Worst fears realised? Jersey shares ‘old’ records of trusts and foundations

Life’s full of surprises, some pleasant, some not so much. Imagine you had undeclared offshore assets when the global financial crisis struck, and you’ve nervously watched the world move towards TJN ‘s proposal for multilateral, automatic information exchange. Until now you’ve probably felt ok, and that you had a choice between two moves. Either you could say ‘Ok, the game’s up – I’ll use an amnesty or some kind of disclosure facility, and go straight’; or you could decide to keep hidden, using the new loopholes that are being actively promoted in Switzerland and elsewhere.

You probably weren’t worrying too much about the past though. Information exchange will relate to existing holdings, so you just need to get things lined up before it kicks in (from September 2017 or after). But as India’s Economic Times reports,

“The worst fear of those with secret offshore bank accounts and private trusts is coming true — some tax havens are ready to part with ‘old’ records and even details of trusts and foundations that no longer exist.”

In this case some wealthy Indians may now be sleeping less peacefully. Just last month they might have thought they’d safely avoided scrutiny of their secret offshore bank accounts and trusts by shifting funds and assets out of Jersey before that jurisdiction signed an information sharing agreement with India, the India-Jersey Tax Information Exchange Agreement, which came into force in 2012.

Jersey has done something that will ring alarm bells among the world’s wealthy wherever their accounts and assets may be. It’s shared information with the Indian government on old, discretionary trusts with resident and non-resident Indians as beneficiaries. While we don’t want to overhype these two examples where Jersey has shared information shared relating to just two families in Mumbai and Delhi, it demonstrates all too clearly for some that their belief was mistaken that the jurisdictions they quietly parked their money and assets in can’t be pressured into sharing information on transactions entered into before the signing of information sharing agreements. And so those Indians that were advised to dismantle old offshore structures and move everything to jurisdictions like Dubai or Singapore may no longer be as safe as they thought.

While Jersey isn’t the biggest offshore player for Indian wealth (Mauritius and Singapore have always been popular) it’s long been a favourite as a conduit to London, particularly as a gateway to making property purchases. There’s been a Bank of India branch in Jersey’s Saint Helier for close to forty years, even though there is no Indian community on the island and Jersey is likely to be sitting on a huge backlog of dubious business stretching back many years. So kudos to Jersey, for going beyond the minimum necessary transparency.

What does this interesting development tell us? Well, the Common Reporting Standard is now in place. TJN’s radical, utopian proposal has become the global standard. Secrecy is slowly being squeezed.

But does this signal a tidal wave of openness about past secrecy? Of course, India is politically very powerful. It represents a huge market from which the City of London and its satellite havens will not want to be excluded. Indian PM Modi was elected on an anti-corruption drive and it’s possible that pressure was applied to the British government, which then applied pressure to Jersey. Would the same have been done for Malawi, or Ecuador?

As the article points out, this is the first time a tax haven has shared ‘old’ information. We’ll see if this starts happening elsewhere. Meanwhile, the article points out that:

“Switzerland has been careful in ensuring compliance but at the same time maintaining client privacy. (It’s another point that most Indians have moved money out of Switzerland to Dubai and elsewhere in the last few years).”

There’s money to be made, and lost here. Tax to be paid, or not paid. It may be starting to become simpler for wealthy families to dispense with their wealth managers and lawyers and offshore intermediaries and just declare their assets like everyone else and be done with it – which among other things would tell us a great deal more about the true extent of inequality.

You can read the full Economic Times article here.