A new finance centre emerges

A recent review of International Finance Centres (IFCs) by the UK’s Financial Times newspaper identified a host of ‘tax havens’, including Jersey, Singapore, the BVI and, of course, Anjouan...?

Our immediate response was…where? STEP has members almost everywhere in the world, but Anjouan was completely unknown to us. Could this be the fabled lost Atlantis: the mythical fiscal paradise that disappeared somewhere in the Bermuda triangle? In fact, Anjouan (also known as Ndzuwani or Nzwani) is an autonomous island of the Union of Comoros. Situated in the Indian Ocean, it lies on the Mozambique Channel, about two-thirds of the way between northern Madagascar and northern Mozambique.

Research into Anjouan showed ‘it became an offshore centre’ in 2005, to attract foreign capital. Critics of ‘offshore’ argue that such centres thrive on skirting the law and being free-wheeling. On that basis, one might expect Anjouan to be a popular centre. But to me, Anjouan seems a singularly unlikely IFC.

Top finance centres all have more rigorous anti-money laundering regulatory regimes than the US or any member of the EU. Our research into IFCs has consistently shown that they have better legal tools and tougher standards than do most onshore jurisdictions.

Clients also seek political stability. However, clients would be nervous to discover that Anjouan has a history of instability, and was invaded as recently as March 2008, when the rebel government was forced to stand down.

Clients will almost certainly also be unsettled to know that the Financial Services Authority web page features a Frequently Asked Question (FAQ): ‘What if there is a Coup d’etat?’. With surprising honesty, the answer provided is: ‘If there is a Coup d’etat there is little which we can do as it depends on which government takes over and the conditions enforced’.

Old lags will recall the case of Sir Richard Sharples, Governor of Bermuda, sadly shot dead on 10 March 1973. This unfortunate incident activated many trust flee clauses causing all manner of headaches for lawyers. Bermuda’s stability was unaffected, but it just goes to show how nervous lawyers can be on their clients’ behalf and highlights the absolute need for political stability.

Intermediaries also demand high levels of professional services. They may be deterred to find that all international financial products appear to be sold through a government monopoly, Anjouan Corporate Services Ltd (ACS). This is the exclusive registered agent appointed to issue all Anjouan financial products.

Whilst it was reassuring to find that all Anjouan services are fully regulated by the Anjouan Offshore Finance Authority, it was perhaps a disappointment to know that KYC and due diligence made up only half a page on the website. Anjouan also seems to have bearer share corporations. It may be hard to open a bank account with such a corporation, as banks will not be able to conduct the due diligence.

Good low-tax IFCs succeed because they focus on:

• tax neutrality
• balancing confidentiality with transparency
• financial and legislative innovation
• political stability, legal certainty, and investment in people and infrastructure
• a good international reputation.

Even the IMF has announced that it will not continue to use separate assessment programmes for what it terms ‘offshore financial centres’ and so-called ‘onshore’ centres. As ever, the use of the arbitrary term ‘offshore’ is wrong because it stigmatises jurisdictions based on their geographic size or location. Instead, any assessment of financial centres should be unequivocally based on a uniform assessment of risks to global financial stability, money laundering and fraud.

Over the years, numerous jurisdictions have popped-up, selling all sorts of licences, trusts and corporations. None of them survive. The real IFCs are extremely tight regarding regulation and reputation. ‘International’ may be a clunky alternative to ‘offshore’, but so long as the Financial Times labels Jersey alongside Anjouan as an ‘offshore’ centre; it is not a term worth using.