The Isle of Man - Why Shelter Offshore Refuse to Damn it

Any journalist or writer knows that when they take a standpoint or articulate an opinion others will almost certainly disagree, and the response can be quite hostile: occasionally we have to take note as well, and this is one such occasion.

Writing opinions about countries and offshore jurisdictions will inevitably mean that we produce something that others disagree with.  For me personally this is the real joy of being an online publisher, there are no ivory towers - and when I run a commentary that others disagree with they will soon let me know.

Recently we ran several articles on the Isle of Man and its reputation as being one of the safest and best regulated offshore jurisdictions.  The storm of emails that came back to me was quite overwhelming - more importantly they weren’t of the nature that I normally receive.  These weren’t emails from millionaire expatriate investors who’d fallen a few percent short of the original projections, they were from very real people who had lost their entire life savings, retirement incomes and any chance of ever getting their money back.  The victims were investors and depositors at Kaupthing Singer & Friedlander, Isle of Man (KSFIOM.)  So why, when over 10,000 investors and depositors have lost so much while depending on the Isle of Man’s regulation and guarantees for security, am I still saying that the Isle of Man is a safe and recommended offshore jurisdiction?

There’s no point in beating about the bush - the Isle of Man failed KSFIOM investors and depositors spectacularly, and their failure to resolve the situation quickly has indeed damaged the Isle of Man’s (IOM) reputation as a safe offshore jurisdiction.

But who did the damage?  In our opinion the UK government and FSA are every bit, if not more, to blame than the IOM government - and this brings me to the point where I can’t personally blame a jurisdiction when the blame actually lies in the hands of governments and banks globally: and in this particular case, especially in the hands of the UK government.

Many people living in the Isle of Man make their livings from the growth in the island’s offshore financial services industry, they aren’t criminals - just regular people seeking an income and a livelihood, and the vast majority of savers and investors do have safe and well managed funds.  The collapse of KSFIOM seems largely to have been triggered by a run on the bank, the cause of that run seems to be none other than the UK’s Chancellor of the Exchequer Alistair Darling, later aided by Prime Minister Gordon Brown. Pre Northern Rock we would have no doubt had to explain what a run on a bank was, and most would suspect it to be a thing of history never to be repeated in modern times.  However, if someone in authority makes a significant enough statement that it scares the life out of people, the result can and will often be a run on a bank.

Enter stage left Alistair Darling October the 8th: “The Icelandic government believe it or not, have told me yesterday they have no intention of honouring their obligations here…”  Naturally when a Chancellor makes such a bold statement about another country, people react!  Interestingly the Icelandic government denied ever making such a statement, what’s more the transcript of the conversation is also missing that particular statement…but when did the truth ever stand in the way of politics?  Not content with the damage already done, Darling and Brown decided a double act encore was in order and later that day they appointed themselves as the voice of Iceland and officially declared Iceland bankrupt and in default.  The final nail was in the coffin and the run on not just a bank but an entire country was underway.

There’s actually a whole catalogue of blunders that resulted in KSFIOM investors and depositors losing their savings, the IOM is partly responsible but not entirely, you can find far more information at http://www.ksfiomdepositors.org a site specifically created for the victims of the collapse.  I personally am equally disgusted at the way this particular situation has been handled, but I won’t leave the blame totally at the gates of the IOM government when the UK government and the FSA also played an active role.

The Isle of Man government do deserve to be criticised for what happened and should be held fully to account, but the fact is that the IOM is still one of the most responsive offshore jurisdictions.  My voice isn’t big enough to instigate a run on a bank as Mr Darling so successfully managed, but every writer carries a degree of responsibility and the cold hard fact is that despite the terrible failure of KSFIOM, the Isle of Man has worked to ensure greater future safety for investors and savers, and a run on the Isle of Man as a jurisdiction won’t help anyone, in fact quite the contrary is true.

The Isle of Man looks more likely to hold its S&P AAA rating than the UK, mass panic and ill considered words by the UK government have done enough damage without independent publishers like myself also becoming irrational.

The global credit crunch was in fact nothing more than global greed and recklessness mismanagement of banks worldwide, aided and abetted by the governments of the world - with UK and the US at the helm.  Their combined disregard for commonsense and financial regulation has left many victims from KSFIOM savers and investors, to victims of Bernie Madoff, to the many millions of others who have lost their jobs, businesses, homes and trust in any banking or financial regulatory system.  The Isle of Man was as guilty but no more guilty than the many other countries who colluded in this sham of the century, the IOM has made great efforts to rectify its failures, it still has a long way to go but despite this it still remains, in my opinion, one of the safer offshore jurisdictions.  But no one anywhere is safe when all governments decide to ignore the warning signs and the regulatory structures that were created to protect us all.