Treasure Islands - Nicholas Shaxson [128]
Matthews’s and Syvret’s robust challenges slowed the fast-track passage of the legislation but did not stop it: It was finally enacted in November.
In elections that year, well-financed candidates stood against Matthews under the banner “Don’t Rock the Boat,” and Matthews was vilified in public. He lost his seat and was unable to get a job afterward. He fled to England and his marriage fell apart. As Sikka put it, “They put that man through the mincer.”
On the surface Jersey feels terribly British, and the island’s rulers always say it is a well-regulated, transparent, and cooperative jurisdiction. The reality is shockingly different. It is a state whose leadership has essentially been captured by global finance and whose members will threaten and intimidate anyone who expresses dissenting views.
After the LLP law passed, the accounting firms next opened a new front in London. They publicly threatened to relocate to Jersey if the UK did not create its own LLP law.
Sikka fought to stop it. “We told the politicians, ‘You can’t concede this—these firms have held you to ransom,’” he said. He wrote in The Times of how harmful this legislation would be, and that the Jersey card was clearly a bluff. He noted that the big firms would never close up in London, sack their clients and staff, renegotiate contracts, and reopen in Jersey. “If the Government were to concede a liability cap to auditors, it would hardly be able to deny the same to producers of food, drink, medicine and cars. None of this would be welcomed by consumers.”
The Financial Times saw the real agenda too. The accountants “want to keep the threat of moving ‘off-shore’ as a cosh with which to threaten the [UK] government if it fails to come up with a workable LLP law,” it said.
But the accountants got most of the British financial press behind them, roundly criticized Sikka, and wielded the old favorite that Britain’s government was “anti-business.”
The campaign worked. Britain passed its LLP law in 2001. The accountants never did relocate to Jersey: They had simply used it as a crowbar. “It was the work that Ernst & Young and Price Waterhouse undertook with the Jersey government,” an Ernst & Young partner crowed, “that first concentrated the mind of UK ministers…. I’ve no doubt whatsoever ourselves and Price Waterhouse drove it on to government’s agenda because of the Jersey idea.”35
As Sikka put it: “The Jersey sprat had served its purpose, now that the UK mackerel had been landed.”36
The UK law was not quite as bad as the Jersey one—it involves more disclosure, for example—and perhaps Sikka’s campaigning helped. Yet it still drastically diluted auditors’ incentives to take care over their accounting. Ernst & Young became an LLP in 2001; KPMG went in May 2002; PricewaterhouseCoopers made the move in January 2003; Deloitte & Touche followed that August. A host of lawyers, architects, and others joined in, getting the tax perks and limited disclosure available to partnerships but with limited liability. Canada took on the LLP law in 1998; it has been followed by New Zealand, Australia, South Africa, Singapore, Japan, and India—to name a few. These different countries’ LLP laws can only have contributed to the latest financial crisis. Had auditors faced getting personally into big trouble when they or their partners screwed up, they might not have been so hasty to sign off on all this off-balance-sheet financing.
The Jersey and Delaware episodes are stunningly similar despite happening fifteen years and an ocean apart and concerning entirely different subject matter. Deep truths about global finance are at work here. Robert Kirkby, technical director for Jersey Finance, described the generic process.