IFC World 2019

IFCWorld 2019 ESSENTIAL ANNUAL INTELLIGENCE AND INSIGHT FROM THE WORLD’S LEADING INTERNATIONAL FINANCE CENTRES

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ESSENTIAL ANNUAL INTELLIGENCE AND INSIGHT FROM THE WORLD’S LEADING INTERNATIONAL FINANCE CENTRES

Welcome to IFC World 2019. We are very proud to publish this third edition of our yearbook of the offshore world which looks at the place that international financial centres occupy in relation to one another, the ways in which they relate to, and are coping with, the latest important trends and the prospects that they have for survival and prosperity, both singly and together.

In this comprehensive annual, we draw on the expertise of some of the foremost authorities on the offshore world and also on our suite of publications: WealthBriefing, WealthBriefingAsia, Family Wealth Report, Compliance Matters and Offshore Red. The earlier sections of this edition contain insights from the leaders in the field, while the latter part contains a directory of the world of international financial centres. We hope that you will find the result informative and of lasting value.

Stephen Harris Chief Executive ClearView Financial Media

PUBLISHED BY: ClearView Financial Media Ltd 52 Grosvenor Gardens London SW1W 0AU United Kingdom Tel: +44(0) 207 148 0188 www.clearviewpublishing.com REPORT AUTHOR: Chris Hamblin - Editor, ClearView Financial Media REPORT DESIGN: Jackie Bosman - Head of Production & Design, ClearView Financial Media

© 2019 ClearView Financial Media Ltd publisher of WealthBriefing, WealthBriefingAsia, Family Wealth Report, Compliance Matters and Offshore Red. All rights reserved.

No part of this publication may be reproduced in any form or by any means, electronic, photocopy, information retrieval system, or otherwise, without written permission from the publishers.

CONTENTS INTERNATIONAL VIEW

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VIEWS FROM THE JURISDICTIONS: Bahamas

27

British Virgin Islands

31

Guernsey

37

Qatar

41

Samoa

44

Switzerland

47

Turks & Caicos Islands

50

JURISDICTIONS IN PROFILE

54

INTERNATIONAL VIEW: KEYNOTE ARTICLES

INTERNATIONAL VIEW

THE OFFSHORE WORLD: WHERE ARE WE NOW? * by Chris Hamblin, editor of IFC World Much has happened in the international community since the last edition of IFC World was published.

The Paradise Papers, as we shall see, had less of an effect in terms of investigations and prosecutions than their predecessors, the Panama Papers, but their worth to onshore governments – many of them desperate for revenues in the wake of the world financial crisis which began in 2008 – was immense in terms of useful anti-offshore publicity.

“The records illuminated nearly 50 years of Appleby’s business activity” The Organisation for Economic Co-operation and Development has tightened its grip on the offshore world, notably through the planned development of its brainchild, the Common Reporting Standard or CRS, whose full title is the Standard for Automatic Exchange of Financial Account Information.

The first exchanges of tax information under the AEOI are now taking place. Many jurisdictions are now in the process of fine-tuning and indeed implementing their country-by-country reporting regimes and, despite much grumbling from offshore centres, corporate registers that display the names of ultimate beneficial owners are springing up.

The CRS is extending its influence in many ways.

One such protraction is the OECD’s decision to mount a campaign against the phenomenon of ‘golden visas,’ justifying its policy by claiming that such visas damage the objectives behind the CRS. The pioneers of golden visas have been the rulers of the United Kingdom, which has long offered citizenship for sale but has recently toned its Tier 1 visa programme down slightly, and its former colony St Kitts, which first boosted its economy in the mid-1980s with a similar money-spinner. Together, they have set the standard for all others.

A VERY PUBLIC CAMPAIGN The so-called ‘Paradise Papers,’ leaked from the international law firm of Appleby, revealed the offshore interests and activities of more than 120 politicians and world leaders, including Queen Elizabeth II and 13 advisors/major donors to US President Donald Trump.

The 13.4 million or so Appleby files also showed the interests of the owners of jets and yachts, including royalty and sports stars, using Isle of Man tax-avoidance structures. At 1.4 terabytes, this leak was smaller in volume than the 2.6 terabytes of

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the Panama Papers (reported on last edition) but larger than the 260 gigabytes from the Offshore Leaks (a report disclosing details of 130,000 offshore accounts in April 2013, publicised by the International Consortium of Investigative Journalists in Washington DC) and the 4.4 gigabytes of the ‘Lux Leaks,’ details about Luxembourg’s secret tax rulings that gave large multinationals preferential treatment, also publicised by the ICIJ. Appleby hinted at the time that the leak might have come from an online hack. As did not happen with the Panama Papers, the hackers/leakers this time shone a light on a victim-firm that had plenty of records of American activity. At least 31,000 of the individual and corporate clients in Appleby’s records were US citizens or had US addresses – more than from any other country. Appleby also counted the United Kingdom, China and Canada among its most prolific sources of clients. The records taken from Appleby, which has denied all wrongdoing, illuminated nearly 50 years of the firm’s business activity.

The papers exposed the tax engineering of more than 100 multinational corporations, including their use of shell companies in Mauritius and Singapore to reduce taxes. They also shine a light on secretive deals and hidden companies connected to Glencore, the world’s largest commodity trader, and provided detailed accounts of that company’s negotiations in the Democratic Republic of the Congo for valuable mineral resources.

Apple, Facebook, Nike and Uber also received some criticism for using perfectly legal loopholes time and time again to avoid taxes in various jurisdictions. Apple moved a big portion of its offshore wealth from Ireland to Jersey by redomiciling two subsidiaries (one of which, Apple Operations International, was thought to hold most of its US$252-billion hoard of overseas cash) at one stage around the time when Ireland was tightening up its tax laws in 2015 under pressure from the European Union. The BBC reported that Appleby managed the two firms between early 2015 and early 2016. Like many hubs of the Caribbean, Jersey collects no tax on profits for most companies.

The European Commission, in deducing that Ireland gave Apple an illegal tax benefit, calculated that the rate of tax for one of Apple’s Irish companies for one year had been just 0.005%.

The emails in the leak indicated that Apple wanted to keep the move a secret. The BBC quoted one senior partner at Appleby as saying: “For those of you who are not aware, Apple are extremely sensitive concerning publicity. They also expect the work that is being done for them only to be discussed amongst personnel who need to know.”

LESS NOISE THAN PREVIOUSLY The Paradise Papers did lead to plenty of onshore enquiries about offshore assets, but not on the same scale as their Panamanian predecessors. Early in 2018 HM Revenue and Customs (HMRC) of the UK was still struggling to cope with the fallout, according to Parliament’s spending watchdog. The Public Accounts Committee said that it was “far from confident” that the tax agency had sufficient resources to scrutinise the evidence. In a report, MPs concluded that the Paradise Papers highlighted the “potentially dubious practices of many high-profile individuals and corporations” that used offshore services. The committee blamed a scarcity of resources.

Unlike previous leaks, the Paradise Papers uncovered little in the way of intentional criminal tax evasion by those involved. Instead, they demonstrate how properly structured and packaged offshore assets and income can be held entirely legally and attract little in the way of direct tax liability, as long as they remain offshore. GlobalData’s 2017 Global Wealth Managers’ Survey showed that tax efficiency was the second most important reason for ‘offshoring’ wealth globally among high-networth investors, cited by 18.2% of wealth managers. By contrast, client anonymity came in at a distant 2.8%.

“Panic gripped Mossack Fonseca after it realised that its records had been hacked” Consequently, there seem to have been few, if any, governments queuing up to pay the hacker/leaker money for his full database. This is another departure from the Panama Papers. As Deutsche Welle, Germany’s international broadcaster, reported in 2017: “The Federal Criminal Police Agency (BKA) spent €5 million (US$5.7 million) to purchase the Panama Papers database as part of its bid to track down German-based tax cheats.” It also reported that “the anonymous source who leaked data from the Panama Papers is to be paid for information on Danish taxpayers...tax authorities would pay around 1 million kroner (€133,000 or US$150,000).” In Denmark, critics argued, it is illegal for the authorities to pay for stolen information, but the German constitutional court has excused it. Germany, according to Deutsche Welle, was the biggest loser among the nations when it came to transfers of profits to tax havens, losing €17 billion ($20.1 billion) per annum through base erosion and profit shifting (BEPS, more of which later).

IFC WORLD 2019

DEFENDING A REPUTATION One interesting facet of the leak, and perhaps a harbinger of things to come in such situations, is the decision of the offshore law firm of Appleby to issue a writ against the British Broadcasting Corporation and the Guardian, seeking to force the disclosure of the documents that formed the basis of that investigation, the contents of which they subsequently published. At the time Appleby told the Guardian: “Our overwhelming responsibility is to our clients and our own colleagues who have had their private and confidential information taken in what was a criminal act. We need to know firstly which of their – and our – documents were taken.

“We would want to explain in detail to our clients and our colleagues the extent to which their confidentiality has been attacked. Despite repeated requests, the journalists have failed to provide to us copies of the stolen documents they claim to have seen. For this reason, Appleby is obliged to take legal action in order to ascertain what information has been stolen.”

“The Germans spent €5 million to purchase the Panama Papers database” This appeared to be the reaction of a respectable law firm at the top of its game, confident in its integrity and indignant at its involuntary inclusion in a grubby propaganda exercise. Such a reaction was very different from that of Mossack Fonseca, the Panamanian law firm whose files provided the text of the Panama Papers. Mossack Fonseca specialised in creating foundations and trusts, incorporating offshore companies in return for fees and setting up overseas bank accounts for clients all over the world.

Panama – a largely unreformed, badly ruled hub that is in many ways slipping backwards when it comes to parity with global anti-money-laundering and tax-related standards – is used mainly by the upper echelons of backward countries such as Russia and China; this might explain why so few Americans were ensnared in the imbroglio. The Paradise Papers, on the other hand, tend to lift the lid on the activities of people at the top of Western society who use the best regulated and most lauded offshore centres – places such as the Crown Dependencies and Overseas Territories of Britain, otherwise known as the CDOTs. In the end, Appleby, the Guardian and the BBC settled out of court. The latter two ‘explained’ to Appleby which of its documents may have been used to underpin their journalism. It had become clear that the vast majority of documents that were of interest related to the fiduciary business that Appleby no longer owned and so were not legally privileged documents.

Michael O’Connell, the group managing partner at Appleby, told the press: “From the outset we wanted to be able to explain to our clients and colleagues what information of theirs had been stolen. That was our duty. As a result of this legal action we are well on our way to achieving our objectives.”

THE END OF A ONCE-MIGHTY LAW FIRM As for Mossack Fonseca, the stricken firm finally closed its doors in March 2018. By then, it was a shadow of its former self. It had closed dozens of offices around the world. In May 2017 it had announced that it was closing its offices in Jersey, the Isle of Man and Gibraltar, adding that it intended to continue serving all of its clients. The Maltese office withdrew its name from the building’s brass plate in that same month and its director resigned. The law firm closed its office in Luxembourg in February 2017. In August of that year Jürgen Mossack, a founding partner whose father Erhard was a member of the Nazi SS ‘Death’s Head Division,’ told the press that only about six offices were left out of the original 45.

An indictment unsealed in December 2018 in a US federal court charged four defendants connected to the now-defunct law firm – Dirk Brauer, a German citizen who worked as an investment manager for Mossfon Asset Management, an asset management company closely affiliated with the law firm; Harald Joachim von der Goltz, a former US resident and taxpayer; Richard Gaffey, a US-based accountant; and Ramses Owens, a Panamanian attorney who worked for Mossack Fonseca.

Between 2000 and about 2017, the indictment alleged, Owens and Brauer conspired with each other to help US taxpayer clients of Mossack Fonseca conceal assets and investments from the US Internal Revenue Service fraudulently. They helped set up sham foundations and shell companies (companies with no physical presence) with nominee officers and directors which the firm formed under the laws of the British Virgin Islands, Hong Kong, Panama and other countries, while also helping to create undeclared accounts.

According to the indictment, the sham foundations typically owned the shell companies that nominally held the undeclared assets. They held bank accounts – sometimes one, sometimes more – in countries outside the US. The assets were typically realty and money in bank accounts.

Sometimes, the prosecutors said, Owens and Brauer provided US clients with minutes of corporate meetings, resolutions, mail forwarding and signature services.

They were also accused of going to New York to reassure American clients that their assets were going to be shielded from the prying eyes of the IRS and in some cases of inducing American clients to go out to the Bahamas, Costa Rica, Panama and Switzerland to see their banking services set up and to receive investment advice about undeclared accounts.

INTERNATIONAL VIEW THE OFFSHORE WORLD: WHERE ARE WE NOW?

CAUGHT AT THE END OF SWISS BANKING SECRECY Beginning in the 1980s, von der Goltz allegedly used the services of Mossack Fonseca to create various foreign shell companies to hold his unreported assets in the US and elsewhere. The US Swiss Bank Programme, the American crusade against tax evasion at Swiss banks which ended in January 2016 with the US Department of Justice’s last non-prosecution agreement with HSZH Verwaltungs, seems to have done for von der Goltz. The indictment alleged that he and his helpers set up many accounts at a Swiss bank, falsely naming his mother as a beneficial owner for the first time in 2013.

“We look like amateurs – a Mickey Mouse operation!”

In a letter dated 4 March 2014, the Swiss bank informed von der Goltz that, in pursuit of its obligations to the Americans in accordance with the programme, it had reviewed its account relationships and identified von der Goltz’s accounts as ‘US-related’ because he was their real beneficial owner and was resident in the US. It urged him to get in touch with the IRS and report his accounts to that body himself. In any other country the bank would have been guilty of the crime of ‘tipping off,’ telling the suspect of a crime that he could be under investigation; until the last few years, however, this was not a crime in Switzerland as every holder of every Swiss bank account was entitled to know whether he was under investigation.

Around April 2014 von der Goltz reportedly hired a US law firm to help him co-operate with the DoJ’s Offshore Voluntary Disclosure Programme or OVDP. According to the indictment, however, he did not follow through with this in the end and instead sent the IRS many false FBARs for the years 2009 to 2013, prepared by Gaffey and the US law firm. These, apparently, fooled nobody because they contradicted the Swiss bank’s records.

In 2016 von der Goltz had appeared in the Panama Papers and, in proverbial terms, this seems to have been the final nail in his coffin. A humiliating interview with the DoJ followed, at which he allegedly compounded his misrepresentations.

PANIC AT THE FIRM It was in the middle of 2018 when freshly released documents revealed the panic that had gripped Mossack Fonseca after it realised that its records had been hacked in March 2016. The emails, PDFs of passports and electronic files of criminal cases that the now-defunct firm generated between early 2016 and late 2017 were, in their small way, as revelatory as the originals that were publicised in April 2016.

They show how the firm was unable to persuade customers – shady and otherwise – to present it

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with ‘due diligence’ documents at short notice. A Swiss wealth management advisor who acted for 80 companies that the firm had set up was quoted as writing: “The client disappeared – I can’t find him any more!” Meanwhile, a lawyer in Florida who had to field a blizzard of requests from Mossack Fonseca for long-overdue ‘due diligence’ records reportedly wrote: “We can’t go back a day after asking for papers to ask for something else, we look like...amateurs – a Mickey Mouse operation.” In other words, the law firm often had no idea who was benefiting from its services. It had registered thousands of companies in offshore jurisdictions without identifying their owners properly. Even two months after it had discovered the hack, it had not tracked down 70+% of 28,500 active companies that it was serving in the British Virgin Islands.

Panama’s AML laws obliged the firm to know the beneficial owner’s identity.

A REFORMED JURISDICTION? Panama is now sharing data from its banks about their HNW customers’ accounts with a plethora of foreign countries including Germany, Holland, India, Ireland, Italy, Japan, Luxembourg, Mexico, Portugal, Spain and the UK, with Australia and France to come.

International Investment quoted Martin Barcela, the deputy head of the Directorate General of Revenues’ (DGI) Information Exchange Section, as saying: “Today Panama is taken into account in the context of transparent nations, which has an impact at the economic level, but this does not end the issue, there are still more elements to fulfil.”

David Hidalgo, the head of Panama’s tax collection unit, added that the Panamanian Government’s aim in facilitating this exchange of information is “so as not to be on a blacklist of tax havens.” “This exchange of information is ‘so as not to be on a blacklist of tax havens’”

“Panama is now sharing data from its banks about HNW customers’ accounts” The website also reported that in this instance 331 Panamanian financial firms had made about 660 disclosures as part of the country’s effort to obey the world’s Common Reporting Standard, which dictates the automatic sharing of account information internationally.

FIRST EXCHANGE UNDER THE AEOI This came only days after the Swiss Federal Tax Administration announced that the Alpine country had exchanged information about two million financial accounts with other countries for the first time.

This first instance of the automatic exchange of information (AEOI) saw information going to various countries of the EU and also Canada, Guernsey,

10

Iceland, Isle of Man, Japan, Jersey, Norway and South Korea.

The tax authority said: “The AEOI will now take place on a yearly basis. In 2019, data from 2018 will be exchanged with around 80 partner states, provided these meet the requirements on confidentiality and data security. The Organisation for Economic Co-operation and Development’s Global Forum on Transparency and Exchange of Information for Tax Purposes reviews the participating states’ implementation of the AEOI.”

“The top millionth of the population effectively don’t pay taxes at all” The Common Reporting Standard or CRS, whose full title is the Standard for Automatic Exchange of Financial Account Information, developed by the Organisation for Economic Co-operation and Development (OECD) in tandem with some G20 countries, represents the international consensus about AEOI for tax purposes, on a reciprocal basis.

The rules of AEOI and CRS are not only complex, but also subject to a constant process of modification and ‘clarification’ (which often amounts to modification by the back door) by both the OECD and by national laws.

THE OECD’S CAMPAIGN AGAINST GOLDEN VISAS Also in October, the Organisation for Economic Co-operation and Development fired a further salvo at the offshore world’s burgeoning citizenship-by-investment and residency-by-investment industry, claiming that it provides high-net-worth individuals with a smokescreen under which they can avoid reporting their wealth in accordance with the Common Reporting Standard.

The OECD is arguing that residence-by-investment and citizenship-by-investment (CBI/RBI) schemes, often referred to as golden passports or visas, are useful tools for people who want to stop assets that they hold in foreign countries from being reported in line with its Common Reporting Standard, which is part of a wider reporting package sometimes known as GATCA or ‘Global FATCA,’ after the acronym for the US Foreign Account Tax Compliance Act 2010.

OFFSHORE JURISDICTIONS UNDER SUSPICION The Paris-based organisation is particularly keen to stop identity cards, residence permits and other documents obtained through CBI/RBI schemes from being used to misrepresent an individual’s jurisdiction(s) of tax residence. With this in mind, it published a paper on the subject and a separate

piece of ‘analysis’ in 2018. The publicly available results of its analysis, however, amount to little more than allegations, naming several CBI/RBI schemes or ‘programmes’ without going into much detail.

There is some discrepancy between the press release, which mentions Columbia as a venue for “potentially high-risk CBI/RBI schemes,” and the analysis page, which does not list that jurisdiction as a “scheme that potentially poses a high risk to the integrity of CRS” but does list the schemes of Mauritius, Monaco and Montserrat, which do not appear in the press release.

Other schemes common to both lists are those of Antigua and Barbuda, the Bahamas, Bahrain, Barbados, Cyprus, Dominica, Grenada, Malaysia, Malta, Panama, Qatar, Saint Kitts and Nevis, Saint Lucia, the Seychelles, the Turks and Caicos Islands, the United Arab Emirates and Vanuatu.

The OECD’s reason for disapproving of the above jurisdictions is the access that they grant to low rates of personal tax on income from foreign financial assets and the fact that their programmes do not require their new citizens/residents to spend a significant amount of time on their soil. Some jurisdictions have pleased the OECD by promising that they will exchange information about users of CBI/RBI schemes ‘spontaneously’ with all their original jurisdictions of tax residence, which ought to reduce the attractiveness of CBI/RBI schemes as vehicles for avoiding the gaze of the CRS.

“The OECD says that financial institutions are required to take account of its analysis” The OECD says that “financial institutions are required” to take account of its analysis. Section VII of the CRS says that a financial institution may not rely on a self-certification or documentary evidence if it has reason to know that these things are unreliable. The OECD claims that every institution has “reason to know” this about any CBI/RBI schemes that it has denounced.

LEGITIMACY AND ILLEGITIMACY “Citizenship by Investment” (CBI) and “Residence

by Investment” (RBI) schemes allow foreigners to obtain citizenship or temporary or permanent residence rights on the basis of local investments or against a flat fee. The OECD thinks it ‘legitimate’ for people to be interested in these schemes because they wish to start new businesses in the jurisdictions, or because they want to travel visa-free to various countries that accept the passports they obtain, or because they want better education and job opportunities for their offspring, or the right to live in politically stable countries.

Without going into much detail, the OECD says that abuse of the CRS may occur “where an individual does not actually or not only reside in the IFC WORLD 2019

CBI/RBI jurisdiction, but claims to be resident for tax purposes only in such jurisdiction and provides his Financial Institution with supporting documentation issued under the CBI/RBI scheme, for example a certificate of residence, ID card or passport.”

EXAMPLES OF RISK In its consultative document in February the OECD goes into more detail, describing a particular type of scam that it has detected in which a new account–holder makes false statements about his tax residency and provides a tax residence certificate in support. In this example, X is an individual resident in jurisdiction F. In order to circumvent reporting under the CRS, he applies for ‘residency status’ in jurisdiction M under its RBI programme. This status requires X to buy a property in jurisdiction M worth at least €500,000 or to rent a property for a minimum of €40,000 per annum. It allows X to obtain tax residency in jurisdiction M without being taxed on any income that is not obtained in or remitted to jurisdiction M. X opens a new account at Bank B in jurisdiction B and certifies that he is resident for tax purposes in country M (also presenting his tax residency certificate to Bank B during the ‘on-boarding’ process. Although the CRS requires X to include all jurisdictions of residence for tax purposes in his self-certification, he omits to mention his tax residence in jurisdiction F. In addition, the AML/KYC documents he provides do not show any connection to jurisdiction F. Bank B will identify X as a resident of country M and report the income and other information about the account to the tax authorities of jurisdiction B that will exchange the CRS information with country M, in compliance with the CRS. However, X is not taxed on the income in jurisdiction M. X continues to be a resident of jurisdiction F but the jurisdiction B does not exchange X’s information with jurisdiction F, as a consequence of the outcome of the due diligence procedures applied by Bank B. The OECD’s paper states that there is a particularly high level of risk if the scheme in question imposes limited requirements for the person to be physically present in the jurisdiction or if there are no checks to see that he is. It is also a sign of risk if the scheme is offered by either: (i) low/no tax jurisdictions; (ii) jurisdictions exempting foreign source income; (iii) jurisdictions with a special tax regime for foreigners who have obtained residence through such schemes; and/or (iv) jurisdictions not receiving CRS information. Further problems might come from the absence of other mitigating factors, such as the ‘spontaneous’ exchanges mentioned above, or an indication on certificates of tax residence that the residence was obtained through a CBI/RBI scheme.

It’s been hard for governments to keep up with the changes. Which is healthy as they’re catching up and they’ve identified it.”

The OECD is wary of programmes in countries that do not require an individual to spend a significant amount of time (less than 90 days is its figure) on their territory. When asked whether he thought that there were many legitimate businessmen who spent little time in any one country, he agreed: “That is right. Globalisation is happening and it’s very easy to get around the world now – not just for HNWs but also for business people.”

ENTER THE IMC He explained the job of the IMC: “We’re professionalising the association. We have 375 members in 45 countries and we’re quite pleased with the organic growth. We have a dialogue with the likes of the OECD and the European Commission, although not the Financial Action Task Force. We’re trying to homogenise ‘due diligence’ standards.

“The industry needs a strong association to act as a bridge between countries and the OECD” “All the CBI agencies running the programmes are friendly towards us and very approachable. We have a good relationship with the Ministry of Finance in Cyprus (there is no separate agency there), Greece, and the five countries in the Caribbean that do it. All five are members of the IMC now. The industry needs a strong association to act as a bridge between countries and the OECD. A lot of units are run by small teams. It is very difficult to find people to work on those teams – they need experienced staff members. We’re looking at education and training programmes.

“The history of citizenship-by-investment goes back to the Roman and British Empires. Both were built on fostering good relations with foreign businessmen. In return for investment in the UK, the British Empire gave British nationality to Indians.

The modern incarnation started in the mid-1980s (1984) with St Kitts. It did wonders for their economy but nobody else seemed to notice it as a money-spinner.

THE CRS LOOPHOLE STRATEGY

That all changed with the financial crisis of 2008, when governments were screaming for money and new ways of attracting business. Cyprus did it and a little later Malta (2013-14) did it within the EU.

Bruno L’ecuyer, the head of the Investment Migration Council, explained to IFC World why he thought that there were still ‘loopholes,’ as the OECD calls them: “There has been so much new legislation and there have been so many compliance issues to cope with since the financial crisis.

“The UK has been doing it for ages. It now calls its operation the Tier 1 Investor Visa Programme. The French and Portuguese have golden visas – after 5-10 years, you can acquire citizenship. We have members from Spain, the UK, Cyprus, Malta and one or two from France.”

INTERNATIONAL VIEW THE OFFSHORE WORLD: WHERE ARE WE NOW?

The UK suspended its Tier 1 regime late in 2018 and the Government said that it was creating a new system that allowed for fewer ‘abuses.’ The new system is coming into force as this publication goes to press.

Much of the OECD’s campaign against the offshore countries that offer CBI/RBI programmes hinges on its assertion that abuse of ‘golden visas’ is more likely in low-tax jurisdictions than elsewhere. When asked whether he knew of any evidence for that assertion, l’Ecuyer replied: “No, I don’t.”

THE NEVER-ENDING CAMPAIGN IFC World asked Till Neumann, the managing partner at Citizen Lane, a Swiss-based citizenship-and-residence-planning firm that caters for HNW individuals, whether he thought that the OECD’s initiative was a fresh campaign against low-tax-jurisdictions by the back door.

His reply was unequivocal: “It’s a campaign that never stops and it will never stop. I’ve been contacted by so many clients, especially from Germany, who have now moved abroad to save taxes.

They go to Switzerland, which is not a zero-tax jurisdiction but tax is proportionately lower there.

When you put taxes up, you just pressure the rich people out. They flee because they can afford to flee, so poor people suffer from that policy. I think that eventually there will be a massive tax cut in all the European states.

“All these tax-haven Caribbean countries (which are the most important, maybe) don’t really benefit much from their new high-net-worth residents because they don’t bring in that much money. They send their children to universities in the USA. They do a little construction, they go to the restaurants, some of them have yachts there and sail them out of the marinas, so they do bring some benefit to the country in question, but not too much.”

“The OECD has a campaign against offshore countries that offer CBI/RBI programmes” Neumann was of the opinion that the OECD’s initiatives, including the CRS, were a case of tinkering at the edges of the problem of international tax avoidance: “It sounds a little crazy, but I think that at some point there will have to be an agreement between all the countries in the world to levy a minimum tax. This is because taxes can be evaded in many ways. The top millionth of the population effectively don’t pay taxes at all.

“If they had to pay a minimum tax of perhaps 5-10% wherever they were, I think that the offshore and onshore jurisdictions would actually benefit from that.”

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THE APPEAL OF THE PROGRAMMES When asked about the different attractions of citizenship by investment and residency by investment, Neumann explained: “Most of the citizenship clients whom I see are Russian, Chinese etc. and they live in their home countries.

“Just a small number use CBI programmes to make it easy for tax purposes. They just want to travel, or in some cases to relocate to Europe. Citizenship-by-investment has no bearing on tax. Most of the CBI programmes are Caribbean ones and the people who opt for them want to travel. They can travel to roughly 120130 countries visa-free. The US and many other countries give them a 1-5-year visa instead of a single-entry visa.

“Residency is not a tax issue, it is simply about where you become resident” “Residency programmes are not a tax issue per se.

It is simply about where you become resident. The vast majority (perhaps 80-90%) of people who opt for residency-by-investment do so because they like the country, or because it is a safer and freer place to live. The people who want this are Chinese, Russian, South American...even Americans who want to come to Europe.

“It’s a tool for wealthy people who want to migrate from another country. You don’t get the same travel rights under residency-by-investment, although you do with a Schengen residency.

“The Schengen Area contains 26 European states (leaving out the British Isles) that have officially abolished passport and all other types of systematic border control at their mutual borders. Cyprus (with its Turkish border problem in the north) has not yet joined, so if you have a residency permit for Cyprus you can only stay in Cyprus and cannot go to the other EU countries. If you live in Cyprus, that helps you gain tax residency there.”

PROGRESS IN THE BEPS PROJECT Since the last episode of IFC World, the 35-country OECD has carried on pursuing another of its anti-offshore projects – its campaign against Base Erosion and Profit Shifting or BEPS. In a paper in 2017 the OECD “conservatively estimated” that governments around the world were losing annual revenues of US$100 to 240 billion due to BEPS, using tax havens (see below) in which to log the profits. In September 2017 it published two new lots of BEPS guidelines on the topic of ‘action 13,’ which governs country-by-country reporting.

All OECD and ‘Group of 20’ (actually only 19) industrialised nations have agreed to do country-by-country reporting, reporting annually and for each tax jurisdiction in which they do business

the information set out in the BEPS “action 13 report,” which provides a template for multinational enterprises.

Country-by-country reports are called for by Action 13 of the OECD’s Action Plan against BEPS which the global standard-setter began to publish in 2013. Project BEPS, as it is sometimes known for short, requires the development of “rules regarding transfer pricing documentation to enhance transparency for tax administration, taking into consideration the compliance costs for business. The rules to be developed will include a requirement that multi-national enterprises must provide all relevant governments with needed information on their global allocation of the income, economic activity and taxes paid among countries according to a common template.”

Action 13 has succeeded in changing transfer pricing as a discipline, in that it now forces that activity to be viewed in the full context of international tax and the attribution of profits. A multinational enterprise is now required to provide a full overview of its value chain, its intangible assets, its financing arrangements, any rulings that might have a bearing on its finances and its advance pricing agreements.

The concept of local files is not very different from that of traditional transfer pricing documents, but the master file and country-by-country reports require far more comprehensive and onerous disclosures to tax authorities.

“Pascal Saint-Amans is the OECD man who set up Project BEPS” Pascal Saint-Amans, the OECD man who set up Project BEPS, told the press that his crusade against fiscal sovereignty for countries onshore and off grew out of the financial crisis that began in 2008 and the need to stop multinational companies from minimising their taxes. He said that revelations by Reuters in 2012 that Starbucks had never paid corporation tax in the United Kingdom in fifteen years “was probably the catalyst.” He added: “There can be no tax havens any more. BEPS is the first step towards tax convergence on a world level.

Tax on the companies will converge downwards, while the taxable amounts will converge upwards.”

He added that, for the moment, the question of confidentiality had not been solved – a peculiar thought for the architect of a plan that guarantees no confidentiality at all, with multitudes of officials all over the world being allowed to pore over the contents of various bank accounts and legal arrangements at will. He claimed to be astonished at so many countries agreeing to reveal such information.

He was also pleased that in 2015 the OECD set up “tax inspectors without borders” to transfer tax audit knowledge and skills to tax administrations in developing countries. Among other things, it helps tax inspectors there understand transfer pricing.

INTERNATIONAL VIEW THE OFFSHORE WORLD: WHERE ARE WE NOW?

SOME MISCONCEPTIONS ALLAYED Gabriel Zucman, the French economist, recently quantified the financial scale of base erosion and profit shifting tax avoidance techniques employed by multinationals in corporate tax havens. Research published by Zucman, Tørsløv and Wier in June 2018 showed Ireland to be the largest corporate tax haven in the world – even larger than the entire Caribbean agglomeration of corporate tax havens. It also showed that tax disputes between high–tax jurisdictions and corporate tax havens are extremely rare, and that tax disputes really only occur between high–tax jurisdictions. The research paper was entitled The Missing Profits of Nations.

Somewhat surprisingly, the British Virgin Islands is the only tax haven on the Zucman-Tørsløv-Wier list that has ever appeared on an OECD list of tax havens. The rest, mentioned by name in descending order of profits being shifted to them, are: Ireland (with US$174 billion of corporate profits shifted there); Singapore; Switzerland; Holland; Luxembourg; Puerto Rico; Hong Kong; Bermuda; Belgium’ and Malta. The Caribbean, which the academics lump together and to which US$102 billion were shifted in the year 2015 from which they drew their data, comes in second after Ireland.

COUNTRY-BY-COUNTRY REPORTING Last year saw various offshore nations preparing to implement the OECD’s rules. In August Bermuda unveiled a new version of its guidelines for large multinationals in respect of country-by-country reporting.

The relevant legislation that requires so-called constituent entities resident in Bermuda for tax purposes to collect, maintain and report information for exchange with partner jurisdictions is the International Co-operation (Tax Information Exchange Agreements) Act 2005 and the International Co-operation (Tax Information Exchange Agreements) Country-byCountry Reporting Regulations 2017.

“Zucman showed Ireland to be the largest corporate tax haven in the world” As Bermuda is a non-reciprocal jurisdiction, which means that it has promised to send country-by-country reports to its ‘exchange partners’ but will not receive such reports back from them, the Ministry of Finance will not use any country-by-country reports for the purposes of assessing high-level transfer-pricing risks and other risks related to base erosion and profit shifting in Bermuda and especially not for assessing the risk of non-compliance by members of any multi-national group with applicable transfer pricing rules.

Nor will it use the country-by-country reports for economic and statistical analysis. It will also not make transfer pricing adjustments that it bases on the country-by-country reports.

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Under regulation 7 of the Country-by-Country Reporting Regulations, each multi-national group must send off its country-by-country report no later than twelve months after the last day of its reporting fiscal year. An electronic portal will be available for the country-by-country notifications and reporting.

Many jurisdictions, not least the British Virgin Islands, are now in the process of fine-tuning and indeed implementing their country-by-country reporting regimes. According to Trident Trust’s office in the BVI, the Government amended its Mutual Legal Assistance (Tax Matters) Act 2003 last year to impose country-by-country reporting obligations on BVI companies that are part of multi-national groups, as well as new Common Reporting Standard obligations for BVI financial institutions. The country-by-country reporting obligations, which affect many entities in the BVI, are time-sensitive and the first main starting date for the inception of the regime (31 December 2018) has already passed.

“The country-bycountry reporting deadline is now looming in many jurisdictions” Provisions inserted into the Act have appointed the BVI’s International Tax Authority (ITA) as the ‘competent authority’ that has the job of monitoring compliance with these obligations. It will use country-by-country reports to assess risks that relate to transfer pricing and other BEPS-related risks in the territory. It will assess the risk of non-compliance by individual members of multi-national enterprise groups (MNE groups) with the relevant transfer pricing rules.

Trident Trust also expects the ITA to use information that it gleans from the reports to help it collaborate with other ‘competent authorities’ in compliance monitoring and enforcement, if appropriate agreements are in place.

For the purpose of country-by-country reporting compliance, a group of companies qualifies as a MNE group if it meets the following criteria: • it is a group of entities which are tax-resident, or subject to tax, in more than one jurisdiction and are related through common ownership or control; • the group is required to prepare consolidated financial statements in accordance with accounting principles, or would be required to do so if the equity interests of any of its group members were traded on a public exchange; and • the group generates US$750 million or more per annum in revenue.

If an MNE group has constituent entities that are tax-resident in the BVI, each of them has had to register with the ITA.

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The country-by-country reporting obligation attaches to the ultimate parent entity or surrogate parent entity of the MNE group in question. The parent entity (whichever type it is) must send off a country-by-country report to the ITA with respect to its reporting fiscal year no later than 12 months after the last day of the group’s reporting fiscal year which started after 1 January 2018.

If a BVI entity is not the ultimate parent entity of the MNE group but is resident in the territory for tax purposes, it will be required to submit a country-by-country report by the deadline if: • the parent entity of the MNE group does not have to send off a country-by-country report in its jurisdiction of tax residence; or • the jurisdiction in which it is tax-resident does not have an appropriate agreement in place with the BVI; or • the jurisdiction in which it is tax-resident has persistently failed to automatically provide country-by-country reports or has ceased (albeit temporarily) to exchange data with the BVI. According to Trident Trust, a country-by-country report must identify each of its constituent entities and its jurisdiction of tax residence, its jurisdiction of incorporation and main business activities, together with: (i) aggregate information relating to the revenue; (ii) profit or loss before income tax; (iii) income tax paid; (iv) income tax accrued; (v) stated capital; (vi) accumulated earnings; (vii) the number of employees; and (viii) tangible assets other than cash or cash equivalents.

NEW GUIDELINES FOR THE BVI Penalties for failing to comply range up to US$100,000. On 19 February, the ITA published an updated version of its Common Reporting Standard guidance notes for the BVI which take stock of an amendment to the Mutual Legal Assistance (Tax Matters) Act 2015. They oblige non-reporting financial institutions (NRFIs) to sign up to the BVI Financial Accounts Reporting System (BVIFARS) and set the deadline for 28 June 2019. An NFRI can be a governmental entity, an international organisation such as the United Nations, a central bank, a broad participation retirement fund, a narrow participation retirement fund, a pension fund of a governmental entity, a qualified credit card issuer, an exempt collective investment vehicle, a trust (as long as its trustee is a reporting financial institution) and “any other entity that presents a low risk of being used to evade tax” and is similar in character to a custodial institution or a depository institution. The annual registration deadline for reporting financial institutions (RFIs), on the other hand, is 30 April.

Only RFIs are to be required to submit nil returns, which they must to (along with the rest of their 2018 CRS reports) by 31 May 2019. A jurisdiction may require the filing of a nil return by a Reporting Financial Institution to indicate that it did not maintain any reportable accounts during the calendar year or other reporting period. Under section 29 MLA Act the filing of nil returns is mandatory.

The amendments to the MLA Act introduce the term Virgin Islands financial institution or VIFI, which takes in all financial institutions resident in the BVI (including reporting and non-reporting financial institutions), but excludes any branch of such a financial institution that is located outside the BVI and any branch of a financial institution that is not resident there, if that branch is located in the BVI. The amended MLA Act requires all VIFIs to establish, implement and maintain written policies and procedures. However, for those VIFIs that are considered non-reporting financial institutions (except for trustee-documented trusts or other NRFIs to which a reporting obligation is extended under CRS) it is enough to outline the facts and analysis leading to the conclusion that the NRFI meets the definition of a NRFI and the policies for regularly reviewing the entity’s circumstances to ensure that that status still applies.

The written policies and procedures of a VIFI that is considered to be a RFI that is a trustee of a trustee-documented trust should include policies and procedures which apply to all of its trustee-documented trusts because the trustee is responsible for all background checking and reporting obligations of its trust. Those trustee-documented trusts are not expected to have their own written policies and procedures.

VIFIs that have applied any threshold exemptions must keep internal records of the application of those exemptions as part of the policies and procedures which they are required to have in place in accordance with the Act. VIFIs will not be punished for flouting this requirement as long as the policies and procedures are in place by 31 March 2019.

For the purposes of determining the controlling persons of an account holder the AML laws of the BVI must be applied. That means that there is a 10% threshold for a controlling ownership interest of a legal person and not 25%, which is the Financial Action Task Force’s figure.

“A jurisdiction may require the filing of a nil return” The excessively high figure of 25% is an old one, dating from 2005 when the European Union was debating how much of a company a shareholder might need to control if he wanted to pervert its use for money-laundering purposes. The persistence of Silvio Berlusconi, the Italian prime minister of the day who had extensive business interests of his own, kept the figure high. At that time the banks of the UK were observing an informal figure of 10%.

The amended Act now makes it an offence for any person to wilfully or knowingly sign (or otherwise positively affirm) a false self-certification. It also criminalises the submitting of a return that relies on a self-certification or documentary evidence which the financial institution knows or has reason to believe is inaccurate.

IFC WORLD 2019

BEPS AND CFC RULES One of the recommendations coming from the OECD’s BEPS programme has been the implementation of controlled-foreign-company or CFC regimes in those jurisdictions that do not already have such rules. Recent changes have been made to introduce or enhance these rules in many jurisdictions. Some examples from the Asia Pacific region include the refinement of the CFC rules of China and Indonesia. It is typically the case that the CFC rules will only come into play if there is control tantamount to “control in fact” or an interest of greater than 50% in the income, capital or voting rights of a foreign company. Much less common at the moment are the equivalent of the American passive foreign investment company rules which can apply in relation to foreign companies which may not be controlled by people who are resident in a particular jurisdiction.

The classification of cell companies for the purposes of a country’s CFC regime is significant in the context of more closely held funds. Funds that may otherwise be placed with an asset manager as part of a managed account could be transferred into the cell of a foreign segregated portfolio company or perhaps even a Singapore Variable Capital Company. If the fund manager in question has a sufficiently broad and jurisdictionally diverse mixture of investors, and if a country treats the cell company in question as a single entity for CFC purposes, these rules might not come into play.

BEPS AND DOUBLE-TAX TREATIES Country-by-country reporting is but one of the ways in which Project BEPS is changing the relationships between tax authorities all over the world. In the summer, the Isle of Man and the UK signed a new double-taxation agreement intended to replace an agreement signed in 1955. It has now come into force, having passed through the Tynwald, the Isle of Man’s ancient parliament.

The deal eliminates double taxation with respect to taxes on income and capital gains and the prevention of tax evasion and avoidance. It is the culmination of a policy arrived at in March 2016.

Isle-of-Man residents with income from the UK will, the theory goes, have a better idea of what they should pay.

At the time of signing, Chief Minister Howard Quayle hailed the treaty as “a modern agreement based on the OECD standard, which fulfils our commitment to the BEPS minimum standard in respect of our most significant partner jurisdiction.”

BEPS AND HARMFUL TAX PRACTICES The BEPS project entails a plethora of other tax reforms that offshore centres have to undertake if they want to please the world’s great economic powers. One subject close to the hearts of the powers is that of “harmful taxation,” a term that it applies to policies that have negative spillover effects on taxation in other countries, for example by eroding their tax bases or distorting investments

in the way that states in the USA do to each other all the time. The Government of Barbados has responded to the call by revising its suite of international business laws to ensure its compliance with the BEPS Action 5 rule, which covers ‘harmful’ tax practices.

“The Paradise Papers uncovered little intentional criminal tax evasion” The OECD’s Forum on Harmful Tax Practices (FHTP) thought Barbados’ low tax rate, its wide network of double-taxation treaties and its ‘ring-fencing’ of international firms from domestic ones all led to ‘harmful’ tax practices.

Ronald Toppin MP, the Minister of International Business and Industry, said late last year, when the reforms were already in hand: “the Cabinet of Barbados has fully endorsed proposals which include the adoption of a regime of tax convergence across the corporate landscape. The new rates will be competitive for all businesses and will be attractive to companies of international origin as well as local companies.”

Parliament has now legislated to set up a new regime to replace Barbados’ existing International Business Companies, as well as International Societies with Restricted Liability.

The word ‘substance’ is now on the lips of everyone who works in or with the offshore world. The aim of the BEPS measures is to realign taxation with economic substance and value creation, while preventing double taxation. In other words, it is to reduce misalignments between profits and real activity. ‘Economic substance,’ however, is merely a label with no clearly defined meaning but it does, in the OECD’s eyes, rule out the use of companies in states with desirable tax treaties that are often qualified as ‘letterboxes,’ shell companies or conduits to gain benefits from tax treaties because these companies exist on paper but have hardly any substance in reality. The more a company conducts actual economic activity in an offshore jurisdiction, the more legitimate it is in the OECD’s eyes for that company to be tax-resident there.

BLACKLISTS GALORE Onshore states have long published blacklists that feature the names of offshore jurisdictions of which they disapprove, but the practice is becoming more pronounced and there have been many developments in this area since the last edition of IFC World.

The Kingdom of the Netherlands has become the latest onshore state to bedevil the offshore world with a tax blacklist, with 21 low-tax jurisdictions in its sights and a plan to introduce new measures to combat tax avoidance. The list was published in the

INTERNATIONAL VIEW THE OFFSHORE WORLD: WHERE ARE WE NOW?

Government Gazette in January. It contains the five jurisdictions that the European Union was blacklisting at the time: American Samoa, the US Virgin Islands, Guam, Samoa, and Trinidad and Tobago.

In addition, the Dutch list includes another 16 lowtax jurisdictions: Anguilla, the Bahamas, Bahrain, Belize, Bermuda, the British Virgin Islands, Guernsey, the Isle of Man, Jersey, the Cayman Islands, Kuwait, Qatar, Saudi Arabia, the Turks and Caicos Islands, Vanuatu and the United Arab Emirates. These jurisdictions either have no corporation tax or have a corporation tax rate that is lower than 9%.

The Dutch list therefore contains more jurisdictions than the EU list (first compiled in 2017) did at the time. ‘Low-tax jurisdictions,’ by the ministry’s standards, are countries that have low statutory tax rates or that appear on the EU list of non-co-operative countries.

State Secretary for Finance Menno Snel told reporters: “By drawing up its own stringent blacklist, the Netherlands is once again showing that it is serious in its fight against tax avoidance... and that’s just one of the steps we’re taking.”

The list is to be used in relation to three measures to combat tax avoidance. The first is the so-called ‘additional measure’ (given that name because it is more stringent than the European Union’s minimum requirements) against controlled foreign companies (CFCs) announced on Budget Day, which has now come into effect. With this measure the Dutch Government aims to prevent companies from avoiding tax by moving mobile assets to low-tax jurisdictions.

“The Dutch Government wants to make its network of treaties less susceptible to abuse” The list will also start to be used to implement a conditional withholding tax on interest and royalties on 1 January 2021. This means that companies registered in the jurisdictions on the Dutch list will pay 20.5% tax from 2021 onwards on interest and royalties received from Holland. This will prevent people from channelling funds to foreign tax havens through Holland.

Thirdly, the Tax and Customs Administration will no longer issue rulings on transactions with companies headquartered in jurisdictions on the list.

The Dutch will update their list each year. If, in the future, jurisdictions are added to the EU list that are not on the Dutch list, the aforementioned measures will also apply to those jurisdictions.

The Government is drafting legislation to establish a register for ultimate beneficial owners. Existing legislation to do with trusts and company service providers will be tightened up. It also intends to

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revise its procedure for issuing rulings with an international character, aiming to ensure that these rulings are easier for the public to understand and issued only to businesses that make “a real contribution to the economy.” One of its aims here is to introduce tougher requirements to do with ‘substance.’

“Let’s remember that the Dutch have been ‘top of the pops’ at facilitating a corporate shifting of international profits” By means of something it calls the Multilateral Instrument or MLI, the Dutch Government wants to make its network of treaties less susceptible to abuse. It claims that its ambitions in this regard are demonstrated by the fact that it includes more anti-abuse provisions than many other countries.

One of the measures that it wishes to include in tax treaties by means of the MLI is a principal purpose test. This prevents unjustified restrictions being placed on a treaty partner’s taxation powers if one of the ‘principal purposes’ of an arrangement or transaction is to gain a treaty benefit. The Government hopes that the test will therefore make the country less attractive for undesirable conduit arrangements.

On the subject of the Dutch blacklist that features the Isle of Man, Treasury Minister Alfred Cannan told Manx Radio on 6 January: “Countries below 9% with corporate tax levels are affected and we need to understand why that is. We also need to understand why there may be some discrepancies in that list of countries that they’ve drawn up. Let’s remember very very clearly that the Dutch, very much, have been ‘top of the pops’ when it comes to facilitating and allowing a corporate shifting of international profits.”

Standing behind the Dutch blacklist, and those blacklists promulgated by all manner of other European jurisdictions, is the European Union’s own.

In addition to those five ‘non-co-operative jurisdictions’ (see above) that were on the list in January, the EU has added yet another ten: Aruba, Barbados, Belize, Bermuda, Dominica, Fiji, the Marshall Islands, Oman, the United Arab Emirates and Vanuatu.

The EU has also extended its deadlines for eleven jurisdictions that had ‘reasonable excuses’ not to reform their laws on time. The classic example of this, according to an EU spokeswoman, is Switzerland which can only implement the desired changes by changing its constitution with a referendum that cannot take place until June. The other ten reprieved jurisdictions are Anguilla, the Bahamas, the British Virgin Islands, the Cayman Islands, the Cook Islands, Costa Rica, Curaçao, the Maldives, Morocco and Palau. The spokeswoman added that the EU had found 32 other countries to be ‘compliant.’

The consequences for countries that do not bow to the EU’s demands for changes to their tax systems – and it is obvious that these are only the first demands of many – might eventually be severe. In March last year the EU took its first step towards stopping the transit of all EU funds through jurisdictions whose tax systems it does not like. It issued guidelines to stop “EU external development and investment funds” from going through entities in those countries. It aimed these guidelines at “the use of EU funds by International Financial Institutions such as the European Investment Bank, development financial institutions – including the European Fund for Sustainable Development – and other eligible counterparties.”

The guidelines call for a series of checks that should “pinpoint a risk of tax avoidance with a business entity” in a blacklisted jurisdiction. For example, before channelling funding through an entity, every EU firm should make sure that there are sound business reasons for the way in which the project in question is structured that do not take advantage of the technicalities of a tax system or of mismatches between two or more tax systems for the purpose of reducing a tax bill.

In March the EU said that its subject countries had agreed on a set of measures that they can choose to apply against the listed countries. These included a heavier layer of monitoring and audits, the use of withholding taxes, special requirements for documents and “anti-abuse provisions” of the kind pioneered by the UK a few years earlier. It resolved to help its member-states to do more in this area with the passage of time.

This is the first comprehensive revision of the list, which originally came out in late 2017.

“Every British overseas territory must establish a UBO register by 31 December 2020”

The EU, threatening dire consequences, induced the now-blacklisted jurisdictions to promise it some time ago that they would change their tax regimes in its favour. According to Europa, its press service, they did not pass the necessary reforms by the end of last year, when the agreed deadline fell. The tax blacklist is not to be confused with the money-laundering blacklist which the EU revised last month.

Most promises that these hapless jurisdictions made were connected to a deadline at the end of last year. The EU’s oddly-named “code of conduct group on business taxation” kept an eye on their legal reforms until the beginning of this year. The final approval for the present list came from a council on which a representative of every EU country sits. This council says that it is looking forward to “the evolution of the listing criteria that the EU

INTERNATIONAL VIEW THE OFFSHORE WORLD: WHERE ARE WE NOW?

uses to establish the list,” a sure sign of more stringent and aggressive tax-related demands to come.

ON THE REGISTER The EU has legislated for registers of beneficial owners to be set up and made searchable by all its major law enforcement authorities including those of Italy which, unfortunately, are influenced by organised crime. EU countries should have had their registers up and running last year, but there have been many stragglers. Luxembourg has just created one, with registrations having begun on 1st March.

Bodies corporate have until 1 September to comply with the new underlying statute, which transposes parts of the European Union’s fourth and fifth Money Laundering Directives into Luxembourgeois law. Penalties for non-compliance range between €1,250 and €1.25 million.

In line with continental preferences, the register is only open to people who can show the authorities that they have a ‘legitimate interest’ in seeing its contents. Journalists are not ruled out of the ranks of people who might prove that they have such an interest, but they are not explicitly ‘ruled in’ either.

The database is known in Luxembourg as the registre de bénéficiaires effectifs or RBE. It will hold information on most entities registered in Luxembourg, especially those with the abbreviations of SA, SCA, Sàrl, SCS, SCSp, SE, SNC, GIE, SAS, SC and FCP and Luxembourg investment funds.

A separate Bill was issued in December to set up a register for trusts, to be kept by the tax-collecting authorities. Nobody except the Government is to be allowed to see this separate register.

Reforms are also in progress in the non-EU parts of the offshore world, also as a result of British and/or EU policy. Any British overseas territory that fails to establish a register by 31 December 2020 will have one imposed by London. Bermuda’s Minister of Finance has extended the date on which all Bermudian companies and partnerships (unless exempted) must set up beneficial ownership registers (and, if necessary, verify and update them) and send information off to the Bermuda Monetary Authority to 30 April. The last date was 28 February. The previous date, also abandoned, was 15 December last year and the one before that was 24 September.

Each corporate entity and its corporate service provider must keep a register, sending a copy off to the regulator. The Registrar of Companies of Bermuda should be able to gain access to it at all times.

Bob Richards, Bermuda’s former Minister of Finance and an outspoken critic of the approach of the OECD, the EU and indeed to some extent the UK to the offshore world, spoke for many offshore operators throughout the globe when he recently criticised Pierre Moscovici, the EU Commissioner for Economic and Financial Affairs, Taxation and Customs, with these harsh words: “Having met him and his staff, it was clear they had the firm conviction that there was no legitimate role for ‘dots on the map’ such as Bermuda in the global economy. Put

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another way, any financial service provided by the likes of Bermuda must, by definition, be illegitimate.”

His opinion of the UK was scathing as well, noting its failure to keep Bermuda off the aforementioned EU blacklist: “I note that Britain unsuccessfully appeared to try to intercede on our behalf. Hard experience in finance has taught me that we cannot, and must not, rely on the British to represent our interests in Europe. They are not reliable in this regard. This is the same British Government that we are defying regarding public beneficial ownership registers and boycotting their Foreign Affairs Committee hearing.

“Let me be unmistakably clear: there is absolutely no fairness or equity in this process. It was contrived from the start. One only has to look at the economic activities in Luxembourg and Malta, two EU member states, to see that there are rules for those in

the ‘club’ and those on the outside. Some outside jurisdictions are too big to tackle, such as the United States (particularly in Delaware and Nevada), so they bully the small ones, like us. Experience should also teach us that the only thing that does not change is that the goalposts keep shifting.”

Richards’ last sentence, at least, rings true. The OECD is adding to the BEPS project all the time and it is inconceivable that it will stop with this round of demands now that it has tasted power on a global scale. Meanwhile, the EU has already admitted that it will go on adding to its demands. The next few years promise to be a fascinating period in which the forces of global centralisation in the best interests of the largest economies – interests which are presently carrying all before them – clash with the preoccupations of a nimble offshore sector which, despite repeated assaults, refuses to die or even to wither.

INTERNATIONAL VIEW

ECONOMIC SUBSTANCE REQUIREMENTS IN BERMUDA, THE BRITISH VIRGIN ISLANDS AND THE CAYMAN ISLANDS * by Fiona Chan and Shana Simmonds, a partner and her senior associate at the law firm of Appleby Each of the governments of Bermuda, the British Virgin Islands (BVI) and the Cayman Islands has passed legislation that will require certain entities that carry on “relevant activities” to have “economic substance” in Bermuda, the BVI and the Cayman Islands, respectively.

“Pure equity holding companies are subject to a lesser test” They introduced the new laws in response to concerns expressed by the Council of the European Union about the absence of clear general legal ‘substance’ requirements for entities doing business in and through these jurisdictions. Below is a summary of the economic substance requirements in Bermuda, the BVI and the Cayman Islands.

BERMUDA Bermuda’s Economic Substance Act 2018 and its Economic Substance Regulations 2018 became operative on 31 December 2018. The regime applied immediately to entities incorporated or registered after that date. For already-registered entities, there is a six-month

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transition period and the first reporting will commence in 2020. For purposes of the Bermuda Substance Act, “registered entities” are: • companies incorporated under the Companies Act 1981; • companies formed under the Limited Liability Company Act 2016; and • partnerships (exempted, exempted limited or overseas) which have elected to have separate legal personality under s4A Partnership Act 1902.

A registered entity will be subject to Bermuda’s Substance Act if it conducts any of the following “relevant activities”: • banking; • insurance; • fund management; • financing and leasing; • headquarters; • shipping; • distribution and service centre; • holding entity; • intellectual property.

Each of the above activities is defined in the Substance Regulations. A registered entity conducting a relevant activity will satisfy the Bermuda economic substance requirements if:

• it is managed and directed in Bermuda; • core income-generating activities are undertaken in Bermuda with respect to the relevant activity; • it maintains adequate physical presence in Bermuda; • there are adequate full-time employees in Bermuda with suitable qualifications; and • there is adequate operating expenditure incurred in Bermuda in relation to the relevant activity.

Pure equity holding companies are subject to a lesser test than usual and certain intellectual property entities will have to satisfy more onerous obligations than usual. Entities are allowed to outsource some core income generating activities in certain circumstances.

BRITISH VIRGIN ISLANDS The BVI’s Economic Substance (Companies and Limited Partnerships) Act 2018 came into force on 1 January this year. The regime applies to the following “legal entities”: • companies and foreign companies incorporated/ registered under the BVI’s Business Companies Act 2004, excluding companies which are not resident in the BVI; and IFC WORLD 2019

• limited partnerships and foreign limited partnerships formed/registered in accordance with the Partnership Act 1996 or the Limited Partnership Act 2017, excluding limited partnerships which are not resident in the BVI or do not have legal personality.

The Economic Substance Act imposes economic substance requirements on all BVI legal entities that carry out “relevant activities.”

A legal entity incorporated or registered in the BVI will have to obey the Economic Substance Act if it conducts any of the same “relevant activities” as on Bermuda’s list (above). Each of those activities is defined in the Economic Substance Act. Each legal entity which is not tax-resident outside the BVI (other than a pure equity holding entity) must, in relation to any relevant activity, carry out defined core income-generating activities in the BVI and “demonstrate economic substance” by reference to the following criteria, having regard to the nature and scale of the relevant activity: • the relevant activity being directed and managed in the BVI; • adequate numbers of suitably qualified employees who are physically present in the BVI (whether or not employed by the relevant legal entity or by another entity and whether on temporary or long-term contracts); • adequate expenditure being incurred in the BVI; • appropriate physical offices or premises in the BVI; and • if the relevant activity is intellectual property business and requires the use of specific equipment, the equipment being located in the BVI. Outsourcing of core income generating activities is permitted in certain circumstances.

Pure equity holding entities which carry out no relevant activity other than holding equity participations in other entities and which only earn

dividends and capital gains are subject to less onerous requirements.

Certain intellectual property entities will be subject to more onerous requirements.

CAYMAN ISLANDS The Cayman Islands’ International Tax Co-operation (Economic Substance) Law 2018 and the International Tax Co-Operation (Economic Substance) (Prescribed Dates) Regulations 2018 came into force on 1 January. The regime applied immediately to new relevant entities incorporated or registered after that date. For existing relevant entities, there is a six-month transition period and the first reporting will commence in 2020.

For the purposes of the Cayman Substance Law, “relevant entity” means (with some exceptions): • a company, other than a domestic company, that is incorporated in accordance with the Companies Law or registered as a limited liability company in accordance with the Limited Liability Companies Law, unless its business is centrally managed and controlled in a jurisdiction outside the Cayman Islands and the company is tax-resident outside the islands; • a limited liability partnership registered in accordance with the Limited Liability Partnership Law, unless its business is centrally managed and controlled in a jurisdiction outside the Cayman Islands and the limited liability partnership is tax-resident outside the islands; and • a company that is incorporated outside the Cayman Islands and registered in accordance with the Companies Law, unless its business is centrally managed and controlled in a jurisdiction outside the Cayman Islands and the company is tax-resident outside the islands.

A relevant entity only has to satisfy the Cayman Islands economic substance requirements if and to the extent that it conducts any “relevant activity.”

Relevant activities are the same as in the other

two jurisdictions. Each of them is described in the Substance Law.

“The regime applied immediately to new relevant entities incorporated after 1 January” A relevant entity will satisfy the Cayman Islands economic substance test in relation to a relevant activity if it: • conducts Cayman Islands core income generating activities in relation to that relevant activity; • is directed and managed in an appropriate manner in the Cayman Islands in relation to that relevant activity; • has regard to the level of relevant income derived from the relevant activity carried out in the Cayman Islands: • incurs an adequate amount of operating expenditure in the Cayman Islands; • has an adequate physical presence (by maintaining a place of business or plant, property and equipment) in the Cayman Islands; and • has an adequate number of full-time employees or other personnel with appropriate qualifications in the Cayman Islands.

Pure equity holding companies have to satisfy fewer criteria and certain intellectual property entities will have to satisfy more. Outsourcing of core income-generating activities is permitted in certain circumstances. *Fiona Chan can be reached on +852 2905 5760; Shana Simmonds can be reached on +852 2905 5713

INTERNATIONAL VIEW ECONOMIC SUBSTANCE REQUIREMENTS IN BERMUDA, THE BRITISH VIRGIN ISLANDS AND THE CAYMAN ISLANDS

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INTERNATIONAL VIEW

THE WORLD OF MLATs – WE TALK TO AN EXPERT * by Chris Hamblin, editor of IFC World Mutual Legal Assistance Treaties are mechanisms by which onshore law enforcers seek co-operation and help from their offshore counterparts in support of criminal investigations or civil proceedings.

They are an essential means of acquiring evidence from all over the offshore world, but anyone who thinks that the MLAT process helps prosecutors and defendants alike in an even-handed way can think again. In this article I talk to Markus Funk, the head of the white-collar investigations practice at the US law firm of Perkins Coie and a veteran of many offshore investigations.

“Letters rogatory are only available once formal proceedings have begun” Governments intentionally restrict access to assistance to evidence through Mutual Legal Assistance Treaties to prosecutors, government agencies that investigate criminal conduct and government agencies that are responsible for matters ancillary to criminal conduct, including civil forfeiture. They make no exception for people who are trying to defend themselves against charges and/or civil asset recovery action, who can use them to obtain evidence that might help their own causes.

Letters rogatory, by contrast, have a considerably broader reach than MLATs: US federal and state courts can issue them as part of criminal, civil, and administrative proceedings, they can be requested by anyone, and can be sent to US federal and state courts by any foreign or international tribunal or ‘interested person.’ One major drawback, however, is that letters rogatory are only available once formal proceedings have begun; nobody can issue them during the investigative, pre-charging stage of criminal proceedings or at any time before somebody has issued a writ.

To take a closer look at these two methods of gathering evidence internationally, and to investigate the interplay between them, we spoke to Markus Funk. The rest of this article is in the form of a question-and-answer session.

Q. For criminal proceedings, there are two primary means of obtaining evidence: an MLAT and a letter rogatory. What are the latest developments to do with these around the world?

A: Practitioners know that for criminal proceedings there are two primary means of obtaining evidence (which is to say physical evidence, documents/data, and testimony). These are Mutual Legal Assistance Treaties (MLATs) and letters rogatory. For civil proceedings, in contrast, there is only a letter rogatory.

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Evidence obtained from abroad through these tools may be presented as part of court proceedings.

That said, it is important not to lose sight of the in-the-trenches reality that diplomacy, executive agreements and information exchange through informal communications can play an important role in transnational criminal investigations and civil litigation.

In fact, personal, co-operative law-enforcement relationships can be so informal and ‘off the grid’ that law enforcement agencies, courts and defendants may only learn of them by accident.

One trend we have observed is that, responding to the increasing challenges of transnational law enforcement, the Federal Bureau of Investigation and other US law-enforcement agencies have aggressively sought to develop institutional relationships with their foreign counterparts.

Teams of US law enforcement officers regularly co-ordinate with each other and with their foreign counterparts in a task force approach, often working out of offices in US embassies and missions around the world. This “bricks and mortar” outreach enables US law-enforcement officials to cultivate professional relationships and more readily access other sources of information in the host countries.

“For civil proceedings, letters rogatory are the only game” Having recently litigated against the US Department of Justice, trying to stop our government from enforcing an MLAT request that we thought was based on patently flawed legal analysis by the requesting company’s court, I can also attest that seeking to block an MLAT request once it has been made is much more of a challenge than trying to prevent the request in the first place by litigating the issue in the foreign court (assuming you have adequate notice).

Q: Could you tell me your opinion about jurisdictions – perhaps the BVI, Caymans, Bermuda, Gibraltar, Guernsey, or Singapore – and how well they respond to MLATs and letters rogatory? I’m sure that you deal with/read about many jurisdictions and know all their quirks.

Which are the most/ least co-operative jurisdictions and why? What are the ones in the middle doing?

A: It is difficult to make generalisations about country-specific responsiveness but, as a rule, the US is much more helpful to foreign country MLAT requests than they are to ours. Whether smaller

foreign countries are responsive is driven largely by which individual government lawyers and judges happen to get the case. By contrast, when a foreign jurisdiction makes an MLAT request to the US we (through the Office of International Affairs) have a routinised, formal process for analysing the request, sending it out to the appropriate US District Court, and having Assistant US Attorneys seek to enforce the request. Most other countries, for their part, handle our outgoing requests to them in a very ad hoc basis. I recently helped a foreign country that wanted to set up an MLAT process because the number of requests it had started to receive was increasing steadily – and this ramped-up effort to be more responsive to incoming requests is a hopeful trend.

Q: For obtaining evidence in civil proceedings, I believe there is only a letter rogatory. What are the latest developments for that?

A: You are 100% correct that, for civil proceedings, letters rogatory are the only game. They function as formal requests for judicial assistance made by a court in one country to a court in another country. Letters rogatory are often used to obtain evidence, such as compelled testimony, that may not be accessible to a foreign criminal or civil litigant without judicial authorization. Once issued, they may be conveyed through diplomatic channels, or they may be sent directly from court to court. As one court put it back in the 1970s, “While it has been held that federal courts have inherent power to issue and respond to letters rogatory, such jurisdiction has largely been regulated by congressional legislation.”

Even casual practitioners are also increasingly aware that the Hague Convention on the Taking of Evidence Abroad in Civil or Commercial Matters— codified at 28 USC § 1781 under the auspices of the Hague Conference on Private International Law, and enforced since 1972—sets forth procedures for obtaining evidence and assistance in civil cases by its fifty or more signatory countries (including the United States).

Q: Is the experience of using letters rogatory for civil matters different from using them for criminal matters and, if so, how?

A: In most cases, foreign courts honour requests that are made in letters rogatory. However, in sharp contrast to treaty-based MLATs, international judicial assistance is discretionary. It is based upon principles of comity rather than treaty and is also subject to legal procedures in the requested country. Therefore, compliance with a letter rogatory request is left to the discretion of the court or tribunal in the ‘requested’ jurisdiction (that is, the court or tribunal to which the letter rogatory is addressed). Because the letter rogatory process is more time-consuming than the MLAT process, IFC WORLD 2019

is less predictable and may involve unique issues of foreign procedural law, parties who seek evidence should typically arrange for local counsel in the foreign country to send the letter rogatory off on their behalf and help shepherd it through the court system – a strategy that may facilitate the process.

Q: Collection of evidence abroad – whether done by prosecutors or defence counsel – is increasingly a hallmark of FCPA cases. How much of that involves offshore centres?

A: Federal prosecutors rely increasingly on extraterritoriality provisions in federal law, such as those incorporated into the US Foreign Corrupt Practices Act, to initiate cases in which much of the physical evidence and most potential witnesses are located overseas. Because the MLAT process is only available to the prosecution, the defendant’s ability to collect and present evidence is limited.

Of course, most FCPA cases are resolved without litigation. That said, the US Government is relying more and more on MLATs (and the previously-mentioned informal channels) to gather evidence in FCPA investigations.

Although there is a presumption in favour of honouring MLAT requests, the district court must still review the terms of each request, checking that they comply with the terms of the underlying treaty and comport with US law.

“Criminal defendants, like civil litigants, must use letters rogatory to secure evidence located abroad” US courts will also consider constitutional challenges to a request for legal assistance. Nevertheless, MLATs are very government-friendly (which explains their popularity). For example, access to evidence through an MLAT is restricted to prosecutors, government agencies that investigate criminal conduct, and government agencies that are responsible for matters ancillary to criminal conduct, including civil forfeiture. In fact, the vast majority of MLATs signed by the United States explicitly exclude non-government

access to US processes. Criminal defendants, like civil litigants, must use letters rogatory to secure evidence located abroad, a process that is less efficient and less reliable. Limitations on the use of evidence obtained from abroad, moreover, are limited – a district court may not enforce a subpoena that would offend a constitutional guarantee, such as a subpoena that would result in an egregious violation of human rights.

Many observers have noted that the lack of compulsion parity between prosecutors and the defence in obtaining foreign evidence has implications for ‘due process.’ Counsel for the defence frequently argue that a vital piece of exculpatory evidence is located overseas and the MLAT process is the only realistic way of obtaining it. Counsel may ask the government to provide assistance with access to this evidence through the MLAT process, and if the prosecution refuses, counsel may petition the court for relief. Despite these efforts, however, courts in the main have been entirely unreceptive to such petitions in the absence of language in the MLAT that provides for defence access to evidence abroad. *T Markus Funk can be reached on +1 202 654 6208 or at MFunk@perkinscoie.com

INTERNATIONAL VIEW

THE REGULATION OF CRYPTOCURRENCIES IN BERMUDA, THE BVI AND THE CAYMAN ISLANDS: A COMPARISON * by Steven Rees Davies, a partner at Appleby, and his associates The sudden emergence and rapid growth of crypto-currencies and other digital assets in recent years, combined with seemingly unlimited potential applications for blockchain and distributed ledger technologies in a range of industries, has led to an unprecedented period of technological innovation and the emergence of disruptive businesses and entirely new models of funding. As the pace of technological change accelerates, the legal and regulatory side of doing business is becoming more complex.

The Cayman Islands, Bermuda and the British Virgin Islands are three of the world’s largest offshore jurisdictions. All three have ambitions to become globally important technological hubs and have taken steps in recent years to become attractive destinations for technological entrepreneurs, especially those who want to launch, host and develop digital assets using blockchain technology.

In this article we evaluate the approach that each jurisdiction is taking in this fast-evolving business and consider some of the likeliest developments in 2019. Information about the laws and regulations of each jurisdiction will come in the form of questions and answers.

THE CAYMAN ISLANDS The Cayman Islands are home to approximately 70% of the world’s offshore investment funds and their Government does not tax companies or people directly. As one of the offshore world’s foremost financial centres, this jurisdiction is well placed to become an attractive destination for technological entrepreneurs. Its ambitions are also supported by a sound body of law, a modern infrastructure, stateof-the-art communication systems and a stable political climate.

Most of the Cayman Islands’ financial service legislation comes from the time before the blockchain revolution began, but in recent years the Government has taken some legal and regulatory steps to make such innovation thrive.

Q1: Are there any ‘sandboxes’ or other regulatory ‘neutral zones’?

A: In November the Government announced that it was going to set up a “technology neutral regulatory sandbox” in the Cayman Islands to encourage, foster and incubate companies that operate in the sector.

Further details have yet to emerge.

outside the islands can set themselves up and operate offshore with a genuine physical presence. The benefits of residing in the SEZ include: • fast-track set-up in 4-6 weeks; • renewable five-year work/residency visas granted in five days to staff from outside the Cayman Islands; • no Government reporting or filing requirements; and • presence in a tech cluster with cross-marketing opportunities.

Q3: How are initial coin offerings (ICOs) regulated?

A: There is no separate body of law for the regulation of ICOs in the Cayman Islands. The primary piece of legislation regarding securities and investment business in the Cayman Islands is the Securities Investment Business Law. SIBL provides for the licensing and control of persons engaged in securities investment business in or from the Cayman Islands.

It sets out an exhaustive list of financial instruments that constitute ‘securities’ and cryptographic tokens are not included in that list. However, the question of whether a token might constitute a security as defined by SIBL rests on the facts that surround it and the unique ways in which it operates. If it does indeed qualify as a security, the issuer is either dealing in, or arranging deals in, securities, although the issuer’s activities may appear on a list of activities that SIBL excludes from this. Every issuer of a token in the Cayman Islands is also subject to the general criminal laws that forbid fraud and the laws that govern intentional or negligent misrepresentation.

Q4: Does anyone who wants to conduct a token sale in the Cayman Islands have to be present physically?

A: Not at present, but in December last year the Cayman Islands introduced an ‘economic substance’ requirement for certain companies that operate there. Operators ought to seek legal advice on a case-by-case basis at the start of any project to find out whether or not the project will have to comply with these new requirements.

Q5: Can an ICO project set up a local bank account?

A: Yes. A number of banks in the Cayman Islands will accept ICO account business but they might ask for additional documents. Anyone wants to launch an ICO project from the Cayman Islands ought to try to open a bank account as early as possible.

Q2: Is there a digital ‘incubator’ or ‘hub’?

Q6: Are ICOs subject to the local anti-money laundering (AML) regime?

A: The Government has set up a Special Economic Zone (SEZ) in which technological companies from

A: Yes. The Financial Action Task Force (FATF) is the international anti-money-laundering standard-set-

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ter. As a member of the Caribbean FATF, the Cayman Islands have to abide by the FATF’s so-called 40 recommendations. Every issuer of tokens in the Cayman Islands ought to prepare a know-your-customer or KYC policy that applies to all participants in the token sale and which seeks to comply with ‘enhanced’ AML procedures.

Q7: Are any legal or regulatory changes to be expected?

A: In 2018 the Government set up some working groups to set broad boundaries for new laws that might promote and regulate emerging technology such as blockchain and crypto-assets – they are still consulting interested parties. The Government is looking at ways in which “regulated digital identity solutions” could help streamline and replace more traditional ways of obeying AML and KYC laws.

BERMUDA As one of the foremost offshore financial centres, renowned for its strong (re)insurance, investment fund, asset management and trust sectors which are supported by a world-class advisory and financial services infrastructure, including a sophisticated legal system, a robust regulatory regime, speed-tomarket capability, a business-friendly government, a simple tax regime and a highly skilled work force, Bermuda has become an attractive destination for technological entrepreneurs.

Through the introduction of one of the first legal and regulatory regimes in the world that was tailored specifically for the digital asset and crypto-currency sectors, Bermuda has made a bold statement about its commitment to creating a business environment that balances the interests of both entrepreneurs and consumers, through a legal and regulatory framework that offers certainty and security to both sides.

Q1: Are there any ‘sandboxes’ or other regulatory neutral zones?

A: In 2018 Bermuda introduced new laws and regulatory rules to govern and regulate initial coin offerings, digital asset business and ‘insuretech.’ The new legislation sets out standards of disclosure for ICOs, a dual licensing system (including a ‘sandbox’) for anyone who wants to provide digital asset business services to the sector and both a ‘sandbox’ regime and an ‘innovation hub’ for those in insuretech.

Q2: Is there a digital ‘incubator’ or hub?

A: No, but Bermuda’s Government is in the process of developing numerous projects aimed at stimulating innovation, co-operation and development IFC WORLD 2019

in the technological sector as well as cross-departmental policies to streamline the process by which people can establish IT companies on the island.

Attractive immigration policies and payroll tax relief has also been introduced to give immediate economic benefit to firms that establish their IT business in Bermuda.

Q3: How are ICOs regulated?

A: New ICO legislation became operative on 9 July last year. It claims to protect both consumers and the integrity of markets. Under the new law, an ICO is treated as a restricted business activity which requires consent from the Bermuda Monetary Authority (BMA). Other key provisions of the ICO legislation include: • the establishment of a FinTech Advisory Committee to advise the minister on all matters relating to FinTech, or the development of the FinTech industry, which the minister may refer to it; • establishing minimum requirements for all ICOs (including a Code of Conduct); and • setting out requirements for the publication and content of ICO white papers.

Q4: Does anyone who wants to conduct a token sale in Bermuda have to be present physically?

A: Not at present. As long as the standard minimum level of corporate existence required of any company incorporated and registered in Bermuda is met, there are no additional physical presence requirements placed upon companies that conduct ICOs. In December last year, however, Bermuda introduced an ‘economic substance’ requirement for certain companies that operate there. Operators ought to seek legal advice on a case-by-case basis at the start of any project to find out whether or not the project will have to comply with these new requirements.

Q5: Can an ICO project set up a local bank account?

A: Although the financial institutions that are licensed to provide banking and deposit services in Bermuda remain cautious towards businesses that operate in this sector, none have imposed a blanket prohibition and most are prepared to support legitimate business on a case-by-case basis. It is expected that as the AML/anti-terrorist finance (ATF) sector-specific guidance becomes more established, the financial institutions may soften in their approach.

Notwithstanding this, the Bermuda Government has created a new type of banking licence for anyone who wants to set up a digital asset company.

Q6: Are ICOs subject to the local AML regime?

A: AML/ATF legislation and regulation in Bermuda is based on the recommendations promulgated by the FATF. Any company that does digital asset business must obey AML laws and regulations. Anyone who wants to be licensed under the new ICO legislation must have a comprehensive AML policy.

Q7: Are any legal or regulatory changes expected?

A: No.

THE BRITISH VIRGIN ISLANDS These islands are a British Overseas Territory and are recognised across the globe as the premier jurisdiction for the registration of asset-holding companies. BVI corporate legislation is generally regarded as ‘non-prescriptive’ in that companies are able to devise the corporate structures and procedures that apply to their businesses, subject to certain limited statutory requirements.

The flexibilities inherent in such a system make BVI companies extremely attractive as part of asset-holding structures. Thanks to the attractiveness of BVI corporate vehicles for international businesses, asset holding and investments, there has been a steady increase in the use of BVI companies as holding and operating companies throughout the software industry.

any other manner to the effect that anyone is doing investment business.

Every issuer of a token in the BVI is also subject to the general criminal laws that forbid fraud and the laws that govern intentional or negligent misrepresentation.

Q4: Does anyone who wants to conduct an IPO in the BVI have to be present physically?

A: Not at present, but in December the BVI introduced an ‘economic substance’ requirement for certain companies that operate there. Operators ought to seek legal advice on a case-by-case basis at the start of any project to find out whether or not the project will have to comply with these new requirements.

Q5: Can an ICO project set up a local bank account?

Q1: Are there any ‘sandboxes’ or other regulatory neutral zones?

A: No such zones or initiatives have been established in the BVI. The Financial Services Commission (FSC) has indicated that it is thinking of establishing a regulatory ‘sandbox’ to help companies in the technology sector, but the admission criteria, regulatory exemptions and time-frame for implementation remain unknown at the time of writing.

A: Not unless the project establishes a physical presence in the BVI or otherwise can show evidence a ‘nexus’ or connection between the BVI and its business operations. Local banks have, traditionally, been reluctant to open accounts for BVI-incorporated entities. It is typical for BVI entities to set up bank accounts elsewhere, whether in other overseas jurisdictions or onshore.

Q6: Are ICOs subject to the local AML regime?

Q2: Is there a digital ‘incubator’ or hub?

A: No special economic zones have currently been established in the BVI to benefit companies in the FinTech sector. Although the FSC has indicated that it is considering initiatives to encourage entities to operate there physically, any such project is unlikely to be viable without significant infrastructural investment.

A: Generally speaking, a utility token sale would not constitute a ‘relevant business’ and therefore would not have to adhere to the “enhanced due diligence” (EDD) AML requirements of the jurisdiction. Notwithstanding this, it is recommended that issuers of tokens in the BVI prepare a KYC policy that applies to all participants in the token sale and which seeks to comply with enhanced AML procedures.

Q3: How are ICOs regulated?

A: There is no separate body of law to govern the regulation of ICOs in the BVI. The primary piece of legislation regarding securities and investment businesses in the BVI is the Securities and Investment Business Act. SIBA provides for the licensing and control of persons engaged in investment businesses in or from within the BVI.

In August 2018, the Government changed the AML Code to permit entities in the BVI to verify identities digitally and receive electronic copies of documents instead of traditional ‘wet ink’ paper-based documents. The amendments are further evidence of regulators in the BVI embracing the blockchain revolution and will set a new standard for AML verification in the region.

SIBA sets out an exhaustive list of financial instruments that constitute ‘investments’ but cryptographic tokens are not expressly included in that list. However, the question of whether a token might constitute a security as defined by SIBA rests on the facts that surround it and the unique ways in which it operates. If it does indeed qualify as a security, the issuer is either dealing in, or arranging deals in, securities, although the issuer’s activities may appear on a list of activities that SIBA excludes from this.

Q7: Are any legal or regulatory changes expected?

A person who is not carrying on an investment business in accordance with SIBA may still have to be licensed if he/it claims to be carrying out an investment business. He/it should therefore not use words, in any language, that connote the existence of a securities investment business in the description or title of the business in question. He/it should also make no representation in any document or in

*Steven Rees Davies can be reached on +1 441 298 3296 or at sreesdavies@applebyglobal.com; Peter Colegate can be reached on +1 345 814 2745 or at pcolegate@applebyglobal.com; and Rebecca Jack can be reached on +1 284 393 5346 or at rjack@applebyglobal.com

A: At the time of writing, neither the BVI Government nor the FSC has issued any regulatory guidelines to govern ICOs. We understand, however, that both are mulling over legislative and regulatory changes to spur the growth of the FinTech, blockchain and ICO industry in the BVI. Any such reform is only likely to happen after the Government consults the financial sector in detail.

INTERNATIONAL VIEW THE REGULATION OF CRYPTO-CURRENCIES IN BERMUDA, THE BVI AND THE CAYMAN ISLANDS: A COMPARISON

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VIEWS FROM THE JURISDICTIONS

BAHAMAS

THE EXACTING PACE OF REGULATORY REFORM IN THE BAHAMAS * by the Bahamas Financial Services Board Recently, in an effort to comply with criteria for tax governance laid down by the OECD and the EU, the Bahamas made changes to the laws and regulations that govern its financial sector. Other nations are making the same changes elsewhere around the globe. These initiatives include the following.

“All will have to show that they are engaging in real economic activity” • The passing into law of the Multinational Entities Financial Reporting Act, which contains rules for country-by-country reporting in line with the OECD’s Base Erosion and Profit Shifting (BEPS) initiative.

• The initiation of Automatic Exchange of Information (AEOI) with 35 jurisdictions (19 of which are in the EU) in accordance with the OECD’s Common Reporting Standard (CRS), with the first exchanges having taken place in September 2018. The Bahamas has always insisted on following international best practice and has fared well in the “phase two peer reviews” to which the OECD’s Global Forum has subjected it. In fact, the Bahamas has been deemed “largely compliant” with the OECD’s existing standard for exchanges of information on request — the same rating as countries in the ‘Group of 20’ (actually only 19) industrialised nations such as the UK, Germany, Canada and Australia.

• The allaying of the EU’s and OECD’s concerns with respect to economic substance, access to information about beneficial ownership and ring-fencing by the passage of the following legislation in Parliament in December 2018. (a) The Commercial Entities (Substance Requirements) Act 2018. This Act insists on relevant entities having economic substance. The Act defines ‘relevant activities’ as banking, insurance, fund management, financing and leasing, shipping, distribution or service centre operations, headquarter operations and holding companies with relevant activities. All will have to show (or be able to show) the authorities that they have a substantial economic presence in the Bahamas and that they are engaging in real economic activity. (b) The Beneficial Ownership Register Act 2018. This calls for the establishment of a secure search system by the Attorney General that can scan databases managed by registered agents who hold information about the beneficial ownership of entities that they manage which are incorporated, registered, continued or otherwise established in accordance with the Companies Act or the International Business Companies Act. (c) The Removal of Preferential Exemptions Act 2018. This is designed to tackle the harmful tax

practice known as ‘ring-fencing,’ which occurs when a taxing jurisdiction runs a preferential tax regime that is unavailable to certain groups of taxpayer often domestic taxpayers or taxpayers who operate in the domestic economy. In other words, it removes tax exemptions afforded to non-residents that are not afforded to residents.

The Government of the Bahamas has stated on record that it intends to attain and maintain “the very highest levels of conduct as a clean jurisdiction, complying with the highest standards to prevent the abuse of its financial system by money launderers and criminal elements.” It has promised to satisfy the requests of the Financial Action Task Force and the Caribbean Financial Task Force. Over the last 15 months the Attorney-General and the task force that he leads have done much to address the concerns that the CFATF voiced in its aforementioned Mutual Evaluation Report. With this in mind, the CFATF positively re-rated the Bahamas favourably in December 2018 in respect of various FATF recommendations.

EXPERTISE Thousands of Bahamian wealth managers work side-by-side with their expatriate colleagues in more than 250 financial institutions that call the Bahamas their home. Private wealth management continues to stand centre stage on the Bahamian financial scene. It is facilitated by a diverse suite of products, of which banking and trust services are the centrepieces. These products and services are as follows.

new territories and new types of technology. They are increasingly concerned with preserving their wealth and ‘succession planning’ for both their businesses and their families. In summary, their lives and the plans that they are making have become more complex.

The Bahamas have some of the most innovative and sophisticated trust laws in the world. HNWIs and their families are able to choose perpetual trusts, protective trusts, trusts for purposes both charitable and non-charitable, private trust companies to administer the trusts of related settlors, trust substitutes such as foundations and pure governance structures such as the Bahamas Executive Entity. The Bahamian trust is a model of robustness and flexibility. Trust legislation in the Bahamas has always been ‘cutting edge’ and other jurisdictions often use it as the standard to follow. c) The Bahamian Foundation Trusts are not often used in civil jurisdictions. More than ten years ago the Bahamas became the first common-law country to pass its own foundation legislation, thus creating a viable alternative for wealth planning and protection.

“SMART funds are numerous and there are many types of them”

a) Private banking

d) The flight of the BEE

Private banking has come of age in the Bahamas during the past decade. The country’s banking practices and standards, regulation and supervisory controls are now on a par with those of the rest of the global banking community, although the jurisdiction continues to offer clients a great deal of privacy and confidentiality. Many of the world’s largest and most prestigious financial institutions have taken advantage of the country’s stable political and economic system to establish branches or subsidiary operations there, offering private banking services to highnet-worth and ultra-high-net-worth individuals and families.

The Bahamas Executive Entity (BEE) provides the wealth manager with a nimble and innovative approach to his ever-changing needs. The BEE solves complex governance issues in fiduciary and wealth management structures, particularly with respect to share ownership in Private Trust Companies. It identifies persons willing to act in any number of governance roles in wealth structures.

b) Trusts Since the Industrial Revolution, possibly the biggest generator of capital and the single greatest cause of wealth creation worldwide has been the private ownership of operating companies. Members of families who go into business together, and the entrepreneurs who lead those businesses, where different, are growing more and more sophisticated in terms of their investments, their strategies and their goals. Their ‘footprints’ are becoming more global as they cross borders and move their businesses into

BAHAMAS THE EXACTING PACE OF REGULATORY REFORM IN THE BAHAMAS

e) Captives added to private wealth offerings Captive insurance is another area of recent expansion. The Bahamas is not a newcomer to captives, but this avenue of investment took a back seat during a recent period in which the jurisdiction concentrated on developing wealth management, trusts and estate planning. This is certainly not the case now, as the opportunity for captives to play a part in wealth management is undeniable.

Segregated cell legislation is a prime example of Bahamian activity in the captive market. It provides the assets and liabilities of each account with robust statutory protection, keeping them truly separate and distinct from those of other accounts.

Cell captives benefit from the natural economies

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of scale that such structures create. Bahamian regulators, too, have responded vigorously to the demand among small-to-medium-sized enterprises for a cost-effective means of captive insurance or self-insurance while still upholding international standards.

INNOVATION Innovation, as we have already said, can be seen at work in the country’s evolving and often ground-breaking trust legislation. It has also thrust The Bahamas into the vanguard of the investment funds industry with the introduction of SMART Funds and the Investment Condominium (ICON) fund.

SMART FUNDS The Bahamas’ evolving investment funds sector is beginning to attract major attention from fund managers and has already added a new dimension to the jurisdiction’s wealth management and advisory capability. The Bahamas recently experienced an upward trend in investment fund registrations.

The jurisdiction owes its success in this area largely to the investment vehicle known as the SMART (Specific Mandate Alternative Regulatory Test) fund.

Even with more institutionally-focused templates such as the SMART 7, Smart Fund Models (SFMs) have been used as cost-effective investment fund vehicles for families, family offices and related investors.

The SMART fund concept was conceived in the spirit of risk-based regulation. Its creators took stock of the fact that investment funds often needed to have

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flexible structures and reporting requirements. Regulation of each fund is adjusted to the risk profile of the fund; there is a cap on the number of investors who may invest in many of the templates. It is permissible for the investors to waive the production of audited financials in favour of semi-annual performance reports. SMART funds are numerous and there are many types of them. Promoters have an open opportunity here – if they wish, they may ask the regulator to approve a specific business case for a fund. If the regulator grants its approval, it can then impose a risk-based licensing and supervisory regime on the fund that it has created for it. Other funds can then use the new template and can even set new parameters and requirements for it.

“The ICON legal structure for investment funds is familiar to Brazilians” A NEW ICON FOR FUNDS The Bahamas have learnt from the niche-marketing success of SMART funds and taken the same innovative approach to the creation and introduction of the ICON – the Investment Condominium Fund – with the aim of meeting the needs of Latin American and especially Brazilian investment managers. The ICON is yet another example, along with the foundations law of 2004, of the Bahamas creating products and aiming them at groups of clients with very different cultural and legal backgrounds. The ICON provides

an alternative legal structure for investment funds that, inherently, is familiar to Brazilians and people in countries with similar civil laws. Plans are underway to develop a similar product that caters to other jurisdictions.

THE INVESTMENT FUNDS OVERHAUL A complete overhaul of the law that governs the regulation of investment funds is nearing completion, with the Securities Commission of the Bahamas (SCB) in the driving seat. The overhaul includes an updated Investment Funds Act (IFA) and some forthcoming changes to the securities industry’s legislative regime as a whole. It is expected to make the Bahamas more competitive and contains the following key changes.

• Changes in the definitions of ‘Bahamas-based funds’ and ‘non-Bahamas based funds.’

• Changes in the triggers for the licensing of funds.

• The ability to appoint international administrators without them having to be licensed.

• The introduction of licensing requirements for fund managers and regulatory oversight for custodians.

• The establishment of an Alternative Investment Funds Management Directive (AIFMD) regime with a view to the Bahamas qualifying for an EU ‘passport.’

These regulatory reforms promise to be of great benefit to the Bahamas and to complement the islands’ strategic location, political and economic stability, wealth and asset management options, human capital and investment incentives.

IFC WORLD 2019

BAHAMAS

THE BAHAMAS: THE CLEAR CHOICE FOR INTERNATIONAL FINANCIAL SERVICES * by the Bahamas Financial Services Board International financial centres such as The Bahamas play an important part in the world’s economy. The jurisdiction is a ‘tax neutral’ environment, which is to say that its taxation avoids the distortions, and the corresponding deadweight loss, that occur when changes in price cause changes in supply and demand that differ from those that would occur in the absence of tax. Tax neutrality can also be said to ensure that the tax system raises revenue while minimising discrimination in favour of, or against, any particular economic choice. This implies that the same principles of taxation should apply to all forms of business. The Bahamas’ tax system applies these principles.

Wealth management accounts for a large part of the jurisdiction’s financial sector. For many highnet-worth individuals, banking and wealth management outside one’s home country are simply good business and a wise avenue for investment.

There are several reasons for this.

• Multi-national and multi-generation families and family businesses find that they can pre serve their wealth for the long term and transmit it to younger generations with ease when they site some of their assets in a jurisdiction with trust laws.

• Their home jurisdiction might be subject to civil unrest or have a history of political or financial instability and its government might want to expropriate their wealth and/or subject them to capital controls. It is therefore important for them to offset these risks by keeping at least some of their assets in a jurisdiction that does not suffer from these problems.

• International banking and wealth management centres often possess financial products and services that are superior to those found in the HNWIs’ home countries.

The Bahamas are also the venue for a ‘tax-transparent’ international financial centre because their laws force businesses and other entities to disclose information to the Government about the ways in which they generate their income and the amounts of tax that they pay. The jurisdiction can also be said to be ‘tax transparent’ because it follows the doctrine that nations ought to exchange information with each other about people’s and entities’ tax affairs on request in some cases and automatically in others.

‘Economic substance’ is a term used by the Organisation for Economic Co-operation and Development (OECD) to describe a desirable situation in which every relevant entity – in this instance in the Bahamas – conducts “core Bahamian income generating activities,” is directed and managed in an appropriate manner in the Bahamas and has an adequate operating expenditure, physical presence and number of its people in the Bahamas.

A SHARED COMMITMENT Financial services are the second most important industry in the Bahamas after tourism. Successive governments have recognised the importance of financial services to the country’s continual economic and social development. The financial sector’s viability is therefore a priority for both the public and private sectors, as shown by: • the responsiveness of the legislature and regulators to the needs and demands of the market; • the swiftness with which this can happen; • the balance that the regulators strike between ensuring that the financial services industry keeps its integrity and encouraging lively competition;

• a Government Ministry dedicated to financial services; and • a shared commitment between the public and private sectors to promote and develop the industry.

The Bahamas Financial Services Board (BFSB), established in April 1998, is funded both by private enterprise and by the Government of the Bahamas. Its job is to promote a greater awareness of the Bahamas’ strengths as an international financial centre.

FISCAL AND ECONOMIC STABILITY Representatives of the International Monetary Fund, of which the jurisdiction is a member, visited the Bahamas at the end of last year. They reported: “The Bahamian economy continues to recover, with real GDP growth projected to reach 2.3% in 2018 and 2.1% in 2019; and the Fiscal Responsibility Law (FRL) will support the government’s efforts to secure fiscal sustainability and put debt on a downward path.”

A COMMON LAW JURISDICTION The legal system in the Bahamas has been successful in helping the country respond well to changes in the needs and demands of the market.

It is based on English common law, which is (by and large) clear and simple for its users to understand. As an independent nation with a financial services industry bolstered by a strong public-private sector partnership, the Bahamas responds to shifts in the market swiftly and efficiently.

The Bahamas belong to the Commonwealth of Nations and the ultimate court of appeal for judgments issued by Bahamian courts is the Privy Council in London.

BRITISH VIRGIN ISLANDS

THE BVI CONTINUES TO PUNCH ABOVE ITS WEIGHT In the words of John Donne, “No man is an island.”

This phrase is as true today as it was when it was written hundreds of years ago.

We live in a truly connected world whose economy is powered by cross border activity, whether that be travel or investment. With a long-standing reputation as a reliable and efficient offshore financial centre, the British Virgin Islands are at the epicentre of this intersection, having an economy dependent on both. Never complacent, the territory is always striving to evolve further as a global leader in the financial management sector, most recently with its incubator funds and also its FinTech initiative.

SIZE MATTERS! The British Virgin Islands’ financial sector powers more than US$1.5 trillion of investment around the world and supports 2.2 million jobs. [Source: Capital Economics report: “Creating Value – The BVI’s Global Contribution” – June 2017.] More than 400,000 BVI business companies, which enable the British Virgin Islands to be the seventh largest source of foreign direct investment, are currently active. The BVI is also home to parts of the group structures of more than 140 major businesses listed on the London, New York or Hong Kong main stock exchanges. In addition, major international development banks, including the World Bank’s International Finance Corporation and the European Bank for Reconstruction and Development, use BVI Business Companies to help fund projects around the world.

A MODERN INTERNATIONAL FINANCIAL CENTRE The BVI has a world-class brand and its business model is very attractive, with an established system of common law and US dollar-denominated currency. It performs its services in a secure, safe, well-regulated and business-friendly environment. It has a proven track record of excellence in its financial sector, exemplary regulatory standards, innovative legislation, state-of-the-art technology, and its firms and agencies are run and staffed by experienced and highly qualified professionals. Those are the reasons why top-tier firms are based in and do business from and through this jurisdiction.

The BVI’s advantages also include competitive and cost-efficient fees, highly efficient turnaround times, 24-hour services in some areas and the largest corporate registry of its kind in the world. The BVI’s corporate registry kept working in September 2017 when Hurricanes Irma and Maria tore through the islands.

A ROBUST REGULATOR The BVI recognises and accepts the importance of compliance with established international standards of regulation and supervision. It conforms to these standards through the efforts of its autonomous, all-in-one financial regulator, the Financial Services Commission (FSC), its financial training body, the Financial Services Institute, and its autonomous Financial Investigation Agency (FIA).

The territory has a good track-record of international co-operation. It adheres to all international standards, combats money laundering and terrorist finance and remains keen to satisfy the standards of the International Monetary Fund.

TAX INFORMATION EXCHANGE AGREEMENTS (TIEAS) In 2002, the territory signed a formal commitment with the Organisation of Economic Cooperation and Development (OECD) to uphold its principles of tax transparency and exchange of information. Indeed, in 2015 the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes found the BVI to be “largely compliant” with standards of transparency and “fully compliant” in terms of exchange of information.

A REGIONAL COMMERCIAL COURT The presence of an internationally respected commercial court is a huge asset to the BVI. The court operates as part of the Eastern Caribbean Supreme Court, so there is a final right of appeal to the Privy Council in London. This specialist court places the BVI far ahead of other jurisdictions in expediting the cases that come before it, and in the timely handing down of judgements.

BRITISH VIRGIN ISLANDS THE BVI CONTINUES TO PUNCH ABOVE ITS WEIGHT

THE INTERNATIONAL ARBITRATION CENTRE In 2014, the BVI International Arbitration Centre (BVI IAC), an independent not-for-profit institution, was established to meet the demands of the international business community for a neutral, impartial, efficient and reliable institution to resolve disputes in the Caribbean, Latin America and beyond.

The BVI largely adopted the UNCITRAL (United Nations Commission on International Trade Law) Model Law by passing the Arbitration Act in 2013 and it signed the New York Convention (which requires courts of contracting states to give effect to private agreements to arbitrate and to enforce arbitration awards made in other contracting states) on 25 May 2014. These two crucial steps allowed it to establish its internationally respected arbitration centre.

IDENTIFYING THE ULTIMATE BENEFICIAL OWNER Another pioneering innovation has been the BVI’s formidable Beneficial Ownership Search System (BOSS) which the jurisdiction established in accordance with the ‘Exchange of Notes’ agreement that it signed with the UK in April 2016. This secure government search system satisfies global standards regarding beneficial ownership and balances the need for both disclosures of information about companies to the Government and appropriate levels of privacy, ensuring that companies share information rapidly and efficiently with law enforcement bodies.

GLOBAL MANDATE Already in possession of a sophisticated array of products and services used by a discerning, highnet-worth clientele, the BVI has been marketing itself worldwide in recent years. It has long been pursuing opportunities in South East Asia, lately often in accordance with China’s impressive Belt and Road initiative. The BVI is small territory on the map but it does not have an island mentality and is very much a place where large global enterprises gather. With its formidable track record, the BVI will continue to punch well above its weight.

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BRITISH VIRGIN ISLANDS

JURISDICTION OF CHOICE JURISDICTION OF CHOICE

WHY BVI? Compliance with international regulatory standards Competitive start-up costs Innovative legislation

Internationally renowned commercial court No currency controls

Quali�ed professional pool of practitioners Strong partnership between public and private sectors

Pioneering, innovative and leading the way in global business solutions, the British Virgin Islands (BVI) is an internationally respected business and �nance centre with a proven commitment to connect markets, empower clients and facilitate investment, trade and capital �ow.

3rd Floor, Cutlass Tower, Road Town, Tortola, BVI VG1110 T: +1 (284) 852-1957 E: info@bvi�nance.vg

W: www.bvi�nance.vg | www.bviglobalimpact.com

BRITISH VIRGIN ISLANDS

BACKING THE FUTURE – THE GREAT DIGITAL CHALLENGE FOR REGULATORS * by Simon Gray, the head of business development and marketing at BVI Finance, and Philip Treleaven, Professor of Computer Science at University College, London University.

“For I dipped into the future, far as human eye could see, saw the vision of the world, and all the wonder that would be.” Alfred, Lord Tennyson Regulators are sometimes unkindly criticised for having predicted all six of the last three recessions.

Although it sometimes pays to be cautious, it is important that excessive caution should not stifle innovation and progress. Increasingly, the world’s leading regulators are trying to ensure that innovation is ever-present in their financial sectors and that the firms that they regulate are using technology extensively to perform better services, manage risks better and create new opportunities – invariably with the consumer in mind.

“Data-driven regulation and compliance is the key to future commercial success” Historically, prophets have not always had good press, but in the long term it pays to be a visionary and, in today’s hyper-competitive financial services industry, practical forward thinking is a sign of real progress. Data-driven regulation and compliance is the key to future commercial success and regulators are acting as ‘public champions’ for new software in this area.

The automation of regulation and compliance is likely to improve the services that firms offer and help regulators in their work. The British Virgin Islands are showing great initiative in this area. BVI Finance, the territory’s promotional agency, hosted a conference entitled “Think Differently! The Great Digital Disruption and the New Internet Economy” in both the BVI and in Singapore last year.

THE SANDBOX Do you remember playing in a sandpit as a child, using your imagination to create shapes and make things in a safe and controlled environment? Americans apparently refer to sandpits as sandboxes and a ‘regulatory sandbox’ is therefore the phrase that they (and, confusingly, that British regulators also) use to describe an enclosed environment in which innovation in financial technology or FinTech can take place.

The sandbox aims to promote more effective competition in the interests of consumers by allowing both existing and prospective licensees to test innovative products, services and business models in a live market environment, while ensuring that appropriate safeguards are in place.

To this end, a sandbox can help to encourage experiments in FinTech within a well-defined space and duration, where the regulator will provide the requisite regulatory support, with the fourfold aim of:

HM Government in London has a new Fintech Sector Strategy, which it hopes will bolster the UK’s position as “the global capital of fintech” well beyond Brexit. Let us now translate some of these concepts into normal language.

• increasing efficiency; • managing risks better; • creating new opportunities; and/or • improving people’s lives.

DATA SCIENCE AND TECHNOLOGY

The sandbox is an experiment for both regulator and regulated alike. It is the first time that many regulators have allowed licensees to test their products on consumers in this way, and interest in sandboxes is growing rapidly.

HERE COMES THE TECH! Artificial intelligence (AI), the Internet of Things (IoT), Big Data, behavioural/predictive analytics and blockchain (distributed ledger) technology are poised to revolutionise regulation and compliance and create a new generation of RegTech (regulatory technology) start-ups. Examples of current RegTech systems include: • chatbots and intelligent assistants; • robo-advisors that support regulators; • real-time management of the compliance eco system using the IoT and the blockchain; • automated compliance/regulation tools; • compliance records stored securely in blockchain distributed ledgers; • online regulatory and dispute resolution systems; and, in future, • regulations encoded as understandable and executable computer programmes.

The main types of technology that are going to transform regulation are: • data facilities – online facilities of regulatory data collected by national government agencies which are often open to the public (e.g. www.data.gov, https://data.gov.uk); • the internet of things (IoT) - the inter-networking of ‘smart’ physical devices, vehicles, buildings, etc. that enable these objects to collect and exchange data; • chatbots – systems for interactions between regulated companies, registrants and the general public using natural language and speech; • Big Data – the process of examining very large data sets to uncover hidden patterns, unknown correlations etc.; data sets that are so complex that old data processing application software cannot deal with them; • artificial intelligence (AI) - systems able to perform tasks that normally require human intelligence; • behavioural/predictive analytics – the analysis of large and varied data sets to uncover hidden patterns, unknown correlations, customer preferences etc. to help someone make decisions; • blockchain technology – the software that underpins digital currency and that secures, validates and processes transactional data.

Let us now illustrate these vital elements of technology in more detail.

WHY AUTOMATE REGULATION AND COMPLIANCE?

BIG DATA

Automation is all the rage, but why is it happening and what are the benefits? The answer, in short, is money. Cost savings and greater efficiency are both imperative here.

Regulators collect huge volumes of data (increasingly from open sources) and thus have major opportunities for so-called Big Data (analytics). In general, Big Data allows the user to examine large and varied data sets to uncover hidden patterns, unknown correlations, customers’ preferences etc.

“The sandbox is an experiment for both regulator and regulated alike”

Big Data encompasses a mixture of structured, semi-structured and unstructured data that someone has gathered through interactions with individuals, social media content, text from citizens’ emails and survey responses, phone call data and records, data captured by sensors connected to the internet of things and so on.

People are hoping that this automation will reduce costs enormously for financial service firms and remove an intractable barrier for FinTech firms as they try to enter financial service markets.

The “3 Vs of Big Data” are volume, variety and velocity. All three – the volume of data being handled, the variety of that data and the velocity at which is being created and updated – are increasing.

BRITISH VIRGIN ISLANDS BACKING THE FUTURE – THE GREAT DIGITAL CHALLENGE FOR REGULATORS

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ARTIFICIAL INTELLIGENCE AI technology powers intelligent personal assistants such as Apple Siri, Amazon Alexa, ‘robo advisors’ and autonomous vehicles. AI allows computers to make decisions and learn without explicit programming.

There are three main branches of it.

“Big Data allows the user to uncover hidden patterns” • Machine Learning – a type of AI programme that can learn without explicit programming, and can change when exposed to new data.

• Natural language understanding – the application of computational techniques to the analysis and synthesis of natural language and speech.

• Sentiment analysis – the computational process of identifying and categorizing opinions expressed in a piece of text.

BEHAVIOURAL AND PREDICTIVE ANALYTICS Behavioural analysis and predictive analytics, which look at the actions of people, are closely related to Big Data. Behavioural analytics tries to understand how consumers act and why, helping software predict their likely actions in future. Predictive analytics is the practice of extracting information from historical and real-time data sets to determine patterns and predict future outcomes and trends.

Predictive analytics ‘forecasts’ what might happen in the future with an acceptable level of reliability, assesses risks and includes ‘what if’ scenarios.

BLOCKCHAIN TECHNOLOGY The main types of blockchain technology are as follows.

• Distributed Ledger Technology (DLT) – a decentralised database in which transactions are kept in a shared, replicated, synchronised, distributed bookkeeping record, which is secured by cryptographic sealing. Its proponents say that it has ‘integrity’ and is resilient, ‘transparent’ and unchangeable (or at least ‘mostly immutable’).

• Smart Contracts – these are (possibly) computer programmes that codify transactions and contracts which in turn ‘legally’ manage the records on a distributed ledger.

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THE AUTOMATION OF REGULATION AND COMPLIANCE Regulators have, of late, been looking at Digital Regulatory Reporting (DRR) and weighing up the pros and cons of each of the following concepts: • the disambiguation of (i.e. the removal of ambiguity from) reporting requirements; • “a common data approach across regulatory reporting;” • mapping requirements to firms’ internal systems; • a mechanism by which firms can submit data to regulators; • the use of standards to help the regulator implement DRR; • a “common data model;” • application programming interfaces; • DLT networks; and • the removal of ambiguity from regulatory text.

DRR promises to help firms comply with regulatory reporting requirements more quickly and efficiently. It will make the information that firms send to the regulator more consistent, while boosting the amount of information that firms share with each other, especially for the purposes of offsetting internal risks.

REGULATION AND THE LEGAL STATUS OF ALGORITHMS Legal redress for algorithm failure seems straightforward. If something goes wrong with an algorithm, the firm ought simply to sue the humans who deployed it. However, it may not be that simple. For example, if an autonomous vehicle were to cause death, would the plaintiff pursue the dealership, the manufacturer, the ‘third party’ who developed the algorithm, the driver, or the other person’s illegal behaviour? This paradox is part of a wider debate about whether or not algorithms ought to have legal personalities in the same way as companies.

As we know, a ‘legal person’ refers to a non–human entity that has a legal standing in the eyes of the law. A graphic example of a company having legal personality is the offence of corporate manslaughter, an act of homicide committed by a company or organisation, which is a criminal offence in law.

Another important principle of law is that of agency, where a relationship is created where a principal gives legal authority to an agent to act on the

principal’s behalf when dealing with a third party.

An agency relationship is a fiduciary relationship. It is a complex area of law with concepts such as apparent authority, where a reasonable third party would understand that the agent had authority to act.

As the combination of software and hardware is producing intelligent algorithms that learn from their environment and may become unpredictable, it is conceivable that, with the growth of multi-algorithm systems, algorithms will begin to make decisions that have far reaching consequences for humans. It is this potential for unpredictability that supports the argument that algorithms should have a separate legal identity, so that the due process of law can take its course in cases where unfairness occurs.

“DRR promises to help firms comply more quickly and efficiently” The alternative to this approach would be a regime of strict liability for anyone who designs or places dangerous algorithms on the market. Is this a case of locking the stable door after the horse has bolted?

COLLABORATION ON THE RISE The situation remains fluid. There are more and more signs of co-ordination between regulators of different nations and these are most welcome. For example, the 11 financial regulators and related organisations have collaborated to create the Global Financial Innovation Network (GFIN), building on earlier proposals to create a ‘global sandbox,’ a network for collaboration and shared experience of innovation.

The GFIN is designed to be an inclusive community of financial service regulators and related organisations and its expansion is inevitable. This is a brave new world and certainly one in which some regulators are taking the lead!

The Duke of Wellington, before his victory at the Battle of Waterloo in 1815, stated wisely that “time spent in reconnaissance is never wasted.” Sound advice indeed. Innovative financial centres such as the British Virgin Islands deserve to do well. *Simon Gray can be reached on on +1 (284) 852-1957 or at sgray@bvifinance.vg IFC WORLD 2019

BRITISH VIRGIN ISLANDS

THE BVI: STILL THE WORLD’S FAVOURITE CORPORATE VEHICLE * by Matthew Howson, a senior associate at the international law firm of Harneys The BVI company remains the main product that the British Virgin Islands market to the world. The entity’s advantages remain as good as ever. It is famously adaptable, adjustable and consistent with common law legal systems everywhere. It is quick to incorporate and inexpensive, mainly because living costs are lower in the BVI (which uses the US dollar) than in competing jurisdictions. It is, moreover, ubiquitous. It used to be said that every Hong Kong businessman would give his son “a BVI” when he came of age and, even in today’s much tighter regulatory environment, people who set up cross-border joint ventures throughout the world assume that they will use BVI companies.

There are more than 450,000 active BVI companies. New incorporations in 2018, when the figures emerge, are likely to be the highest since 2014, even though Hurricane Irma interfered badly with the islands’ commerce in 2017.

However – and this is a point that we sometimes need to emphasise to a mistrustful media – popularity is not a sign of bad quality. The BVI has responded to the Common Reporting Standard or CRS, to the OECD’s and the European Union’s ‘substance’ requirements and to other international demands in the same ways as the other main international financial centres. The BVI’s financial compliance and anti-money-laundering standards are equivalent to those of the other main IFCs and BVI firms apply them to firms from those IFCs most rigorously. The BVI’s courts follow the mainstream of the English common law system, with ultimate recourse to the Privy Council in London.

The jurisdiction’s thriving financial service sector is experienced and internationally fluent and its judges and lawyers are often on retainers from chambers in central London – the BVI is, after all, as much a British Overseas Territory as Bermuda or Cayman.

These are not signs of lower quality. Instead, the BVI’s continuing popularity is due to three main reasons: • new innovations to maintain the jurisdiction as the world’s foremost venue for corporate vehicles; • new innovations to keep it at the top of the private wealth business; and • the continuing preference that non-Europeans have for using it - a factor that can only continue to grow in importance.

CORPORATE INNOVATION The Limited Partnerships Act 2017 takes the responsiveness to the needs of clients that has made the BVI company so successful and applies them to the concept of the limited partnership. The Act incorporates popular elements of corporate law –

mergers, schemes of arrangement, etc. – and adds innovations such as ‘safe harbour’ provisions and opportunities to register charges. It will be particularly attractive for funds and, in particular, private equity funds and joint venture vehicles where onshore tax transparency is required.

very popular. Indeed, clients are setting them up in an ever-expanding number of jurisdictions. The BVI has capitalised on this by evolving innovative new forms of trust.

“Popularity is not a sign of bad quality”

The Virgin Islands Special Trusts Act (VISTA) continues to be very popular because it introduces the concept of trusts to clients who are unfamiliar with it. The statute allows a trust whose corporate trustee is not required, nor indeed permitted, to manage and invest the trust’s assets actively. The trustee retains a statutory right to obtain information about the trust fund but the management of the trust fund is the responsibility of the directors of an underlying BVI company, which then holds the trust’s various assets.

The Micro Business Corporations Act 2017 caters for an underdeveloped segment of the business market: micro-businesses. The project (still in the throes of development) aims to bestow the benefits of limited liability on micro-businesses anywhere in the world and especially in emerging economies. The microbusiness corporation is going to be simpler than a full company, more affordable to an entrepreneur and completely transparent. It will use IT heavily in order to “know its customers” to a degree that more than satisfies international standards.

PLANNING FOR SUCCESSION The first generation of BVI company owners is growing old and thoughts are turning to the next generation. ‘Succession planning’ tends to have two main aims: the protection of assets against forced heirship and claims from third parties and the avoidance (or mitigation) of the consequences of obtaining a Grant of Probate in the BVI. Shares in a BVI company are legally situated in the BVI, so all shareholders who hold their shares absolutely or in a nomineeship should know that their families will be obliged to obtain BVI probate on their deaths before they are able to transfer or sell those shares.

“The VISTA trust continues to be very popular” Many clients are comfortable with the prospect of probate. We advise such clients to obtain a simple BVI will, particularly if they come from noncommon-law jurisdictions, because it speeds up the probate process greatly. Rules issued in 2017 by the Eastern Caribbean Supreme Court have also helped this process along. Some less experienced firms saw those rules as revolutionary: in fact, they formalised some long-standing, informal practice that practitioners had been following for many years. The court decided that probate fees had to increase in order to support the registry financial and to make it work more quickly and efficiently.

For those who insist on avoiding probate and/or are interested in protection assets, trusts remain

BRITISH VIRGIN ISLANDS THE BVI: STILL THE WORLD’S FAVOURITE CORPORATE VEHICLE

VISTA TRUSTS

The trust deed can set out certain circumstances in which the trustee must intervene, and in which the trustee should exercise its powers regarding the appointment or removal of directors. Supplementary legislation now allows non-VISTA trusts to benefit from the statute.

PRIVATE TRUST COMPANIES Also aimed at accessing new clients, Private Trust Companies (PTCs) have become increasingly popular among high-net-worth families and business owners, the latter being hesitant about the prospect of transferring substantial wealth or control of the family business to corporate trustees when setting up trusts.

A PTC allows the settlor of the trust to retain effective control over the assets settled in the trust by way of acting as director. The shares of the PTC are typically then held in a BVI purpose trust with a BVI corporate trustee.

THE SHARE TRUST In some countries, even middle class families use BVI companies to pay as little tax as possible and offset losses from overseas investments. Such families often do not require complex ownership structures. The Share Trust is designed to be a simple and cost-effective way in which the owners of shares in BVI companies can avoid ‘forced heirship’ rules and having to obtain probate in the BVI. The terms of a Share Trust are deliberately simple, with the settlor being the primary beneficiary during his or her lifetime and the shares being made over outright to the designated beneficiaries on the settlor’s death.

THE LONG REACH OF THE BVI Asia is the largest client base for BVI companies and will remain so for some time to come. Jurisdictions on this vast continent are now working

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out ways of using trusts which generally depend on their common law heritage. VISTA trusts, or their non-statutory equivalents, remain popular in jurisdictions which recognise trusts, and people elsewhere often use wills and joint tenancies.

“The Share Trust is designed to be simple and cost-effective” Latin America is an oft-forgotten but very important centre for BVI company ownership. After the successful tax amnesties in many Latin American countries during the early 2010s, there has been a move to more sophistication and old-fashioned succession planning in trusts. Clients have become familiar with fully managed trusts, testamentary trusts, fixed interest trusts, etc.

The Middle East has long used BVI companies for joint ventures and is now becoming more and more interested in family and Sharia planning as well.

BVI service providers often write Europe off as a viable market, but many Europeans still have holdings in BVI companies. Some ‘UK non-doms,’ who only hold a small part of the BVI portfolio these days, have chosen not to ‘de-envelope’ their property, i.e. not to own their property directly rather than through a corporate vehicle registered in the BVI. Some jurisdictions, such as Monaco, arrange most of their property ownership through BVI companies.

Other jurisdictions, such as Russia, retain a great many BVI companies. BVI wills are popular in Russia at the moment, though trusts may return if the political environment changes. Switzerland remains a ‘clearing house’ for all jurisdictions and BVI trusts are expected to remain very popular there, even now that Switzerland has passed some trust

legislation. Even Channel-Island structures often include BVI companies.

INNOVATING IN A WORLD OF TIGHT REGULATION After creating such a successful vehicle as the BVI company, the BVI might be expected to rest on its laurels. Instead, it has created new forms of business that can prosper in a world of very tight regulation in which the world’s rulers expect international financial centres to facilitate its economic growth rather than help people avoid taxes. Indeed, with such a flexible toolkit, it could be argued that the BVI is the best-equipped among the IFCs to do just that. *Matthew Howson can be reached on +44 203 752 3668 or at matthew.howson@harneys.com

GUERNSEY

GUERNSEY LOOKS TO THE FUTURE OF PRIVATE WEALTH * by Dominic Wheatley, the chief executive of Guernsey Finance There is no shortage of change and volatility in the world today. Some of this is the predictable evolution of long-term trends, some is forced by less predictable circumstances, and some is just a response to random events.

Tax remains a major consideration for everyone. Tax is important and tax planning is an essential part of every financial structure and transaction, especially when international arrangements are involved.

There is no avoiding the long-standing and intensifying conflation of tax avoidance and tax evasion in the minds of Western governments. Increasing public opprobrium towards tax avoidance, stoked by a hostile press and encouraged by social media, is not based on objective analysis and verified facts.

Specialist financial centres, including Guernsey, are in full agreement with the desire of the international community to ensure that people and companies pay their taxes when they are due. This is not a reluctant acceptance of the inevitable; it is an enthusiastic and proactive desire on the part of committed global citizens to participate in an international movement.

Fundamentally the people of Guernsey are British people. It should be a surprise to no-one, therefore, that they share a basic belief structure with their fellow Britons. This includes the belief that people should pay their taxes.

Guernsey is determined to remain a tax-neutral environment. Tax neutrality does not necessitate the charging of zero tax; it is a policy of taxing domestic business while leaving international clients unburdened by either tax processes or tax liabilities in Guernsey. This leaves all the income and assets of

Guernsey structures to be taxed fully if tax is due.

This is a long-standing commitment of the island and there are no plans to change it.

achievement of their legitimate objectives in ways that will protect their own reputations, as well as ours.

A second predictable trend is that of an increasing commitment to knowing one’s customer – knowing who he is and what the source of his funds is. Regulation is a good thing for the private wealth industry, not an unnecessary bureaucracy and expense. The regulator has promulgated a new AML Handbook to facilitate electronic ‘due diligence.’ Guernsey’s financial firms will never let their guard against money-launderers down. This is not just to do good global citizenship, although that would be enough on its own, but it is also a matter of self-preservation. When people ask what the biggest risk we face is, it is the risk of association with dirty money – particularly that relating to the funding of terrorism.

Guernsey’s reputation has stood up to scrutiny time after time – not only in terms of inspections by people from the OECD, the EU and Moneyval, but also in the media. The Panama Papers contained no damning references to Guernsey at all, while the so-called Paradise Papers contained nothing of any significance. It also contained nothing that was not already known to HM Revenue and Customs and nothing that precipitated any action on their part.

This has not been through luck or happenstance but through careful design and proactive attention to all the relevant risk factors.

“Guernsey is determined to remain a tax-neutral environment” This brings us to my final trend – the increasing importance of reputation. It is no longer enough to avoid scandals. We must be part of the infrastructure that exposes and eradicates unacceptable behaviour. It is also no longer enough to be a reluctant and tardy follower of international norms. We must be proactive in developing and adhering to global standards as a full partner in the world financial services community.

Our specialist insight and expertise – gained over more than 50 years in the industry – enables us to educate and guide clients towards the

We have progressively worked to improve our business environment to be an example of best practice, leading the world in key areas such as regulation, money-laundering control and service quality. Our work in this regard shows our determination to give clients what they want – a safe environment for their wealth that allows them to be certain of the results over the long term and adapts to changing circumstances in ways that are entirely consistent with their legitimate interests.

Guernsey’s consistent and proactive approach to long-term trends allows all its clients to plan for the long term. In short, it continues to be the perfect environment for privately wealthy clients, and can be trusted to be so well into the future. * Dominic Wheatley can be reached on +44 (0) 1481 720071 or at info@weareguernsey.com

WE ARE SECURITY Castle Cornet has stood as a beacon of Guernsey since 1204.

It was built on the strongest natural position – much like our financial structures, offering a stronghold for your assets.

UK

Guernsey

INSURANCE

E: T:

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GUERNSEY MOVES TO THE FOREFRONT OF GREEN FINANCE * by Andy Sloan, the deputy chief executive in charge of strategy at Guernsey Finance Guernsey has developed a green perspective on funds over the past 12 months, inventing the world-leading Guernsey Green Fund – the first regulated green fund product on the planet – in the middle of the year and developing its ecological strategy and related financial products throughout the year.

“Green investment has been described as ‘still quite young’” The island’s government has told the world that it aims to be “at the forefront of green finance development” and to become the “go-to” global finance centre for all matters to do with ecologically sound agribusiness. It has been deeply involved in the development of a “green industry” through its membership of the United Nations’ Financial Centres for Sustainability (FC4S) and its European network of contacts.

The ESG market (i.e. the part of finance that promotes ethical investments in the environment, society and corporate governance) is growing and more and more people believe it to be a worthy cause. It is still nowhere near large enough to ensure that the Earth fulfils the UN’s “global sustainability targets” which include no poverty, no hunger, “climate action” and many other objectives.

Figures from the Global Sustainable Investment Alliance showed that funds that pursued responsible investing strategies managed US$22 trillion of assets globally in 2016 – up 25% from the figure for 2014. They invest most of this in the bond market. Guernsey hopes that its green fund, which sets a standard (referred to as a ‘kitemark’) against which investors might gauge the authenticity of any other green funds that might materialise in future, will help that area of the market to develop and to make the worth of its products clearer to investors. The Guernsey Financial Services Commission awarded a Guernsey Green Fund Kitemark – hopefully the first of many – to the Cibus Fund last October.

The title of “Guernsey Green Fund” is available to funds whose objective is to have a net positive effect on the environment and at least 75% of whose investments are certified as green and sustainable investments. It is designed to give investors clear information about the investment parameters of investment portfolios that bear the kitemark. If the regulator awards this title to enough funds, it should allow investors conduct some accurate benchmarking between them.

Green investment has been described as ‘still quite young’ in the pages of the Financial Times, but it is clear that demand is growing for it, that more and more people want to be involved in it and that the potential for it is enormous in such sectors as commercial agriculture, healthcare, social housing and sustainable technology. This, in modern parlance, is ‘impact investment,’ the act of investing in companies and funds that generate beneficial social and environmental benefits alongside financial returns.

Guernsey’s ‘green work’ is only possible because of the island’s strengths and expertise in private equity and infrastructure. The aim of its government is to make the its financial services sector spend more of its efforts catering to the demands of ethical and altruistically-motivated private and institutional investors.

A paper from PwC and the City of London Corporation lists six fundamentals that a jurisdiction needs to achieve if it wants to become an ‘impact investing’ hub – knowledge and expertise; innovation in products; mature and attractive financial markets; a favourable legal and regulatory environment; ‘social impact’ standards; and reporting and international connections. Guernsey meets all these requirements.

In the wider world of funds, Guernsey has remained a specialist in a number of markets in over the last year. People in this part of Guernsey’s business are confident for the future and their funds are drawing more and more interest from new promoters.

“Our investment strategy places environmental sustainability at its heart”

More than 140 serviced funds and sub-funds were launched over the year, accounting for nearly $20 billion, and more than 20 new promoters were attracted to the island. Pacary added: “In a landscape where private equity and venture capital funds hold a prime position, Guernsey continues to be recognised as a reliable and trusted market.”

Guernsey fund industry is developing new products and this, coupled with Guernsey’s push into ‘sustainable investments’ of the kind described above, is causing business to grow.

The Private Investment Fund (PIF) regime has really started to gain traction with managers and their investors in the past year. It recognises that there is a category of fund whose managers have closer relationships with their investors than is typical.

The Guernsey Financial Services Commission takes a proportionate approach to the requirements of these managers, by not asking them to demonstrate their track records or circulate prospecti.

The PIF can be either closed- or open-ended and should contain no more than 50 legal or natural persons who hold an economic interest in it. There is no limit to the number of investors to whom the PIF might be marketed – this is something that comparable regimes in other jurisdictions do not offer.

Ben Morgan, a partner at the law firm of Carey Olsen and the head of its corporate and finance group in Guernsey, said: “An increase in AuM and [in] the number of funds in Guernsey shows that the funds sector remains extremely buoyant, while the introduction of regimes such as the Guernsey Private Investment Fund, which has been particularly well received since its launch two years ago, and the Guernsey Green Fund, shows that Guernsey continues to innovate in order to stay ahead of the pack jurisdictionally.”

As we have seen, the Cibus Fund, a global agribusiness invested fund of ADM Capital Europe, has become the first to be called a Guernsey Green Fund.

We expect more to follow very soon.

Annual research from Monterey Insight has described the island as a “reliable and trusted market” in the fields of private equity and venture capital.

At the end of June last year, fund assets serviced in Guernsey were at a five-year high of very nearly $400 billion – up 0.7% on the previous year, with the total number of serviced schemes and sub-funds also increasing.

Rob Appleby, the co-founder of ADM Capital and its joint CIO, said: “This designation is testament to our investment strategy which places environmental sustainability at its heart and a key determinant of value creation. We hope that other funds will follow suit and strive to achieve the same status for their sustainable investment initiatives as the global benefits of green investment are realised.”

Karine Pacary, the managing director of Monterey Insight, said that her findings demonstrated the continuing stability of the Guernsey funds market.

*Dr Andy Sloan can be reached on +44 (0) 1481 720071 or at info@weareguernsey.com

GUERNSEY LOOKS TO THE FUTURE OF PRIVATE WEALTH

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GUERNSEY

INSURANCE IN GUERNSEY – RESPONSIVE TO CHALLENGES AND CHANGES * by Dominic Wheatley, the chief executive of Guernsey Finance Experts say that there is still plenty of life and opportunity in captive insurance and Guernsey’s continued success in the sector is testament to that.

The island, hailed as the best non-EU domicile at Captive Review’s 2018 European & UK Captive Awards, was responsible for more than half the new captives formed in Europe in 2017. It has, in recent years, also diversified to develop a thriving business in other sectors of the industry, particularly insurance-linked securities, reinsurance, and longevity risk.

The island’s “flexible and responsive” non-Solvency II regime (Guernsey lies outside the European Union and is therefore beyond the ambit of this EU directive, which codifies insurance regulation) was considered to be a key reason why the island retained the award. The judges noted that more than half of the 17 newly licensed captive structures in Europe in 2017 were established in Guernsey and praised its non-Solvency II regime, its infrastructure and the fact that its regulators had a good grasp of the captive concept. The island, well-recognised as a large repository of captive expertise, has more than one-third of the entire European captive market.

“Speakers argued that the captive industry was not in decline” Guernsey’s regulatory regime distinguishes between different classes of insurer, such as commercial and captive insurers, and places proportionate regulatory burdens on each in line with the International Association of Insurance Supervisors’ Insurance Core Principles, which comprise the global standard for insurance supervision.

As a result, the regulatory regime works more quickly and is less prescriptive than others. A consultative process in 2017 revealed that both industry and regulator thought that it “offered greater flexibility outside of Solvency II.” Guernsey is also friendly to businesses, offers tax neutrality and has a long history of expertise in insurance.

“Guernsey’s history of robust corporate governance and wealth of qualified and experienced insurance expertise ensures that it can provide captive clients with genuine on-island substance simply

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by continuing business as usual,” said Peter Child, the chair of the Guernsey International Insurance Association’s marketing development committee and the managing director of Artex Risk Solutions in Guernsey.

Decades ago, Guernsey developed a niche for captive insurance and became the pre-eminent jurisdiction in Europe for European risk managers who wanted to go offshore.

Some have argued that the market has flattened in recent years but, at Guernsey’s flagship London insurance event in London at the end of 2018, speakers argued that the captive industry was not in decline.

Will Thomas-Ferrand, the international practice leader at Marsh Captive Solutions who is responsible for the company’s captive domiciles in Europe, the Middle East, Africa and the Asia-Pacific region, disputed any notion that the captive industry was in decline. Marsh manages captives in 49 jurisdictions all over the world. He said: “The topic of whether captives are in decline comes up fairly regularly.

Our figures show that captive premiums last year rose by 25% on the previous year and are up 55% compared to four years ago. Captives are obviously being used more – I would challenge that they are in decline.”

Peter Child from the Guernsey International Insurance Association said recently: “While there is demonstrable political will to see the London ILS offering thrive, maintaining its insurance sector’s reputation as a full-service centre capable of delivering a full range of insurance and reinsurance services, it is clear that its ILS sector is developing fairly slowly. We believe that Guernsey still holds a number of advantages – the responsiveness of our regulator, our experience in the sector, the breadth of our offering in the funds and insurance space, and our status outside of Solvency II.

“These are exciting times for the ILS market” “Although London is nominally a competitor, if London can make a contribution to drive forward the growth of the ILS market, we think that should be good for all involved.”

Even today, nowhere else can match Guernsey’s unique combination of funds, trust and insurance management expertise and its proficiency in producing bespoke complex products of consistently high quality.

Guernsey is helping to develop a captive insurance market in China. This also received some recognition in 2018, as the island was named as the best non-Asian domicile at the inaugural 2018 Asia Captive Review Awards.

Insurance today has to respond to challenges by innovating all the time, while also being able to spot and seize opportunities. That is something that Guernsey has been, and still is, pretty good at.

We are the number one captive insurance domicile in Europe for a good reason – we have been doing this for a long time.

The judges there said that Guernsey had shown a strong commitment to the Asian market in recent years and had become an attractive option. The island has signed four insurance-related memoranda of understanding with Chinese authorities.

Our relationship with London is good and strong and I expect that it will only strengthen further after Brexit. When that happens there will no longer be any EU border between ourselves and London, our largest market for financial services.

Business that involves insurance-linked securities (ILS) was brisk in the Guernsey market in 2018, with statistics for new cells of protected cell companies (PCCs), the main method of writing new ILS business, well ahead of those from the previous year. These are exciting times for the ILS market, with international fragility and uncertainty on the rise, coupled with innovation in the market. The sector is developing rapidly.

We are right to feel optimistic about the future of our industry. Captive insurance is facing various challenges, but Guernsey will respond to those challenges and will continue to provide our clients with excellent results. *Dominic Wheatley can be reached on +44 (0) 1481 720071 or at info@weareguernsey.com IFC WORLD 2019

QATAR

CONDUCTING BUSINESS ON THE WORLD STAGE * by Qatar Financial Centre Authority The Government of Qatar established the Qatar Financial Business Centre in 2005 with a legal system based, as in other international financial centres in the Gulf of Persia, on English common law. The QFC’s rules allow a 100% repatriation of profits and the Government levies a 10% corporate tax on locally obtained profits. There is no withholding tax and trade is possible in any currency.

The QFC now hosts more than 80 British firms on its platform, including Clyde & Co, Eversheds and Pinsent Masons. It is trying to attract companies from Hong Kong, Singapore and Germany. By April of last year, it had registered 96 European-owned firms. In 2017 the QFC handed out licences at a record rate, with a 66% increase in new firms. By the end of that year there were 461 firms on the platform, as opposed to 348 a year earlier. This figure grew to 507 in the first quarter of 2018. The demographic mixture of business in the QFC is 46% Qatari; 24% European; 11% North American; and 8% Asia-Pacific.

Any applicant for a QFC licence should expect an initial response within five working days, with the regulators aiming to process it in less than three months. The licensed financial services sector consists of banking, corporate/wholesale banking, investment banking, private banking, asset management, retail schemes (Undertakings for the Collective Investment in Transferable Securities); qualified investor schemes; private placement schemes; insurance; reinsurance; captive insurance; Islamic finance; investment advice; investment services; fiduciary business; captive structures; capital markets vehicles; and financial technology or FinTech.

For firms that want to establish corporate headquarters, management offices and treasury functions, the SFC licenses special purpose companies; holding companies; single family offices; trusts and trust services; corporate solutions; investment clubs; and foundations.

SUCCESS STORIES Several prominent firms have opened offices in the Qatar Financial Centre; we discuss some well-known examples here.

The US law firm of K&L Gates was established in Seattle in 1883 and now employs 1,793 employees all over the world in 45 countries and has an annual turnover of US$1.17 billion. Its headquarters are now in Pittsburgh. It opened an office in Qatar in 2011. One of its lawyers told us: “We determined that the QFC was the best platform to fulfil our business needs due to the exemplary business infrastructure and support that was available to newcomers. We found the licensing process both thorough and reassuring and we were delighted to receive our approvals speedily.”

Rödl & Partner, the German law firm, has been in Qatar since 2007, having already established a presence in the Gulf under the name of Rödl Middle East in partnership with Hikmat Mukhaimer & Co. Its headquarters are in Kuwait.

Rödl’s growth has been impressive. In less than 50 years it has become a globally active company with a turnover of US$448 million per annum. It first opened for business in the German town of Nuremberg in 1977. It employs more than 4,500 people worldwide and is expanding continuously.

In 2018, Rödl opened three new offices and another two the year before, bringing the total to 111 locations in 51 countries. It has recently become an approved QFC auditor and a licensed consultant.

“We determined that the QFC was the best platform to fulfil our business needs due to the exemplary business infrastructure and support that was available to newcomers” A Rödl employee once said: “Increasingly, we are working with multinational companies who wish to establish a presence in Qatar and we present QFC as a platform for starting their business owing to the QFC’s status as a leading onshore financial and business hub with a streamlined start-up process, straight-forward tax regime and comprehensive regulations. As Qatar continues to grow economically, our firm looks forward to reaching new heights in terms of expanding our team of professionals and our service offerings.”

AIG, too, established itself in Qatar in 2007. It was founded in 1919 in Shanghai and is now the world’s foremost insurance organisation, with more than 56,400 employees and 80 million customers in more than 200 countries and territories. Its headquarters are in New York.

The conglomerate generated a yearly turnover of US$49.52 billion in 2017. AIG member companies provide property casualty insurance, life insurance, a wide range of retirement products and other financial services to customers.

Lastly, Qatar has been home to an office of Eversheds, a very large British law firm. After Eversheds

QATAR CONDUCTING BUSINESS ON THE WORLD STAGE

merged with Sutherland Asbill & Brennan in 2017, it kept on using the services that the QFC offered it.

Eversheds Sutherland represents the combination of two firms, a coalition that gives a job to more than 4,000 people around the world, generating a turnover of US$1.03 billion in its first financial results since its transatlantic tie-up in 2017.

The company provides legal advice, often across borders, from its offices in 32 countries in Africa, Asia, Europe, the Middle East and the United States.

It is licensed by the QFC and this has been one of the biggest factors behind its success in Qatar.

QATAR IN CONTEXT According to the International Monetary Fund (IMF), Qatar’s real gross domestic product (GDP) will accelerate from 2.6% in 2018 to 2.7% in 2019.

This is the highest IMF forecast for real GDP in the Gulf.

Oil and gas are the country’s main economic engines and are the main causes of growth in the Qatari financial sector. This is likely to persist for the foreseeable future. Oil reserves will continue at current levels for the next 56 years and gas reserves for more than 100 years.

There are several projects in train which promise to make Qatar a competitive jurisdiction for international financial and professional talent. These include Lusail City, a 38 square kilometre “city of the future” whose target investment is US$45 billion; Doha Metro, which is scheduled to have 354 kilometres of track and 93 stations (target investment: $12.8 billion); Hamad Port, one of the world’s largest port developments with a target investment of $7.4 billion; Qatar Science & Technology Park, a home for international IT companies in Qatar and an incubator of start-up IT businesses that has a target investment of $2 billion; and an expansion of Qatar’s main airport in preparation for the 2022 FIFA World Cup, with the aim of servicing more than 96,000 passengers per day.

Offices are available in more than 40 locations, including the new state-of-the-art Msheireb Downtown Doha business district with shops, dining, an international school, a luxury residential quarter and green spaces. Qatar has an impressive number of private and public clinics and hospitals and is ranked above the UK, US and France in the Legatum Prosperity Index 2017 for best healthcare.

Qatar appears on Forbes’ list 40 best countries in which to do business and is number one on the Middle East Global Peace Index. It was the only country in the Middle East and North Africa to be placed among the world’s 50 most peaceful countries by that index, ranking as the 13th most peaceful country on the planet.

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Grow your business to Qatar One of the fastest growing economies Welcome to Qatar Perfectly positioned between East and West, Qatar is an ambitious, thriving country that welcomes companies from around the globe to set up or expand their business. Unsaturated markets like this small Middle Eastern sovereign country are appealing and it’s no wonder why. Amongst the wealthiest nations on the planet, Qatar boasts one of the most stable economies in the world. In 2017, the International Monetary Fund (IMF) ranked Qatar as the world’s richest country per capita, placing it above neighbouring markets.

Qatar was also in Forbes’ Top 40 Best Countries for Business list in 2017.In terms of growth and pro profitability, Qatar is set to go from strength to strength with the government’s US$200 billion investment programme underlining their commitment to developing infrastructure, which is in line with the Qatar National Vision 2030 objectives for economic, human, social and environmental development.

Part of Qatar’s 30-year vision is to attract foreign investment and an international talent pool, and businesses can take advantage of a compelling tax environment.

Plus, they maintain 100% ownership of their business.

Top all this off with a high standard of living in a multicultural environment with recognised academic opportunities, including full sponsorship for free study and an infrastructure that supports businesses to succeed. It’s easy to see why Qatar businesses has firmly put itself on the map as a leading financial centre where business go to grow within a diverse nation that is home to over 85 different nationalities.

Since 2005, the Qatar Financial Centre (QFC) has helped over 500 companies from around the world to set up their business in one of the fastest-growing economies in the world, capitalising on all that the MENA region has to offer.

As an onshore business and financial centre, our model is unique in the region. We promote Qatar’s openness to foreign investment, give bespoke advice to help companies make informed decisions and establish their operation in Qatar. The pace of globalisation means the business world is changing and emerging markets are increasingly driving the global economy. Trade between emerging markets has risen steeply from 25 per cent in 1995 to 40 per cent in 2017.

A decline in growth in Europe and the US means there’s a lot of uncertainty around globalisation and the road ahead may well be a bumpy one. However, this makes emerging markets, such as Qatar, extremely appealing.

Forward-thinking, entrepreneurial and with a diverse range of cultures, this business-friendly country caters for all business sectors and is fast becoming one of the best places for investors to set up or expand their organisation.

According to the International Monetary Fund (IMF), Qatar’s real gross domestic product (GDP) will accelerate from 2.6 per cent in 2018 to 2.7 per cent in 2019 to extend to 2022. This is the most realistic IMF forecast for real GDP in the Gulf.

Hydrocarbon sector is the country’s main economic engine, driving the high financial growth and per capita levels, and this is likely to persist for the foreseeable future. Oil reserves will

continue at current levels for the next 56 years and gas reserves for over 100 years.

As part of the Qatar National Vision 2030 and the implementation of Qatar’s Second National development strategy (20182022), Qatar’s goal is to create a diverse knowledge economy that lasts beyond oil and gas reserves.

The government’s US$200 billion investment programme underlines this commitment to attract foreign investment and an international talent pool.

Qatar’s already reaping the benefits of their long- term plan to diversify and have made significant gains in strengthening non-oil sectors, such as manufacturing, construction, and financial services. Nominal non hydrocarbon GDP presents a share of 63.6% .

In addition, Qatar will be the first Arab country to host the 2022 FIFA World Cup Qatar and US $200 billion is estimated to be spent on infrastructure ahead of the event. This has created a boom in the construction industry, as well as financial services and the transport, tourism and leisure sectors.

Consumer and retail markets are also transforming. Retail space has expanded by 60% since 2016 and in 2017, 6,625 housing units were built, with the value of real estate reaching US$8.98 billion – an increase of 20% from the previous year.

High-end hospitality is on the rise too, with over 10,000 hotel rooms and 2,000 serviced apartments in planning or construction during 2017 – 85 per cent of which are rated 4-star or above.

The Qatar Tourism Authority’s ‘National Tourism Strategy’, has a target to double tourist arrivals to 5.6 million by 2023 and recently announced major

investments in developing new attractions and initiatives.

Qatar has initiated a number of visa facilitation measures, making visiting the country a quick and smooth procedure. Notably, this includes visas upon arrival to nationals of more than 80 countries. Qatar is a forward-thinking country with a grand plan. The population of Qatar is estimated at around 3 million residents, more interestingly however is that 2.3 million of those are expat citizens – a true testament to Qatar’s willingness to work with non-nationals.

The thriving expat community makes up around 88 per cent of the population and they enjoy tax-free benefits with a high standard of living, along with a modern way of life. Plus, English and French are widely spoken.

Qatar is one of the safest countries in the world. It ranked as the 13th most peaceful country on the planet, out of a total of 163, in the 2017 Global Peace Index for the 10th year running. Plus, it was the only country in the Middle East and North Africa to be placed amongst the world’s 50 most peaceful countries.

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Qatar boasts one of the strongest and fastest growing economies in the MENA region. Qatar has been ranked as the second-most competitive economy in the region for the second time in a row, and 30th globally, according to the World Economic Forum’s Global Competitiveness Report 2018. Its GDP is also projected to grow by 2.4% in 2018, and with double tax agreements with over 70 countries, Qatar remains an attractive hub for international investment.

Qatar is strategically located in the centre of the Gulf with flights to over 150 destinations, and as such is well-positioned to act as a regional hub to markets worth over USD $2.1 trillion including Kuwait, Oman, Pakistan, Turkey, and India.

Qatar has also been ranked as the most open country in the Middle East and the eighth most open in the world in terms of visa facilitation according to The World Tourism Organization’s (UNWTO) updated visa openness rankings. The high ranking reflects a string of visa facilitation

measures introduced by Qatar, including allowing nationals of 88 countries to enter Qatar visa-free and free-of-charge.

The government’s multi-billion dollar investment programme has put the country on a sure footing to further develop its infrastructure and cater to its growing population, in line with the Qatar National Vision 2030 objectives. This comes in addition to a recently announced multi-billion dollar fund which has been allocated as part of an incentives programme to attract multi-national companies.

The Qatar Financial Centre (QFC), one of the world’s leading and fastest growing onshore business and financial centres, endeavours to promote Qatar as an attractive business destination and lies at the crossroads between East and West.

The QFC offers its own legal, regulatory, tax and business infrastructure, including: • Up to 100% foreign ownership

QATAR CONDUCTING BUSINESS ON THE WORLD STAGE

• 100% repatriation of profits • 10% corporate tax on locally-sourced profits • World-class regulator • Trade in any currency • Legal environment based on English common law • Attractive tax and business environment • A streamlined and transparent company registration and licensing process • A unique Administrative Employment Dispute Resolution Centre accredited by the International Labour Organization (ILO) Companies set up under the QFC also benefit from Qatar’s extensive DTA network with over 70 countries.

QFC’s unique platform has allowed it to attract a business community of over 612 firms from all over the world across a variety of financial and non-financial sectors. This has created a community of over 3500 people, with a combined total assets under management of over US$20 billion.

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SAMOA

SENSIBLE...ACCESSIBLE...MODERN...

OPTIMUM...APPROPRIATE...SAMOA! * by Invest Samoa Samoa’s international financial centre was established in 1987 as the Office of the Registrar for Foreign and International Companies under the auspices of the Central Bank of Samoa. The Samoa International Finance Authority (SIFA) was set up in 2005 to provide international financial services, with the enactment of the Samoa International Finance Authority Act 2005. The idea was and is to attract clients who are hunting for a jurisdiction that provides wealth management products and services.

THE TRUSTEE COMPANIES ACT 2017: A NEW PERSPECTIVE Until recently, trustee companies were provided for and regulated under the old Trustee Companies Act 1988, with only one type of trustee licence available to firms that wanted to offer financial services to the world from their bases in Samoa. The old Act required trusts to hold substantial capital stocks without the need for insurance. As the result of far-reaching changes in the financial world, Samoa enacted its new Trustee Companies Act in 2017.

This repealed the old Act and set out new ways in which trustee companies and international firms could use Samoa’s international financial services.

Although in the past Samoa has concentrated on international business companies (IBCs), the Samoan Trustee Companies Act 2017 now provides an attractive platform for clients who want to set up offices for all manner of purposes in Samoa with the aim of using the jurisdiction as a base from which to conduct international business. The new law contains rules for recordkeeping, the identification of customers and the verification of beneficial ownership and accounting information that conform to the most recent standards issued by the Organisation for Economic Co-operation and Development (OECD) and the Asia Pacific Group (APG), the regional chapter of the global anti-money-laundering Financial Action Task Force (FATF). Samoa’s adherence to these international standards is a sure sign of its ability to move with the times. The Trustee Companies Act is also, more importantly, Samoa’s response to the commercial needs of members of various professions who operate all over the world.

The Act offers the practitioner three types of trustee company licence, all of which impose competitive capital requirements and capitalisation in their different ways.

The first type of licence is a financial services licence which enables the holder to conduct incorporation services. The second type of licence is a trust licence which enables the holder to provide trust services. The third type of licence is a composite licence which enables the holder to provide both financial and trust services.

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Legal persons or trust companies that do not wish to set up offices in Samoa can ask to be given managing licences. A Samoan law firm or accountancy firm can issue one of these and administer it. Samoa has about 27 law firms and eight accountancy firms. This option is ideal for legal persons or trust companies that wish (at reasonable administrative cost) to set up trust businesses in Samoa and obtain the added benefit of efficiency and ease of doing business.

A Samoan trust can continue indefinitely or it can last for a fixed period, according to the wish of the settlor. If the settlor has designed it to last for a fixed period, the trustee can lengthen or shorten that period and can even change the trust to make it continue indefinitely. If the settlor has designed the trust to continue indefinitely, the trustee can subsequently change it to last for a fixed period. A Samoan trust can accumulate income throughout its period of continuation.

The Trustee Companies Act provides for the establishment of private trustee companies, which are exempt from regulation as long as they satisfy the appropriate conditions. Section 10 protects law firms and trust service providers from some of the consequences of legal action by requiring them to take out policies to insure against that eventuality.

The provisions for both a protector and an enforcer of a Purpose Trust are as good as in any other jurisdiction. Trustees have a statutory duty of care that they must observe in their exercise of certain powers. This duty is included in every trust deed and is particularly helpful and reassuring for the beneficiaries who read it. These Samoan provisions follow those in the UK and Singapore. Samoan law also contains detailed provisions that concern investment, delegation, the use of nominees and custodians, insurance and the remuneration of trustees.

The Samoan Trustee Companies Act is the first piece of legislation in the world to adopt and incorporate the Standard of Best Practice that GIFCS (the Group of International Financial Centres Supervisors) published in 2014. The observance of that well-respected standard ensures that trust company service providers will strive to provide the most up-to-date solutions for clients’ problems and needs.

The different types of licence that the Act makes available, its insurance-related requirements and the low level of capitalisation that it demands have already helped many clients who are looking for an alternative, stable and efficient jurisdiction to find their way to Samoa.

SAMOAN TRUSTS: A COMPARATIVE ANALYSIS Samoa has provided trust products and services since 1988. It has brought these up-to-date with the Trust Act 2014, which repealed the old International Trusts Act 1988.

Under the Act of 2014, trusts can be either ‘charitable’ or ‘for a purpose.’ Even more excitingly, the Act has established a special type of trust called the Samoa International Special Trust Arrangement (SISTA).

Samoa’s trust law is unique in that it can be expressed in any language as long as a proper English translation is provided. It provides the right amount of protection for assets against foreign succession rules or claims in foreign matrimonial proceedings.

Asset protection is governed by a “three-year rule” that dictates that if the creation of the trust in question and any disposition to the trust takes place more than three years after the relevant creditor’s cause of action arises against the settlor (the creator of the trust), the trust and the assets transferred to it are protected from the creditor’s claim.

Section 45 of the Act of 2014 says that a reservation of powers and rights to a settlor in a trust does not invalidate that trust as long as the trust is “not a sham” or “there is such an excessive reserve of powers to the settlor that the role of the trustee and the nature of the trust is compromised.” Subject to that section, the settlor may arrogate a wide variety of powers to himself, including the power to revoke the trust; to do various things with its capital; to remove a director or officer of any corporation that the trust owns; to give binding directions to the trustee in connection with the trust property; to appoint or remove any trustee, enforcer, protector or beneficiary; to appoint or remove an investment manager or advisor; and to change the proper law of the trust.

These powers are extremely wide and compare well with those found in the laws of the Cayman Islands, Dubai, Jersey and Labuan.

There are also provisions for “prescribed directions” of the kind that a settlor can give to a trustee when that settlor possesses reserved powers. The trustee is protected if he/it complies with such directions and this is a unique feature of trust law in Samoa.

There are other ways in which one can ensure that a settlor and others keep control of a Samoan trust. It can be done through the use of a Private Trust Company or PTC, which may be owned, for example, by members of the settlor’s family, or by a Purpose Trust, or by a company limited by guarantee or by a Special Purpose International Company, which is unique to Samoa. The law surrounding PTCs is similar to that of Singapore and is as good as that of any other jurisdiction.

The Samoa International Special Trust Arrangement (SISTA) is similar to the Virgin Islands Special Trusts Act (VISTA) and to the Labuan Special IFC WORLD 2019

Trust (LST). The objective of a SISTA is to permit a Samoan trust to hold and not diversify the shares of a Samoan company and let persons other than the trustees act as directors of that company, without the trustees being at risk for that reason.

beneficiaries. It can have notifiable beneficiaries (who can receive information about the foundation) and non-notifiable beneficiaries (who cannot). It might sometimes appoint a guardian to protect the interests of the latter.

Another structure exists that combines a trust with a limited partnership. This enables a Samoan trust to hold the interest of a limited partner in a limited partnership as an asset and permits the general partner, who is required by limited partnership law to control day-to-day business and hold the assets for the partners of the limited partnership in the ratio in which they share the capital of that partnership, to do the same thing without putting the trustees at risk. Samoa is unique in having a law of this kind. This law, moreover, does not confine the structure to one jurisdiction but rather allows the limited partnership and any companies involved to be formed in any jurisdiction. Also, since the trustees do not hold the actual assets but merely an indirect interest in them, they cannot misappropriate anything.

A Samoan trust and a Samoan foundation protect their assets from expropriation in more or less the same manner. In this regard, the claim of one of the founder’s creditors whose cause of action against the founder arises more than two years after the time when he created the foundation, or when he transferred assets to it, cannot extend to the assets of the foundation. Other rules protect the assets of a Samoan foundation against foreign rules of succession and foreign judgements; these, too, are largely the same as the rules that protect the assets of Samoan trusts.

THE INNOVATIVE NATURE OF SAMOAN FOUNDATIONS Samoa provides foundations through the Samoan Foundations Act 2016. The foundation is a civil-law concept and Samoa is a common-law jurisdiction, but Samoa introduced foundations into its laws to widen its target market to take in clients from civil-law jurisdictions.

LOOKING FORWARD TO THE FUTURE Samoa has always been shrewd enough to revise its products and services to ensure that they are relevant to the changing needs of clients and operate in line with international standards. In doing so, it will always endeavour to remain a sensible, accessible, modern, optimum and appropriate jurisdiction.

A Samoan foundation is a registered legal entity which owns its own assets. Its charter and rules and other documents that relate to it can be in any language as long as a proper English translation is provided as well.

INVEST SAMOA is the promotional arm of Samoa’s international financial centre. Its mission is to ensure that Samoa provides the world with modern and compliant financial products and services of the highest quality. The development of the Trustee Companies Act in 2017 and Samoa’s continuous revision of its laws regarding international finance are proof of the Samoan Government’s support for its worthy objective.

Each foundation must have a founder who gives it some initial assets. Its charter can reserve powers and rights to the founder, who can assign the benefit of them to someone else. Any assignee of those powers and rights can, in turn, assign them onwards. A Samoan Foundation must by law have a purpose, which can include an imperative to pay

INVEST SAMOA is the promotional and marketing brand of Samoa’s international finance centre, which is officially known as the Samoa International Finance Authority. SIFA was established in 2005 as a Government Corporation in recognition of the centre’s maturity and the

SAMOA SENSIBLE...ACCESSIBLE...MODERN...OPTIMUM...APPROPRIATE...SAMOA!

need for international financial facilities to be better regulated and co-ordinated. In addition, SIFA’s marketing brand, “INVEST SAMOA,” was created in late 2016 to focus exclusively on promotion and development. INVEST SAMOA is the first point of contact for clients and professionals interested in the products and services offered by the Samoan IFC through SIFA. INVEST SAMOA manages and maintains the reputation of Samoa as a reputable offshore jurisdiction.

Samoa is the leading IFC in the South Pacific Region. Both the World Bank and the International Monetary Fund have hailed it as the model economy for the Pacific Region. Samoa has endeavored to keep abreast of international developments by sending people to renowned international finance conferences around the world. Additionally, INVEST SAMOA has spoken at various international seminars, predominantly in Asia, with the aim of promoting the jurisdiction.

Samoa’s suite of international products and services includes trusts, trustee companies, international companies, international banks, international insurance, segregated-fund international companies, mutual funds, specialpurpose international companies, foundations, partnerships and limited partnerships.

Although INVEST SAMOA concentrates on promoting the international solutions and services that the Samoan IFC offers, it also promotes Samoa as a jurisdiction with investment opportunities in tourism, economic development and international sports. Indeed, it has been the major sponsor for various Samoa national teams - particularly the Manu Samoa Rugby 7s Team and the Samoa National Netball Team. * For more information about Samoa please visit our website at www.investsamoa.ws, our Facebook page at www.facebook.com/ investsamoa, or email enquiries@investsamoa.ws /info@investsamoa.ws or telephone +685 66412

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MilleniumAssociates: helping private banks and wealth managers shape their future

M&A experts to the financial services industry With almost 20 years focused on corporate finance and M&A advisory services to the global wealth, asset management, private banking and private equity sectors, MilleniumAssociates has become one of the world’s leading independent M&A firms focused on the global financial services industry. It is a mantle we take seriously and we are proud to support our partners not only in their broader M&A needs but also with innovative new structures and solutions such as our solution focused advisory services.

Supporting financial institutions in their M&A needs MilleniumAssociates‘ specialist Financial Services practice focuses on corporate finance and M&A transactions for the global financial services industry, in particular the global wealth, asset management, private banking and private equity sectors.

Expert corporate finance advisers to private wealth clients, globally Building on this M&A expertise and experience and in order to support our banking clients’ drive to add value, we provide a long established dedicated Entrepreneurs and Corporates practice enabling us to extend our services to the clients of private banks as well as corporates and entrepreneurial business owners globally, offering unconflicted comprehensive corporate finance advisory services from M&A and corporate finance advisory services through to IPO advisory, debt and capital market advice - irrespective of industry sector or geography or deal size.

for more information on how MilleniumAssociates can help you shape your future please email us at

info@milleniumassociates.com

or visit us at

www.milleniumassociates.com

MilleniumAssociates AG Badenerstrasse 141 CH 8004 Zurich MilleniumAssociates (UK) Ltd 23 Berkeley Square London W1J 6HE MilleniumAssociates AG is a member of the Swiss Private Equity & Corporate Finance Association (SECA) - MilleniumAssociates (UK) Limited is authorised and regulated in the UK by the Financial Conduct Authority

SWITZERLAND

A SNAPSHOT OF THE SWISS WEALTH MANAGEMENT INDUSTRY * by Ray Soudah, Millenium Associates The Swiss wealth management industry is in structural decline, with its margins decreasing all the time. This is because its already-heavy cost burden is on the increase – especially because of the spiralling costs of compliance and technology coupled with the continuing high cost of ‘compensating’ client-facing relationship managers.

This has, of late, been masked by the rip-roaring performance of stock markets in the US and elsewhere in the world – the very places where the wealth management industry has invested most of its assets. There was a temporary but significant fall in asset values in the last quarter of 2018, but the general picture is still buoyant and, as the markets have already recovered from that temporary setback, the industry has been rescued again by high market indices – for the time being. When stock markets go up, they raise all boats.

REASONS TO BE CHEERLESS There are three primary reasons for the industry’s structural decline. First, there has been a decline on the revenue side of things, with wealth managers and private banks finding it difficult to produce new products while seeing their revenues from assets under management halved during the past ten years.

The majority of providers struggle to offer services other than asset management and asset-related services, despite trying their hand at corporate finance and merchant banking. This means that there are no significant new sources of revenue to look forward to, while at the same time competition is forcing revenue margins down.

“Banks are mistakenly afraid of losing their clients if their relationship managers defect” Second, there has been a steep increase in the cost and time consumption of compliance, which now accounts for an average of 10% of a private bank’s labour costs adding a necessary layer of costs for onboarding new clients or vetting new products and services. The news is, of course, far worse for smaller banks; if you have ten people, you are still going to need at least two compliance people.

Third comes the continuing inability of private banks to moderate the costs of their highly-paid, client-facing private bankers and their often elephantine bonuses, which ought to be declining but nevertheless remain the same and, in some cases, are rising along with stock market valuations. These people are bringing in less revenue (although not necessarily less AuM/assets under management)

than in previous years. Their banks are afraid to challenge the cost of such front-office staff because they are mistakenly afraid of losing their clients if their relationship managers defect to competitors.

This fear is an increasingly illusory one. The relationship manager’s historically strong bond with his client is weakening progressively. In the past, the average high-net-worth client moved banks with his key relationship manager, but that was before it became a hassle to move bank accounts. Nowadays, the client dislikes the tortuous, burdensome and intrusive process of going through the “know your customer” checks, the funds checks and the source-of-wealth checks. The average RM now only takes 10-15% of his clients with him at most.

Private banks still believe – myth though it may be – that it is always a good thing to hire more RMs. The migration of clients with their RMs was fairly complete in the past but not now. Nevertheless, the banks still want to hire people with the aim of stealing their clients from other banks, even though their products and services and pricing policies are similar.

AN INTERESTING PHENOMENON Some of these RMs are tired of dealing with the bureaucracy of their banks and with product committees, compliance committees and the like. The more enterprising of them often decide to set up on their own, or to join independent advisory firms.

They know that they cannot take their clients with them because those clients want to stay with the same banks for the sake of a quiet ‘compliance’ life.

The enterprising RMs sidestep this problem by suggesting to the clients that they ought to give them power of attorney over their bank accounts for investment management advisory mandates and let them carry on running their investments that way, while maintaining account custody at their original banks.

This gives the newly independent RM his freedom and less ‘infrastructure’ to have to cope with, while the original bank loses some income to him (he becomes the customer, in effect) but also saves itself the cost of having to pay him expensive remuneration year after year. This is a significant phenomenon, although it is not taking place on a massive scale.

Survival in this game has become an issue of size and economies of scale. The majority of Swiss private banks and wealth management companies – even the big ones – are increasingly saying: “We want to grow with takeovers. We need more assets on our platforms. We have a strategy to buy others.”

The average cost/income ratio is around 75% – in other words, it costs a typical Swiss private bank or asset manager 75c to generate every SFr1 in

SWITZERLAND A SNAPSHOT OF THE SWISS WEALTH MANAGEMENT INDUSTRY

revenue. This is a highly risky business model in view of the fact that revenues are substantially variable while costs are generally fixed in the short-to-medium term. The revenues, as always, are based on the valuation of stock and asset markets. We have practically the highest-ever stock market valuation levels at present and if there were to be a correction, the platforms (many of which have an excessively low ratio of debt capital to equity capital) would suffer significantly as they are not in a position to adjust their cost bases as quickly as revenues could decline.

“Private banks still believe – myth though it may be – that it is always a good thing to hire more RMs” Almost every bank believes that it can accommodate increases in AuM at minimal marginal cost and, as a result, improve its bottom line substantially or at least stop losses from accumulating. An oft-heard refrain goes: “It’s very possible to acquire other people’s assets on my platform. If I double my assets, my cost goes down.” It is interesting to note that cost-income ratios over the past few years have ranged from 65% to 95%; improvements in gains from productivity have yet to be seen.

This brings us to another point. With that in mind, one would have thought (in view of the vogue for consolidation) that the valuations of private banks or asset managers would have gone up. This is not the case. There are at least 15-25 bidders on every asset available in an open free auction, yet prices remain stable or, in some cases, are lower. This transpires because not everyone is willing to actually buy what comes up for sale. In other words, the buyers say that they are interested in buying but then decline to pay up, saying that they dislike this-andthat part of the available deal, in the same manner as someone going to a car showroom with the stated intention of buying a car and then telling the salesman that he does not want the wing mirrors or the seat. This results in no sale and no increase in valuations.

The universal banks have private banking divisions as well. The people in charge of these businesses also want consolidation, i.e. they want to buy up other banks and wealth management companies, but their mother companies are holding them back, especially when their investment banking divisions are underperforming.

Ironically, the private banking business is more profitable and less capital intensive than other parts of

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the typical universal bank. As each bank struggles to shore up its other businesses, it has no capital or courage towards its shareholders to spare any cash for acquisitions. The demise of prosperity at the centre hampers the bank from allowing its private banking business to grow and take advantage of potential opportunities.

THE RIVALRY BETWEEN SWITZERLAND AND SINGAPORE FOR WEALTH MANAGEMENT BUSINESS The comparison between these two jurisdictions is only partially logical. The two centres are competing for market share, so it is possible to speak about rivalry in that sense. Singapore trains its wealth managers (especially recent graduates) to a high standard and its regulatory oversight is prominent; Switzerland is catching up. On the other hand, HNW people – quite legitimate people who have no intention of hiding undeclared or illicit funds – from South America, Africa, the Middle East and Europe (especially Eastern Europe and the weaker EU countries) view Switzerland as neutral and as safe as gold. Singapore has less of that kind of business, despite all the troubles (now over) through which Switzerland has struggled as a financial centre.

Singapore draws its private wealth deposits from China, Japan, India, the rest of Asia and, to some extent, the Middle East, and does so in less quantity – at least so far.

SOVEREIGN RISK AND HOW TO DEAL WITH IT The HNWIs who seek out places such as Switzerland and Singapore largely for their neutrality and stability are worried about ‘sovereign risk,’ the risk they run by keeping their wealth in their home country or in backward countries in general. Sovereign risk has been described as the chance that a central bank will make rules that will diminish the worth of its currency, or as the risk that a nation will fail to meet its obligation to repay debt, or as the risk that a nation will not honour its sovereign debt interest payments.

Italy and Japan, with their bulging sovereign debts, pose this kind of risk in the eyes of many HNWIs.

“Sovereign risk can extend to the expropriation of assets by governments” Sovereign risk can cover far more than the economic chaos that follows a debt default or debt-related hyperinflation, however; it might also extend to political turmoil and violence or the expropriation of assets by governments.

The latter occurred in Cyprus a few years ago when the country was in economic meltdown, having relied on investing in Greek Sovereign bonds which collapsed in value despite being sovereign. The

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Government forcibly extracted money from people’s accounts that contained more than €100,000 in order to bail out the core banks. HNW depositors, many of them Russian, received a ‘haircut’ and saw large chunks of the value of their uninsured deposits converted to equity. Financial institutions (e.g. German banks and central banks including the Bundesbank), along with government entities, received full repayment.

This was a total departure from normal bankruptcy proceedings where strict rules apply and a court-supervised process ranks creditors in order of repayment precedence, with creditors in each group being treated equally. Michael Sarris, Cyprus’ former Finance Minister, says that he was pressurised by the Troika – the European Union, the European Central Bank and the International Monetary Fund – to sign the deal, knowns as the ‘bail-in.’ This first-ever postwar EU-inspired government-licensed plundering of bank accounts can be seen as a trial run for the next wave of asset-stripping that will occur in a country that faces bankruptcy. Greece – which may not be able to salvage all of its sovereign debt – could be next on the list, despite the fact that financial markets have been showing signs of recovery in recent years.

In Cyprus, the depositors were given shares in banks that were worthless at the time, in return for the expropriation of their assets, which received ‘haircuts.’

Some HNWs therefore believe that the depository insurance that some countries have in place will not be there forever. Central banks, especially the European Central Bank, are putting up a façade and claiming that everything is now fine, but in the next wave of sovereign crises the governments have resolved to use ‘bail-ins’ that will allow them to take money away from the depositors to protect the banks. This will have the benefit (to them) of reducing the size of, or forestalling the need for, bailouts of the kind that they organised to rescue banks when the financial crisis began in 2008.

In view of this, anecdotal evidence exists in the market to the effect that there is an increase in investment in gold in Switzerland, and in general elsewhere. Gold is very thinly traded, so some people worry that the largest banks, central banks and governments that hold gold can manipulate its price, but this fear is otherwise offset by the fact that there is always a substantial retail demand for gold, especially in India and Japan. The cost of producing gold is in some cases 20-30% of the market price, so it would have to become very cheap indeed before mining companies were to stop producing it.

DE NOVO BUSINESSES IN THE WEALTH MANAGEMENT SECTOR It is worth looking at de novo businesses for just a moment. Every year, a handful of new little banks and, more often, asset management companies are born. It takes years to obtain a banking license these days, which might explain why the latter outnumber the former. Every year, the new intake accounts for a mere 0.01% of the whole market, which is next to nothing. Even more dismally, these independent entities peak out soon after their inception. They

typically set themselves up with new clients, then peak out with $2 or $3 billion in assets under management or advisement. They have no effect on the market except at the margins. A start-up of this kind can be likened to one Member of Parliament resigning – it attracts everybody’s attention, but has no effect as long as the Government has a majority.

“The depository insurance that some countries have in place might not be there forever” One such recent example is that of Michael Baer, the great-grandson of Julius Baer, whose eponymous bank is one of the top financial institutions in Switzerland. His new venture obtained its banking licence late last year after a two-year wait. He has started well with around ten people and less than US$50 million in capital. This is not a large set-up yet but the development of its merchant banking model will be worth watching. This could become an attractive client-serving boutique in the long term.

There is a very good side to these start-ups, however: they keep the big boys honest. This is because they are very ‘client-centric’ and that, in turn, is because they have to be that way if they are to stand any chance of success at all.

There is another trend in the de novo parts of wealth management: some private banks are trying to become more entrepreneurial, not only managing HNWs’ assets but also trying to help them to leave or sell their businesses, or to find additional capital in order to expand them, or indeed to start new ventures. This is a difficult thing to do under the constraints of heavy regulation, but they aspire to do it and it helps their image. Unfortunately, there are few examples of success. It is a rare thing for a private bank to manage to create a successful global business without using external specialists as partners.

EAMs External asset managers, often covered before in the pages of IFC World, are having a crisis at the moment. There are perhaps 2,500 of them in Switzerland, of whom around 80% manage less than SFr250 million. The virtue of these wealth managers lies in the fact that they work outside the banks as stand-alone companies and are proud of their independence. They appeal to HNWIs because they are independent in terms of investment policy and product selection and they make a point of being less bureaucratic than the banks, but regulation is gradually killing that appeal by burdening them – especially the smaller ones – with crippling costs.

It is estimated that two-thirds of them will disappear in the next ten years unless compliance/control software can lighten the load that they have to bear.

IFC WORLD 2019

Swiss EAMs are facing steep increases in regulatory compliance on one hand, while on the other they are having trouble attracting new clients.

This has been a trend in the last few years and has intensified in the last two; it will be even worse next year.

The banks are making it difficult for customers to move accounts. An EAM is no longer able to welcome a brand new new client in an efficient way.

It is nauseating for an HNWI to hold tedious conversations with compliance staff at banks, which is where they have to have their accounts, but this is what they have to do now if they want to hand their account management over to EAMs. These days, some say that the compliance department is more powerful than the board at some banks.

Millenium Associates surveyed 30 EAMs recently and they all said the same thing: they all wanted to grow in size and they all wanted to buy (each other).

We might now, therefore, be in an era of consolidation (or, at least, that is what the EAMs hope).

“Some say that the compliance department is more powerful than the board” My refrain has always been “let the client be the centre of operations and not the service provider.” Swiss

wealth financiers have yet to heed this advice. Contrary to the propaganda that private banks and wealth managers put out, they are basically commodity product providers. They perform hardly any bespoke, tailor-made services any more, even though they adapt portfolio strategies to some extent. One bank might invest 30% of the portfolios it manages in equities instead of 40%, but this is merely the same meat with different gravy. A recent survey of the brochures of some twenty private banks showed that the main differences between them lay in the photography rather than in the services that they were offering. *Ray Soudah can be reached at ray.soudah@milleniumassociates.com.

MilleniumAssociates AG is based in Switzerland and the UK

TURKS & CAICOS ISLANDS

DISPUTE RESOLUTION IN THE OFFSHORE WORLD: A GROWTH INDUSTRY * by Tim Prudhoe, the founder of the law firm of Prudhoe Caribbean Mark Twain said that news of his death had been greatly exaggerated. By the same token, people who claim that the offshore world is ‘dead’ fail to see that sophisticated offshore centres and the dispute-related work that they generate are not only alive but positively thriving and increasing in complexity. In this article we take a close look at the service sector.

“The sooner a company is restored, the sooner the door is closed to an attack on its documents” The interests of a ‘disputes client,’ whether (i) in current high-stakes litigation or arbitration, or (ii) trying to move away from such, often benefit from the recognition that discretion can be the better part of valour. Early access to experienced professionals who are ready to de-mystify the process while operating in a tough situation can help a client win at least half the battle. As development monies flow in to islands blessed by miles of pristine beachfront, the inevitable scope for shareholder and other joint-venture disputes that straddle multiple jurisdictions calls for – and turns a spotlight on the availability of – sufficiently experienced lawyers with proven track-records. People who have worked towards favourable judgments against their client’s adversaries in many jurisdictions are definitely in demand.

There are many times when every law firm has to give vital advice to a client about threshold issues (requirements that an individual must satisfy at the outset) regarding strategy. There are also many situations when formal proceedings may already have started and costs (plus exposures to further costs) have been mounting for some time. Sometimes a business client comes to our firm through a firm that is less cognisant of the need to monetise his position quickly and get his business on to the next transaction; sometimes he simply comes to us with a need for some fresh ideas. A wise law firm recognises and supports the plain fact that businesses do not exist for the benefit of lawyers and clients should receive access to joined-up thinking if their disputes might have cross-border implications.

In this article I aim to float some ideas to do with issues of separate corporate personality which, put simply, involve the notion that a company exists separately and apart from its directors and/ or shareholders. Tax authorities are about to know infinitely more than they do now about the beneficial ownership of structures – this is very much a ‘when’ and no longer an ‘if’ - and tax information exchange is now in place and continuing to grow.

The company law of the Turks & Caicos Islands was reconfigured recently with this in mind.

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COMPANY USAGE In this context, here are some issues to keep in mind.

The first is company usage.

A company has a legal personality that is separate from that of its shareholders; this is a fundamental but often overlooked legal concept. There is now a clearer (and longer) period during which a company struck off the register of companies in the Turks and Caicos Islands can be restored by application. What is more, companies struck off under the former statutory regime can be treated in the same way for the purposes of an application for a restoration.

So far, such restorations have been by consent of the Registrar of Companies and the Finance Ministry, so the courts have made no decisions yet about how they should exercise their own discretion to restore a company where there has actually been a dispute as to whether the restoration should occur (i.e. to say yes to an application for a restoration that is opposed). This is for the simple reason that the regime is so new, being enacted the year before last and coming into force last year.

“Tax authorities are about to know infinitely more than they do now about the beneficial ownership of structures” This is not in itself a concern. The history of case law in equivalent jurisdictions, whose laws are analogous, is probably a good guide for the future. One such case is the very recent British Virgin Islands Commercial Court (Eastern Caribbean Supreme Court) decision of Patrick Smulders v Registrar of Corporate Affairs & Financial Secretary (2017). This decision provides a non-exhaustive list of matters that a judge should consider when determining whether or not to exercise his discretion to restore a dissolved company on the ‘just’ principle. These matters are: • the threshold issue of whether the person or entity who applies to restore the company has standing (which is simply ‘lawyer-speak’ for recognised capacity or ability by which to make the application); • the purpose for which the company was formed; • the purpose for which it is to be restored (it should be for a beneficial purpose); • the reason why the company was struck off; • the length of time during which it was dissolved, and the delay in seekingits restoration; • whether the restoration of the company would cause prejudice to a third party;

• the fact that the discretion against restoration should be exercised proportionately; • whether in all the circumstances it is just to restore the company; and (crucially) • the fact that the exercise of the discretion not to restore should be the exception and not the rule where it is just to do so.

WHY DOES THE RESTORATION OF A COMPANY MATTER? Property and legal professional privilege (at least) are two good reasons for the restoration of a company. First, the assets of a dissolved company become those of the Governor on behalf of the Crown, just as assets of an equivalent (dissolved) company in England & Wales also become property of the Crown (an ancient concept most often known in its Latin description of bona vacantia). Property vested in this way in the Turks & Caicos Islands – i.e. out of the hands of the company – can be restored if not disposed of to innocent third parties. The position in respect of bank account proceeds is arguably subject to ‘salvage’ too, in that it is also subject to the exercise of a discretion.

The concept that a lawyer must maintain the privilege of his client is widely understood. “Attorney-client privilege” in its American form is well publicised in films such as The Firm and is now under the spotlight with the seizure of privileged materials in respect of President Trump. It is the right of a client to assert it and the obligation of a lawyer to maintain it. Privilege is not lost by the death of the client, but the ‘death’ of a juridical ‘person’ (a company, created as a person by the effect of statute) leaves things less clear, such that restoration of the company to the register is the surest way of preserving privilege. Subject to that, the Upper Tribunal in Garvin Trustees v Pension Regulator decided that the privilege vested in bona vacantia just like any other asset that there was no positive obligation or duty to maintain it.

This creates an odd outcome, both from the perspective that the revival of the obligation is arguably possible on the restoration of a company and prior to any such restoration leaves the communications of those who have sought legal advice for the company exposed in a way that runs entirely contrary to the rationale for legal professional privilege, which is that: “A man must be able to consult his law in confidence, since otherwise he might hold back half the truth. The client must be sure that whatever he tells his lawyer in confidence will never be revealed without his consent. Legal professional privilege is thus…a fundamental condition on which the administration of justice as a whole rests.” (R Derby Magistrates’ Court [1995] 1 AC 87.)

That it is only arguably possible to restore privilege is as a result of a mismatch between (i) the curative effect of the legislation (by which a restored company IFC WORLD 2019

is deemed never to have been dissolved in the first place), which plainly supports the continuance of privilege, and (ii) the narrow applicable definition of bona vacantia transfer, which deals with only “any property of a company” (s263(6) Turks & Caicos Islands Companies Ordinance 2017). This focus on property transfer, in contrast to the wider language of equivalent legislation in England & Wales of “all…rights whatsoever vested in…the company” (s1012 Companies Act 2006, England and Wales) weakens any argument that the Crown actually receives the right to privilege as a result of the bona vacantia process.

“Privilege is not lost by the death of the client, but the death of a juridical person” The primary lesson to be learnt here is the need to act quickly, whether one is acting for or against the company that is awaiting restoration. The sooner a company is restored, the sooner the door is closed to a viable attack on documents that would otherwise be covered by legal professional privilege. In the light of the decisions that the courts have made in this area, a lawyer faced with competing claims to the privileged documents of a dissolved company in the context of proceedings would do well to await directions from the court in question, especially when one considers ‘confidentiality’ legislation such as the Confidential Relationships Ordinance. There is a statutory mechanism for doing so as a direct result of my firm’s advice to the team of draftsmen of the Companies (Amendment) Ordinance 2017. The ability of a lawyer in that difficult position to make an application to the court was revived.

ASSISTANCE IN THE TURKS FOR OVERSEAS PROCEEDINGS – JUDICIAL CO-OPERATION Let us return to the jumping-off point of this article.

The offshore world’s place in the world of commerce and cross-border commerce (and the disputes that that inevitably generates) is assured. An important contribution to that place is the way in which the legal regime of the Turks & Caicos Islands can, and does, answer properly formulated requests for assistance in overseas legal proceedings.

A statutory and procedural set of rules in respect of overseas civil proceedings exists, subject to someone making a request in respect of evidence

targeted at specific information of demonstrable relevance to the proceedings in the country from which he is making it. The request happens through a ‘letter of request’ from the requesting jurisdiction.

That request may be made either to the Governor for implementation through the Court Registrar or to the Court Registrar directly. In either instance, the Attorney General’s Chambers is likely to become involved. If a requester is suffering from time pressure as a result of (say) an overseas case that is about to be heard, his application to ask the Turks & Caicos Islands for help requires affidavit evidence (setting out the targeted nature and relevance to the overseas proceedings of the underlying evidence he seeks) and is made without notice to the target.

The test and requirements to be applied on the hearing of such an application is as follows.

• It must be a request by a competent court for evidence to be used in ongoing civil proceedings, • in English, • for documents that could, in the Turks & Caicos Islands, be obtained in civil proceedings of the same kind as the overseas proceedings to which the request relates.

• The proposed order must not go beyond specified documents (i.e. the exercise ought not to be a ‘fishing expedition’).

• There must be reasonable grounds for belief that the intended witness – i.e. the target of the application – might have relevant evidence to give on topics relevant to an issue in the overseas action.

• The target of the request will have his, her or its reasonable costs of compliance with any order requiring production paid for by the applicant.

“The primary lesson to be learnt here is the need to act quickly” MERELY SCRATCHING THE SURFACE A short article of this kind can obviously only scratch the surface when considering litigation relevant to clients operating in the Turks & Caicos Islands or trying to extract information from the jurisdiction that is relevant to proceedings elsewhere. In a world where commerce knows no boundaries, truly joined-up thinking on the part of a legal team that spans several continents and geographic regions is at a premium. * Tim Prudhoe can be reached on tim@prudhoecaribbean.com

TURKS & CAICOS ISLANDS DISPUTE RESOLUTION IN THE OFFSHORE WORLD: A GROWTH INDUSTRY

The law firm of Prudhoe Caribbean works on complex and often cross-border representations, frequently concentrating on projects with overseas co-counsel and General Counsel teams.

It is most often deployed in the courts of Central America and the Caribbean, but is also used to working as part of time-sensitive projects that encompass many parts of the globe, sometimes organising the recovery of assets in many jurisdictions at once.

It accepts only a limited number of engagements so as to ensure that its clients (whether end-user, via co-counsel or both) enjoy access, responsiveness, and service consistent with onshore providers. It is not a traditional law firm in that it does not normally cater for repeat clients.

Its lawyers are tied neither to any particular clientèle nor to any geographic locations.

Prudhoe Caribbean is based in the Turks & Caicos Islands and sometimes does domestic work. The interaction of offshore financial centres with onshore regulators and enforcement agencies is a significant aspect of its work. Its approach to disputes makes it ideally suited to clients whose positions are adverse to domestic and international governments and quasigovernment bodies. It specialises in difficult projects that require creativity in tough operating conditions.

The law firm has people with reliable, responsive and aggressive litigation skills at its disposal. Its lawyers demystify the process of enforcement for the badly-served beneficiaries of offshore structures and the prices it charges for its services contain no hidden costs. Plain-English explanations of necessary steps towards agreed results and milestones are de rigeur.

Courtroom advocacy at both trial and appellate level involves skills that take many years to acquire and frequent use to keep effective. A related skill is the giving of expert evidence on paper and by oral testimony. Prudhoe Caribbean has both types of skill in abundance.

Success at the judgment or arbitral award stage is often by no means the ‘finish line’ for a client.

Prudhoe Caribbean is adept at persuading courts to help it enforce judgments and recover assets in many jurisdictions at the same time. It is also used to working in insolvency proceedings, both for the liquidator (trustee-in-bankruptcy) and as the liquidator itself.

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