The island of Jersey, a largely autonomous state with ties to the British… (Leon Neal / AFP/Getty Images )
LONDON — For hundreds of years, the island of Jersey has been famous for its cows, which have been bred, raised and exported worldwide. But these days, the mother's milk of its economy is something else entirely: the billions upon billions of dollars funneled from around the globe into the tiny island's outsize financial sector.
Companies and individuals are drawn to Jersey as an offshore banking hub with tax rates that range from low to no. Critics describe the island, a largely autonomous state with ties to the British crown, as a prime destination for people and businesses seeking to hide their wealth and avoid paying taxes at home.
As leaders of the world's rich nations prepare to meet at the Group of 8 summit in Northern Ireland starting Monday, the host of the gathering, British Prime Minister David Cameron, has made cracking down on tax evasion and avoidance a top item on the agenda.
The issue is now a prominent one on both sides of the Atlantic, with lawmakers delving into how corporate giants such as Apple and Google, through sophisticated accounting methods, manage to pay much less in taxes than what critics say they ought.
But Cameron is acutely aware of an embarrassing image problem: Many of the world's best-known offshore financial centers, where shell companies and sham trusts help their owners outwit the tax man, are British territories or have some other direct governmental link to Britain. Although campaigners for transparency and tax fairness credit Cameron with pushing the issue among his G-8 partners, he faces calls to put Britain's own house in order.
"It's a real test of credibility for the UK," said Mike Lewis of the charity ActionAid. "If the G-8 [is to have] any legitimacy at all, it's about the G-8 members cleaning up in their own backyards."
Although accurate figures are hard to come by because of the secrecy shrouding such accounts, the international aid group Oxfam estimates that individuals hold $18.5 trillion in tax havens globally. More than a third of that amount, about $7.2 trillion, is parked in British overseas territories and "crown dependencies" such as the Cayman Islands and the British Virgin Islands in the Caribbean and the Channel Islands, including Jersey, off France.
Much of the money is perfectly legal. But experts say that such financial refuges are often used for tax- evasion and money-laundering purposes; critics call them "sunny places for shady people."
On Saturday, after a meeting at 10 Downing St. with leaders from the territories, Cameron announced that they had agreed to sign up to a pact on sharing tax information. (Although the territories are under Britain's wing, they have their own, mostly independent governments.) Advocates say more transparency and coordination are imperative in the effort to curb fraud.
"It is a very positive step forward," Cameron said. "And it means that Britain's voice in the G-8 and campaigning on this issue around the world for proper taxes, proper companies, proper laws ... will be stronger."
Without wresting some support for his initiatives from Britain's own territories, Cameron's hand would have been weakened with other G-8 leaders at the summit in Lough Erne, where he will lobby for automatic information swaps among national tax agencies and other international tax reforms.
"In a globalized world, no one country can on their own effectively stamp out either tax evasion or aggressive tax avoidance," Cameron told foreign journalists in London last week. "We've got a real opportunity to make this a turning point where we break down the walls of corporate secrecy."
This is not the first time the world's leading economies have pledged to tackle tax havens. In 2009, at an urgent summit of the Group of 20 during the thick of the global financial crisis, leaders agreed to a coordinated clampdown on the abuse of such places, but little action followed.
The current drive already has more momentum. Three years ago, U.S. lawmakers passed legislation requiring foreign banks to disclose information to the Internal Revenue Service on American account holders, which has spawned similar measures in other countries. Last month, the European Union's 27 nations agreed to step up their efforts to share tax data, overcoming the reluctance of Luxembourg and Austria, which jealously guard their banking secrecy.
Here in Britain, outrage has grown over companies perceived as stinting on taxes. Members of Parliament have accused Google, Starbucks and other multinational firms of cheating the public purse through devious accounting practices.
Cameron acknowledged the galvanizing force of public opinion and the grass-roots campaign against tax avoidance.
"This is now a sort of kitchen table issue, not just some sort of lofty communique issue," he said. "It's putting pressure on everybody, and that's good."
But the offshore financial centers and the banks that do business there have often resisted steps toward greater transparency or insist that any rules must be universally applied before they will subscribe to them.
In Jersey, financial services account for 40% of the island's economy and possibly much more than that when related activities are factored in.
Officials say they are committed to ethical finance and merely want a level playing field where everyone abides by the same rules.
"We're not a standard-setter. We can only be a standard-follower," Philip Ozouf, the island's treasury minister, said by telephone from St. Helier, Jersey's capital. "When a standard is in place and it is universally applied and accepted by our competitors, we will move together with them."