JERSEY AND ISLAMIC FINANCE

Trevor Picture

“Trevor Norman, Volaw’s Director of Islamic Finance and Fund Services Group, looks at recent developments in the products and services that Jersey offers to Muslims and Islamic finance Institutions throughout the world.”

In October 2013, the 9th World Islamic Economic Forum (WIEF) was held at the London ExCeL. This was the Forum’s first annual event in Europe and in a non-Muslim country. The links between Jersey and London are long established and many would argue interdependent. This article explores the synergy between Jersey as a centre for Islamic finance and the financial centres in the UK that are utilised by clients from the Middle East, and more recently those from the Far East.

At the opening of WIEF, the British Prime Minister David Cameron announced that the UK is working on issuing a debut sovereign sukuk in the wholesale sterling market. He said: “For years people have been talking about creating an Islamic bond – or sukuk – outside the Islamic world. But it’s just never quite happened. Changing that is a question of pragmatism and political will. And here in Britain we’ve got both. This government wants Britain to become the first sovereign outside the Islamic world to issue an Islamic bond. So the Treasury is working on the practicalities of issuing a bond-like sukuk worth around GBP 200 million, and we very much welcome the involvement of industry in developing this initiative which we hope to launch as early as next year.”

This has renewed interest in Islamic finance across business interests both in the UK and other associated finance centres. These comments did not go unnoticed in Jersey, particularly by practitioners at Volaw who worked on the first sukuk based structure issued through a Jersey company and established in the Island in 2004.

Mr Cameron continued: “Our ambition is to go further still, because I don’t just want London to be a great capital of Islamic finance in the Western world, I want London to stand alongside Dubai and Kuala Lumpur as one of the great capitals of Islamic finance anywhere in the world.”

True to his word, the UK issued the first sovereign sukuk by a Western nation in June 2014. It was oversubscribed and represented a massive step forward for the development of Islamic finance in the West.

Volaw has been providing services to Muslim clients for many years. One of the main advantages of Jersey is that it has not made changes to its laws to permit Islamic financial transactions or investment. Often changes to laws of other countries derive from having to determine the taxation treatment of financial contracts under Shari’a where interest is forbidden, and where the profits arising from the Shari’a-compliant contract do not readily fit within the countries’ tax laws. Jersey’s position as a tax-neutral jurisdiction means that no such amendments are necessary, but also our other corporate laws and regulations are such that I have yet to encounter a problem with a structure or contract that Jersey’s laws could not accommodate.

Recent examples of transactions Volaw has structured using Shari’a-compliant vehicles established in Jersey include:

  • Gatehouse Bank issued two sukuk through a Jersey Protected Cell Company, secured by UK real estate assets-under-management, and have structured the acquisition of other commercial properties including industrial, student accommodation and offices on behalf of clients;
  • Alongside Sidra Capital, Gatehouse also established the Sterling UK Real Estate Fund (SURF) to invest in Shari’a-compliant commercial real estate in the UK;
  • Lembaga Tabung Haji of Malaysia have invested in two substantial Central London commercial properties and another in the Greater London area;
  • London Central Portfolio has established two Shari’a-compliant funds in Jersey that invest in prime residential property in Central London.

Whilst the activities of Islamic financial Institutions are widely reported, the same cannot be said for private individuals, many of whom will be looking to benefit from the confidentiality of using trusts and other vehicles established in Jersey. There are many reasons why an individual may wish to establish such an entity ranging from the simple creation of a company to own, for example, a holiday residence in London, to the more complex structures required by a family office.

There is a lot of empirical evidence of families from the Middle East purchasing property in Europe both as a means of diversifying their portfolio and a potential refuge in the event of political disturbance in their home country. Many have purchased substantial properties in the UK and a number are owned through Jersey companies, which is in turn owned through a trust established in order to maintain confidentiality over the ownership of the property, and/or to eliminate any issues over obtaining probate in the event of the death of the beneficial owner.

Islamic finance and Shari’a-compliant structures cover a wide variety of business needs from collective investment funds, through to sukuk investment, to family offices and private wealth holding vehicles. Along with the legal accommodation of Islamic finance, Jersey professionals in the field can boast of in-depth of knowledge, expertise and experience relating to establishing these structures in a Shari’a-compliant manner. Together with Jersey’s long-standing relationship with London and other financial centres, this leads to an expectation that the Island will continue to grow and develop the financial services demanded by Muslims throughout the world.

For further information on this matter, please contact Trevor Norman (tnorman@volaw.com) of Volaw Group.

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