AABA How Jersey shot itself in the foot: an analysis of the implications of the Trusts (35 pages)
the implications for jersey trustees
for its success. This is the ‘special purpose vehicle’ (SPV) market. This
market offers a variety of products but in almost all cases the SPV does not
wish to be associated with the company that promotes it. That is because in
very many cases it is repackaging the debt of the company promoting it so
that debt is moved off that company’s balance sheet, so enhancing the
appearance of its accounts. To ensure that there is legal separation of
control between the promoting company and the SPV the promoter ensures
that ownership of the SPV is by a Jersey resident charitable trust, which will
be tax free under Jersey law.
This arrangement has worked to date (although it is riddled with
incongruities which only the absurdities of Jersey law can resolve) but will
almost certainly fail in the future. The reason is simple. There can be
neither certainty that a trust has been created in the future because it will
be possible at any time for that Jersey trust to be revoked. And there will
be no guarantee that a trust will be charitable, because the beneficiaries
may be changed, so that tax free status could not be guaranteed.
Even if Jersey is willing to overlook these anomalies (and no doubt it will) it
is by no means clear that anyone else will. According to evidence submitted
to the States of Jersey shadow Scrutiny Committee that I advised in 2005
such SPVs had been created for the following companies, at least, for the
(a) Barclays Bank - credit card securitisation.
(b) Lloyds TSB - commercial paper conduit (securitisation).
(c) Capital One Bank - credit card securitisation.
(d) DZ Bank - all manner of capital market activity - securitisation,
synthetic securitisation, capital raising etc.
(e) Commerzbank - commercial paper conduit (securitisation).
(f) HSBC - securitisation.
(g) Bank of America - securitisation.
One has to ask why the auditors of these companies should now accept that
the SPVs in question are indeed independent and therefore off balance
sheet when under Jersey trust law the trust deeds that make them so are
revocable? In that case, who will ever put an SPV in Jersey again?
The implications for Jersey trustees
Numerous professional people in Jersey act as trustees. The activity
underpins the Jersey financial services sector. Without trusts Jersey has
little to offer.
No doubt many of these people will, as the preamble to the 2006 law says is
expected, warmly welcome the changes that the new law introduces. Most
will also, no doubt, expect that it will have little or no impact upon their
work. After all, as John Harris said in his mail of 14 September: