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Newsletter | Articles Difficult Times Ahead for International Financial Centres There is no doubt that international financial centres are going to face some fairly strenuous tests from more than one direction in the coming year or so. President-elect Obama is a well known advocate of ending tax haven abuse. He is on record as proposing measures which would help collect the estimated $350 billion gap between taxes owed and taxes paid. With his sponsorship of “The Stop Tax Haven Abuse Act”, which has not yet been passed into law, he has declared his intention to deal with ‘tax havens’ in so far as they help prevent the collection of taxes due to the IRS. Indeed, in a speech in Indianapolis in October he made it plain that he wants “to shut tax havens down.” Across the Atlantic Prime Minister Brown and Chancellor Darling have set their sights on a review of British financial centres’ affairs. In his pre-budget speech on 24 November Mr Darling said, “The recent financial turbulence has highlighted the potential problems with overseas territories and Crown dependencies such as the Isle of Man and the Channel Islands which attract banking customers with lower taxes – without contributing to the UK Exchequer. But at times of stress, depositors need to know who will compensate them. The British taxpayer cannot be expected to be the guarantor of last resort so I have asked for a review of those regulatory arrangements, which will report to me in the spring.” And, in his pre-budget report, the Chancellor states: ‘Looking to the future, and given the global nature of this instability, the Government’s international priorities include…reviewing the long-term opportunities and challenges for the UK’s crown dependencies and overseas territories as financial centres.’ ‘Many crown dependencies and overseas territories are significant financial centres in their own right and the financial sector plays a vital role in their economies. The Government recognises the progress made by most offshore centres to improve financial regulation and transparency, and tackle financial crime. However, crown dependencies and overseas territories, like all offshore financial centres, face challenges and opportunities as the world is changing. In particular, severe financial turbulence has raised questions for all jurisdictions, while there is growing international pressure to line up standards of financial regulation and meet international norms with regards to taxation.’ ‘The Government will shortly commission an Independent review of British offshore financial centres; their role in the global economy; and their long-term business strategies. The review will not consider changes to the UK’s constitutional relationship. It will work with the crown dependencies and overseas territories to identify current and future opportunities, risks and mitigation strategies, including issues such as: Financial supervision and transparency Fiscal arrangements Financial crisis management and resolution arrangements and International cooperation The Dossier has learnt that the Government review will involve the Foreign and Commonwealth Office and the Ministry of Justice as well as the Treasury. Its interim findings will be reported with the Budget next March. Further information from Peter Beighton.