Television screens have been filled nightly with pictures of tragic events in Rwanda and Zaire, and the revelation this week that arms were supplied by a British company to those who committed genocide has filled many people with moral outrage. The company alleged to have supplied the arms is Mil-Tec, an Isle-of-Man-registered company. Mil-Tec was administered by BDO Binder in the Isle of Man and all its shareholders and directors are nominees, hiding the true ownership and management of the company. Although Mil-Tec appears to have done nothing illegal, the affair will have reinforced the public's unease about the lack of supervision of offshore companies.
Whenever something nasty hits the headlines from any of the three islands close to the UK - Jersey, Guernsey and the Isle of Man - island politicians respond with platitudes about how well regulated their islands are, and how much more nasty business goes on in the UK.
In fact, the islands are very well regulated in all areas of financial services other than offshore companies. Their supervisory bodies make every effort to ensure that regulation keeps up with international standards and that investors are protected, but every time a scandal breaks it wipes out a lot of the international goodwill created by the supervisors.
The three islands are self-governing UK Crown dependencies. As such they are part of Great Britain, but not of the UK, and their parliaments make all their internal laws. However, the UK is responsible for the islands' defence, international relations and ultimate good government. In this capacity it imposes laws relating to those areas, such as compliance with UN resolutions. Even many islanders do not realise that constitutionally the UK has the right to impose any law on the islands. Fearful of losing their hard-won degree of autonomy, the island governments tend to pre- empt this by managing to pass any required laws themselves. The most recent example of this was the legalisation of homosexuality.
UK governments do not seem concerned enough about the lack of regulation of those forming and administering offshore companies to do anything about it. Maybe it is just too handy to have these islands as a filter through which people in the UK can indulge in dubious activities. Does Westminster not know how much Northern Ireland's paramilitary organisations use offshore companies to channel money through?
The islands have all implemented strong anti-money-laundering laws and investigators from other jurisdictions get full co-operation with inquiries from the local police and supervisory bodies. But offshore politicians do not seem to be aware of the enormous amount of work their fraud squads have to handle - and most investigations begin with an offshore company. In all three islands, the use of nominee shareholders and directors is common practice. However, in Jersey and Guernsey the name of the true beneficial owner has to be disclosed to the authorities. And in Guernsey companies have to be formed by a lawyer. These simple requirements certainly seem to cut down on the number of crooks using the Channel Islands.
But no disclosure is required in the Isle of Man, and anyone can form a company, so it is always open day for criminals from all around the world. Manx-based company agents are also allowed to advertise, which leads to a client being able to acquire a company over the telephone with the minimum checks done on his bona fides. That company will then be administered by the Manx-based agent. In spite of all this, Manx politicians seem surprised when something goes pear-shaped.
Jersey seems to be well established as a place used by Italian fraudsters, in particular. Italian investigations involving Jersey companies have ranged from the Banco Ambrosiano affair to the current trials of Silvio Berlusconi.
Guernsey companies are not much used by crooks now, but the island contains company formation agents who set up companies in other jurisdictions. The bailiwick of Guernsey also contains Alderney and Sark. Sark has no company register but it has the "Sark lark", in which company-formation agents in other offshore islands use a number of Sark residents as directors of non-resident companies registered elsewhere. By using Sark directors, Sark becomes the place of residence of the company. As a non-resident company elsewhere, it will pay an annual fee, no income tax, to the authorities where it is registered (in the Isle of Man this is pounds 600), and no tax in Sark, because there is no register. One of the main benefits of "Sarking" a company is that it allows the utmost secrecy - no one anywhere is scrutinising the company or its business. The normal annual fee for a Sark director is pounds 100 per directorship per company, and that is how some Sark residents make their living. They are directors of hundreds of companies about which they know nothing.
All the good work that regulators and police do in these islands is quickly forgotten whenever there is a scandal - and nearly every offshore scandal involves the use of companies. Over the past three years the governments of all three islands have publicly said that they plan to legislate for regulation of this sector. It has not happened yet. Every time they put forward a proposal it is shot down by the company formation agents.
Maybe the island governments should not listen so much to obviously self- interested agents. If the offshore islands really care about their image, they will have to bring the abuse of offshore companies under control.
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