Offshore: Jersey – The ties that bind

Jersey is promoting its links with the UK while shaping a stronger international role 

Of all the offshore jurisdictions, the one that is arguably most closely bound to the UK is Jersey. The island’s links with the mainland go much deeper than its status as a Crown Dependency – indeed many lawyers believe that the UK remains key to Jersey’s success or failure.

“As we’re very linked to London and the UK markets in particular we see what the market sees in the UK but on a smaller scale,” says Ogier’s Jersey corporate and commercial head Raulin Amy. “We’ve been affected by the credit crunch too and that’s meant, like everywhere else, there’s been pressure on fees and some commoditised products have fallen away.” 

The drop-off in real estate and financing work in the UK following the financial crisis has had a knock-on effect on the Jersey legal market. But in the past few months the word on the street in Saint Helier is that things are looking up and getting busier again.

Jersey

“We’ve seen a significant uptick in work on a number of fronts, particularly on the corporate and commercial side in the past financial year,” reports Appleby’s Jersey managing partner Mike Cushing. “We’re busy across a range of banking, regulatory, M&A and UK real estate work. There’s been a lot more transactional work flowing through – on a different scale than the transactional work we’ve seen over the past few years.”

Ohlsson
Ohlsson

Carey Olsen managing partner Alex Ohlsson adds: “We’re seeing more activity as a result of the general improvement in confidence rather than an improvement in the underlying economy.

“The fact that the finance markets have opened up to some extent means we’re seeing more real estate financing work. As things come up for refinancing there’s a fair amount of work to do.” 

Bedell Cristin managing partner Richard Gerwat also agrees that work is picking up, with both the corporate and banking teams “busier than they’ve been for a number of years”.

He adds that litigation is “similarly not firing on all cylinders, but there’s enough to keep people busy and we’re growing that team. The other area that’s pretty busy here, and that has been busy in the past few years, is private client – high-net-worth family office planning.”

Kershaw
Kershaw

Ogier chief executive Nick Kershaw says: “I’m pretty optimistic the curve is about to head upwards.”

Benefits all round

Jersey’s links with the UK are recognised not just by its legal community but also, crucially, by the wider authorities, which want to promote the message that benefits work both ways – that without Jersey, the UK would be poorer. Earlier this year financial industry agency Jersey Finance commissioned a report by consultancy Capital Economics to look at the island’s value to Britain.

Jersey Finance chief executive Geoff Cook states in the foreword to the report: “We believed that Jersey is a benefit to the UK, but did not have the data to demonstrate it. For the first time, this report provides the evidence base, confirming that Jersey is an overwhelming benefit to the UK.”

Capital Economics kicked off its report by pointing to recent media coverage of offshore tax structures, highlighting the “vexed” issue for politicians in Westminster that jurisdictions like Jersey are at the same time a potential risk to the UK and also dependent on it.

The report estimates that three-quarters of the assets managed through Jersey structures come from outside the UK but nearly half the value held “in stewardship” in Jersey has been invested in UK assets.

“Overall, Jersey’s financial services sector intermediates almost one pound in every 20 of investment by foreigners into the UK,” adds the report. “This scale of investment could support 112,000 British jobs.” 

Jersey’s lawyers, like those in other offshore jurisdictions, are a little weary of having to defend the work they do. But they praise the efforts made by Jersey Finance and the government to promote the message that the Capital Economics report conveys, and are acutely aware of the need for the authorities to keep pushing it.

“When you get into the discussion of tax treatments you’re very much into the politics of what’s going on at a macro level,” Gerwat points out. “It’s politically charged and even more so now, when the EU is looking to recover tax.”

The French government recently blacklisted Jersey, saying it was an “unco-operative tax jurisdiction”, but the Jersey government took steps in early November to ensure it was complying with French requests for information. Minister for external relations Sir Philip Bailhache told the BBC he was confident the moves would change French opinion.

Ohlsson points out that Jersey’s regulations on issues such as tax evasion and anti-money laundering have for many years been pretty stringent, but it is a case of enhancing the message being sent to the outside world.

“The island has tried to portray this message better in the past few years,” Ohlsson says. “It needs to do more of it.” 

Hot property

Over the years, one of the strongest business and practice areas for Jersey has been real estate. Now that real estate appears to be picking up slightly in the UK, the work is again flowing through Jersey, with recent transactions including British Land’s acquisition of Paddington Central in the West End (see offshore deals round-up).

Collas Crill managing partner Jason Romer says there is an increase in property finance work which he thinks could be premature, given the events of the past few years.

“It’s slightly bonkers when you think about what’s happened,” Romer says. “Whether it develops or whether people will see sense I’m not sure.” 

However, things are not yet where they were, and Jersey has been finding other areas to fill the gap. 

One such area is funds. Private equity has always been a source of work for Jersey – although not to the same extent as neighbouring Guernsey – and Mourant Ozannes partner James Ruane says the past few months have been busy, particularly in post-fund formation work.

The implementation of the EU’s alternative investment fund managers directive (AIFMD) has also helped this sector. Although Jersey is, of course, not an EU jurisdiction, law firms report an uptick in funds-related business as a result of the legislation.

This has manifested itself in two ways. The first is advice for funds moving out of the EU and choosing to establish in Jersey as it has close geographical links with Europe without the regulatory burdens. Some fund managers, in contrast, are choosing Jersey because of the passporting arrangements in place with the EU, which will allow them to continue marketing their funds in the region.

“We’ve seen a number of managers choose to increase their substance and move their funds to Jersey to ensure they fall outside the net of AIFMD,” says Kershaw.

Walkers’ Jersey managing partner Jonathan Heaney says AIFMD has provided work, although the jurisdiction’s position with regard to the legislation has improved.

“What we’re hearing is that Jersey is well-placed for the future, albeit that it might have gone a bit too far at the outset with its regulatory regime,” Heaney says.

Heaney is cautious about the extent to which the island will compete as a domicile for investment funds in future, believing its strength in this industry lies elsewhere.

“I don’t think it’s gained ground as a funds domicile but it has gained ground as a funds servicing jurisdiction,” he argues.

Indeed, others agree that Jersey’s ability to service a structure has always been a key selling point.

“Ongoing service over many years is one of the most important reasons you choose a jurisdiction,” Kershaw points out. 

Middle East/Africa focus

While the jurisdiction has been making efforts to grow its business from the markets close to home, it has also been casting its net wider in recent years. Jersey Finance has a representative office in Hong Kong and a big effort has been made to build the island’s profile in Asia.

Ohlsson says this is a long-term effort that has not yet come fully to fruition.

“There are [Asian businesses] where there’s inward investment into the UK and Europe using Jersey structures,” Ohlsson says. “The Asian markets have tended to be more familiar with Cayman Islands and British Virgin Island [BVI]structures than Jersey’s – the Asian position is probably a longer game.”

Indeed, lawyers are more excited about the work coming from other regions, particularly the Middle East and Africa. The Capital Economics report estimates that in 2011 £9.5bn of customer deposits in Jersey banks were sourced from Middle East beneficial owners and £9.4bn from African beneficial owners. China and other Asia Pacific countries contributed around the same amount.

The Middle East is therefore already familiar with Jersey as a jurisdiction to domicile company or fund structures. This is particularly the case for private wealth, where Jersey is also experiencing growth.

Ins and outs

The internationalisation of the business coming to Jersey has resulted in the internationalisation of some of its service providers, including the legal market. This process has been both inward and outward, with offshore firms from the Caribbean setting up in Jersey and Channel Islands firms moving out to new jurisdictions. The former trend has been less marked than the latter. The key year was 2006, when both Appleby and Walkers moved into Jersey through mergers with Bailhache Labesse and Crills Advocates respectively.

Others have tried to set up in Jersey with less success; Maples and Calder had a short-lived venture on the island, and there has been talk for several years about Conyers Dill & Pearman wanting a Channel Islands presence.

Meanwhile, the Channel Islands firms have spread their nets both East and West. The biggest firms with a Jersey heritage – Bedell Cristin, Carey Olsen, Collas Crill, Mourant Ozannes and Ogier – now all have a presence outside the Channel Islands. Carey Olsen, Mourant Ozannes and Ogier are all to some extent established in both Cayman and the BVI. Bedell Cristin has a BVI office.

In Asia, Bedell Cristin and Collas Crill are both in Singapore, Mourant Ozannes has a Hong Kong office and Ogier can be found not just in Hong Kong but also in Shanghai and Tokyo.

Ohlsson says the firm’s expanded jurisdictional presence has been of benefit in the past few years.

“From a client perspective the offshore jurisdictions in some sectors are becoming more closely managed by the same division of business,” he says, pointing to financial services as an example. “From that perspective we’ve found that being able to offer a Cayman, BVI, Jersey and Guernsey service means we can serve each of these clients in the jurisdiction in which we’re present.

“Significant investors who use multiple offshore jurisdictions tend to find themselves transacting in more than one of these jurisdictions, so if you can serve them in Jersey, Guernsey, Cayman and the BVI they can pick up the phone to one relationship partner and deal with their issues – I think we have a pretty joined-up approach,” Ohlsson adds.

Linking back to the inflow of funds from places like Asia and the Middle East, Gerwat points out that being in Mauritius and Singapore provides an additional source of work for a firm.

Collas Crill has so far restricted its internationalisation to Singapore.

“Singapore operates as a great hub for asset management and private wealth management in the South Asian region. The Hong Kong market is heavily saturated and Singapore offers a greater diversity of jurisdictions with other services than Hong Kong,” says Romer, explaining the firm’s motivation for launching there in 2011.

Collas Crill has not yet opened in the Caribbean, instead operating through relationships with some of the remaining purely BVI and Cayman firms, but Romer is not ruling out a possible launch.

“Internationalisation is leading to a split between firms that are local and firms that have a more international perspective,” he says of the Jersey market. “We sit on the cusp. The ability to provide multi-jurisdictional advice is becoming fundamental for an offshore firm.”

Work opportunities

Appleby’s Cushing also points to the bifurcation of the market. He says Appleby’s global presence enables it to offer advice across several jurisdictions including Jersey to help clients choose the right jurisdiction for them, but at the same time the firm remains strongly committed to the local market.

“From Appleby’s perspective in Jersey, the internationalisation of our operation gives us access to many more clients, contacts and opportunities than previously,” Cushing adds.

Lawyers at indigenous Jersey firms stress that breaking into the local market is not easy.

“Jersey has been a difficult market for new entrants to become established in,” says Ruane, adding that Mourant Ozannes has found it equally tough to establish a presence in Cayman. Entrants find themselves battling strong firms doing a good job, and success is far from guaranteed.

The market consensus is that Appleby has been more successful than Walkers, although Heaney contests this strongly.

“We’re not setting out to be a Mourant or an Ogier,” Heaney argues. “We set out to serve our global clients also on the Jersey side and that’s what we do. Just because we’re not as big as them doesn’t mean we’re not doing the same size of deals. We’ve got enough to keep us busy and profitable.”

But just how much work flows between offshore jurisdictions? Ruane admits there is little crossover between Jersey and Cayman, but says Mourant Ozannes picks up more referrals from the BVI – and sends back a fair quantity too.

“Some product types use both BVI and the Channel Islands,” he says. “One of the rationales for being multi-jurisdictional is the ability to cross-sell.”

Kershaw says that while Ogier’s internationalisation has been an important part of its strategy recently, Jersey is still the main focus.

“It remains our strongest jurisdiction,” he says. “We have our roots as a Jersey law firm so Jersey is the largest part of our network and the most important in terms of revenue generation. We find that Jersey does well and the same traditional service lines that have done well in Jersey continue to produce significant income for us.”

A rare union

The relationship between firms in Jersey and their onshore counterparts in London is also still key, with little sign of movement away from the traditional model – onshore firm instructs offshore outfit on a transaction. 

It is for this reason that the recent tie-up between Jersey-based Verras Law and London asset management boutique MJ Hudson raised a few eyebrows. While both sides of the merger are small, it is a rare example of a partnership between an onshore and an offshore law firm.

“I’m encouraged that someone like MJ Hudson wants to be in the Jersey market,” says Ohlsson, swiftly adding that he does not expect any other firms to follow suit.

“Certainly, the onshore firms we talk to are driven by client requirements and there are only a few core jurisdictions where they see significant business opportunities,” he explains.

“People offshore sometimes try to punch through the intermediary relationship to get to the client,” says Ruane, adding that he does not believe direct instructions from clients, rather than onshore firms, will ever form a significant proportion of the work for a firm such as Mourant Ozannes.

“It’s tricky because by aligning yourself with a UK firm you’re shutting the door to others that provided you with work,” Ogier’s Amy points out.

However, Jersey lawyers predict more consolidation in the local market as competition increases for work.

The Jersey legal community is strongly in support of what its government is trying to do to make Jersey attractive to businesses while remaining compliant with global regulations. 

Heaney suggests that some legislation could be streamlined to ensure the island offers what clients need.

“Jersey needs to understand what people want from it,” he says. “We’re offering a broad range of financial products, some of which haven’t been used in 10 years.”

Amy says the recent revamp of Jersey’s LLP legislation, which was previously little-used, has made it much more attractive for companies, especially as, unlike the UK legislation, there is no requirement to file accounts.

“There’s a need to look beyond the parochial infighting that sometimes happens – a need to look beyond the UK, recognising that a lot of the regulation that’s affecting financial institutions in Europe will end up affecting us in one way or another,” adds Romer.

Broadly, the mood in Jersey is good. With the caveat that the fortunes of the UK will have an impact on the local market, lawyers are confident their jurisdiction remains in a solid position despite increased globalisation and competition in the offshore world.