevarication, qualification or reservation under the rubric of adapting the bill to local circumstances would make new UK primary legislation necessary unless the government accepted dilution. Yet conventional customs and practices are important to New Labour; and so it maintained the long-standing British determination not to interfere in this most anomalous of jurisdictions. Now, however, the game has moved on. In January 1998 the Home Secretary, concerned about the ramifications of the LLP row and the growing problem of offshore finance and tax regimes, appointed a former Treasury civil servant, Andrew Edwards, to conduct a one-man internal inquiry into financial regulation in the Crown dependency islands. The inquiry, initially criticised in the islands but welcomed by reformers on the mainland, was a clever strategic move. The British government was under pressure from outside to do something about its offshore havens. The OECD, the EU, the German Treasury and American regulators wanted to see an end to Jersey's secrecy and lax regulation which allowed so many to escape their obligations. The OECD is attempting to address the problem of `tax abuse' by harmful competition, in which Britain's dependencies play a major part. The UN wants to stop drug money laundering. The G7 nations, highly concerned about financial instability, are worried about lax and secretive offshore regimes which collec# The Political Quarterly Publishing Co. Ltd. 1999

tively host massive sums, far bigger than the reserves of many nation-states, that constitute a free-ranging weight of money easily able to swamp regulatory structures and destabilise world finances. Straw wanted neither to embark on a path of confrontation nor to admit responsibility and be required to impose solutions. He therefore chose, as his third way, to institute the first ever inquiry into the islands' finances but to carry it out ìn co-operation with the island authorities', consulting them at every turn, modifying and diluting the proposals in the light of their views, allowing them to write Parts II, III and IV of the report in consultation with Edwards as professional guides to their finance centresÐor, as critics put it, advertising brochures published at British expense. The review of Financial Regulation in the Crown Dependencies was completed on 24 October 1998 and published on 19 November. Edwards had diluted some of his initial proposals after consultation with the islands' authorities and went out of his way to sugar every pill; so the Jersey elite welcomed the report and viewed it as a vindication of their approach and activities. Yet Edwards' sensible recommendations constituted a minimum agenda for reform which was clearly driven from outside. They included independent financial regulation; better-staffed (thirteen more posts in Jersey's case) and more effective regulatory and investigation regimes, protected from the influence of politicians; greater openness, publication of annual reports and beneficial ownership; registration of intermediaries; greater cooperation with other countries in combating crime; and even an Offshore Centres Audit Office and an Offshore Steering Group convened by the UK. After an initial bout of blustering the island authorities accepted the proposals and announced that they would implement themÐthough they immediately began to cavil at the numbers and cost J e rse y : Liab i l it i e s and Ri ght s

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of new regulatory staff, and there were real doubts about whether they and the other dependencies could meet Edwards' deadline of spring 2000 for implementation. Thus the first indications are that Straw's approach, pressurising Jersey and the other dependencies into reform but ensuring that they do it for themselves, will work. If it does, the crucial moment could pass without any real change in the relationship, leaving Jersey's domestic critics to carry on their uphill struggle alone while the constitutional situation which allows a small, unqualified island elite to regulate huge financial resources it can't control and fears to lose to even laxer regimes remains totally unaltered. The British government didn't act on the issue of rights, where it had every argument of justice and fairness on its side as well as the power and the responsibility to impose its wishes; nor has it done so, initially, on the issue of offshore finances. Yet the irresponsibility of tax havens and the offshore money business pose greater and more pressing problems in an uncertain and unpredictable world economy. These problems are particularly acute to a Labour government concerned about tax evasion, instability and the dangers of uncontrolled and unregulated markets. As that concern grows, convention will still say `hands off'; yet if Jersey and the other islands don't set their houses in order quickly and effectively and ensure that benefits flow to their people, not just to their elite, they cannot be certain either that the conventions of non-interference will be maintained, or that the world will let Britain sustain them.

Notes 1 Kilbrandon Commission Report, Cmnd 5460, London, HMSO, 1973, p. 441. 2 Hansard, House of Lords, 19 January 1998. 3 The Big Six (now five) accountancy houses 14 A u st i n M i tc he l l a nd P re m S ikka

4

5

6 7 8

9

were Arthur Andersen, Coopers & Lybrand, Price Waterhouse, Ernst & Young, KPMG and Deloitte & Touche. The terms of the proposal for limited liability legislation in Jersey are set out in a letter of 19 October 1995 from Mourant du Feu & Jeune to Senator Horsfall, President Finance and Economics Committee. R. C. A. Syvret, Director Financial Affairs, to President and Members of Finance and Economics Committee, 21 October 1996. Syvret noted that `the recent bad publicity has resulted in a significant increase in time being spent by the President of the Committee, the Chief Adviser, along with the Director and officers of the Financial Services Department who have been liaising on a daily basis with Shandwick.' The additional services costed at the hourly billing rate in the region of £9,000 per week included `media visits' at £6,000 per visit. The existing budget provision for Shandwick was £225,000, made up of £125,000 for fees and expenses and £100,000 for advertising. The extra costs envisaged would be àt least £200,000'. Amanda Francis, senior consultant with Shandwick, to Senator Horsfall, 18 June 1997; Shandwick to States of Jersey, undated; Shandwick to Austin Mitchell, 12 November 1996; Finance and Economics Committee, 28 October 1996; Shandwick update on `Crisis Management', 26 November 1996. Answers to Deputy Main, States of Jersey, 19 May 1998. Accountancy Age, 28 May 1998. Amanda Francis to Colin Powell, Chief Adviser to the States of Jersey, 20 May 1997. This set out new costs of £4,000 a month. States of Jersey PR and Communications Programme Draft One, 27 May 1997, gives estimated costs for July± December 1997 of £125,000±135,000 for the six-month period and an estimate of £60,000 for the first three months of 1998. Shandwick's retainer was £8,000 a month. Finance and Economics Committee Minutes, 28 October 1996, para 34. The 1996 budget provision for Shandwick was £225,000 for the `planned programme'. However, in the light of the `current crisis' extra costs could be àround £200,000 with a possibility that the costs # The Political Quarterly Publishing Co. Ltd. 1999


could be as high as £300,000'. It was suggested that the Chief Adviser raise the matter with `the working group of representatives of financial organisations' and that the Jersey Treasurer identify funds `preferably within existing cash limits'. 10 Paul Twyman, Political Strategies Ltd, to Colin Powell, 29 July 1997: `We would be interested in working for you in the public affairs field. I am not sure that Shandwicks, for all their size and claims of expertise are quite as clever as we are in dealing with Whitehall and Westminster. In any event I think you will find that we are rather more secure than they are.'

# The Political Quarterly Publishing Co. Ltd. 1999

11 À Public Affairs Report by Shandwick', Programme for the States of Jersey, May± December 1997, p. 8. 12 Minutes of the Working Group for the Promotion of Jersey, 30 July 1997. 13 Amanda Francis to Senator Horsfall, 31 July 1997 (she adds: àlso attached is another question tabled by Llew Smith. I told you he was persistent'); Amanda Francis to Senator Horsfall, 8 July 1997. 14 The legal aid system relies on an expectation that lawyers voluntarily undertake pro bono work, assigned by the Batonnier on a rota basis, for the first fifteen years of their careers.

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