IFCWorld 2019

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

THIRD EDITION

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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:

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REPORT AUTHOR: Chris Hamblin - Editor, ClearView Financial Media

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© 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 8

VIEWS FROM THE JURISDICTIONS:

Bahamas 27 31 37 Qatar 41 Samoa 44 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 communi- the Papers (reported on last edition) but LESS NOISE THAN PREVIOUSLY ty since the last edition of IFC World was published. larger than the 260 gigabytes from the Offshore The , as we shall see, had less of Leaks (a report disclosing details of 130,000 off- The Paradise Papers did lead to plenty of onshore an effect in terms of investigations and prosecu- shore accounts in April 2013, publicised by the In- enquiries about offshore assets, but not on the tions than their predecessors, the , ternational Consortium of Investigative Journalists same scale as their Panamanian predecessors. Ear- but their worth to onshore governments – many in Washington DC) and the 4.4 gigabytes of the ly in 2018 HM Revenue and (HMRC) of of them desperate for revenues in the wake of ‘Lux Leaks,’ details about ’s secret the UK was still struggling to cope with the fallout, the world financial crisis which began in 2008 – rulings that gave large multinationals preferential according to Parliament’s spending watchdog. The was immense in terms of useful anti-offshore treatment, also publicised by the ICIJ. Public Accounts Committee said that it was “far publicity. from confident” that the tax agency had sufficient Appleby hinted at the time that the leak might resources to scrutinise the evidence. In a report, have come from an online hack. As did not happen MPs concluded that the Paradise Papers high- “The records with the Panama Papers, the hackers/leakers this lighted the “potentially dubious practices of many time shone a light on a victim-firm that had plenty high-profile individuals and corporations” that used illuminated nearly of records of American activity. At least 31,000 of offshore services. The committee blamed a scarcity the individual and corporate clients in Appleby’s re- of resources. 50 years of Appleby’s cords were US citizens or had US addresses – more than from any other country. Appleby also counted Unlike previous leaks, the Paradise Papers uncov- business activity” the United Kingdom, China and Canada among its ered little in the way of intentional criminal tax most prolific sources of clients. The records taken evasion by those involved. Instead, they demon- The Organisation for Economic Co-operation and from Appleby, which has denied all wrongdoing, strate how properly structured and packaged off- Development has tightened its grip on the offshore illuminated nearly 50 years of the firm’s business shore assets and income can be held entirely legal- world, notably through the planned development activity. ly and attract little in the way of liability, of its brainchild, the Common Reporting Standard as as they remain offshore. GlobalData’s 2017 or CRS, whose full title is the Standard for Auto- The papers exposed the tax engineering of more Global Wealth Managers’ Survey showed that tax matic Exchange of Financial Account Information. than 100 multinational corporations, including efficiency was the second most important reason The first exchanges of tax information under the their use of shell companies in Mauritius and Sin- for ‘offshoring’ wealth globally among high-net- AEOI are now taking place. Many jurisdictions are gapore to reduce . They also shine a light on worth investors, cited by 18.2% of wealth man- now in the process of fine-tuning and indeed im- secretive deals and hidden companies connected agers. By contrast, client anonymity came in at a plementing their country-by-country reporting re- to , the world’s largest commodity trader, distant 2.8%. gimes and, despite much grumbling from offshore and provided detailed accounts of that company’s centres, corporate registers that display the names negotiations in the Democratic Republic of the of ultimate beneficial owners are springing up. Congo for valuable mineral resources. “Panic gripped Mossack The CRS is extending its influence in many ways. Apple, Facebook, Nike and also received some Fonseca after it One such protraction is the OECD’s decision to criticism for using perfectly legal loopholes time mount a campaign against the phenomenon of and time again to avoid taxes in various jurisdic- realised that its records ‘golden visas,’ justifying its policy by claiming that tions. Apple moved a big portion of its offshore such visas damage the objectives behind the CRS. wealth from Ireland to by redomiciling had been hacked” The pioneers of golden visas have been the rulers two subsidiaries (one of which, Apple Operations of the United Kingdom, which has long offered cit- International, was thought to hold most of its Consequently, there seem to have been few, if any, izenship for sale but has recently toned its Tier 1 US$252-billion hoard of overseas ) at one governments queuing up to pay the hacker/leaker visa programme down slightly, and its former colo- stage around the time when Ireland was tightening money for his full database. This is another depar- ny St Kitts, which first boosted its economy in the up its tax laws in 2015 under pressure from the ture from the Panama Papers. As Deutsche Welle, mid-1980s with a similar money-spinner. Together, . The BBC reported that Appleby Germany’s international broadcaster, reported in they have set the standard for all others. managed the two firms between early 2015 and 2017: “The Federal Criminal Police Agency (BKA) early 2016. Like many hubs of the Caribbean, Jer- spent €5 million (US$5.7 million) to purchase A VERY PUBLIC CAMPAIGN sey collects no tax on profits for most companies. the Panama Papers database as part of its bid to The European Commission, in deducing that Ireland track down German-based tax cheats.” It also re- The so-called ‘Paradise Papers,’ leaked from the gave Apple an illegal tax benefit, calculated that ported that “the anonymous source who leaked international law firm of Appleby, revealed the the rate of tax for one of Apple’s Irish companies data from the Panama Papers is to be paid for offshore interests and activities of more than 120 for one year had been just 0.005%. information on Danish taxpayers...tax authorities politicians and world leaders, including Queen would pay around 1 million kroner (€133,000 or Elizabeth II and 13 advisors/major donors to US The emails in the leak indicated that Apple US$150,000).” In Denmark, critics argued, it is ille- President Donald Trump. wanted to keep the move a secret. The BBC gal for the authorities to pay for stolen information, quoted one senior partner at Appleby as saying: but the German constitutional court has excused The 13.4 million or so Appleby files also showed “For those of you who are not aware, Apple are it. Germany, according to Deutsche Welle, was the the interests of the owners of jets and yachts, in- extremely sensitive concerning publicity. They biggest loser among the nations when it came to cluding royalty and sports stars, using also expect the work that is being done for them transfers of profits to tax havens, losing €17 billion tax-avoidance structures. At 1.4 terabytes, this leak only to be discussed amongst personnel who need ($20.1 billion) per annum through base erosion and was smaller in volume than the 2.6 terabytes of to know.” profit shifting (BEPS, more of which later).

IFC WORLD 2019 8 DEFENDING A REPUTATION Michael O’Connell, the group managing partner CAUGHT AT THE END OF SWISS at Appleby, told the press: “From the outset we BANKING SECRECY One interesting facet of the leak, and perhaps a wanted to be able to explain to our clients and harbinger of things to come in such situations, is colleagues what information of theirs had been Beginning in the 1980s, von der Goltz allegedly the decision of the offshore law firm of Appleby stolen. That was our . As a result of this legal used the services of Mossack Fonseca to create to issue a writ against the British Broadcasting action we are well on our way to achieving our various foreign shell companies to hold his un- Corporation and the Guardian, seeking to force the objectives.” reported assets in the US and elsewhere. The US disclosure of the documents that formed the basis Swiss Programme, the American crusade of that investigation, the contents of which they THE END OF A ONCE-MIGHTY against at Swiss which end- subsequently published. At the time Appleby told LAW FIRM ed in January 2016 with the US Department of the Guardian: “Our overwhelming responsibility is Justice’s last non-prosecution agreement with to our clients and our own colleagues who have As for Mossack Fonseca, the stricken firm finally HSZH Verwaltungs, seems to have done for von had their private and confidential information tak- closed its doors in March 2018. By then, it was a der Goltz. The indictment alleged that he and en in what was a criminal act. We need to know shadow of its former self. It had closed dozens of his helpers set up many accounts at a Swiss firstly which of their – and our – documents were offices around the world. In May 2017 it had an- bank, falsely naming his mother as a beneficial taken. nounced that it was closing its offices in Jersey, the owner for the first time in 2013. Isle of Man and Gibraltar, adding that it intended to “We would want to explain in detail to our clients continue serving all of its clients. The Maltese office and our colleagues the extent to which their confi- withdrew its name from the building’s brass plate “We look like amateurs dentiality has been attacked. Despite repeated re- in that same month and its director resigned. The quests, the journalists have failed to provide to us law firm closed its office in Luxembourg in Febru- – a Mickey Mouse copies of the stolen documents they claim to have ary 2017. In August of that year Jürgen Mossack, a seen. For this reason, Appleby is obliged to take le- founding partner whose father Erhard was a mem- operation!” gal action in order to ascertain what information ber of the Nazi SS ‘Death’s Head Division,’ told the has been stolen.” press that only about six offices were left out of In a letter dated 4 March 2014, the Swiss bank in- the original 45. formed von der Goltz that, in pursuit of its obli- gations to the Americans in accordance with the “The Germans spent An indictment unsealed in December 2018 in a US programme, it had reviewed its account relation- federal court charged four defendants connected ships and identified von der Goltz’s accounts as €5 million to purchase to the now-defunct law firm – Dirk Brauer, a Ger- ‘US-related’ because he was their real beneficial man citizen who worked as an investment manag- owner and was resident in the US. It urged him to the Panama Papers er for Mossfon Asset Management, an asset man- get in touch with the IRS and report his accounts agement company closely affiliated with the law to that body himself. In any other country the bank database” firm; Harald Joachim von der Goltz, a former US would have been guilty of the crime of ‘tipping off,’ resident and taxpayer; Richard Gaffey, a US-based telling the suspect of a crime that he could be un- This appeared to be the reaction of a respectable accountant; and Ramses Owens, a Panamanian der investigation; until the last few years, however, law firm at the top of its game, confident in its in- attorney who worked for Mossack Fonseca. this was not a crime in Switzerland as every holder tegrity and indignant at its involuntary inclusion in of every Swiss was entitled to know a grubby propaganda exercise. Such a reaction was Between 2000 and about 2017, the indictment al- whether he was under investigation. very different from that of Mossack Fonseca, the leged, Owens and Brauer conspired with each oth- Panamanian law firm whose files provided the text er to help US taxpayer clients of Mossack Fonseca Around April 2014 von der Goltz reportedly hired of the Panama Papers. Mossack Fonseca specialised conceal assets and investments from the US Inter- a US law firm to help him co-operate with the in creating foundations and trusts, incorporating nal fraudulently. They helped set DoJ’s Offshore Voluntary Disclosure Programme offshore companies in return for fees and setting up sham foundations and shell companies (com- or OVDP. According to the indictment, howev- up overseas bank accounts for clients all over the panies with no physical presence) with nominee er, he did not follow through with this in the end world. officers and directors which the firm formed under and instead sent the IRS many false FBARs for the the laws of the British Virgin Islands, Hong Kong, years 2009 to 2013, prepared by Gaffey and the Panama – a largely unreformed, badly ruled hub Panama and other countries, while also helping to US law firm. These, apparently, fooled nobody be- that is in many ways slipping backwards when it create undeclared accounts. cause they contradicted the Swiss bank’s records. comes to parity with global anti-money-launder- In 2016 von der Goltz had appeared in the Panama ing and tax-related standards – is used mainly by According to the indictment, the sham founda- Papers and, in proverbial terms, this seems to have the upper echelons of backward countries such as tions typically owned the shell companies that been the final nail in his coffin. A humiliating inter- Russia and China; this might explain why so few nominally held the undeclared assets. They held view with the DoJ followed, at which he allegedly Americans were ensnared in the imbroglio. The bank accounts – sometimes one, sometimes compounded his misrepresentations. Paradise Papers, on the other hand, tend to lift the more – in countries outside the US. The assets lid on the activities of people at the top of West- were typically realty and money in bank accounts. PANIC AT THE FIRM ern society who use the best regulated and most Sometimes, the prosecutors said, Owens and lauded offshore centres – places such as the Crown Brauer provided US clients with minutes of cor- It was in the middle of 2018 when freshly released Dependencies and Overseas Territories of Britain, porate meetings, resolutions, mail forwarding and documents revealed the panic that had gripped otherwise known as the CDOTs. signature services. Mossack Fonseca after it realised that its records had been hacked in March 2016. The emails, PDFs In the end, Appleby, the Guardian and the BBC set- They were also accused of going to New York to of passports and electronic files of criminal cases tled out of court. The latter two ‘explained’ to Ap- reassure American clients that their assets were that the now-defunct firm generated between ear- pleby which of its documents may have been used going to be shielded from the prying eyes of the ly 2016 and late 2017 were, in their small way, as to underpin their journalism. It had become clear IRS and in some cases of inducing American clients revelatory as the originals that were publicised in that the vast majority of documents that were to go out to the Bahamas, Costa Rica, Panama and April 2016. of interest related to the fiduciary business that Switzerland to see their banking services set up Appleby no longer owned and so were not legally and to receive investment advice about undeclared They show how the firm was unable to persuade privileged documents. accounts. customers – shady and otherwise – to present it

INTERNATIONAL VIEW THE OFFSHORE WORLD: WHERE ARE WE NOW? 9 with ‘due diligence’ documents at notice. A Iceland, Isle of Man, Japan, Jersey, Norway and piece of ‘analysis’ in 2018. The publicly available re- Swiss wealth management advisor who acted for South Korea. sults of its analysis, however, amount to little more 80 companies that the firm had set up was quot- than allegations, naming several CBI/RBI schemes ed as writing: “The client disappeared – I can’t find The tax authority said: “The AEOI will now or ‘programmes’ without going into much detail. him any more!” Meanwhile, a lawyer in Florida who take place on a yearly basis. In 2019, data from There is some discrepancy between the press re- had to field a blizzard of requests from Mossack 2018 will be exchanged with around 80 partner lease, which mentions Columbia as a venue for Fonseca for long-overdue ‘due diligence’ records states, provided these meet the requirements on “potentially high-risk CBI/RBI schemes,” and the reportedly wrote: “We can’t go back a day after confidentiality and data security. The Organisa- analysis page, which does not list that jurisdiction asking for papers to ask for something else, we look tion for Economic Co-operation and Develop- as a “scheme that potentially poses a high risk to like...amateurs – a Mickey Mouse operation.” In ment’s Global Forum on Transparency and Ex- the integrity of CRS” but does list the schemes of other words, the law firm often had no idea who change of Information for Tax Purposes reviews the Mauritius, Monaco and Montserrat, which do not was benefiting from its services. It had registered participating states’ implementation of the AEOI.” appear in the press release. thousands of companies in offshore jurisdictions without identifying their owners properly. Even Other schemes common to both lists are those of two months after it had discovered the hack, it had “The top millionth of Antigua and Barbuda, the Bahamas, Bahrain, Bar- not tracked down 70+% of 28,500 active compa- bados, Cyprus, Dominica, Grenada, Malaysia, Malta, nies that it was serving in the British Virgin Islands. the population Panama, Qatar, Saint Kitts and Nevis, Saint Lucia, Panama’s AML laws obliged the firm to know the the Seychelles, the Turks and Caicos Islands, the beneficial owner’s identity. effectively don’t pay United Arab Emirates and Vanuatu. A REFORMED JURISDICTION? taxes at all” The OECD’s reason for disapproving of the above jurisdictions is the access that they grant to low Panama is now sharing data from its banks about The Common Reporting Standard or CRS, whose rates of personal tax on income from foreign finan- their HNW customers’ accounts with a plethora of full title is the Standard for Automatic Exchange cial assets and the fact that their programmes do foreign countries including Germany, Holland, In- of Financial Account Information, developed by not require their new citizens/residents to spend dia, Ireland, Italy, Japan, Luxembourg, Mexico, Por- the Organisation for Economic Co-operation a significant amount of time on their soil. Some tugal, Spain and the UK, with Australia and France and Development (OECD) in tandem with some jurisdictions have pleased the OECD by promising to come. G20 countries, represents the international consensus that they will exchange information about users about AEOI for tax purposes, on a reciprocal basis. of CBI/RBI schemes ‘spontaneously’ with all their International Investment quoted Martin Barce- original jurisdictions of , which ought la, the deputy head of the Directorate General of The rules of AEOI and CRS are not only complex, to reduce the attractiveness of CBI/RBI schemes as Revenues’ (DGI) Information Exchange Section, as but also subject to a constant process of modifi- vehicles for avoiding the gaze of the CRS. saying: “Today Panama is taken into account in the cation and ‘clarification’ (which often amounts to context of transparent nations, which has an im- modification by the back door) by both the OECD pact at the economic level, but this does not end and by national laws. “The OECD says that the issue, there are still more elements to fulfil.” David Hidalgo, the head of Panama’s tax collection THE OECD’S CAMPAIGN AGAINST financial institutions are unit, added that the Panamanian Government’s GOLDEN VISAS aim in facilitating this exchange of information is required to take account “so as not to be on a blacklist of tax havens.” “This Also in October, the Organisation for Economic exchange of information is ‘so as not to be on a of its analysis” Co-operation and Development fired a further blacklist of tax havens’” salvo at the offshore world’s burgeoning citizen- The OECD says that “financial institutions are re- ship-by-investment and residency-by-investment quired” to take account of its analysis. Section VII “Panama is now industry, claiming that it provides high-net-worth of the CRS says that a financial institution may individuals with a smokescreen under which they not rely on a self-certification or documentary ev- sharing data from its can avoid reporting their wealth in accordance idence if it has reason to know that these things with the Common Reporting Standard. are unreliable. The OECD claims that every institu- banks about HNW tion has “reason to know” this about any CBI/RBI The OECD is arguing that residence-by-investment schemes that it has denounced. customers’ accounts” and citizenship-by-investment (CBI/RBI) schemes, often referred to as golden passports or visas, are LEGITIMACY AND ILLEGITIMACY The website also reported that in this instance useful tools for people who want to stop assets that they hold in foreign countries from being re- 331 Panamanian financial firms had made about “Citizenship by Investment” (CBI) and “Residence ported in line with its Common Reporting Stand- 660 disclosures as part of the country’s effort to by Investment” (RBI) schemes allow foreigners to ard, which is part of a wider reporting package obey the world’s Common Reporting Standard, obtain citizenship or temporary or permanent res- sometimes known as GATCA or ‘Global FATCA,’ which dictates the automatic sharing of account idence rights on the basis of local investments or after the acronym for the US Foreign Account Tax information internationally. against a flat fee. The OECD thinks it ‘legitimate’ for Compliance Act 2010. people to be interested in these schemes because FIRST EXCHANGE UNDER THE AEOI they wish to start new businesses in the jurisdic- OFFSHORE JURISDICTIONS UNDER tions, or because they want to travel visa-free to This came only days after the Swiss Federal Tax Ad- SUSPICION various countries that accept the passports they ministration announced that the Alpine country had obtain, or because they want better education and exchanged information about two million financial The Paris-based organisation is particularly keen job opportunities for their offspring, or the right to accounts with other countries for the first time. to stop identity cards, residence permits and oth- live in politically stable countries. er documents obtained through CBI/RBI schemes This first instance of the automatic exchange of from being used to misrepresent an individual’s Without going into much detail, the OECD says information (AEOI) saw information going to vari- jurisdiction(s) of tax residence. With this in mind, that abuse of the CRS may occur “where an indi- ous countries of the EU and also Canada, Guernsey, it published a paper on the subject and a separate vidual does not actually or not only reside in the

IFC WORLD 2019 10 CBI/RBI jurisdiction, but claims to be resident for It’s been hard for governments to keep up with the The UK suspended its Tier 1 regime late in 2018 tax purposes only in such jurisdiction and provides changes. Which is healthy as they’re catching up and the Government said that it was creating a his Financial Institution with supporting documen- and they’ve identified it.” new system that allowed for fewer ‘abuses.’ The tation issued under the CBI/RBI scheme, for exam- new system is coming into force as this publication ple a certificate of residence, ID card or passport.” The OECD is wary of programmes in countries that goes to press. do not require an individual to spend a significant EXAMPLES OF RISK amount of time (less than 90 days is its figure) on Much of the OECD’s campaign against the offshore their territory. When asked whether he thought countries that offer CBI/RBI programmes hinges on In its consultative document in February the OECD that there were many legitimate businessmen who its assertion that abuse of ‘golden visas’ is more goes into more detail, describing a particular type spent little time in any one country, he agreed: likely in low-tax jurisdictions than elsewhere. When of scam that it has detected in which a new ac- “That is right. Globalisation is happening and it’s asked whether he knew of any evidence for that count–holder makes false statements about his tax very easy to get around the world now – not just assertion, l’Ecuyer replied: “No, I don’t.” residency and provides a tax residence certificate for HNWs but also for business people.” in support. In this example, X is an individual resi- THE NEVER-ENDING CAMPAIGN dent in jurisdiction F. In order to circumvent report- ENTER THE IMC ing under the CRS, he applies for ‘residency status’ IFC World asked Till Neumann, the managing in jurisdiction M under its RBI programme. This He explained the job of the IMC: “We’re profession- partner at Citizen Lane, a Swiss-based citizen- status requires X to buy a property in jurisdiction alising the association. We have 375 members in ship-and-residence-planning firm that caters for M worth at least €500,000 or to rent a property 45 countries and we’re quite pleased with the or- HNW individuals, whether he thought that the for a minimum of €40,000 per annum. It allows X ganic growth. We have a dialogue with the likes of OECD’s initiative was a fresh campaign against to obtain tax residency in jurisdiction M without the OECD and the European Commission, although low-tax-jurisdictions by the back door. being taxed on any income that is not obtained in not the Financial Action Task Force. We’re trying to or remitted to jurisdiction M. X opens a new ac- homogenise ‘due diligence’ standards. His reply was unequivocal: “It’s a campaign that count at Bank B in jurisdiction B and certifies that never stops and it will never stop. I’ve been con- he is resident for tax purposes in country M (also tacted by so many clients, especially from Ger- presenting his tax residency certificate to Bank B “The industry needs a many, who have now moved abroad to save taxes. during the ‘on-boarding’ process. Although the CRS They go to Switzerland, which is not a zero-tax requires X to include all jurisdictions of residence strong association to jurisdiction but tax is proportionately lower there. for tax purposes in his self-certification, he omits When you put taxes up, you just pressure the rich to mention his tax residence in jurisdiction F. In ad- act as a bridge people out. They flee because they can afford to dition, the AML/KYC documents he provides do not flee, so poor people suffer from that policy. I think show any connection to jurisdiction F. between countries that eventually there will be a massive in all the European states. Bank B will identify X as a resident of country M and and the OECD” report the income and other information about the “All these tax-haven Caribbean countries (which account to the tax authorities of jurisdiction B that “All the CBI agencies running the programmes are are the most important, maybe) don’t really bene- will exchange the CRS information with country M, friendly towards us and very approachable. We fit much from their new high-net-worth residents in compliance with the CRS. However, X is not taxed have a good relationship with the Ministry of Fi- because they don’t bring in that much money. They on the income in jurisdiction M. X continues to be a nance in Cyprus (there is no separate agency there), send their children to universities in the USA. They resident of jurisdiction F but the jurisdiction B does Greece, and the five countries in the Caribbean that do a little construction, they go to the restaurants, not exchange X’s information with jurisdiction F, as do it. All five are members of the IMC now. The in- some of them have yachts there and sail them out a consequence of the outcome of the due diligence dustry needs a strong association to act as a bridge of the marinas, so they do bring some benefit to procedures applied by Bank B. between countries and the OECD. A lot of units are the country in question, but not too much.” run by small teams. It is very difficult to find people The OECD’s paper states that there is a particu- to work on those teams – they need experienced larly high level of risk if the scheme in question staff members. We’re looking at education and “The OECD has a imposes limited requirements for the person to be training programmes. physically present in the jurisdiction or if there are campaign against no checks to see that he is. It is also a sign of risk “The history of citizenship-by-investment goes if the scheme is offered by either: (i) low/no tax back to the Roman and British Empires. Both were offshore countries jurisdictions; (ii) jurisdictions exempting foreign built on fostering good relations with foreign busi- source income; (iii) jurisdictions with a special tax nessmen. In return for investment in the UK, the that offer CBI/RBI regime for foreigners who have obtained residence British Empire gave British nationality to Indians. through such schemes; and/or (iv) jurisdictions not The modern incarnation started in the mid-1980s programmes” receiving CRS information. Further problems might (1984) with St Kitts. It did wonders for their econ- come from the absence of other mitigating factors, omy but nobody else seemed to notice it as a Neumann was of the opinion that the OECD’s ini- such as the ‘spontaneous’ exchanges mentioned money-spinner. tiatives, including the CRS, were a case of tinkering above, or an indication on certificates of tax res- at the edges of the problem of international tax idence that the residence was obtained through a That all changed with the financial crisis of 2008, avoidance: “It sounds a little crazy, but I think that CBI/RBI scheme. when governments were screaming for money and at some point there will have to be an agreement new ways of attracting business. Cyprus did it and between all the countries in the world to levy a THE CRS LOOPHOLE STRATEGY a little later Malta (2013-14) did it within the EU. minimum tax. This is because taxes can be evaded in many ways. The top millionth of the population Bruno L’ecuyer, the head of the Investment Mi- “The UK has been doing it for ages. It now calls its effectively don’t pay taxes at all. gration Council, explained to IFC World why he operation the Tier 1 Investor Visa Programme. The thought that there were still ‘loopholes,’ as the French and Portuguese have golden visas – after “If they had to pay a minimum tax of perhaps OECD calls them: “There has been so much new 5-10 years, you can acquire citizenship. We have 5-10% wherever they were, I think that the off- legislation and there have been so many compli- members from Spain, the UK, Cyprus, Malta and shore and onshore jurisdictions would actually ance issues to cope with since the financial crisis. one or two from France.” benefit from that.”

INTERNATIONAL VIEW THE OFFSHORE WORLD: WHERE ARE WE NOW? 11

THE APPEAL OF THE PROGRAMMES the information set out in the BEPS “action 13 re- SOME MISCONCEPTIONS ALLAYED port,” which provides a template for multinational When asked about the different attractions of cit- enterprises. , the French economist, recently izenship by investment and residency by invest- quantified the financial scale of base erosion and ment, Neumann explained: “Most of the citizenship Country-by-country reports are called for by Ac- profit shifting techniques employed clients whom I see are Russian, Chinese etc. and tion 13 of the OECD’s Action Plan against BEPS by multinationals in havens. Re- they live in their home countries. which the global standard-setter began to publish search published by Zucman, Tørsløv and Wier in in 2013. Project BEPS, as it is sometimes known for June 2018 showed Ireland to be the largest corpo- “Just a small number use CBI programmes to make short, requires the development of “rules regarding rate in the world – even larger than the it easy for tax purposes. They just want to travel, documentation to enhance trans- entire Caribbean agglomeration of corporate tax or in some cases to relocate to Europe. Citizen- parency for tax administration, taking into con- havens. It also showed that tax disputes between ship-by-investment has no bearing on tax. Most of sideration the compliance costs for business. The high–tax jurisdictions and corporate tax havens are the CBI programmes are Caribbean ones and the rules to be developed will include a requirement extremely rare, and that tax disputes really only people who opt for them want to travel. They can that multi-national enterprises must provide all occur between high–tax jurisdictions. The research travel to roughly 120130 countries visa-free. The relevant governments with needed information on paper was entitled The Missing Profits of Nations. US and many other countries give them a 1-5-year their global allocation of the income, economic ac- visa instead of a single-entry visa. tivity and taxes paid among countries according to Somewhat surprisingly, the British Virgin Islands is a common template.” the only tax haven on the Zucman-Tørsløv-Wier list that has ever appeared on an OECD list of tax “Residency is not a tax Action 13 has succeeded in changing transfer pric- havens. The rest, mentioned by name in descending ing as a discipline, in that it now forces that activity order of profits being shifted to them, are: Ireland issue, it is simply about to be viewed in the full context of international tax (with US$174 billion of corporate profits shifted and the attribution of profits. A multinational en- there); Singapore; Switzerland; Holland; Luxem- where you become terprise is now required to provide a full overview bourg; Puerto Rico; Hong Kong; ; ’ of its value chain, its intangible assets, its financing and Malta. The Caribbean, which the academics resident” arrangements, any rulings that might have a bearing lump together and to which US$102 billion were on its and its advance pricing agreements. shifted in the year 2015 from which they drew “Residency programmes are not a tax issue per se. The concept of local files is not very different from their data, comes in second after Ireland. It is simply about where you become resident. The that of traditional transfer pricing documents, but vast majority (perhaps 80-90%) of people who opt the master file and country-by-country reports COUNTRY-BY-COUNTRY for residency-by-investment do so because they require far more comprehensive and onerous REPORTING like the country, or because it is a safer and freer disclosures to tax authorities. place to live. The people who want this are Chinese, Last year saw various offshore nations preparing to Russian, South American...even Americans who implement the OECD’s rules. In August Bermuda un- want to come to Europe. “Pascal Saint-Amans is veiled a new version of its guidelines for large multi- nationals in respect of country-by-country reporting. “It’s a tool for wealthy people who want to migrate the OECD man who set The relevant legislation that requires so-called con- from another country. You don’t get the same trav- stituent entities resident in Bermuda for tax purposes el rights under residency-by-investment, although up Project BEPS” to collect, maintain and report information for ex- you do with a Schengen residency. change with partner jurisdictions is the Internation- Pascal Saint-Amans, the OECD man who set up al Co-operation (Tax Information Exchange Agree- “The Schengen Area contains 26 European states Project BEPS, told the press that his crusade against ments) Act 2005 and the International Co-operation (leaving out the British Isles) that have officially fiscal sovereignty for countries onshore and off (Tax Information Exchange Agreements) Country-by- abolished passport and all other types of system- grew out of the financial crisis that began in 2008 Country Reporting Regulations 2017. atic border control at their mutual borders. Cyprus and the need to stop multinational companies (with its Turkish border problem in the north) has from minimising their taxes. He said that revela- not yet joined, so if you have a residency permit for tions by Reuters in 2012 that Starbucks had never “Zucman showed Cyprus you can only stay in Cyprus and cannot go paid corporation tax in the United Kingdom in fif- to the other EU countries. If you live in Cyprus, that teen years “was probably the catalyst.” He added: Ireland to be the largest helps you gain tax residency there.” “There can be no tax havens any more. BEPS is the first step towards tax convergence on a world level. corporate tax haven in PROGRESS IN THE BEPS PROJECT Tax on the companies will converge downwards, while the taxable amounts will converge upwards.” the world” Since the last episode of IFC World, the 35-country OECD has carried on pursuing another of its an- He added that, for the moment, the question of As Bermuda is a non-reciprocal jurisdiction, ti-offshore projects – its campaign against Base confidentiality had not been solved – a peculiar which means that it has promised to send coun- Erosion and Profit Shifting or BEPS. In a paper in thought for the architect of a plan that guaran- try-by-country reports to its ‘exchange partners’ 2017 the OECD “conservatively estimated” that tees no confidentiality at all, with multitudes of but will not receive such reports back from them, governments around the world were losing annu- officials all over the world being allowed to pore the Ministry of Finance will not use any coun- al revenues of US$100 to 240 billion due to BEPS, over the contents of various bank accounts and try-by-country reports for the purposes of as- using tax havens (see below) in which to log the legal arrangements at will. He claimed to be aston- sessing high-level transfer-pricing risks and other profits. In September 2017 it published two new ished at so many countries agreeing to reveal such risks related to base erosion and profit shifting in lots of BEPS guidelines on the topic of ‘action 13,’ information. Bermuda and especially not for assessing the risk which governs country-by-country reporting. of non-compliance by members of any multi-na- He was also pleased that in 2015 the OECD set tional group with applicable transfer pricing rules. All OECD and ‘Group of 20’ (actually only 19) up “tax inspectors without borders” to Nor will it use the country-by-country reports for industrialised nations have agreed to do coun- audit knowledge and skills to tax administrations in economic and statistical analysis. It will also not try-by-country reporting, reporting annually and developing countries. Among other things, it helps make transfer pricing adjustments that it bases on for each tax jurisdiction in which they do business tax inspectors there understand transfer pricing. the country-by-country reports.

INTERNATIONAL VIEW THE OFFSHORE WORLD: WHERE ARE WE NOW? 13 Under regulation 7 of the Country-by-Country The country-by-country reporting obligation at- The amendments to the MLA Act introduce the Reporting Regulations, each multi-national group taches to the ultimate parent entity or surrogate term Virgin Islands financial institution or VIFI, must send off its country-by-country report no parent entity of the MNE group in question. The which takes in all financial institutions resident later than twelve months after the last day of its parent entity (whichever type it is) must send off a in the BVI (including reporting and non-reporting reporting fiscal year. An electronic portal will be country-by-country report to the ITA with respect financial institutions), but excludes any branch of available for the country-by-country notifications to its reporting fiscal year no later than 12 months such a financial institution that is located outside and reporting. after the last day of the group’s reporting fiscal the BVI and any branch of a financial institution year which started after 1 January 2018. that is not resident there, if that branch is located Many jurisdictions, not least the British Virgin Is- in the BVI. The amended MLA Act requires all VIFIs lands, are now in the process of fine-tuning and If a BVI entity is not the ultimate parent entity of to establish, implement and maintain written pol- indeed implementing their country-by-country re- the MNE group but is resident in the territory for icies and procedures. However, for those VIFIs that porting regimes. According to Trident Trust’s office tax purposes, it will be required to submit a coun- are considered non-reporting financial institutions in the BVI, the Government amended its Mutual try-by-country report by the deadline if: (except for trustee-documented trusts or other Legal Assistance (Tax Matters) Act 2003 last year to NRFIs to which a reporting obligation is extended impose country-by-country reporting obligations • the parent entity of the MNE group does not under CRS) it is enough to outline the facts and on BVI companies that are part of multi-national have to send off a country-by-country report in analysis leading to the conclusion that the NRFI groups, as well as new Common Reporting Stand- its jurisdiction of tax residence; or meets the definition of a NRFI and the policies for ard obligations for BVI financial institutions. The • the jurisdiction in which it is tax-resident does regularly reviewing the entity’s circumstances to country-by-country reporting obligations, which not have an appropriate agreement in place ensure that that status still applies. affect many entities in the BVI, are time-sensitive with the BVI; or and the first main starting date for the inception • the jurisdiction in which it is tax-resident has The written policies and procedures of a VIFI that of the regime (31 December 2018) has already persistently failed to automatically provide is considered to be a RFI that is a trustee of a trus- passed. country-by-country reports or has ceased (albeit tee-documented trust should include policies and temporarily) to exchange data with the BVI. procedures which apply to all of its trustee-doc- umented trusts because the trustee is responsible “The country-by- According to Trident Trust, a country-by-country for all background checking and reporting obliga- report must identify each of its constituent entities tions of its trust. Those trustee-documented trusts country reporting and its jurisdiction of tax residence, its jurisdiction are not expected to have their own written policies of incorporation and main business activities, to- and procedures. deadline is now looming gether with: (i) aggregate information relating to the revenue; (ii) profit or loss before ; VIFIs that have applied any threshold exemptions in many jurisdictions” (iii) income tax paid; (iv) income tax accrued; (v) must keep internal records of the application of stated capital; (vi) accumulated earnings; (vii) the those exemptions as part of the policies and pro- Provisions inserted into the Act have appointed the number of employees; and (viii) tangible assets cedures which they are required to have in place in BVI’s International Tax Authority (ITA) as the ‘com- other than cash or cash equivalents. accordance with the Act. VIFIs will not be punished petent authority’ that has the job of monitoring for flouting this requirement as long as the policies compliance with these obligations. It will use coun- NEW GUIDELINES FOR THE BVI and procedures are in place by 31 March 2019. try-by-country reports to assess risks that relate to transfer pricing and other BEPS-related risks in the Penalties for failing to comply range up to For the purposes of determining the controlling territory. It will assess the risk of non-compliance US$100,000. On 19 February, the ITA published an persons of an account holder the AML laws of the by individual members of multi-national enterprise updated version of its Common Reporting Stand- BVI must be applied. That means that there is a groups (MNE groups) with the relevant transfer ard guidance notes for the BVI which take stock 10% threshold for a controlling ownership inter- pricing rules. of an amendment to the Mutual Legal Assistance est of a and not 25%, which is the (Tax Matters) Act 2015. They oblige non-reporting Financial Action Task Force’s figure. Trident Trust also expects the ITA to use infor- financial institutions (NRFIs) to sign up to the BVI mation that it gleans from the reports to help it Financial Accounts Reporting System (BVIFARS) collaborate with other ‘competent authorities’ and set the deadline for 28 June 2019. An NFRI can “A jurisdiction may in compliance monitoring and enforcement, if be a governmental entity, an international organi- appropriate agreements are in place. sation such as the United Nations, a , require the filing of a a broad participation fund, a narrow For the purpose of country-by-country reporting participation retirement fund, a pension fund of a nil return” compliance, a group of companies qualifies as a governmental entity, a qualified card issuer, MNE group if it meets the following criteria: an exempt collective investment vehicle, a trust The excessively high figure of 25% is an old one, (as long as its trustee is a reporting financial insti- dating from 2005 when the European Union was • it is a group of entities which are tax-resident, or tution) and “any other entity that presents a low debating how much of a company a shareholder subject to tax, in more than one jurisdiction and risk of being used to evade tax” and is similar in might need to control if he wanted to pervert its are related through common ownership or character to a custodial institution or a deposito- use for money-laundering purposes. The persistence control; ry institution. The annual registration deadline for of Silvio Berlusconi, the Italian prime minister of the • the group is required to prepare consolidated reporting financial institutions (RFIs), on the other day who had extensive business interests of his own, financial statements in accordance with hand, is 30 April. kept the figure high. At that time the banks of the accounting principles, or would be required to UK were observing an informal figure of 10%. do so if the equity interests of any of its group Only RFIs are to be required to submit nil returns, members were traded on a public exchange; and which they must to (along with the rest of their The amended Act now makes it an offence for any • the group generates US$750 million or more per 2018 CRS reports) by 31 May 2019. A jurisdiction person to wilfully or knowingly sign (or otherwise annum in revenue. may require the filing of a nil return by a Report- positively affirm) a false self-certification. It also ing Financial Institution to indicate that it did not criminalises the submitting of a return that relies If an MNE group has constituent entities that are maintain any reportable accounts during the cal- on a self-certification or documentary evidence tax-resident in the BVI, each of them has had to endar year or other reporting period. Under section which the financial institution knows or has reason register with the ITA. 29 MLA Act the filing of nil returns is mandatory. to believe is inaccurate.

IFC WORLD 2019 14 BEPS AND CFC RULES in the way that states in the USA do to each other Government Gazette in January. It contains the five all the time. The Government of Barbados has re- jurisdictions that the European Union was black- One of the recommendations coming from the sponded to the call by revising its suite of interna- listing at the time: American Samoa, the US Virgin OECD’s BEPS programme has been the imple- tional business laws to ensure its compliance with Islands, Guam, Samoa, and Trinidad and Tobago. mentation of controlled-foreign-company or CFC the BEPS Action 5 rule, which covers ‘harmful’ tax regimes in those jurisdictions that do not already practices. In addition, the Dutch list includes another 16 low- have such rules. Recent changes have been made tax jurisdictions: Anguilla, the Bahamas, Bahrain, to introduce or enhance these rules in many ju- Belize, Bermuda, the British Virgin Islands, Guern- risdictions. Some examples from the Asia Pacific “The Paradise Papers sey, the Isle of Man, Jersey, the , Ku- region include the refinement of the CFC rules of wait, Qatar, Saudi Arabia, the Turks and Caicos Is- China and Indonesia. It is typically the case that the uncovered little lands, Vanuatu and the United Arab Emirates. These CFC rules will only come into play if there is control jurisdictions either have no corporation tax or have tantamount to “control in fact” or an interest of intentional criminal tax a corporation that is lower than 9%. greater than 50% in the income, capital or voting rights of a foreign company. Much less common evasion” The Dutch list therefore contains more jurisdic- at the moment are the equivalent of the American tions than the EU list (first compiled in 2017) did passive foreign investment company rules which The OECD’s Forum on Harmful Tax Practices (FHTP) at the time. ‘Low-tax jurisdictions,’ by the minis- can apply in relation to foreign companies which thought Barbados’ low tax rate, its wide network try’s standards, are countries that have low stat- may not be controlled by people who are resident of double-taxation treaties and its ‘ring-fencing’ of utory tax rates or that appear on the EU list of in a particular jurisdiction. international firms from domestic ones all led to non-co-operative countries. ‘harmful’ tax practices. The classification of cell companies for the purpos- State Secretary for Finance Menno Snel told re- es of a country’s CFC regime is significant in the Ronald Toppin MP, the Minister of International porters: “By drawing up its own stringent blacklist, context of more closely held funds. Funds that may Business and Industry, said late last year, when the the Netherlands is once again showing that it is se- otherwise be placed with an asset manager as part reforms were already in hand: “the Cabinet of Bar- rious in its fight against tax avoidance... and that’s of a managed account could be transferred into the bados has fully endorsed proposals which include just one of the steps we’re taking.” cell of a foreign segregated portfolio company or the adoption of a regime of tax convergence across perhaps even a Singapore Variable Capital Compa- the corporate landscape. The new rates will be The list is to be used in relation to three measures ny. If the fund manager in question has a sufficient- competitive for all businesses and will be attractive to combat tax avoidance. The first is the so-called ly broad and jurisdictionally diverse mixture of in- to companies of international origin as well as local ‘additional measure’ (given that name because it vestors, and if a country treats the cell company in companies.” is more stringent than the European Union’s min- question as a single entity for CFC purposes, these imum requirements) against controlled foreign rules might not come into play. Parliament has now legislated to set up a new companies (CFCs) announced on Budget Day, regime to replace Barbados’ existing Internation- which has now come into effect. With this measure BEPS AND DOUBLE-TAX TREATIES al Business Companies, as well as International the Dutch Government aims to prevent companies Societies with Restricted Liability. from avoiding tax by moving mobile assets to Country-by-country reporting is but one of the low-tax jurisdictions. ways in which Project BEPS is changing the re- The word ‘substance’ is now on the lips of every- lationships between tax authorities all over the one who works in or with the offshore world. The world. In the summer, the Isle of Man and the UK aim of the BEPS measures is to realign taxation “The Dutch Govern- signed a new double-taxation agreement intend- with economic substance and value creation, while ed to replace an agreement signed in 1955. It has preventing . In other words, it is to ment wants to make its now come into force, having passed through the reduce misalignments between profits and real ac- Tynwald, the Isle of Man’s ancient parliament. tivity. ‘Economic substance,’ however, is merely a network of treaties less label with no clearly defined meaning but it does, The deal eliminates double taxation with respect in the OECD’s eyes, rule out the use of companies susceptible to abuse” to taxes on income and capital gains and the in states with desirable tax treaties that are often prevention of tax evasion and avoidance. It is the qualified as ‘letterboxes,’ shell companies or con- The list will also start to be used to implement a culmination of a policy arrived at in March 2016. duits to gain benefits from tax treaties because conditional withholding tax on interest and royal- Isle-of-Man residents with income from the UK these companies exist on paper but have hardly ties on 1 January 2021. This means that compa- will, the theory goes, have a better idea of what any substance in reality. The more a company con- nies registered in the jurisdictions on the Dutch list they should pay. ducts actual economic activity in an offshore juris- will pay 20.5% tax from 2021 onwards on interest diction, the more legitimate it is in the OECD’s eyes and royalties received from Holland. This will pre- At the time of signing, Chief Minister Howard for that company to be tax-resident there. vent people from channelling funds to foreign tax Quayle hailed the treaty as “a modern agreement havens through Holland. based on the OECD standard, which fulfils our BLACKLISTS GALORE commitment to the BEPS minimum standard in re- Thirdly, the Tax and Customs Administration will no spect of our most significant partner jurisdiction.” Onshore states have long published blacklists longer issue rulings on transactions with compa- that feature the names of offshore jurisdictions of nies headquartered in jurisdictions on the list. BEPS AND HARMFUL TAX PRACTICES which they disapprove, but the practice is becom- ing more pronounced and there have been many The Dutch will update their list each year. If, in the The BEPS project entails a plethora of other tax developments in this area since the last edition of future, jurisdictions are added to the EU list that reforms that offshore centres have to undertake IFC World. are not on the Dutch list, the aforementioned if they want to please the world’s great econom- measures will also apply to those jurisdictions. ic powers. One subject close to the hearts of the The Kingdom of the Netherlands has become the powers is that of “harmful taxation,” a term that latest onshore state to bedevil the offshore world The Government is drafting legislation to establish it applies to policies that have negative spillover with a tax blacklist, with 21 low-tax jurisdictions in a register for ultimate beneficial owners. Existing effects on taxation in other countries, for example its sights and a plan to introduce new measures to legislation to do with trusts and company service by eroding their tax bases or distorting investments combat tax avoidance. The list was published in the providers will be tightened up. It also intends to

INTERNATIONAL VIEW THE OFFSHORE WORLD: WHERE ARE WE NOW? 15 revise its procedure for issuing rulings with an in- The EU has also extended its deadlines for eleven uses to establish the list,” a sure sign of more strin- ternational character, aiming to ensure that these jurisdictions that had ‘reasonable excuses’ not to gent and aggressive tax-related demands to come. rulings are easier for the public to understand and reform their laws on time. The classic example of issued only to businesses that make “a real contribu- this, according to an EU spokeswoman, is Switzer- ON THE REGISTER tion to the economy.” One of its aims here is to in- land which can only implement the desired chang- troduce tougher requirements to do with ‘substance.’ es by changing its constitution with a referendum The EU has legislated for registers of beneficial that cannot take place until June. The other ten owners to be set up and made searchable by all its reprieved jurisdictions are Anguilla, the Bahamas, major law enforcement authorities including those “Let’s remember that the British Virgin Islands, the Cayman Islands, the of Italy which, unfortunately, are influenced by or- Cook Islands, Costa Rica, Curaçao, the Maldives, ganised crime. EU countries should have had their the Dutch have been Morocco and Palau. The spokeswoman added registers up and running last year, but there have that the EU had found 32 other countries to be been many stragglers. Luxembourg has just created ‘top of the pops’ at ‘compliant.’ one, with registrations having begun on 1st March. Bodies corporate have until 1 September to comply facilitating a corporate The consequences for countries that do not bow with the new underlying statute, which transpos- to the EU’s demands for changes to their tax sys- es parts of the European Union’s fourth and fifth shifting of international tems – and it is obvious that these are only the first Directives into Luxembourgeois demands of many – might eventually be severe. In law. Penalties for non-compliance range between profits” March last year the EU took its first step towards €1,250 and €1.25 million. stopping the transit of all EU funds through juris- By means of something it calls the Multilateral dictions whose tax systems it does not like. It is- In line with continental preferences, the register is Instrument or MLI, the Dutch Government wants sued guidelines to stop “EU external development only open to people who can show the authorities to make its network of treaties less susceptible to and investment funds” from going through enti- that they have a ‘legitimate interest’ in seeing its abuse. It claims that its ambitions in this regard ties in those countries. It aimed these guidelines contents. Journalists are not ruled out of the ranks are demonstrated by the fact that it includes more at “the use of EU funds by International Financial of people who might prove that they have such an anti-abuse provisions than many other countries. Institutions such as the European Investment Bank, interest, but they are not explicitly ‘ruled in’ either. One of the measures that it wishes to include in development financial institutions – including the tax treaties by means of the MLI is a principal pur- European Fund for Sustainable Development – and The database is known in Luxembourg as the reg- pose test. This prevents unjustified restrictions be- other eligible counterparties.” istre de bénéficiaires effectifs or RBE. It will hold ing placed on a treaty partner’s taxation powers if information on most entities registered in Luxem- one of the ‘principal purposes’ of an arrangement The guidelines call for a series of checks that bourg, especially those with the abbreviations of or transaction is to gain a treaty benefit. The Gov- should “pinpoint a risk of tax avoidance with a SA, SCA, Sàrl, SCS, SCSp, SE, SNC, GIE, SAS, SC and ernment hopes that the test will therefore make business entity” in a blacklisted jurisdiction. For ex- FCP and Luxembourg investment funds. the country less attractive for undesirable conduit ample, before channelling funding through an en- arrangements. tity, every EU firm should make sure that there are A separate Bill was issued in December to set up a sound business reasons for the way in which the register for trusts, to be kept by the tax-collecting On the subject of the Dutch blacklist that features project in question is structured that do not take authorities. Nobody except the Government is to the Isle of Man, Treasury Minister Alfred Cannan advantage of the technicalities of a tax system or be allowed to see this separate register. told Manx Radio on 6 January: “Countries below of mismatches between two or more tax systems 9% with corporate tax levels are affected and we for the purpose of reducing a tax bill. Reforms are also in progress in the non-EU parts of need to understand why that is. We also need to the offshore world, also as a result of British and/or understand why there may be some discrepancies In March the EU said that its subject countries had EU policy. Any British overseas territory that fails to in that list of countries that they’ve drawn up. Let’s agreed on a set of measures that they can choose establish a register by 31 December 2020 will have remember very very clearly that the Dutch, very to apply against the listed countries. These includ- one imposed by London. Bermuda’s Minister of Fi- much, have been ‘top of the pops’ when it comes ed a heavier layer of monitoring and audits, the nance has extended the date on which all Bermudi- to facilitating and allowing a corporate shifting of use of withholding taxes, special requirements for an companies and partnerships (unless exempted) international profits.” documents and “anti-abuse provisions” of the kind must set up beneficial ownership registers (and, if pioneered by the UK a few years earlier. It resolved necessary, verify and update them) and send infor- Standing behind the Dutch blacklist, and those to help its member-states to do more in this area mation off to the Bermuda Monetary Authority to blacklists promulgated by all manner of other Eu- with the passage of time. 30 April. The last date was 28 February. The previ- ropean jurisdictions, is the European Union’s own. ous date, also abandoned, was 15 December last In addition to those five ‘non-co-operative jurisdic- year and the one before that was 24 September. tions’ (see above) that were on the list in January, “Every British overseas the EU has added yet another ten: Aruba, Barbados, Each corporate entity and its corporate service pro- Belize, Bermuda, Dominica, Fiji, the Marshall Islands, territory must establish vider must keep a register, sending a copy off to the Oman, the United Arab Emirates and Vanuatu. regulator. The Registrar of Companies of Bermuda a UBO register by should be able to gain access to it at all times. This is the first comprehensive revision of the list, which originally came out in late 2017. 31 December 2020” Bob Richards, Bermuda’s former Minister of Fi- nance and an outspoken critic of the approach of The EU, threatening dire consequences, induced Most promises that these hapless jurisdictions the OECD, the EU and indeed to some extent the the now-blacklisted jurisdictions to promise it made were connected to a deadline at the end of UK to the offshore world, spoke for many offshore some time ago that they would change their tax last year. The EU’s oddly-named “code of conduct operators throughout the globe when he recently regimes in its favour. According to Europa, its press group on business taxation” kept an eye on their criticised Pierre Moscovici, the EU Commissioner for service, they did not pass the necessary reforms legal reforms until the beginning of this year. The fi- Economic and Financial Affairs, Taxation and Cus- by the end of last year, when the agreed deadline nal approval for the present list came from a coun- toms, with these harsh words: “Having met him and fell. The tax blacklist is not to be confused with the cil on which a representative of every EU country his staff, it was clear they had the firm conviction money-laundering blacklist which the EU revised sits. This council says that it is looking forward to that there was no legitimate role for ‘dots on the last month. “the evolution of the listing criteria that the EU map’ such as Bermuda in the global economy. Put

INTERNATIONAL VIEW THE OFFSHORE WORLD: WHERE ARE WE NOW? 17 another way, any financial service provided by the the ‘club’ and those on the outside. Some outside likes of Bermuda must, by definition, be illegitimate.” jurisdictions are too big to tackle, such as the Unit- ed States (particularly in Delaware and Nevada), so His opinion of the UK was scathing as well, noting its they bully the small ones, like us. Experience should failure to keep Bermuda off the aforementioned EU also teach us that the only thing that does not blacklist: “I note that Britain unsuccessfully appeared change is that the goalposts keep shifting.” to try to intercede on our behalf. Hard experience in finance has taught me that we cannot, and must Richards’ last sentence, at least, rings true. The OECD not, rely on the British to represent our interests in is adding to the BEPS project all the time and it is Europe. They are not reliable in this regard. This is inconceivable that it will stop with this round of the same British Government that we are defying demands now that it has tasted power on a global regarding public beneficial ownership registers and scale. Meanwhile, the EU has already admitted that boycotting their Foreign Affairs Committee hearing. it will go on adding to its demands. The next few years promise to be a fascinating period in which the “Let me be unmistakably clear: there is absolutely forces of global centralisation in the best interests of no fairness or equity in this process. It was contrived the largest economies – interests which are present- from the start. One only has to look at the economic ly carrying all before them – clash with the preoccu- activities in Luxembourg and Malta, two EU mem- pations of a nimble offshore sector which, despite ber states, to see that there are rules for those in 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 transition period and the first reporting will • it is managed and directed in Bermuda; Virgin Islands (BVI) and the Cayman Islands has commence in 2020. For purposes of the • core income-generating activities are passed legislation that will require certain entities Bermuda Substance Act, “registered entities” are: undertaken in Bermuda with respect to the that carry on “relevant activities” to have “econom- relevant activity; ic substance” in Bermuda, the BVI and the Cayman • companies incorporated under the Companies • it maintains adequate physical presence in Islands, respectively. Act 1981; Bermuda; • companies formed under the Limited Liability • there are adequate full-time employees in Company Act 2016; and Bermuda with suitable qualifications; and “Pure equity holding • partnerships (exempted, exempted limited or • there is adequate operating expenditure overseas) which have elected to have separate incurred in Bermuda in relation to the relevant companies are subject legal personality under s4A Partnership Act 1902. . activity to a lesser test” A registered entity will be subject to Bermuda’s Pure equity holding companies are subject to Substance Act if it conducts any of the following a lesser test than usual and certain intellectual They introduced the new laws in response to con- “relevant activities”: property entities will have to satisfy more oner- cerns expressed by the Council of the European ous obligations than usual. Entities are allowed to Union about the absence of clear general legal • ; banking outsource some core income generating activities in ‘substance’ requirements for entities doing busi- • ; certain circumstances. ness in and through these jurisdictions. Below is a • fund management; summary of the economic substance requirements • financing and leasing; BRITISH VIRGIN ISLANDS in Bermuda, the BVI and the Cayman Islands. • headquarters; • ; shipping The BVI’s Economic Substance (Companies and BERMUDA • distribution and service centre; Limited Partnerships) Act 2018 came into force on • holding entity; 1 January this year. The regime applies to the Bermuda’s Economic Substance Act 2018 and • intellectual property. following “legal entities”: its Economic Substance Regulations 2018 be- came operative on 31 December 2018. The Each of the above activities is defined in the • companies and foreign companies incorporated/ regime applied immediately to entities incor- Substance Regulations. A registered entity con- registered under the BVI’s Business Companies porated or registered after that date. For al- ducting a relevant activity will satisfy the Bermuda Act 2004, excluding companies which are not ready-registered entities, there is a six-month economic substance requirements if: resident in the BVI; and

IFC WORLD 2019 18 • limited partnerships and foreign limited dividends and capital gains are subject to less two jurisdictions. Each of them is described in the partnerships formed/registered in accordance onerous requirements. Substance Law. with the Partnership Act 1996 or the Limited Partnership Act 2017, excluding limited Certain intellectual property entities will be subject partnerships which are not resident in the BVI or to more onerous requirements. “The regime applied do not have legal personality. CAYMAN ISLANDS immediately to new rele- The Economic Substance Act imposes economic substance requirements on all BVI legal entities The Cayman Islands’ International Tax Co-opera- vant entities incorporat- that carry out “relevant activities.” tion (Economic Substance) Law 2018 and the Inter- national Tax Co-Operation (Economic Substance) ed after 1 January” A legal entity incorporated or registered in the BVI (Prescribed Dates) Regulations 2018 came into will have to obey the Economic Substance Act if it force on 1 January. The regime applied immediate- A relevant entity will satisfy the Cayman Islands conducts any of the same “relevant activities” as ly to new relevant entities incorporated or regis- economic substance test in relation to a relevant on Bermuda’s list (above). Each of those activities is tered after that date. For existing relevant entities, activity if it: defined in the Economic Substance Act. there is a six-month transition period and the first reporting will commence in 2020. Each legal entity which is not tax-resident outside • conducts Cayman Islands core income- generating activities in relation to that relevant the BVI (other than a pure equity holding entity) For the purposes of the Cayman Substance Law, activity; must, in relation to any relevant activity, carry out “relevant entity” means (with some exceptions): defined core income-generating activities in the • is directed and managed in an appropriate BVI and “demonstrate economic substance” by ref- • a company, other than a domestic company, manner in the Cayman Islands in relation to that erence to the following criteria, having regard to that is incorporated in accordance with the relevant activity; the nature and scale of the relevant activity: Companies Law or registered as a limited liability • has regard to the level of relevant income company in accordance with the Limited derived from the relevant activity carried out in • the relevant activity being directed and Liability Companies Law, unless its business is the Cayman Islands: managed in the BVI; centrally managed and controlled in a • incurs an adequate amount of operating • adequate numbers of suitably qualified jurisdiction outside the Cayman Islands and the expenditure in the Cayman Islands; employees who are physically present in the BVI company is tax-resident outside the islands; • has an adequate physical presence (by (whether or not employed by the relevant legal • a limited liability partnership registered in maintaining a place of business or plant, entity or by another entity and whether on accordance with the Limited Liability Partnership property and equipment) in the Cayman Islands; temporary or long-term contracts); Law, unless its business is centrally managed and and • adequate expenditure being incurred in the BVI; controlled in a jurisdiction outside the Cayman • has an adequate number of full-time employees • appropriate physical offices or premises in the Islands and the limited liability partnership is or other personnel with appropriate BVI; and tax-resident outside the islands; and qualifications in theCayman Islands. • if the relevant activity is intellectual property • a company that is incorporated outside the business and requires the use of specific Cayman Islands and registered in accordance Pure equity holding companies have to satisfy few- equipment, the equipment being located in the with the Companies Law, unless its business is BVI. centrally managed and controlled in a er criteria and certain intellectual property entities jurisdiction outside the Cayman Islands and the will have to satisfy more. Outsourcing of core in- Outsourcing of core income generating activities is company is tax-resident outside the islands. come-generating activities is permitted in certain permitted in certain circumstances. circumstances. A relevant entity only has to satisfy the Cayman Pure equity holding entities which carry out no Islands economic substance requirements if and to *Fiona Chan can be reached on +852 2905 5760; relevant activity other than holding equity par- the extent that it conducts any “relevant activity.” Shana Simmonds can be reached on ticipations in other entities and which only earn Relevant activities are the same as in the other +852 2905 5713

INTERNATIONAL VIEW ECONOMIC SUBSTANCE REQUIREMENTS IN BERMUDA, THE BRITISH VIRGIN ISLANDS AND THE CAYMAN ISLANDS 19 INTERNATIONAL VIEW THE WORLD OF MLATs – WE TALK TO AN EXPERT

* by Chris Hamblin, editor of IFC World

Mutual Legal Assistance Treaties are mechanisms Evidence obtained from abroad through these tools foreign countries are responsive is driven largely by by which onshore law enforcers seek co-operation may be presented as part of court proceedings. which individual government lawyers and judges and help from their offshore counterparts in sup- That said, it is important not to lose sight of the happen to get the case. By contrast, when a foreign port of criminal investigations or civil proceedings. in-the-trenches reality that diplomacy, executive jurisdiction makes an MLAT request to the US we They are an essential means of acquiring evidence agreements and information exchange through (through the Office of International Affairs) have from all over the offshore world, but anyone who informal communications can play an important a routinised, formal process for analysing the re- thinks that the MLAT process helps prosecutors and role in transnational criminal investigations and quest, sending it out to the appropriate US District defendants alike in an even-handed way can think civil litigation. Court, and having Assistant US Attorneys seek to again. In this article I talk to Markus Funk, the head enforce the request. Most other countries, for their of the white-collar investigations practice at the In fact, personal, co-operative law-enforcement re- part, handle our outgoing requests to them in a US law firm of Perkins Coie and a veteran of many lationships can be so informal and ‘off the grid’ that very ad hoc basis. I recently helped a foreign coun- offshore investigations. law enforcement agencies, courts and defendants try that wanted to set up an MLAT process because may only learn of them by accident. the number of requests it had started to receive was increasing steadily – and this ramped-up effort “Letters rogatory are One trend we have observed is that, responding to to be more responsive to incoming requests is a the increasing challenges of transnational law en- hopeful trend. only available once forcement, the Federal Bureau of Investigation and other US law-enforcement agencies have aggres- Q: For obtaining evidence in civil proceedings, formal proceedings sively sought to develop institutional relationships I believe there is only a letter rogatory. What are have begun” with their foreign counterparts. the latest developments for that? Teams of US law enforcement officers regularly A: You are 100% correct that, for civil proceedings, Governments intentionally restrict access to as- co-ordinate with each other and with their for- letters rogatory are the only game. They function sistance to evidence through Mutual Legal Assis- eign counterparts in a task force approach, often as formal requests for judicial assistance made by tance Treaties to prosecutors, government agencies working out of offices in US embassies and mis- a court in one country to a court in another coun- that investigate criminal conduct and government sions around the world. This “bricks and mortar” try. Letters rogatory are often used to obtain evi- agencies that are responsible for matters ancillary outreach enables US law-enforcement officials to dence, such as compelled testimony, that may not to criminal conduct, including civil forfeiture. They cultivate professional relationships and more read- be accessible to a foreign criminal or civil litigant make no exception for people who are trying to ily access other sources of information in the host without judicial authorization. Once issued, they defend themselves against charges and/or civil as- countries. may be conveyed through diplomatic channels, or set recovery action, who can use them to obtain they may be sent directly from court to court. As evidence that might help their own causes. one court put it back in the 1970s, “While it has “For civil proceedings, been held that federal courts have inherent power Letters rogatory, by contrast, have a considerably to issue and respond to letters rogatory, such juris- broader reach than MLATs: US federal and state letters rogatory are the diction has largely been regulated by congressional courts can issue them as part of criminal, civil, and legislation.” administrative proceedings, they can be requested only game” by anyone, and can be sent to US federal and state Even casual practitioners are also increasingly courts by any foreign or international tribunal or Having recently litigated against the US Depart- aware that the Hague Convention on the Taking of ‘interested person.’ One major drawback, howev- ment of Justice, trying to stop our government Evidence Abroad in Civil or Commercial Matters— er, is that letters rogatory are only available once from enforcing an MLAT request that we thought codified at 28 USC § 1781 under the auspices of formal proceedings have begun; nobody can issue was based on patently flawed legal analysis by the the Hague Conference on Private International Law, them during the investigative, pre-charging stage requesting company’s court, I can also attest that and enforced since 1972—sets forth procedures of criminal proceedings or at any time before seeking to block an MLAT request once it has been for obtaining evidence and assistance in civil cases somebody has issued a writ. made is much more of a challenge than trying to by its fifty or more signatory countries (including prevent the request in the first place by litigating the ). To take a closer look at these two methods of gath- the issue in the foreign court (assuming you have ering evidence internationally, and to investigate adequate notice). Q: Is the experience of using letters rogatory for the interplay between them, we spoke to Markus civil matters different from using them for Funk. The rest of this article is in the form of a Q: Could you tell me your opinion about criminal matters and, if so, how? question-and-answer session. jurisdictions – perhaps the BVI, Caymans, Bermuda, Gibraltar, Guernsey, or Singapore – A: In most cases, foreign courts honour requests Q. For criminal proceedings, there are two and how well they respond to MLATs and letters that are made in letters rogatory. However, in primary means of obtaining evidence: an MLAT rogatory? I’m sure that you deal with/read about sharp contrast to treaty-based MLATs, internation- and a letter rogatory. What are the latest many jurisdictions and know all their quirks. al judicial assistance is discretionary. It is based developments to do with these around the world? Which are the most/ least co-operative upon principles of comity rather than treaty and jurisdictions and why? What are the ones in the is also subject to legal procedures in the requested A: Practitioners know that for criminal proceedings middle doing? country. Therefore, compliance with a letter roga- there are two primary means of obtaining evidence tory request is left to the discretion of the court (which is to say physical evidence, documents/data, A: It is difficult to make generalisations about or tribunal in the ‘requested’ jurisdiction (that is, and testimony). These are Mutual Legal Assistance country-specific responsiveness but, as a rule, the the court or tribunal to which the letter rogatory Treaties (MLATs) and letters rogatory. For civil pro- US is much more helpful to foreign country MLAT is addressed). Because the letter rogatory process ceedings, in contrast, there is only a letter rogatory. requests than they are to ours. Whether smaller is more time-consuming than the MLAT process,

IFC WORLD 2019 20 is less predictable and may involve unique issues Although there is a presumption in favour of hon- access to US processes. Criminal defendants, like civil of foreign procedural law, parties who seek evi- ouring MLAT requests, the district court must still litigants, must use letters rogatory to secure evidence dence should typically arrange for local counsel in review the terms of each request, checking that located abroad, a process that is less efficient and less the foreign country to send the letter rogatory off they comply with the terms of the underlying reliable. Limitations on the use of evidence obtained on their behalf and help shepherd it through the treaty and comport with US law. from abroad, moreover, are limited – a district court court system – a strategy that may facilitate the may not enforce a subpoena that would offend a process. constitutional guarantee, such as a subpoena that “Criminal defendants, would result in an egregious violation of human rights. Q: Collection of evidence abroad – whether done by prosecutors or defence counsel – is like civil litigants, must Many observers have noted that the lack of increasingly a hallmark of FCPA cases. How much compulsion parity between prosecutors and the of that involves offshore centres? use letters rogatory to defence in obtaining foreign evidence has impli- cations for ‘due process.’ Counsel for the defence A: Federal prosecutors rely increasingly on extra- secure evidence located frequently argue that a vital piece of exculpatory territoriality provisions in federal law, such as those evidence is located overseas and the MLAT process incorporated into the US Foreign Corrupt Practices abroad” is the only realistic way of obtaining it. Counsel Act, to initiate cases in which much of the physical may ask the government to provide assistance evidence and most potential witnesses are located US courts will also consider constitutional challenges with access to this evidence through the MLAT pro- overseas. Because the MLAT process is only avail- to a request for legal assistance. Nevertheless, MLATs cess, and if the prosecution refuses, counsel may able to the prosecution, the defendant’s ability to are very government-friendly (which explains their petition the court for relief. Despite these efforts, collect and present evidence is limited. popularity). For example, access to evidence through however, courts in the main have been entirely un- an MLAT is restricted to prosecutors, government receptive to such petitions in the absence of lan- Of course, most FCPA cases are resolved with- agencies that investigate criminal conduct, and gov- guage in the MLAT that provides for defence access out litigation. That said, the US Government is ernment agencies that are responsible for matters to evidence abroad. relying more and more on MLATs (and the pre- ancillary to criminal conduct, including civil forfei- viously-mentioned informal channels) to gather ture. In fact, the vast majority of MLATs signed by *T Markus Funk can be reached on evidence in FCPA investigations. the United States explicitly exclude non-government +1 202 654 6208 or at [email protected] INTERNATIONAL VIEW THE REGULATION OF CRYPTO- CURRENCIES 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 cryp- outside the islands can set themselves up and oper- ter. As a member of the Caribbean FATF, the Cay- to-currencies and other digital assets in recent years, ate offshore with a genuine physical presence. The man Islands have to abide by the FATF’s so-called combined with seemingly unlimited potential appli- benefits of residing in the SEZ include: 40 recommendations. Every issuer of tokens in the cations for blockchain and distributed ledger tech- Cayman Islands ought to prepare a know-your-cus- nologies in a range of industries, has led to an un- • fast-track set-up in 4-6 weeks; tomer or KYC policy that applies to all participants precedented period of technological innovation and • renewable five-year work/residency visas granted in the token sale and which seeks to comply with the emergence of disruptive businesses and entirely in five days to staff from outside the Cayman Islands; ‘enhanced’ AML procedures. new models of funding. As the pace of technological • no Government reporting or filing requirements; change accelerates, the legal and regulatory side of and Q7: Are any legal or regulatory changes to be doing business is becoming more complex. • presence in a tech cluster with cross-marketing expected? opportunities. The Cayman Islands, Bermuda and the British Vir- A: In 2018 the Government set up some working gin Islands are three of the world’s largest offshore Q3: How are initial coin offerings (ICOs) regulated? groups to set broad boundaries for new laws that jurisdictions. All three have ambitions to become might promote and regulate emerging technology globally important technological hubs and have tak- A: There is no separate body of law for the regu- such as blockchain and crypto-assets – they are still en steps in recent years to become attractive des- lation of ICOs in the Cayman Islands. The primary consulting interested parties. The Government is tinations for technological entrepreneurs, especially piece of legislation regarding securities and invest- looking at ways in which “regulated digital identity those who want to launch, host and develop digital ment business in the Cayman Islands is the Securi- solutions” could help streamline and replace more assets using blockchain technology. ties Investment Business Law. SIBL provides for the li- traditional ways of obeying AML and KYC laws. censing and control of persons engaged in securities In this article we evaluate the approach that each investment business in or from the Cayman Islands. BERMUDA jurisdiction is taking in this fast-evolving business It sets out an exhaustive list of financial instruments that constitute ‘securities’ and cryptographic tokens and consider some of the likeliest developments in As one of the foremost offshore financial centres, are not included in that list. However, the question 2019. Information about the laws and regulations of renowned for its strong (re)insurance, investment of whether a token might constitute a security as each jurisdiction will come in the form of questions fund, asset management and trust sectors which defined by SIBL rests on the facts that surround it and answers. are supported by a world-class advisory and finan- and the unique ways in which it operates. If it does indeed qualify as a security, the issuer is either deal- cial services infrastructure, including a sophisticated THE CAYMAN ISLANDS ing in, or arranging deals in, securities, although the legal system, a robust regulatory regime, speed-to- issuer’s activities may appear on a list of activities market capability, a business-friendly government, a The Cayman Islands are home to approximately that SIBL excludes from this. Every issuer of a token simple tax regime and a highly skilled work force, 70% of the world’s offshore investment funds and in the Cayman Islands is also subject to the gener- Bermuda has become an attractive destination for their Government does not tax companies or peo- al criminal laws that forbid fraud and the laws that technological entrepreneurs. ple directly. As one of the offshore world’s foremost govern intentional or negligent misrepresentation. financial centres, this jurisdiction is well placed to Through the introduction of one of the first legal and become an attractive destination for technological Q4: Does anyone who wants to conduct a token regulatory regimes in the world that was tailored entrepreneurs. Its ambitions are also supported by sale in the Cayman Islands have to be present specifically for the digital asset and crypto-currency a sound body of law, a modern infrastructure, state- physically? sectors, Bermuda has made a bold statement about of-the-art communication systems and a stable its commitment to creating a business environment political climate. A: Not at present, but in December last year the that balances the interests of both entrepreneurs and Cayman Islands introduced an ‘economic substance’ consumers, through a legal and regulatory frame- Most of the Cayman Islands’ financial service legisla- requirement for certain companies that operate work that offers certainty and security to both sides. tion comes from the time before the blockchain rev- there. Operators ought to seek legal advice on a olution began, but in recent years the Government case-by-case basis at the start of any project to find Q1: Are there any ‘sandboxes’ or other regulatory has taken some legal and regulatory steps to make out whether or not the project will have to comply neutral zones? such innovation thrive. with these new requirements. A: In 2018 Bermuda introduced new laws and regu- Q1: Are there any ‘sandboxes’ or other regulatory Q5: Can an ICO project set up a local bank account? latory rules to govern and regulate initial coin offer- ‘neutral zones’? ings, digital asset business and ‘insuretech.’ The new A: Yes. A number of banks in the Cayman Islands will legislation sets out standards of disclosure for ICOs, A: In November the Government announced that it accept ICO account business but they might ask for a dual licensing system (including a ‘sandbox’) for was going to set up a “technology neutral regulatory additional documents. Anyone wants to launch an anyone who wants to provide digital asset business sandbox” in the Cayman Islands to encourage, foster ICO project from the Cayman Islands ought to try to services to the sector and both a ‘sandbox’ regime and incubate companies that operate in the sector. open a bank account as early as possible. and an ‘innovation hub’ for those in insuretech. Further details have yet to emerge. Q6: Are ICOs subject to the local anti-money Q2: Is there a digital ‘incubator’ or hub? Q2: Is there a digital ‘incubator’ or ‘hub’? laundering (AML) regime? A: No, but Bermuda’s Government is in the process A: The Government has set up a Special Economic A: Yes. The Financial Action Task Force (FATF) is the of developing numerous projects aimed at stimu- Zone (SEZ) in which technological companies from international anti-money-laundering standard-set- lating innovation, co-operation and development

IFC WORLD 2019 22 in the technological sector as well as cross-depart- THE BRITISH VIRGIN ISLANDS any other manner to the effect that anyone is doing mental policies to streamline the process by which investment business. people can establish IT companies on the island. These islands are a British Overseas Territory and Attractive immigration policies and re- are recognised across the globe as the premier juris- Every issuer of a token in the BVI is also sub- lief has also been introduced to give immediate diction for the registration of asset-holding compa- ject to the general criminal laws that forbid fraud economic benefit to firms that establish their IT nies. BVI corporate legislation is generally regarded and the laws that govern intentional or negligent business in Bermuda. as ‘non-prescriptive’ in that companies are able to misrepresentation. devise the corporate structures and procedures that Q3: How are ICOs regulated? apply to their businesses, subject to certain limited Q4: Does anyone who wants to conduct an IPO in statutory requirements. the BVI have to be present physically? A: New ICO legislation became operative on 9 July last year. It claims to protect both consumers and The flexibilities inherent in such a system make A: Not at present, but in December the BVI intro- the integrity of markets. Under the new law, an ICO BVI companies extremely attractive as part of as- duced an ‘economic substance’ requirement for is treated as a restricted business activity which set-holding structures. Thanks to the attractiveness certain companies that operate there. Operators requires consent from the Bermuda Monetary Au- of BVI corporate vehicles for international business- ought to seek legal advice on a case-by-case basis thority (BMA). Other key provisions of the ICO es, asset holding and investments, there has been at the start of any project to find out whether or legislation include: a steady increase in the use of BVI companies as not the project will have to comply with these new holding and operating companies throughout the requirements. • the establishment of a FinTech Advisory software industry. Committee to advise the minister on all matters Q5: Can an ICO project set up a local bank account? relating to FinTech, or the development of the Q1: Are there any ‘sandboxes’ or other regulatory FinTech industry, which the minister may refer to it; neutral zones? A: Not unless the project establishes a physical • establishing minimum requirements for all ICOs presence in the BVI or otherwise can show evidence (including a Code of Conduct); and A: No such zones or initiatives have been established a ‘nexus’ or connection between the BVI and its • setting out requirements for the publication and in the BVI. The Commission (FSC) business operations. Local banks have, traditionally, content of ICO white papers. has indicated that it is thinking of establishing a been reluctant to open accounts for BVI-incorpo- regulatory ‘sandbox’ to help companies in the tech- rated entities. It is typical for BVI entities to set up Q4: Does anyone who wants to conduct a token nology sector, but the admission criteria, regulatory bank accounts elsewhere, whether in other overseas sale in Bermuda have to be present physically? exemptions and time-frame for implementation jurisdictions or onshore. remain unknown at the time of writing. A: Not at present. As long as the standard minimum Q6: Are ICOs subject to the local AML regime? level of corporate existence required of any compa- Q2: Is there a digital ‘incubator’ or hub? ny incorporated and registered in Bermuda is met, A: Generally speaking, a utility token sale would not there are no additional physical presence require- A: No special economic zones have currently been es- constitute a ‘relevant business’ and therefore would ments placed upon companies that conduct ICOs. In tablished in the BVI to benefit companies in the Fin- not have to adhere to the “enhanced due diligence” December last year, however, Bermuda introduced Tech sector. Although the FSC has indicated that it is (EDD) AML requirements of the jurisdiction. Not- an ‘economic substance’ requirement for certain considering initiatives to encourage entities to oper- withstanding this, it is recommended that issuers of companies that operate there. Operators ought to ate there physically, any such project is unlikely to be tokens in the BVI prepare a KYC policy that applies seek legal advice on a case-by-case basis at the start viable without significant infrastructural investment. to all participants in the token sale and which seeks of any project to find out whether or not the project to comply with enhanced AML procedures. will have to comply with these new requirements. Q3: How are ICOs regulated? In August 2018, the Government changed the AML Q5: Can an ICO project set up a local bank account? A: There is no separate body of law to govern the Code to permit entities in the BVI to verify identi- regulation of ICOs in the BVI. The primary piece of ties digitally and receive electronic copies of doc- A: Although the financial institutions that are li- legislation regarding securities and investment busi- uments instead of traditional ‘wet ink’ paper-based censed to provide banking and deposit services in nesses in the BVI is the Securities and Investment documents. The amendments are further evidence Bermuda remain cautious towards businesses that Business Act. SIBA provides for the licensing and con- of regulators in the BVI embracing the blockchain operate in this sector, none have imposed a blanket trol of persons engaged in investment businesses in revolution and will set a new standard for AML prohibition and most are prepared to support legiti- or from within the BVI. verification in the region. mate business on a case-by-case basis. It is expect- ed that as the AML/anti-terrorist finance (ATF) sec- SIBA sets out an exhaustive list of financial -in Q7: Are any legal or regulatory changes expected? tor-specific guidance becomes more established, the struments that constitute ‘investments’ but cryp- financial institutions may soften in their approach. tographic tokens are not expressly included in that A: At the time of writing, neither the BVI Govern- Notwithstanding this, the Bermuda Government has list. However, the question of whether a token might ment nor the FSC has issued any regulatory guide- created a new type of banking licence for anyone constitute a security as defined bySIBA rests on the lines to govern ICOs. We understand, however, that who wants to set up a digital asset company. facts that surround it and the unique ways in which both are mulling over legislative and regulatory it operates. If it does indeed qualify as a security, the changes to spur the growth of the FinTech, block- Q6: Are ICOs subject to the local AML regime? issuer is either dealing in, or arranging deals in, secu- chain and ICO industry in the BVI. Any such re- rities, although the issuer’s activities may appear on form is only likely to happen after the Government A: AML/ATF legislation and regulation in Bermuda is a list of activities that SIBA excludes from this. consults the financial sector in detail. based on the recommendations promulgated by the FATF. Any company that does digital asset business A person who is not carrying on an investment *Steven Rees Davies can be reached on must obey AML laws and regulations. Anyone who business in accordance with SIBA may still have to +1 441 298 3296 or at wants to be licensed under the new ICO legislation be licensed if he/it claims to be carrying out an in- [email protected]; must have a comprehensive AML policy. vestment business. He/it should therefore not use Peter Colegate can be reached on words, in any language, that connote the existence +1 345 814 2745 or at Q7: Are any legal or regulatory changes expected? of a securities investment business in the descrip- [email protected]; and tion or title of the business in question. He/it should Rebecca Jack can be reached on A: No. also make no representation in any document or in +1 284 393 5346 or at [email protected]

INTERNATIONAL VIEW THE REGULATION OF CRYPTO-CURRENCIES IN BERMUDA, THE BVI AND THE CAYMAN ISLANDS: A COMPARISON 23

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 practice known as ‘ring-fencing,’ which occurs when new territories and new types of technology. They governance laid down by the OECD and the EU, the a taxing jurisdiction runs a preferential tax regime are increasingly concerned with preserving their Bahamas made changes to the laws and regulations that is unavailable to certain groups of taxpayer - wealth and ‘succession planning’ for both their busi- that govern its financial sector. Other nations are often domestic taxpayers or taxpayers who operate nesses and their families. In summary, their lives and making the same changes elsewhere around the in the domestic economy. In other words, it removes the plans that they are making have become more globe. These initiatives include the following. tax exemptions afforded to non-residents that are complex. not afforded to residents. The Bahamas have some of the most innovative and “All will have to show The Government of the Bahamas has stated on sophisticated trust laws in the world. HNWIs and record that it intends to attain and maintain “the their families are able to choose perpetual trusts, that they are engaging in very highest levels of conduct as a clean jurisdic- protective trusts, trusts for purposes both charita- tion, complying with the highest standards to pre- ble and non-charitable, private trust companies to real economic activity” vent the abuse of its financial system by money administer the trusts of related settlors, trust sub- launderers and criminal elements.” It has promised stitutes such as foundations and pure governance • The passing into law of the Multinational Entities to satisfy the requests of the Financial Action Task structures such as the Bahamas Executive Entity. The Financial Reporting Act, which contains rules Force and the Caribbean Financial Task Force. Over Bahamian trust is a model of robustness and flexibil- for country-by-country reporting in line with the last 15 months the Attorney-General and the ity. Trust legislation in the Bahamas has always been the OECD’s Base Erosion and Profit Shifting task force that he leads have done much to address ‘cutting edge’ and other jurisdictions often use it as (BEPS) initiative. the concerns that the CFATF voiced in its aforemen- the standard to follow. • The initiation of Automatic Exchange of tioned Mutual Evaluation Report. With this in mind, Information (AEOI) with 35 jurisdictions (19 of the CFATF positively re-rated the Bahamas favour- c) The Bahamian Foundation which are in the EU) in accordance with the ably in December 2018 in respect of various FATF OECD’s Common Reporting Standard (CRS), recommendations. Trusts are not often used in civil jurisdictions. More with the first exchanges having taken place in than ten years ago the Bahamas became the first September 2018. The Bahamas has always EXPERTISE common-law country to pass its own foundation insisted on following international best practice legislation, thus creating a viable alternative for and has fared well in the “phase two peer Thousands of Bahamian wealth managers work wealth planning and protection. reviews” to which the OECD’s Global Forum has side-by-side with their expatriate colleagues in more subjected it. In fact, the Bahamas has been than 250 financial institutions that call the Bahamas deemed “largely compliant” with the OECD’s their home. Private wealth management continues “SMART funds are existing standard for exchanges of information to stand centre stage on the Bahamian financial on request — the same rating as countries in scene. It is facilitated by a diverse suite of products, numerous and there are the ‘Group of 20’ (actually only 19) industrialised of which banking and trust services are the centre- nations such as the UK, Germany, Canada and pieces. These products and services are as follows. many types of them” Australia. • The allaying of the EU’s and OECD’s concerns a) d) The flight of the BEE with respect to economic substance, access to information about beneficial ownership and Private banking has come of age in the Bahamas The Bahamas Executive Entity (BEE) provides the ring-fencing by the passage of the following during the past decade. The country’s banking prac- wealth manager with a nimble and innovative ap- legislation in Parliament in December 2018. tices and standards, regulation and supervisory con- proach to his ever-changing needs. The BEE solves trols are now on a par with those of the rest of the complex governance issues in fiduciary and wealth (a) The Commercial Entities (Substance Require- global banking community, although the jurisdiction management structures, particularly with respect ments) Act 2018. This Act insists on relevant entities continues to offer clients a great deal of privacy and to share ownership in Private Trust Companies. It having economic substance. The Act defines ‘rele- confidentiality. Many of the world’s largest and most identifies persons willing to act in any number of vant activities’ as banking, insurance, fund manage- prestigious financial institutions have taken advan- governance roles in wealth structures. ment, financing and leasing, shipping, distribution or tage of the country’s stable political and economic service centre operations, headquarter operations system to establish branches or subsidiary opera- e) Captives added to private wealth offerings and holding companies with relevant activities. All tions there, offering private banking services to high- will have to show (or be able to show) the authori- net-worth and ultra-high-net-worth individuals and Captive insurance is another area of recent expan- ties that they have a substantial economic presence families. sion. The Bahamas is not a newcomer to captives, in the Bahamas and that they are engaging in real but this avenue of investment took a back seat economic activity. b) Trusts during a recent period in which the jurisdiction con- (b) The Beneficial Ownership Register Act 2018.This centrated on developing wealth management, trusts calls for the establishment of a secure search system Since the Industrial Revolution, possibly the biggest and estate planning. This is certainly not the case by the Attorney General that can scan databases generator of capital and the single greatest cause now, as the opportunity for captives to play a part in managed by registered agents who hold informa- of wealth creation worldwide has been the pri- wealth management is undeniable. tion about the beneficial ownership of entities that vate ownership of operating companies. Members they manage which are incorporated, registered, of families who go into business together, and the Segregated cell legislation is a prime example of continued or otherwise established in accordance entrepreneurs who lead those businesses, where dif- Bahamian activity in the captive market. It provides with the Companies Act or the International Business ferent, are growing more and more sophisticated in the assets and liabilities of each account with ro- Companies Act. terms of their investments, their strategies and their bust statutory protection, keeping them truly sep- (c) The Removal of Preferential Exemptions Act goals. Their ‘footprints’ are becoming more global as arate and distinct from those of other accounts. 2018. This is designed to tackle the harmful tax they cross borders and move their businesses into Cell captives benefit from the natural economies

BAHAMAS THE EXACTING PACE OF REGULATORY REFORM IN THE BAHAMAS 27 of scale that such structures create. Bahamian flexible structures and reporting requirements. Reg- an alternative legal structure for investment funds regulators, too, have responded vigorously to the ulation of each fund is adjusted to the risk profile of that, inherently, is familiar to Brazilians and people demand among small-to-medium-sized enterpris- the fund; there is a cap on the number of investors in countries with similar civil laws. Plans are under- es for a cost-effective means of captive insurance who may invest in many of the templates. It is per- way to develop a similar product that caters to other or self-insurance while still upholding international missible for the investors to waive the production jurisdictions. standards. of audited financials in favour of semi-annual per- formance reports. SMART funds are numerous and THE INVESTMENT FUNDS OVERHAUL INNOVATION there are many types of them. Promoters have an open opportunity here – if they wish, they may ask A complete overhaul of the law that governs the the regulator to approve a specific business case Innovation, as we have already said, can be seen regulation of investment funds is nearing comple- for a fund. If the regulator grants its approval, it can at work in the country’s evolving and often tion, with the Securities Commission of the Baha- then impose a risk-based licensing and supervisory ground-breaking trust legislation. It has also thrust mas (SCB) in the driving seat. The overhaul includes regime on the fund that it has created for it. Other The Bahamas into the vanguard of the investment an updated Investment Funds Act (IFA) and some funds can then use the new template and can even funds industry with the introduction of SMART Funds forthcoming changes to the securities industry’s set new parameters and requirements for it. and the Investment Condominium (ICON) fund. legislative regime as a whole. It is expected to make the Bahamas more competitive and contains the following key changes. SMART FUNDS “The ICON legal • Changes in the definitions of ‘Bahamas-based The Bahamas’ evolving investment funds sector structure for investment funds’ and ‘non-Bahamas based funds.’ is beginning to attract major attention from fund • Changes in the triggers for the licensing of funds. managers and has already added a new dimension funds is familiar to • The ability to appoint international to the jurisdiction’s wealth management and advi- administrators without them having to be sory capability. The Bahamas recently experienced Brazilians” licensed. an upward trend in registrations. • The introduction of licensing requirements for The jurisdiction owes its success in this area large- A NEW ICON FOR FUNDS fund managers and regulatory oversight for ly to the investment vehicle known as the SMART custodians. (Specific Mandate Alternative Regulatory Test) fund. The Bahamas have learnt from the niche-marketing • The establishment of an Alternative Investment Even with more institutionally-focused templates success of SMART funds and taken the same innova- Funds Management Directive (AIFMD) regime such as the SMART 7, Smart Fund Models (SFMs) tive approach to the creation and introduction of the with a view to the Bahamas qualifying for an EU have been used as cost-effective investment fund ICON – the Investment Condominium Fund – with ‘passport.’ vehicles for families, family offices and related the aim of meeting the needs of Latin American and investors. especially Brazilian investment managers. The ICON These regulatory reforms promise to be of great is yet another example, along with the foundations benefit to the Bahamas and to complement the The SMART fund concept was conceived in the spirit law of 2004, of the Bahamas creating products and islands’ strategic location, political and economic of risk-based regulation. Its creators took stock of aiming them at groups of clients with very different stability, wealth and asset management options, the fact that investment funds often needed to have cultural and legal backgrounds. The ICON provides human capital and investment incentives.

IFC WORLD 2019 28 BAHAMAS THE BAHAMAS: THE CLEAR CHOICE FOR INTERNATIONAL FINANCIAL SERVICES

* by the Bahamas Financial Services Board

International financial centres such as The Baha- The Bahamas are also the venue for a ‘tax-trans- • a Government Ministry dedicated to financial mas play an important part in the world’s econo- parent’ international because services; and my. The jurisdiction is a ‘tax neutral’ environment, their laws force businesses and other entities to • a shared commitment between the public which is to say that its taxation avoids the dis- disclose information to the Government about and private sectors to promote and develop the tortions, and the corresponding deadweight loss, the ways in which they generate their income and . industry that occur when changes in price cause changes the amounts of tax that they pay. The jurisdiction in supply and demand that differ from those that can also be said to be ‘tax transparent’ because The Bahamas Financial Services Board (BFSB), es- would occur in the absence of tax. Tax neutrality it follows the doctrine that nations ought to ex- tablished in April 1998, is funded both by private can also be said to ensure that the tax system change information with each other about peo- enterprise and by the Government of the Baha- raises revenue while minimising discrimination ple’s and entities’ tax affairs on request in some mas. Its job is to promote a greater awareness in favour of, or against, any particular economic cases and automatically in others. of the Bahamas’ strengths as an international choice. This implies that the same principles of financial centre. taxation should apply to all forms of business. The ‘Economic substance’ is a term used by the Or- Bahamas’ tax system applies these principles. ganisation for Economic Co-operation and Devel- FISCAL AND ECONOMIC STABILITY opment (OECD) to describe a desirable situation Wealth management accounts for a large part of in which every relevant entity – in this instance in Representatives of the International Monetary the jurisdiction’s financial sector. For many high- the Bahamas – conducts “core Bahamian income Fund, of which the jurisdiction is a member, vis- net-worth individuals, banking and wealth man- generating activities,” is directed and managed ited the Bahamas at the end of last year. They agement outside one’s home country are simply in an appropriate manner in the Bahamas and reported: “The Bahamian economy continues to good business and a wise avenue for investment. has an adequate operating expenditure, physical recover, with real GDP growth projected to reach There are several reasons for this. presence and number of its people in the 2.3% in 2018 and 2.1% in 2019; and the Fiscal Bahamas. Responsibility Law (FRL) will support the govern- • Multi-national and multi-generation families ment’s efforts to secure fiscal sustainability and and family businesses find that they can pre A SHARED COMMITMENT put on a downward path.” serve their wealth for the long term and transmit it to younger generations with ease Financial services are the second most important A COMMON LAW JURISDICTION when they site some of their assets in a industry in the Bahamas after tourism. Successive jurisdiction with trust laws. governments have recognised the importance of The legal system in the Bahamas has been suc- • Their home jurisdiction might be subject financial services to the country’s continual eco- cessful in helping the country respond well to to civil unrest or have a history of political or nomic and social development. The financial sec- changes in the needs and demands of the market. financial instability and its government tor’s viability is therefore a priority for both the It is based on English common law, which is (by might want to expropriate their wealth public and private sectors, as shown by: and large) clear and simple for its users to under- and/or subject them to capital controls. It is stand. As an independent nation with a financial therefore important for them to offset these • the responsiveness of the legislature and services industry bolstered by a strong public-pri- risks by keeping at least some of their assets regulators to the needs and demands of the vate sector partnership, the Bahamas responds to in a jurisdiction that does not suffer from these ; market shifts in the market swiftly and efficiently. problems. • the swiftness with which this can happen; • International banking and wealth management • the balance that the regulators strike between The Bahamas belong to the Commonwealth of centres often possess financial products and ensuring that the financial services industry Nations and the ultimate court of appeal for services that are superior to those found in the keeps its integrity and encouraging lively judgments issued by Bahamian courts is the Privy HNWIs’ home countries. competition; 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.” The BVI’s advantages also include competitive and THE INTERNATIONAL ARBITRATION This phrase is as true today as it was when it was cost-efficient fees, highly efficient turnaround times, CENTRE written hundreds of years ago. 24-hour services in some areas and the largest cor- porate registry of its kind in the world. The BVI’s In 2014, the BVI International Arbitration Centre We live in a truly connected world whose economy corporate registry kept working in September 2017 (BVI IAC), an independent not-for-profit institution, is powered by cross border activity, whether that when Hurricanes Irma and Maria tore through the was established to meet the demands of the inter- be travel or investment. With a long-standing rep- islands. national business community for a neutral, impar- utation as a reliable and efficient offshore financial tial, efficient and reliable institution to resolve dis- centre, the British Virgin Islands are at the epicentre A ROBUST REGULATOR putes in the Caribbean, Latin America and beyond. of this intersection, having an economy dependent on both. Never complacent, the territory is always The BVI recognises and accepts the importance of The BVI largely adopted the UNCITRAL (United Na- striving to evolve further as a global leader in the compliance with established international standards tions Commission on International Law) Mod- financial management sector, most recently with its of regulation and supervision. It conforms to these el Law by passing the Arbitration Act in 2013 and incubator funds and also its FinTech initiative. standards through the efforts of its autonomous, it signed the New York Convention (which requires all-in-one financial regulator, the Financial Services courts of contracting states to give effect to private SIZE MATTERS! Commission (FSC), its financial training body, the agreements to arbitrate and to enforce arbitration Financial Services Institute, and its autonomous awards made in other contracting states) on 25 May The British Virgin Islands’ financial sector powers Financial Investigation Agency (FIA). 2014. These two crucial steps allowed it to establish more than US$1.5 trillion of investment around the its internationally respected arbitration centre. world and supports 2.2 million jobs. [Source: Capital The territory has a good track-record of interna- Economics report: “Creating Value – The BVI’s Global tional co-operation. It adheres to all international IDENTIFYING THE ULTIMATE Contribution” – June 2017.] More than 400,000 BVI standards, combats money laundering and terrorist business companies, which enable the British Virgin finance and remains keen to satisfy the standards of BENEFICIAL OWNER Islands to be the seventh largest source of foreign the International Monetary Fund. Another pioneering innovation has been the BVI’s direct investment, are currently active. The BVI is also home to parts of the group structures of more formidable Beneficial Ownership Search System than 140 major businesses listed on the London, TAX INFORMATION EXCHANGE (BOSS) which the jurisdiction established in accord- New York or Hong Kong main stock exchanges. In AGREEMENTS (TIEAS) ance with the ‘Exchange of Notes’ agreement that addition, major international development banks, it signed with the UK in April 2016. This secure gov- including the World Bank’s International Finance In 2002, the territory signed a formal commitment ernment search system satisfies global standards re- Corporation and the European Bank for Reconstruc- with the Organisation of Economic Cooperation and garding beneficial ownership and balances the need tion and Development, use BVI Business Companies Development (OECD) to uphold its principles of tax for both disclosures of information about companies to help fund projects around the world. transparency and exchange of information. Indeed, to the Government and appropriate levels of privacy, in 2015 the OECD’s Global Forum on Transparency ensuring that companies share information rapidly A MODERN INTERNATIONAL and Exchange of Information for Tax Purposes found and efficiently with law enforcement bodies. FINANCIAL CENTRE the BVI to be “largely compliant” with standards of transparency and “fully compliant” in terms of GLOBAL MANDATE exchange of information. The BVI has a world-class brand and its business model is very attractive, with an established system Already in possession of a sophisticated array of of common law and US dollar-denominated curren- A REGIONAL COMMERCIAL COURT products and services used by a discerning, high- cy. It performs its services in a secure, safe, well-reg- net-worth clientele, the BVI has been marketing it- ulated and business-friendly environment. It has The presence of an internationally respected com- self worldwide in recent years. It has long been pur- a proven track record of excellence in its financial mercial court is a huge asset to the BVI. The court suing opportunities in South East Asia, lately often sector, exemplary regulatory standards, innovative operates as part of the Eastern Caribbean Supreme in accordance with China’s impressive Belt and Road legislation, state-of-the-art technology, and its firms Court, so there is a final right of appeal to the Privy initiative. The BVI is small territory on the map but it and agencies are run and staffed by experienced and Council in London. This specialist court places the does not have an island mentality and is very much highly qualified professionals. Those are the reasons BVI far ahead of other jurisdictions in expediting the a place where large global enterprises gather. With why top-tier firms are based in and do business from cases that come before it, and in the timely handing its formidable track record, the BVI will continue to and through this jurisdiction. down of judgements. punch well above its weight.

BRITISH VIRGIN ISLANDS THE BVI CONTINUES TO PUNCH ABOVE ITS WEIGHT 31 JURISDICTION OF CHOICEJURISDICTIONBRITISH OF CHOICE VIRGIN WHY BVI? Compliance with international regulatory ISLANDS standards Competitive start-up costs Pioneering, innovative and leading Innovative legislation the way in global business solutions, Internationally renowned commercial court the British Virgin Islands (BVI) is an internationally respected business No currency controls and �nance centre with a proven Quali�ed professional pool of practitioners commitment to connect markets, Strong partnership between public and private empower clients and facilitate sectors 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 To this end, a sandbox can help to encourage ex- HM Government in London has a new Fintech Sec- could see, saw the vision of the world, and all the periments in FinTech within a well-defined space tor Strategy, which it hopes will bolster the UK’s po- wonder that would be.” Alfred, Lord Tennyson and duration, where the regulator will provide the sition as “the global capital of fintech” well beyond requisite regulatory support, with the fourfold aim Brexit. Let us now translate some of these concepts Regulators are sometimes unkindly criticised for of: into normal language. having predicted all six of the last three recessions. Although it sometimes pays to be cautious, it is • increasing efficiency; DATA SCIENCE AND TECHNOLOGY important that excessive caution should not stifle • managing risks better; innovation and progress. Increasingly, the world’s • creating new opportunities; and/or The main types of technology that are going to leading regulators are trying to ensure that innova- • improving people’s lives. transform regulation are: tion is ever-present in their financial sectors and that • data facilities – online facilities of regulatory data the firms that they regulate are using technology The sandbox is an experiment for both regulator and collected by national government agencies which extensively to perform better services, manage risks regulated alike. It is the first time that many regula- are often open to the public (e.g. www.data.gov, better and create new opportunities – invariably tors have allowed licensees to test their products on https://data.gov.uk); with the consumer in mind. consumers in this way, and interest in sandboxes is • the internet of things (IoT) - the inter-networking growing rapidly. of ‘smart’ physical devices, vehicles, buildings, etc. that enable these objects to collect and exchange “Data-driven regulation HERE COMES THE TECH! data; • chatbots – systems for interactions between and compliance is the Artificial intelligence (AI), the Internet of Things regulated companies, registrants and the general (IoT), Big Data, behavioural/predictive analytics public using natural language and speech; key to future and blockchain (distributed ledger) technology are • Big Data – the process of examining very large poised to revolutionise regulation and compliance data sets to uncover hidden patterns, unknown commercial success” and create a new generation of RegTech (regula- correlations etc.; data sets that are so complex tory technology) start-ups. Examples of current that old data processing application software Historically, prophets have not always had good RegTech systems include: cannot deal with them; press, but in the long term it pays to be a visionary • artificial intelligence (AI) - systems able to and, in today’s hyper-competitive financial services • chatbots and intelligent assistants; perform tasks that normally require human industry, practical forward thinking is a sign of real • robo-advisors that support regulators; intelligence; progress. Data-driven regulation and compliance is • real-time management of the compliance eco • behavioural/predictive analytics – the analysis of the key to future commercial success and regulators system using the IoT and the blockchain; large and varied data sets to uncover hidden are acting as ‘public champions’ for new software in patterns, unknown correlations, customer • automated compliance/regulation tools; this area. preferences etc. to help someone make decisions; • compliance records stored securely in blockchain • blockchain technology – the software that distributed ledgers; The automation of regulation and compliance is underpins digital currency and that secures, • online regulatory and dispute resolution systems; likely to improve the services that firms offer and validates and processes transactional data. help regulators in their work. The British Virgin Is- and, in future, • regulations encoded as understandable and lands are showing great initiative in this area. BVI Let us now illustrate these vital elements of executable computer programmes. Finance, the territory’s promotional agency, hosted technology in more detail. a conference entitled “Think Differently! The Great Digital Disruption and the New Internet Economy” WHY AUTOMATE REGULATION BIG DATA in both the BVI and in Singapore last year. AND COMPLIANCE? Regulators collect huge volumes of data (increasing- THE SANDBOX Automation is all the rage, but why is it happening ly from open sources) and thus have major oppor- and what are the benefits? The answer, in short, is tunities for so-called Big Data (analytics). In general, Do you remember playing in a sandpit as a child, money. Cost savings and greater efficiency are both Big Data allows the user to examine large and var- using your imagination to create shapes and make imperative here. ied data sets to uncover hidden patterns, unknown things in a safe and controlled environment? Amer- correlations, customers’ preferences etc. icans apparently refer to sandpits as sandboxes and a ‘regulatory sandbox’ is therefore the phrase that “The sandbox is an Big Data encompasses a mixture of structured, they (and, confusingly, that British regulators also) semi-structured and unstructured data that some- use to describe an enclosed environment in which experiment for both one has gathered through interactions with individ- innovation in or FinTech can uals, social media content, text from citizens’ emails take place. regulator and and survey responses, phone call data and records, data captured by sensors connected to the internet The sandbox aims to promote more effective com- regulated alike” of things and so on. petition in the interests of consumers by allowing both existing and prospective licensees to test in- People are hoping that this automation will reduce The “3 Vs of Big Data” are volume, variety and ve- novative products, services and business models costs enormously for financial service firms and locity. All three – the volume of data being handled, in a live market environment, while ensuring that remove an intractable barrier for FinTech firms as the variety of that data and the velocity at which is appropriate safeguards are in place. they try to enter financial service markets. being created and updated – are increasing.

BRITISH VIRGIN ISLANDS BACKING THE FUTURE – THE GREAT DIGITAL CHALLENGE FOR REGULATORS 33 ARTIFICIAL INTELLIGENCE THE AUTOMATION OF REGULATION principal’s behalf when dealing with a third party. AND COMPLIANCE An agency relationship is a fiduciary relationship. It is AI technology powers intelligent personal assistants a complex area of law with concepts such as apparent authority, where a reasonable third party would un- such as Apple Siri, Amazon Alexa, ‘robo advisors’ and Regulators have, of late, been looking at Digital Reg- derstand that the agent had authority to act. autonomous vehicles. AI allows computers to make ulatory Reporting (DRR) and weighing up the pros decisions and learn without explicit programming. and cons of each of the following concepts: There are three main branches of it. As the combination of software and hardware is producing intelligent algorithms that learn from • the disambiguation of (i.e. the removal of their environment and may become unpredictable, ambiguity from) reporting requirements; it is conceivable that, with the growth of multi-al- “Big Data allows the • “a common data approach across regulatory gorithm systems, algorithms will begin to make reporting;” decisions that have far reaching consequences for user to uncover hidden • mapping requirements to firms’ internal systems; humans. It is this potential for unpredictability that • a mechanism by which firms can submit data to supports the argument that algorithms should have patterns” regulators; a separate legal identity, so that the due process of • the use of standards to help the regulator law can take its course in cases where unfairness • Machine Learning – a type of AI programme that implement DRR; occurs. can learn without explicit programming, and can • a “common data model;” change when exposed to new data. • application programming interfaces; • Natural language understanding – the application • DLT networks; and of computational techniques to the analysis and • the removal of ambiguity from regulatory text. “DRR promises to help synthesis of natural language and speech. • Sentiment analysis – the computational process DRR promises to help firms comply with regulatory firms comply more of identifying and categorizing opinions expressed reporting requirements more quickly and efficient- in a piece of text. ly. It will make the information that firms send to quickly and efficiently” the regulator more consistent, while boosting the The alternative to this approach would be a regime amount of information that firms share with each BEHAVIOURAL AND PREDICTIVE of strict liability for anyone who designs or plac- other, especially for the purposes of offsetting ANALYTICS es dangerous algorithms on the market. Is this a internal risks. case of locking the stable door after the horse has Behavioural analysis and predictive analytics, which bolted? look at the actions of people, are closely related to REGULATION AND THE LEGAL Big Data. Behavioural analytics tries to understand STATUS OF ALGORITHMS COLLABORATION ON THE RISE how consumers act and why, helping software pre- dict their likely actions in future. Predictive analyt- Legal redress for algorithm failure seems straight- The situation remains fluid. There are more and ics is the practice of extracting information from forward. If something goes wrong with an algo- more signs of co-ordination between regulators of historical and real-time data sets to determine rithm, the firm ought simply to sue the humans different nations and these are most welcome. For patterns and predict future outcomes and trends. who deployed it. However, it may not be that sim- example, the 11 financial regulators and related Predictive analytics ‘forecasts’ what might happen ple. For example, if an autonomous vehicle were organisations have collaborated to create the Glob- in the future with an acceptable level of reliability, to cause death, would the plaintiff pursue the al Financial Innovation Network (GFIN), building assesses risks and includes ‘what if’ scenarios. dealership, the manufacturer, the ‘third party’ who on earlier proposals to create a ‘global sandbox,’ a developed the algorithm, the driver, or the other network for collaboration and shared experience of BLOCKCHAIN TECHNOLOGY person’s illegal behaviour? This paradox is part of innovation. a wider debate about whether or not algorithms The main types of blockchain technology are as ought to have legal personalities in the same way The GFIN is designed to be an inclusive commu- follows. as companies. nity of financial service regulators and related- or ganisations and its expansion is inevitable. This is a • Distributed Ledger Technology (DLT) – a As we know, a ‘legal person’ refers to a non–hu- brave new world and certainly one in which some decentralised database in which transactions man entity that has a legal standing in the eyes of regulators are taking the lead! are kept in a shared, replicated, synchronised, the law. A graphic example of a company having distributed bookkeeping record, which is secured legal personality is the offence of corporate man- The Duke of Wellington, before his victory at the by cryptographic sealing. Its proponents say that slaughter, an act of homicide committed by a com- Battle of Waterloo in 1815, stated wisely that “time it has ‘integrity’ and is resilient, ‘transparent’ and pany or organisation, which is a criminal offence spent in reconnaissance is never wasted.” Sound ad- unchangeable (or at least ‘mostly immutable’). in law. vice indeed. Innovative financial centres such as the • Smart Contracts – these are (possibly) computer British Virgin Islands deserve to do well. programmes that codify transactions and Another important principle of law is that of agen- contracts which in turn ‘legally’ manage the cy, where a relationship is created where a princi- *Simon Gray can be reached on on records on a distributed ledger. pal gives legal authority to an agent to act on the +1 (284) 852-1957 or at [email protected]

IFC WORLD 2019 34 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 mergers, schemes of arrangement, etc. – and adds very popular. Indeed, clients are setting them up in the British Virgin Islands market to the world. The innovations such as ‘safe harbour’ provisions and an ever-expanding number of jurisdictions. The BVI entity’s advantages remain as good as ever. It is opportunities to register charges. It will be particu- has capitalised on this by evolving innovative new famously adaptable, adjustable and consistent larly attractive for funds and, in particular, private forms of trust. with common law legal systems everywhere. It is equity funds and joint venture vehicles where quick to incorporate and inexpensive, mainly be- onshore tax transparency is required. VISTA TRUSTS cause living costs are lower in the BVI (which uses the US dollar) than in competing jurisdictions. It is, The Virgin Islands Special Trusts Act (VISTA) con- moreover, ubiquitous. It used to be said that every “Popularity is not a sign tinues to be very popular because it introduces Hong Kong businessman would give his son “a BVI” the concept of trusts to clients who are unfamiliar when he came of age and, even in today’s much of bad quality” with it. The statute allows a trust whose corporate tighter regulatory environment, people who set up trustee is not required, nor indeed permitted, to cross-border joint ventures throughout the world The Micro Business Corporations Act 2017 caters for manage and invest the trust’s assets actively. The assume that they will use BVI companies. an underdeveloped segment of the business market: trustee retains a statutory right to obtain informa- micro-businesses. The project (still in the throes of tion about the trust fund but the management of There are more than 450,000 active BVI compa- development) aims to bestow the benefits of lim- the trust fund is the responsibility of the directors nies. New incorporations in 2018, when the figures ited liability on micro-businesses anywhere in the of an underlying BVI company, which then holds emerge, are likely to be the highest since 2014, world and especially in emerging economies. The the trust’s various assets. even though Hurricane Irma interfered badly with microbusiness corporation is going to be simpler the islands’ commerce in 2017. than a full company, more affordable to an entre- The trust deed can set out certain circumstances in preneur and completely transparent. It will use IT which the trustee must intervene, and in which the However – and this is a point that we sometimes heavily in order to “know its customers” to a degree trustee should exercise its powers regarding the ap- need to emphasise to a mistrustful media – pop- that more than satisfies international standards. pointment or removal of directors. Supplementary ularity is not a sign of bad quality. The BVI has legislation now allows non-VISTA trusts to benefit responded to the Common Reporting Standard PLANNING FOR SUCCESSION from the statute. or CRS, to the OECD’s and the European Union’s ‘substance’ requirements and to other internation- The first generation of BVI company owners is PRIVATE TRUST COMPANIES al demands in the same ways as the other main growing old and thoughts are turning to the next international financial centres. The BVI’s financial generation. ‘Succession planning’ tends to have Also aimed at accessing new clients, Private Trust compliance and anti-money-laundering standards two main aims: the protection of assets against Companies (PTCs) have become increasingly pop- are equivalent to those of the other main IFCs and forced heirship and claims from third parties and ular among high-net-worth families and business BVI firms apply them to firms from those IFCs most the avoidance (or mitigation) of the consequences owners, the latter being hesitant about the pros- rigorously. The BVI’s courts follow the mainstream of obtaining a Grant of Probate in the BVI. Shares in pect of transferring substantial wealth or control of the English common law system, with ultimate a BVI company are legally situated in the BVI, so all of the family business to corporate trustees when recourse to the Privy Council in London. shareholders who hold their shares absolutely or in setting up trusts. a nomineeship should know that their families will The jurisdiction’s thriving financial service sector is be obliged to obtain BVI probate on their deaths A PTC allows the settlor of the trust to retain effec- experienced and internationally fluent and its judges before they are able to transfer or sell those shares. tive control over the assets settled in the trust by and lawyers are often on retainers from chambers way of acting as director. The shares of the PTC are in central London – the BVI is, after all, as much a typically then held in a BVI purpose trust with a BVI British Overseas Territory as Bermuda or Cayman. “The VISTA trust corporate trustee. These are not signs of lower quality. Instead, the continues to be very THE SHARE TRUST BVI’s continuing popularity is due to three main reasons: popular” In some countries, even middle class families use BVI companies to pay as little tax as possible and • new innovations to maintain the jurisdiction as Many clients are comfortable with the prospect of offset losses from overseas investments. Such fam- the world’s foremost venue for corporate probate. We advise such clients to obtain a sim- ilies often do not require complex ownership struc- vehicles; ple BVI will, particularly if they come from non- tures. The Share Trust is designed to be a simple and • new innovations to keep it at the top of the common-law jurisdictions, because it speeds up cost-effective way in which the owners of shares in private wealth business; and the probate process greatly. Rules issued in 2017 BVI companies can avoid ‘forced heirship’ rules and • the continuing preference that non-Europeans by the Eastern Caribbean Supreme Court have also having to obtain probate in the BVI. The terms of a have for using it - a factor that can only helped this process along. Some less experienced Share Trust are deliberately simple, with the settlor continue to grow in importance. firms saw those rules as revolutionary: in fact, they being the primary beneficiary during his or her life- formalised some long-standing, informal practice time and the shares being made over outright to CORPORATE INNOVATION that practitioners had been following for many the designated beneficiaries on the settlor’s death. years. The court decided that probate fees had to The Limited Partnerships Act 2017 takes the re- increase in order to support the registry financial THE LONG REACH OF THE BVI sponsiveness to the needs of clients that has made and to make it work more quickly and efficiently. the BVI company so successful and applies them Asia is the largest client base for BVI companies to the concept of the limited partnership. The Act For those who insist on avoiding probate and/or and will remain so for some time to come. Juris- incorporates popular elements of corporate law – are interested in protection assets, trusts remain dictions on this vast continent are now working

BRITISH VIRGIN ISLANDS THE BVI: STILL THE WORLD’S FAVOURITE CORPORATE VEHICLE 35 out ways of using trusts which generally depend The Middle East has long used BVI companies for legislation. Even Channel-Island structures often on their common law heritage. VISTA trusts, or joint ventures and is now becoming more and more include BVI companies. their non-statutory equivalents, remain popular interested in family and Sharia planning as well. in jurisdictions which recognise trusts, and people INNOVATING IN A WORLD OF TIGHT elsewhere often use wills and joint tenancies. BVI service providers often write Europe off as a vi- able market, but many Europeans still have holdings REGULATION in BVI companies. Some ‘UK non-doms,’ who only “The Share Trust is hold a small part of the BVI portfolio these days, After creating such a successful vehicle as the have chosen not to ‘de-envelope’ their property, BVI company, the BVI might be expected to rest designed to be simple i.e. not to own their property directly rather than on its laurels. Instead, it has created new forms of through a corporate vehicle registered in the BVI. business that can prosper in a world of very tight and cost-effective” Some jurisdictions, such as Monaco, arrange most regulation in which the world’s rulers expect inter- of their property ownership through BVI companies. national financial centres to facilitate its economic Latin America is an oft-forgotten but very impor- growth rather than help people avoid taxes. Indeed, tant centre for BVI company ownership. After the Other jurisdictions, such as Russia, retain a great with such a flexible toolkit, it could be argued that successful tax amnesties in many Latin American many BVI companies. BVI wills are popular in Rus- the BVI is the best-equipped among the IFCs to do countries during the early , there has been sia at the moment, though trusts may return if just that. a move to more sophistication and old-fashioned the political environment changes. Switzerland re- succession planning in trusts. Clients have become mains a ‘clearing house’ for all jurisdictions and BVI *Matthew Howson can be reached on familiar with fully managed trusts, testamentary trusts are expected to remain very popular there, +44 203 752 3668 or at trusts, fixed interest trusts, etc. even now that Switzerland has passed some trust [email protected] 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 Guernsey structures to be taxed fully if tax is due. achievement of their legitimate objectives in ways world today. Some of this is the predictable evolu- This is a long-standing commitment of the island that will protect their own reputations, as well as tion of long-term trends, some is forced by less pre- and there are no plans to change it. ours. dictable circumstances, and some is just a response to random events. A second predictable trend is that of an increasing Guernsey’s reputation has stood up to scrutiny time commitment to knowing one’s customer – knowing after time – not only in terms of inspections by Tax remains a major consideration for everyone. Tax who he is and what the source of his funds is. Regu- people from the OECD, the EU and Moneyval, but is important and tax planning is an essential part of lation is a good thing for the private wealth industry, also in the media. The Panama Papers contained no every financial structure and transaction, especially not an unnecessary bureaucracy and expense. The damning references to Guernsey at all, while the when international arrangements are involved. regulator has promulgated a new AML Handbook so-called Paradise Papers contained nothing of any to facilitate electronic ‘due diligence.’ Guernsey’s significance. It also contained nothing that was not There is no avoiding the long-standing and intensi- financial firms will never let their guard against fying conflation of tax avoidance and tax evasion in money-launderers down. This is not just to do good already known to HM Revenue and Customs and the minds of Western governments. Increasing pub- global citizenship, although that would be enough nothing that precipitated any action on their part. lic opprobrium towards tax avoidance, stoked by a on its own, but it is also a matter of self-preserva- This has not been through luck or happenstance but hostile press and encouraged by social media, is not tion. When people ask what the biggest risk we face through careful design and proactive attention to all based on objective analysis and verified facts. is, it is the risk of association with dirty money – the relevant risk factors. particularly that relating to the funding of terrorism. Specialist financial centres, including Guernsey, are We have progressively worked to improve our busi- in full agreement with the desire of the international ness environment to be an example of best practice, community to ensure that people and companies “Guernsey is determined leading the world in key areas such as regulation, pay their taxes when they are due. This is not a re- money-laundering control and service quality. Our luctant acceptance of the inevitable; it is an enthu- to remain a tax-neutral work in this regard shows our determination to give siastic and proactive desire on the part of commit- clients what they want – a safe environment for ted global citizens to participate in an international environment” their wealth that allows them to be certain of the movement. results over the long term and adapts to changing This brings us to my final trend – the increasing circumstances in ways that are entirely consistent Fundamentally the people of Guernsey are British importance of reputation. It is no longer enough to with their legitimate interests. people. It should be a surprise to no-one, therefore, avoid scandals. We must be part of the infrastruc- that they share a basic belief structure with their ture that exposes and eradicates unacceptable be- Guernsey’s consistent and proactive approach to fellow Britons. This includes the belief that people haviour. It is also no longer enough to be a reluctant should pay their taxes. and tardy follower of international norms. We must long-term trends allows all its clients to plan for the be proactive in developing and adhering to global long term. In short, it continues to be the perfect Guernsey is determined to remain a tax-neutral en- standards as a full partner in the world financial environment for privately wealthy clients, and can vironment. Tax neutrality does not necessitate the services community. be trusted to be so well into the future. charging of zero tax; it is a policy of taxing domes- tic business while leaving international clients un- Our specialist insight and expertise – gained * Dominic Wheatley can be reached on burdened by either tax processes or tax liabilities in over more than 50 years in the industry – ena- +44 (0) 1481 720071 or at Guernsey. This leaves all the income and assets of bles us to educate and guide clients towards the [email protected] WE ARE SECURITY Castle Cornet has stood as a beacon of Guernsey since 1204. It was built on the strongest natural – much like our financial structures, offering a stronghold for your assets.

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INSURANCE INVESTMENT FUNDS TRUST & COMPANY PENSIONS INVESTMENT MANAGEMENT BANKING

E: [email protected] weareguernsey.com T: +44 (0)1481 720071 GUERNSEY 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 Green investment has been described as ‘still quite More than 140 serviced funds and sub-funds were funds over the past 12 months, inventing the young’ in the pages of the Financial Times, but it launched over the year, accounting for nearly $20 world-leading Guernsey Green Fund – the first reg- is clear that demand is growing for it, that more billion, and more than 20 new promoters were at- ulated green fund product on the planet – in the and more people want to be involved in it and that tracted to the island. Pacary added: “In a landscape middle of the year and developing its ecological the potential for it is enormous in such sectors as where private equity and venture capital funds strategy and related financial products throughout commercial agriculture, healthcare, social housing hold a prime position, Guernsey continues to be the year. and sustainable technology. This, in modern par- recognised as a reliable and trusted market.” lance, is ‘impact investment,’ the act of investing in companies and funds that generate benefi- Guernsey fund industry is developing new products “Green investment has cial social and environmental benefits alongside and this, coupled with Guernsey’s push into ‘sus- financial returns. tainable investments’ of the kind described above, been described as ‘still is causing business to grow. Guernsey’s ‘green work’ is only possible because quite young’” of the island’s strengths and expertise in private The Private Investment Fund (PIF) regime has really equity and infrastructure. The aim of its govern- started to gain traction with managers and their The island’s government has told the world that it ment is to make the its financial services sector investors in the past year. It recognises that there aims to be “at the forefront of green finance devel- spend more of its efforts catering to the demands is a category of fund whose managers have closer opment” and to become the “go-to” global finance of ethical and altruistically-motivated private and relationships with their investors than is typical. centre for all matters to do with ecologically sound institutional investors. The Guernsey Financial Services Commission takes agribusiness. It has been deeply involved in the de- a proportionate approach to the requirements of velopment of a “green industry” through its mem- A paper from PwC and the City of London Corpora- these managers, by not asking them to demon- bership of the United Nations’ Financial Centres for tion lists six fundamentals that a jurisdiction needs strate their track records or circulate prospecti. Sustainability (FC4S) and its European network of to achieve if it wants to become an ‘impact invest- contacts. ing’ hub – knowledge and expertise; innovation in The PIF can be either closed- or open-ended and products; mature and attractive financial markets; should contain no more than 50 legal or natural The ESG market (i.e. the part of finance that pro- a favourable legal and regulatory environment; persons who hold an economic interest in it. There motes ethical investments in the environment, ‘social impact’ standards; and reporting and in- is no limit to the number of investors to whom the society and corporate governance) is growing and ternational connections. Guernsey meets all these PIF might be marketed – this is something that more and more people believe it to be a worthy requirements. comparable regimes in other jurisdictions do not cause. It is still nowhere near large enough to en- offer. sure that the Earth fulfils the UN’s “global sustaina- In the wider world of funds, Guernsey has remained bility targets” which include no poverty, no hunger, a specialist in a number of markets in over the last Ben Morgan, a partner at the law firm of Carey Ols- “climate action” and many other objectives. year. People in this part of Guernsey’s business en and the head of its corporate and finance group are confident for the future and their funds are in Guernsey, said: “An increase in AuM and [in] the Figures from the Global Sustainable Investment drawing more and more interest from new number of funds in Guernsey shows that the funds Alliance showed that funds that pursued respon- promoters. sector remains extremely buoyant, while the intro- sible investing strategies managed US$22 trillion duction of regimes such as the Guernsey Private of assets globally in 2016 – up 25% from the fig- Investment Fund, which has been particularly well ure for 2014. They invest most of this in the bond “Our investment received since its launch two years ago, and the market. Guernsey hopes that its green fund, which Guernsey Green Fund, shows that Guernsey con- sets a standard (referred to as a ‘kitemark’) against strategy places tinues to innovate in order to stay ahead of the which investors might gauge the authenticity of pack jurisdictionally.” any other green funds that might materialise in environmental future, will help that area of the market to develop As we have seen, the Cibus Fund, a global agribusi- and to make the worth of its products clearer to sustainability at its ness invested fund of ADM Capital Europe, has be- investors. The Guernsey Financial Services Com- come the first to be called a Guernsey Green Fund. mission awarded a Guernsey Green Fund Kitemark heart” We expect more to follow very soon. – hopefully the first of many – to the Cibus Fund last October. Annual research from Monterey Insight has de- Rob Appleby, the co-founder of ADM Capital and scribed the island as a “reliable and trusted market” its joint CIO, said: “This designation is testament to The title of “Guernsey Green Fund” is available to in the fields of private equity and venture capital. our investment strategy which places environmen- funds whose objective is to have a net positive ef- At the end of June last year, fund assets serviced tal sustainability at its heart and a key determinant fect on the environment and at least 75% of whose in Guernsey were at a five-year high of very near- of value creation. We hope that other funds will investments are certified as green and sustainable ly $400 billion – up 0.7% on the previous year, follow suit and strive to achieve the same status investments. It is designed to give investors clear with the total number of serviced schemes and for their sustainable investment initiatives as the information about the investment parameters of sub-funds also increasing. global benefits of green investment are realised.” investment portfolios that bear the kitemark. If the regulator awards this title to enough funds, Karine Pacary, the managing director of Monterey *Dr Andy Sloan can be reached on it should allow investors conduct some accurate Insight, said that her findings demonstrated the +44 (0) 1481 720071 or at benchmarking between them. continuing stability of the Guernsey funds market. [email protected]

GUERNSEY LOOKS TO THE FUTURE OF PRIVATE WEALTH 39 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 op- by continuing business as usual,” said Peter Child, Peter Child from the Guernsey International In- portunity in captive insurance and Guernsey’s con- the chair of the Guernsey International Insurance surance Association said recently: “While there is tinued success in the sector is testament to that. Association’s marketing development committee demonstrable political will to see the London ILS and the managing director of Artex Risk Solutions offering thrive, maintaining its insurance sector’s The island, hailed as the best non-EU domicile at in Guernsey. reputation as a full-service centre capable of de- Captive Review’s 2018 European & UK Captive livering a full range of insurance and reinsurance Awards, was responsible for more than half the Decades ago, Guernsey developed a niche for cap- services, it is clear that its ILS sector is developing new captives formed in Europe in 2017. It has, in tive insurance and became the pre-eminent juris- fairly slowly. We believe that Guernsey still holds a recent years, also diversified to develop a thriving diction in Europe for European risk managers who number of advantages – the responsiveness of our business in other sectors of the industry, particu- wanted to go offshore. regulator, our experience in the sector, the breadth larly insurance-linked securities, reinsurance, and of our offering in the funds and insurance space, longevity risk. Some have argued that the market has flattened and our status outside of Solvency II. in recent years but, at Guernsey’s flagship London The island’s “flexible and responsive” non-Solvency insurance event in London at the end of 2018, II regime (Guernsey lies outside the European Un- speakers argued that the captive industry was not “These are exciting ion and is therefore beyond the ambit of this EU in decline. directive, which codifies insurance regulation) was times for the ILS considered to be a key reason why the island re- Will Thomas-Ferrand, the international practice tained the award. The judges noted that more than leader at Marsh Captive Solutions who is responsi- market” half of the 17 newly licensed captive structures in ble for the company’s captive domiciles in Europe, Europe in 2017 were established in Guernsey and the Middle East, Africa and the Asia-Pacific region, “Although London is nominally a competitor, if praised its non-Solvency II regime, its infrastructure disputed any notion that the captive industry London can make a contribution to drive forward and the fact that its regulators had a good grasp of was in decline. Marsh manages captives in 49 ju- the growth of the ILS market, we think that should the captive concept. The island, well-recognised as a risdictions all over the world. He said: “The topic be good for all involved.” large repository of captive expertise, has more than of whether captives are in decline comes up fairly one-third of the entire European captive market. regularly. Even today, nowhere else can match Guernsey’s unique combination of funds, trust and insurance Our figures show that captive premiums last year management expertise and its proficiency in pro- “Speakers argued that rose by 25% on the previous year and are up 55% ducing bespoke complex products of consistently compared to four years ago. Captives are obviously high quality. the captive industry was being used more – I would challenge that they are in decline.” Insurance today has to respond to challenges by not in decline” innovating all the time, while also being able to Guernsey is helping to develop a captive insurance spot and seize opportunities. That is something Guernsey’s regulatory regime distinguishes be- market in China. This also received some recogni- that Guernsey has been, and still is, pretty good at. tween different classes of insurer, such as commer- tion in 2018, as the island was named as the best We are the number one captive insurance domicile cial and captive insurers, and places proportionate non-Asian domicile at the inaugural 2018 Asia in Europe for a good reason – we have been doing regulatory burdens on each in line with the Inter- Captive Review Awards. this for a long time. national Association of Insurance Supervisors’ In- surance Core Principles, which comprise the global The judges there said that Guernsey had shown a Our relationship with London is good and strong standard for insurance supervision. strong commitment to the Asian market in recent and I expect that it will only strengthen further af- years and had become an attractive option. The is- ter Brexit. When that happens there will no longer As a result, the regulatory regime works more land has signed four insurance-related memoranda be any EU border between ourselves and London, quickly and is less prescriptive than others. A con- of understanding with Chinese authorities. our largest market for financial services. sultative process in 2017 revealed that both indus- try and regulator thought that it “offered greater Business that involves insurance-linked securities We are right to feel optimistic about the future of flexibility outside of Solvency II.” Guernsey is also (ILS) was brisk in the Guernsey market in 2018, our industry. Captive insurance is facing various friendly to businesses, offers tax neutrality and has with statistics for new cells of protected cell com- challenges, but Guernsey will respond to those a long history of expertise in insurance. panies (PCCs), the main method of writing new ILS challenges and will continue to provide our clients business, well ahead of those from the previous with excellent results. “Guernsey’s history of robust corporate govern- year. These are exciting times for the ILS market, ance and wealth of qualified and experienced insur- with international fragility and uncertainty on the *Dominic Wheatley can be reached on ance expertise ensures that it can provide captive rise, coupled with innovation in the market. The +44 (0) 1481 720071 or at clients with genuine on-island substance simply sector is developing rapidly. [email protected]

IFC WORLD 2019 40 QATAR CONDUCTING BUSINESS ON THE WORLD STAGE

* by Qatar Financial Centre Authority

The Government of Qatar established the Qatar Fi- Rödl & Partner, the German law firm, has been merged with Sutherland Asbill & Brennan in 2017, nancial Business Centre in 2005 with a legal system in Qatar since 2007, having already established a it kept on using the services that the QFC offered it. based, as in other international financial centres in presence in the Gulf under the name of Rödl Middle Eversheds Sutherland represents the combination the Gulf of Persia, on English common law. The East in partnership with Hikmat Mukhaimer & Co. of two firms, a coalition that gives a job to more QFC’s rules allow a 100% repatriation of profits Its headquarters are in Kuwait. than 4,000 people around the world, generating and the Government levies a 10% corporate tax on a turnover of US$1.03 billion in its first financial locally obtained profits. There is no withholding tax Rödl’s growth has been impressive. In less than 50 results since its transatlantic tie-up in 2017. and trade is possible in any currency. years it has become a globally active company with a turnover of US$448 million per annum. It The company provides legal advice, often across The QFC now hosts more than 80 British firms on first opened for business in the German town of borders, from its offices in 32 countries in Africa, its platform, including Clyde & Co, Eversheds and Nuremberg in 1977. It employs more than 4,500 Asia, Europe, the Middle East and the United States. Pinsent Masons. It is trying to attract companies people worldwide and is expanding continuously. It is licensed by the QFC and this has been one of from Hong Kong, Singapore and Germany. By April In 2018, Rödl opened three new offices and anoth- the biggest factors behind its success in Qatar. of last year, it had registered 96 European-owned er two the year before, bringing the total to 111 firms. In 2017 the QFC handed out licences at a locations in 51 countries. It has recently become an QATAR IN CONTEXT record rate, with a 66% increase in new firms. By approved QFC auditor and a licensed consultant. the end of that year there were 461 firms on the According to the International Monetary Fund platform, as opposed to 348 a year earlier. This fig- (IMF), Qatar’s real gross domestic product (GDP) ure grew to 507 in the first quarter of 2018. The de- “We determined that will accelerate from 2.6% in 2018 to 2.7% in 2019. mographic mixture of business in the QFC is 46% This is the highest IMF forecast for real GDP in the Qatari; 24% European; 11% North American; and the QFC was the best Gulf. 8% Asia-Pacific. platform to fulfil our Oil and gas are the country’s main economic en- Any applicant for a QFC licence should expect an gines and are the main causes of growth in the initial response within five working days, with the business needs due to Qatari financial sector. This is likely to persist for regulators aiming to process it in less than three the foreseeable future. Oil reserves will continue at months. The licensed financial services sector the exemplary business current levels for the next 56 years and gas reserves consists of banking, corporate/wholesale banking, for more than 100 years. , private banking, asset man- infrastructure and agement, retail schemes (Undertakings for the Col- There are several projects in train which promise lective Investment in Transferable Securities); qual- support that was to make Qatar a competitive jurisdiction for inter- ified investor schemes; private placement schemes; national financial and professional talent. These in- insurance; reinsurance; captive insurance; Islamic available to newcomers” clude Lusail City, a 38 square kilometre “city of the finance; investment advice; investment services; future” whose target investment is US$45 billion; fiduciary business; captive structures; capital mar- Doha Metro, which is scheduled to have 354 kilo- kets vehicles; and financial technology or FinTech. A Rödl employee once said: “Increasingly, we are metres of track and 93 stations (target investment: working with multinational companies who wish $12.8 billion); Hamad Port, one of the world’s larg- For firms that want to establish corporate head- to establish a presence in Qatar and we present est port developments with a target investment of quarters, management offices and treasury func- QFC as a platform for starting their business ow- $7.4 billion; Qatar Science & Technology Park, a tions, the SFC licenses special purpose companies; ing to the QFC’s status as a leading onshore finan- home for international IT companies in Qatar and holding companies; single family offices; trusts cial and business hub with a streamlined start-up an incubator of start-up IT businesses that has a and trust services; corporate solutions; investment process, straight-forward tax regime and compre- target investment of $2 billion; and an expansion clubs; and foundations. hensive regulations. As Qatar continues to grow of Qatar’s main airport in preparation for the 2022 economically, our firm looks forward to reaching FIFA World Cup, with the aim of servicing more SUCCESS STORIES new heights in terms of expanding our team of than 96,000 passengers per day. professionals and our service offerings.” Several prominent firms have opened offices Offices are available in more than 40 locations, in- in the Qatar Financial Centre; we discuss some AIG, too, established itself in Qatar in 2007. It cluding the new state-of-the-art Msheireb Down- well-known examples here. was founded in 1919 in Shanghai and is now the town Doha business district with shops, dining, an world’s foremost insurance organisation, with more international school, a luxury residential quarter The US law firm of K&L Gates was established in than 56,400 employees and 80 million customers and green spaces. Qatar has an impressive num- Seattle in 1883 and now employs 1,793 employees in more than 200 countries and territories. Its ber of private and public clinics and hospitals all over the world in 45 countries and has an annu- headquarters are in New York. and is ranked above the UK, US and France in the al turnover of US$1.17 billion. Its headquarters are Legatum Prosperity Index 2017 for best healthcare. now in Pittsburgh. It opened an office in Qatar in The conglomerate generated a yearly turnover of 2011. One of its lawyers told us: “We determined US$49.52 billion in 2017. AIG member companies Qatar appears on Forbes’ list 40 best countries in that the QFC was the best platform to fulfil our provide property casualty insurance, life insurance, which to do business and is number one on the business needs due to the exemplary business a wide range of retirement products and other Middle East Global Peace Index. It was the only infrastructure and support that was available to financial services to customers. country in the Middle East and North Africa to newcomers. We found the licensing process both be placed among the world’s 50 most peaceful thorough and reassuring and we were delighted to Lastly, Qatar has been home to an office of Ever- countries by that index, ranking as the 13th most receive our approvals speedily.” sheds, a very large British law firm. After Eversheds peaceful country on the planet.

QATAR CONDUCTING BUSINESS ON THE WORLD STAGE 41 Grow your business to Qatar One of the fastest growing economies

Welcome to Qatar Since 2005, the Qatar Financial continue at current levels for the investments in developing new Centre (QFC) has helped over next 56 years and gas reserves attractions and initiatives. Perfectly positioned between 500 companies from around the for over 100 years. Qatar has initiated a number of East and West, Qatar is an ambi- world to set up their business in As part of the Qatar National visa facilitation measures, mak- tious, thriving country that wel- one of the fastest-growing econ- Vision 2030 and the implementa- ing visiting the country a quick comes companies from around omies in the world, capitalising tion of Qatar’s Second National and smooth procedure. Notably, the globe to set up or expand their on all that the MENA region development strategy (2018- this includes visas upon arrival to business. Unsaturated markets has to offer. 2022), Qatar’s goal is to create a nationals of more than 80 coun- like this small Middle Eastern As an onshore business and diverse knowledge economy that tries. Qatar is a forward-thinking sovereign country are appealing financial centre, our model is lasts beyond oil and gas reserves. country with a grand plan. The and it’s no wonder why. Amongst unique in the region. We promote The government’s US$200 bil- population of Qatar is estimated the wealthiest nations on the Qatar’s openness to foreign in- lion investment programme at around 3 million residents, planet, Qatar boasts one of the vestment, give bespoke advice to underlines this commitment to more interestingly however is most stable economies in the help companies make informed attract foreign investment and that 2.3 million of those are ex- world. In 2017, the International decisions and establish their op- an international talent pool. pat citizens – a true testament Monetary Fund (IMF) ranked eration in Qatar. The pace of Qatar’s already reaping the bene- to Qatar’s willingness to work Qatar as the world’s richest globalisation means the business fits of their long- term plan to di- with non-nationals. country per capita, placing it world is changing and emerging versify and have made significant The thriving expat community above neighbouring markets. markets are increasingly driv- gains in strengthening non-oil makes up around 88 per cent of Qatar was also in Forbes’ Top ing the global economy. Trade sectors, such as manufacturing, the population and they enjoy 40 Best Countries for Business between emerging markets has construction, and financial ser- tax-free benefits with a high list in 2017.In terms of growth risen steeply from 25 per cent vices. Nominal non hydrocarbon standard of living, along with a and pro profitability, Qatar is set in 1995 to 40 per cent in 2017. GDP presents a share of 63.6% . modern way of life. Plus, English to go from strength to strength A decline in growth in Europe In addition, Qatar will be the and French are widely spoken. with the government’s US$200 and the US means there’s a lot of first Arab country to host the Qatar is one of the safest coun- billion investment programme uncertainty around globalisation 2022 FIFA World Cup Qatar and tries in the world. It ranked as the underlining their commitment and the road ahead may well US $200 billion is estimated to 13th most peaceful country on to developing infrastructure, be a bumpy one. However, this be spent on infrastructure ahead the planet, out of a total of 163, which is in line with the Qatar makes emerging markets, such of the event. This has created a in the 2017 Global Peace Index National Vision 2030 objectives as Qatar, extremely appealing. boom in the construction indus- for the 10th year running. Plus, for economic, human, social and Forward-thinking, entrepreneur- try, as well as financial services it was the only country in the environmental development. ial and with a diverse range of and the transport, tourism and Middle East and North Africa to Part of Qatar’s 30-year vision is cultures, this business-friendly leisure sectors. be placed amongst the world’s 50 to attract foreign investment and country caters for all business Consumer and retail markets are most peaceful countries. an international talent pool, and sectors and is fast becoming one also transforming. Retail space businesses can take advantage of of the best places for investors has expanded by 60% since 2016 a compelling tax environment. to set up or expand their organ- and in 2017, 6,625 housing units Plus, they maintain 100% own- isation. were built, with the value of real ership of their business. According to the International estate reaching US$8.98 billion Top all this off with a high stand- Monetary Fund (IMF), Qatar’s – an increase of 20% from the ard of living in a multicultural real gross domestic product previous year. environment with recognised ac- (GDP) will accelerate from 2.6 High-end hospitality is on the rise ademic opportunities, including per cent in 2018 to 2.7 per cent too, with over 10,000 hotel rooms full sponsorship for free study in 2019 to extend to 2022. This and 2,000 serviced apartments in and an infrastructure that sup- is the most realistic IMF forecast planning or construction during ports businesses to succeed. It’s for real GDP in the Gulf. 2017 – 85 per cent of which are easy to see why Qatar businesses Hydrocarbon sector is the coun- rated 4-star or above. has firmly put itself on the map try’s main economic engine, The Qatar Tourism Authority’s as a leading financial centre driving the high financial growth ‘National Tourism Strategy’, where business go to grow within and per capita levels, and this has a target to double tourist Scan Code To a diverse nation that is home to is likely to persist for the fore- arrivals to 5.6 million by 2023 Read More over 85 different nationalities. seeable future. Oil reserves will and recently announced major www.qfc.qa Qatar boasts one of the strongest and fastest measures introduced by Qatar, including • 100% repatriation of profits growing economies in the MENA region. Qatar allowing nationals of 88 countries to enter • 10% corporate tax on locally-sourced profits has been ranked as the second-most competitive Qatar visa-free and free-of-charge. • World-class regulator economy in the region for the second time in a • Trade in any currency row, and 30th globally, according to the World The government’s multi-billion dollar invest- • Legal environment based on English common law Economic Forum’s Global Competitiveness Report ment programme has put the country on a sure • Attractive tax and business environment 2018. Its GDP is also projected to grow by 2.4% footing to further develop its infrastructure • A streamlined and transparent company in 2018, and with double tax agreements with and cater to its growing population, in line with registration and licensing process over 70 countries, Qatar remains an attractive the Qatar National Vision 2030 objectives. This • A unique Administrative Employment Dispute hub for international investment. comes in addition to a recently announced Resolution Centre accredited by the multi-billion dollar fund which has been International Labour Organization (ILO) Qatar is strategically located in the centre of the allocated as part of an incentives programme to Gulf with flights to over 150 destinations, and as attract multi-national companies. Companies set up under the QFC also benefit such is well-positioned to act as a regional hub from Qatar’s extensive DTA network with over to markets worth over USD $2.1 trillion including The Qatar Financial Centre (QFC), one of the 70 countries. Kuwait, Oman, Pakistan, Turkey, and India. world’s leading and fastest growing onshore busi- ness and financial centres, endeavours to promote QFC’s unique platform has allowed it to attract Qatar has also been ranked as the most open Qatar as an attractive business destination and a business community of over 612 firms from country in the Middle East and the eighth most lies at the crossroads between East and West. all over the world across a variety of financial open in the world in terms of visa facilitation and non-financial sectors. This has created a according to The World Tourism Organization’s The QFC offers its own legal, regulatory, tax and community of over 3500 people, with a (UNWTO) updated visa openness rankings. The business infrastructure, including: combined total assets under management of high ranking reflects a string of visa facilitation • Up to 100% foreign ownership over US$20 billion.

QATAR CONDUCTING BUSINESS ON THE WORLD STAGE 43 SAMOA SENSIBLE...ACCESSIBLE...MODERN... OPTIMUM...APPROPRIATE...SAMOA!

* by Invest Samoa

Samoa’s international financial centre was estab- Legal persons or trust companies that do not wish A Samoan trust can continue indefinitely or it can lished in 1987 as the Office of the Registrar for to set up offices in Samoa can ask to be given man- last for a fixed period, according to the wish of the Foreign and International Companies under the aging licences. A Samoan law firm or accountancy settlor. If the settlor has designed it to last for a auspices of the Central Bank of Samoa. The Samoa firm can issue one of these and administer it. Sa- fixed period, the trustee can lengthen or shorten International Finance Authority (SIFA) was set up moa has about 27 law firms and eight accountancy that period and can even change the trust to make in 2005 to provide international financial services, firms. This option is ideal for legal persons or trust it continue indefinitely. If the settlor has designed with the enactment of the Samoa International Fi- companies that wish (at reasonable administra- the trust to continue indefinitely, the trustee can nance Authority Act 2005. The idea was and is to tive cost) to set up trust businesses in Samoa and subsequently change it to last for a fixed period. A attract clients who are hunting for a jurisdiction obtain the added benefit of efficiency and ease of Samoan trust can accumulate income throughout that provides wealth management products and doing business. its period of continuation. services. The Trustee Companies Act provides for the estab- The provisions for both a protector and an enforcer THE TRUSTEE COMPANIES ACT lishment of private trustee companies, which are of a Purpose Trust are as good as in any other juris- 2017: A NEW PERSPECTIVE exempt from regulation as long as they satisfy the diction. Trustees have a statutory duty of care that appropriate conditions. Section 10 protects law they must observe in their exercise of certain pow- firms and trust service providers from some of the Until recently, trustee companies were provided for ers. This duty is included in every trust deed and is consequences of legal action by requiring them to and regulated under the old Trustee Companies Act particularly helpful and reassuring for the benefi- take out policies to insure against that eventuality. 1988, with only one type of trustee licence availa- ciaries who read it. These Samoan provisions follow ble to firms that wanted to offer financial services those in the UK and Singapore. Samoan law also The Samoan Trustee Companies Act is the first piece to the world from their bases in Samoa. The old Act contains detailed provisions that concern invest- of legislation in the world to adopt and incorpo- required trusts to hold substantial capital stocks ment, delegation, the use of nominees and custo- rate the Standard of Best Practice that GIFCS (the without the need for insurance. As the result of dians, insurance and the remuneration of trustees. Group of International Financial Centres Supervi- far-reaching changes in the financial world, Samoa sors) published in 2014. The observance of that enacted its new Trustee Companies Act in 2017. Section 45 of the Act of 2014 says that a reserva- well-respected standard ensures that trust com- This repealed the old Act and set out new ways in tion of powers and rights to a settlor in a trust does pany service providers will strive to provide the which trustee companies and international firms not invalidate that trust as long as the trust is “not a most up-to-date solutions for clients’ problems could use Samoa’s international financial services. sham” or “there is such an excessive reserve of pow- and needs. ers to the settlor that the role of the trustee and the Although in the past Samoa has concentrated on nature of the trust is compromised.” Subject to that The different types of licence that the Act makes international business companies (IBCs), the Sa- section, the settlor may arrogate a wide variety of available, its insurance-related requirements and moan Trustee Companies Act 2017 now provides an powers to himself, including the power to revoke the the low level of capitalisation that it demands have attractive platform for clients who want to set up trust; to do various things with its capital; to remove already helped many clients who are looking for an offices for all manner of purposes in Samoa with a director or officer of any corporation that the trust alternative, stable and efficient jurisdiction to find the aim of using the jurisdiction as a base from owns; to give binding directions to the trustee in their way to Samoa. which to conduct international business. The new connection with the trust property; to appoint or law contains rules for recordkeeping, the identifi- remove any trustee, enforcer, protector or benefi- cation of customers and the verification of bene- SAMOAN TRUSTS: A COMPARATIVE ciary; to appoint or remove an investment manager ficial ownership and accounting information that ANALYSIS or advisor; and to change the proper law of the trust. conform to the most recent standards issued by These powers are extremely wide and compare well the Organisation for Economic Co-operation and Samoa has provided trust products and services with those found in the laws of the Cayman Islands, Development (OECD) and the Asia Pacific Group since 1988. It has brought these up-to-date with Dubai, Jersey and Labuan. (APG), the regional chapter of the global an- the Trust Act 2014, which repealed the old Interna- ti-money-laundering Financial Action Task Force tional Trusts Act 1988. There are also provisions for “prescribed directions” (FATF). Samoa’s adherence to these international of the kind that a settlor can give to a trustee when standards is a sure sign of its ability to move with Under the Act of 2014, trusts can be either ‘char- that settlor possesses reserved powers. The trustee the times. The Trustee Companies Act is also, more itable’ or ‘for a purpose.’ Even more excitingly, the is protected if he/it complies with such directions importantly, Samoa’s response to the commer- Act has established a special type of trust called and this is a unique feature of in Samoa. cial needs of members of various professions who the Samoa International Special Trust Arrangement operate all over the world. (SISTA). There are other ways in which one can ensure that a settlor and others keep control of a Samoan The Act offers the practitioner three types of trus- Samoa’s trust law is unique in that it can be ex- trust. It can be done through the use of a Private tee company licence, all of which impose competi- pressed in any language as long as a proper English Trust Company or PTC, which may be owned, for tive capital requirements and capitalisation in their translation is provided. It provides the right amount example, by members of the settlor’s family, or by different ways. of protection for assets against foreign succession a Purpose Trust, or by a company limited by guar- rules or claims in foreign matrimonial proceedings. antee or by a Special Purpose International Compa- The first type of licence is a financial services li- Asset protection is governed by a “three-year rule” ny, which is unique to Samoa. The law surrounding cence which enables the holder to conduct incor- that dictates that if the creation of the trust in ques- PTCs is similar to that of Singapore and is as good poration services. The second type of licence is a tion and any disposition to the trust takes place as that of any other jurisdiction. trust licence which enables the holder to provide more than three years after the relevant creditor’s trust services. The third type of licence is a com- cause of action arises against the settlor (the creator The Samoa International Special Trust Arrange- posite licence which enables the holder to provide of the trust), the trust and the assets transferred to it ment (SISTA) is similar to the Virgin Islands Spe- both financial and trust services. are protected from the creditor’s claim. cial Trusts Act (VISTA) and to the Labuan Special

IFC WORLD 2019 44 Trust (LST). The objective of a SISTA is to permit a beneficiaries. It can have notifiable beneficiaries need for international financial facilities to be Samoan trust to hold and not diversify the shares (who can receive information about the founda- better regulated and co-ordinated. In addition, of a Samoan company and let persons other than tion) and non-notifiable beneficiaries (who can- SIFA’s marketing brand, “INVEST SAMOA,” was the trustees act as directors of that company, not). It might sometimes appoint a guardian to created in late 2016 to focus exclusively on without the trustees being at risk for that reason. protect the interests of the latter. promotion and development. INVEST SAMOA is the first point of contact for clients and profes- Another structure exists that combines a trust with A Samoan trust and a Samoan foundation protect sionals interested in the products and services a limited partnership. This enables a Samoan trust their assets from expropriation in more or less the offered by the Samoan IFC through SIFA. INVEST to hold the interest of a limited partner in a limited same manner. In this regard, the claim of one of the SAMOA manages and maintains the reputation partnership as an asset and permits the general part- founder’s creditors whose cause of action against of Samoa as a reputable offshore jurisdiction. ner, who is required by limited partnership law to the founder arises more than two years after the control day-to-day business and hold the assets for time when he created the foundation, or when he Samoa is the leading IFC in the South Pacific the partners of the limited partnership in the ratio in transferred assets to it, cannot extend to the assets Region. Both the World Bank and the Inter- which they share the capital of that partnership, to of the foundation. Other rules protect the assets national Monetary Fund have hailed it as the do the same thing without putting the trustees at of a Samoan foundation against foreign rules of model economy for the Pacific Region. Samoa risk. Samoa is unique in having a law of this kind. This succession and foreign judgements; these, too, are has endeavored to keep abreast of international law, moreover, does not confine the structure to one largely the same as the rules that protect the assets developments by sending people to renowned jurisdiction but rather allows the limited partnership of Samoan trusts. international finance conferences around the and any companies involved to be formed in any ju- world. Additionally, INVEST SAMOA has spoken risdiction. Also, since the trustees do not hold the LOOKING FORWARD TO THE FUTURE at various international seminars, predomi- actual assets but merely an indirect interest in them, nantly in Asia, with the aim of promoting the they cannot misappropriate anything. Samoa has always been shrewd enough to revise jurisdiction. its products and services to ensure that they are THE INNOVATIVE NATURE OF relevant to the changing needs of clients and op- Samoa’s suite of international products and SAMOAN FOUNDATIONS erate in line with international standards. In doing services includes trusts, trustee companies, so, it will always endeavour to remain a sensible, international companies, international banks, Samoa provides foundations through the Samoan accessible, modern, optimum and appropriate international insurance, segregated-fund inter- Foundations Act 2016. The foundation is a civil-law jurisdiction. national companies, mutual funds, special- concept and Samoa is a common-law jurisdiction, purpose international companies, foundations, but Samoa introduced foundations into its laws INVEST SAMOA is the promotional arm of Samoa’s partnerships and limited partnerships. to widen its target market to take in clients from international financial centre. Its mission is to en- civil-law jurisdictions. sure that Samoa provides the world with modern Although INVEST SAMOA concentrates on pro- and compliant financial products and services of moting the international solutions and services A Samoan foundation is a registered legal entity the highest quality. The development of the Trus- that the Samoan IFC offers, it also promotes which owns its own assets. Its charter and rules tee Companies Act in 2017 and Samoa’s continuous Samoa as a jurisdiction with investment op- and other documents that relate to it can be in any revision of its laws regarding international finance portunities in tourism, economic development language as long as a proper English translation is are proof of the Samoan Government’s support for and international sports. Indeed, it has been provided as well. its worthy objective. the major sponsor for various Samoa national teams - particularly the Manu Samoa Rugby 7s Each foundation must have a founder who gives Team and the Samoa National Netball Team. it some initial assets. Its charter can reserve pow- INVEST SAMOA is the promotional and mar- ers and rights to the founder, who can assign the keting brand of Samoa’s international finance * For more information about Samoa please visit benefit of them to someone else. Any assignee of centre, which is officially known as the Samoa our website at www.investsamoa.ws, our those powers and rights can, in turn, assign them International Finance Authority. SIFA was es- Facebook page at www.facebook.com/ onwards. A Samoan Foundation must by law have tablished in 2005 as a Government Corporation investsamoa, or email [email protected] a purpose, which can include an imperative to pay in recognition of the centre’s maturity and the /[email protected] or telephone +685 66412

SAMOA SENSIBLE...ACCESSIBLE...MODERN...OPTIMUM...APPROPRIATE...SAMOA! 45 IFC World 2019 Ad copy_Mar19.pdf 1 27/03/2019 09:44

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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 struc- than in previous years. Their banks are afraid to chal- revenue. This is a highly risky business model in view tural decline, with its margins decreasing all the lenge the cost of such front-office staff because they of the fact that revenues are substantially variable time. This is because its already-heavy cost burden are mistakenly afraid of losing their clients if their while costs are generally fixed in the short-to-medi- is on the increase – especially because of the spi- relationship managers defect to competitors. um term. The revenues, as always, are based on the ralling costs of compliance and technology coupled valuation of stock and asset markets. We have prac- with the continuing high cost of ‘compensating’ This fear is an increasingly illusory one. The relation- tically the highest-ever stock market valuation levels client-facing relationship managers. ship manager’s historically strong bond with his cli- at present and if there were to be a correction, the ent is weakening progressively. In the past, the aver- platforms (many of which have an excessively low This has, of late, been masked by the rip-roaring per- age high-net-worth client moved banks with his key ratio of debt capital to equity capital) would suffer formance of stock markets in the US and elsewhere relationship manager, but that was before it became significantly as they are not in a position to adjust in the world – the very places where the wealth a hassle to move bank accounts. Nowadays, the cli- their cost bases as quickly as revenues could decline. management industry has invested most of its as- ent dislikes the tortuous, burdensome and intrusive sets. There was a temporary but significant fall in process of going through the “” asset values in the last quarter of 2018, but the gen- checks, the funds checks and the source-of-wealth “Private banks still eral picture is still buoyant and, as the markets have checks. The average RM now only takes 10-15% of already recovered from that temporary setback, the his clients with him at most. believe – myth though industry has been rescued again by high market in- dices – for the time being. When stock markets go Private banks still believe – myth though it may be it may be – that it is up, they raise all boats. – that it is always a good thing to hire more RMs. The migration of clients with their RMs was fairly always a good thing to REASONS TO BE CHEERLESS complete in the past but not now. Nevertheless, the banks still want to hire people with the aim of steal- hire more RMs” There are three primary reasons for the industry’s ing their clients from other banks, even though their structural decline. First, there has been a decline on products and services and pricing policies are similar. Almost every bank believes that it can accommo- the revenue side of things, with wealth managers date increases in AuM at minimal marginal cost and, and private banks finding it difficult to produce new AN INTERESTING PHENOMENON as a result, improve its bottom line substantially or products while seeing their revenues from assets un- at least stop losses from accumulating. An oft-heard der management halved during the past ten years. Some of these RMs are tired of dealing with the refrain goes: “It’s very possible to acquire other peo- The majority of providers struggle to offer services bureaucracy of their banks and with product com- ple’s assets on my platform. If I double my assets, other than asset management and asset-related ser- mittees, compliance committees and the like. The my cost goes down.” It is interesting to note that vices, despite trying their hand at corporate finance more enterprising of them often decide to set up cost-income ratios over the past few years have and merchant banking. This means that there are no on their own, or to join independent advisory firms. ranged from 65% to 95%; improvements in gains significant new sources of revenue to look forward They know that they cannot take their clients with from productivity have yet to be seen. to, while at the same time competition is forcing them because those clients want to stay with the revenue margins down. same banks for the sake of a quiet ‘compliance’ life. This brings us to another point. With that in mind, The enterprising RMs sidestep this problem by sug- one would have thought (in view of the vogue for gesting to the clients that they ought to give them consolidation) that the valuations of private banks “Banks are mistakenly power of attorney over their bank accounts for in- or asset managers would have gone up. This is not vestment management advisory mandates and let the case. There are at least 15-25 bidders on every afraid of losing their them carry on running their investments that way, asset available in an open free auction, yet prices while maintaining account custody at their original remain stable or, in some cases, are lower. This tran- clients if their relation- banks. spires because not everyone is willing to actually buy what comes up for sale. In other words, the buy- ship managers defect” This gives the newly independent RM his freedom ers say that they are interested in buying but then and less ‘infrastructure’ to have to cope with, while decline to pay up, saying that they dislike this-and- Second, there has been a steep increase in the cost the original bank loses some income to him (he be- that part of the available deal, in the same manner and time consumption of compliance, which now comes the customer, in effect) but also saves itself as someone going to a car showroom with the accounts for an average of 10% of a ’s the cost of having to pay him expensive remuner- stated intention of buying a car and then telling the labour costs adding a necessary layer of costs for ation year after year. This is a significant phenom- salesman that he does not want the wing mirrors onboarding new clients or vetting new products and enon, although it is not taking place on a massive or the seat. This results in no sale and no increase services. The news is, of course, far worse for smaller scale. in valuations. banks; if you have ten people, you are still going to need at least two compliance people. Survival in this game has become an issue of size The universal banks have private banking divisions as and economies of scale. The majority of Swiss pri- well. The people in charge of these businesses also Third comes the continuing inability of private vate banks and wealth management companies want consolidation, i.e. they want to buy up oth- banks to moderate the costs of their highly-paid, – even the big ones – are increasingly saying: “We er banks and wealth management companies, but client-facing private bankers and their often el- want to grow with takeovers. We need more assets their mother companies are holding them back, es- ephantine bonuses, which ought to be declining but on our platforms. We have a strategy to buy others.” pecially when their investment banking divisions are nevertheless remain the same and, in some cases, underperforming. are rising along with stock market valuations. These The average cost/income ratio is around 75% – in people are bringing in less revenue (although not other words, it costs a typical Swiss private bank Ironically, the private banking business is more prof- necessarily less AuM/assets under management) or asset manager 75c to generate every SFr1 in itable and less capital intensive than other parts of

SWITZERLAND A SNAPSHOT OF THE SWISS WEALTH MANAGEMENT INDUSTRY 47 the typical . As each bank struggles Government forcibly extracted money from peo- typically set themselves up with new clients, then to shore up its other businesses, it has no capital or ple’s accounts that contained more than €100,000 peak out with $2 or $3 billion in assets under man- courage towards its shareholders to spare any cash in order to bail out the core banks. HNW depositors, agement or advisement. They have no effect on the for acquisitions. The demise of prosperity at the many of them Russian, received a ‘haircut’ and saw market except at the margins. A start-up of this kind centre hampers the bank from allowing its private large chunks of the value of their uninsured deposits can be likened to one Member of Parliament resign- banking business to grow and take advantage of converted to equity. Financial institutions (e.g. Ger- ing – it attracts everybody’s attention, but has no potential opportunities. man banks and central banks including the Bundes- effect as long as the Government has a majority. bank), along with government entities, received full THE RIVALRY BETWEEN repayment. SWITZERLAND AND SINGAPORE FOR “The depository This was a total departure from normal bankruptcy WEALTH MANAGEMENT BUSINESS proceedings where strict rules apply and a court-su- insurance that some pervised process ranks creditors in order of repay- The comparison between these two jurisdictions is ment precedence, with creditors in each group be- countries have in place only partially logical. The two centres are compet- ing treated equally. Michael Sarris, Cyprus’ former ing for market share, so it is possible to speak about Finance Minister, says that he was pressurised by the might not be there rivalry in that sense. Singapore trains its wealth Troika – the European Union, the European Central managers (especially recent graduates) to a high Bank and the International Monetary Fund – to sign forever” standard and its regulatory oversight is prominent; the deal, knowns as the ‘bail-in.’ This first-ever post- Switzerland is catching up. On the other hand, HNW war EU-inspired government-licensed plundering of One such recent example is that of Michael Baer, people – quite legitimate people who have no in- bank accounts can be seen as a trial run for the next the great-grandson of Julius Baer, whose epony- tention of hiding undeclared or illicit funds – from wave of asset-stripping that will occur in a country mous bank is one of the top financial institutions in South America, Africa, the Middle East and Europe that faces bankruptcy. Greece – which may not be Switzerland. His new venture obtained its banking (especially Eastern Europe and the weaker EU able to salvage all of its sovereign debt – could be licence late last year after a two-year wait. He has countries) view Switzerland as neutral and as safe next on the list, despite the fact that financial mar- started well with around ten people and less than as gold. Singapore has less of that kind of business, kets have been showing signs of recovery in recent US$50 million in capital. This is not a large set-up despite all the troubles (now over) through which years. yet but the development of its merchant banking Switzerland has struggled as a financial centre. model will be worth watching. This could become an In Cyprus, the depositors were given shares in banks attractive client-serving boutique in the long term. Singapore draws its private wealth deposits from that were worthless at the time, in return for the ex- China, Japan, India, the rest of Asia and, to some ex- propriation of their assets, which received ‘haircuts.’ There is a very good side to these start-ups, how- tent, the Middle East, and does so in less quantity Some HNWs therefore believe that the depository ever: they keep the big boys honest. This is because – at least so far. insurance that some countries have in place will they are very ‘client-centric’ and that, in turn, is be- not be there forever. Central banks, especially the cause they have to be that way if they are to stand SOVEREIGN RISK AND HOW TO European Central Bank, are putting up a façade and any chance of success at all. DEAL WITH IT claiming that everything is now fine, but in the next wave of sovereign crises the governments have re- There is another trend in the de novo parts of wealth The HNWIs who seek out places such as Switzerland solved to use ‘bail-ins’ that will allow them to take management: some private banks are trying to and Singapore largely for their neutrality and stabil- money away from the depositors to protect the become more entrepreneurial, not only managing ity are worried about ‘sovereign risk,’ the risk they banks. This will have the benefit (to them) of reduc- HNWs’ assets but also trying to help them to leave run by keeping their wealth in their home country or ing the size of, or forestalling the need for, bailouts of or sell their businesses, or to find additional capital in backward countries in general. Sovereign risk has the kind that they organised to rescue banks when in order to expand them, or indeed to start new ven- the financial crisis began in 2008. been described as the chance that a central bank will tures. This is a difficult thing to do under the con- make rules that will diminish the worth of its cur- straints of heavy regulation, but they aspire to do it In view of this, anecdotal evidence exists in the rency, or as the risk that a nation will fail to meet its and it helps their image. Unfortunately, there are few market to the effect that there is an increase in obligation to repay debt, or as the risk that a nation examples of success. It is a rare thing for a private investment in gold in Switzerland, and in gener- will not honour its sovereign debt interest payments. bank to manage to create a successful global busi- al elsewhere. Gold is very thinly traded, so some Italy and Japan, with their bulging sovereign , ness without using external specialists as partners. people worry that the largest banks, central banks pose this kind of risk in the eyes of many HNWIs. and governments that hold gold can manipulate its EAMs price, but this fear is otherwise offset by the fact that there is always a substantial retail demand for gold, External asset managers, often covered before in “Sovereign risk can especially in India and Japan. The cost of producing the pages of IFC World, are having a crisis at the gold is in some cases 20-30% of the market price, so moment. There are perhaps 2,500 of them in Swit- extend to the it would have to become very cheap indeed before zerland, of whom around 80% manage less than mining companies were to stop producing it. expropriation of assets SFr250 million. The virtue of these wealth managers lies in the fact that they work outside the banks as by governments” DE NOVO BUSINESSES IN THE stand-alone companies and are proud of their in- WEALTH MANAGEMENT SECTOR dependence. They appeal to HNWIs because they Sovereign risk can cover far more than the econom- are independent in terms of investment policy and ic chaos that follows a debt or debt-related It is worth looking at de novo businesses for just a product selection and they make a point of being hyperinflation, however; it might also extend to po- moment. Every year, a handful of new little banks less bureaucratic than the banks, but regulation is litical turmoil and violence or the expropriation of and, more often, asset management companies are gradually killing that appeal by burdening them – assets by governments. born. It takes years to obtain a banking license these especially the smaller ones – with crippling costs. days, which might explain why the latter outnumber The latter occurred in Cyprus a few years ago when the former. Every year, the new intake accounts for It is estimated that two-thirds of them will disap- the country was in economic meltdown, having re- a mere 0.01% of the whole market, which is next pear in the next ten years unless compliance/con- lied on investing in Greek Sovereign bonds which to nothing. Even more dismally, these independent trol software can lighten the load that they have collapsed in value despite being sovereign. The entities peak out soon after their inception. They to bear.

IFC WORLD 2019 48 Swiss EAMs are facing steep increases in regula- Millenium Associates surveyed 30 EAMs recently wealth financiers have yet to heed this advice. Contra- tory compliance on one hand, while on the oth- and they all said the same thing: they all wanted to ry to the propaganda that private banks and wealth er they are having trouble attracting new clients. grow in size and they all wanted to buy (each other). managers put out, they are basically commodity prod- This has been a trend in the last few years and has We might now, therefore, be in an era of consolida- uct providers. They perform hardly any bespoke, tai- intensified in the last two; it will be even worse tion (or, at least, that is what the EAMs hope). lor-made services any more, even though they adapt next year. portfolio strategies to some extent. One bank might invest 30% of the portfolios it manages in equities in- The banks are making it difficult for customers to “Some say that the stead of 40%, but this is merely the same meat with move accounts. An EAM is no longer able to wel- different gravy. A recent survey of the brochures of come a brand new new client in an efficient way. compliance department some twenty private banks showed that the main dif- It is nauseating for an HNWI to hold tedious con- ferences between them lay in the photography rather versations with compliance staff at banks, which is is more powerful than than in the services that they were offering. where they have to have their accounts, but this is what they have to do now if they want to hand the board” *Ray Soudah can be reached at their account management over to EAMs. These [email protected]. days, some say that the compliance department is My refrain has always been “let the client be the cen- MilleniumAssociates AG is based in more powerful than the board at some banks. tre of operations and not the service provider.” Swiss 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 COMPANY USAGE • the fact that the discretion against restoration greatly exaggerated. By the same token, people who should be exercised proportionately; claim that the offshore world is ‘dead’ fail to see that In this context, here are some issues to keep in mind. • whether in all the circumstances it is just to sophisticated offshore centres and the dispute-re- The first is company usage. restore the company; and (crucially) lated work that they generate are not only alive but • the fact that the exercise of the discretion not to positively thriving and increasing in complexity. In A company has a legal personality that is separate restore should be the exception and not the rule this article we take a close look at the service sector. from that of its shareholders; this is a fundamental where it is just to do so. but often overlooked legal concept. There is now a clearer (and longer) period during which a company WHY DOES THE RESTORATION OF A “The sooner a company struck off the register of companies in the Turks and COMPANY MATTER? Caicos Islands can be restored by application. What is restored, the sooner is more, companies struck off under the former stat- Property and legal professional privilege (at least) utory regime can be treated in the same way for the are two good reasons for the restoration of a com- the door is closed to an purposes of an application for a restoration. pany. First, the assets of a dissolved company be- come those of the Governor on behalf of the Crown, attack on its documents” So far, such restorations have been by consent of the just as assets of an equivalent (dissolved) company Registrar of Companies and the Finance Ministry, so in England & Wales also become property of the The interests of a ‘disputes client,’ whether (i) in cur- the courts have made no decisions yet about how Crown (an ancient concept most often known in its rent high-stakes litigation or arbitration, or (ii) trying they should exercise their own discretion to restore Latin description of bona vacantia). Property vested to move away from such, often benefit from the a company where there has actually been a dispute in this way in the Turks & Caicos Islands – i.e. out of recognition that discretion can be the better part of as to whether the restoration should occur (i.e. to the hands of the company – can be restored if not valour. Early access to experienced professionals who say yes to an application for a restoration that is op- disposed of to innocent third parties. The position in are ready to de-mystify the process while operating posed). This is for the simple reason that the regime respect of bank account proceeds is arguably sub- in a tough situation can help a client win at least half is so new, being enacted the year before last and ject to ‘salvage’ too, in that it is also subject to the the battle. As development monies flow in to islands coming into force last year. exercise of a discretion. blessed by miles of pristine beachfront, the inevita- ble scope for shareholder and other joint-venture The concept that a lawyer must maintain the privi- disputes that straddle multiple jurisdictions calls for “Tax authorities are lege of his client is widely understood. “Attorney-cli- – and turns a spotlight on the availability of – suf- ent privilege” in its American form is well publicised ficiently experienced lawyers with proven track-re- about to know infinitely in films such asThe Firm and is now under the spot- cords. People who have worked towards favourable light with the seizure of privileged materials in re- judgments against their client’s adversaries in many more than they do now spect of President Trump. It is the right of a client to jurisdictions are definitely in demand. assert it and the obligation of a lawyer to maintain about the beneficial it. Privilege is not lost by the death of the client, but There are many times when every law firm has to the ‘death’ of a juridical ‘person’ (a company, created give vital advice to a client about threshold issues ownership of structures” as a person by the effect of statute) leaves things less (requirements that an individual must satisfy at the clear, such that restoration of the company to the outset) regarding strategy. There are also many sit- This is not in itself a concern. The history of case law register is the surest way of preserving privilege. Sub- uations when formal proceedings may already have in equivalent jurisdictions, whose laws are analogous, ject to that, the Upper Tribunal in Garvin Trustees v started and costs (plus exposures to further costs) is probably a good guide for the future. One such case Pension Regulator decided that the privilege vested in have been mounting for some time. Sometimes a is the very recent British Virgin Islands Commercial bona vacantia just like any other asset that there was business client comes to our firm through a firm Court (Eastern Caribbean Supreme Court) decision no positive obligation or duty to maintain it. that is less cognisant of the need to monetise his of Patrick Smulders v Registrar of Corporate Affairs & position quickly and get his business on to the next Financial Secretary (2017). This decision provides a This creates an odd outcome, both from the per- transaction; sometimes he simply comes to us with non-exhaustive list of matters that a judge should spective that the revival of the obligation is arguably a need for some fresh ideas. A wise law firm rec- consider when determining whether or not to exer- possible on the restoration of a company and prior ognises and supports the plain fact that businesses cise his discretion to restore a dissolved company on to any such restoration leaves the communications do not exist for the benefit of lawyers and clients the ‘just’ principle. These matters are: of those who have sought legal advice for the com- should receive access to joined-up thinking if their pany exposed in a way that runs entirely contrary to disputes might have cross-border implications. • the threshold issue of whether the person or the rationale for legal professional privilege, which entity who applies to restore the company is that: “A man must be able to consult his law in In this article I aim to float some ideas to do with has standing (which is simply ‘lawyer-speak’ for confidence, since otherwise he might hold back half issues of separate corporate personality which, recognised capacity or ability by which to make the truth. The client must be sure that whatever he put simply, involve the notion that a company ex- the application); tells his lawyer in confidence will never be revealed ists separately and apart from its directors and/ or • the purpose for which the company was formed; without his consent. Legal professional privilege is shareholders. Tax authorities are about to know in- • the purpose for which it is to be restored (it thus…a fundamental condition on which the ad- finitely more than they do now about the benefi- should be for a beneficial purpose); ministration of justice as a whole rests.” (R Derby cial ownership of structures – this is very much a • the reason why the company was struck off; Magistrates’ Court [1995] 1 AC 87.) ‘when’ and no longer an ‘if’ - and tax information • the length of time during which it was dissolved, exchange is now in place and continuing to grow. and the delay in seekingits restoration; That it is only arguably possible to restore privilege is The company law of the Turks & Caicos Islands was • whether the restoration of the company would as a result of a mismatch between (i) the curative ef- reconfigured recently with this in mind. cause prejudice to a third party; fect of the legislation (by which a restored company

IFC WORLD 2019 50 is deemed never to have been dissolved in the first targeted at specific information of demonstrable The law firm of Prudhoe Caribbean works on place), which plainly supports the continuance of priv- relevance to the proceedings in the country from complex and often cross-border representa- ilege, and (ii) the narrow applicable definition ofbona which he is making it. The request happens through tions, frequently concentrating on projects with vacantia transfer, which deals with only “any property a ‘letter of request’ from the requesting jurisdiction. overseas co-counsel and General Counsel teams. of a company” (s263(6) Turks & Caicos Islands Compa- That request may be made either to the Governor It is most often deployed in the courts of Central nies Ordinance 2017). This focus on property transfer, for implementation through the Court Registrar or America and the Caribbean, but is also used to in contrast to the wider language of equivalent legis- to the Court Registrar directly. In either instance, the working as part of time-sensitive projects that lation in England & Wales of “all…rights whatsoever Attorney General’s Chambers is likely to become in- encompass many parts of the globe, sometimes vested in…the company” (s1012 Companies Act 2006, volved. If a requester is suffering from time pressure organising the recovery of assets in many England and Wales) weakens any argument that the as a result of (say) an overseas case that is about to jurisdictions at once. Crown actually receives the right to privilege as a be heard, his application to ask the Turks & Caicos Is- lands for help requires affidavit evidence (setting out result of the bona vacantia process. It accepts only a limited number of engagements the targeted nature and relevance to the overseas so as to ensure that its clients (whether end-user, proceedings of the underlying evidence he seeks) via co-counsel or both) enjoy access, and is made without notice to the target. “Privilege is not lost by responsiveness, and service consistent with on- the death of the client, The test and requirements to be applied on the shore providers. It is not a traditional law firm in hearing of such an application is as follows. that it does not normally cater for repeat clients. but the death of a Its lawyers are tied neither to any particular • It must be a request by a competent court for clientèle nor to any geographic locations. juridical person” evidence to be used in ongoing civil proceedings, • in English, Prudhoe Caribbean is based in the Turks & Caicos The primary lesson to be learnt here is the need to • for documents that could, in the Turks & Caicos Islands and sometimes does domestic work. The act quickly, whether one is acting for or against the Islands, be obtained in civil proceedings of the interaction of offshore financial centres with company that is awaiting restoration. The sooner a same kind as the overseas proceedings to which onshore regulators and enforcement agencies is company is restored, the sooner the door is closed to the request relates. a significant aspect of its work. Its approach to a viable attack on documents that would otherwise • The proposed order must not go beyond specified disputes makes it ideally suited to clients whose be covered by legal professional privilege. In the light documents (i.e. the exercise ought not to be a positions are adverse to domestic and of the decisions that the courts have made in this ‘fishing expedition’). international governments and quasi- area, a lawyer faced with competing claims to the • There must be reasonable grounds for belief that government bodies. It specialises in difficult privileged documents of a dissolved company in the the intended witness – i.e. the target of the projects that require creativity in tough context of proceedings would do well to await di- application – might have relevant evidence to operating conditions. rections from the court in question, especially when give on topics relevant to an issue in the overseas one considers ‘confidentiality’ legislation such as action. The law firm has people with reliable, responsive the Confidential Relationships Ordinance. There is a • The target of the request will have his, her or and aggressive litigation skills at its disposal. Its statutory mechanism for doing so as a direct result its reasonable costs of compliance with any order lawyers demystify the process of enforcement of my firm’s advice to the team of draftsmen of the requiring production paid for by the applicant. for the badly-served beneficiaries of offshore Companies (Amendment) Ordinance 2017. The abil- structures and the prices it charges for its ity of a lawyer in that difficult position to make an services contain no hidden costs. Plain-English application to the court was revived. “The primary lesson to explanations of necessary steps towards agreed results and milestones are de rigeur. ASSISTANCE IN THE TURKS FOR be learnt here is the need OVERSEAS PROCEEDINGS – JUDICIAL to act quickly” Courtroom advocacy at both trial and appellate CO-OPERATION level involves skills that take many years to MERELY SCRATCHING THE SURFACE acquire and frequent use to keep effective. A Let us return to the jumping-off point of this article. related skill is the giving of expert evidence on paper and by oral testimony. Prudhoe Caribbean The offshore world’s place in the world of commerce A short article of this kind can obviously only scratch and cross-border commerce (and the disputes that the surface when considering litigation relevant to cli- has both types of skill in abundance. that inevitably generates) is assured. An impor- ents operating in the Turks & Caicos Islands or trying tant contribution to that place is the way in which to extract information from the jurisdiction that is Success at the judgment or arbitral award stage the legal regime of the Turks & Caicos Islands can, relevant to proceedings elsewhere. In a world where is often by no means the ‘finish line’ for a client. and does, answer properly formulated requests for commerce knows no boundaries, truly joined-up Prudhoe Caribbean is adept at persuading courts assistance in overseas legal proceedings. thinking on the part of a legal team that spans several to help it enforce judgments and recover assets continents and geographic regions is at a premium. in many jurisdictions at the same time. It is also A statutory and procedural set of rules in respect used to working in insolvency proceedings, both of overseas civil proceedings exists, subject to * Tim Prudhoe can be reached on for the liquidator (trustee-in-bankruptcy) and as someone making a request in respect of evidence [email protected] the liquidator itself.

TURKS & CAICOS ISLANDS DISPUTE RESOLUTION IN THE OFFSHORE WORLD: A GROWTH INDUSTRY 51

JURISDICTIONS IN PROFILE JURISDICTION PROFILE DIRECTORY

The world of international financial centres is in constant flux. In this index we look at the place of each one in the world market. These profiles also look briefly at jurisdictions’ recent history, the tribulations that some of them are undergoing and changes to their reputations as they all go about the business of developing and surviving. Readers may find it interesting to detect common themes, a task made simpler in a collection of reasonably short profiles that go to the heart of the matter in each case.

Andorra has seven tax agreements in force, as re- ABU DHABI ANDORRA ported to the OECD [Source: the Organisation for Economic Co-operation and Development’s Base Erosion and Profit Shifting (BEPS) Report, issued Abu Dhabi, the capital of the United Arab Emirates, This tiny principality, wedged between Spain and in January 2019 and entitled Project Prevention of moved into offshore financial services in earnest France, has the president of France and the Bish- Treaty Abuse Peer Review Report on Treaty Shop- in October 2015. The jurisdiction has in the past op of Urgell as its joint heads of state. Its banking ping]. These are France, , Luxembourg, focused its efforts on oil and gas exclusively but it assets are about 6½ times its annual economic Malta, Portugal, Spain and the United Arab Emir- hopes to remedy this with the Abu Dhabi Global output, while its financiers have assets under man- ates. No jurisdiction has raised any concerns about Market, its ‘financial free-zone’ which, according to agement on the order of 17 times GDP. It is not its agreements with the jurisdiction. reports, was ‘created’ in 2013 with the lofty am- a particularly popular venue for incorporations, bition of competing with the Dubai International although Andorran companies pay low taxes. Financial Centre. It is the world’s youngest IFC. The main financial endeavour in Andorra is offshore ANGUILLA The ADGM eschewed the Code Napoleon in fa- banking, especially for high-net-worth individuals. vour of English common law as its legal base. This Banking accounts for one-fifth of GDP. Andorra’s Anguilla is one of the UK’s overseas territories and is largely an acceptance of the fact that most off- banks are as follows: is not self-governing. It offers same-day incorpora- shore centres, or at least the most successful, are tion for offshore companies, levies no income tax, rooted in common law or some approximation • Andorra Banc Agrícol Reig (Andbank), which , , or capital gains to it. concentrates on products and services in asset tax, and offers multi-annual work permits to finan- management, private banking and investment cial expatriates. [Source: Ministry of Finance.] It has In one of its consultative documents, it says: “Eng- funds for worldwide customers. AuM in 2016: a population of some 14,000 and its offshore sector lish common law, as it stands from time to time, €22 billion. Andbank started the is very small. will govern matters such as contracts, tort, trusts, internationalisation process of Andorran banks equitable remedies, unjust enrichment, damages, in 2001 when it opened a banking entity called Anguilla is home to International Business Compa- conflicts of laws, security, and personal property.” Andbanc (Bahamas) Ltd in the Bahamas. It has nies and, as in nearly other offshore centres that since expanded internationally through many offer them, does not levy any tax on them. An IBC Abu Dhabi’s and the United Arab Emirates’ civil and acquisitions of wealth management firms, requires only one director and shareholder and need commercial law does not apply in the ADGM, but representative offices and banking licences. It not undertake audits or file accounts annually. It the federal criminal law of the UAE does. decided to close down its 14-man outpost in has recently seen a spike in incorporations, partly the Bahamas last year. because of more onerous regulation in the British The jurisdiction’s all-in-one Financial Services Reg- • Mora Banca, which concentrates on asset Virgin Islands, with which it competes as a jurisdic- ulatory Authority appears to be modelled on the management services and ‘personalises’ them tion in which to incorporate financial firms. Incorpo- old Financial Services Authority of the United King- for customers with significant assets. AuM in rations are rapid because of Anguilla’s Commercial dom. Five very senior Anglo-Saxon judges from the 2018: €6.8 billion. Online Registration Network (ACORN), a state-of- ‘White Commonwealth,’ most of them with titles, • Mora Banc Grup. the-art company registration system developed in preside over the ADGM’s courts. • Banca Privada d’Andorra, which fell victim to Anguilla with help from the British Government and a money-laundering scandal some years go. Companies House in the UK. On it, one can incor- The ADGM is proud of its unique selling-points, one The regulator lists it as an “entity in process of porate limited liability companies or LLCs, IBCs, An- of which is the so-called ‘restricted-scope com- resolution.” guilla Business Companies, limited partnerships and pany’ which is designed for use by family offices. • Banc de Sabadell d’Andorra, which does private trust companies. Some believe ACORN to be the The centre is touting this innovation as the ideal and commercial banking, plus fastest system of its kind in the world. holding company for institutions and professional and other services. investors. • Credit Andorra, which performs personal and The European Union lists two offshore banks in An- commercial private banking services and which guilla: the of Anguilla (Private Banking The financial regulations cover captive insurance has a branch in Panama. and Trust) Ltd and Foreign Commerce Bank Ltd. The business, funds and Islamic finance. The ADGM • Vall Banc, which contains the non-toxic assets Offshore Banks Directory also lists the Caribbean Financial Services Regulatory Authority (FSRA) of the now-defunct Banca Privada d’Andorra. (Anguilla) Ltd as one of these. regulates it and looks after its rulebook. Abu Dha- bi Financial Group (ADFG) launched Etihad REIT, All banks have non-residents on their books. Many Anguilla has one tax agreement in force, as reported a Sharia-compliant real estate investment trust, commentators have noted that the jurisdiction is to the OECD. It is with Switzerland, which has raised two years ago. The ADGM has just started inviting peculiarly vulnerable to the harm that bank fail- no complaints. applications for the fourth cohort of its regulatory ure might wreak on its economy, as it did on the sandbox (Reglab), with the aim of helping to di- economies of Iceland and Cyprus a few years ago. versify Abu Dhabi’s economy by promoting finan- cial technology (FinTech) and regulatory techolo- Unlike Cyprus, whose banks benefited from on- BELIZE gy (RegTech) companies and with 25 April as the shore bailouts, Andorra’s banks have no central closing date. The fourth Reglab will follow the dual bank to act as lender of last resort. This is likely to A former British possession, Belize is an Eng- themes of sustainable finance and automated pro- make HNW investors wary, as they face the pros- lish-speaking country in central America that gained gramming interfaces (API), the latter being a regu- pect of becoming unsecured creditors in the wake independence in 1981. Since the late 1980s it has latory favourite all over the world at the moment. of a bank failure. branched out into areas such as a shipping registry

IFC WORLD 2019 54 (more than 3,000 vessels fly the Belizian flag), and the CEO of Business Bermuda, the jurisdiction’s ers and counterparties are. Climate and geograph- has become an international financial centre. promotional agency, a few years ago. The Bermuda ical position are important factors in the fortunes insurance market as a whole is more than half the of offshore centres because of their appeal to ex- In 1990, Belize enacted the International Business size of the dominant market in London. patriates and their general likelihood to be picked Companies Act. More than 15,000 IBCs have been as locations for offices. So, too, are their immigra- registered since then. In 1992, a Trusts Act was en- Bermuda is a prime example of how a jurisdiction tion policies – Bermuda’s is more liberal than some, acted, providing for onshore and offshore trusts. In can dominate an offshore business line – in this although the introduction of a controversial term 1996, the jurisdiction enacted the Offshore Banking case the offshore insurance sector – if only it can limit policy a few years ago (now rescinded) caused Act, providing for two categories of - gain ‘first-mover advantage.’ The foundation of the problems. ing licenses – the Unrestricted “A” Class and the Re- Bermuda Marine Assurance Co (which insured car- stricted “B” Class licence. The holder of a “B” Class go en route from Bermuda to Philadelphia aboard Bermuda is a low-tax jurisdiction. There are no licence maintains lesser capital and is restricted to the ‘Liberty’ ship) provided such an advantage and Bermuda income or profits taxes, withholding tax, conducting certain limited business activities only. the jurisdiction has never looked back. , capital transfer tax, estate duty or inheritance tax payable by a Bermuda company In the late 1990s, the country enacted the Inter- In 1948 the International Reinsurance Co became or its shareholders, other than shareholders who national Financial Services Commission Act which the first reinsurance company to operate there, normally reside in the archipelago. seeks to promote, protect and enhance Belize as an propelling the archipelago into that business too. international financial services centre and to regu- In 1962, once again acting as a first mover, Bermu- Bermuda is famous for registering aircraft. There is late the provision of international financial servic- da helped US entrepreneur Fred Reiss to set up the an online gambling sector (although not much else es; it also enacted the Protected Cell Companies Act first true modern-day captive insurer, although the is available to gamblers) and duty is charged at the and the Mutual Funds Act. heritage of captives began in the coffee-houses of rate of 20% on all bets made, received or negotiat- London in the 17th Century. ed by licenced persons. The duty is charged under There are also Acts that provide for the creation the authority of the Betting Act 1975 and the Mis- of limited liability partnerships and international In the 1960s Bermuda invented captive insurance cellaneous Taxes Act 1976 [Source: Office of the Tax business companies. The country has an interna- companies, established by parent firms (usually Commissioner]. The archipelago has a solid British tional foundation registry and a trusts registry. All large ones from the USA) for the purpose of cov- common law system. Bermuda has tax agreements international (i.e. offshore) trusts must be registered. ering the risks that those parent firms faced, and with Bahrain and the Seychelles. remains the world’s top domicile for them. It was International banks include Atlantic International also the ‘first-mover’ venue in the 1970s for rent- Bank; Belize Bank International; Caye International a-captives (in which clients rent the cells of cap- BRITISH VIRGIN ISLANDS Bank; Heritage International; Market Street Bank, tive insurance companies), which work along the and Choice Bank. The country passed anti-money same lines as today’s protected cell companies but This British overseas territory in the Caribbean ex- laundering legislation in 1996. without any statutory (only contractual) protec- cels in offshore company formations and offshore tion for the cells from each other’s liabilities and trust formation. It was a fluke that Michael Riegels, The banking sector (including offshore banking) is other problems, but then Guernsey stepped into a barrister who later became the first head of the regulated by the Central Bank of Belize, while the the breach in 1997 with the Protected Cell Com- Financial Services Commission, received a tele- non-banking sector falls within the jurisdiction of panies Ordinance which provided that protection, phone call in the 1970s from an American lawyer the International Financial Services Commission. with Bermuda and the rest of the world following with a proposal to incorporate a company that The organisations give lists of banks/other finan- suit. No regulatory or filing processes are required took advantage of an Anglo-American double-tax cial institutions registered in the country. There is a to create a cell in a PCC. treaty. American lawyers were already using the 15% withholding tax paid to non-residents and the Dutch West Indies for their offshore activity but same tax rate applies to interest paid to non-resi- This British overseas territory has a huge expatri- the callers were interested in doing business with dents. A withholding rate of 25% applies to man- ate population for its size – about one-third of the an English-speaking jurisdiction – an important agement fees, rentals and charges for services to entire workforce – much of which consists of the example of the inherent appeal of the English lan- non-residents. professionals and skilled functionaries who are a guage in the offshore world. Other incorporations necessary support for its lofty position in insurance followed in great numbers and the BVI’s offshore There is no capital gains tax. General sales tax rises and reinsurance. This is what happens when a juris- sector was born. to 12.5% and applies to services and most goods. diction moves into a niche and goes out of its way Businesses pay tax monthly on the basis of gross to attract the best minds in the business before any After the US Government abrogated the treaty in receipts. rival can do so; the weight of its skill-base propels 1982, devastating the BVI’s nascent offshore sec- it to ‘critical mass.’ When large numbers of such tor, Riegels and his ‘gang of five’ lawyers drew up Employed persons resident in Belize pay a 25% tax people operate close together, they invent new the legendary International Business Companies Act on chargeable income. Only income generated in products and create new investment opportunities 1984. It authorised the creation of a new form of Belize is taxed. There are reductions for residents, without having to look outside the jurisdiction for International Business Company or IBC. Take-up but to qualify for residency one must stay in Belize support, as Bermuda-based ‘expats’ and home- was slow but then gathered pace. for 183 days out of every year. Expatriates must grown experts do in reinsurance. pay a departure tax when they leave the country. If Harneys, the law firm to which three of the law- going by air, they must pay US$39.25. During the past few years, ‘-fund reinsurers’ yers belonged including Riegels himself, writes: have emerged there. Because insurance predom- “The IBC Act was radical at the time – it stream- Belize has double taxation agreements in force inates, only four banks are licensed in Bermuda: lined the incorporation procedure, removed the with the UK, , Switzerland and the countries Bermuda Commercial Bank; Butterfield Bank (the requirement of corporate capacity, abolished the of CARICOM, the Caribbean Community [Source: largest by local market share); Clarien Bank; and need for corporate benefit, recognised that com- OECD BEPS Report 2019]. HSBC (formerly the Bank of Bermuda before its panies could exist without members and permitted acquisition in 2004). companies to provide financial assistance for the acquisition of their own shares. It provided for true BERMUDA Bermuda outdoes its Caribbean fellow-jurisdictions statutory mergers and created new statutory tools in terms of geographical access both to London for restructuring and reorganisation. It was based “When the world needs someone to solve its in- and to the economically declining but still wealthy on Delaware corporation law but incorporated surance problems, it turns to Bermuda.” So said east coast of the United States, where its consum- additions from elsewhere.”

JURISDICTIONS IN PROFILE 55

As a result, the BVI has for the past thirty years and funds pay no . Investments can be and projects worldwide. The BVI IAC provides ad- been the preferred jurisdiction for registrations for worldwide. ministrative and concierge support in internation- offshore vehicles and the world’s leading centre for al arbitrations involving various combinations of company incorporation, with more than a million Far Eastern business has played a large part in the states, state entities, international organizations shell companies (i.e. companies with no physi- rise of the BVI, with many BVI companies being in- and private parties. cal presence) incorporated since 1984, of which corporated in Hong Kong and most BVI law firms 479,000 were still active in early 2015. having offices there. The BVI became Hong Kong’s The BVI has one tax agreement, according to its jurisdiction of choice after Li Kai-Shing and his submissions to the OECD, with Switzerland. IBCs were also only required to keep records “as the Hutchison Whampoa business empire decided to directors consider necessary”; in other words, they use a new BVI IBC as his holding company in the were very opaque in the way they worked and in 1980s and caused a massive migration of copycat CAYMAN ISLANDS their ownership. Nominee directors could be used Asiatic business to the BVI. In 2013 the Government and money-laundering was rife. The IBC Acts of An- of the BVI set up BVI House Asia in Hong Kong to The Cayman Islands dominate the guilla, the Bahamas and Belize copied the original help BVI corporations to be near their Asian clients. industry and host the fifth largest banking centre Act parrot-fashion but the BVI, as so often in the In July 2018 it exempted Chinese citizens from hav- in the world. They are an overseas territory of the offshore world, retained ‘first-mover advantage.’ ing to apply for visas to visit its shores for six months United Kingdom and are largely self-governing, for the purposes of business and tourism. especially after the latest injection of devolution Eventually, pressure from the Organisation of Eco- into their constitution in 2009. The Governor can nomic Co-operation and Development over ‘harmful The Virgin Islands Special Trusts Act 2003 created exercise complete executive authority if he wishes, ’ convinced the BVI to change the the VISTA trust, the best-known of all types of BVI but chooses not to. Act and it passed a reformed version, the BVI Busi- trust, of which there may be more than 10,000 in ness Companies Act 2004, with constant amend- existence. The BVI is now regarded as one of the There are twice as many companies registered in ments since then but nominees still possible. Mi- world’s premier jurisdictions for this sector. the Caymans as there are people. In late 2018 there chael Riegels was by then the islands’ chief financial were 10,992 mutual funds, 88 fund administrators, regulator, looking for fresh markets to conquer. BVI trusts are, in general, exempt from registration 137 banks (down from 260 in 2008, but banking and filing requirements and there are broad- ex business was the original foundation of the Cay- Also because of international pressure, companies emptions from taxation in the Trustee Ordinance. mans’ financial prosperity) and 23 nominee trust do not issue many bearer shares any more as new The BVI also hosts a shipping register of global im- companies (down from 89 in 2002) operating in laws have undermined their once-notorious anon- portance. Owners find this attractive because there the islands (source: Cayman Islands Monetary Au- ymous transferability. The licence fees for them are is no corporation tax to pay on ships and the local thority). There were 80,000 offshore companies punitive and any bearer share that is not held by a trust law is so advanced that they can set up spe- operating in the islands in 2008 (source: Offshore licensed custodian loses its legal value and cannot cial purpose trusts to provide finance and protect Company Formation) but by 2016 there were be used to vote or to receive dividends. all parties from environmental hazards. 100,000 (source: the Guardian). Offshore business companies which can be formed in the islands in- About 2,000 regulated funds are domiciled in the Offshore banking is a minor part of the BVI’s busi- clude the Cayman Exempt Company, the Cayman BVI, making it the second largest funds jurisdiction ness. The jurisdiction has, however, seen an influx Limited Duration Company, foreign companies and – and the second jurisdiction for hedge fund forma- of banking business because its insolvency regime ordinary non-resident companies. About 60% of tion – in the world. Its financiers had the sense to is very congenial for secured creditors. It is also global hedge fund assets are legally domiciled in begin to develop the sector in the 1990s, perhaps a hospitable forum conveniens for internation- Cayman. The United States are the islands’ largest realising that the glory days of IBCs were numbered. al cases, which ties in with the use of BVI com- counterparty in all areas of finance. The jurisdic- Types of BVI investment fund include: the incubator panies to funnel investments into countries with tion holds foreign capital of over US$4,100 billion hedge fund (a start-up fund for managers who want less developed judiciaries or rules of law – a crucial if one takes into account banking assets, direct to keep costs in line until they have track records selling-point for so many offshore jurisdictions. investment and portfolio investment. to attract enough subscriptions to make the funds viable for the long term, with a maximum of 20 in- Financial services contribute more than half the Generally speaking, it is cheaper to set up shop vestors, a minimum initial investment of US$20,000 Government’s revenues. A very large part of the in the Caymans than in Bermuda, the island with and net assets of up to US$20 million); the BVI ap- jurisdiction’s offshore business reportedly comes which the jurisdiction has a slightly symbiotic proved fund, a low-cost hedge fund vehicle which from Russia and China. There were 422,594 busi- (and competitive) relationship. There is a huge ex- covers only a few investors and bears a smaller regu- ness companies on the BVI register in September patriate community for the jurisdiction’s size, ac- latory burden, with no minimum investment net as- 2018, of which 1,149 were private trust companies counting for 31% of total employment in financial sets of up to US$100 million and no term limit); the and 98 were segregated portfolio companies. In- services, while the remainder is Caymanian. BVI professional fund, a mutual fund whose interests corporations declined from more than 50,000 per are made available only to professional investors; the annum in 2014 to just over 30,000 in 2016 and The Government often forces ‘expats’ to reapply for BVI private fund, a type of mutual fund with either have hovered around the 30,000 mark ever since. work permits every year, but certain occupations (i) no more than 50 investors or (ii) only private in- There are 181 fiduciary service licensees, 33 in- (senior managers and underwriters) in the fund ad- vitations to subscribe being handed out. Funds in solvency practitioners, 233 approved investment ministration and reinsurance industries are eligible the BVI may be incorporated as business companies managers and 95 captive insurers. for ten-year work permits and ten-year term limits or formed as partnerships or unit trusts. [Source: without having to become ‘key employees.’ Previ- Conyers Dill & Pearman.] The jurisdiction has modernised its arbitration ously seen as a money-launderer’s paradise and the and dispute resolution regime, which began venue for many scandals too numerous to mention The jurisdiction’s considerable pool of fund practi- with the BVI Arbitration Ordinance 1976. The BVI here, the Cayman Islands have spent recent years tioners offers advice to asset managers, promoters, International Arbitration Centre, set up only three moving up-market and now have a very impressive public, private and professional funds and other in- years ago, is in one of the newest office towers in battery of regulations and AML laws. The Cayman dustry participants on the structuring and restruc- the islands. Its inception made the BVI the first ju- Islands Monetary Authority, their financial regula- turing of BVI funds and on regulatory issues that risdiction in the Caribbean to have established both tor, is one of the most respected in the world. It affect funds. The BVI does not have a tax regime an arbitral institution and a dedicated international was set up in the mid-1990s and the local law firm in relation to dividends, interest, rents, royalties, arbitration centre and it aims to become the re- Maples & Calder (founded by two British lawyers in compensations and other amounts paid by an in- gional centre of choice for the resolution of dis- the 1960s) and the Bank of England developed the vestment fund to anyone who is not resident there putes arising out of business activity, investments legislation behind it.

JURISDICTIONS IN PROFILE 57 The jurisdiction was the first to explicitly legislate for the three tax years before the year in which the have to identify and verify the identity of any indi- in favour of hedge funds with its Mutual Funds Law dividends are declared. vidual who owns 25% or more of a legal entity, and 1993. As befits the world’s most famous , an individual who controls the legal entity. In Sep- the Cayman Islands harbour a large pool of highly The Delaware Division of Corporations does not tember, however, FinCEN granted exceptive relief to skilled auditors, banking and trust personnel, com- maintain the names of Delaware LLC members/ the relevant financial institutions from the obliga- pany directors, fund administrators and lawyers of managers on public record. tion to identify beneficial owners when a corporate the highest standard. customer opens a new account as a result of: (i) the Not only is Delaware a tax haven in the heart of the rollover of a ; or (ii) the renewal Cayman enjoys success in attracting business from very country that spends the most time persecuting or extension of a ; a renewal or modification of a western Canada and the gulf part of the US up other tax havens; it is far more opaque than jurisdic- commercial or credit-card account; and the Mississippi River to Chicago. Miami is just one tions such as Switzerland. It does not make details of a renewal of a safe deposit box rental. This removes hour’s flight away. The Cayman Islands’ clientèle – trusts, company accounts and beneficial ownership the obligation for banks to collect beneficial own- much of it from these regions – is predominantly a matter of public record. This is a major reason why ership information when an account opened before institutional. There are no direct taxes – no income it hosts one-half of America’s quoted firms and 60% 11 May 2018 rolls over or is renewed. tax, company, corporation tax, inheritance tax, of Fortune 500 companies are incorporated there. capital gains or . There is no form of taxa- At last, in December 2018, regulations promulgat- tion in the Cayman Islands relating to individuals, Senator Carl Levin of Michigan said a few years ed by the Secretary of State of Delaware and slated corporations or trusts. The jurisdiction has a solid ago: “Each year, the States allow persons to form to take effect on 1 January required new business British common law system. nearly two million corporations and limited liability entities formed in Delaware to be screened against companies in this country without knowing – or lists of persons and groups that had been prohibited In response to the demands of the world’s eco- even asking – who the beneficial owners are behind from doing business in the United States. The rules nomic great powers, the Cayman Islands Govern- those corporations.” call for regular cross-checks to ensure that existing ment published three bills at the end of last year: Delaware entities associated with newly prohibited the Companies (Amendment) (No. 2) Bill; the Lo- “Right now, a person forming a US corporation or lim- parties are ‘flagged’ and ultimately dissolved. cal Companies (Control) (Amendment) Bill; and ited liability company (LLC) provides less information the International Tax Co-Operation (Economic to the State than is required to open a bank account According to the new regulations, a Delaware-regis- Substance) Bill, which became law on 1 January. or obtain a driver’s license. [A] report revealed that tered agent is be required to vet the identity of any These statutes are built upon the OECD’s Forum one person was able to set up more than 2,000 Del- potential customer who wants to form a Delaware on Harmful Tax Practices, which falls under its so- aware shell corporations [i.e. corporations with no entity such as a Limited Liability Company (LLC) or called BEPS (Base Erosion and Profit Shifting) In- physical presence] and, without disclosing the iden- a corporation. Next, the agent is required to check clusive Framework. The Cayman Islands became a tity of the beneficial owners, open US bank accounts that identifying information against lists of persons, member of the Inclusive Framework in 2017. This for those corporations, which then collectively moved foreigners, groups and entities that have been sanc- sets the global tax standard regarding structures about $1.4 billion through the accounts. It is one of tioned by federal authorities or are otherwise prohib- that aim to attract profits in jurisdictions in which the earliest government reports to give some sense of ited from conducting business in the United States. they do not conduct real economic activity. the law enforcement problems caused by US corpo- These lists are maintained by the Office of Foreign rations with unknown owners. It sounded the alarm Assets Control (OFAC), a division of the US Treasury. Because the EU also used the Forum on Harmful 8 years ago, but to little effect.” For entities not represented by a Delaware registered Tax Practices as its base for its own “non-co-opera- agent, such as entities formed and maintained by Del- tive tax jurisdiction” initiative, the Cayman Islands This is changing, but with glacial slowness. In the aware residents and legal professionals, the Division of were especially keen to comply. The EU has duly summer of last year, the Secretary of State of the Corporations is responsible for performing ‘know your kept the islands off its tax blacklist for now, reckon- country’s most opaque jurisdiction wrote to the customer ‘checks. The new law gives the Division of ing that although they did not pass the necessary congressional backers of the Counter Terrorism and Corporations greater latitude than before to refuse to legislation to please it, they had a “reasonable ex- Illicit Finance (CTIF) Bill in support of the beneficial ‘process filings’ from a registered agent that fails to cuse.” The EU expressed this in a rather imperious ownership identification rules contained therein. obey regulations. Compliance with this and the oth- way, stating that it had given the islands an “exten- The plan for a beneficial ownership register in that er new federal and state regulations of the last year, sion” to its “deadline.” It has not yet fulfilled its pol- Bill was similar to the arrangements in the Isle of however, is thought to be woefully inadequate. icy of stopping the transit of all EU funds through Man, where the police and other state employees jurisdictions whose tax systems it does not like, but can peruse it but the public cannot. The relevant it has made a start on development funds and it parts of the Bill were then, however, withdrawn. DUBAI will force its countries to block such funds that go through the Cayman Islands if the island’s laws do More relevant, perhaps, is the US Treasury’s Fi- Dubai, the foremost of financial centres in the not change soon. nancial Crime Enforcement Network’s beneficial United Arab Emirates, is an oasis of calm in the ownership identification rule, called Customer Due turbulent Middle East, with a common law court Diligence Requirements for Financial Institutions, system for its offshore business and a regulatory DELAWARE which became effective on 11 May 2018. The CDD regime copied almost entirely from the UK’s, com- rule requires the relevant financial institutions to plete with top regulators recruited from all over the As one set of business incorporators among many establish and maintain written policies and proce- Anglo-Saxon world. relates in its advertising material, one can form a dures that are reasonably designed to (i) identify Delaware USA limited liability company (LLC) or and verify the identities of customers; (ii) identify It was Sheikh Mohammed’s decision to establish corporation without ever coming to the United and verify the identities of the beneficial owners the Dubai International Financial Centre (and its States, that is even if one is not a resident or citi- of companies opening accounts; (iii) understand regulator, the Dubai Financial Services Authority) zen. If one is neither of these things and has no ‘US the nature and purpose of customer relationships in 2002 that made Dubai the biggest financial source’ income, one owes no income tax to the US to develop customer risk profiles; and (iv) keep hub between Western Europe and Singapore. The or Delaware. monitoring things to identify and report suspicious jurisdiction’s offshore business takes place in other transactions and, on a risk basis, to maintain and venues as well, notably the Dubai Investment Park, This is a significant concession because part of a update customers’ information. Dubai Internet City and the The Jebel Ali Free Zone. dividend paid by a foreign corporation is consid- The jurisdiction offers the incorporation of Dubai ered ‘US source’ if one-quarter of its gross income With respect to the new requirement to obtain ben- Offshore Companies and offshore banking servic- is effectively connected with a US trade or business eficial ownership information, financial institutions es, among other things. The currency of the United

IFC WORLD 2019 58 Arab Emirates, a confederation of principalities of level as) London and New York as an international which Dubai is the second largest, is the dirham. GUERNSEY financial centre. It has a small share of the global One US dollar = 3.67 dirham. bond markets but its equity markets had a 23% share in 2009 [source: Chatham House] and have A British Crown Dependency with a population of There are no taxes on the income and profits of been growing quickly, partly because of the exper- almost 66,000, the island is one of the better known companies in the DIFC. In that zone, and tise that this hub can bring to bear when organ- IFCs. In recent years, through its promotional agen- in others in the United Arab Emirates, foreigners ising international placements of the largest sort, cy, Guernsey Finance, it has sought to raise its profile can own shares in companies and pay no tax when including initial public offerings. It has the second in regions such as Asia. It has, for example, recently they dispose of them. Those companies are classi- biggest stock market in Asia after Tokyo and, at the opened an office in Hong Kong. Other recent moves fied as tax-resident in the DIFC if they are substan- end of 2016, that stock market was the world’s include the signing of an agreement with the Shang- tially managed and controlled from Dubai. DIFC seventh largest, with US$3.2 trillion in market hai Family Office Union to work on business links. companies’ income in the form of dividends from capitalisation. Its relationship with mainland Chi- investments anywhere in the world (and income na slightly resembles the UK’s relationship with its There are 28 licensed banks in the island; services from interest or royalties) is not taxed, nor are prof- overseas territories in the Caribbean. range from and deposit-taking to pri- its. No remittance tax applies to profits that a DIFC vate wealth management. As of the end of 2018 de- branch has transferred to its head office onshore. It is the main fund management centre in Asia. The posits in Guernsey banks stood at £90.5 billion. Al- There is no stamp duty. There is no withholding tax Securities and Futures Commission (the SFC, a much most 1,000 investment funds and more than 2,000 on interest payments to local or foreign recipients. more active regulator than the Hong Kong Mone- sub-funds are administered in the island. The value However, the Gulf Co-operation Council, to which tary Authority) states that there are 2,215 author- of funds under management and administration the UAE belongs, has introduced value-added tax ised funds there. The total net asset value (NAV) there is £280 billion. (VAT) on various things to please the OECD. of authorised unit trusts and mutual funds stood at HK$1.43 trillion at the end of December 2018. Cell companies were, according to Guernsey Finance, The process of opening a bank account in Dubai is funds’ NAV stood at HK$22.7 billion. pioneered in Guernsey; they are also called segregat- not super-fast, taking between one and four weeks. Equity funds’ NAV stood at $650.17 billion. Hong ed cell companies and segregated portfolio compa- Know-your-customer guidelines are in force, at least Kong’s combined fund management business, ris- nies. The concept has grown more sophisticated over on paper. No minimum deposit is normally required ing rapidly, stood at HK$18.3 trillion at the end of the years with the introduction of the Protected Cell for a business account, but a private client who does 2016. Overseas investors remained a major source Company and Incorporated Cell Company. not have a registered address in Dubai might open a of funding for the fund management business, ac- private bank account. To open a current account, ac- counting for 66.3%. Insurance companies’ assets The country also hosts many private trust compa- cording to the Government website, one has to be a under management stood at HK$514 billion. (US$1 nies; it has a register of image rights and is doing well resident but some banks allow non-UAE residents to = HK$7.85011.) The asset and wealth management in the market for this form of intellectual property; open savings accounts. Some banks set a minimum business in Hong Kong amounted to HK$24,270 it has a law for foundations – a relatively new area; account/balance limit, sometimes US$500,000 or billion (US$3,108 billion) at the end of 2017. More its services also encompass custody, managed trusts more. Many international banks have representative than 50% of the asset management business was and Shariah-compliant trusts. The island is also offices in Dubai, but few have chosen to acquire managed in Hong Kong over the past five years. home to family office service-providers. banking licences. No exchange controls are in place, The number of SFC-authorised funds domiciled in making it easy for people and offshore corporations Hong Kong came to 755 and their net asset value Another source of income for the jurisdiction is its to move funds in and out. increased 30% to HK$1,244 billion (US$159 billion). Aircraft Registry. Details of this can be found on the Guernsey Finance website. The DIFC has 2,137 companies with a combined Hong Kong is the international financial hub for workforce of 23,604. In 2013, it had 21 of the world’s mainland China, which is now the world’s manu- The Association of Guernsey Banks has an extensive top 25 banks, 11 of the top 20 money managers, 6 of facturing powerhouse and the home of many cap- list of members that includes the likes of Julius Baer, the world’s 10 largest insurers, and 6 out of 10 top law tains of industry and ‘princelings’ of the Commu- the Bank of Cyprus, Barclays, Butterfield, Credit Su- firms. Dubai Islamic Bank, established in 1979, was nist party who are keen to re-route their money isse, Deutsche Bank, EFG, Kleinwort Benson, HSBC, the world’s first modern commercial Islamic bank and to the United States and/or offshore. This makes it Rothschild Bank and Skipton International. Guernsey Dubai has been a major locus for Islamic banking ever the world’s largest offshore hub for renminbi busi- has a depositors’ compensation scheme. since. Many hawaladars and the traditional Iranian ness, which China has been supporting more and merchant class have ties to the DIFC. more in recent years, and the world’s largest off- The island remains home to more non-UK entities shore pool of renminbi liquidity. It harboured more listed on the London Stock Exchange (LSE) than any The jurisdiction does have its detractors, however. than US$79.9 billion in renminbi-denominated other jurisdiction globally, according to figures pub- American authorities believe that the enforcement deposits at authorised institutions in August 2017. lished in early 2016. of cash declaration regulations is weak. Misha Glenny in his book McMafia in 2008 says: “Du- Switzerland has always been the leading wealth The Guernsey Financial Services Commission over- bai thrives on conflict, provided none of the dra- management centre, but Hong Kong has grown sees financial services. Its website lists regulated ma takes place on its territory. Desert Storm, the faster since 2008 and by 2014 was the fifth largest. and registered entities, as well as warnings, public Palestinian Intifada, 9/11, the American attack on The total assets under management of the private statements, legislation and key documents. Afghanistan and the second Iraq war all led to banking and private wealth management business people funnelling large sums into Dubai. 9/11 amounted to $7,812 billion (US$1,000 billion) at Guernsey has 13 tax agreements in force, as report- provoked a spectacular flight of money from the the end of 2017, of which 52% was invested in ed to the OECD: Cyprus, Hong Kong, the Isle of Man, United States into Dubai.” He adds that there are mainland China and Hong Kong. Jersey, Liechtenstein, Luxembourg, Malta, Mauritius, no bombs or assassinations in this almost tax-free Monaco, Qatar, the Seychelles, Singapore, and the jurisdiction because nobody, including Al Qaeda, Shanghai-Hong Kong Stock Connect, a cross-bound- United Kingdom. wants to disrupt it. The US State Department in its ary investment channel, was set up in November International Narcotics Control Strategy Report for 2014 to provide mutual trading access between the 2015 says that there is pervasive corruption within Shanghai and Hong Kong stock markets. the ruling and religious elite, government ministries HONG KONG and government-controlled business enterprises. It In effect, it opened one of mainland China’s two has, nonetheless, risen above its neighbours to be- Hong Kong, a former British colony now owned by stock markets – and the fifth largest in the world come the principal IFC in its time-zone and region. China, competes with (and operates on the same by market capitalisation – up to capital from all

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© 2019 ClearView Financial Media Ltd. 52 Grosvenor Gardens, London, SW1W 0AU, United Kingdom Tel: +44 (0) 207 148 0188 / [email protected] / www.clearviewpublishing.com / VAT Reg No: 843 3686 09 over the world. Investors, including fund manage- island as well: Barclays Private Clients International licences, sub-licences and Isle of Man network li- ment firms based in Hong Kong, can trade eligible operates from there. censes, which allow businesses registered to non- shares listed on the other market subject to daily Isle of Man operations to play on Isle of Man servers and aggregate quotas. The northbound daily quo- The island has the biggest offshore life insurance without re-registering. The isle has also been very ta is set at 13 billion renminbi, the southbound at business, which employs 2,000 people. It has rela- successful in aircraft registry business, becoming the 10½ billion. tively low taxes and its offshore financial sector ac- market leader for business jets. counts for most of its GDP. It has a comprehensive As of June 2017 there were 2,793 SFC-author- talent-pool of offshore lawyers, accountants and The Isle of Man has 11 double-tax treaties in place. ised collective investment schemes, including other professionals and is very well-regulated. One Its co-signatories are Bahrain, Belgium, Estonia, 2,204 unit trusts and mutual funds, 301 in- of the isle’s selling-points is that it immediately Guernsey, Jersey, Luxembourg, Malta, Qatar, the vestment-linked assurance schemes, 193 MPF agrees to practically every international or British Seychelles, Singapore and, of course, the UK. pooled investment funds and 26 other invest- initiative without demur, giving it the advantage ment schemes. The ETF market in Hong Kong has of letting global investors know where it stands at demonstrated remarkable growth in recent years. all times. In 2018, for instance, it transposed the JERSEY The Hong Kong ETF market has grown more than European Union’s gigantic General Data Protection threefold by AuM over the past 10 years. The total Regulation into its law so that it could continue to Jersey has 28 banks (down from 42 in 2013) and number of ETFs listed globally was 5,138 in August do business with EU countries. 1,104 funds, with a compensation scheme in place 2017, a growth of more than four times on 2007. for depositors. There are 32,027 registered companies Global ETF AuM have gone up from US$807billion The GDPR has been implemented in the Isle of and it is possible to ‘migrate’ a Jersey company to in 2007 to US$4.2 trillion in August 2017. In June Man using an order made under a new Data Pro- other jurisdictions and vice versa. For the last 50 years 2017 there were 156 SFC-authorized ETFs listed on tection Act 2018 which enables the Isle of Man at least, the isle has been a venue for private wealth the Hong Kong stock exchange. to bring in EU laws relating to data protection. management, trusts and estate and succession plan- New data protection provisions are in a set of ning, and more recently foundations. The financial In December 2015, mainland and Hong Kong reg- regulations which set out all the data protection sector takes up one-quarter of the workforce. ulators approved seven cross-border funds (three procedures and powers of the Information Com- from Hong Kong and four from China proper) as missioner, called the GDPR and LED Implementing Jersey’s trust law, established in 1984, is a model for part of a long-awaited ‘mutual recognition of Regulations 2018. others and for the Hague International Convention funds’ scheme, which gives the world’s asset man- on Trusts. One hundred Jersey companies are listed agers access to Chinese investors. About 100 Hong Company formation times are speedy – two or on stock exchanges all over the world and Jersey has Kong-domiciled funds used by overseas investors three days being normal – but formation costs are the highest number of FTSE 100 companies regis- were initially eligible to use the scheme. relatively high. Manx companies can register for tered outside the United Kingdom, its ‘big brother value-added tax or VAT. next door’ with which it has a love-hate relation- There is no withholding tax on interest and divi- ship. It is a Crown Dependency outside the European dends, no wealth tax, no capital gains tax and no One popular vehicle is the ‘2006 company.’ When Union but is not entirely independent of the UK. accumulated earnings tax on companies that keep the British Virgin Islands experienced mounting crit- earnings instead of distributing them. One day, ac- icism from the OECD that its International Business Offshore banking is an important consideration for cording to the ruling elite, there will be no stamp Companies Act was creating opaque IBCs and giv- people involved in the creation and preservation duty on the sale and issuance of securities. Hong ing them “harmful tax competition” advantages, it of wealth. The range of banking services provided Kong adheres to a “territorial source principle of enacted the placatory Business Companies Act 2004. from Jersey is extensive, including multi-currency taxation,” not taxing any income from outside, its The Isle of Man was watching. It duplicated that Act banking, offshore mortgages and investment struc- tax laws are very simple and easy for outsiders to in 2006 for its own purposes and thereby gained an turing. The pool of professional talent to be found use and the mainland Chinese government levies important stream of business. ‘2006 companies’ can on the island is second to none. no taxes there. Tax on salaries is only 17% at the be limited by share and/or guarantee or can be un- most, making it a good destination for offshore limited companies with or without shares. They pay The island levies no capital transfer tax, capital operators who want to relocate there. no capital gains tax, income tax or inheritance tax. gains tax, value-added tax (VAT), withholding tax- The identity of the beneficial owner can be hidden es or wealth taxes. Its offshore financial sector is Hong Kong has 36 double-tax treaties. Its co-signa- from the eyes of the public (though not the author- extremely well-regulated. According to an expert tories are Austria, Belarus, Belgium, Brunei, Canada, ities) through the use of a corporate shareholder. at MONEYVAL, Jersey and Guernsey undertake the Czech Republic, France, Guernsey, Holland, Hun- There were 9,589 of these in 2018. the best anti-money-laundering compliance in gary, Indonesia, Ireland, Italy, Japan, Jersey, Kuwait, Europe. There are no secrecy laws. ‘Tax-resident’ Latvia, Liechtenstein, Luxembourg, Malaysia, Malta, In 2014 many virtual (e.g. Bitcoin) currency ex- (and therefore zero-tax) status goes automatical- Mexico, New Zealand, Pakistan, Portugal, Qatar, changes fled the stifling regulatory environment of ly to every company incorporated in Jersey unless Romania, Russia, South Africa, South Korea, Spain, New York for the ‘light touch’ regulation-to-be of the it is substantially controlled from somewhere else Switzerland, Thailand, the UAE, the UK and Vietnam. Isle of Man, responding to the pragmatic welcome or it undertakes certain types of financial service that the authorities gave them. It was one of the first business, in which case there is an income tax of countries in the world to amend legislation to apply 10%. The income tax rate in Jersey is 0% for all ISLE OF MAN to digital currency; the London Daily Telegraph chris- companies except for financial service compa- tened it ‘Bitcoin island’ and ‘Crypto valley.’ Crypto nies (which pay 10%) and utility companies and In the mid-1980s the tourist trade declined per- businesses have to register with the government and oil import companies (20%). Jersey does not im- manently, leaving this rainy Crown Dependency in undertake some background-checking bureaucracy pose any withholding tax on royalty payments to the Irish Sea in a quandary which it solved trium- to avoid money laundering and other financial irreg- foreign recipients. phantly by becoming an offshore centre of finance. ularities, but once that is out of the way the doors to The isle, which already had ‘British infrastructure’ innovation are wide open. Jersey is a massive fund management hub. The way including National Insurance and income tax and in which funds are regulated there depends on the could therefore appeal to British businesses and The isle has always been interested in techni- types of investor they attract and whether or not high-net-worth individuals, began by taking over cal innovation – such as online gambling with they are closed-ended or open-ended. Sophisticat- banks’ and funds’ outsourced back-office functions, the enactment of the Electronic Transactions Act ed or institutional investors are regulated less on- with various banks shunting their back offices 2000 and the Online Gambling Regulation Act erously than others, as long as the offer documents off there in the 1990s. Subsidiaries came to the 2001. These Acts allow it to grant operators full make the risks obvious.

JURISDICTIONS IN PROFILE 61 The jurisdiction’s funds sector has gone into Islam- Services Authority) was set up in 1996; it is respon- ic asset management recently and is now a domi- sible for overseeing and developing the Labuan LIECHTENSTEIN cile for developed asset classes such as real estate, International Business and Financial Centre, the ju- private equity, commodity and equity for Islamic risdiction’s promotional agency. Important bodies The tiny European principality’s financial sector fund mandates. Jersey’s financiers have a good rep- include the Chartered Tax Institute of Malaysia and contributes about 30% to its gross domestic prod- utation for corporate structuring, especially involv- the Malaysian Financial Planning Council; educa- uct. Financial services are private asset manage- ing special purpose vehicles or SPVs for a variety tional institutions such as the International Centre ment; international asset structuring, funds and in- of purposes, and customers from the Gulf of Persia for Education in Islamic Finance; legal service pro- surance. It has a total population of around 37,000. have long been taking advantage of this. However, viders such as ZICOlaw; insurance entities includ- There are 16 banks, 117 fund/asset management Shariah scholars have deemed this unacceptable ing The Archipelago Group; and trust companies. companies, 381 trust companies/trustees and because they believe that SPVs should be inde- 44 insurance companies. The three largest banks pendent. This has allowed Jersey products to be The Association of Labuan Banks and the Associ- in Liechtenstein manage 85% of the country’s used successfully with Sukuk structures, i.e. Islamic ation of Labuan Trust Companies are important US$125 billion in wealth. asset-based bonds. Jersey-based SPVs have been trade bodies in Labuan. Banks operating there used in connection with a wide variety of Shari- include HSBC, Maybank, and Standard Chartered. The jurisdiction signed a customs agreement with ah-compliant Islamic capital markets transactions, Switzerland in 1923 and adopted the Swiss franc as some for the purpose of taking investments off the The International Business and Financial Centre the legal currency in 1924. It joined the European balance sheet and securitising assets. A variety of in Labuan is used for trading; investment holding; Economic Area in 1995; since that year it has also legal vehicles are available including Jersey-incor- fund management; money broking, issuance of fi- been a member of the World Trade Organisation. porated companies that issue Sukuk, limited part- nancial instruments, both Islamic and convention- nerships that issue partnership interests and trusts al; tax planning; banking, insurance, mutual funds, There is a Finance Liechtenstein organisation, with a that issue units or trust interests or certificates. trusts; company management, family trusts and website available in English and German, giving useful estate planning. facts and figures about trade bodies, legislation and Jersey companies are governed by the provisions business groups. The Liechtenstein banks are rep- of the Companies (Jersey) Law 1991, as amend- Labuan has no capital gains taxes, or withholding resented by the Liechtenstein Bankers’ Association. ed, and the formation of offshore companies is taxes on dividends, fees and interest; there is no Prominent banks and financial institutions include quick and cheap. An urgent incorporation service stamp duty. Non-Malaysians working in a Labuan LGT, Kaiser Partner, Liechtensteinische Landesbank, allows a company to be incorporated in less than company enjoy a 50% from person- VP Bank, Banque Havilland, Raiffeisen Privatbank twenty-four hours, if all the required information al income taxes. Liechtenstein, EFG Bank von Ernst, Bank Frick & Co. is supplied. Jersey companies are limited by share and shelf companies are not available. New regu- There are two types of offshore company in La- The Authority Liechtenstein lations in 2011 simplified mergers between Jersey buan: trading companies and non-trading, or hold- (FMA) regulates financial services. The country also companies and foreign ones and the Hong Kong ing, companies. The latter hold investments in se- adheres to the global standards for transparency Stock Exchange allowed Jersey companies to be curities, bonds, stocks, shares, , deposits and and exchange of tax information developed by listed there in 2009. other property and pays no tax. The former, accord- the OECD. It has a AAA credit rating, with a stable ing to the Labuan Business Activity Tax Act 1990, outlook, from Standard & Poor’s. Jersey has 13 double-tax treaties. Its co-signatories only has to pay 3% tax on net profit. All Labuan are Cyprus, Estonia, Guernsey, Hong Kong, the Isle Trading Companies’ accounts needed to be audited. In accordance with the European Union’s di- of Man, Luxembourg, Malta, Qatar, Rwanda, the Then there is the Labuan Charged Company; this rectives, Article 7 Liechtenstein Banking Act (the Seychelles, Singapore, the UAE and the UK. can choose to be taxed under federal Malaysian BankG) contains provisions for the guarantee of law, benefiting from Malaysia’s double-taxation bank deposits and the protection of investors. agreements. Labuan trading companies are taxed The law requires banks and other financial service LABUAN at 3%. Such companies cannot trade in Malaysian providers to protect deposits and investments ad- currency. equately with supervised financial service provid- Labuan is a federal territory of Malaysia and lies ers by establishing separate organisations or by off the coast of Borneo. Its authorities call it a A Labuan trust must have a resident settlor. The participating in foreign protection schemes. “mid-shore” jurisdiction. The languages are Malay- beneficiary must be a ‘Labuan person,’ but this can sian and English. Besides its international financial be a foreign-owned legal body. Both residents and Liechtenstein has signed 18 comprehensive dou- services, it has oil and gas reserves. The financial non-residents are entitled to set up trusts. In the ble-tax treaties with Andorra, Austria, the Czech institutions that operate in Labuan include both case of a non-resident, Malaysian property can be Republic, Georgia, Germany, Guernsey, Hong Kong, domestic and foreign banks and insurers. An off- injected into a Labuan trust while a Malaysian res- Hungary, Iceland, Luxembourg, Malta, Monaco, San shore company must be established through a trust ident can place international assets into a Labuan Marino, Singapore, Switzerland, the UAE, the UK and company. Complete information about the people trust but Malaysian property requires the approval Uruguay. who act as beneficial owners and the extent and of the regulator, the Labuan FSA. the nature of their beneficial interests held must be In 2009 Liechtenstein and the UK signed a registered at the time when the company is incor- In February 2010, Labuan enacted a law which ground-breaking disclosure agreement about se- porated. There are special cases in which the identity made Limited Liability Partnerships (LLP) possible. cret accounts – the famous Liechtenstein Disclo- of a beneficial owner can be revealed to the public. At least two partners are required. sure Facility. Under its terms, Britons who held accounts in the country could ‘regularise’ them The jurisdiction has taken steps to be a hub not Personal income tax is the same as in Malaysia, on condition that they paid certain amounts. It only for conventional finance but also as a centre ranging from 0% to 26%. was seen as a relatively lenient way for accounts for Shariah-compliant finance in the region. By to be disclosed. This was Liechtenstein’s first step some measures, it is home to more than 6,500 off- More than 70 double tax agreements are in force. on the road to perdition, culminating in its compli- shore companies. In 2017, Labuan registered a total When investing overseas, a Labuan company that ance with the US Foreign Account Tax Compliance of US$48.8 bn in total leased assets, with a 57% wants to benefit from a DTA may need to ask for a Act 2010 and the OECD’s Base Erosion and Profit coming from the oil and gas sector. certificate of residency from the Malaysian tax au- Shifting project, which the US has declined to join thorities. This tax-resident certificate is issued by the for reasons involving international dominance. As The Labuan Financial Services Authority (former- Inland Revenue Board (IRB) or Malaysia and subse- a result of the that entered into force ly called LOFSA or the Labuan Offshore Financial quently shown to the foreign tax authorities overseas. on 1 January 2011, the ‘net worth’ tax is no longer

IFC WORLD 2019 62 calculated separately but is integrated into the allocation was as follows: diversified funds €4.3 bil- stan, Qatar, Rwanda, Senegal, the Seychelles, Singa- income tax. lion; equity funds €2.85 billion; bond funds €1.79 pore, South Africa, Sri Lanka, Sweden, Thailand, Tunisia, billion; and mixed funds €840 million. Uganda, the UAE, the UK, Zambia and Zimbabwe. All resident or domiciled individuals are subject to income tax on worldwide income, with the ex- In 2016 there were 137 trust and fiduciary com- Anyone who has an annual net income not exceeding ception of income from real estate located abroad panies, 58 insurance vehicles and 12 retirement Rs650,000 (US$18,670) per annum pays 10% tax on and income from either a fixed place of business scheme administrators. his income; anyone with a higher income pays 15%. or a located abroad. Non-residents are subject to tax if they are em- There is an established offshore Malta company re- Under the jurisdiction’s international corporate ployed in Liechtenstein, if they own real property in gime, introduced in the 1980s and adapted to EU structure system, a company holding a Category 1 Liechtenstein or if they have business premises in rules when Malta joined EU in 2004. Global Business Licence is liable to tax at the rate Liechtenstein. Non-residents are subject to tax on of 15%; a company holding a Category 2 Global income derived from Liechtenstein sources includ- The Malta Family Business Act helped family busi- Business Licence is exempt from tax. It is consid- ing Liechtenstein real estate, owned or leased, and nesses transfer themselves from one generation to ered as non-resident for treaty purposes and is thus business premises. In addition, non-residents are the next, with incentives and formal regulation. not covered by any double-taxation agreement taxed on income from self-employment and busi- concluded by Mauritius, except for exchange-of-in- ness activities carried out in Liechtenstein (source: Affluent people who are not citizens of the EU formation purposes, if the agreement so provides. EY). The income tax rates (for 2015) range from can use the Global Residency Programme, with a 3% to 24% (for a commune applying a commu- 15% rate on income remitted to Malta; it Residents of Mauritius are eligible to tax in nal multiplier of 200). Income from foreign assets, is linked to the purchase of property. In 2014, Mal- respect of foreign tax paid on their foreign source including real property and business premises, and ta introduced its Individual Investor Programme, income. A foreign includes a tax-sparing other foreign income is considered in calculating offering Maltese citizenship by paying at least credit and in the case of dividends credit is also the rate. €650,000, and by meeting other conditions. granted for underlying tax charged on profits out of which the dividends are paid. Capital gains derived from transfers of participa- To attract highly qualified personnel to the finan- tions (business assets) and personal movable as- cial services industry, Malta introduced an incen- To obtain a tax residency certificate, applicants for sets are generally exempt from income tax. Capital tive scheme in 2011 targeting well-paid foreign a Global Business Company must have two local gains derived from transfers of personal and busi- executives. Individuals whose domiciles are out- directors, a local auditor, a principal bank account ness immovable assets are subject to a separate side Malta and are employed in senior positions at in Mauritius and board meetings held and chaired capital gains tax on real estate. companies licensed by the regulator to conduct fi- in Mauritius. nancial business in or from Malta, can benefit from a flat personal income tax rate of 15% on income Because of its period as a British colony, the coun- MALTA up to €5 million. Any income over €5 million is tax- try adopted trust structures under English Com- free. To qualify for this tax incentive the employ- mon Law. Besides rulings in England, Mauritian ee must earn a minimum of €81,205 (basis year legislation such as the Trusts Act 2001 is significant. The Mediterranean island-state, a former British 2014) per year, among other criteria. Trusts are normally liable to income tax on their colony, is in the European Union; its legal code is chargeable income. a mixture of English Common Law and continen- tal European civil law. Languages are Maltese and English. The Malta Financial Services Authority MAURITIUS regulates financial services. MONACO A former British and French colony (English and There are 26 banks (source: Finance Malta), 615 French are both spoken there), the island is lo- This tiny, independent state near the Franco-Italian investment funds with a total net asset value of cated in the Indian Ocean and is a popular tourist border is renowned as an offshore centre, a home €8.95 billion (June 2013); Malta-based banks cur- destination as well as a financial hub. Its financial for the super-rich and the venue for the annual rently hold over €30 billion in deposits. The Tier 1 sector makes up around 10% of GDP. Mauritius is Formula One motor race. There is a resident pop- regulatory capital of the domestic banking sec- an important conduit of foreign direct investment ulation of 38,000 people and a working population tor sits at 11.8% (June 2014). Major banks in the flows to India. of 54,000. It is renowned for its private banking ser- country include HSBC, Banif Bank, FIMBank and vices. Companies registered in Monaco with more Bank of Valletta. Among the private banks serving International banking groups such as HSBC, Stand- than 25% of their income coming from abroad HNW individuals specifically are Mediterranean ard Chartered and Deutsche Bank operate in the is- pay an income tax of 33%. Approximately 70% of Bank. Banking institutions in Malta are regulated by land. Their services include special purpose vehicle Monaco’s assets are from non-resident funds. the Banking Act, which is founded on EU legislation. (SPV) administration, fund administration, banking The non-bank financial institutions are regulated and treasury services. A full list of banks can be There are 30 licensed banks – down from 45 at by the Financial Institutions Act. obtained from the Mauritius Bankers’ Association. the beginning of the century. Monaco has 49 as- set management houses and €115 billion of assets There are 26 recognised fund administrators and The Financial Services Commission regulates the under management are held at the Monegasque more than 80 fund managers; 6 cell companies non-bank financial services sector and global Banking and Finance Centre (source: Monaco For with 21 incorporated cells; 670 investment funds, business; it was established in 2001. The Bank of Finance and Monaco Private Banking). According to of which there are 101 alternative investment Mauritius, the country’s central bank, oversees and offshorecompany.com, a Monaco Limited Liability funds or AIFs, 450 PIFs, 115 UCITS, 5 retail non- licences banks as part of its remit. Company (SARL) offers: UCITS and 18 notified AIFs. The net asset value of funds domiciled in Malta at the end of 2017 was The Mauritius Revenue Authority is the tax-collect- • foreign shareholders (foreigners can own all the €10.8 billion, of which €3.33 billion were in AIFs, ing agency. The MRA says that so far, the country has shares in a SARL); 4.7 billion were in PIFs and €2.71 billion were in concluded 43 double-tax treaties with Bangladesh, • limited liability; UCITS. [Source: Finance Malta.] Barbados, Belgium, Botswana, the Cape Verde Islands, • a two-year tax exemption (the first two years China, the Congo, Croatia, Cyprus, Egypt, Eswatini are completely tax exempt, but reportable to In June 2017 there were 590 Malta-domiciled (Swaziland), France, Germany, India, Italy, Kuwait, the home governments); funds administered in Malta and 176 non-Mal- Lesotho, Luxembourg, Madagascar, Malaysia, Malta, • two shareholders/directors; and ta-domiciled funds administered in Malta. Asset Monaco, Mozambique, Namibia, Nepal, Oman, Paki- • a low minimum share capital of €15,000.

JURISDICTIONS IN PROFILE 63 The jurisdiction is promoted by the Commission is a major factor in its financial system. There is now registry. It has double-tax treaties with Barbados, the for the Promotion of the Monaco Financial Cen- a law on the statute book (Law 43 of 2013) that dic- Czech Republic, France, Holland, Ireland, Israel, Italy, tre and has a website under the title of Monaco tates that all bearer shares must be held by custodi- Luxembourg, Mexico, Portugal, Qatara, Sinagpore, For Finance. The MFF website has a list of banks ans, This came fully into effect in 2018, at least on South Korea, Spain, the UAE and Vietnam. No juris- and other institutions. Banking groups operating in paper. Every owner of bearer shares must designate diction has told the OECD of any concerns it might the principality include Bank J Safra Sarasin; Credit a state-authorised custodian to maintain the certifi- have about its agreement with Panama. Suisse; Compagnie Monégasque de Banque; HSBC cates of such shares in custody, together with an affi- Private Bank; UBS; Société Générale and Union davit evidencing all information related to the owner Bancaire Privée. Asset management firms include of the shares and with the company issuing them. PORTUGAL Atlana Wealth Monaco; Bedrock Monaco; BSI Asset Panamanian shell companies also exist and the US Managers, CMB Asset Management; Global Securi- State Department believes that criminals use them to The Government of Portugal established the Ma- ties; ; Julius Baer Wealth Manage- launder money in some quantity. Panama has a slew deira Free Trade Zone, where most of the island’s ment (Monaco); Knight Vinke; Wealth MC Interna- of laws. offshore financial business takes place, in the tional. There are mutual funds run by such firms 1980s, originally as an industrial complex and place as BNP Paribass, HSBC and Edmond de Rothschild. The US Central Intelligence Agency’s World Factbook for the free movement of goods. states that Panama is a “major cocaine trans-ship- Some 70% of the industry’s assets belong to ment point and primary money-laundering centre As Madeira is an autonomous part of Portugal and non-resident clients from all over Europe and for narcotics revenue; money-laundering activity is therefore in the European Union, its offshore regime sub-Saharan Africa, the Middle East, Latin America especially heavy in the Colon Free Zone; monitoring counts as ‘state aid’ and therefore requires EU per- and Asia-Pacific. Monaco’s financial centre is not of financial transactions is improving; official corrup- mission to carry on. With the EU’s blessing, the pres- as well-known as other international locations tion remains a major problem.” Its corporations have ent tax regime allows for the incorporation of new and believes that it has not yet reached its full po- often featured in the US “Swiss Bank Programme” entities until the end of 2020. There is a reduced tential. Wealthy residents, its promotional agency - a spate of non-prosecution agreements that Swiss corporate tax rate of 5% until the end of 2027. complains, usually deposit only a small portion of banks signed with the US Department of Justice be- their assets in Monegasque banks. tween 2013 and 2016. Panamanian law requires all In the case of activities to do with international banks in the jurisdiction to undertake “know your services, the reduced rate is applicable to profits Monaco-based banks are supervised by the Pru- customer” controls and to report suspicious activity derived from operations exclusively carried out dential Supervisory Authority (the Autorité de Con- to the Financial Analysis Unit for the Prevention of with non-resident entities or with other compa- trôle Prudentiel or ACP). This authority was created Capital Laundering Crimes or UAF, but its regulatory nies operating within the ambit of the IBC of Ma- in 2010. Another regulator is the Financial Activi- regime is lax. Its economy is pegged to the US dollar. deira. According to the Tax Incentives Statute, the ties Supervisory Commission; this was founded in following is exempt from income tax: September 2007. It oversees the financial market- Offshoreprotection.com lists the major advantages place, deciding on licence applications from mutual of a Panamanian corporation as follows. a) income derived from the concession or tem- fund firms and the like. Service d’Information et de porary licensing, by non-resident entities in the Contrôle sur les Circuits Financiers, or SICCFIN, is • The freedom to appoint directors and officers of territory, of patents, utilisation licenses, models, the body responsible for frustrating and catching any nationality and country of residence. industrial models or designs, trade marks, names money launderers. • The freedom to appoint nominee directors and and establishment insignias, manufacturing or officers. conservation processes and similar rights, as well Every foreigner over the age of 16 who wishes to • The legal protection afforded for the as the income derived from the supply of technical reside in Monaco for more than three months of confidentiality fo business and banking assistance and from the provision of information the year must apply for a resident card issued by transactions. acquired through an experience in the industri- the Monegasque authorities. Anybody who wants • The tax-exempt status provided to offshore al, scientific or commercial sectors, provided that to become resident must prove that he has fi- companies. these rights relate to the activity developed within nancial resources by producing a work contract, • The complete anonymity afforded to owners of the free trade zone; and showing that he is self-employed or the manager Panamanian Corporations through the use of b) income derived from the rendering of services, or director of a firm, or producing evidence of liquid bearer shares of stock. obtained by non residents, as long as such income savings or of financial support from someone else. • The freedom of capital movement in and out of is not imputable to a permanent establishment lo- The organisation that handles such matters is the Panama and the absence of regulatory cated in the Portuguese territory outside the free Monaco Welcome & Business Office. supervision. trade zones, and as long as such income is paid • The absolute confidentiality of banking by entities located within the free trade zone and All foreigners officially residing in Monaco and peo- transactions under numbered accounts belonging relates to the activity developed there. ple with Monegasque nationality pay no income tax. to corporations with nominee directors and There is one caveat: French citizens who are resident bearer shares in the hands of the owner. In Europe, Portugal (and therefore Madeira also) in Monaco must pay personal income tax in ac- has double-tax treaties with Algeria, Andorra, Aus- cordance with French . They pay the French Non-resident corporations in Panama are free from tria, Bahrain, Barbados, Belgium, Brazil, Bulgaria, the Government directly. Monaco does not have capital having to pay tax on capital gains from the sale of Cape Verde Islands, Canada, Chile, China, Colombia, gains tax or wealth tax. Assets in Monaco are sub- company stock and tax on dividends, income, inter- Croatia, Cuba, Cyprus, the Czech Republic, Den- ject to inheritance tax. The jurisdiction has told the est, rents and royalties. Indeed, the jurisdiction does mark, Estonia, Ethiopia, Finland, France, Georgia, OECD that it has double-tax treaties with Guernsey, not levy taxes on foreign source income. Germany, Greece, Guinea Bissau, Holland, Hong Liechtenstein, Luxembourg, Mali, Mauritius, Qatar, Kong, Hungary, India, Ireland, Iceland, Israel, Italy, St Kitts/Nevis, the Seychelles and France. Panama in 2017 was home to 350,000 international the Ivory Coast, Japan, Latvia, Lithuania, Luxem- business companies or IBCs. Most of their owners bourg, acao, Malta, Mexico, Moldova, Montenegro, and beneficiaries are non-resident foreigners who Morocco, Mozambique, Norway, Oman, Pakistan, PANAMA do not conduct any commercial business in Pana- Panama, Peru, Poland, Qatar, Romania, Russia, San ma. It is, according to Pols Attorneys, the registered Marino, Sao Tome & Principe, Saudi Arabia, Senegal, For years now, deficiencies in the rule of law and con- domicile for more than 400,000 corporations and Singapore, Slovakia, Slovenia, South Africa, South formity to international standards have been gnawing foundations, making it the second most popular ju- Korea, Spain, Sweden, Switzerland, Tunisia, Turkey, away at Panama’s reputation as a safe and credible risdiction in which to incorporate in the world, next the Ukraine, the United Arab Emirates and the international financial centre. Syrian organised crime to Hong Kong. It also hosts a world-class shipping United Kingdom.

IFC WORLD 2019 64 The Central Bank of Portugal is the banking regu- went into offshore banking there in 2004. The oth- trust law also allows use of a private trust company lator. Both onshore and offshore banks still have er pre-eminent offshore bank, BMI Offshore Bank, or PTC to act as the trustee of a specific trust, or a good correspondence networks with the rest of the which was registered for business in 2008, lost its group of related trusts. world, despite the recent trend of ‘de-risking.’ Most correspondent relationships abroad and its day-to- of them subscribe to international banking services day running had to be taken over by the central Singapore has a progressive tax rate starting from like SWIFT and Reuters. bank in 2014. zero up to 22%. There is no capital gains or inher- itance tax. In Portugal, the incorporation of a standard pre-ap- The Seychelles Financial Services Authority is the proved company may take place in hours and a regulator for non-bank financial services in the Individuals are taxed only on income they have tailored one usually takes less than a week. Seychelles. Established under the Financial Services earned in Singapore. The income earned by individu- Authority Act 2013, the FSA is responsible for the als while working overseas is not subject to taxation, Decree-law nr. 352-A/88, according to the IBC, reg- licensing, supervision and development of the non- barring few exceptions. Tax rules differ according to ulates the incorporation and operation of offshore bank financial services industry of the Seychelles. the tax residency of the individual. trust companies or branches in the Madeira Free It is also responsible for the registration of IBCs, Trade Zone. Article 11(1) states that the names of foundations, limited partnerships and internation- A person is considered a tax resident in Singapore the settlor and the beneficiaries are subject to se- al trusts in the jurisdiction. In 2014 it replaced the if he is a Singaporean or a Singapore Permanent crecy and may only be disclosed by way of a court Seychelles International Business Authority which Resident and has established a permanent home in decision. The stated object of the law is to give en- had since 1995 done the two jobs of regulating and Singapore; or a foreigner who has stayed or worked tities “the legal instruments and means...provided publicising the financial services sector. in Singapore for 183 days or more in the tax year. A in other offshore centres.” person is deemed a non-resident for tax purposes if There is no capital gains tax. Income from abroad he is a foreigner who stayed or worked in Singapore – e.g. from shares in the form of dividends – is not for fewer than 183 days in the tax year. SEYCHELLES taxed. The jurisdiction is, along with other regional hubs, The Seychelles has 28 double-tax treaties with competing to win business in areas such as offshore This Indian Ocean archipelago’s offshore financial Bahrain, Barbados, Belgium, Bermuda, Botswana, renminbi-denominated transactions, as well as de- services sector has grown from 650 international China, Cyprus, Ethiopia, Guernsey, Indonesia, the velop as a development centre for financial technol- business companies or IBCs in 1996 to 140,000 in Isle of Man, Jersey, Kenya, Luxembourg, Malaysia, ogy and private banking talent management. 2015, incorporated under the Seychelles Interna- Mauritius, Monaco, Oman, Qatar, San Marino, Sin- tional Business Companies Act 1994. There are also gapore, South Africa, Sri Lanka, Swaziland, Thailand, An extensive number of law and accountancy firms about 1,000 registered trusts and more than 300 the UAE, Vietnam and Zambia. operate there and the ‘Big Four’ accountancy firms, foundations. The archipelago is a small offshore as well as law firms such as Withers and Baker & tax-haven. It has had a turbulent political histo- McKenzie, have large practices. ry since it gained independence from the United Kingdom as a republic in 1976. SINGAPORE

The first Gulf War (1991), which happened a mere Financial services are regulated and overseen by the SWITZERLAND 2,000 miles away, wreaked havoc with the islands’ Monetary Authority of Singapore. The city-state has tourist industry and its politicians decided to diver- 111 commercial banks, 49 merchant banks and 45 The Alpine state holds around US$2.3 trillion (SFr2.3 sify their economy to escape their dependence on banks with representative offices, with almost $2 trillion) of offshore wealth - greater than Hong Kong it. The year 1994 was the crucial one for the evolu- trillion in assets. There are more than 1,200 finan- ($1.1 trillion) and Singapore ($900 billion) (source: tion of offshore business in the Seychelles with the cial institutions, ranging from banks to IFAs (Source: Boston Consulting Group) out of a global total of passage of the International Business Companies Monetary Authority of Singapore). It is estimated some $7 trillion. The country has 250 banks (source: Act. The National Assembly amended this in 2013 that up to 70% of money in Singaporean banks is Swiss Bankers Association). Put another way, Swiss to force IBCs to keep accounting records – not full from abroad. banks are managing 30% of all cross-border assets accounts, but evidence that would allow for the of private persons on the planet. preparation of accounts, including receipts, invoic- Of the 123 commercial banks, there are five local es and bank statements. Other legislation followed banks and 27 offshore banks. A study late in 2015 Assets totalling SFr3.4 trillion were managed under this seminal Act, including the International Corpo- by Aite Group said there could be as many as 330 investment management mandates in Switzer- rate Service Providers Act 2003 (which provided for wealth management institutions (private banks, land in 2017, around one-third of which was for the formation and running of foundations as well family offices, other) in the jurisdiction. foreign clients. Revenues in the Swiss investment as corporations), the Securities Act 2007 (which led management industry rose from CHF 17 billion in to the setting up of the first exchange, Trop-X, in Singapore is a member of the Financial Action Task 2016 to CHF 20 billion in 2017. This represents ap- 2012), the Seychelles International Trusts Act 1994 Force (FATF) and a founding member of the Asia / proximately 25 percent of revenues generated in (amended in 2011 to make the trust structures Pacific Group on Money Laundering. In 2013, the au- the Swiss financial industry, excluding insurance more flexible), the Limited Partnerships Act 2003 thorities said that they would make the handling of (source: Swiss Bankers Association). (such partnerships being formed to conduct busi- proceeds from foreign tax evasion a crime, making ness outside the islands), the Protected Cell Com- Singapore the first state in the region to do this. Switzerland has 25% of global cross-border asset panies Act 2003 and the Mutual Fund and Hedge management business, making it the global leader. Fund Act 2008. Singapore has an English Common Law legal system Some 28,000 people work in the industry, creating and therefore has an established business in trusts SFr19 billion in gross earnings. Switzerland is out- The IBC Act was amended in 2013 to please the that follow those of other Common Law jurisdic- side the European Union. Organisation for Economic Co-operation and De- tions, such as the UK and US. Trustees in Singapore velopment. Bearer shares ceased to exist in 2014. have statutory duties under the Trustees Act; trust UBS is the country’s largest bank, with Credit Su- companies are licensed and regulated by MAS under isse and Raiffeisen Switzerland in second and third Barclays was the first commercial bank to establish the Trust Companies Act 2005 (see below). place respectively. The country’s bank secrecy operations in Seychelles in 1959 by opening a local came to a final end last year. branch and in 1999/2000 this became a local sub- Singaporean law allows people to form foreign sidiary. Although six more banks were to appear in trusts, and distributions to beneficiaries are free of Financial services are regulated by the Swiss Finan- the local market, it remained the leading bank and tax under section 13G Income Tax Act. Singapore cial Market Supervisory Authority (FINMA). There

JURISDICTIONS IN PROFILE 65 are 26 cantons, each with their own law-making Swiss citizens, foreigners with a permanent resi- Other Swiss-sourced income is taxed at ordinary bodies and taxes. The Swiss political system is dence permit C, or any foreigners who are married income tax rates but profits from trading outside federal. to Swiss citizens need to file tax returns each year. are usually also subject to tax at reduced rates. Federal withholding tax is levied at Swiss federal tax does not provide for any particu- People who reside in the country must pay tax on lar relief for domiciliary companies (source: PKF). their worldwide income and assets, except on the Withholding tax is charged on income from capital, income and wealth from foreign business or real such as interest on securities and bank accounts, Holding companies are exempt from cantonal and estate or if tax treaties prevent double taxation. dividends, annuities and pensions, lottery winnings communal corporate income tax and are often Residence for tax purposes arises if a person stays and shares in profits. The tax rate is 35% on in- also subject to capital tax at reduced rates. Hold- in Switzerland for 30 days, or for 90 days if the per- come from capital and lottery winnings, 15% on ing companies may own real estate in Switzerland. son does not work. Non-residents can be taxed on annuities and pensions and 8% on other insurance income from Swiss sources such as property and benefits (source: the Swiss Authorities). However, as an exception, any income or capital permanent business operations. gains generated from such real estate is subject to Special purpose companies (i.e. domiciliary and ordinary taxation. Federal income tax is levied at Cantonal income tax rates are mostly flat but some holding companies) exist. Domiciliary companies ordinary corporate income tax rates. cantons use graduated rates. The federal income tax only have administrative activities in Switzer- is as high as 11.5% and is a progressive tax. Effective land and are exclusively engaged in international ordinary corporate tax rates on income vary signif- business. Companies qualifying for domiciliary status icantly from one canton to another (from approxi- are exempt from cantonal tax on dividend income mately 12% up to a limit of around 24% in 2012). and on capital gains from qualifying participation. A semantic engine for KYC and AML due diligence

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