Confidentiality But Not Secrecy – The Guernsey Way

Monday 07 September 2009 by

Guernsey features alongside the United Kingdom and United States on the OECD 'white list' that was published at the conclusion of the G20 summit in London at the start of April. Here, Peter Niven, chief executive of GuernseyFinance, tackles the issues of confidentiality, secrecy and transparency that are at the heart of the debate on the role of international finance centres.

I remember vividly on my first day at work the 'talking to' I had from my branch manager on the need for the utmost confidentiality when it came to customer information - that was in Lloyds Bank back in 1975. And how right he was to lecture me on the subject. But of course confidentiality is not a recent phenomenon.
Banking has traded on that concept since the Joint Stock Banks were born out of the coffee houses of the City of London and even before that in the banking houses of Renaissance Italy.

And so it is today - and banking in Guernsey is no exception to this. All players in the wider financial services marketplace adhere to this concept. For trust companies this duty is no less real, although in their case it arises through their fiduciary relationship with their clients.

But this confidentiality is not enshrined in the law in Guernsey, nor indeed in the UK - it is case law that gives us our marker and the Tournier case of 1924 in particular is the reliably held English court precedent. This decided that a bank owes all its customers a duty to keep their affairs confidential. But importantly, it also gives us four occasions when this duty can be over-ridden, and specifically these are: where the law compels it; where there is a duty to the public to disclose the information; where the bank's own interests require it; and where the customer permits it.

(The principle is also enshrined in the BBA Code of Banking Practice, to which most of the banks in Guernsey subscribe).

And here, I believe, is where the distinction lies between confidentiality and 'secrecy'.

Guernsey, again like the UK, does not have a banking secrecy law and sees no reason to have one - unlike, say, Switzerland. But how many times have we heard the comment in newspapers and the media in general of 'secrecy' in so-called 'tax havens'. All very emotive stuff and designed to catch either the reader's or the viewer's eye. And to an extent - e.g. Switzerland and Liechtenstein - the statement is correct.

Unfortunately, the truth - and certainly in relation to Guernsey - is far less exciting. Guernsey, unlike those other jurisdictions, has never passed any specific law relating to banking secrecy and has no intention of doing so.

However, a comprehensive series of laws is also available to ensure that the island mitigates, as far as it possibly can, the potential abuse of the international finance system, of which the island is a part, to fund the drugs trade, terrorist activities or hide the proceeds of crime through money laundering. We must in those cases be prepared to divulge information and under the law we have that duty to disclose.
At the same time as accepting the need for confidentiality, the new watchword in the international financial community is transparency. Tax transparency in particular has been highlighted by the OECD in its Harmful Tax Practices Project, launched over ten years ago and where 32 international finance centres, including Guernsey, have agreed to participate and enter into Tax Information Exchange Agreements (TIEAs) with OECD members and, indeed, non-OECD members alike.

Guernsey has signed 13 agreements in all, including with the US and the UK, and it is likely that this momentum will be kept up in 2009 and beyond. I believe this comes at no cost to confidentiality for those undertaking legitimate business.

Only those with something to fear will indeed have something to fear.

There have been cries that this will be the end of private client business for those who sign up. Well, if it means that those clients who have been sailing close to the wind decide to up sticks and move to another more accommodating jurisdiction, then we should say 'so be it'. We really don't need any of that business; there is far too much good business out there to have a long-held reputation tarnished.

Also included in this concept of transparency is an understanding of the underlying ownership of corporate vehicles and looking at the requirement to maintain details of beneficial owners of companies. I am afraid that it is a question of 'do as I say' and not 'do as I do' when we hear the rhetoric from the US Senate as a specific example. Firstly, we have in place a TIEA with the US and have since 2006 - so matters of both a criminal and civil nature can therefore be dealt with under existing legislation and the TIEA. Also, the new Companies law in Guernsey requires details of beneficial ownership of Guernsey companies to be available through the directors or the corporate service provider to ensure that the authorities on the island can access them if necessary and under the appropriate law or agreement.

Perhaps they should look closer to home and in particular the new vice-president's home state of Delaware, which, by their own definition, could be classed as a 'tax haven' with over 600,000 companies, many of which are shell companies lacking any transparency, with no requirement for the disclosure of beneficial owners and therefore potentially vehicles for tax evasion and money laundering. For Delaware, also read a number of other US states.

At the end of all this I believe that those clients who are doing good legitimate business will have nothing at all to fear from the any of the initiatives to enhance transparency in all the world's financial centres. Client confidentiality still has a pivotal role to play in our day-to-day business.