JERSEY: CONSTITUTIONAL AND POLITICAL SYSTEM BY AUSTIN MITCHELL MP

JERSEY: CONSTITUTIONAL AND POLITICAL SYSTEM
by

Austin Mitchell
Labour MP for Great Grimsby

Jersey is located in the English Channel. Geographically, it is closer to France than to Britain but it is a UK Crown dependent territory. The residents of Jersey are subjects of the Crown but not of the British government or its rules, regulations and taxes. British pound Sterling is the legal tender in Jersey and the exchange rate of Jersey’s own currency (Pound) is tied to the UK currency. Jersey residents can take up employment (without any restrictions) in the United Kingdom and can send their children to schools and universities in the UK and their sick can also be cared for in the UK at the British taxpayers’ expense. However, Jersey is neither part of the UK nor the European Union (EU). Neither is it an Associate Member of the European Union. Under protocol 3 to the Treaty of Accession signed by the UK in 1973, Jersey (and the Channel Islands) are included within the EU for the purpose of free movement of manufactured and agricultural goods. However, the provisions relating to fiscal harmonisation and financial services do not apply to Jersey. Other provisions of the Treaty of Rome, including those relating to the free movement of EU citizens, capital movements and the harmonisation of taxation and social policies also do not apply to Jersey. The 1991 Maastricht Treaty does not disturb Jersey’s anomalous position in any way.

In regulatory circles, variously described as a financial bolt-hole, tax haven and funny money laundry, Jersey is the richest and most populous (with population of 85,000) of the Channel Islands. Its constitutional position as suggested by the 1973 Kilbrandon Report is that “the United Kingdom are responsible for the defence and international of the islands, and the Crown is ultimately responsible for their good government. It falls to the [UK] Home Secretary to advise the Crown of the exercise of those duties and responsibilities. The United Kingdom Parliament has the power to legislate for the islands but it would exercise that power without their agreement in relation to domestic matters only in the most exceptional of circumstances” (Hansard, 3 June 1998, col. 471). Jersey has its own laws and taxes which are enacted by its Parliament, the Jersey States, but approved by the Privy Council and the Sovereign. However, in common with other Channel Islands, Jersey has not enacted any of the UK and/or European Union treaties and laws on human rights, legislation to combat money laundering and organised crime.

The anomalous constitutional and political position allows Jersey to offer a friendly offshore welcome for finance, money and wealth. Indeed, those wealthy enough can agree their tax liabilities in advance before they settle as racing driver Nigel Mansell has recently done. The main attraction to money, its owners and manipulators are the low tax regime, secrecy, the less constrictive regulatory regime, standard 20% personal and corporate tax rate, though after various deductions most corporations pay a much lower rate. Jersey has perfected the art of looking both ways, presenting a respectable face to the British government and the world but a welcoming wink to offshore finance which all too often has different preoccupations and different reasons for going to Jersey than its lovely climate and situation. Successive British governments have pretended not to notice anything, but other regulatory authorities have not been so obliging. John Moscow, the New York Assistant District Attorney chased the crooked dealings of Bank of Credit and Commerce International (BCCI) and came up against a veil of silence in Jersey. He said, “My Experience with both Jersey and Guernsey is that it has not been possible for the US law enforcement to collect evidence and prosecute crime. In one case we tracked money from Bahamas through Curacao, New York and London, but the paper trail stopped in Jersey …… it is unseemly that these British dependencies should be acting as havens for transactions that would not even be protected by Swiss bank secrecy laws” (The Observer, 22 September 1996, page 19). Accountants and others have flocked to the funny money havens to shave tax-bills and ply their laundering expertise . The Jersey connection is also visible in the 1990 UK High court case of AGIP (Africa) Limited v Jackson & Co. (1990) 1 Ch 265 in which Mr Justice Millett said that accountants “knowingly laundered money”. It is also prominent in the Polly Peck affair. More recently, the United Nations has publicly expressed concerns about its role in drug trafficking and organised crime .

In Jersey politics, there is an unhealthy overlap of business, legislative, executive and civil service interests. The separation of judiciary, executive and legislature traditionally found in liberal democracies are absent, resulting in abuse and silencing of any dissent. Though there is universal suffrage and regular elections for representatives in their constituencies and senators representing the whole island, general elections are rare i.e. all the seats in Jersey States (i.e. Jersey Parliament) are rarely simultaneously contested. The government of the island is the States of Jersey. The President of the States of Jersey is the Bailiff of Jersey who is also the chief civil officer, a judge, Head of Judiciary in respect of all courts, whether civil, criminal or mixed. He is also the Speaker of the Jersey States and presides over all sittings of the States and is thus a guardian of the rights of its elected members and able to determine which members can speak and when. The Bailiff is neither elected by the people nor the elected members of the Jersey States, but is appointed by the Crown. The Crown’s chief representative on the island is the Lieutenant Governor, who mainly occupies a ceremonial role. Jersey has no formal Cabinet system of government. Instead, there are a series of Committees (of which the Finance and Economics Committee is the most powerful) and numerous other bodies and sub-committees. Each committee is presided over by a member of the Jersey States, who also happens to be a powerful local businessman. The Presidents of these committees are effectively the Ministers. Most members of the Jersey States are members of one or more of the Committees and are expected to be legislators, executives and critics and are supposed to keep their business affairs out of politics. The government operates with utmost secrecy, even the minimalist freedom of information is absent and Cabinet papers are never published, not even after twenty/thirty years.

Unlike most liberal democracies, Jersey has only one Chamber of Parliament, with no chance of a second opinion. Members of the Jersey States are part-timers who have to run other businesses to earn their living. Deprived of adequate secretarial and research support, they are not easily able to research the big issues whilst those in-charge have the resources of the civil service (and sponsoring businesses) behind them and are always able to give the impression that they know best. There is no written record of parliamentary proceedings relating to any proposed legislation though the wealthy individuals can buy audiocassettes of the debates, costing £10 per cassette. There is no political party system and all aspiring Members of Parliament stand as individuals. Their manifestos are full of apple-pie and motherhood statements and none offers any specific political mandate or to bring political change to Jersey. The best consumer protection is either to buy non-Jersey goods or to buy them from major international stores. The island has no university and it does not attract much scholarly attention. Books and monographs providing details of its recent history are far and few. Jersey does not have consumer protection laws or trade description acts. There is no minimum pay and no employment rights. A large number of European migrant workers oil the Jersey economy, but are forbidden to rent or buy property for the first twenty years of their stay, all relying upon the mercy of their masters. But millionaires are always welcome.

Jersey’s aggressive pursuit to be an offshore financial centre has decimated its traditional economy. The once mighty agriculture and tourist sectors now account for only 5% and 24% of the economy . The financial services sector forms 55% (unofficial estimates put it as high as 90%) of the economy. This boon has also been a curse as it has driven up the price of real estate and land and has gobbled up the available work force. Alternative economic activity has little chance of flourishing. The Jersey establishment now has little choice but to continue to find new ways of attracting finance and finance related activity. One of Jersey’s major attractions has been the feather-duster approach to regulation. There are no independent bodies to regulate the financial sector (though under pressure it is in the process of creating some structures) and the role of Jersey organisations in the BCCI, Polly Peck, AGIP, money laundering or any other scandals is rarely investigated. Jersey does not demand the publication of financial information from even the largest of banks and financial operators located there. These policies have enabled the Jersey to attract footloose money.

In 1996, Jersey’s GDP reached £1,350 million. Most of it consists of profits booked by major finance houses. Various trusts and banks located in Jersey boast assets of some £200 billion which are mostly located in cyberspace. Very little of the impressive financial statistics relates to actual economic activity on the Island. Whilst some wheeler-dealers, property speculators, accountants, lawyers and financiers have done very well, little of this wealth percolates down to the masses. In 1996, the Jersey government managed to raise £284.4 million from taxes. Unemployment is at less than 1% of the workforce. The reliance on financial piracy has enabled Jersey governments to produce balanced budgets and ordinary people simply don’t want to ‘rock the boat’ or do anything that might attract international regulatory attention.

Jersey`s politics are as intimate as those of any small council in Britain, but untroubled by ideological, class, wealth distribution, power asymmetries, environmental, gender, ethnicity and other divisions. The political system is run in the interests of wealth, followed at some distance by good government and good order, then the interests of the ordinary islanders who enjoy a minimalist welfare state. A small business elite now dominates Jersey politics once dominated by the old landed agricultural interests. The new political elite has close connections with wealthy money manipulators. They are more interested in attracting wealthy people. They want to attract “brass plate” names, banks, trusts and offshore financial businesses, enabling them to book some of their profits at low tax rates in Jersey and avoid taxation in their host countries. This is now being supplemented by providing a bolthole for accountancy firms keen to escape the consequences of audit failures . Jersey’s politicians claim that their affairs are not riven by social divisions and party clashes. Yet this tolerant intimacy (as later section will show) presents a very different face when threatened by internal dissent. There is nothing when that happens to offer protection to dissenters or mavericks from community ostracism. Jersey is in effect a one party (the business party) state run by a clique of business interests. An elite which benefits from independence, controls political power, and even the media. Jersey Evening Post, the island’s only major newspaper, is owned by Senator Frank Walker, President of the powerful Finance and Economic Committee. The local commercial radio and television stations are owned by others, but rarely present any in-depth analysis of Jersey politics while the professions are assiduous in their service of the dominant financial interest. When some members of Jersey States sought to voice concerns over the Limited Liability Partnership (LLP) laws, the Jersey establishment branded them ‘an enemy of the state’, a label strong enough to silence dissenters and persuade Jersey States to pass 95 pages of insolvency legislation in less than thirty minutes . Dissent has no base, no mouthpiece and no defenders.


Despite international concerns, there has been no systemic scrutiny of Jersey’s very convenient independence, its constitution, its institutional structures, its predatory tax regime and other privileges. No British government has sought to rein any of this, however inconvenient it finds the Jersey loopholes and international condemnation. The approach can be summed up in the Kilbrandon Commission’s report conclusions that “anomalies seem to us to be things that should be, if not encouraged, at least accepted so long as they are cherished by those most directly affected and do no harm to others. We have not approached the Islands in any spirit of reforming zeal. We have found no sign that this was the desire of the government of the United Kingdom”. More recently, the British government has become concerned not about the independent regime in Jersey, but about tax fiddles exploited there by British residents and British money and the facility that the regime gives to both to avoid British regulation and obligations. Morally, Jersey’s perks are indefensible for the emphasis on not being part of the United Kingdom is really a fiction. As part of a greater unity, the island should contribute its own share, but does not and that issue is rarely raised in political circles. In reality, there is no real threat to either tax or financial independence merely to excesses exploited by British residents though this does not stop the Jersey elite interpreting any criticism of its role and authority as a threat to the whole fabric of the island. Even if it is more likely to be a demand for human rights, or for environment, and action such as those demanded by the handful of Greens.

The unfriendly face of the friendly isle emerges when threats arise. In Jersey the worst threat is anything which draws attention to its internal affairs, lax regulation, or anything which might focus attention on the financial and tax perks offered to footloose finance capital. The ruling elite interprets any threat to its power as a threat to the island, its way of life and its system of government and trundles into action a powerful clobbering machine, part legal, part political, part media and in large part community, since it comes down to denunciation, ostracism, personal abuse, even deprivation and unemployment. Some of this has been highly visible as Jersey has been on the prowl for more business, this time from major accountancy firms seeking to escape the consequences of audit failures.

JERSEY LEGISLATURE FOR HIRE

An accepted feature of liberal democracies is that organised interests lobby and seek to influence civil servants and Ministers and shape legislation. However, Jersey goes further than this. It permits the organised interests to indulge in DIY legislation, they draft legislation and the Jersey establishment promises to pass it “on the nod”. Such practices came to light during the passage of the Limited Liability Partnership (LLP) legislation . In June 1995, Jersey was approached by major international accountancy firms with a view to enacting legislation which would give them considerable liability safeguards, accompanied by complete secrecy, no public accountability, no independent regulation and no express rights for those who might be negatively affected by their negligence.

The public spin was that the principle of ‘joint and several liability’ of partnerships has not served the Big-Six accountancy firms very well even though on the back of it they were making £3.5 billion in the UK and some US$51 billion world-wide. So Jersey came out as the white-knight to their rescue. The pretence was that LLP legislation was operationalised in many USA states, but the Jersey States were never told the USA LLP legislation was part of the quid pro quo where in the aftermath of the huge Savings & Loan scandals, auditors in turn accepted greater responsibility for reporting fraud to the regulators. Jersey secured no quid pro quo, nor any duties upon auditors who might locate there. The Jersey States were never told auditors might be facing lawsuits for alleged negligence because they have been using audits as a market stall for selling other wares and in the process used audits as loss-leaders to attract other business. Nor was any reference made to the internal policies of the firms which result in very tight time budgets and which barely give audit trainees adequate time to do the work. Rather unsurprisingly, scholarly research has shown that a considerable part of audit work is falsified i.e. it has simply not been performed because people in the field are not given enough time to do it.

No public evidence of any kind was produced to show the actual liability settlements made by firms. More importantly, the Jersey establishment never let on that the negligence lawsuits against the auditing arms of accountancy firms were initiated by the insolvency arms of other firms (i.e. the firms sue each other) because in their capacity as receiver, liquidators and administrators, they stand to collect at least 10% of all the cash raised. In the UK, the auditing firms already enjoyed considerable liability protections. For example, following the 1990 House of Lords judgement in Caparo Industries plc v Dickman & Others [1990] 1 All ER HL 568, auditors do not owe a ‘duty of care’ to any individual, present/potential shareholder, creditor, employee, pensions scheme member, bank depositor or any other stakeholder. They only owe a ‘duty of care’ to the company. Following the Companies Act 1989, they could trade as limited liability companies, a right that they campaigned for. In return they would have to give up secrecy and partnership tax perks. But amongst major firms only KPMG incorporated and then only the auditing arm of its operations. The rest, along with the Institute of Chartered Accountants in England & Wales (ICAEW), formally their regulator (under the Companies Act 1989), in practice their advocate and defender, began to campaign for a framework which would give them protection from lawsuits, replacement of ‘joint and several liability’ with a system of ‘full proportional liability’, ‘capping’ of auditor liability, secrecy, tax perks and no rights for audit consumers. Under a Tory government which used accountants to spearhead its privatisation programme, regulation of health service, local authorities and self-assessment, the prospects of a favourable hearing looked good. Lobbying was in the hands of Ian Greer Associates and in Neil Hamilton, the then Corporate Affairs Minister, Ian Greer had a compliant Minister. Until Hamilton fell from grace and government received an opinion from the Law Commission that ‘full proportional liability’ was against the public interest and that it could not find any “principled arguments for capping” auditor liability. So major accountancy firms began to look for a lever to exert pressure on the UK government. They approached Jersey in the hope that a favourable liability position so near the UK mainland, accompanying by a threat to move from the UK to Jersey, would persuade the British government to concede all their demands.

Price Waterhouse and Ernst & Young initiated discussions through their Jersey representative, Mourant du Feu & Jeune, whose one time leading partner (subsequently consultant) was Senator Reg Jeune. As Jersey civil service expressed some reservations, prior commitments and lack of resources for drafting the necessary legislation, Ernst & Young and Price Waterhouse had the LLP Bill drafted by a London law firm at a cost of a million pounds. They all worked closely with the Finance and Economics Committee and its President Senator Pierre Horsfall. In the Bill, the firms gave themselves considerable liability protection, with no public accountability and no rights for audit consumers. In the draft Bill, there was not even an obligation for the firms to say on their headed paper that are located in Jersey. After some tidying up the Jersey law draughtsmen the Bill was finally referred to the Jersey States. Rather unusually, the LLP Bill also contained an acknowledgement of “the contribution of Price Waterhouse, Ernst & Young and others ....... to the structure and detail of the draft law” (page 2 of the Draft Limited Liability Partnerships (Jersey) Law 199). Senior members of Jersey government also assured Price Waterhouse senior partner that the Bill will simply be “be nodded through, spend the summer with the Privy Council and be back in Jersey in time to be implemented in the statute book by September” (Accountancy, September 1996, page 29).

The promised ‘fast track’ proved more troublesome. Indeed, the Jersey elite for the first time faced an obstacle. Deputy Gary Matthews, a member of the Jersey States, was puzzled by the rush to pass legislation which most members did not fully understand. Its supporters could not easily explain what the island gained from the Bill, as certainly there was no demand from any local residents. So he sought help and began to ask searching questions about the drafting of legislation, its implications, the economic and political cost to Jersey. His concerns also resonated with a handful of other people and a critical scrutiny of the Bill began to be mobilised, especially as Jersey stood to make little financial gain , but the potential for attracting negative publicity from audit and regulatory failures was great . It also became clear that accountancy firms were not going to shut-up their offices in major UK cities, sack their staff, give up their clients or the lucrative UK markets to move to Jersey. In the event of any dispute, their UK based clients were more likely to opt to have their dispute heard in the UK courts according to UK laws. In any case, the firms intended to conduct their normal business with normal clients in the normal way throughout the UK and any physical move to Jersey without the express approval of each client could be construed as a “sham” designed to disadvantage creditors . It became evident that the firms were looking for “brass plates” or token offices to legitimise appearances . Deputy Matthews’ probing generated an unexpected and unwelcome debate which highlighted the consequences of legislation and it coincided with the visibility of the Cantrade (a subsidiary of Swiss banking giant UBS) scandal in which some $27 million of investors’ savings disappeared. The debate became personalised, a process heightened when an opponent of the LLP Bill Senator Stuart Syvret, a 28 year old cabinet maker complained about the haste with which the Bill was being pushed and alleged that Senator Jeune, participated in the processes leading to the Bill and had an obvious conflict of interest in the passage of the Bill since his firm was involved in its drafting and was indeed acting for Price Waterhouse. Syvret’s allegations were denied and treated as a breach of privilege.

On 3rd September 1996, Senator Syvret, an elected representative of the people, was suspended indefinitely from Jersey States and told to make a full apology in writing. This he stoutly refused to do and as a consequence his constituents were denied any representation in Parliament and his mail was opened by the Jersey authorities. Instead of being silenced, Syvret widened and internationalised the argument by giving a critical interview to the Wall Street Journal and BBC Television (BBC2, Newsnight Programme, 14 November 1996) and by seeking help from UK MPs and accounting academics and by going to London to see them and the then Shadow Home Secretary Jack Straw. The unjust way he had been treated was condemned in House of Commons by an Early Day Motion, sponsored by Austin Mitchell MP, which pointed out that his indefinite suspension was an unheard of and unjustifiable deprivation of his human rights as a legislator. It demanded his reinstatement and received 57 signatures.

British government so keen to defend human rights in other jurisdictions did not want to do anything. The UK Ministers stuck unwaveringly to the non-interference line even when reminded that Britain was responsible for “good government” and its spokesperson criticised the lack of human rights in other jurisdictions. But at their own door-step the then Home Secretary Michael Howard and his deputy Lady Blatch refused to act and restore elected representatives to their rightful place. Publicly, at least, the Jersey establishment had little to fear from Britain since the then Conservative government was determined not to interfere. However, the Early Day Motion (with the possibility of the issues being raised in European Parliament and even the United Nations) threatened the carefully cultivated democratic image of the island. Despite reassurances from Shandwicks (a Public Relations firm used by Jersey States, see below) that Mitchell was a “maverick”, Jersey establishment was nervous. On 4th March 1997, Senator Stuart Syvret was grudgingly readmitted to Jersey States, without apology and without any explanation but still subject to censure. Syvret subsequently brought a lawsuit against the Bailiff for unlawful exclusion, violation of human rights and interfering with rights as an elected representative of the people, amongst other charges. His action is being assisted by local Advocate Philip Sinel, a known critic of the regime, especially its handling of the Cantrade affair . Sinel is acting on a pro bono basis even though Battanier, Peter Mourant of Mourant du Feu & Jeune has decided that Syvret is not eligible for this and must spend his time on more deserving cases. He risks having his licence to practice revoked. The initial verdict in the Jersey Royal Court has gone against Syvret as the judge ruled that the Jersey legislature was immune from action because it provided its own remedies. Judge Michael Beloff awarded Crown costs of £40,000 against Syvret, raising the shadow of bankruptcy. Syvret’s intention is to pursue the matter through the Jersey Court of Appeal and Privy Council before taking the case to the European Court where a file marked ‘Syvret v United Kingdom’ has already been opened.

The ‘fast tracking’ of the LLP Bill, international visibility and the suspension of Senator Syvret prompted the appointment of a Committee of Inquiry under the Chairmanship of Senator Shenton . Its membership consisted entirely of the supporters of the Bill and it criticised (report published on 17th March 1997) ‘fast tracking’ of the Bill, Senator Horsfall and failure to provide background papers to Jersey Parliament. In the 1996 elections, Jersey Evening Post ran a “don’t rock the boat” campaign and several ‘business’ candidates were fielded against Deputy Gary Matthews. Whilst the Jersey establishment let ‘outsiders’ draft the Bill, Matthews was attached by Senator Horsfall for going outside the island for advice (Jersey Evening Post, 19 June 1996, p. 17). His family was threatened, his business suffered. He lost his seat in Parliament and left the island. Though the Shenton report vindicated some of his concerns, it did not say anything about the election campaign against Deputy Mathews. One Senator claimed that the report’s findings “discredit the manner in which the election was fought” (Jersey Evening Post, 18 March 1997, p. 3)

The Jersey LLP legislation completed its Parliamentary passage several months behind schedule, receiving Royal Assent on 19th November 1996, acquiring the status of Law (or an Act) on 10th January 1997. However, it could not be fully implemented because it did not contain any provisions for dealing with insolvency of accountancy firms. After further consultations with accountancy firms, these provisions were rushed through (as secondary legislation) on 19th May and the Law is expected to come into effect in September 1998 . Yet the expected flood of accountancy firms seeking a refuge in Jersey shows no sign of materialising though Ernst & Young periodically threaten to go . The UK government has bowed to the pressures from the accountancy firms and a LLP Bill has been published (September 1998). With the help of Jersey, accountancy firms have secured concessiosn from the British people. Which pirate state will they use next?