Business Annual Offshore Guide 2011/12 by Sextant Media Limited

Offshore Guide www.offshoreguide.biz

2011/12

A New Dawn Beckons for International Finance

Beyond Tax Mitigation • Diversification In Defence of IFCs • Courting China • IFC Profiles 1

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Offshore Guide 2011/12

A New Dawn Beckons for International Finance International Financial Centres (IFCs) have had a tough time of it recently, but as the dust seems to be settling on the worst ravages of the global recession they have awoken to a new dawn, not only revitalised, but with a refined agenda and sense of purpose. This sees them proactively courting new HNWIs and UHNWIs from emerging markets such as China, and at the same time maintaining and consolidating their share of traditional US and European markets. Moreover, extensive legislative and regulatory reform across all jurisdictions constitutes evidence of a commendable willingness to embrace the prevailing international winds of the day. No longer are IFCs solely synonymous with tax mitigation. Rather, with financial services infrastructures built up over many decades, they offer unrivalled expertise and an array of inspired and finely-tuned structures tailored to the requirements of their HNW clientele. These jurisdictions are driving growth and investment, not stifling it, and represent valuable conduits for investment capital into the developing world. While it may be understandable that some G20 countries experiencing challenging fiscal conditions are looking to both top up their exchequers and appease their electorates by targeting IFCs, those same IFCs cannot be expected to selfdestruct and drive away the very business that sustains and defines them in what can sometimes seem like a never-ending drive to comply with ever moving goalposts. IFCs, like all jurisdictions have been forced to learn some tough lessons from the recession, but as the curtain rises on this new dawn they find that they remain essential cogs in the global financial machine, facilitating recovery, growth and ongoing stability. _______________________________________________________ Editor: Richard Smith Business Development: Dominic Hale, James Wilson Production Manager: Claire Turner Designer: Wallace Wainhouse Editorial: Joanna Gray, Ken Shaw, Erik Herbert, Frances Law All enquiries: info@offshoreguide.biz

W: www.offshoreguide.biz ________________________________________________________ Disclaimer::The information contained in this publication has been obtained from sources the proprietors believe to be correct. However, the publishers cannot be held responsible for any errors or omissions. In no way does any of the content constitute legal advice and the publishers and staff accept no responsibility nor legal liability for any loss or damage caused by or arising from reliance on it. Persons are reminded that independent professional advice should be sought before any investment decisions are made. Copyright: No part of this publication may be reproduced without the prior consent of the publisher. ÂŠ Business Annual Offshore Guide. Unless otherwise stated all photographicÂ content isÂ licensed under the Creative Commons (cc) attribution license. To view a copy of this license visit http://creativecommons.org/licenses/by/3.0/

Cover Photo CC by Arturo Donate

Contents Comment

Profiles

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Asia-Pacific 6

The Chinese Example Prof. Jason Sharman looks at whether IFCs can foster development in poor countries

Financial Heavyweights Gather at AFF to Reshape Global Agenda Hong Kong strategy laid out at the Asian Financial Forum

Isle of Man Backed by Prominent UK MP Mark Field, UK MP, Cities of London and Westminster lends his support to the IFC

28 Cayman Islands: The Whole Package

Jamaica to be a Centre for International Financial Services Legislation is passed to further this end

33 AIFMD Approval Boosts Fund Industry in BVI, Cayman and Jersey by the Walkers Group

Crucial Consultants When geo-political events put extraordinary pressure on personnel, businesses and investors, the use of a consultancy becomes ever more vital, explains Joanna Gray

16 Offshore Diversification How IFCs are diversifying and expanding to stay ahead of the game, by Frances Law

22 Labuan 25 Cook Islands 26 Samoa Caribbean/North Atlantic

32 Bahamas Legislative and Regulatory Developments

Bermuda Insurance Market Retains Resilience in Another Challenging Year from the Bermuda Monetary Authority

36 Bermuda Set to Meet New EU Standards re: AIFM Directive 37 BVI Signs 20th TIEA with Government of the Republic of India

Europe 42 43 44

Guernsey Eyes Opportunities in the Emerging Markets by Peter Niven, Chief Executive, Guernsey Finance Jersey Remains the Leading Offshore Centre in the Latest GFCI from Jersey Finance Future-oriented Strategy for the Liechtenstein Financial Centre: Quality, Stability and Sustainability from the Liechtenstein Bankers Association

Africa/Middle East 46 Republic of the Seychelles 49 Dubai: East-West Bridge 50 Botswana 52 Mauritius 53 Liberia: Global Pioneers in the Offshore Corporate Services Industry

Photo CC by Ian Burt

Seek and Ye Shall Find: Swiss Banks and the Search for Dictators’ Assets by James Nason, Head of International Communications, Swiss Bankers’ Association

The Future of Asset Management Clusters from PWC’s ‘See the Future – Top Industry Clusters in 2040’ Report

Islamic Finance and Global Financial Stability Jointly published by the Islamic Financial Services Board (IFSB), the Islamic Development Bank (IDB) and the Islamic Research and Training Institute (IRTI)

Extinction or Evolution: The Future for Offshore Centres Reproduction of Anne Craine, Treasury Minister of the Isle of Man’s Sir Thomas Gresham Docklands Lecture from November 2010

The Global Forum on Transparency and Exchange of Information for Tax Purposes Extracts from an Organisation for Economic Co-operation and Development (OECD) background information brief, 18 February 2011

Position of Swiss Bankers Association (SBA) on Swiss Government’s Planned Revisions to Administrative Assistance in Tax Matters

Global Economic Outlook: Recovery is Gaining Pace and Confidence is Growing Report from the World Economic Forum 2011

34 Turks & Caicos Islands: ‘Transparency’, ‘Accountability’, ‘Responsibility’

38 Anguilla

66 Statement on Tax Avoidance Debate from the IFC Forum

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The Chinese Example Jason Sharman is Professor and Queen Elizabeth II Fellow at the Centre for Governance and Public Policy & Griffith Asia Institute, Griffith University. Issues of poverty and economic underdevelopment have, appropriately, got a great deal of attention from policy-makers and non-governmental organisations (NGOs) over the last few decades. But the relationship between International Financial Centres (IFCs) and economic growth and poverty alleviation in developing countries is largely unexplored. What little scrutiny this relationship has received has tended to portray IFCs as exerting a baleful influence on developing countries. In contrast, it is argued here that at least in the case of China, IFCs may actually assist economic development and poverty reduction. There is evidence that IFCs can make a positive contribution by helping foreign and domestic firms in developing countries access the kind of efficient institutions necessary to drive growth, but which are often unavailable locally.

Lowering costs To put the case for this alternative perspective briefly, governance and institutions are now regarded as some of the key determinants of economic growth, and related poverty reduction. Efficient institutions promote growth by lowering transaction costs and thereby facilitating exchange. Transaction costs refer to the costs of fully specifying and enforcing economic exchanges. Because regulations and laws in developing countries are commonly confusing, rigid, obsolescent, politicised and poorly enforced, transaction costs at home are generally high, so local firms may seek efficient institutions abroad to make exchanges cheaper and easier. IFCs can offer a natural complementarity for developing countries, as they provide an environment characterised by simple, flexible, modern, sophisticated and impartially-enforced regulations and laws that are readily accessible by foreigners. Small and medium-sized enterprises from

developing countries, the engines of job and income growth, may be able to access capital much more efficiently in or through IFCs than they can domestically. Judging from China’s experience, IFCs are seldom final destinations for capital from the developing world, which is commonly brought back and put to work in the country of origin.

Bizarre flows The starting point for an investigation of the links between IFCs and China are what look to be some bizarre figures relating to capital flows. Why, for example, does the British Virgin Islands contribute more Foreign Direct Investment (FDI) to China than the United States, the European Union and Japan combined? How can it be that flows between China and Samoa or China and Barbados are bigger than flows between China and the United Kingdom? Why is there ten times more investment from China in the Cayman Islands than there is Chinese investment in the United States?

IFCs are seldom final destinations for capital from the developing world, which is commonly brought back and put to work in the country of origin Those looking to account for these anomalous figures have so far relied on two answers: either that these flows represent criminal money flowing to IFCs, or a process of ‘round-tripping’, whereby locals send money out of the country, only to return it via IFCs to qualify for tax breaks. A closer look at the evidence, however, suggests that neither answer stands up. As with any large flows of money across borders, it is almost certain that some proportion of the money flowing from developing countries to IFCs does indeed

represent plundered wealth. But there is no reason to suppose that the proportion of illicit wealth is any greater than that moving from developing countries to G20 financial centres. Indeed, G20 countries in many important cases provide a warm and secure welcome for the wealth of kleptocratic dictators. For example, in 2009 the NGO Global Witness published an expose showing how Teodorin Obiang, son of the president of Equatorial Guinea, has acquired a USD35 million mansion in Malibu, California, despite the US government’s judgment that the property was purchased with the proceeds of corruption. France has done nothing to stop corrupt heads of state and other senior public officials from Francophone Africa from owning luxury properties and maintaining their bank accounts in Paris. More broadly, my research has shown that OECD countries are much more likely to allow the formation of anonymous shell companies, invaluable in laundering corruption money, than are IFCs.1 What of the second answer, round-tripping? Here it is said that Chinese firms and individuals send money out of the country to an IFC, only to repatriate the same funds. The rationale is said to be the desire to capitalise on special tax breaks provided for foreigners: domestic money passed through IFC becomes foreign, and hence eligible for tax savings. If tax arbitrage through round-tripping explains the China-IFC link, then the real consequences for the Chinese economy would be slight, and probably negative as the government lost out on tax revenue it would otherwise be entitled to. But this view is highly incomplete. If it were just the same funds being cycled between China and the Caribbean, the out-bound and in-bound flows would have to cancel out. In fact, however, flows from the Caribbean to China are more than twice as large as the equivalent flows in the other direction. Thus much, and probably a majority of the foreign investment through IFCs in China is indeed foreign, once again posing the question of why IFCs are such disproportionate contributors of foreign capital in developing economies like China.

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What of the money that is round-tripped? Here there are good reasons to think that there is a lot more going on than simple tax arbitrage. Fiscal reforms in China have meant that most tax concessions for foreign investors have now been withdrawn. And yet at the same time that the tax advantages of IFC-mediated investment have been reduced, investment from or through IFCs continues to increase. The solution is to return to the subject of institutions and transaction costs introduced earlier. In China at least, and probably in other developing countries too, the reason why capital flows from IFCs are increasing as the tax rationale fades is because both local and foreign investors seek to combine the advantages of the economic dynamism of these markets, with the transparent, reliable and efficient institutions hosted by IFCs. Some examples illustrate how this logic applies in practice. Small and medium-sized enterprises in China are the main engines of job creation, income growth and hence poverty alleviation. Yet these same firms find it very difficult to access adequate capital. The few large local banks have neither the capacity nor the inclination to come up with the risk models needed to assess the creditworthiness of disparate smaller firms, instead preferring to channel credit to large, state-owned enterprises. To help address this problem, the Asian Development Bank (ADB) provided USD13 million to a Chinese loan guarantee company, COG, but was surprised to find the firm was incorporated in the Caymans. Asked to explain, the Bank’s response is highly illuminating: ‘The Cayman Islands’ legal system is based on British law, and therefore the legal concepts are familiar and acceptable to international investors... Most PRC [People’s Republic of China] companies seeking a listing on the Hong Kong Stock exchange incorporate their listed companies in the Cayman Islands. ADB’s external counsel and COG’s external counsel have confirmed that, in the present circumstances, a direct listing of COG as a

PRC company is not feasible, as listing would involve... a highly bureaucratic process, which is why PRC companies tend to use offshore jurisdictions... the Cayman Islands is generally considered desirable because (i) the legal requirements regarding capital reduction and the distribution of capital are less complicated than are those in Hong Kong, (ii) Hong Kong stamp duty is not chargeable for share transfers that take place prior to the IPO, and (iii) the Cayman Islands are FATF compliant and not on OECD’s tax haven blacklist (Asian Development Bank 2007: 5).2

at the same time that the tax advantages of IFC-mediated investment have been reduced, investment from or through IFCs continues to increase As this legal opinion states, this is far from being a one-off situation. Ease of incorporation, the ability to reduce capital and issue different classes of shares, the reliance on tried and tested legal concepts and systems, the flexibility of corporate structures and the tax-neutral treatment of investment from different sources all argue in favour of using IFCs to invest in China. Thus Chinese technology and media firms have tended to form an IFC-based company that can list in New York, Hong Kong, or elsewhere depending on where the greatest amount of foreign capital can be raised. The IFC company then holds a wholly-owned Chinese operational subsidiary. Joint Ventures may also choose to form companies or trusts in IFCs that then hold the underlying collaborative venture in China. Joint Venture firms in China must apply for permission from the government to change board members, re-adjust ownership shares, or change the focus of business. If underlying IFC vehicles are employed, however, partners may make all of these

changes quickly and easily. Disputes that arise between foreign partners can be settled in a familiar and credible legal setting using courts that have considerable expertise in solving complex commercial disputes. In these and other examples, Chinese and foreign investors can profit from IFC-based institutions that allow contracting parties to both more accurately assess the value of exchanges, and be more confident that contracts will be upheld in an impartial and reliable manner. In an ideal world, of course, China and other developing countries would be able to provide the institutions that serve to lower measurement and governance transaction costs locally. Yet creating, for example, an expert and impartial court system is a long-term process. As Huang writes in his book Capitalism with Chinese Characteristics (Cambridge University Press, 2008), ‘China’s success has less to do with creating efficient institutions and more to do with permitting access to efficient institutions outside of China’. IFCs provide these efficient institutions. Given China’s unmatched success in lifting hundreds of millions of people out of poverty since 1978, we need to investigate whether other developing countries could also profit from closer relations with IFCs.

For a longer version of this paper, please see International Financial Centres Forum website: www.ifcforum.org. 1

For more on this research see ‘Onshore secrecy, offshore transparency’, STEP Journal Vol17 Iss7, p20 2 Asian Development Bank. 2007. Proposed Equity Investment in Credit. Orienwise Group. Project 38908. Manilla. This article was first published in the STEP Journal (October 2010, Vol18 Iss9), the official magazine of the Society of Trust and Estate Practitioners (STEP). STEP is a unique professional body providing members with a local, national and international learning and business network focusing on the responsible stewardship of assets today and across the generations. Full members of STEP are the most experienced and senior practitioners in the field of trusts and estates. For further information please visit www.step.org

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Financial Heavyweights Gather at AFF to Reshape Global Financial Agenda More than 70 leading finance, business and regulatory players, as well as government officials from around the world gathered to exchange ideas on how to tap the opportunities of economic growth at the Asian Financial Forum in January 2011.

doubtless have an impact on Asia.

The two-day forum was the fourth of its kind since September 2007, and offered a platform for more than 1,600 financial experts, officials and business leaders to look into Asia’s strategies and tactics for stable and balanced economic growth.

Referring to the case of Hong Kong, he said that the main strategies were to maintain a stable financial sector, preserve jobs and support businesses through difficult times. Tactics, including a 100% deposit guarantee scheme and several rounds of stimulus measures, had supported the economy through the economic downturn.

Under the theme “Asia: Reshaping the Global Agenda”, the event was co-organised by the Hong Kong Special Administrative Region Government and the Hong Kong Trade Development Council, and held on January 17 and 18 at the Hong Kong Convention and Exhibition Centre in Wan Chai. The Chief Executive, Mr Donald Tsang, met many global financial leaders when delivering his opening address at the forum. “It is relatively safe to say Asia has weathered this crisis. Our economies are confidently moving ahead again,” he said. However, Mr Tsang reminded delegates that sovereign debt crises and high unemployment levels in regions such as the Euro-Zone and the United States would

To conquer crises, Mr Tsang said that sound economic strategies and tactics, working hand-in-hand, had been the key to Asia’s early recovery.

“It is relatively safe to say Asia has weathered this crisis. Our economies are confidently moving ahead again” – Mr. Donald Tsang, CEO and President of the Executive Council of the Government of Hong Kong

Going forward, Mr Tsang said that Hong Kong’s strategies and tactics would focus on opening up opportunities for business in Asia and promoting greater transparency in financial markets. “In reshaping the global agenda, Hong Kong also has a leading role to play as China’s global financial centre,” he said.

“Since the Central Government expanded the Renminbi trade settlement scheme last July, Hong Kong has seen a sharp rise in activity,” Mr Tsang noted. He also cited the rapid expansion of Hong Kong’s Renminbi bond market, saying that local firms and global enterprises had tapped into Hong Kong’s “dim sum bonds” (the nickname given to bonds denominated in Renminbi and issued in Hong Kong) market. “As China’s global financial centre and as an international business hub with free flows of capital, information and talent, Hong Kong has been fully engaged in Asia’s full circle back to economic growth and prosperity,” Mr Tsang said. Speaking at the cocktail reception, the Financial Secretary, Mr John C Tsang, said “dim sum bonds” were born out of the necessity to internationalise Renminbi in the current climate of financial opening up and reform on the Mainland. “For us, ‘dim sum bonds’ represent more than just a new and appetising initiative for investors to expand their Renminbi portfolios. They also embody Hong Kong’s unique role in reshaping the global agenda through our positioning as China’s global financial centre,” Mr Tsang said. ©2011 GovHK (www.gov.hk)

Mr Tsang said that many of Hong Kong’s extraordinary opportunities have been linked to the Mainland’s robust economic growth and rapid financial reform.

Mr Tsang noted that one of Hong Kong’s multiplying opportunities was the increased participation of Mainland companies in the stock market, which in turn attracted foreign investors for these companies as they complied with international standards. Foreign companies from Russia, France and Brazil listed in Hong Kong could also benefit from institutional money from the Mainland and other Asian investors. Another fast multiplying opportunity is Hong Kong’s role as a testing ground for the internationalisation of Renminbi.

View from the Hong Kong Incline Tram

photo - CC by Matthew Hunt

photo - CC by Ray Devlin

“As we have seized these opportunities, so they have multiplied. This is especially the case for our role as our nation’s global financial centre,” he stressed.

Hong Kong Harbour

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Isle of Man Backed by Prominent UK MP THE value of the Isle of Man’s contribution to the UK economy via the City of London was highlighted by UK MP Mark Field when he delivered the Chief Minister’s International Lecture on February 3, 2011. Speaking to invited guests at the Palace Hotel in Douglas, the MP for the Cities of London and Westminster urged the Island to continue promoting its positive role as a well-regulated small international financial centre (IFC) driving global business into London. Mr Field said, ‘The Isle of Man adds enormous value to Britain’s international offering.’ He also praised the way the Island had diversified its economy into sectors such as shipping, aircraft registration, film and space. ‘They have meant that the Isle of Man brings into a British sphere of influence some very important strategic global business. And this is business that would otherwise have gone to Singapore, Hong Kong or the USA.” Mr Field, whose lecture was entitled ‘Rebalancing the Debate Around International Financial Centres’, argued that

small IFCs had been caught up in public and political hostility to the financial services industry following the global banking crisis; but the debate about such centres was ‘totally one-eyed’ with no understanding of their benefits to the UK and global economy. He said, “Small IFCs such as the Isle of Man have repeatedly had to put up with unfair political attacks and misguided criticism.”

“Small IFCs such as the Isle of Man have repeatedly had to put up with unfair political attacks and misguided criticism” – Mark Field, UK MP Cities of London and Westminster

Mr Field went on to rebut what he called the ‘five myths’ about small IFCs: that they had a negative impact on global economic growth, that they had contributed to the global financial crisis, that they engaged in harmful tax practices, that they had a negative impact on transparency, regulation and

Mark Field, UK MP, Cities of London and Westminster

Jamaica to be a Centre for International Financial Services

Minister of Industry, Investment and Commerce, Hon. Karl Samuda, who piloted the Jamaica International Financial Services Authority Act, noted that the Authority will be charged with ensuring that the necessary infrastructure for the creation of a viable and progressive financial service sector is designed. He noted further that the financial services centre will create several economic opportunities for Jamaica, including significant employment for high skilled workers among the professional cadre, and create linkages with other domestic sectors, such as tourism. “As a centre of excellence, Jamaica’s employment potential will be between ten and 25,000, government revenue can conservatively be estimated to range between US$400 million and US$800 million, and service provider revenue will be in the vicinity of US$1 billion-US$2 billion

dollars, on top of the obvious spin-offs that will flow from this investment,” Mr. Samuda said. He also noted that the necessary studies and evaluations have been done, as to how to market the island as a new entrant and the type of services to be offered.

“If you promote entrepreneurship as a necessary ingredient for growth, implicit in that is the need to take some risk” – Hon. Karl Samuda, Minister of Industry, Investment and Commerce, Jamaica

Opposition Spokesperson, Dr. Omar Davies, stated that the countries that would normally have interest in the proposed financial centre, particularly the United States and members of the European Union, have become much more vigilant about the operations of their firms externally.

centres,” Dr. Davies said, while questioning the potential of the financial centre to employ up to 25,000 persons. In his response, Mr. Samuda noted there “comes a time in every nation’s history when they must take bold creative decisions that carry with it an element of risk.” “If you promote entrepreneurship as a necessary ingredient for growth, implicit in that is the need to take some risk. The rewards are greatest when the risk is greatest,” Mr. Samuda said. The Jamaica International Financial Services Authority Act will next go to the Senate for its approval. ©2011 Latonya Linton (www.jis.gov.jm)

Photo CC by drexston

An Act to establish the Jamaica International Financial Services Authority for the promotion and development of Jamaica as a Centre for International Financial Services was passed in the House of Representatives on February 8 2011.

“They have brought increasing pressure on some of the homes of the financial services

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Photo CC by Matt Kieffer

Republic of the Marshall Islands

photo - CC by Matt Kieffer

The Republic of the Marshall Islands (RMI) consists of two parallel chains of atolls and islands that lie west of the International dateline in the Pacific Ocean, midway between Hawaii and the Philippines. A trust territory of the United Nations under United States administration following World War II, the RMI gained its independence as a sovereign nation in 1986. The Constitution is a blend of American and British models of government and the official language is English. In 1991, the RMI became a full member of the United Nations and maintains a politically stable, democratically elected parliamentary system of government. The RMI operates the world’s third largest shipping registry, occupying white list positions with major post State control memorandums of understanding (MoUs). The success of the RMI Ship Registry has complimented the success of the RMI Corporate Registry, which has been the registry of choice for virtually all international shipping companies that have applied for initial public offerings (IPOs) on stock exchanges in New York, London and Singapore.

There are presently 36 RMI business entities publicly traded (32 corporations and 4 limited partnerships). There are 21 entities publicly traded on the New York Stock Exchange (NYSE), 13 on the National Association of Securities Dealers Automated Quotations (NASDAQ), one on the London Exchange, one on the Singapore Exchange (which is duallisted on the NASDAQ), and one on the Plus Markets exchange. The continual increase of RMI publicly traded business entities demonstrates the worldwide acceptance of the RMI Corporate Registry and assists in raising the profile of the RMI.

The RMI Corporate Registry has experienced significant growth in recent years International Registries, Inc. (IRI) and its affiliated companies administer the maritime and corporate programs of the RMI. IRI has been operating maritime and corporate registries for over 60 years and currently operates 21 offices worldwide with

a “decentralized” structure that enables clients to speak with maritime and corporate specialists in their own languages and in their own time zones. Each of the offices has the ability to incorporate a company, issue a certificate of good standing, register a vessel or yacht, record a mortgage and service clientele.

RMI Corporate Registry The RMI Corporate Registry has experienced significant growth in recent years. Business professionals and financial advisors worldwide have hailed the RMI Corporate Registry for its innovative and flexible body of law, ease of business entity formation and superior customer service. The RMI is a zero tax jurisdiction for all non-resident business entities. The RMI Associations Law, first enacted in 1990, and frequently updated to meet changing business needs, is largely modelled on the corporate laws of the United States state of Delaware. It includes the Business Corporations Act (BCA), Revised Partnership Act, Limited Partnership Act, and the Limited Liability Company (LLC) Act. The modernity of this legislation, which is commonly accepted by most major commercial centres, is essential; up-to-date legislation is more familiar to the banking and legal communities around the world, thereby enabling businesses to set up bank accounts and obtain financing once incorporated. RMI corporations are low-cost, uniformly easy to form, and simple to administer. Standard Articles of Incorporation are available and, if utilised, a company can be formed in one business day. Articles of Incorporation may be customized and shelf corporations may be purchased through any IRI office. While it is necessary to file all documents in English, it is possible to accompany such filings with a foreign language translation. Additionally, unlike many other jurisdictions, the name of an RMI business entity can be in any language, with the condition that Roman characters must be used. Any recognized corporate suffix is acceptable.

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Crucial Consultants When geo-political events put extraordinary pressure on personnel, businesses and investors the use of a consultancy becomes ever more vital, explains Joanna Gray In this age of social media, twitter, and such like, it is astonishing that geo-political events can still take us by surprise. They certainly have done in recent months. In 2010 nobody predicted the Arab Spring and the shocking earthquakes in New Zealand and Japan. British Foreign Secretary William Hague has already classed the uprisings in Tunisia, Egypt and Libya as coming, ‘In the top three most important events of the 21st century’, after the 9/11 terror attacks and the financial crash of 2008. At times like this when international sands are shifting, the initial instinct can be to retreat inwards – return to your own village and leave the global one well alone. Markets have been unsure how to react, the price of crude is rising ever higher and those investing in nuclear are wondering if they’ll ever see good returns. Media, businesses and political voices alike have all been caught on the hop – ‘Nobody expected the Libyan War/ Arab Spring / Japanese earthquake,’ CEOs explain wide-eyed to angry shareholders. It would be a foolish consultancy firm that is bold enough to stand up and announce, ‘Well actually we did see this coming,’ however it is almost certain that employing such firms helps to reduce risk, which during these uncertain times can often be reward

enough. This is particularly pertinent to the offshoring industry where bespoke approaches are needed for identifying opportunities and formulating fresh strategies across the globe. At times when, ‘Events my dear boy, events,’ run away with themselves businesses can often feel left adrift: the stranded oil workers in Libya were a literal example of the exposure businesses and their personnel face. And when managing exposure to risk it is good to use statistics. IBM has 399,409 employees worldwide, and between them Accenture, Arvato and Capgemini have at least 1million consultants offering an

it is no longer the case that outsourcing is simply about cost reduction unrivalled pool of expertise, acumen and experience. To access accurate market analysis, strategic investment planning and equity research there is logic to working with consultants – they offer a service that even the smartest in-house CFO and diligent team couldn’t rival. The results speak for themselves: Accenture which operates in 200 cities in 53 countries with 211,000 employees has clients which include 94 of the Fortune Global 100 and more than threequarters of the Fortune Global 500.

Indeed it is no longer the case that outsourcing is simply about cost reduction; risk management and discovering strategic investment opportunities are driving the success of BPO businesses. As Capgemini, which has over 108,000 staff operating in more than 40 countries, states regarding its work in the financial services sphere, ‘In the current financial services market, dramatic continuous change is the norm. Leadership is no longer about following the rules or applying traditional solutions to new challenges. The need to seize opportunity here and now requires innovative thinking to transform enterprises for the next level of performance.’ Indeed it is during times of acute geopolitical anxieties when the best sort of businesses, backed with the best sort of consultants can thrive. And here a move away from raw statistics and pure bottom line profit to a focus on people can be an asset. Capgemini again underlines the key to a flourishing consultant/client relationship, ‘Business value cannot be achieved through technology alone. It starts with people: experts working together to get to the heart of your individual business objectives and develop the most adapted solutions to fit these requirements. We believe this humancentered approach to technology is what makes the difference for business...We aim to empower [businesses] to respond more quickly and intuitively to changing market dynamics.’

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photo - CC by Marianna Great opportunities lie in BRIC countries such as China

Offshore Diversification In order to stay ahead of the game...and the G20 and OECD, International Finance Centres are diversifying and expanding. Frances Law explores the trend.

Thorp Alberga have recently consolidated or opened their first offices in Hong Kong, demonstrating the shifting of prospective business from old Europe to new Asia.

The idea that offshoring is simply a way of increasing tax efficiency, as compared with its onshore equivalents, is long gone. As the G20, OECD and indeed Wikileaks attempt to probe, expose and scrutinise International Finance Centres, they in turn are not only becoming more transparent and accessible but more importantly, are diversifying and expanding into new territories and markets. Just as the general mercantile and financial sectors look to China and the other BRICs countries for opportunities, so too are competitive IFCs.

Vanuatu is determinedly courting the Chinese, but it is not alone. Samoa has recently opened an embassy in Beijing and the likes of the BVI, Bermuda, Jersey and the Cayman Islands are a constant presence at events on the Chinese mainland demonstrating their competitive financial service packages. Similarly, Liberia has offices and agents across the world in order to offer a 24/7 business construction. And the Chinese and their fellow BRICs nations are biting.

This interest in new markets can be viewed generally and specifically. In general, it is natural that as China and the other BRICs continue to power the world economy they will project increasing numbers of HNWIs and UHNWIs who are looking to grow their wealth effectively in manners that their own territories cannot accommodate. China, with 115 billionaires comes second on the recently announced 2011 Forbes billionaires list. This impressive number has doubled within a year from 2010’s 64, demonstrating the rapid rise and power of the Chinese economy. Russia comes in a close third with 101. In fact, it is telling that of the world’s 214 new billionaires half were from the BRICs nations and 101 from the Asian Pacific.

of the world’s 214 new billionaires half were from the BRICs nations and 101 from the Asian Pacific

It is therefore no surprise that offshore legal specialists including Harneys, Walkers and

More specifically, IFCs are offering more in the way of financial services. Pertinent to the aforementioned HNWIs and UHNWIs, the Cook Islands, with more registered asset protection trusts than any other jurisdiction, is specifically targeting new markets/ individuals. As the Financial Supervisory Commission of the Cook Islands states, ‘The Cook Islands was the first jurisdiction to legislate specifically for asset protection

trusts and the laws offer the strongest form of asset protection of any offshore jurisdiction.’ Indeed, the Cook Islands government is firmly behind the growth of this sector and with targeted approaches there is no reason to doubt further successful growth. With HNWIs and UHNWIs bringing a continual stream of new business for traditional tax efficiency banking and asset protection, IFCs are also retrenching and growing their insurance sectors – in particular re-insurance and captive insurance. Recent natural disasters put the sector into sharp focus. Estimates from risk modelling agency AIR suggest that claims from the Japanese earthquake could reach up to US$35bn+, New Zealand’s earthquake could cost the industry over US$8bn and losses from the flooding in Australia could top US$6bn. The fact that most of the losses will be absorbed by global reinsurers will put enormous short term pressure and possibly long term opportunities on IFCs that have diversified into re-insurance. As the Association of Bermuda’s Insurers and Reinsurers states, “Today (Bermuda) is the home to more than 30 major international insurance and reinsurance firms. This market has grown up in the last 20 years in response to market needs for greater worldwide access to property and casualty insurance and reinsurance.” Bermuda is currently focussing a lot of energy into its reinsurance sector, and if recent events cause a long term increase in premiums, Bermuda’s industry, and similarly the Cayman Island’s captive insurance industry may benefit.

LIBERIAN CORPORATE REGISTRY

YOUR PARTNER IN THE PURSUIT OF CORPORATE FREEDOM

STABILITY

SECURITY

LONGEVITY

For more than half a century, Liberia has provided professional services to the world’s financial and investment communities. The Liberian Corporate Registry offers convenient, efficient and cost effective corporate structures to its clients worldwide. The Registry’s premier service is achieved through the stability of Liberia’s Corporate Program, as well as its commitment to quality service with continuous investments in advanced technology and experienced industry professionals. Liberian corporations are at the core of private and public investments in all major financial sectors resulting in a significant percentage of global business activity being conducted through Liberian entities.

60+ YEAR HISTORY OF QUALITY SERVICE • Commercially tested legal system • Accepted by all private and commercial financial institutions • 24/7 prompt customer support through a world-wide network of full-service offices • eCorp© - the world’s premier electronic corporate registry • Same day incorporation and document issuance - free apostilles and acknowledgements • Committed to protecting confidentiality • No annual reports or audits • Statutorily exempt from Liberian income and withholding taxes • Exclusive registered agent • Dual language filings • OECD white-listed Liberia is committed to providing prompt, efficient and quality service to meet the specific business needs of our clients. The Registry offers a variety of corporate services including the following:

CORPORATION

One of the oldest and most popular types of entity for setting up a commercial enterprise. A corporation is a distinct legal entity which is separate from the individuals who own it. The corporation assumes liability for all debts undertaken on its behalf and limits the shareholder’s personal liability exposure to the sum of their investment. Liberian

INNOVATION

Corporations are easy to form and administer and require no annual filing.

LIMITED LIABILITY COMPANY (LLC) A hybrid entity designed to provide the limited liability features of a corporation and the operational flexibility and efficiencies of a partnership. An LLC can be structured so that income generated by the LLC does not attach to the entity itself but flows directly through to its owners.

LIMITED PARTNERSHIP An attractive form of entity for investors who seek limited liability and do not want to be involved in the daily operations of the business, but participate in profits generated by the entity. Limited Partnerships are often formed by business owners involved in real estate, manufacturing and other business ventures.

PRIVATE FOUNDATION This is a useful vehicle for individuals seeking to preserve the wealthgenerating activities of a family, while making the income available to the beneficiaries in accordance with the donor’s wishes. The Private Foundation acts as a separate legal entity for assets transferred to it, usually in the form of a gift by a donor, and are designed to provide named beneficiaries, which might include the donor, with an income from the assets.

ADDITIONAL CORPORATE SERVICES: • Voluntary filings • Re-domiciliation • Restructuring Options: Merger and Consolidation • Conversion • Foreign Maritime Entity (FME) For additional information regarding the Liberian Corporate Registry’s business entities and corporate services, please contact the Liberian Registry or visit our website.

VIRGINIA, USA I HAMBURG I HONG KONG I LONDON I MONROVIA I NEW YORK I PIRAEUS I TOKYO I ZURICH info@liscr.com www.LiberianCorporations.com

Comment

Seek and Ye Shall Find: Swiss Banks and the Search for Dictators’ Assets

Davos, Switzerland

by James Nason, Head of International Communications, Swiss Bankers Association The pattern is well known: an authoritarian ruler, often long tolerated and courted by the West, falls from power and gets re-labelled as a ‘plundering dictator’. The race starts to find and freeze his assets and his country’s new leaders usually lodge requests for judicial assistance with a view to restituting any embezzled funds found abroad. Eyes invariably turn to Switzerland – long

Photo by swiss-image.ch/Andy Mettler

the world’s leader in international private banking - and the Swiss usually find something. Names such as Mobutu, Duvalier, Marcos, Abacha and, more recently, Ben Ali, Mubarak and Gaddafi become linked with plundered assets squirreled away at Swiss banks. Joe Public, taking his cue from James Bond films and tendentious media reports, remains convinced that any tin-pot dictator can turn up at a Swiss bank with crates of illicitly-obtained funds, politely raise his hat and open an account with no questions asked.

In reality, things work differently. Switzerland has long had a comprehensive range of legal instruments and measures in place for fending off assets of criminal origin and for identifying, freezing and returning them in the event that they should nonetheless find their way into its banks. Furthermore, Swiss banking secrecy has never been absolute – the rights to privacy can be suspended when a criminal investigation is underway – and it certainly does not impede existing protective and preventive measures in any way.

Comment

On the shop floor, Swiss banks must adhere to strict regulations when opening accounts and they are required to report wellfounded suspicions of money laundering and immediately freeze the relevant assets. In addition, special measures kick in if they decide to take on a client identified as a ‘politically-exposed person’ or ‘PEP’. So how come the Swiss are so expert at sniffing out a dictator’s plundered assets, and why do such assets slip into Swiss banks in the first place?

money today is blips on a computer screen and criminal money is not colour-coded The answer to the first question – and it’s a factor often overlooked by the media and commentators - is that Switzerland’s strict ‘know-your-customer’ rules force its banks to hold better quality information about their clients compared with banks in other countries. Swiss banks are required not only to verify the identity of the account holder but also to establish the identity of the beneficial owner of the assets. And the beneficial owner cannot be some construction in a far-flung Small IFC – the banks must get the name of a natural person. Furthermore, they must record details of all those holding power of attorney over the assets and also of any clients authorised to sign on behalf of companies. And all this information must be supported with documentation. The type of anonymity offered to beneficial owners by such vehicles as, for example, a UK trust or a Delaware shell company would be illegal under Swiss banking law. So once Swiss banks are given names to search for they can set their computers whirring to look for any matches. At the time of writing, for example, they are busy entering the name ‘Gaddafi’. And also Gadhafi, Ghedaffi, Kadafi, Kadhafi and Qadhafi. One interesting result of this is that funds of criminal origin can often be identified at banks in other countries with weak ‘knowyour-customer’ rules simply because some of the transfers involved a Swiss bank which, thanks to the information it held about people connected with the assets, could supply a vital link in the paper trail. The case of the late Nigerian dictator Sani Abacha is a classic example. The official Swiss report into the case revealed that a substantial proportion of Abacha’s plundered funds had first been laundered by banks in the US and UK before these banks transferred the money to Switzerland – not

in Abacha’s own name, of course. In March 2001, following the Swiss investigation, Britain’s Financial Services Authority sheepishly issued its own report which showed that between 1996 and 2000, a number of British banks were found to have ‘significant money laundering control weaknesses’ and were linked to some USD 1.3 billion of Abacha’s illicit assets. Nigeria’s ambassador to Switzerland, Mr. Ogbe Obande, told Swiss radio at the time: “I’m happy to say without equivocation that so far Switzerland has given the best cooperation to Nigeria in its quest to recover the looted property stashed in banks across Europe and the Americas.” Ten years later, Switzerland remains the only country in the world to have returned Abacha funds to Nigeria. But how do dictators’ illicit assets get into Swiss banks in the first place? First of all, money today is blips on a computer screen and criminal money is not colour-coded. It does not glow bright yellow. Secondly, identifying PEPs is only part of the story. Being a PEP does not automatically mean you are a criminal, but it does mean you pose a higher legal and reputational risk for the bank. However, there is no universally-agreed definition of a PEP and neither is there any official international list of them. Furthermore, no plundering PEP opens a bank account in his own name. In fact they go to great lengths to disguise their beneficial ownership of assets. Very sophisticated databases exist listing heads of state, ministers and other important public officials, but these databases have their limits. While they may include the names of the PEP’s spouse, children and close relatives, they probably will not list his business cronies, lawyers, drivers, bodyguards, mistresses and favourite nurse. And such databases are useless unless kept up to date.

the criminal abuse of Switzerland’s banking system by, amongst others, Peru’s Vladimiro Montesinos and Taiwan’s former president, Chen Shui-bian, was detected and reported. Taiwan’s ‘China Post’ made the point in an August 2008 editorial: “If it had not been for the vigilance of banks based in Switzerland, we may never have learned of the dirty dealings of our former president. In the end, the self-policing carried out by Swiss financial institutions is what brought the consequences back to President Chen, rather than any effort at law enforcement in our own country.”

no plundering PEP opens a bank account in his own name Some countries, however, are quite choosy about the information they want from Switzerland. Britain, for example, had no qualms when accepting confidential client data stolen from HSBC in Geneva. On the other hand it was not so keen to receive information throwing light on whether Swiss banks had been used by BAe Systems to launder bribes to individuals in Saudi Arabia to secure a multi-billion pound defence contract. Seek and ye shall find – if you know what to look for and have the will to search.

Swiss banking secrecy has never been absolute A bank cannot drop its guard even with a PEP from a supposedly ‘safe’ country. The Swiss bank whose Geneva airport branch had US National Security Council member Colonel Oliver North as a client in the 1980s when he was secretly funding anticommunist rebels in Nicaragua from the proceeds of illegal arms sales to Iran naïvely said it never imagined a high-ranking US government official would be involved in money laundering. When a Swiss bank does break through a corrupt PEP’s camouflage and identifies illicit assets one would think it would be praised rather than criticised. It was only thanks to the vigilance of Swiss banks that

James Nason, a former current affairs producer with the BBC World Service in London, has been Head of International Communications at the Swiss Bankers Association since 1999. This is not an official position paper of the Swiss Bankers Association.

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Advertorial

The Labuan Trading Company, your ‘Treasured Gateway’ to ‘Future Proofing’ and Substance Creation By Mike Grover, Tax Specialist, Labuan IBFC Inc. Sdn Bhd - www.LabuanIBFC.my No businessman relishes the disruption caused by a tax audit. And yet, with the new mechanisms in place to exchange tax information and tax collectors now working together to aggressively challenge international tax structures, the risk of audit is increasing. Sophisticated tax planning works on the assumption that tax collectors can pierce the corporate veil where hitherto secrecy rules may have thwarted them. This approach to ‘tax planning’ which relies solely on secrecy is flawed and will eventually fail. Consequently, the concept of ‘future proofing ’is fast finding favour. In the context of international tax planning, future proofing anticipates the interest areas of tax collectors and with this knowledge attempts to create a tax structure which is sufficiently robust to withstand future enquiry, for instance, a probe by tax collectors into business purpose and operational substance. As a general rule international tax structures lacking business purpose may be struck down. Operational substance, on the other hand is essentially about having the personnel and infrastructure in the right place, at the right time, doing the right things. Getting this ‘mix’ wrong can have unexpected and possibly unpleasant tax consequences. Trading companies located in low tax locations attract tax collectors’ interest because the multiple activities a trading company undertakes, the cause and effect on profits such activities have and the possibility that the activities may be conducted in a number of locations gives rise to the possibility of ‘tax mischief”. Businesses have to be mindful that as tax information begins to flow freely and

efficiently between tax authorities, future proofing of trading companies in low tax locations is paramount. In this environment the Labuan Trading Company’s “star” is rising! As with many other possible locations, Labuan is highly suitable as a tax efficient ‘profit centre’ for trading companies. But Labuan is distinguished by a number of interesting and possibly unique features; its eight ‘Tax Treasures’ that should help trading companies navigate the new tax landscape.

the concept of ‘future proofing’ is fast finding favour Tax Treasure 1 A trading company located a long distance from its market attracts the interest of tax collectors. If for instance the targeted market is in the Asia-Pacific region, a Labuan Trading company, being centrally located in the same region, makes practical sense and indicates business purpose. Tax Treasure 2 Labuan is part of Malaysia, an established trading nation ranked 24th worldwide and 9th within the Asia-Pacific region. As a result the infrastructure and services required to support the activities of a trading company, such as banking and insurance, are extremely well developed and available at competitive rates. Labuan is thus a credible trading company location with real functionality, both of which are indicators of business purpose. Tax Treasure 3 Malaysia has a large network of ‘comprehensive’ tax treaties – those that create a reasonable balance between exchange of tax information and tax benefits - designed specifically to overcome tax ‘friction’ points that might impede its international trade flows.

On the one hand, a company that trades with another country is not generally subject to tax in the country it is trading with. On the other, a company that trades within a country may find itself taxed there. Typically a tax treaty has rules in place concerning ‘safe harbour‘ activities in that other country, for instance, in relation to the holding of stock or the activities of employees or agents, without triggering a tax liability. Without a specific tax treaty, there are no specific ‘safe harbour’ provisions and thus the final word on what constitutes trading within a country tends to lie with local tax collectors. This can result in some tough issues being faced, including the appropriate allocation of trading profits to their jurisdiction. In contrast, a Labuan trading company may access Malaysia’s tax treaties and by doing so obtain a degree of protection not available to trading companies located in, for instance, the Caribbean, which typically have exchange of information type tax treaties, without the tax benefits and ‘safe harbour’ provisions. Tax Treasure 4 The conventional rules to determine the ‘source’ of trading profits’ are generally the bane of a trading company in ‘territorial’ type taxing systems. Such rules, developed over time according to tax case law and the capricious practices of the tax collector create frequent disputes on whether the trading activities are ‘onshore ‘ and taxable, or ‘offshore’ and non-taxable. Malaysia, Singapore and Hong Kong are all possible trading company locations in the Asia-Pacific and each employ a form of the conventional rules, but in a refreshing departure Labuan employs a very modern solution to this thorny issue – its tax provisions are neatly inscribed in an Act.

The Labuan Business Activity Tax Act 1990 encapsulates the jurisdiction’s tax structure and provides a yearly option for all Labuan registered trading companies to either incur a flat tax rate of RM20,000 per annum, or 3 percent of net profit. To enjoy this tax structure a Labuan trading company merely has to demonstrate that it deals with non-Malaysians in a currency other than Malaysian Ringgit and does so in, from, or through Labuan. This easily understood and simple to follow rule ensures a high level of certainty concerning the ability of a Labuan Trading Company to demonstrate its trading profits are generated within Labuan and hence will be efficiently taxed. Tax Treasure 5 A Labuan Trading Company may, if it wishes, establish tax residency in Malaysia by demonstrating that its ‘highest level of control’ is exercised in Malaysia. This is desirable since a Labuan Trading Company can then assert that it is taxable according to Malaysian tax law. The Malaysian Income Tax Act 1967 dictates a headline rate of 25% on domestically sourced income but does not tax foreign sourced income generated by a Malaysian company. Clearly another ‘cherry on the pie’ is the fact that a Malaysian company has undeniable access to all 75 Malaysian tax treaties. Importantly, tax treaties include ‘tie-breaker’ clauses to resolve disputes between treaty partners relating to the tax residency of a company. A Labuan Trading Company can achieve a ‘solid’ Malaysian tax residency by satisfying the ‘tie-breaker’ conditions of Malaysian tax treaties. In doing so, a Labuan Trading Company may avoid the ‘pitfall’ of being a dual-resident company and potentially taxable in two jurisdictions. Tax Treasure 6 The need for operational substance creates an enormous challenge on the location of a trading company’s functions. Fortunately, a Labuan Trading Company’s level of operational substance has no impact on its Labuan tax position. The same amount of tax is payable whether there is a ‘light’ presence in Labuan or a ‘substantial’ one.

Placing the contentious activities in Labuan causes no adverse Labuan tax consequences and by corollary, helps to minimise international tax risks. Tax Treasure 7 Labuan’s tax efficient framework creates a level playing field for transactions no matter their nature. Transactions with uncertain tax outcomes may have to be reported for accounting purposes and tax collectors are known to leverage off the inherent level of comfort Company Directors have with the tax positions taken to encourage disclosure. The source of trading income, whether profit is revenue (and taxable) or capital (and non taxable) and Islamic funding arrangements are examples of tax uncertain areas. There is no downside of conducting tax uncertain transactions via a Labuan Trading Company as the low tax system results in a minimal tax exposure whatever the outcome and therefore plays a useful tax risk management role.

Labuan is distinguished by…its eight ‘Tax Treasures’ that should help trading companies navigate the new tax landscape Tax Treasure 8 Labuan Trusts and Foundations have an unlimited ‘life’ and when employed as the shareholder of a Labuan Trading Company may navigate a way through transfer taxes and/or capital gains tax on the disposal and acquisition of shares between family members and additionally, avoid inheritance and wealth taxes. One further interesting quality worth exploring is whether the holding of shares in the Labuan Trading Company by a Labuan Foundation or Trust might legitimately ‘sidestep’ rules which seek to tax residents on the profits of foreign companies in which they hold controlling interests. All for One and One for All Labuan’s unique position in international tax planning is even more entrenched as

every single ‘treasure’ described above applies, with appropriate modifications; to ALL Labuan ‘business wrappers’ including the Labuan chargeable company, investment holding companies, banks, insurance entities, protected cell companies, limited partnerships, trusts and foundations. Across the board, these Labuan ‘wrappers’ are able to enjoy certainty in its tax liability, with the comfort of knowing that even the most stringent substance requirements can be met cost effectively in Labuan. Over the last couple of years, the Labuan Financial Services Authority has embraced the idea that the Labuan framework; specifically it’s legal and tax structure, should not be limited to the confines of the island. Indeed, the thinking is so long as the Labuan framework is utilized there should be no limitation of the actual physical location of the entity. Welcome to Abstract Labuan! The ‘birth’ of abstract Labuan is personified with co location, which provides for Labuan entities to have a presence onshore in Kuala Lumpur or any other location within Malaysia. Clearly, Labuan is undergoing a paradigm shift. A co located Labuan Holding company in Kuala Lumpur brings with it an array of practical benefits, for example Kuala Lumpur’s location within 6 hours flight time of all the largest markets in Asia is ideal for directors of a European headquartered Multinational Company seeking a holding company location in Asia. In addition, consider Malaysia’s superb quality of life, its range of service providers, and its ever growing human resource pool, all of which are also big pull factors for holding companies to establish a co located Labuan company. The icing on the cake though, has to be Malaysia’s cost efficiency, at every turn and in every aspect, Malaysia provides better value for money than any other Asian jurisdiction instinctively considered. Clearly, with the enhancements that Labuan IBFC is undergoing, there is no doubt it is fast becoming Asia’s jurisdiction of choice in the challenging world of cross border taxation.

Thus, businesses enjoy the flexibility of ‘housing’ in Labuan those activities causing contention in their home location and/or the targeted market. In this regard, Labuan is clearly a sophisticated financial centre that ‘enables’ substance to be created in real terms. That is, a Labuan Trading Company has the ability to employ local staff, maintain a local office, and have access to local support services at a relatively low cost.

Asia-Pacific

Labuan Since 1990 Labuan, situated off NW Borneo has been Malaysia’s dedicated international financial services centre. In that time it has become something of a global hub for Islamic finance with the Labuan Islamic Financial Services and Securities Act 2010 (LIFSSA) constituting groundbreaking specific legislation relating to the sector. Investors also have access to Labuan International Business and Financial Centre (IBFC’s) own Shariah Advisory Council for endorsement and advice on the likes of Sukuk issuance and listing, takaful and re-takaful, syariahcompliant captive structures and Islamic trusts. LIFSSA forms part of a raft of legislation and regulations that became effective in February 2010. These saw Labuan successfully white listed and heralded a host of new products across a range of sectors. These developments have further enhanced the jurisdiction’s reputation as a costeffective, flexible and compliant location for foundations, limited liability partnerships, captive insurance, mutual funds, shipping operations, trusts and estate management. The Labuan Business Activity Tax Act 1990 (LBATA) affords trading companies the option to pay 3% of audited profits, or alternatively a flat rate of MYR20,000 p.a. while non-trading companies pay no tax at all. Perhaps the most significant recent legislative development has been the amendment to it to introduce the option of receiving an advance tax ruling on any transaction or arrangement involving a Labuan entity, thus allowing for precision planning.

Other ground-breaking legislation has included the Labuan Financial Services and Securities Act (LFSSA). This has introduced Limited Liability Partnerships, Protected Cell Companies, the Labuan Private Trust Company and Labuan Managed Trust Company, while it has also effected the deregulation and redefinition of mutual and private funds. Its new Foundations Act sees Labuan enter an elite club of jurisdictions offering both common law trusts as well as civil law foundations, while the Limited Partnerships and Limited Liability Partnerships Act allows for partnerships of those named types as well as Recognised Limited Liability Partnerships.

Extensive updating to the Labuan Trusts Act has ushered in a new trusts era for the jurisdiction Malaysia has been proactive in complying with international standards in the updating of its Labuan Financial Services Authority Act 1996 such that the FSA has the capacity to gather and share information with other enforcement agencies where there is a compelling argument for wrongdoing. That said, Labuan very much subscribes to the principles of confidentiality, and ‘fishing’ expeditions’ are not tolerated. Other legislative amendments that came to pass in February 2010 included those to the

cornerstone Labuan Companies Act 1990 which governs all Labuan Companies. Key of these involved the permitting of dealings between Malaysians and Labuan companies, and Labuan companies being able to take a controlling stake in domestic Malaysian companies. Extensive updating to the Labuan Trusts Act 1996 has ushered in a new Trusts era for the jurisdiction. This not only allows for trusts to be ‘in perpetuity’, but where the Labuan Special Trust is concerned, shares may be held in a Labuan Holding Company which can itself own assets. This creates a clear distinction between the trustees’ custodian role and the directors’ fiduciary role in investing, where the trustee holds shares ‘on trust to retain,’ and is not responsible for handling the management of the assets, so reducing their exposure to liability. Labuan’s location at the crossroads of Asia affords it natural status as an investment conduit into China, India and South Korea, not to mention Malaysia itself. Of particular note is its assumption of the role of a treaty intermediary between China and Taiwan. Best Re’s and Nomura’s recent consolidation and expansion of their respective Labuan operations only serves to draw further attention to Labuan’s many merits, not least its status as having the most extensive DTA network in the world leading Asia Pacific region. All things considered, the jurisdiction is well placed to take advantage of renewed investment levels as the global economic recovery continues to take hold.

A leading international finance center for nearly thirty years, the Cook Islands seeks to further modernize its services to enable continued standing as a prime choice for sophisticated international services for the most discerning wealthy clients and corporate entities. Located in the South Pacific northeast of New Zealand, east of Tahiti, and south of Hawaii, the country comprised of fifteen islands and 13,000 people boasts an ideal location and a global client reach for its legal and financial services. Part of the British Commonwealth, the Cook Islands has a stable Parliamentary system of democratic government. Popular with clients of countries with a Common Law legal system, the jurisdiction also attracts an increasing number of clients from Civil Law jurisdictions due to the country’s strong legislation related to international financial services. Close ties with New Zealand allow the Cook Islands access to the New Zealand judiciary from which it draws its judges in the High Court. This ensures a sophisticated and fair justice system providing confidence to the corporate entities and individuals who use the international financial services of the jurisdiction. The first country to create legislation allowing for modern asset protection trusts, the Cook Islands is known for its innovative services and ability to respond quickly to changes in and demands from the global market. With the recent changes in the global banking environment, the Cook Islands finds itself ranked very highly for its

regulations and oversight of the financial industry. With a supportive government and proactive industry, the jurisdiction has been able to maintain its sophisticated legal and financial services at competitive prices and, most importantly, with an outstanding level of service. 2011-12 will see the advent of new and improved services to the jurisdiction: • Managed Trustee Companies • Foundations • Qualified Pension Scheme Administration (QROPS/QNUPS) • Mutual Funds • Segregated Cell Companies • Amended International Companies Act • Amended International Trusts Act • Amended Insurance Act Known best for its trust legislation, the Cook Islands also offers corporate entity formation through International Companies, Limited Liability Companies, and International Partnerships. Legislation also allows for various insurance services and the jurisdiction maintains access to premium banking services through relationships with international banks. Trust companies also provide a wide array of

administrative services to allow centralized and efficient operation of client structures. The jurisdiction also has a strong Maritime Registry with representatives in countries all over the world, including China. As the client composition of the jurisdiction continues to diversify, the integration of multinational wealth and corporate services in an international best practices framework strengthens the quality of industry work. Asset protection trusts were originally a focus of the US market. As wealth levels increase in other countries, such as China, the level of regulatory oversight increases and many countries are adopting US-style legislation to cope with the newly acquired wealth of its citizens. This has resulted in increased demand for wealth protection and preservation offered through Cook Islands entities. Cook Islands advisors work closely with clients’ existing advisors to create a structure that meets the regulations of the home country while at the same time providing clients with the means to grow, protect, and enjoy the results of their successes for many generations to come. Conveniently located between the world’s two superpowers, the Cook Islands provides a full range of corporate, trust, and financial planning services in a globally advantageous business environment. Whether you represent large corporations, closely held businesses, family offices, or individuals, you will find everything you need in the Cook Islands. Stability. Innovation. Service.

photo - CC by Benedict Adam

Asia-Pacific

Cook Islands photo - CC by Hector Garcia

The Cook Islands continues to represent a sound investment prospect with its cost-competitiveness, pedigree stretching back to 1981 and robust regulatory environment which includes strong antimoney laundering and counter terrorism financing measures. It has also nurtured over the years a highly skilled specialised workforce offering world leading expertise in certain areas and a commitment to international business best practice. Moreover, the jurisdiction offers excellent tax mitigation potential notwithstanding that we are now in an era of greater transparency and compliance. The Cook Islands possesses the ideal marriage of a firm yet flexible legal and regulatory environment, as embodied in the activities of the FSC, with the government having earmarked international financial services as an essential key to the jurisdiction’s future prosperity. This in turn has fostered a strong public-private collective effort to further this end. For example, the Cook Islands Financial Services Development Authority (FSDA) works closely with the jurisdiction’s trust companies to both promote and grow the industry abroad, and to ensure that legislation reflects the prevailing winds of the day. The Cook Islands’ location affords it natural status as an investment conduit into and out of the Asia-Pacific rim including the powerhouse that is China, and so it is well placed to take advantage of the exponential increase of HNWIs and UHNWIs coming out of the region, as well as to maintain and grow its share of more traditional markets such as the US.

The banking and insurance sectors are strong, and are regulated respectively by the Banking Act 2003 and Insurance Act 2008. As elsewhere, business entities take a number of forms to reflect varying requirements. These include the popular International Company and Limited Liability Partnership (LLC).

It is the Cook Islands’ global pre-eminence in the field of asset protection trusts that is perhaps most striking It is the Cook Islands’ global pre-eminence in the field of asset protection trusts that is perhaps most striking, however. This is linked to pioneering and much copied legislation in the form of the International Trusts Act 1984 (amended 1989) that affords the strongest form of asset protection from foreign courts anywhere in the world.

the claimant to bring the suit within two years, thereby providing further reassurance and an added layer of protection. To ensure such trusts do not encourage criminal activity the Cook Islands has regulations in place that require trust companies to conduct stringent due diligence checks. The Cook Islands is a mature jurisdiction with IFC traditions going back to the early 1980s, thereby reassuring any potential investors. It can also point to an advanced and extensive trust infrastructure, as well as to genuine proactive support from the government to promote international financial services. It’s small wonder then that the Cook Islands’ status as an IFC goes from strength to strength.

By transferring assets to another individual or company who then acts as a trustee and holds the assets, it affords those with large liquid assets added protection in the event of litigation. It is also catered towards those with business or family interests in multiple jurisdictions looking for an opportunity to centralise assets. Any party looking to access such assets must first exhaust all options in foreign courts before bringing the suit in the Cook Islands. Meanwhile, a statute of limitations requires photo - CC by Robert Engberg

Asia-Pacific

Samoa

Photo CC by Neil Spicy

Samoa constitutes a reliable, conservative yet flexible option in uncertain times which has seen it described as the model Pacific state by the Asian Development Bank. It exhibits particular strength in the international trusts, insurance and banking sectors, but the cornerstone of the Samoan product offering is arguably the International Company (the equivalent of IBCs found elsewhere). This can be set up within 24 hours and has a fixed cost of just US$300, regardless of share capital. It requires only one director who need not be resident, but may be corporate. The International Companies Act 1987 to which it relates also allows for companies limited by shares, by guarantee or hybrids, and also limited life companies. A highly developed trusts infrastructure has developed over the last couple of decades in Samoa bringing with it a full range of fiduciary services encompassing trust and corporate administration, investment management, custodian and secretarial services. Trusts are governed by the International Trusts Act 1987.

least two individual directors and that they employ at least one person. Licences are granted subject to stringent international best banking practice standards.

Samoa’s public and private sector are ‘singing from the same hymn sheet’ in their support of the international financial services sector In the matter of funds, the International Mutual Funds Act 2008 provides for three types of mutual funds; public, private and professional. They can be established as an international company, a partnership, a unit trust or other similar body formed or organised under the relevant legislation.

On the insurance front the International Insurance Act 1988 provides for four categories of licence; general, long term, reinsurance and captive.

The Segregated Fund International Companies Act 2000 is inspired by Guernsey protected cell legislation. Considered as a legal entity for legal purposes it can create one or more ‘segregated’ funds, the assets and liabilities of which are separated from each other.

The banking sector is governed by the International Banking Act 2005. This requires that all holders of international banking licences have an office in Samoa, at

Samoa sits on a number of peer regulatory groups and is involved with several other important international bodies, while it signed the requisite twelve TIEAs in just

8 months to move onto the OECD’s white list in late 2009. The commitment to the highest international standards that this testifies to is further evidenced in the Money Laundering Prevention Act 2007 and Mutual Assistance in Criminal Matters Act 2007. Samoa’s public and private sector are ‘singing from the same hymn sheet’ in their support of the international financial services sector, and this is one of the key reasons for the jurisdiction’s continued attractiveness to investors. The Samoa International Finance Authority (SIFA), the government body tasked with overseeing and growing the sector, works closely with the islands’ professional service providers in adopting international best business practice, and this is complemented by legislative developments that have seen the jurisdiction increasingly geared to the Chinese investor. With China, based like Samoa within the Asia Pacific region, an inexorable symbiotic relationship has developed, with a new Samoan embassy opened in the Chinese capital, Beijing in 2010 allowing for straightforward registration and notarisation of documents. Moreover, like some other jurisdictions Samoa also permits incorporation in Chinese, while being just east of the international dateline ensures that Samoa enjoys the status of being the last jurisdiction to close. This means that for many investors it is possible to incorporate yesterday.

Caribbean

The Whole Package Photo - CC by Peter J. Markham, Loretto, MN

The Cayman Islands recently topped the Banker Magazine’s 2010 worldwide list of specialised financial centres for the second year running. This UK Overseas Territory has continued to achieve such lofty heights in no small part thanks to the proactive support of the Government of the Cayman Islands and the Insurance Managers Association of Cayman (IMAC), as well as through having a highly regarded regulatory arm in the form of the Cayman Islands Monetary Authority (CIMA). This collective public-private effort has perhaps been most successfully manifested through the jurisdiction becoming synonymous with captive insurance, resulting in the ability to respond with economies of scale and an efficient skilled infrastructure to companies’ desires to control their own insurance and risk, and in so doing reduce expenditure and volatility in this field. Captive insurance is effectively a formal selfinsurance programme providing actuarial risk coverage and maximum profit retention with many hundreds of such companies domiciled in the Cayman Islands under the Revised 2008 Insurance Law. In the process the Cayman Islands has become the second largest captive insurance domicile worldwide and the leader for healthcare related business. It has excellent management expertise on hand through dedicated firms offering a one-stop-shop service encompassing feasibility studies through to regulatory reporting and liaison.

There are many forms of captive insurance company available but perhaps the most interesting are Segregated Portfolio Companies (SPCs) which offer small-tomedium-sized insurance companies a seat at the table. These do away with the need to meet the specified capital requirements individually since the assets and liabilities of the individual portfolios, or cells within the single legal entity are segregated from each other and from the general assets of the SPC. As such, insolvency affecting one cell will not afford access to the individual assets of the other protected cells.

the number of registered (hedge) funds is predicted to top 10,000 in 2011 - a trend bolstered by news that there will be no restrictions on accessing European investors Furthermore, the Cayman Islands has adopted a proactive position on the compliance front. This is evidenced by its growing volume of TIEAs and DTAs, its OECD white listing, lack of direct taxation, legislation such as the Insurance Law and Bank and Trusts Companies Law, stable political climate, advanced legal and regulatory infrastructure, skilled labour pool and strong associated financial services infrastructure.

The Cayman Islands can also point to noteworthy strengths in structured finance, where it serves a global institutional client base, catastrophe bond transactions and hedge funds, where the number of registered funds is predicted to top 10,000 in 2011. This upward trend has been bolstered by news that there will be no restrictions on accessing European investors, meaning that recent talk of an exodus of Cayman Islands domiciled funds to Europe is certainly premature. Other key elements of the Cayman offering include The Cayman Islands Stock Exchange which is one of the fastest growing in the world and provides a first class listing facility for mutual funds, as well as the likes of derivative warrants and Eurobonds. With a variety of available structures for the operation of funds and an investor friendly legal framework that allows for substantial leveraging of portfolios to a substantial extent, as well as unrestricted investing in any currency or instrument, it’s easy to see the attraction. In the trusts sector meanwhile, the Special Trusts (Alternative Regime) Law known as the ‘STAR Law’ provides superior planning flexibility for settlers and allows for person, purpose, or mixed trusts. The purpose trust is able to be charitable or non-charitable, so long as it is lawful and not contrary to public policy. It contains the requirement for at least one ‘enforcer’ of the trust. In yet another example of the Cayman Islands having carved out for itself a preeminent position, the Cayman Islands continued on p.30

The

Right Choice for Captive Insurance Management in the Cayman Islands

Kensington Management Group, Ltd. is one of the leading providers of innovative solutions within Cayman’s Captive Insurance Marketplace. Let us help you “take

control of your insurance destiny”.

For further information, please contact us at 345 946 2100 or visit www.kensingtonmanagement.ky

Caribbean

Shipping Registry (CISR), which enjoys ‘white list’ categorisation by the European Port State Control system and by the U.S. Coast Guard, has become a world leader in the registration of mega-yachts, which is somehow befitting for this blue-riband IFC. The Cayman Islands has weathered the storm of the economic downturn and maintains a no corporate, income, capital gains, payroll or property tax policy, while it has resolutely defended itself against negative PR assaults that have seen it frequently singled out - no doubt a victim of its own success. With a banking sector constituting some 280 banks with deposits and interbank bookings of c.US$1.8 trillion, and a trust sector understood to manage more than US$500 billion, it’s not hard to see why others would like a piece of the action. Yet the jurisdiction remains fully subscribed to the principle of confidentiality. It has a policy of non-disclosure of data, unless of course assistance is required via one of the numerous international cooperation avenues, believing that the robust legislation in place illustrates a statement of intent on its behalf. As such, it feels it has nothing to fear from recent threats to ‘out’ Cayman Island account holders, since with its numerous TIEAs and history of transparency, as evidenced by its OECD white list status, the jurisdiction has already shown its willingness to co-operate with the likes of the US government. Such information is therefore, in the words of

continued from p.28

Anthony Travers, former Chairman of Cayman Finance, the private-sector body representing the Cayman Islands financial services industry, “of historic interest only.”

The Cayman Islands... has resolutely defended itself against negative PR assaults that have seen it frequently singled out - no doubt a victim of its own success

security. It includes a 25-year renewable residency certificate with a right to work ‘offered to any person exercising substantial management or control over an approved company establishing a substantial business presence in the Islands.’ While quietening the critics this will have the added benefit of making the jurisdiction more investor friendly, and with further plans to attract Chinese investors the jurisdiction would appear to have its finger very much on the pulse. Cayman Premier, the Hon. McKeeva Bush explained it thus at a public meeting in November 2010; “We have to look at what is happening (in China) because that is where the wealth is being created.”

In fact, with TIEAs signed or pending with international heavyweights like the US, Japan, India and Spain there is an undeniable move towards rightful and complete legitimacy being bestowed in international legislative terms on the Cayman Islands. This should bring with it the welcome removal of its ‘tax haven’ misnomer. Yet there is an acknowledgement that a greater proportion of the financial services infrastructure supporting the activity must actually be based in the Cayman Islands so as to eliminate the perpetual over-zealous scrutiny and round of assaults from without that argue for the development of a ‘substantial presence’. Consequently, immigration reform is being implemented to provide financial services professionals with long-term residency

The Hon.McKeeva Bush, Premier of the Cayman Islands

Supplied by the Department of Commerce and Investment of the Cayman Islands Government International Financial Centres (IFCs) are becoming increasingly critical economic catalysts in today’s fast-paced, cross-border, open-market system. The Cayman Islands and other IFCs offer the most cost-efficient environment for international capital flow, which allows companies to raise financing and package financial risk more economically. Robust regulation and a modern legislative framework put the Cayman Islands ahead of many jurisdictions in the financial services sector. With the emergence of new international initiatives such as the Alternative Investment Funds Directive, EU Savings Directive II, The Statutory Audit Directive and the OECD Peer Review Process, the Cayman Islands Government recognises the increasing need for transparency and accountability across its major sectors. Continued engagement with international counterparts will enhance the Cayman Islands international cooperation regime and ensure that we remain a competitive and compliant jurisdiction. Since April 2010, the Cayman Islands Government has signed six Tax Information Exchange Agreements with G7, OECD and G20 countries and has completed negotiations with eight other countries.

Our vision for the future remains one where excellence and innovation continue to be the hallmarks of our commercial transactions

We will continue to build on our strengths, which include captive insurance, structured finance vehicles, investment funds and banking, as well as renowned professional expertise in these areas. A major piece of updated legislation last year was the Insurance Law (2010), which makes special provisions for establishing a legal framework for the formal introduction of reinsurance business. The passage of the Insurance Regulations is also slated for this year, as well as amendments to Companies Law (2010), which will ensure that the jurisdiction remains competitive in these areas. Our vision for the future remains one where excellence and innovation continue to be the hallmarks of our commercial transactions and certainly one where the strong partnership between public and private sectors continue to complement each other. In the ever-changing economic environment, it is crucial to be adaptive and competitive, and we are confident that our innovative ideas can be translated into actions that will ensure that we maintain our leading position at the forefront of global markets.

www.dci.gov.ky

There is Zero Taxation as the government does not impose personal or corporation income taxes and there are no taxes on profits and gains from investments. There are no property taxes or controls on foreign ownership of property either. Ask any of our funds, trusts, captive insurance companies or international banks why they chose to invest in the Cayman Islands and the response will be unanimous. They set up business in our jurisdiction because it offers many Competitive Advantages that make it an attractive place to do business.

Our Workforce is highly educated and we enjoy one of the Highest Standards of Living in the world. With Miami only one hour away by plane and eight major international airlines making more than 55 weekly flights into Cayman direct from the United States, Canada and England weâ&#x20AC;&#x2122;re Easily Accessible too.

The Department of Commerce and Investment provides valuable investment climate

Cayman offers a Supportive data and business opportunity information and guidance on regulatory procedures for setting up a business. Call us today. Weâ&#x20AC;&#x2122;re here to help you. Business Environment backed by a stable economic and political climate, the absence of exchange controls, modern infrastructure and modern communication systems that put us on par with the best in the world.

1st Floor, Cayman Corporate Centre | P.O. Box 10087 | Grand Cayman, Ky1-1001, Cayman Islands | t: (345) 945-0943 f: (345) 945-0941 Visit us online at: www.dci.gov.ky or email: investment@dci.gov.ky

Supplied by Kensington Management Group, Ltd

Why the Cayman Islands should be your Captive Insurance Domicile of Choice When companies first look into captives, it is normally due to a negative experience, e.g. reductions in coverage and/or premium increases in the traditional market. As a result, there is an overriding desire to “take control of their insurance destiny” and to insulate themselves from the fluctuating cycles of the market. Whether one establishes one’s own vehicle, or joins an existing one, a captive offers many benefits, and when it comes to choosing a domicile for your captive vehicle, look no further than the Cayman Islands. While some uninformed politicians, journalists and screenwriters still “tag” the Cayman Islands as a “haven for tax evaders”, or a “contributor to the global economic meltdown”, nothing could be further from reality. Just consider the following: • Cayman’s all crimes anti-money laundering legislation has been evaluated by the IMF as being one of the very best in the world. • Cayman has full income tax transparency with the USA, proactive tax reporting with 27 members of the European Union, and full Tax Information Exchange Agreements

with 21 countries around the world, well exceeding the number required by the OECD. • As a member of the International Organization of Securities Commissions (IOSCO), Cayman has full “regulatorto-regulator” disclosure with all IOSCO regulators.

the Cayman Islands Monetary Authority provides a very proactive and clientfocused regulatory environment

photo - CC by Luke Duncan

The BFSB Arbitration Committee working closely with the Office of the Attorney General and the Bahamas Maritime Authority to develop a comprehensive and modern Arbitration Act 2009 and Arbitration (Foreign Arbitration Awards) Act 2009 which both became law in 2010.

The Bahamas can justifiably lay claim to being the original IFC and remains very much at the forefront of international financial services to this day. The jurisdiction’s willingness to embrace the changing face of international finance has recently been manifested in a number of proactive legislative developments such as the Bahamas Insurance Act and Investment Funds (Amendment) Act. During the course of 2010 the Bahamas Financial Services Board worked to reform several pieces of industry and businessrelevant legislation. Some highlights included;

Contact details: 345 814 7000, via email at mgibbs@kensington.ky or at www.kensingtonmanagement.ky.

Additionally, the Cayman Islands Monetary Authority provides a very proactive and client-focused regulatory environment, thereby widening investment opportunities and the facilitation of legitimate international movement of funds.

Bahamas Legislative and Regulatory Developments

photo - CC by John Worth

For more information on why Cayman is the right domicile to meet your captive insurance needs, please contact Mike Gibbs, the President of Kensington Management Group, Ltd. Kensington is the largest independent captive manager in the Cayman Islands (based on premium), with a diversified portfolio of single parent and group captive clients, including 5 of the top ten alternative risk facilities globally (as ranked by Business Insurance Magazine).

The Funds Working Group working diligently to affect recommended changes to the funds regime and the Investment Funds (Amendment) Act, 2010 which was enacted to redefine and clarify certain words and phrases and for connected purposes. The act clarified the definition of Non-BahamasBased Funds, Recognised Foreign Funds and Professional Funds; it also amended the audit filing deadlines. The Central Bank issuing its “Guidance Notice on the Waiver of the Minimum Number of Shareholders Requirement for Applicants for a Restricted Bank and/or Trust Company Licence”. The review and adjustment of the regime was based on a risk based analysis of this specific class of licensee. Other new key pieces of legislation include;

External Insurance Act, 2009/External Insurance Regulations, 2010: To provide The Bahamas with state of the art legal and administrative machinery with which to compete in the international insurance market; for example, it establishes a clear and efficient structure whereby a captive insurance (or reinsurance) company covering risks outside of The Bahamas, may be established in the jurisdiction. IBC (Amendment) Act, 2010: To clarify striking off and restoration powers of the Registrar General and the payment of related fines. Business Licence Act, 2010: To simplify the legal and regulatory requirements to operate a business and to facilitate a ‘one stop shop’ for business licence applications. (Repeals and replaces previous Business Licence Act) International Tax Cooperation Act, 2010: To effect the implementation of the newly signed TIEAs and to amend The Bahamas and United States TIEA Act and Regulations Probate and Administration of Estates Act, 2010: To consolidate the law on the procedures for obtaining a grant of representation in respect of the estate of a deceased person and for the administration of a deceased person’s property.

AIFMD Approval Boosts Fund Industry in Cayman Islands, BVI and Jersey

by The Walkers Group European Parliament Vote Removes Uncertainty for Non-EU Fund Managers Walkers welcomes the confirmation of the final terms of the Alternative Investment Fund Managers Directive (‘The Directive’) and the removal of uncertainty for nonEuropean Union (EU) fund managers marketing non-EU funds in the European Union, as a very positive development for the investment funds industry in the Cayman Islands, British Virgin Islands (BVI) and Jersey. The final terms of the Directive, which were approved by the European Parliament on November 11, 2010, allow for the distribution of non-EU funds to professional investors in the EU through both a private-placement regime and a passport system. The private-placement regime, which has been the traditional method of distribution in the EU for nonEU funds, will remain in place at least until 2018. It is proposed that this regime will transition in 2015 to allow full access to an EU passport marketing regime to non-EU funds on the same terms as EU funds. EU funds will become eligible for a passport in 2013. “The confirmation that non-EU fund managers will be able to continue marketing Cayman Islands, BVI and Jersey funds to professional European investors is excellent news for the industry,” said Rod Palmer, partner and Global Head of Investment Funds with Walkers. The private-placement marketing regime introduces certain conditions for non-EU funds to be distributed in the EU. Those

conditions include the need for supervisory co-operation agreements between the regulator of the EU member state in which a fund is being marketed and the regulator of both the fund manager and the fund. In addition, the country in which both the fund and the fund manager are established cannot be on the Financial Action Task Force (FATF) blacklist. Funds also need to comply with certain basic transparency and reporting requirements.

“The confirmation that non-EU fund managers will be able to continue marketing Cayman Islands, BVI and Jersey funds to professional European investors is excellent news for the industry” - Rod Palmer, partner and Global Head of Investment Funds with Walkers

“The Cayman Islands, BVI and Jersey are very highly rated by the FATF in respect to their anti-money laundering regimes, which means they will not have to make any changes in their funds’ operations to comply with the Directive,” said Richard May, partner with Walkers based in the British Virgin Islands. Access to the EU marketing passport will be subject to similar conditions to the private placement regime. In addition to satisfying those conditions, the non-EU fund manager will require to be authorised

in an EU member state (its member state of reference). OECD-compliant tax information exchange agreements will need to be in place between the fund domicile and both the fund manager’s EU member state of reference and each other member state in which the fund interests are proposed to be marketed. “In our recent discussions on the Directive, the Cayman Islands Monetary Authority confirmed their commitment to entering into co-operation agreements with EU regulators as a matter of priority,” said Jennifer Thomson, partner with Walkers in the Cayman Islands. “This follows Cayman’s long history of working with regulators worldwide and reflects Cayman’s own strong regulatory framework. We know Jersey and BVI regulators share this commitment as well.” Each of the Cayman Islands, BVI and Jersey appears on the OECD’s ‘White List’ of nations which have substantially implemented the internationally agreed standards on tax and information exchange, and they continue to enter into new tax information exchange agreements (TIEAs) with EU member states, among others. Currently the Cayman Islands, BVI and Jersey have collectively entered into nearly 60 TIEAs, with more pending. “A further positive outcome for the industry is that the Directive does not apply to passive marketing or reverse solicitation of non-EU funds,” added Jonathan Heaney, Head of the Investment Funds Group in Walkers’ Jersey office. “This means that European investors may contact non-EU fund managers and invest in Cayman, BVI or Jersey funds even if the fund manager does not satisfy the conditions of the Directive.”

Caribbean

‘Transparency’, ‘Accountability’, ‘Responsibility’ photo - CC by Alain Feulvarch

The Turks and Caicos Islands (TCI) continues to represent an exciting investment prospect, being able to point to a long standing pedigree stretching back to the 1981 Companies Ordinance which heralded the arrival of the flagship Turks and Caicos exempted company. This is a flexible entity used for a whole of range of business purposes conducted outside the TCI that is still highly relevant today thanks to its scope for tax mitigation and minimal bureaucracy and disclosure requirements. Moreover, as the name suggests it provides exemption for 20 years from incorporation from all taxation. TCI is also becoming known for a renewed commitment to international business best practice spearheaded by the UK appointed Governor, His Excellency Mr. Gordon Wetherell who has taken over direct administration of some operations (subject to the TCI constitution), which brings with it added reassurance for investors. This is ensuring that factors such as TCI’s strong regulatory environment, financial strength and highly skilled specialised workforce are the watchwords the jurisdiction is rightly once again being associated with. The Government has in fact a stated aim to promote ‘transparency’, ‘accountability’ and ‘responsibility’, and this is perhaps manifested most clearly in the recently formed Ministry of Trade, Tourism and Communications which has collected together the three cornerstones of the Turks and Caicos economy to ensure co-ordinated

administration and maximum efficiency. Since its original considered development as an offshore centre TCI has proactively engaged with investors, and continues to do so with innovative and attractive initiatives such as the Trusts Ordinance which includes an abolition of a prohibition against perpetual trusts. At the same time it manages to embrace the prevailing climate that demands a greater degree of transparency, such that it can point to an expanding TIEA network which saw it move to the OECD white list as far back as late 2009.

the UK appointed Governor…has taken over direct administration of some operations…which brings with it added reassurance for investors Prowess is also particularly evident in the mutual funds sector where there is the ability to structure as a company, partnership or unit trust, while another noteworthy initiative has seen individuals being permitted to be licenced as a fund manager, investment adviser or investment dealer. Meanwhile, in the captives sector TCI attracts significant levels of business from those looking to cover against industrial action and losses related to conflict.

It is perhaps in the Producer Owned Reinsurance Companies (PORCs) sector where TCI can most justifiably lay claim to being the world leader, however. These are third party re-insurance companies beneficially owned or controlled by the producers of business ultimately re-insured by the PORC, and to date have typically been used for the provision of life, accident and health re-insurance coverage to the car dealership industry in the United States, but also have applications relating to service contract and extended warranty, involuntary unemployment and mortgage guarantee business, amongst others. They enjoy exemption from various regulations and fees that TCI captives are subject to, so long as they engage in no other business than the reinsurance of risks covered by a named insurer. In practice this means they don’t need a local insurance manager, have minimal capitalisation requirements, and are not bound to hold liquid assets in TCI.

North Atlantic

Bermuda Insurance Market Retains Resilience in Another Challenging Year photo - CC by Sam Fraser-Smith

The Bermuda Monetary Authority (BMA) reported in late February 2011 that the Bermuda insurance and reinsurance markets continued to record impressive results despite another challenging year. 2010 saw Bermuda insurers recording an increase in aggregate total assets to US$496 bn, up from US$472.9 bn the previous year. In fact, despite the prolonged global economic recession adversely affecting overall results for the industry, total gross premiums written held up with the captive sector writing US$32.6 billion in gross premiums, equating to a year-on-year increase of 66%. This increase is due in large part to higher premiums being written by particular entities in the sector, as well as the Authority reclassifying some companies to more accurately reflect their risk-profiles. Jeremy Cox, BMA CEO reflected on the very encouraging results against challenging conditions. “The Bermuda insurance market maintained its resilience, still achieving significant results both in underwriting premiums and total assets. In addition, the volume of gross premiums written by our captive sector demonstrates Bermuda’s sustained leadership among captive domiciles”, he said. He added that the basis for the jurisdiction’s success could be attributed to “disciplined underwriting by firms coupled with a highquality regulatory environment.” Shelby Weldon, BMA Director, Insurance, Licensing and Authorisations pointed to the level of new company registrations in 2010 having held up. “The companies covered various lines of business, including property and catastrophe and professional liability. There were also encouraging signs of growth in the formation of Special Purpose Insurers. The greatest proportion of business came

from the US during the year, with respect to both the captive and commercial markets,” he explained. The Bermuda Monetary Authority also published its 2011 Business Plan in early February 2011 which set out its regulatory priorities for the year. Insurance Equivalence A key objective set out by the BMA is to achieve for its commercial insurance framework regulatory equivalence with other major international jurisdictions. This particularly relates to the technical requirements of Europe’s Solvency II Directive, with the Authority set to implement its enhanced regimes in 2011, a year which Jeremy Cox described as ‘pivotal’ for both the Authority and Bermuda.

“these initiatives outlined in the 2011 Business Plan are designed to...strengthen Bermuda’s banking and investment sectors for the ultimate protection of consumers of financial products in Bermuda” –

a deposit insurance scheme, as well as the development of a Corporate Governance Code for Bermuda’s banks and investment firms to encourage best practice in risk management. This policy of subscribing to the highest standards continues with plans to ensure Bermuda’s investment funds regime remains compatible with international standards over 2011 and beyond. This will be realised in the publishing of best practices for hedge fund regulation based on a Statement of Best Practices developed in collaboration with other fund jurisdictions in 2010, itself consistent with the International Organisation of Securities Commissioners’ Principles of Hedge Fund Regulation. As Jeremy Cox explained, “these initiatives outlined in the 2011 Business Plan are designed to...strengthen Bermuda’s banking and investment sectors for the ultimate protection of consumers of financial products in Bermuda.”

Jeremy Cox, CEO, Bermuda Monetary Authority Consumer Protection The BMA is also finalising work on enhanced bank intervention powers so as to allow prompt action with problem institutions. In addition, there is work on establishing Jeremy Cox, CEO, Bermuda Monetary Authority

North Atlantic

Bermuda Set to Meet New EU Standards re: AIFM Directive photo - CC by Kansasphoto

Business Bermuda looks forward to Bermuda’s regulatory regime meeting newly agreed EU standards under the Alternative Investment Funds Managers Directive (AIFM Directive), as announced by the European Parliament on 11 November 2010. Given Bermuda’s status as one of the most compliant and best regulated jurisdictions worldwide, Business Bermuda welcomes the confirmation of the Directive’s final terms as a very positive development for Bermuda’s investment fund industry.

Bermudan law is based on English Common Law, a system understood globally Bermuda’s reputation as one of the premium offshore jurisdictions for fund domiciliation and fund administration is underpinned by a variety of key factors: Bermudan law is based on English Common Law, a system understood globally. The financial and fund services industries are regulated by the Bermuda Monetary Authority (BMA) to ensure sensible rules are in place which meet or exceed international standards. Bermuda successfully completed the first

phase of the peer review process conducted by the Organisation for Economic Cooperation and Development (OECD) Global Forum on Transparency and Exchange of Information for Tax Purposes, meeting all the criteria identified by the peer review methodology, with recommendations. Bermuda’s peer review report was adopted by the full Global Forum membership, comprised of more than 90 jurisdictions, following a six-month review process covering all aspects of Bermuda’s legal and regulatory framework against ten identified essential elements. Bermuda also holds the position of Vice Chair of the OECD Global Forum Steering Group, and will host the 2011 Global Forum plenary. Bermuda has continued to demonstrate to the international fund management industry that it offers less bureaucracy without compromising the standards necessary to manage and grow businesses. Regulatory changes are only implemented after a process of consultation between the BMA and the businesses that it supervises. This approach has resulted in regulations which are innovative, and a governing framework which is purposeful rather than objective. Bermuda has earned the reputation for vigilance against those willing to use funds to launder their ill-gotten gains. The US state department has consistently placed Bermuda in the lowest risk category for being used to

launder money or finance terrorism. Cheryl Packwood, Chief Executive Officer of Business Bermuda, commented: “Bermuda is already recognised by international bodies as being amongst the best regulated and most compliant jurisdictions worldwide. Therefore it can be said that Bermuda based funds and fund managers will be in an advantageous position as they will benefit from lower costs and practical efficiencies associated with the use of private placement regimes. A system which will no longer be available to EU based funds with EU based fund managers.”

Bermuda has continued to demonstrate...that it offers less bureaucracy without compromising the standards necessary to manage and grow business Peter Hughes, Group Managing Director of Apex Fund Services, commented: “Bermuda’s reputation and track record for upholding international standards in [investment fund] regulation, and its vigilance against money laundering are an example for all offshore jurisdictions. It continues to provide a regulatory framework in which business can continue to grow and prosper whilst maintaining a secure environment.”

Caribbean

BVI Signs 20th TIEA with Government of the Republic of India The Government of the British Virgin Islands enhanced its relations with the Government of the Republic of India by signing a Tax Information Exchange Agreement (TIEA) in February 2011. Deputy Premier and Minister of Health and Social Development, Honourable Dancia Penn OBE QC signed the agreement in London with the High Commissioner of India to the United Kingdom, His Excellency, Nalin Surie. It is the 20th such agreement the BVI has signed. The TIEA is based on a model agreement developed by the Organisation for Economic Co-operation and Development (OECD) which allows both parties to request information that is relevant to a civil or criminal tax investigation.

In a joint declaration signed with the TIEA, the Governments of BVI and the Republic of India state that both countries are active, constructive and cooperative members of the international community with globally integrated and responsible finance centres. The BVI and India have long been active in international efforts in the fight against financial crimes and each share a common commitment to develop and comply with international standards on money laundering, terrorist financing and financial regulation. The Joint Declaration further states: “This Agreement represents a milestone in relations between the two Governments and both are committed to examine other areas of mutual co-operation and benefit, including a double taxation agreement.” Honourable Penn specifically welcomed this agreement as a significant development in BVI’s relations with the Republic of India. She stated: “India is a key market for our financial services business and we welcome the opportunity to build on this Agreement and look at other areas of co-operation including a double tax agreement. The Government of the BVI is fully committed to pursuing further discussions with the Government of the Republic of India and we will look to build on the important trading and cultural ties that already exist between our two countries.”

photo - CC by Beth Carey

In April 2002, the British Virgin Islands committed to work with the OECD to develop the principles of transparency and exchange of information in tax matters. That same month, the BVI signed a tax information exchange agreement with the United States of America. Inclusive of Wednesday’s agreement, the BVI has signed 20 TIEAs to date with Ireland, the Kingdom of the Netherlands, the Netherland Antilles and Aruba, the United States of America, the United Kingdom, Australia, New Zealand, France and the Nordic Alliance of Sweden, Norway, Finland, Denmark, Iceland, The Faroes and Greenland, China, Portugal and Germany. Under the guidelines provided by the OECD and the new international tax standard emanating from the G-20 Summit in April 2009, jurisdictions are required to sign at least 12 TIEAs. The BVI was recognised in 2009 as having substantially implemented the OECD standard of transparency and effective exchange of information

The British Virgin Islands (BVI) boasts one of the highest incomes per capita in the Caribbean and the status as the world’s biggest incorporator of International Business Companies (IBCs). This can be traced back to the enactment of the trailblazing IBC Act 1984. This piece of legislation acted as a catalyst for the rapid economic and financial development of the BVI, and was only superceded by the BVI Business Companies Act 2004. This subsequent Act addressed the permitted scope of a company’s activities and members’ and directors’ responsibilities and also came to abolish the concept of authorised capital. It further heralded a wider selection of corporate vehicles from which to choose. Other key pieces of legislation include the Virgin Islands Special Trusts Act (VISTA)

2003 which has ensured the BVI has become a prime location for international trust settlements and operations, as well as the Anti-Money Laundering Regulations 2008 and the Anti-Money Laundering and

been acknowledged by the likes of the OECD, while membership of the Peer Review Group on the Global Forum on Transparency and Exchange of Information is further evidence of the high esteem in which the jurisdiction is held.

key pieces of legislation... reflect the jurisdiction’s willingness to embrace transparency and the prevailing international expectations of the day

Yet perhaps the most noteworthy recent development to take place has been the Securities & Investment Business (SIBA) Act 2010, the purpose of which is to establish the right legal and regulatory framework for institutions, managers and investors, and so enhance the jurisdiction’s attractiveness further. It is overseen by the Securities, Investment Business and Mutual Fund Advisory Committee (SIBA Advisory Committee) which was formed in December 2010 by the BVI FSC. It is responsible for reviewing the SIBA Act and related relevant legislation, and recommending any necessary changes.

Terrorist Financing Code of Practice 2009, both of which reflect the jurisdiction’s willingness to embrace transparency and the prevailing international expectations of the day. As indicated, such conduct has

Caribbean

Anguilla

photo - CC by Lucian Savluc

Recent and ongoing fiscal consolidation measures in Anguilla have seen the budget deficit slashed, as detailed by Chief Minister Hughes in a budget announcement outlining tax measures for 2011. These positive developments have also been recognised by two independent financial experts, John Wiggins and Ved Gandhi, recruited by the British Government to review Anguilla’s 2011 budget. They commended the government for its policies and predicted a return to overall budget balance in 2013. There is a growing confidence within the jurisdiction that such developments can go a long way towards returning Anguilla to the status it enjoyed up to the onset of the global recession; that of having the fastest growing economy in the region. Anguilla is an IFC that enjoys the ideal marriage of a firm yet flexible legal and regulatory environment as embodied in the activities of the Financial Services Commission. The government’s recognition of this state of affairs is evidenced in it having earmarked international financial services as an essential key to the jurisdiction’s continued diversification and future prosperity, which in turn has fostered a strong public-private collective effort to further this end. Available corporate structures range from IBCs, ABCs (Anguilla Business Companies), LLCs and limited partnerships dependent on specific circumstances and requirements. Yet it is perhaps the vibrant trusts sector that is for many that which Anguilla remains

synonymous with. It allows for the setting up of commercial or charitable purpose trusts, unit trusts, asset protection trusts and spendthrift trusts, the last of which place limits on beneficiaries’ interest under certain circumstances such as their insolvency. The jurisdiction is also well known for its almost ‘bespoke’ variant trusts which enable a settlor to create a trust in any form and name that is recognised by law or the rules of their religion, nationality or community.

The Anguilla Foundation recommends itself in a number of ways There has also been an expansion of the product offering into captives and foundations that has coincided with the 2010 government’s commitment to tax transparency, while in the area of mutual funds private, professional and public funds are provided for through the Mutual Funds Act 2004. A further noteworthy development can be found in the imminent upgrading of the long respected online ACORN company registration system. ACORN 2.0 is set to

cement its reputation as the fastest and most advanced online registry, and will boast extended capabilities that reflect current technology, allowing for example the registration of foundations for the first time. When it comes to TIEAs Anguilla has signed the requisite amount as set out by the OECD, sufficient to have been moved to their white list in 2010. This includes one with the UK signed back in 2009 that recently came into force. Perhaps the jurisdiction’s biggest draw, however is the Anguilla Foundation which came about through the 2008 Act of the same name. These estate-planning and asset protection vehicles continue the theme of flexibility that is so central to Anguilla’s portfolio, and represent an alternative to the common law trust. They blend the best features of existing foundations legislation in other jurisdictions with some unique Anguillian elements, such as being able to be either registered or deposited. The Anguilla Foundation recommends itself in a number of ways such as having hybrid corporate and trust characteristics, their assets constituting an independent estate from that of the founder, as well as protection from creditors for those assets distributable to a beneficiary. They also uniquely feature a provision enabling the founder to specify any dispute resolution procedure to apply to the foundation, so affording them considerable long-term influence over it and bringing with it almost unrivalled flexibility.

Anguilla British West Indies

British Overseas Territories: Same Regulatory Oversight

Anguilla

Bermuda

� Accessible � Efficient

Turks and Caicos

� Competitive

Caymans

British Virgin Islands Anguilla Montserrat

More Accessible:

Contact the Registrar or Director of Financial Services directly info@fsc.org.ai Financial Service: fsc@anguillafsd.com

More Efficient:

ACORN online Corporate Registry Electronic Filing 24 hours / 7 days per week / 365 days per year

More Competitive:

Free continuance into the jurisdiction and one low fee for incorporation and annual returns regardless of share capital.

Anguilla Commercial Online Registration Network “The future is online” For more information please visit www.axafsc.com or contact: Commercial Registry - PO Box 60 - The Secretariat The Valley - Anguilla BWI. Tel.: 1 (264) 497-3881/5478 - Fax: 1 (264) 497-8053 - email: anguillafsd@anguillafsd.com

Advertorial

The Nevis Limited Liability Company

In 1995, the Nevis Island Assembly enacted the Nevis Limited Liability Company Ordinance. Although the first limited liability company act appeared in Wyoming in 1977, Nevis is the first offshore financial center to have enacted such legislation.

The Nevis Limited Liability Company Ordinance of 1995 offers many advantages to those wishing to incorporate an LLC in Nevis.

which may find it necessary to amend its articles of association.

(h) is exempted from all taxation in Nevis once it does not do business in Nevis

(e) shield its owners or members from legal liability

Section 83 of the Ordinance states as follows;- ‘ Any limited liability company subject to this Ordinance which does no business in Nevis shall not be subject to any corporate tax, income tax, withholding tax, stamp tax, asset tax, exchange controls or other fees or taxes based upon or measured by assets or income originating outside of Nevis…’

The advantages of a Nevis LLC Members are shielded from legal liability. A Nevis LLC:(a) may be speedily incorporated It is possible to incorporate a Nevis LLC within twenty four hours. (b) may be incorporated for any lawful business purpose A Nevis LLC may be incorporated and utilized for just about any purpose. In accordance with section 12 of the Ordinance, a Nevis LLC may be organized ‘for any lawful business purpose or purposes, including without limitation, the rendering of professional services by or through its members’, and is the ideal approach to structuring joint venture agreements between parties in different countries worldwide. (c) has broad powers By virtue of section 13 of the Ordinance, a Nevis LLC has the same powers as an individual to do all things necessary in furtherance of its purposes (d) is not restricted to its articles In section 13 of the Ordinance, it is stated that the Nevis LLC is not limited to the purposes set out in its articles, as corporations usually are, thereby providing the LLC with potentially a great deal more flexibility in this regard than a corporation

Section 18 of the Ordinance states that a ‘limited liability company shall be a legal entity with separate rights and liabilities, distinct from its members or managers.’ Furthermore, section 19 states that ‘the limited liability company shall be solely liable for its own debts, obligations and liabilities.’

Additionally transfer of domicile of a Nevis limited liability company to and from Nevis is easily effected.

(f) allows its owner(s) or member(s) to act as manager(s) of the limited liability company while shielding the owner(s)/manager(s) from legal liability

The Many Uses of a Nevis LLC

Section 2 of the Ordinance describes a manager as ‘ a person or persons, whether or not a member, designated and authorized in the operating agreement to manage the limited liability company or to otherwise act as agent of the limited liability company’ while section 19 (2) of the Ordinance states that ‘…no manager, officer, member, employee or agent of a limited liability company…shall be liable for limited liability company debts…’. (g) may be incorporated with only one member, whether personal or corporate, from any country worldwide Section 21 states that ‘ One or more persons, without regard to his, their or its residence, domicile, or jurisdiction of organization, may form a limited liability company under this Ordinance.’

A Nevis LLC can be used to:(a) acquire and manage real estate in the United States or elsewhere. (b) structure estate plans for families, whether or not used in conjunction with a Nevis International Trust (c) form part of an asset protection plan (d) structure joint venture agreements with non-U.S investors in non-U.S. projects Conclusion The Nevis Limited Liability Company has developed as an important asset protection and estate planning tool mainly because of its flexibility which enables it to adapt readily to most circumstances.

Europe

Guernsey Eyes Opportunities in the Emerging Markets St. Peter Port, Guernsey, Channel Islands

By Peter Niven, Chief Executive of Guernsey Finance During the last couple of years the world has been through a major financial crisis. Guernsey has not been completely immune from these pressures but the Island has to a large extent been sheltered from the most severe elements. Resolute performance Our finance industry is now showing signs of recovery. This is not uniform across the different facets of the industry but in fact its broad-based nature means that while some sectors continue to be more adversely impacted by the economic downturn, others have seen an upswing or identified new prospects. For example, the value of deposits held by banks in Guernsey fell 4.3% during the final quarter of last year to reach £111 billion at the end of December 2010. The low interest rate environment and the effects of exchange rate movements were the principal contributing factors. However, the value of funds under management and administration in Guernsey was up 6% in the final quarter of last year. This takes the total to a new record high of more than £257bn at the end of December 2010. It also means that the value of business increased 40% year on year. From an insurance perspective, it has been a period of consolidating our position as the largest captive insurance domicile in Europe and number four in the world. Despite the maturity of our captive industry and the prevailing soft market conditions, we have continued to see growth in this sector. The fiduciary sector boasts more than 150 licensed providers who together hold more than £300bn worth of assets in trust and company structures. There is significant infrastructure and expertise in providing a range of wealth management solutions to both corporate and private clients. A niche but developing area for many Guernsey fiduciaries is Qualifying Recognised Overseas Pension Schemes (QROPS). Emerging markets The fiduciary sector has also been at the forefront of the growing focus on developing new business streams from the emerging

markets. Guernsey continues to be extremely active in the UK and European centres – our traditional principal sources of new business – but we also recognise that the ‘emerging’ markets represent new and increasingly significant pools of both corporate and private wealth. Guernsey Finance is working with government, industry and the regulator to indentify and maximise the potential opportunities for the various parts of our financial sector in these regions. Latin America Guernsey Finance has not previously actively marketed the jurisdiction to the countries in Latin America but this has now become a new focus in response to industry demand and in particular in the captive insurance sector. The Island already has several Tax Information Exchange Agreements (TIEAs) in the pipeline with South American jurisdictions, including Brazil, Argentina and Mexico and discussions have also begun with Chile and Venezuela. Middle East Guernsey has been active in this marketplace for several years and continues to maintain and develop our profile in this region through the media and attendance at relevant third-party conferences, principally in relation to the investment funds sector. 2010 saw the launch of a suite of Shariahcompliant funds based in Guernsey. Russia Existing business already in the Island from the region includes the investment company Raven Russia, the investment fund Aurora Russia and a range of funds from Baring Vostok Capital Partners. Guernsey Finance has been working with industry to identify further opportunities for investment fund and wealth management providers to increase business with Russia and a factfinding visit to Moscow is planned for the middle of 2011. India A delegation of politicians, officials and business leaders from Guernsey visited Delhi and Mumbai towards the end of 2010 to enhance financial services links between the two jurisdictions. The Island is already gaining a reputation as the new home for Indian focused listings on London’s Alternative Investment Market (AIM). In

addition, we are also progressing towards signing a TIEA with India. The Far East Guernsey-based fiduciaries Nerine Group and Louvre Group have established offices in Hong Kong, law firm Ogier is offering Guernsey legal advice from an office in Hong Kong and Guernsey-headquartered fund administrator International Administration Group (IAG) has also recently opened an office in Hong Kong. We have had a representative office in Shanghai for more than three years now and the strength of the relationships we have built is highlighted by the fact that towards the end of last year we signed a Memorandum of Understanding (MoU) for exchange and cooperation with the Shanghai Municipal Financial Services Office and a Tax Information Exchange Agreement (TIEA) with the Chinese central government tax authorities. High standards Guernsey has now signed a total of 22 TIEAs. The Island was within the first wave of territories placed on the OECD ‘white list’ and our commitment to tax transparency and exchange of information has been endorsed by the OECD’s Global Forum in a report published at the start of 2011. Also published early in 2011 were the IMF’s evaluation reports which commended Guernsey’s high standards of financial regulation, supervision and stability along with its robust criminal justice framework. The Island scored the highest marks of any jurisdiction so far assessed. Indeed, one of our central messages to key decision makers in these emerging markets is that Guernsey is a leading international finance centre offering a range of financial products and services at the very highest global standards. Peter Niven is the Chief Executive of Guernsey Finance – the promotional agency for the Island’s finance industry. Address: PO Box 655, North Plantation, St Peter Port, Guernsey, GY1 3PN Phone: +44 (0) 1481 720071 Fax: +44 (0) 1481 720091 Email: info@guernseyfinance.com Web: www.guernseyfinance.com Twitter: www.twitter.com/guernseyfinance

Europe

Photo CC by Jersey Tourism

Jersey Remains the Leading Offshore Centre in the Latest GFCI Jersey holds its position as the highest rated offshore international finance centre and is very close to achieving wider global awareness which would lead to ‘global specialist’ status, according to the latest Global Financial Centres Index (GFCI) released on Monday 21st March, 2011. Overall Jersey is placed 23rd in the competitive rankings, ahead of Guernsey in 27th, the Isle of Man (35th), Cayman Islands (38th) and Malta (59th). Whilst the ratings of all offshore centres have declined in the latest rankings, Jersey has only fallen one place - in comparison to other offshore centres Jersey has fared well. This decline can largely be attributed to the increased scrutiny that offshore centres have experienced recently due to the financial crisis, which those onshore jurisdictions surrounding Jersey in the rankings, such as Taipei, Paris, Vancouver and Washington D.C., have not been subject to. The report noted that both Channel Islands

Jersey is a self governing British Crown Dependency located near the English Channel. Its largest industry is financial services, with over 25% of the population employed in the sector. 2011 also marks the 50th anniversary of Jersey’s modern financial services industry and is being marked by a programme of celebration in Jersey and in key markets globally. Jersey, which provides a tax neutral environment, has earned a reputation as a leading, well regulated financial services centre by: • being one of the first international finance centres to be placed on the OECD ‘white list’ as having implemented internationally agreed tax standards • being invited by the French Chair of the OECD Peer Review Group to be

(Jersey and Guernsey) are the only offshore centres to achieve a rating over 600. They were also recognised as one of the top ten centres which are likely to become more significant alongside larger centres such as Hong Kong, Shanghai, Beijing and Singapore, and are most likely to open offices over the next few years.

Jersey is very close to achieving ‘Global Specialist’ status In addition, the index indicates that Jersey, is ‘working to change perceptions’ and ‘rise above’ the status of offshore specialist centres’ by being seen as more diversified. London is named as the number one centre in the rankings, marginally ahead of New York and Hong Kong. Geoff Cook, chief executive of Jersey Finance Limited, commented, “Jersey has performed well in holding its position as

Vice Chair, alongside Japan, Singapore and India, with a view to assessing how jurisdictions implement international standards of transparency and exchange of information • receiving a favourable British Crown Dependencies Review, conducted by the UK government • being rated as the top ‘offshore jurisdiction’ in the most recent Global Financial Centres Index • being rated as one of the best international finance centres globally by the IMF (September 2009), along with the UK and US • being the first offshore centre to become a full signatory to the IOSCO Multilateral Treaty

the top offshore centre, which it has now held for four consecutive Indexes. The report highlights how Jersey is regarded on the global stage as a market leading international finance centre and that it is recognised as one of the top ten centres to grow in significance over the next few years. It is also important to note the continual improvement in performance of the Asian centres in the rankings, particularly Hong Kong and Shanghai which are in the top five. This evidence emphasises the importance of these jurisdictions and how we need to maintain our marketing efforts overseas in order to drive Jersey’s future success.” The GFCI report, published on Monday 21st March 2011, is produced every six months by the Z/Yen Group and by the Qatar Financial Centre Authority, having previously been produced in conjunction with the City of London. The rankings examine major financial centres globally in terms of competitiveness by calculating a set of ratings for each jurisdiction, using data available from each centre and responses to a global survey.

• aligning itself fully with the highest standards of the 3rd EU Anti-Money Laundering Directive • operating to the highest standards of CFT (Countering the Financing of Terrorism) guidelines • operating with a Depositor Compensation Scheme • having operated under a ‘Fund Functionaries Supervision’ regime for more than 20 years • having had no banking failures during the recent financial crisis • having a comprehensive and widereaching TIEA and DTA network, since 2002

Photo CC by Clemens V. Vogelsang

Europe

Future-oriented Strategy for the Liechtenstein Financial Centre: Quality, Stability and Sustainability

Vaduz, Liechtenstein

Liechtenstein has managed the financial crisis well and proven itself to be a stable partner. Nevertheless, the global efforts at regulation and ongoing internationalisation continue to put pressure on financial centres. Competition is great, and worldwide banking and financial centre initiatives are the consequence. To preserve the strengths of the Liechtenstein financial centre in this challenging environment and to generate growth with new business segments, the Liechtenstein Bankers Association has developed a future-oriented strategy for the Liechtenstein financial centre. On Friday, 18 February 2011, the Liechtenstein Bankers Association presented the new strategy for the Liechtenstein financial centre in Vaduz. This strategy, the ‘Roadmap 2015’, builds on the Futuro report of the Government from the year 2008. Its goal is to generate growth opportunities for the key business sectors and to establish the framework for political guidance. With 30% of GDP, the Liechtenstein financial centre contributes a substantial share to the prosperity of the country. The financial services sector is made up of several significant business sectors: international asset management (banks, fiduciaries,

independent asset managers and insurance companies), retail and corporate business in Liechtenstein and the neighbouring internal market, and investment funds. The strategy takes account of the financial centre’s importance. The strategy was harmonised with the business associations in the financial centre, as part of a joint approach, and was presented to all the important players. The very positive echo confirms the Bankers Association’s conviction that it has embarked on the right path.

With access to two economic areas – Switzerland and the EU – Liechtenstein enjoys an exclusive position Positioning: Quality, Stability, Sustainability The Liechtenstein financial centre wants to reposition itself in the heart of Europe and be measured by the criteria of quality,

stability, and sustainability. “Our vision is to be perceived as a respected, sustainably acting, and stable financial centre,” explained Adolf E. Real, President of the Liechtenstein Bankers Association at the presentation of the strategy. The vision also means: “The Liechtenstein financial centre is known for its high level of innovation and efficiency as well as its demonstrated competence in wealth management. This puts the financial centre in a position to offer tailored products and top-quality services to a demanding, internationally oriented clientele.” The strategy is based on this vision. The pillars of the financial centre’s claim to quality include decades of experience in private wealth management for an international clientele, the great know-how of financial intermediaries, as well as tailored services and products. The stability factor as a distinguishing characteristic in the global financial world is underscored by Liechtenstein’s ‘AAA’ rating, a stable political environment, a debt-free national budget, and the high equity ratio of banks. Additionally, Liechtenstein has a broadly diversified business location.

Europe

With the banks’ enhanced and in-depth engagement in the fields of sustainability and philanthropy at the level of services and products, the Liechtenstein financial centre is developing into a veritable competence centre for comprehensive – i.e., both economic as well as social and ecological – sustainability. Differentiation Already today, Liechtenstein has opportunities to distinguish itself from its competitors. It has a company law that offers a wide variety of company forms and a high level of liberalism compared with other countries. With access to two economic areas – Switzerland and the EU – Liechtenstein enjoys an exclusive position. Using this as a basis, the goal is to develop integrated services and solutions in the fields of banking, insurance, funds, company structures, and asset management into a one-stop financial centre. Five Strategic Pillars Over the course of a process lasting several months, the strategy was developed in three phases by a working group composed of the Liechtenstein Bankers Association and the banks themselves. In a first phase, the strategy group took stock of the financial centre at a fundamental level, examined comparable financial centres, and analysed the development of the framework conditions. In a second phase, the driving factors influencing the future of the financial centre were identified, and various scenarios were developed. Finally, the third phase developed clear goals and derived areas of action that encompass more than 30 individual measures. The strategy is built on five pillars, on the basis of which the areas of action were developed: innovation, coordinated approach, international participation, attractiveness of the location, and reputation. Innovation: Sustainable Niches Simon Tribelhorn, Director of the Liechtenstein Bankers Association, explained the different areas of action. In addition to existing products and services, the banks and financial intermediaries are called upon to open up their business model to new and innovative ideas. International regulations are to be used as an opportunity to make existing laws more attractive and to improve products. This includes rapid implementation of international directives in the fund segment, the positioning of common-benefit foundations, and securing an optimal tax environment and the international recognition of Liechtenstein company forms and trusts. Liechtenstein has also not taken full advantage of its potential as a fund centre so far. The need for cross-border pension funds is growing, and Liechtenstein can offer knowhow and services in this

field. “Beyond this, the Liechtenstein banking and financial centre wants to establish itself as a competence centre for sustainable investments and as a pioneer in social and ecological sustainability,” Tribelhorn explained. This also means that Liechtenstein commits itself to a zerotolerance policy with respect to abuse. Areas such as socially responsible investments, microfinance, and philanthropy already offer an enormous potential for innovation, which the banks are putting to use. Coordinated Approach: Financial Centre Group The coordinated approach of the financial centre includes an effective and efficient FMA as well as the development of a think tank. Tribelhorn said that the planned establishment of a Financial Centre Group is intended to institutionalise the process of finding ideas and identifying business opportunities at an early stage. “We must take advantage of arising opportunities

The Liechtenstein financial centre is only attractive if it is perceived as such for our liberal and business-friendly financial centre and ensure quality control.” For purposes of better regulation, the associations should also be included early on in the regulatory process, and over-regulation should be avoided. The banks attach great importance to stronger international participation. The international network of relationships should be expanded, membership in international bodies at all levels ensured, and international standards implemented. Attractiveness of the Location: Transparency and Know-how The pre-condition for building up a sustainable financial centre is its attractiveness as a location and its positive reputation. The Bankers Association is committed to implementing the OECD standards, but it rejects automatic information exchange. The future belongs to declared assets. For this purpose, a network of double taxation agreements closely coordinated with market participants

should be established. At the same time, the Bankers Association continues to stand for the protection of justified demands for privacy by the worldwide clients of the Liechtenstein financial centre. Stronger tax cooperation does not contradict the protection of privacy, which must be ensured vis-à-vis unjustified access by third parties. Talents and know-how must be built up and expanded. The importance of the availability of experts as well as basic and continuing training cannot be overstated. In this connection, banks call for a loosening of immigration policy, including for top talents. Adolf E. Real mentioned the recent announcement by the Government that it would increase the quota by 15%, which is an important first step. Reputation: Communication and Marketing The Liechtenstein financial centre is only attractive if it is perceived as such. To improve Liechtenstein’s image as an attractive financial centre, what is needed first and foremost is improved visibility as well as targeted and professional marketing of the Liechtenstein financial centre. The banks plan to further expand location communication for the financial centre using proactive marketing. Resolute Path “With this strategy, we are building on the strengths of the financial centre and are setting the course toward the future,” Real said in conclusion. Liechtenstein is committed to a zero tolerance policy with respect to abuse. The banks have always pursued a prudent and rather conservative business strategy and avoided risky investments, in line with the long-term and sustainable orientation according to the needs of their clients. With the banks’ engagement in the field of sustainable investments and philanthropy the Liechtenstein financial centre is already today developing into a true competence centre for comprehensive (both economic and also social and ecological) sustainability. “We need not hide, and we are facing the new challenges with backbone, energy, and know-how. If we resolutely implement this strategy, we will soon be able to harvest the first fruits of our labour. The path is not easy, but it is manageable.”

Photo CC by Clemens V. Vogelsang

Africa

The IMF predicts 6% growth in 2011 for the Republic of the Seychelles, with further initiatives such as the introduction of VAT in 2012 likely to boost external competitiveness further. The jurisdiction which still very much subscribes to the principle of confidentiality has proactively engaged with investors to produce innovative and attractive initiatives as manifested through a raft of legislation in recent years including the Securities Act 2007, Insurance Act 2007, Mutual Funds and Hedge Funds Act 2008, Foreign Exchange Act 2009 and Foundations Act 2009. With such prowess in the insurance, mutual funds, banking, trusts and ship registry sectors combined with a hyper-efficient registry it’s no wonder investors are flocking to this Indian Ocean gem off the East Coast of Africa. Testament to this is the luxury Eden Island residential development which has helped put Seychelles on the international real estate map and attracted many luxury yacht owners in the process. They are tempted by the personal moorings outside villas, as well as the space, comfort and privacy the range of units offers, not to mention the development’s ready access to the principal island of Mahe’s facilities and its international airport. Its success to date has seen the majority of units sold already with particular interest generated from within the South African, Russian, UK, French and Middle East markets. Purchasers are attracted by the various corporate and individual means of structuring ownership and of how there is the option of applying for residency status for purchasers and their families. This brings with it no capital gains tax on sale or tax on earnings outside Seychelles. It’s also worth mentioning that

Photo CC by Evan Williams

Republic of the Seychelles

the development and Seychelles in general is positioned outside the region’s main hurricane belt. The Seychelles’ Free Trade Zone has also seen meteoric growth which has made the most of a location that has led to leading IFC status in the region, and which has seen the Seychelles acting as a prime conduit for FDI into the wider regional and global economy.

Seychelles is committed to tax transparency and anti-money laundering and is currently updating its legislation further to take into account its increasingly prominent status in the IFC sector, and the greater scrutiny all such jurisdictions’ activities have come under A recent entrant onto the IFC stage, the Seychelles has not been slow to catch up. It can now boast DTAs with countries including China and the UAE, while its location ensures it is ideally situated to serve the Indian Ocean rim region, encompassing Africa, the Middle East and India. In terms of types of business entity available Seychelles specialises in international business companies (IBCs), where it is second only to the BVI in terms of the

volume incorporated there, Special Licences Companies (CSLs), which are able to take advantage of Seychelles’ range of DTAs, protected cell companies (PCCs), limited partnerships, international trusts and foundations. Seychelles is committed to tax transparency and anti-money laundering and is currently updating its legislation further to take into account its increasingly prominent status in the IFC sector, and the greater scrutiny all such jurisdictions’ activities have come under. The OECD Global Forum in their peer review of the Seychelles highlighted certain areas that needed tightening up. In his response of December 2010 John Goldsworth, Chairman of Seychelles International Business Authority (SIBA) explained that Seychelles was in fact planning to introduce a new Companies Act with a view to streamlining, reforming and updating existing companies legislation. He further pointed to proposals for an International Corporate Service Providers (ICSP) Act set to strengthen and enhance the existing regulatory and compliance framework, as well as a new International Trusts Act to be modelled on the tried and tested Jersey Trusts Act. This will more clearly and comprehensively provide for a variety of trusts including for the first time private trust companies (PTCs). It is reckoned that these proposed developments, which could well coincide with a movement towards multiple TIEA signing, will strengthen rather than undermine Seychelles’ attractiveness as a destination for foreign investors in making the legislation more in tune with the prevailing international winds of the day.

Photo CC by Rachel the Cat

Advertorial

The Seychelles: Company Formation By Steve Fanny, CEO and Managing Director of the Seychelles International Business Authority (SIBA) Seychelles is now a well-known and respected jurisdiction in the global financial services market. Over the past 10 years, the Seychelles offshore financial services industry has experienced a significant increase in know-how, business volumes and international profile.

international business outside Seychelles. IBCs are commonly used for:

A central factor in Seychelles’ rise as an international financial centre has been its strategy of striking an effective balance between sound regulatory practice and the marketplace. Seychelles’ northern Indian Ocean location (GMT+4) has also proved to be a significant advantage in servicing the European, Asian, Middle Eastern and African markets.

Subject to the limit set by its objects, an IBC can generally do anything that a body corporate can do. However, the Act specifically prohibits it from conducting business as a bank, insurer, reinsurer, or trustee (all three types of offshore businesses

The tax-exempt Seychelles International Business Company (IBC) has enjoyed substantial success, as shown by surging registrations over the past five years – 7,097 new incorporations in 2005, 8238 in 2006, 10,295 in 2007, 13,751 in 2008 and 12,408 in 2009 (making it now one of the most popular IBC registration jurisdictions in the world). Seychelles is also steadily developing more value-added areas of offshore business, including CSLs (Seychelles tax resident companies, which may access Seychelles double taxation avoidance agreements), trusts, limited partnerships, securities and mutual funds.

Active and Attractive Offshore Structures International Business Companies (IBC)

An IBC is a limited company that undertakes business activities, licensed by SIBA. These companies are, however, exempt from all forms of taxation and have been licensed with the exclusive aim of conducting

• Holding Companies • Asset Protection • International consultancy companies • Companies involved in international trade

The attraction for the international groups is that use of a CSL, in conjunction with Double Tax Treaty agreements provides significant scope for foreign investors to reduce their tax exposure in their respective countries are regulated by special legislation) and except as specifically permitted by law, from carrying on any business in Seychelles or owning or leasing immovable property in Seychelles. It is an attractive financial structure that can be converted to other resident companies such as a Special License Company (CSL).

International Trusts

Trusts set up under the International Trust Act, 1994, provide an effective and legitimate means of protecting one’s assets. Various types of trusts may be set up, such

as charitable and revocable or irrevocable discretionary trusts. Some features of the trust include: • Accumulation of income is unrestricted • The settler may choose the law of the trust • There are no requirements to name the settlors or the beneficiaries, except if the beneficiaries are Seychellois citizens • The trust may own assets worldwide (except in Seychelles) • It may hold shares and maintain bank accounts in Seychelles

Companies Special License (CSL) The Companies (Special Licenses) Act, 2003, allows a company to take advantage of the Seychelles network of double taxation treaties as it is incorporated under the Companies Act 1972 and considered a tax resident under the Seychelles laws. The special provisions afforded under the Act provide it with a measure of confidentiality as well as a low tax status, calculated at 1.5% of gross income. The CSL meets all the criteria of modern legislation, mainly in relation to disclosure requirements, which are, however, not accessible by the public. CSLs are increasingly being used by international listed groups as intermediary holding companies to hold shares and other investments. The attraction for the international groups is that use of a CSL, in conjunction with Double Tax Treaty agreements provides significant scope for foreign investors to reduce their tax exposure in their respective countries. Key Features of the Seychelles CSL include: • a one-off registration fee • an application accompanied by the Memorandum and Articles of Association, the names and addresses of the beneficial

owners and a written declaration containing the names and addresses of the directors and company secretary • accounts, returns and beneficial ownership information must be filed, but these are not made public • 1.5% corporate tax with complete exemption from withholding tax and full treaty access • minimum of 2 directors who need not be resident in Seychelles • corporate directors are not allowed • a Seychelles resident secretary is required

Protected Cell Companies Protected Cell Companies (PCC) are incorporated under the Companies Act 1972, which allows companies with specified activities to separate into identifiable cells without having to assume a separate legal entity. Cells within a PCC are protected against liabilities incurred by cells of the same company, and are therefore attractive for a number of business activities. Qualified activities include Offshore Insurance and Mutual Funds businesses, and other Collective Investments.

Limited Partnerships Limited Partnerships are registered under the Limited Partnership Act 2003, and are subject to the Seychelles Commercial Code. The Code provides for a general partner, who must be a Seychelles resident, and one or more limited partners. Limited Partnerships are commonly used for joint ventures.

Mutual Funds

The recently enacted Mutual and Hedge Funds Act provides a new legal framework and approach to the licensing of Mutual and Hedge Funds in the Seychelles. Seychelles allows for companies, unit trusts or partnerships to be licensed as mutual funds, giving fund managers a long list of potential fund vehicles. These companies, unit trusts or partnerships can be constituted in Seychelles or in any one of 31 recognised jurisdictions. An Exempt Foreign Fund status is available to funds that can satisfy the Authority that they are in good legal standing and hold a valid license from one of the recognised jurisdictions, administered by a Seychelles licensed fund administrator and that are either listed on a stock exchange or have a minimum investment of USD 100,000.

become the sole property of that foundation with full legal and beneficial title and do not form part of the founder’s personal estate. Seychelles has maximized its appeal and effectiveness as an offshore financial services centre by striking an effective balance between sound regulatory practice and attractive products. With Seychelles’ financial industry gathering momentum, it is now well placed to serve the international market.

Securities

The Securities legislation, enacted in 2007, provides the regulatory framework for securities trading within the Seychelles. The laws safeguard investor confidence by licensing and regulating all components of the market and enforcing internationally accepted guidelines. The legislation also provides the legal framework for the setting up of the Seychelles Stock Exchange.

Foundations

Foundations are the latest addition to the Seychelles portfolio of financial services products. The Seychelles Foundation is a separate legal entity. Once the founder transfers assets to a foundation those assets

Mr.Steve Fanny - MD, Seychelles International Business Authority

Contact

Tel: +248 380 800 Fax: +248 380 888 Email: siba@seychelles.net Web: www.siba.net

E a s t- West Br id ge Photo CC by Nelson Ebelt

It offers its member institutions incentives such as 100 per cent foreign ownership, zero percent tax rate on income and profits and no restriction on capital convertibility or profit repatriation.

for a number of the new companies choosing to establish a presence in DIFC it is their first foray into the region The DIFC described their operating review of 2010 as showing that amongst other developments;

The Dubai International Financial Centre (DIFC) positions itself as the financial and business gateway between the regional emerging markets and the world.

• The number of active registered companies operating from DIFC grew throughout the year to reach 792 companies by year end • 113 companies registered in 2010, with

52% of new companies registered coming from North America and Europe while 45% came from the Middle East and Asia, consolidating DIFC’s continued claim to be the natural gateway between East and West. In all, 41% of regulated firms now hail from Europe; 30% from the Middle East, 16% from the US, 10% from Asia, and 3% from the rest of the world. • Existing clients used the DIFC platform to expand their regional footprint • The cost of doing business was revised to encourage the businesses already based in DIFC to expand and to attract new companies to the Centre DIFC is also home to 16 of the world’s top 20 banks, 8 of the world’s largest asset managers and 4 of the world’s 5 largest insurers. (Source: Forbes Global 2000 List). Moreover, for a number of the new companies choosing to establish a presence in DIFC it is their first foray into the region.

Africa

Botswana

companies to transfer funds across borders more easily. In addition, there is a choice of currency denomination affording protection against exchange rate linked losses. These facts go a long way to explaining Botswana’s status as a popular tax-efficient conduit into the wider African region and beyond.

Botswana is one of the world’s fastest growing tax efficient hubs. It enjoys political stability with strong and proven anticorruption measures, and can point to expert fiscal administration and a sound regulatory environment While the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes’ first phase peer review of Botswana in 2010 noted that the country’s legal system had been experiencing some shortcomings with regard to financial services, this was and is not to suggest there is anything untoward going on. Rather, the Ministry of Finance and Development Planning, assisted by the Botswana International Financial Services Centre (IFSC), has responded by working closely with the OECD to improve the regulatory environment, this involving the implementation of OECD recommendations to improve domestic law. On a further positive note the process found that Botswana’s tax authorities are in a position to disclose confidential information in more circumstances than is normally the case elsewhere across the globe. Botswana’s commitment to international business best practice and good governance is further evidenced in its ranking as Africa’s least corrupt country by anti-corruption NGO ‘Transparency International’ in 2010, and in respect of its efforts to combat fraud the jurisdiction is a member of the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG). addition, Botswana

The country can further point to one of the world’s highest economic growth rates over recent years with predicted growth of 3.1 percent for 2011 against challenging recent global economic conditions. passed the Financial Intelligence Act in 2009, which established a Financial Intelligence Agency responsible for looking at suspicious financial transactions. It could not be said that Botswana has not embraced international regulations and frameworks, not only by being a signatory to such pillars as the Basle Statement of principles, the IMF Financial Action Task Force (FATF) and the UN Geneva Convention, but also through the Botswana IFSC, which describes its framework as providing for ‘full transparency, applying a complete information exchange programme through a double taxation treaty network and requiring the establishment of genuine and substantive economic activity in the country.’

(Botswana) can point to one of the world’s highest economic growth rates over recent years The double taxation treaty network referenced encompasses not only its near African neighbours, but also the likes of India, Russia, the UK and France. The US think tank Heritage Foundation’s 2010 Index of Economic Freedom saw fit to rank Botswana as the 28th freest economy in the world. In credit terms, while Standard & Poor’s may have downgraded Botswana’s rating to ‘A-’ from ‘A’ on the back of an understandable hike in public spending due to falling mineral revenues caused by the global recession, at the same time they revised its outlook from ‘negative’ to ‘stable’ due to a still strong public sector external balance sheet. All of which illustrates the country’s solid foundations and prospects for investment. In Botswana there are no prohibitions on foreign ownership of companies, while being registered with the IFSC affords access to a reduced corporate tax rate of 15 percent and exemptions from VAT, capital gains tax, withholding tax and foreign exchange controls, this last factor allowing foreign

Botswana also enjoys good relations with its neighbours. It is a member of the Southern African Development Community (SADC), the new headquarters of which are in the new Central Business District hub of Botswana’s capital Gaborone, this area having overseen the development of a growing integrated financial services cluster recently. The SADC’s role is to encourage growth, development, and economic integration in Southern Africa, aiming for the elimination of all tariff and non-tariff barriers to trade among its members. One of its members, South Africa, represents the economic powerhouse of the region and is a country with which Botswana enjoys a particularly close and fruitful working relationship. In international financial services terms Botswana’s specialities include an exhaustive range of banking services and the establishment, domiciliation, and management of Pan-African investment funds. International insurance is another key area, having been identified as a strategic growth sector. Here the International Insurance Act and Regulations allows for many cross-border activities including re-insurance, life assurance and captive insurance. Meanwhile, Botswana’s flagbearing business entity is the International Business Company (IBC) which is often structured in the form of an investment holding company or regional headquarter operation. Two other key priority sectors earmarked for growth are Business Process Outsourcing and Contact Centres. This growth is being facilitated by the country’s continual investment in the telecommunications infrastructure so as to further advance global competitiveness.

RESULTS ORIENTED

INTEGRITY

REPUTABLE

‘YOUR COMPETITIVE ADVANTAGE’

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Africa

Mauritius Port Louis, Mauritius

Mauritius’ raft of legislation in 2007 encompassing Insurance Act, Securities Act and Financial Services Act facilitated investment through the adoption of international best practice and the simplification and modernisation of the legal framework. The Financial Services Act resulted in two clear categories of Global Business Company (GBC) for international investors; GBC 1s and GBC 2s. GBC 1s are considered resident for tax purposes and so enjoy exemption from stamp duty, land transfer tax, and capital gains taxes. They also benefit from foreign tax credits and the network of DTAs meaning they pay no more than a 15% corporate tax rate, and as little as 3% on overseas profits, thus helping to make Mauritius a popular platform for investment into India. Moreover, there are no withholding taxes on dividends or other payments issued to non-resident shareholders. GBC 1s are also now entitled to carry on business within Mauritius itself. GBC 2s can be 100% foreign owned, have no minimum capital requirements and are not subject to tax on income derived from outside Mauritius, although this means they cannot make use of the DTA network. In addition, they must state their business objective to the Mauritius FSC and provide details of the beneficial owner, as well as an annual financial summary. The 2011 budget heralds further noteworthy developments in the key trusts management sector with the rule of perpetuity introduced to allow for unlimited duration, thus enhancing Mauritius’ wealth management credentials. In addition, the budget provides for the

strengthening of the banking system’s operational framework, thereby encouraging Islamic finance activities by permitting the Bank of Mauritius to issue a greater variety of liquidity management products and instruments, including those that are Shariah compliant.

The Board of Investment’s recent Investment Promotion Mission to India showcased the jurisdiction and its role as an Eastern and Southern African gateway to Indian investors The budget further allows for the revitalisation of Mauritius’ capital markets by encouraging enterprises in the public sector with large financing needs to issue corporate bonds. It is anticipated that this measure will attract more investment banks and investment advisors to set up operations in the jurisdiction. Mauritius is also strong in the investment holding, asset management, shipping registration and captives sectors, as well as increasingly in the field of investment funds - specifically; emerging market funds. The Board of Investment’s recent Investment Promotion Mission to India showcased the jurisdiction and its role as an Eastern

and Southern African gateway to Indian investors, while in March 2011 Vice Prime Minister Jugnauth pointed to the growing importance of positioning Mauritius as the centre of choice for African investments at a STEP Mauritius conference. He explained that over the last five years, economic growth in Africa had outpaced world GDP Growth. He went on to say that “the BOI has already signed a number of agreements with key Investment Promotion Agencies across Africa, including with Kenya, Tanzania, Uganda, Madagascar, Democratic Republic of Congo, Zimbabwe and the Seychelles, (and) we expect to sign more such agreements in the future.” He further lent his support to the development of a Financial Services Institute in Mauritius to provide high level candidates for the sector, thereby enhancing the jurisdiction’s reputation further. In terms of addressing suspicious activity, Mauritius answers its critics by pointing to the fact that the country is now acknowledged by the OECD, the Financial Action Task Force (FATF), the International Monetary Fund (IMF) and World Bank to have made substantial efforts to comply with internationally accepted standards and codes of conduct. Meanwhile, the country continues to be ranked first in Africa in the latest World Bank ‘Doing Business Report’ for 2011. The statistics would certainly suggest that Mauritius is cementing its reputation as an IFC to be reckoned with. For example, estimated total FDI inflow into Mauritius in 2010 was 25% up on 2009, and it is estimated that this will increase further to some US$400m over 2011.

Africa

Liberia Global Pioneers in the Offshore Corporate Services Industry

Mount Nimba, Liberia

As one of the oldest corporate jurisdictions, the Republic of Liberia, located on the west coast of Africa, has provided corporate registry services internationally for more than 60 years. Its history of legal stability, innovation and client-oriented outlook has earned the Corporate Registry worldwide recognition by key industry professionals. The Liberian Associations Law, generally modelled on U.S. Corporate Law, allows for the formation of Corporations, Limited Liability Companies (LLC), Private Foundations and Limited Partnerships. Liberian entities are simple to form and administer, cost efficient and highly confidential. Despite the rapidly changing regulatory environment of the offshore corporate sector, Liberia is committed to providing flexibility, confidentiality and security. The Liberian Corporate Registry maintains full-service offices in Hamburg, Hong Kong, London, New York, Piraeus, Tokyo, Virginia and Zurich. In addition, the Registry is supported by a worldwide network of Liberian representatives and Special Agents who are available to legalise and accept documents for filing. The Registry’s global infrastructure allows for same-day formation of business entities, prompt issuance of

certificates and filing of documents - 24 hours a day, 7 days a week. In 2002, Liberia adopted a new Electronic Transaction law and Anti-Money Laundering law, paving the way for the Registry’s use of an electronic Register, a secure, webaccessible data network, to facilitate the prompt and efficient formation of entities and the filing and issuance of documents on a worldwide basis.

Despite the rapidly changing regulatory environment of the offshore corporate sector, Liberia is committed to providing flexibility, confidentiality and security Significant investment in advanced information technologies makes the Liberian Corporate Registry a valued partner to its corporate clients. This is further illustrated by the Registry’s recent development of eCorp©, a web-based client interface which provides clients 24/7 access to their accounts to form new corporations, generate certificates, reserve names, manage existing corporations, pay invoices and file documents.

History The Liberian Registry was established in 1948 with the support of former U.S. Secretary of State Edward Stettinius. LISCR, LLC, the Liberian International Ship and Corporate Registry, administers the Liberian Corporate Registry, pursuant to an act of law of the Liberian legislature. Since its inception, the Liberian Registry has been operated from the United States. The strong U.S. – Liberia alliance enables the Registry to participate in the international arena with key industry institutions.

Today Liberia is a respected and professional provider of corporate and ship registration services. With 11% of the world’s fleet, Liberia’s Ship Registry has evolved into the world’s largest quality registry. Since major international financial institutions routinely loan billions of dollars to Liberian corporations under ship finance arrangements, Liberian corporations are recognised internationally by banking facilities and investors. For more than half a century, high net worth individuals and companies have been using Liberian entities to facilitate their business endeavours. © Kris Tripplaar / World Bank

The Republic of Liberia is Africa’s oldest republic with statutory law based on AngloAmerican common law. In 2006, Ms. Ellen Johnson-Sirleaf, a Harvard University graduate and former World Bank economist, was elected President of Liberia and became the first elected female to lead an African nation. Liberia’s pioneering tradition continues today through its Corporate and Ship Registries.

Liberian President Ellen Johnson-Sirleaf

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The Future of Asset Management Clusters from PricewaterhouseCoopers’ ‘See the Future - Top Industry Clusters in 2040’ Report

photo - CC by Alessandro Muiesan

Amongst the world’s largest asset management firms are State Street Global Advisors and Barclays Global Investors with Black Rock (1). These firms are headquartered in Boston, London and New York, respectively. These three cities are currently the largest clusters in asset management (based on the value of funds under management) and are likely to remain important in the future. However, the 2008/09 financial crisis has changed the environment in which western asset management operates and created unique opportunities for other clusters. The threat of stricter financial regulation and tax regimes in some western centres has created disincentives for funds to locate there. The European Union’s Alternative Investment Fund Manager Directive has raised the spectre of increased regulatory burdens for firms based in London and other EU centres (2). These factors may already be causing some asset management business to relocate. During 2010 a number of significant hedge fund managers, with collective assets under management worth more than US$50 billion, have relocated to Geneva, although in many cases the move was limited to the managers with the assets remaining domiciled in their original location. The threat of stricter regulation in some western financial markets has also created opportunities for Asian and South East Asian markets, which are campaigning to attract funds to the region. Perhaps even more important is the potential for organic growth in Asia – driven by strong economic performance and large stock of private and public capital.

We expect to see the existing asset management clusters of Hong Kong and Singapore grow rapidly. Both locations offer less burdensome tax regimes than their western counterparts and have “wellregulated but moderate” (3) regulatory structures. However, in our view there can only be one dominant regional centre in Asia. This is because of the enormous benefits accruing from knowledge spillovers and labour force specialisation in this industry. At present, we see the competition to be the regional asset management centre between Hong Kong and Singapore.

The threat of stricter regulation in some western financial markets has also created opportunities for Asian and South East Asian markets In the first half of 2010 Hong Kong outperformed Singapore in attracting start up asset management funds with 65% of Asian fund launches during the period occurring in Hong Kong. However, with the Singaporean government actively promoting the city as a global centre for asset management and with a higher existing value of assets under management, Singapore is well-placed to compete with Hong Kong going forward.

While Hong Kong’s proximity to China allows it access to the growing Chinese market, it will also be competing with other financial centres within China, such as Beijing for a majority share of the Chinese asset management market. As a more independent cluster in close proximity to Indonesia, Malaysia and Thailand, we expect Singapore to attract the internationally footloose capital and become the second largest global asset management cluster by 2025. Existing asset management clusters in Hong Kong, Tokyo and Beijing should continue to grow – but will be more likely to service more insular domestic markets. By 2040, the three largest clusters by value of assets under management are projected to be New York, Singapore and London. All clusters are expected to grow substantially, capitalising on increasing liquidity and globalisation of world savings, with Singapore exhibiting particularly rapid growth between 2010 and 2040. Despite growth in Asian markets, New York is projected to retain its position as the dominant asset management cluster. It is assisted by a large pre-existing pool of skilled labour and well-developed infrastructure. We also expect London to perform strongly, helped by the UCITS Directive, which requires fund managers to be based in the EU. For further information go to economics.pwc.com ©Sep 2010 PricewaterhouseCoopers (1) Barclays Global Advisors is no longer a separate company having been purchased by Black Rock in 2009. (2) HedgeFund Intelligence (2010) Geneva may be fine for some – but not for all. (3) HedgeFund Intelligence (2010) Old hands show their strength in Asia.

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Islamic Finance and Global Financial Stability

Jointly published by the Islamic Financial Services Board (IFSB), the Islamic Development Bank (IDB) and the Islamic Research and Training Institute (IRTI). Basic Principles of Islamic Finance • Prohibition of interest (riba). Prohibition of riba – a term literally ‘an excess’ and interpreted as ‘any unjustifiable increase of capital whether in loans or sales’. • Money as ‘potential’ capital. Money is not a commodity, but a medium of exchange, a store value and a unit of measurement. Money represents purchasing power and cannot be utilised to increase the purchasing power without any productive activity. Islamic finance advocates the creation of wealth through trade and commerce. • Risk sharing. Because interest is prohibited, suppliers of funds become investors, rather than creditors. • Prohibition of speculative behaviour. Islamic finance discourages hoarding and prohibits transactions featuring extreme uncertainties (gharar), and gambling (maysir). • Sanctity of contracts. Islamic finance upholds contractual obligations and the disclosure of information as a sacred duty. This feature is intended to reduce the risk of asymmetric information and moral hazard.

• Shari’ah approved activities. Only those business activities that do not violate the rules of the Shari’ah qualify for investment. For example, any investment in a business dealing with alcohol or gambling is prohibited. • Social justice. Any transaction leading to injustice and exploitation is prohibited. Adapted from Askari, et. al (2010)

Islamic Finance... encourages participatory finance or active participation in the business

Shari’ah boards or Shari’ah compliant review process provides additional safeguards against irresponsible practices. In contrast, conventional financial instruments generally separate such risks from the underlying assets. As a result, risk management and wealth creation may, at times, move in divergent directions, with adverse consequences for effective risk management. Conventional financial instruments also allow for the commoditisation of risks. This has led to its proliferation through multiple layers of leveraging and disproportionate distribution, which in turn could result in higher systemic risks, thus increasing the potential for instability in the financial system.

Islamic finance promotes transactions that are based on profit and risk sharing. It encourages participatory finance or active participation in the business, through mudarabah (partnership of work and capital) and musharakah (joint venture) contracts. This approach promotes participation in the risk-reward and financial results or outcome of such businesses. This risk sharing requires the Institutions offering Islamic Financial Services (IIFS) to undertake the appropriate due diligence on the viability of business proposals. Oversight and review by the relevant parties such as

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Extinction or Evolution: The Future for Offshore Centres

The Hon Anne V Craine MHK, Treasury Minister, Isle of Man Government delivers her 2010 Sir Thomas Gresham Docklands Lecture

The Hon Anne V Craine MHK Treasury Minister, Isle of Man Government In November 2010 Anne Craine, Treasury Minister of the Isle of Man delivered her 2010 Sir Thomas Gresham Docklands Lecture looking at the future for offshore centres, suggesting the route to prosperity, how they need to adapt and making the case for them being a force for good in international finance. Here we reproduce this key speech in its entirety, much of which has application to many other small IFCs. “The question is not whether the Isle of Man and other offshore centres will survive. We most certainly will survive, because we will evolve. The question is how well we will prosper? And to a large extent that depends on how well the City of London prospers. The existence of offshore centres greatly benefits the City of London and the entire UK economy. David Lewis, former Lord Mayor of London has said that we are in fact a core asset for the City. From our perspective, we the Isle of Man need London to stay competitive and keep its position as one of the top global finance centres. The subject for this evening is the future of what are often referred to as offshore

centres. Tonight I’ll refer to them as Small International Finance Centres. In fact that’s a bit of a mouthful so I’m going to say ‘small IFCs’. In a globalised economy, where capital and trade transcend national boundaries, I believe it is inevitable that small IFCs will be players in that economy.

“The question is not whether...offshore centres will survive, (but) how well we will prosper” I have two core propositions tonight: • Firstly that small IFCs - and particularly the Isle of Man - have a right to be competitive players in global trade, as long as we fully embrace developed international standards.

IFCs have a valuable role in international finance. Tonight I am going to tell you why. But first I need to provide a brief outline of the Isle of Man and its economy. The Isle of Man is not and never has been part of the United Kingdom. It is an internally self governing dependent territory of the British Crown. Along with the Channel Islands, it is known as a ‘Crown Dependency’. The Isle of Man has the world’s oldest continuous Parliament. The Island is not part of the European Union. It does have a limited relationship with the EU, which allows for the free movement of goods, but not services, between the Isle of Man and the EU. The Isle of Man economy has had over a quarter of a century of consecutive growth, with last published figures for 2008-9 showing growth in real terms of 4.7%.

• Secondly, I also say that small IFCs need to redefine their relationships with larger centres, such as the City of London.

The key sectors in generating this performance have been financial, professional and scientific services. Banking now generates around a sixth of the Island’s gross domestic product, with the rest of the finance industry led by the offshore life insurance sector adding another 20%.

You could describe that relationship as being like nodes or spokes around a hub. So, small

A key feature of the Isle of Man’s economy that differentiates it from other small IFCs

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is its diversification. Aside from banking, insurance and wealth management, it has a fast growing e-gaming sector, high tech manufacturing, as well as thriving shipping and aircraft registers. An important element of the Island’s fiscal strength is the long established and self imposed legislative requirement that Government must budget for a surplus in respect of its annual revenue spending. At the same time as meeting this requirement Government has continued to invest in developing and updating the Island’s infrastructure and services. The strength and prudent handling of the public finances has meant that we have achieved and kept triple credit ratings from both Moody’s and Standard & Poor’s. But enough background. Back to my core contention: Small IFCs have a valuable role in international finance. I know that there are people, organisations and even countries that question that statement. And they question it pretty vehemently. Over a period of years and particularly since the global financial crisis, small IFCs have endured political attacks and what I consider to be misguided criticism. Also, a series of myths have developed and I am going to put you right on some of those myths tonight. An important step in rebalancing the argument took place in July with a debate on Offshore Financial Centres in the Westminster Hall. In that debate, Mark Field, the Member of Parliament for the Cities of London and Westminster argued that it is critical for politicians and policy makers to formulate policy in a consistent, balanced and informed manner. He also said that the benefits of small IFCs should be considered dispassionately.

something not to be confused with tax evasion.

capital markets for businesses in both developed and emerging countries.

This enables investors from multiple jurisdictions to ensure they don’t meet multiple layers of taxation as funds pass through the global financial system. There is also legal neutrality that ensures no one nationality is given special treatment.

Myth - That small IFCs played a part in causing the global financial crisis.

In his review of British Offshore Financial Centres for HM Treasury published in October 2009, Michael Foot also concluded: ‘The Crown Dependencies make a significant contribution to the liquidity of the UK market. Together they provided net financing to UK Banks of 332.5 billion dollars in the second quarter of 2009. These funds are largely accounted for by the ‘upstreaming’ to the UK Head Office of deposits collected by UK Banks’

“Tax neutrality, something not to be confused with tax evasion...enables investors from multiple jurisdictions to ensure they don’t meet multiple layers of taxation as funds pass through the global financial system” So what are the popular myths that need to be dispelled? Myth - That small IFCs have a negative impact on growth in the global economy. Fact - Small IFCs offer stable, well regulated and neutral jurisdictions that make it easy to do international and cross border business. Investment channelled into small IFCs provides much needed liquidity, further investment opportunities, and access to

Fact - Everybody loves to target a convenient scapegoat - especially one whose voice is small and easily drowned out. At the height of the crisis this unfair and inaccurate targeting diverted attention away from the real causes. Indeed it could be argued that the liquidity supplied by small IFCs was of great benefit to the UK during the crisis. Myth - That small IFCs have a negative impact on transparency, regulation and information exchange. Fact - Tax transparency is high on the G20 agenda and small IFCs are at the forefront of the OECD’s work in this area through the Global Forum on Transparency and Exchange of Information. The Isle of Man has just signed its seventeenth Tax Information Exchange Agreement, this time with China. In addition it has signed 3 Double Taxation Agreements all with EU member states. We have a number of further Agreements in the pipeline for signing. The Isle of Man has for many years been, and continues to be an active participant in the OECD’s work on Transparency and Exchange of Information, through the work of what is called the Peer Review Group. In relation to regulation, the Isle of Man and other small IFCs have undergone extensive scrutiny by the IMF and have been found to have higher standards than many much larger countries. Myth - That small IFCs don’t benefit developing countries. Fact - The Commonwealth Secretariat acknowledges that small IFCs often play a very important role by enabling developing countries effectively to ‘rent’ financial

He went on to summarise the reasons why the global financial community uses small IFC s like the Isle of Man. Those reasons include: • Political stability • A familiar legal system, based on English Common Law • A high quality of service providers • An ability to meet important investor requirements such as the legal infrastructure for share selling • A lack of foreign exchange controls As well as all that, there is Tax neutrality,

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Douglas Harbour, Isle of Man

expertise from other countries whilst they develop financial centres of their own. The Isle of Man has initiated and run for the last two years, a very successful ‘Small Countries Financial Management Programme’, aimed at capacity building at senior level in small and developing countries. The Isle of Man is certainly willing to consider requests for Tax Information Exchange Agreements with developing countries, either bilaterally or within a multi lateral framework developed, perhaps, by the OECD. Whether it is listing, upstreaming, asset management, insurance or shipping, or even the space industry, everything the Isle of Man does, materially and positively supports the larger centres, or hubs. This is why the Isle of Man is a core asset to the City of London. And so, onto the future. In an economic sense, I was particularly interested in comments made by Michael Geoghegan, Group Chief Executive of HSBC Holdings PLC, back in April. He highlighted that emerging markets are set to grow three times faster than developed ones this year and that within three years, for the first time, the economic firepower of emerging markets will overtake the developed world, measured by purchasing power parity. This is a defining moment. He reminded his audience that the term

BRIC was invented only ten years ago and that in that period Brazil, India and China’s roles are secure on the world stage, with Russia’s economic story still unfolding. But for the coming decade he said that CIVETS are the new BRICs.

“Sticking to international standards is absolutely vital for the survival of small IFCs” For those of you who are not jargon junkies, the countries he was referring to were Columbia, Indonesia, Vietnam, Egypt, Turkey and South Africa - each with large, young growing populations and diverse and dynamic economies. Any company with global ambition needs to get into these markets now. You cannot wait for business. You have to go where the business is. The latest edition of The Global Financial Centres Index highlights that Hong Kong has now joined London and New York as a genuinely global financial centre. Singapore may well join this trio soon. So, in an economic sense the direction is clear, but small IFCs still have to face

something else; the disinterest, lack of knowledge or even active opposition of larger countries. We must also expect to hear continued rhetoric targeting alleged ‘tax havens’, ‘secrecy jurisdictions’ and other similar dark phrases. Our challenge will be to separate reality from that bleak rhetoric. G20 and its growing influence illustrate the increasingly globalised political environment to which both small IFCs and the City have to respond. The developing international regulatory architecture is an important illustration of this. As in the immediate crisis period, the voices of small states and developing countries are in danger of being unheard. There is a risk that the solutions arrived at do not take into account, or can possibly even actively damage, the interests of those small states. Small IFCs and small states in general have to work very hard to have our voices heard and our legitimate interests recognised. In the case of the Isle of Man that involves constructive engagement with the UK Government, the development of existing relationships with the EU and the OECD, the extension of tax agreement programmes and enthusiastic adherence to international regulatory standards.

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Sticking to international standards is absolutely vital for the survival of small IFCs. This will bring with it higher costs and greater pressures. The Isle of Man is of a size that can manage these pressures; not all small IFCs are as fortunate. However, we’ll also need international bodies to take into account the views and interests of small states.

delivered by the integration and interaction of the other parts. To be able to adapt or evolve that package and provide a successful small IFC, Government needs to bind together, like single strands into a strong rope, five elements; • Awareness

permission we already have in Singapore. What will distinguish those small international financial centres that flourish from those that fade will be their willingness to work closely with the strategic ambitions of their hubs. So, the key future commercial relationships for a small IFC will be those it has with its hubs. This means that the Isle of Man will need to work more and more closely with the City, constantly asking the question ‘How can we help you compete?’

I take some comfort, not a lot yet, but some comfort from recent statements from the Commonwealth Secretariat and Robert Zoellick, President of the World Bank.

• Engagement

• Acceptance of international standards

It is important to us that the City shows the BRIC and other developing countries, that it’s a relevant player that adds value to them and to the new economic order.

They both acknowledge that the views of small states need to be properly channelled into the powerful decision making bodies, particularly the G20. They also see themselves fulfilling that role. Early days, but some hopeful signs. A question for small IFCs to address is how best to represent their interests, if such channels become available. In essence do they seek to act in isolation, or do they seek to develop alliances to better make their voices heard. In my view it is going to be essential that small IFCs form such alliances, but I believe it’s going to be a particularly challenging process, both because of the competitive nature of relationships and also because of the reputational issues it’s bound to create.

• Positioning

I am going to give you an image.

Which leads me neatly back to where I started. The basic answer is of course yes, small IFCs certainly can more than survive. They can prosper. But how? At a Governmental level, a small IFC has to work as hard as it can to understand the environment in which it operates, how it is changing and position itself accordingly. It has to decide how the whole package that it offers to the international business community should be adapted and improved to make it more competitive, whilst also meeting ever evolving international regulatory standards. This competitive package should contain five key ingredients: • People - which means the availability of good quality, highly qualified and skilled staff within a flexible labour market. • Infrastructure - with well-priced property together with good telecommunications and transport links. • A Positive Business Environment with the right levels of regulation and taxation, a friendly place to do business with integrity, run by a responsive government. • Market Access • General Competitiveness - with synergy

• Co-operation

Personally, I have to constantly try to understand what influential Governments and international bodies are really seeking to achieve and how it affects the Isle of Man.

“What will distinguish those small international financial centres that flourish from those that fade will be their willingness to work closely with the strategic ambitions of their hubs” I try to separate the underlying policy drivers from the rhetoric and differentiate between the permanent shifts and the ephemeral ones. Essentially, I am looking beyond the immediate hurdle and what it might mean for my country. For example, I have recently seen an IMF document which includes the following gem and I quote: ‘More co-ordination is needed among tax administrations of various countries and among tax policies, in a globalised economy. Maybe it is time to revive the idea of a World Tax Organisation to address these coordination issues.’(1)

The Government of a small international financial centre, in the form of a Minister like me, has to conduct the orchestra whilst walking a tightrope on a windy day. The orchestra consists of commercial, fiscal, regulatory, legislative and international relations sections, each with a variety of instruments. The weather is determined by external economic and political conditions. Success involves both staying on the tight rope and producing a pleasant sound. Evolution involves improving the instruments, the abilities of the players, the ear, communication skills and balancing ability of the conductor. If the various skills of all parties don’t evolve the orchestra doesn’t improve. If the conductor falls off the tight rope - the orchestra becomes extinct. The Isle of Man is a professional orchestra that has the training and the skills to play in tune with the World symphony and adds the vital components that make the melody unique. If the City and the Isle of Man work together like this, both will survive, both will evolve and both will prosper.” (1) Long-Term Trends in Public Finances in the G-7 Economies Carlo Cottarelli and Andrea Schaechter IMF Staff Position Note September 1, 2010 SPN/10/13

We’ll certainly be keeping an eye on that. But remember that whatever international standards become the norm the Isle of Man will always be ready to meet those standards. There are some other things that a small IFC should be thinking about. As the pace of globalisation quickens, the relationships between small IFCs and central hubs become ever more important. Small IFCs can, in fact need to develop relations with more than one hub. For instance, the Isle of Man is now eligible to list Isle of Man vehicles in Hong Kong, to complement the

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The Global Forum on Transparency and Exchange of Information for Tax Purposes Extracts from an OECD (Organisation for Economic Co-operation and Development) background information brief 18 February 2011 Global Forum makes public its findings on transparency and exchange of information in another 10 jurisdictions

standard and will need to implement the recommendations made in their reports before moving to the next phase of their evaluations. It has been noted in the case of San Marino that important

• Responding to the G20 call for improving tax transparency, the Global Forum has delivered 10 new peer review reports on exchange of information, including bank information. The 10 reports show progress made in the reviewed jurisdictions but also deficiencies which need to be addressed. These 10 reports follow the first 8 reports published in September (all reports are available at www.oecd.org/tax/transparency).

Responding to the G20 call for improving tax transparency, the Global Forum has delivered 10 new peer review reports on exchange of information, including bank information

• Five reports analyse the legal and regulatory framework of the reviewed jurisdictions (Phase 1 reports) and, for the first time combined reviews are issued which assessed both the legal and regulatory framework and the practical implementation of the standard.

legislation has recently been passed and will further be examined by the Global Forum. The report on Guernsey shows that a satisfactory legal framework is in place but that there are minor issues that Guernsey has been asked to address.

• Four jurisdictions, Barbados, the Seychelles, San Marino and Trinidad and Tobago fall short of the international

• The four other ‘combined’ reviews show that the systems in place in Australia, Denmark, Ireland and Norway

have achieved effective exchange of information in practice. However, there are some minor issues related to information on bearer shares or nominees which will have to be addressed. • This latest batch of reviews brings to 18 the number of reports adopted and shows that the Global Forum continues to take forward the G20 agenda. They also show that almost all countries have room for improvement. More than 60 reports will be completed by year end. • The reports provide an in-depth analysis of the legal and regulatory frameworks for transparency and exchange of information in place in the eighteen jurisdictions. Each report contains determinations on 9 essential elements on the implementation of the standards and an executive summary that encapsulates the main findings of the review and what areas, if any, the jurisdiction should address to provide more effective exchange of information. The combined reports (and eventually the phase 2 reports) will also contain a rating indicating the jurisdiction’s compliance with each essential element as well as an overall rating. This rating will only

Comment

• The Global Forum has also recently welcomed the Former Yugoslav Republic of Macedonia as a new member, and more are interested in joining. In particular, the Global Forum is actively pursuing means of extending its membership to developing countries, to ensure that they are able to take advantage of the new environment of transparency. The Global Forum has approached a number of jurisdictions to become members, and should add 20 – 30 new members by the end of 2011. • The aim of the Global Forum is to ensure that all jurisdictions fully implement the international standards on transparency and exchange of information. The reports adopted so far by the Global Forum have identified a number of deficiencies regarding the implementation of the standards and have made recommendations for improvement. The Global Forum is currently putting in place a process whereby jurisdictions will be able to request a supplemental report reflecting the changes they have made in their legal and regulatory framework subsequent to peer review. Making sure the public is able to keep track of changes made in each of the jurisdictions covered by the Global Forum is key to its relevancy. A public website – the EOI Portal – will soon be launched that gathers all the information collected by the Global Forum. The EOI Portal will present this information in a dynamic and user-friendly way and be kept up to date to reflect changes made as they happen. Speeding up the process • The OECD is currently pursuing important strategies to help accelerate the development of adequate exchange of information networks. One stream is a process of multilateral negotiations toward bilateral agreements for the exchange of information. The OECD has initiated three pilot projects, two in the Caribbean and one in the Pacific. All of the pilot projects have been very successful. More than 100 agreements have already been signed or are currently being concluded as a result of the initiative. The initiative has allowed a number of smaller jurisdictions such as Antigua and Barbuda, the Cook Islands, Samoa and the Turks and Caicos Islands to quickly put in place a significant network of agreements. It has also allowed some of these jurisdictions to move into the ‘substantially implemented’ category in the Progress Report. These initiatives have been extended to Costa Rica and Liberia. Liberia has now signed 11 exchange of information agreements as a result of

this process and expects to sign a number more in 2011. The Secretariat is now also working with Kenya, which joined the Global Forum in July 2010, to develop its network of information exchange agreements.

In case a jurisdiction chooses not to participate, a review will still be conducted using publicly available information and the jurisdiction will be given every opportunity to provide its comment and input should it wish to do so Can a jurisdiction choose not to participate in the review? Jurisdictions cannot obtain any advantage by staying outside the process. When a jurisdiction is identified as relevant to the work of the Global Forum it will be invited to become a member and undergo a peer review. In case a jurisdiction chooses not to participate, a review will still be conducted using publicly available information and the jurisdiction will be given every opportunity to provide its comment and input should it wish to do so. As the review will be conducted in any event, jurisdictions have every incentive to join the Global Forum and take part in its decisions on an equal footing.

At its Singapore meeting, the Global Forum will identify jurisdictions of relevance to its work and will invite them to join the Global Forum. What happens when a jurisdiction does not agree with its peer review report? The reviewed jurisdiction can express its views in an annex to the report but cannot block the adoption of a report, nor can any one jurisdiction. This is the rule of consensus minus one. What happens if a jurisdiction has too many deficiencies? Where a jurisdiction is found to have too many elements not in place during the phase 1 review, the report will indicate that the jurisdiction cannot move to a phase 2 review. Indeed, it is not necessary to check whether information is exchanged in practice where the legal and regulatory framework is not in place. The jurisdiction will have to take action and fix the deficiencies so that it can report progress to the Global Forum for its report to be re-examined. Is the internationally agreed standard subject to change, for example on the basis of findings in the peer review process? The internationally agreed standard on transparency and exchange of information is primarily reflected in the 2002 Model Agreement on Exchange of Information on Tax Matters and in Article 26 of the OECD’s and UN’s Model Tax Convention on Income and on Capital and their respective commentaries. The Terms of Reference have broken down the standard into ten essential elements based on these primary authoritative sources as follows;

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be given once a representative subset of combined reviews have been completed.

A process of multilateral negotiations toward bilateral agreements for the exchange of information has allowed smaller jurisdictions such as Antigua and Barbuda to quickly put in place a significant network of agreements

Comment

Ten Essential Elements of Transparency and Exchange of Information for Tax Purposes A: Availability of Information A.1. Jurisdictions should ensure that ownership and identity information for all relevant entities and arrangements is available to their competent authorities. A.2. Jurisdictions should ensure that reliable accounting records are kept for all relevant entities and arrangements. A.3. Banking information should be available for all account-holders. B: Access to Information B.1. Competent authorities should have the power to obtain and provide information that is the subject of a request under an EOI agreement from any person within their territorial jurisdiction who is in possession or control of such information. B.2. The rights and safeguards that apply to persons in the requested jurisdiction should be compatible with effective exchange of information.

C: Exchanging of Information C.1. EOI mechanisms should provide for effective exchange of information. C.2. The jurisdictionsâ&#x20AC;&#x2122; network of information exchange mechanisms should cover all relevant partners.

Neither the Global Forum nor the OECD has the power to impose sanctions on countries that do not implement the standards C.3. The jurisdictionsâ&#x20AC;&#x2122; mechanisms for exchange of information should have adequate provisions to ensure the confidentiality of information received. C.4. The exchange of information mechanisms should respect the rights and safeguards of taxpayers and third parties.

C.5. The jurisdiction should provide information under its network of agreements in a timely manner It is possible that, as the interpretation of these sources evolves, either on the basis of findings in the peer review process or otherwise, the Terms of Reference may be amended to reflect this. The G20 has stated that it stands ready to implement sanctions. Are the results of the peer review process going to be used to determine these? Neither the Global Forum nor the OECD has the power to impose sanctions on countries that do not implement the standards. Individual countries whether OECD or non-OECD will decide for themselves what actions they consider necessary to ensure the effective enforcement of their tax laws. The G20 has produced a list of potential measures based upon an analysis provided by the OECD. The OECD will continue to provide a forum where countries can discuss how to make these measures more effective.

Photo - NASA

Hundreds of tax information agreements now criss-cross the globe

Comment

Exchange of information on request occurs where one jurisdiction’s competent authority asks for particular information from another competent authority. Typically, the information requested relates to an examination, inquiry or investigation of a taxpayer’s tax liability for specified tax years. The standard prohibits fishing expeditions. Before sending a request, the requesting jurisdiction should use all means available in its own territory to obtain the information except where those would give rise to disproportionate difficulties. The request should be made in writing, but in urgent cases an oral request may be accepted, where permitted under the applicable laws and procedures. Requests should be as detailed as possible and contain all the relevant facts, so that the competent authority that receives the request is well aware of the needs of the applicant contracting party and can deal with the request in an efficient manner. The OECD has developed guidance on what could be included in a request. Why information exchange on request and not automatic? The standard for exchange of information in both cases is the same: the information must be “forseeably relevant” to the administration or enforcement of the domestic tax laws of the country concerned or to the application of the treaty concerned but the form in which the exchange of information takes place can vary. Article 26 of the OECD Model Tax Convention provides “rules under which information may be exchanged to the widest possible extent” and includes exchange on request, automatic exchange and other forms of information exchange. Most OECD countries do engage in automatic exchange of information on a range of different types of income. In the context of the development of the 2002 Model Agreement on Exchange of Information on Tax Matters, it was agreed that for purposes of implementing the commitments made by jurisdictions identified as tax havens in 2000, exchange of information on request would be sufficient. Similarly, in the 2000 report, Improving Access to Bank Information for Tax Purposes, it was agreed to focus on exchange of information on request. In both cases, the decisions reflected the major step forward exchange on request would imply for the jurisdictions concerned. Do the standards allow for exchange of information on companies and trusts and their owners and beneficiaries? Yes. The standards impose an obligation to exchange all types of information forseeably relevant to the administration and enforcement of the requesting country’s domestic tax laws. This could include

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How does exchange of information on request work?

Fishing expeditions are not permitted

information on companies and trusts and their owners and beneficiaries. Moreover, a jurisdiction cannot decline to provide information in response to a request for exchange of information solely because it is held by a person acting in an agency or fiduciary capacity, such as a trustee. What are the safeguards to protect confidentiality? The protection of taxpayers’ confidentiality is key to the success of exchange of information. The Global Forum has published terms of reference that break down the internationally agreed standard (which can be found in the OECD and the UN Model Tax Conventions) on information exchange into 10 essential elements. Two of

a country is free to decline a request for information in a number of situations these elements relate to the confidentiality and protection of rights and safeguards of taxpayers and third parties. Tax evasion undermines the fairness of tax systems and costs governments, and honest taxpayers, billions of dollars every year. Now, all jurisdictions can benefit from the standard developed by the OECD. It provides for information exchange on request, but only when the information is relevant to the assessment of taxes. This is a balanced standard – one that includes a high level of protection of taxpayers’ rights, including the right to confidentiality. This right is and will be closely monitored by the Global Forum.

What if countries want to use tax information for other purposes? First, tax information received from another country can only be used for the purposes stated in the agreements. Second, a country is free to decline a request for information in a number of situations. One reason for declining to provide information relates to the concept of public policy/ordre public. ‘Public policy’ generally refers to the vital interests of a country, for instance where information requested relates to a state secret. A case of ‘public policy’ may also arise, for example, where a tax investigation in another country was motivated by racial or political persecution. Is bank secrecy incompatible with this standard? No. All countries have some form of bank secrecy. What is important is that it can be lifted in well defined circumstances to enable countries to enforce their own tax laws and to respond to requests for information pursuant to TIEAs or tax treaties so that treaty partners can administer their own laws.

OECD (2011), The Global Forum on Transparency and Exchange of Information for Tax Purposes; A Background Information Brief 1 March 2011, www.oecd.org/tax/transparency For more information please contact: Jeffrey Owens, OECD Centre for Tax Policy and Administration Director (jeffrey.owens@ oecd.org) or Pascal Saint-Amans, Global Forum Secretariat (pascal.saint-amans@oecd.org)

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Position of Swiss Bankers Association (SBA) on Swiss Government’s Planned Revisions to Administrative Assistance in Tax Matters photo - CC by Christine Zenino

...as of 15 February 2011

• The SBA notes that the Swiss Government wants to make technical revisions to the requirements for administrative assistance in tax matters because of the risk of a negative peer review from the OECD’s Global Forum. With regard to the identification of a taxpayer and also of the holder of the relevant information (i.e. a bank), the proposed revisions foresee that other criteria besides a name will in exceptional cases be allowed. A bank account number, for example, together with sufficient other references could suffice to identify a client provided that no ‘fishing expedition’ is intended.

• In most cases, however, the identification of taxpayers and holders of the relevant information (i.e. a bank) in the context of requests for administrative assistance will continue to be done by means of a name and address.

to the proposed revisions the SBA will of course take into account the interests of the Swiss economy as a whole. The Swiss economy would face a substantial risk if Switzerland were once again to be placed on some grey or black list.

The Swiss economy would face a substantial risk if Switzerland were once again to be placed on some grey or black list • The SBA expects the following from the

• In its decision whether or not to agree 64

Within the context of the OECD the interests of the Swiss financial centre must be represented in a consistent and robust manner and any attempts to introduce a system of automatic information exchange must be resolutely rejected.

• The SBA was surprised by the Global Forum’s action but now expects its peer review to be concluded rapidly and in a manner that is positive for Switzerland. © SwissBanking 2011.

Swiss Government: 1.

The proposed revisions must not make any substantial difference to administrative assistance procedures in practice. So-called ‘fishing expeditions’ and also mass-requests for information must continue to be ruled out and administrative assistance must continue to be based on justified requests.

Any revisions to double taxation treaties must adhere to the Government’s fundamental principles on administrative assistance laid down in March 2009 and, when the treaties are applied

• The SBA is examining the proposed revisions, taking into account various fundamental changes that have taken place since March 2009. Since then the Swiss banking sector has declared it is to focus on acquiring and managing assets which have been subject to taxation and the ongoing negotiations with Germany and the United Kingdom are taking this position into account.

in practice, positive identification of an individual must continue to be the rule.

photo - CC by Jeff Pang

Comment

World Economic Forum 2011

Davos, Switzerland: Venue of the World Economic Forum Annual Meeting 2011

While emerging economies have recovered strongly, developed countries are also on the rebound. With additional public sector stimulus unlikely, the private sector should fuel growth through investment. The G20 agenda must be sensitive to the concerns of countries that are not members. The global economy is rebounding, led by developing economies including China and India, with developed countries growing much more slowly, government and banking leaders said in a plenary session on the global economic outlook at the World Economic Forum Annual Meeting 2011. While the recovery is gaining pace, however, there remain significant challenges for all economies. On the panel were representatives of two large dynamic economies in Asia – India and China. India is predicting a GDP growth rate of 8.5% for the fiscal year ending on March 2011. According to Montek Singh Ahluwalia, Deputy Chairman of India’s Planning Commission, thanks to the robust recovery, his country “remains an attractive destination for foreign investment. We expect that to pick up.” As for China, “in the short run, the economy is okay and will be okay,” reckoned Yu Yongding, Senior Fellow at the Institute of World Economics and Politics in the Chinese Academy of Social Sciences (CASS). But “in the long run, I have doubts about the sustainability of growth if China fails to make adjustment of its growth model.

The investment driven, export-promotion growth pattern has run out of steam and we have to make changes fast.” With the global economy running at two different speeds, some economists are again arguing that developing countries are decoupling from developed ones. That is not the case, Ahluwalia insisted. “We are not decoupled. What happens in the global economy affects us.”

With the global economy running at two different speeds, some economists are again arguing that developing countries are decoupling from developed ones Europe, which was beset by debt crises last year, “is picking up a little bit more slowly in 2011 than at the end of 2010,” Christine Lagarde, Minister of Economy, Finance and Industry of France, told participants. “But with massive restructuring taking place, we will restore the confidence needed for growth.” European Union countries are addressing their fiscal deficits, she noted. “In terms of fiscal consolidation, we are all heading in the same direction.” Added Wolfgang Schäuble, Federal Minister of Finance of Germany: “Reducing the deficit is a precondition for sustainable growth.”

Looking ahead this year, Schäuble predicted, “The euro will be stable and there will be no big shocks.” His British counterpart, George Osborne, Chancellor of the Exchequer of the United Kingdom, argued that Europe must focus on boosting its overall competitiveness. “The proof is going to be in the pudding – can we actually make the EU a more competitive place in which to do business?” His government’s main challenge “is to remove the supply side obstacles to stronger growth,” he explained. United Kingdom corporations are sitting on a large amount of cash and “I have to persuade them to start spending and investing that money.” Robert E. Diamond, Chief Executive, Barclays PLC, United Kingdom, agreed that the private sector must mobilise its capital. “We are not going to see additional stimulus from the public sector so it is time to shift the mantle of growth from the public sector to the private sector,” he observed. Diamond said: “Banks are operating in a safer and sounder financial system,” thanks to swift concerted action by the international community in reaction to the crisis. “The G20 came together in a way that was very beneficial to the financial system.” He expressed the thanks of the banking sector for the timely action by G20 governments. Lagarde said that France, which is the G20 chair this year, has prepared an ambitious agenda for 2011. Some people think that the G20 has become a talk shop, she added. “We really want to demonstrate that the G20 is useful in times of recovery as well [as crisis].” Robert B. Zoellick, President, The World Bank Group, Washington DC, applauded the French government for setting an agenda that is not simply focused on the interests of G20 countries. “The G20 has to proceed in a way that recognises the sensitivities of nonmembers,” he concluded. Source: World Economic Forum More information on the World Economic Forum Annual Meeting 2011: www.weforum.org

President Sarkozy of France at the World Economic Forum Annual Meeting 2011

Photo by swiss-image.ch/Sebastian Derungs

Photo by swiss-image.ch/Michael Wuertenberg

Global Economic Outlook: Recovery Is Gaining Pace and Confidence Is Growing

Comment

Statement on Tax Avoidance Debate from the IFC Forum The recent demonstrations by organisations such as UK Uncut have brought the debate over tax avoidance back into the public arena, as has the publication of “Treasure Islands” by Nicholas Shaxson. The issues raised are not new, but the tone of the rhetoric - spurred on by public anger over banking bonuses and spending cuts – has reached new heights.

when the funds are received by the investor, while the tax neutral IFC platform simply eliminates a third layer of tax where the funds are aggregated. Far from being only a mechanism for multinationals and the rich, this construct is also widely used for the pension and insurance pots of citizens of more modest means.

The IFC Forum is concerned at the unbalanced nature of the debate. Wellinformed public discussion is critical to sound policymaking, which should be based on economic fundamentals. The current public conversation requires a better understanding of why and how the rise of offshore finance has benefitted the global economy.

Far from being only a mechanism for multinationals and the rich, this construct is also widely used for the pension and insurance pots of citizens of more modest means

Tax evasion is a crime, and one that we at the IFC Forum roundly condemn. It is undeniable that large and small financial centres have, as Shaxson correctly notes, played host to such soft criminal activities in the past. However, independent studies such as “Tax evasion, tax avoidance and tax expenditures” from the University of Oxford and the Treasury-commissioned “Independent Review of British Offshore financial centres” routinely confirm that true levels of tax avoidance and evasion in most offshore IFCs are far lower than what is asserted by detractors. 1,2 The small international financial centres where the IFC Forum members are headquartered have top quartile governance ratings, rank very highly in the antimoney laundering and anti-terrorist financing evaluations of the FATF, and are central participants in the Global Forum on Transparency and Exchange of Information.3,4 All of these jurisdictions are on the OECD’s ‘white list’ of countries that have substantially applied the OECD’s internationally-agreed standard on information exchange, and continue to sign new agreements to promote transparency. Not only are the offshore centres that we represent areas of legal and legitimate financial activity, they also form an essential part of the global economy, contributing significantly to a dramatic rise in global GDP since the mid 1970s. Offshore finance serves as a ‘tax-neutral’ conduit for global capital flows through activities such as investment fund formation. Funds formed offshore allow capital from numerous jurisdictions to be effectively pooled. Such funds are taxed in accordance with law in the countries where the funds are invested and again

This useful fund collection function, and other offshore activities such as risk reinsurance, provides important support for onshore economies. This means more and cheaper capital available to finance productive investment, which in turn is critical for job creation, rising incomes, and economic growth. Offshore finance also plays a constructive role vis-à-vis developing countries, particularly in Africa. Small IFCs are important as conduits for investment capital and assist in the development of local financial institutions and capital markets, improving the prospects for economic growth as a result of increased levels of FDI. Capital flowing through small IFCs is important in supporting SMEs, which are a major engine of jobs and productivity.

The emergence of China and the Asian Tigers is a case in point. The presence of Singapore and Hong Kong have allowed countries (like China) with underdeveloped financial infrastructure to access international capital markets by using transaction-cost-reduction institutions available in international financial centres. Hong Kong has proven so important to China’s development that when the mainland resumed control of it in 1997 it took great care to avoid interfering with its laws or regulations. Efficient financial intermediation of funds into and out of China has assisted with lifting 500 million Chinese out of poverty over the last thirty years. 5 We at the IFC Forum acknowledge that there is an important debate to be had over the nature and level of global financial regulation and we agree that there are benefits to be gained from increased transparency in the international financial system. We also believe that suitably regulated cross-border financial intermediation is a demonstrable good for the world economy, and that the liquidity it provides is an essential component of the economic recovery.

1 Fuest and Riedel, 2009 2 Foot, 2009. 3 IFC Forum Members are based in Bermuda, The Cayman

Islands, Jersey, Geneva and Guernsey.

4 FATF review. It is notable that offshore jurisdictions

routinely score higher rankings than the UK and other EU countries. 5 See Sharman, 2010, “International Financial Centres And Developing Countries: Providing institutions for growth and poverty alleviation”, produced by the Commonwealth Secretariat.

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