Anatomy of a tax haven: how the finance curse strikes Jersey

The investigative newspaper Médiapart, which is fast gaining a reputation in France for hard-hitting reporting, has a special report on Jersey, Britain’s (and to a lesser extent France’s) favourite tax haven. It is fascinating, not least because it explicitly references our work on the Finance Curse, where countries that become over-dependent on financial services activity suffer many symptoms similar to those that are over-dependent on minerals like oil or gas.

On per capita GDP rankings, of course, Jersey ranks highly in the world, like many tax havens. But much of that wealth accrues to a relatively small section of the population, whereas lives for many if not most ordinary Jersey folk are tough. The image from last Friday’s Jersey Evening Post exhibits one symptom of the problem, and Médiapart goes deeper.

Though its origin is controversial, the financial windfall which accrues to Jersey should at least allow all its inhabitants to be rich. In reality, it is far from being the case.

“Here we have a saying: in winter, old people have to choose between heating and eating,” complains John Heys, an activist in his retirement, who sometimes serves as a guide at the local Durrell zoo to put food on the table.

The taxes which exist on the island are not progressive. In fact, it is the opposite: in theory, all citizens pay a 20 percent income tax, but in truth, the richest people obtain comfortable rebates on their millions, and the wealthiest among them can even negotiate directly with the tax authorities an annual payments.”

In the last few years Jersey has been cutting back on some of its more egregious and overtly criminal financial offerings, at least on the compliance side, though its high score on our Financial Secrecy Index shows its legal framework remains that of an abusive tax haven. This compliance work to remove some of the worst criminal elements, combined with the global financial crisis of recent years, has undoubtedly damaged the financial sector, curbing its heady growth of previous decades. In response to these challenges, the authorities have responded to falling tax revenues by leaving the rich alone and seeking to extract more from poorer sections of society, through rises in a General Sales Tax (GST.)    Despite a petition of 20,000 signatures – no mean feat in an island of fewer than 100,000 people, where speaking out against the financial services sector can mean trouble – the measure went through. John Heys comments:

“The Prime Minister told us that even if the 100,000 inhabitants of the island all signed, they would still pass this law. That is called living in a dictatorship.”

Many people in Britain would find this language a bit strong – but go to Jersey and speak to “dissidents” against the financial sector, and it is astonishing to find such levels of repression – subtle though it usually is – in a place that looks and feels so very British.

There are plenty of examples of this repression, such as this, from a few years earlier:

“The culture is now that of a Hilton hotel lobby,” says one Jerseyman who has now left the island. Adds another: “The island has been sold into prostitution. The financial services guys are like the pimps.” Like many, he prefers not to be named; there is a “nasty climate here of attacking dissent and insulting critics. If you’re not with Jersey plc, you’re against it – you’re the enemy. It can get very personal, and it’s not pretty.”

Back to Médiapart: it talks in some detail about the climate of omerta on the island, citing the example of Deputy Montfort Tadier, who had the temerity to criticise the financial sector in a double page article in Le Parisien in spring 2013. Médiapart describes how he was treated:

“Sacrilege!. “I just said fairly banal things, but to expose these things outside the island was considered almost like a crime fit for capital punishment,” he said. “The newspapers and political bosses, everyone vilified me as an enemy of finance.” And therefore, of Jersey. He said he has passed “some very difficult times” in recent months.

If you’re still in any doubt about levels of abuses against dissidents, try this. We could cite many others.

The article also gives a nice plug to TJN, which it describes as:

“the sharpest and perhaps the most demanding in the field of the fight against tax evasion and against what they calls “secrecy jurisdictions”

Thanks! It then cites TJN director John Christensen, a Jerseyman, talking about the “capture” of his island by the financial services sector. (In fact, the problems of ordinary people in Jersey had a foundational role in the formation of TJN itself: read all about it here.) Christensen then summarises the Finance Curse as it strikes Jersey:

“That has destroyed the balance of the economy. The banks, the financial advisers and lawyers are everywhere, but tourism and agriculture have disappeared. Today, the cost of living is higher than in London.”

There is plenty more to be recommended in this long article. And read more on the finance curse, here.