Jersey yesterday announced plans to introduce laws to limit the liability of accountants and other professionals amid speculation that other offshore financial centres will be quick to develop similar legislation that some fear will encourage "fly-by-night" organisations to leave Britain.
A spokeswoman for the island government said the competition between the centres was so intense that a swift response from somewhere such as Guernsey was likely.
Senator Pierre Horsfall, president of the States of Jersey's finance and economics committee, said the planned law was "yet another example of the Jersey authorities working together with business to introduce new legislation" and added that he hoped the law would attract large multi- partner firms from other professions.
Meanwhile, Austin Mitchell, the Labour MP who has been a vociferous critic of accountants and other professionals for many years, has added his voice to the growing view that accountancy firms risk damaging their reputations by setting themselves up in places more usually associated with tax exiles and other fugitives. "It's barmy. The only answer to this kind of legal action is good audits and they're not going to be able to do any better audits in Jersey than here," he said.
He also suggested that the firms might be seeking to panic the Government into moving quickly to reform the law of joint and several liability. This principle, which is being amended in the United States and elsewhere, is seen as the key to their problem since it can result in auditors meeting the whole loss of a corporate collpase even if they are only partly to blame.
As expected, Ernst & Young and Price Waterhouse, two of Britain's largest accountancy firms, confirmed yesterday that they had helped the States of Jersey's finance and economics committee develop the draft law that will be debated in the island's parliament in the first quarter of next year. If passed, it will have to go to the Privy Council for approval and could come into operation by the end of the year.
It is largely based on legislation already introduced in the US state of Delaware that has encouraged the country's leading accountancy firms to register there. At present in Jersey - as in mainland Britain - limited liability is only open to partners who are not involved in the running of the business. But the new law would protect the personal assets of any partners not connected with a negligent act, while still making the overall partnership totally liable for all debts. In addition to paying an as yet undecided registration fee, each firm would also have to make a pounds 5m financial provision from which to meet judgments against it.
The Jersey authorities trust that this and the island's "reputation for good regulation" will prevent the planned law being abused by individuals or organisations intent on using offshore status as a cover for suspicious activities.
Both Nick Land, senior partner of Ernst &Young, and Ian Brindle, his counterpart at Price Waterhouse, emphasised that they would not be seeking the tax advantages available to organisations registered in Jersey. Pointing out that they would continue to be regulated by the Institute of Chartered Accountants, they said that if they made the change it would not make any difference to how they operated.Reuse content