Keeping Jersey Clean

If you examine the walls at one corner of the Royal Square in Jersey’s St. Helier, you can make out the traces of bullet holes. They date from January 1781, when the local garrison fought off a French raiding party intent on claiming the southernmost of the Channel Islands for France.

In recent weeks, the island has been defending itself against a renewed French assault. This time Jersey is fighting to ensure that its reputation as a financial center doesn’t end up as collateral damage in the financial war on terrorism.

"The island is a haven for dirty money," fumes French Socialist deputy Arnaud Montebourg from his cramped office a stone’s throw from the Seine. Montebourg authored a 400-page report — released on Oct. 10 by the Assemblée Nationale’s committee on financial crime — that slams the City of London and the crown dependencies for not doing enough to crack down on money-laundering. "In Jersey, requests for cooperation from European investigating magistrates are subjected to obsessive legal nit-picking," Montebourg claims. "They’re preventing us from fighting money-laundering because they’re making a living off it."

The requests he mentions — typically to examine the records of banking transactions — land on the overcrowded desk of Jersey’s Attorney General William Bailhache. "This is an area where the French and Anglo-Saxon legal systems don’t fit well," he says of Montebourg’s allegations. The U.K., for example, doesn’t consider French investigating magistrates as having the same authority as a court of law. But Bailhache insists that the self-governing island does everything it can to combat money-laundering. "We’re a small jurisdiction and we’re well aware how easy it is for outsiders to criticize our finance industry. We’re not going to allow that to happen."

His determination is a sign of the importance the industry has assumed in this community of 87,000 within sight of the Normandy coast. Personal and corporate tax rates have stood at a stable 20% for the past 60 years. Jersey-registered companies owned by non-residents pay nothing but an $860 annual flat fee. Jersey trusts administering overseas assets for non-residents are exempt from tax altogether. As a result, some $350 billion is invested on the island. Finance contributes two-thirds of Jersey’s GDP and 20% of its jobs.

Unsurprisingly, the O.E.C.D.’s 2000 report on harmful tax practices listed Jersey as a tax haven. But local authorities are at pains to point out that preferential tax status is not necessarily incompatible with the rule of law. "Because we’re a successful offshore financial center based on what was originally a low-tax regime, we’re assumed to be a seedy place where money-laundering can flourish," complains Senator Frank Walker, president of the States of Jersey’s Finance and Economics Committee. "That assumption’s absolutely untrue." Yet earlier this year some $300 million suspected to have been stolen by the former Nigerian dictator Sani Abacha was traced to Jersey bank accounts.

The island has been beefing up its legislation, most recently with a law requiring trust and company service providers — like banks and investment funds before them — to obtain an operating license from the island’s independent regulator, the Financial Services Commission. The license commits them to keeping records of the beneficiaries of all assets they handle, training their staff to check on possible laundering activities and reporting all suspicious transactions. "This is all about increasing the probability that criminals will go elsewhere," says the FSC’s director general Richard Pratt.

"Someone coming off the boat with a suitcase full of money isn’t going to get anywhere these days," says Christopher Scholefield of the St. Helier law firm Viberts. "But anyone prepared to forge enough papers and buy enough lawyers could get through any number of controls."

And unlike drug money, for example, terrorist funds must be traced before, not after, the crime has been committed. Like the military campaign, the financial war on terrorism looks set to be a long haul.