Treasure Island revisited. Jersey's offshore finance centre crisis: implications for other small island economies

Jersey appears to be a successful offshore finance centre (OFC) with high l evels of gross domestic product per capita. The OFC is the largest contribu tor to Jersey's tax revenue, and accounts for about 20% of local employment . Jersey has become a major OFC in a global industry and is a conduit for s izeable capital flows. However, an unparalleled crisis in 1996 generated in ternational media interest. The crisis involved three separate but related issues: a US $26 million fraud; the fast-tracking of Limited Liability Part nership legislation through the island's parliament; and a political crisis resulting in the unprecedented expulsion of an outspoken Senator from the parliament. The anatomy of this crisis reveals several causes of concern fo r other OFC hosts, especially regulatory failure and the overlap of interes ts between the local political elite and those of international financial c apital. We examine the changing international perceptions of 'offshore', qu estion the need for bank secrecy, and consider Jersey's role as legitimiser for other OFCs. In addition, we discuss lessons for other OFC hosts, inclu ding the need for efficient regulation, the impacts of OFCs in small econom ies; and demonstrate that the costs of hosting an OFC are now significantly higher than was first realised.