13 January 2020
Jersey's private wealth relationship with the Middle East
The relationship between Jersey and the Middle East is an important one. Jersey has been working closely with governments, businesses and high net worth families in the region for many years.
The relationship began in earnest in the mid-twentieth century with the City of London as the catalyst. London has always been a popular choice for Middle Eastern investment and a home away from home for wealthy Middle Eastern families. Jersey's symbiotic relationship with the City of London made it a natural choice of jurisdiction for holding and managing such families' wealth.
As the world has become more global and Middle Eastern families and their investments have become more international, Jersey has remained a first choice jurisdiction. Jersey's position as an established well-regulated international finance centre coupled with its long-standing relationship with the Middle Eastern region has made it uniquely placed to understand the needs of these families for their wealth structures to reflect their modern global lives, whilst also respecting their traditional values.
Jersey's recently published Global Markets Strategy Report 2019 confirmed that the Middle East remains a priority market for Jersey. Jersey currently holds £21 billion of Middle Eastern money on deposit. It has ratified two double taxation treaties with countries in the region and has negotiated its first bilateral investment treaty. It has also entered into memorandums of understanding with governments from the region setting out frameworks within which further knowledge sharing and international co-operation can occur. This is an indication of the current strength and confidence in the commercial and political relationship between Jersey and the Middle East.
In the context of the private wealth industry, the choice of structures and services Jersey offers to high net worth Middle Eastern families has increased and diversified significantly over the decades. Many of Jersey's private wealth structures naturally lend themselves to Middle Eastern cultures. The Jersey family office, settlor reserved powers trust and foundation have all been particularly popular with Jersey's Middle Eastern high net worth client base. All of these structures allow for Middle Eastern family values and Shari'a law to be placed at the very heart of the private wealth structure.
The Middle East is not a geographical region. There are no borders which delineate it. Its boundaries are political and constantly shifting. The one common thread which runs through the Middle East region is Islam. In providing private wealth structures and services to high net worth Middle Eastern families, Jersey's private wealth industry has therefore become expert at tailoring structures to comply with Shari'a law and the core values of Islam.
There are two areas of Shari'a law which are particularly relevant to private wealth structures. Those are Shari'a rules on inheritance (forced heirship) and investment. Taking inheritance first, Jersey private wealth structures are flexible and can be drafted to fully replicate Shari'a forced heirship rules if required to ensure that on the death of a wealth-holder his or her assets can only be transferred to his or her heirs under and in accordance with the proportions required by Shari'a law.
Alternatively, some Middle Eastern high net worth individuals do not wish to replicate Shari'a rules of inheritance and Jersey structures can be drafted to allow an individual's wealth to be distributed as he or she wishes, free from any constraints under Shari'a law. This is sometimes particularly useful where an individual family's values are progressive and/or where family wealth includes a business or where some family members live outside of the Middle East.
In relation to investments, Jersey private wealth structures can also be drafted to ensure that wealth is not invested in haram (prohibited) investments. For example conventional banking charging interest, alcohol or gambling. In practice, to ensure that investments are not inadvertently indirectly made in haram investments an investment committee can be established with expertise in Shari'a-compliant investments to manage or advise on investments. Such committees can ensure that wealth is only invested in Shari'a-compliant stocks, Islamic investment funds and Shari'a-compliant exchangeable trust certificates (sukuk) – exchangeable Islamic bonds. Jersey private wealth structures can also provide for the client's obligation to pay zakat (payments to charity).
It is not uncommon for private wealth structures to involve a Shari'a scholar as an adviser to ensure that a structure is administered in accordance with Shari'a law. The experience and expertise of Jersey's private wealth industry, together with Jersey's strong relationship with the Middle East, means that Jersey continues to be a jurisdiction of choice for Middle Eastern families.
An original version of this article was first published in eprivateclient's 2019 Jersey report, December 2019.
© Carey Olsen 2020.