Isle of Man: Offshore Tax Haven
So many Irish banks–so little Irish trade. By Christena Colclough
Walking along the Loch Promenade of Douglas on the Isle of Man, it is easy to imagine the days of yore when the island's capital was a favoured Victorian seaside resort. Ornate, tall Victorian houses, now converted into hotels, overlook the sandy bay, which stretches from the Steam Packet Marina to the Electric Railway Station at the far end of town.
But behind the quaint, picturesque seafront lies a quiet, thriving offshore financial centre that some would argue exists mainly to facilitate tax evasion.
There is a sense of formality to the town's narrow, winding streets, which may have something to do with the astounding number of banks and insurance companies in Douglas.
According to the Isle of Man (IoM) Department of Trade and Industry, 66 banks and three building societies hold IoM licences, and more than 170 insurance companies operate here.
Thirteen and a half miles wide, 32.5 miles long, and halfway between Britain and Ireland, the island is home for 70,000 people.
Once dependent on fishing, agriculture and tourism, the Isle of Man's economy now turns around offshore banking and finance, which accounts for more than one-third of the island's income.
The island provides a centrally located, politically stable and secure offshore base for all of the main UK and Irish banks, as well as others. Some say it is fast becoming the Hong Kong of the Irish Sea.
Walking around Douglas, familiar bank signs, including Allied Irish Bank, Ulster Bank, National Irish Bank, Northern Bank, the Irish Permanent and the Bank of Ireland, must make potential Irish offshore investors feel quietly confident and almost at home.
Along the tidy streets, a plethora of Irish accents, both northern and southern, can be heard from the town's welcoming pubs and numerous chic restaurants as the professionals take their lunch breaks.
A neatly painted beige building on the corner of Athol street could easily be mistaken for a private home but for a small, wrought-iron hanging sign reading “Irish Permanent.”
Inside the closed front door lies a cluttered reception. Boxes stacked on top of filing cabinets and a furry toy animal perched on a computer monitor give an air of informality to the world of offshore finance at Irish Permanent IoM, an associate company of the Irish Permanent back home.
A grey patterned carpet leads the way upstairs to another small office, where Niall Mangan, an enthusiastic young man from Killarney, rattled off the day's interest rates on fixed-term and instant-access deposit accounts.
“You are the first person we have had face to face in five or six years. The majority of our customers are Irish. We would never meet them. It is all over the telephone or maybe by post. We don't have a counter here, we don't have cash. There is no reason to, because we do not have customers coming in,” Mangan explained.
To open an offshore account, most banks require a certified copy of the prospective client's passport, accompanied by proof of address to ensure that he or she is not a Manx resident, and, in some cases, bank references.
At the lower end of the interest scale, £2,500 is a general minimum to open a deposit account. Bank correspondence can be held or posted to any address the customer chooses.
The Isle of Man, although within the British Isles, is not part of the UK and is governed internally by an elected parliament, reputedly the world's oldest continuous parliament.
The government does not charge capital-gains tax, capital-transfer tax, death or estate duties, or gift or inheritance tax. Companies and trusts are liable at 20 per cent on the whole of their taxable income, and the standard rate of income tax is 15 per cent, rising to 20 per cent.
This sympathetic approach to tax has made the Isle of Man an attractive location for offshore banking, and the government aggressively promotes it as one of the world's best-regulated offshore financial centres.
For investors, tax-free high-interest accounts, accompanied by iron-clad assurances of non-disclosure, are alluring.
Behind the frosted glass windows at Ulster Bank, a lone secretary sits beneath a world map hanging on the wall and ushers the odd customer through low saloon-like wooden doors to a reception area with large, comfortable black-leather seats. A glass-topped coffee table overflows with investment magazines, mostly copies of Portfolio, the international business magazine of the Isle of Man, a glossy little number that is regularly mailed around the world to investors and professionals. (and can also be found on the Internet).
Watercolours depicting scenes from Northern Ireland donated by a past employee (Killen) furbish the walls. “He is an established artist, and has quite a few exhibitions, I believe, in the south of Ireland,” the friendly secretary said.
Through another door, away from public view, lies a private interview room. Jackie Bracken, the bank's Sterling dealer, could assure depositors of non-disclosure to any tax authority. As with all banks, no information about tax liabilities is given, but customers are advised to seek independent tax services.
Ulster Bank, IoM, is on a separate computer system from the rest of Ulster Bank's branches, meaning that no one could access information on an account outside the island, even within the banking group.
The bank services many Irish clients but since Hong Kong was returned to the Chinese, new accounts are moving this way, she said. For the IoM government, an attractive offshore utopia is a low-maintenance high revenue earner involving little financial outlay.
One elderly high-street shopper smiled and said, “well, if you're looking for a bank you have come to the right place. Take your pick.”
Like most Manx, he seemed indifferent to the island's offshore business boom and was concerned only with the number of old buildings being torn down to make way for more modern edifices.
Edward Leigh, client manager at the National Bank of Australia, the parent of the Northern Bank and the National Irish Bank, said a plush new purpose-built premises up the street would be finished in no time.
On the street side, the current bank does not attract the eye. Immediately behind the locked front door, the dull reception area evokes a dentist's waiting room rather than this year's FT award winners for best offshore company and best offshore product and services.
But beyond, an elevator leads to a roomy boardroom that, equipped with television, video, water dispenser and electric fan, breeds confidence.
Leigh, a young Manx professional, painstakingly outlines deposit options and penalties for early withdrawal on sterling accounts.
“The way it works is, we invest that money on your behalf on the guarantee that you will keep the money with us for that fixed term. Obviously, if you break that term with us, we still have prior commitments for that one month period, so we penalise you, because likewise we are penalised, but probably to a lesser extent.”
Like every bank, staff become soothingly reassuring at the mention of tax liabilities.
“We get asked this a lot. From the tax point of view, we are a retail bank in Northern Ireland, but over here we are a private bank, because our doors are locked, but we do obviously have the normal retail services. We do not disclose information to any third party…All the information is kept offshore, one of the computer systems is linked to the main computer system, one of them is not,” Leigh said.
The parochial atmosphere of Douglas makes it distinct from the garishness of Jersey and more homely than the exotic ambience of Bermuda, although the extraordinary number of BMWs, Jaguars and other sports cars driven along the island's country roads serve as reminders that this small island has wealth.
Rounding the bend on Christian Road, the gold-coloured letters of Bank of Ireland immediately attract attention. The bank, an impressive Corinthian-style six-columned building, stands three storeys high. The smell of pot-pourri fills a lavish double-glazed ground-floor office; outside, the unhurried pace of daily life is in stark contrast to the swift business-like manner of Mark Healy, a young relationship manager, who travels once a week to Bank of Ireland's Belfast headquarters.
Healy issues standard interest rates and happily offers to give a fixed rate off the matrix table, presumably for heftier investments.
Of the 9,000 Bank of Ireland account holders, many are Irish. Since 1990 changes to Irish exchange-control regulations, the bank has seen an increase in Irish clientele.
“There are two different markets: the expatriates, who would have a need for an offshore account, and then the domestic market, and then people who would like to have accounts for reasons better known to themselves, somewhere that is not going to be accessed by the authorities in Ireland or the UK,” Healy explained.
“Offshore accounts are a grey area for a lot of people, and they do not really understand why they should have an offshore account. But yet there is a misapprehension that there is criminal activity involved in offshore, and that is not the case—it is very strictly policed,” he said.
A scandal that broke several years ago, involving a non-resident company using the IoM as a front to help smuggle arms to Rwanda, and, before that, the collapse of the Savings and Investment Bank in the 1980s damaged the island's relatively unsullied reputation and led to the setting up of the Financial Supervision Commission in 1983 to regulate banking and financial institutions.
More recently, leaked information alerted Irish authorities to possible tax-evasion measures by the National Irish Bank, which was accused of holding offshore funds on shore in Dublin for an IoM-based insurance company.
Seemingly undeterred by scandal and controversy, increasing numbers of Irish businesspeople are looking to invest in IoM offshore banks.
Equipped with the latest interest-rate tables and a tourist map of the Isle of Man, two well-heeled Irish men dressed in sharp suits were shown into an Allied Irish Bank ground-floor interview room.
Upstairs, through the Georgian-style swing doors, Steve Porter, AIB's new business officer, punched in a code to open a door to the next luxurious level of the bank.
Charging £3, AIB IoM offers clients payment within two working days to any building society or bank, either in the customer's name or in the form of a bank cheque.
“As far as tax is concerned, they cannot investigate you under regulations. If you had an obligation to the Irish Revenue, we would just assume that you would take care of it. That is not our business; we do not interfere in that area,” Porter said.
AIB, established around 20 years ago on the Isle of Man, claims to have the market share of the Irish banks on the island. Although largely Irish, the bank's clientele is changing, and an increasing number of non-Irish accounts are being opened.
The nod and the wink, assurances of high-level confidentiality, are reiterated.
“We will not correspond with any third party, unless served with a court order: some criminal offence like selling guns to Saddam Hussein or dealing drugs,” Porter joked.
Should a government wish to investigate an individual holding an offshore account on the Isle of Man, it must first obtain a court order at home and then file for a court order from the Manx government before any investigations begin.