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www.gibraltarinternational.com GIBRALTAR INTERNATIONAL 3 Feb/March/April 2013 EDITORIAL COMMENT Volume 19/ Number 1 Seek and you shall Contents find – hopefully! here is demand for Gibraltar’s offering going to NEWS p6 come from? That’s the big question for 2013 as the Labour-Liberal Alliance moves into the second of its Ministers to decide 50% economic growth strategy Wfour-year term of office. The priority is identifying markets to target, with ECONOMY p10 Ministers Bossano (Employment & Inward Investment) and Challenges loom to bring pressure on growth target Licudi (Financial Services & e-Gaming) keen to map out the strategy that will help deliver the government's pre-election BUSINESS p12 promise of 50 per cent growth in the economy by 2015. What’s Your Target? Bossano was the architect of that challenging 10.5 per cent average year-on-year growth in Gross Domestic Product TAXATION p14 (GDP) - the national income from corporate profits, Removal from ‘black lists’ will see DTAs in 2013 self-employed, employees and rent. He’s an economist with form at making fairly accurate Gibraltar growth predictions; FUNDS p16 on the night before the 2007 elections, former Chief Minister, Peter Caruana allegedly described Bossano as “a back of the Investment Managers: Regulatory Overload - AIFMD envelope economist”. Yet Bossano admits to having no real idea yet where BANKING p20 business will come from. Apart from inflation and what he State-run bank counting on expansion calls ‘organic’ growth, he sees half of the GDP improvement coming via inward investment, particularly from BRIC EMPLOYMENT p22 countries (Brazil, Russia, India and China) – another of his More new businesses with EU help to reduce manifesto inputs. Licudi from personal experience has added unemployment South Africa, to make it BRICS, and his new super sales team for insurance, funds and private client (investment) work has TOURISM p26 quickly to identify market opportunities worldwide. That will include the UK, from where most new business Round the world bid to boost visitors already originates, on the grounds that you can never tell people too often just how good an opportunity Gibraltar BUSINESS ROUND UP p28 presents. But other EU countries are likely to be identified, GOVERMENT CHANGES p30 Switzerland and even Luxembourg, where one of Gibraltar’s most prominent lawyers was called pre-Christmas to advise on Promises to bring power and right to know the proposed transfer of some very large funds! Government spending adds to GDP in the sense that it GIBRALTAR INTERNATIONAL MAGAZINE taxes the extra wages and profits earned, but it must be revenue generating, not cost investment, such as the new air Published by Gibraltar No part of this publication may be terminal originated by the previous government. (In addition International Publications Ltd . reproduced without the written to an annual £3m running expense, there’s understood to be G7 Cornwall's Centre permission of the publishers. PMB 104 The publishers have tried to £4m cost of servicing the loan to build the £80m terminal, that PO Box 561 ensure that all information is theoretically could handle 2m passengers a year - but the Gibraltar accurate, but emphasise that they sea-locked airstrip cannot.) cannot accept responsibility for Tourism has been suggested as the one certainty of the any errors or omissions. The territory’s economy – they can’t take The Rock’s appeal away. Editorial enquiries publishers accept no responsibility [email protected] for statements made by Or can they? Continued political and actual skirmishes by contributors or for any claim Spain in the battle to break Britain’s 300 years hold of The made in an advertisement. Advertising enquiries Rock, have at times severely affected frontier crossings and British Gibraltar Territorial Waters, and now threatens the [email protected] © 2013 Gibraltar International Publications Ltd. 2007 Cordoba Agreement which allows flights approaching Design Gibraltar to fly over Spain. [email protected] All very frustrating and probably borne as much out of jealousy at Gibraltar’s obvious and growing economic success UK Agent: (compared to the neighbouring Campo’s comparative poverty Tel: + 44 (0)1993 703560 and Spain’s economic woe), as it is of any claim to ‘rightful’ ownership. Continuing media and parliamentary coverage of these events may cause some potential investors to hesitate, but that would just be a waste of the opportunity to have a foothold in a mainstream, compliant EU jurisdiction – no matter what Spain says. Ray Spencer

4 GIBRALTAR INTERNATIONAL www.gibraltarinternational.com NEWS Ministers to decide 50% economic growth strategy By Ray Spencer Emphasising his commit - “setting up parallel structures strategic analysis and develop - ment, Bossano declared: “I in Europe, not necessarily ment of policy in various ibraltar is depending on think I am the only guy in re-domiciling the existing struc - areas, in particular on funds, inward investment to Gibraltar that actually puts ture; the other [possibility] is insurance and private clients, Gmeet at least half of the down in black and white what where the fund is held under a and developing a marketing promised 50 per cent growth in the targets are. It’s easy to say company, it simply re-domiciled approach.” Michael Ashton its economy to reach £1.65bn in ‘if we are elected we will create to a new base in Europe such as joined in January with 15 years 2015 by staying “one step economic growth’, but you Gibraltar, so the whole insurance sector experience and ahead”. make a rod for your own back company and fund comes to Paul Astengo, a Gibraltarian “Organic growth” – natu - if you spell out by how much!” Gibraltar.” working over 30 years in bank - ral expansion of existing busi - Gilbert Licudi is Minister ing, arrives in mid- February to nesses, plus the effect of for financial services, account - promote private client work. inflation – will provide the ing for an estimated fifth of The funds specialist is still to be balance, according to Joe GDP and 14 per cent of total announced. Bossano, veteran politician and employment. While he envis - “The idea is to develop a a former Chief Minister. His ages it “growing in proportion strategy with them; we haven’t background in economics to the GDP growth”, Licudi said you need to come in to do encouraged him to add the emphasises: “It is not a mathe - XYZ and this is your target. It ambitious 10.5 per cent year- matical or scientific calculation has to be a joint strategy and on-year compound growth – what we are saying is that we determined fairly early on,” he Gross Domestic Product (GDP) have a target in relation to asserted. “We are developing a commitment to the govern - overall growth and a market plan, which will include events ment’s Election Manifesto. strategy, because we see areas of in relation to countries that we potential growth and therefore want to specifically target; I Changing priority areas we can develop within the have asked for a strategic Inward investment Minister Joe As Minister responsible both finance centre, both in existing Bossano set the GDP target and approach to be developed for for Employment and new business and new areas (which identified the BRIC opportunity 2013 – early in [2013].” business from overseas, his first we have already started to tar - year has been focused on the get).” Although “we certainly Now it’s BRICS former, but from this year his didn’t come away with a num - The government has already priorities change. Funds ambition ber of cheques for funds in said that fast-developing BRIC By the end of the first quar - Changed regulations last year Gibraltar”, the main outcome countries – Brazil, Russia, India ter of this year, the government removed the need for funds to said Licudi, was “the creation and China – will be targeted. hopes to be able to say exactly have Gibraltar administrators in of awareness, so Gibraltar is on Licudi has added South Africa, where and what it will target to an area Licudi sees has “poten - the radar. which following a visit to sign a help obtain the planned eco - tial for significant growth – we Tax Information Exchange nomic success. are ambitious in the area of Enticing decision Agreement (TIEA) he felt “I can’t say where it is com - funds; it is clearly not going to makers “clearly is growing, vibrant, ing from, because we have not happen overnight, but it is nec - “So when decision makers are with numerous opportunities, identified who the professional essary to have the logistic deciding where to go – particu - and on the same time zone customers are, but I can tell you framework in place, which we larly in Europe where tradition - as Gibraltar (CET). Having that there is no doubt in my have now”. ally funds have been located in Gibraltar as a base for South mind that we can achieve it and Many funds outside of places such as Luxembourg, Africa business for Europe is an it will be the inward investor Europe – some in the Caribbean Dublin and Malta – we are at ideal location.” that will produce more than – were looking at the possibility least on the paper of possible The BRIC approach was half of the growth”, he told me of having a European base with locations, and to be aware of another Bossano idea and in mid-December. the EU Alternative Investment what advantages Gibraltar can “came from my input before the “The economy, even with - Funds Directive (AIFD) coming bring to entice those decision election in reading what people out inward investment, can into force this year. It was very makers.” were saying, and analysing the grow: I am confident that it will clear to Licudi, from a Monaco He’s drafting in three sen - direction that the world was grow the other 50 per cent”, he funds-specific event, that fund ior executives, who “are prima - said. managers were considering rily going to be engaged on Continued page 8

6 GIBRALTAR INTERNATIONAL www.gibraltarinternational.com NEWS

Continued from page 6 are putting our stall out and making people aware. I organ - going.” He perceived a shift in ized a reception in Delhi and the sources of wealth and had 80 businessmen turn up at Bossano, who has had 40 24 hours notice, and some years in politics, concluded: had come in deliberately from “Consequently, we needed to be Mumbai overnight.” Some looking for a customer base already had business relation - outside of our traditional areas ships with the UK, while others so we could be one step ahead.” were interested in the possibili - Last year, as a result of invi - ties of using Gibraltar as a place tations rather than specifically for a home and for wealth seeking out opportunities, he planning. visited the former Russian state However, 2013 sees a Paul Astengo (left) and Mike Ashton join the Finance Centre to promote internationally private client work and insurance respectively. of Azerbaijan and hosted a new phase in promotion of reception for business people Gibraltar, with Russia being his ties, but this is commercially based here.” looking at the EU as a potential early target. sensitive,” the spokesperson And he noted: “There is market. “It’s resulted in con - “In the absence of any revealed. clearly a drive in some countries tacts that I have to go back to. other factor, I have to bring In a new year TV broad - – unfortunately driven by the The first trip that establishes a inward investment that will cre - cast, the Chief Minister admits: economic crisis – where there contact never produces any - ate jobs”, he said (see also story “Although Gibraltar is in a seems to be a need to stamp out thing other than an expression Page 20). Bossano admitted: relative state of calm in the what they might call tax of interest,” he noted. “There is a time lag between financial storms that rage dodgers, but there is a funda - going to get investment and it around the world, we are not mental difference between what India best prospect actually taking place – there immune.” is considered a criminal offence In China in 2012, he presented may be 18 months before start - The economic crisis, of tax evasion or fraud, and at a global economic summit, ing the process - and in the Picardo said, was starkly evi - what is perfectly legitimate tax and found an opportunity to meantime, the number requir - dent across the frontier – high planning, which might involve a meet participants; at a following ing jobs is still growing.” unemployment, and people lower tax in one jurisdiction Rio global economic sympo - The new Labour / Liberal losing their homes - in commu - and higher taxes in another.” sium on inward investment, Alliance government said it nities such as La Linea and A barrister, Licudi said Bossano met business leaders would establish a Economic across the region, “which are financial planning inevitably and academics. Advisory Council to assist Chief closely intertwined with ours in meant “lots of people set In his view, India Minister Fabian Picardo and many ways.” He added: “The up structures in Dublin, presents the best early opportu - “to include people from differ - disastrous state of the Spanish Luxembourg, Jersey, Guernsey, nity for Gibraltar. After a ent shades of political opinion economy therefore impacts on so Gibraltar is not unique.” He Commonwealth Ministers con - to work with Government in our business here and on some added: “Gibraltar provides ference in Delhi, he concluded: developing Gibraltar.” of our families too.” financial services and people “Having been part of the British When asked about progress, come here because it is an Empire, as it were, the people in a government spokesman told Tax concerns attractive jurisdiction.” India can understand the busi - me vaguely: “A Business Council In June’s budget he warned that ness community and under - is already in place, but it is the better than expected rev - Change inevitable stand the way business works, confined to commercial affairs, enue in 2011-12 from corpora - Asked about the tough target something they are familiar eg. Chamber, GFSB, etc.” No tion tax may not be sustainable of 50 per cent growth with from dealing with the information was forthcoming and business tax in the current for the economy over four UK.” about when meetings had taken year is expected to fall. years, Licudi was sanguine. Bossano considered “sell - place, nor of outcomes. Gibraltar’s 10 per cent However, he pointed out: ing the jurisdiction to Indian However, the spokesman corporation tax is less than half “We cannot be complacent businessmen and entrepreneurs said progress had been made on the UK’s present 23 per cent. and say we have established is an easier task… whereas a commitment to tax breaks for Asked whether the move by UK our model - we know the when talking to the Chinese, or businesses using Gibraltar as a and other EU nations to crack sorts of companies we want people from Azerbaijan, Brazil jurisdiction for research and down on “tax tourism” by to attract - we have to contin - and from Russia, they are peo - development in the software / international companies that ually re-invent ourselves.” ple from a completely different IT industries, which are now pay little or no tax when based “Things evolve, things structure and [ours] is not one established in Gibraltar, as well outside of their area of move on, we have to continual - they are familiar with.” as production by television, principle sales, Licudi conceded: ly adapt to a changing world. Like Licudi, Minister Bossano cinema and the music industry. “Gibraltar offers financial serv - We now have the ethic of declared: “We are not looking “There are already discussions ices; I am sure there are many Tax Exchange Information we for a given sector, effectively we in progress with interested par - companies in Gibraltar that are didn’t have 4 years ago!”

8 GIBRALTAR INTERNATIONAL www.gibraltarinternational.com ECONOMY Challenges loom to bring pressure on growth target Fresh challenges are emerging that weren’t anticipated largest group of offices, signified entry to Europe - promoting Gibraltar, not as inward when Gibraltar’s ambitious 50% growth target was set investment in order to access the market of in late 2011. They will test the government’s resolve to Gibraltar, but in order to access Europe from Gibraltar”. attract more private investment The Rock can succeed, “because we fifth of Gibraltar’s Gross Domestic consequences” for Gibraltar’s e-gaming have got the EU next to us and that poten - Product (GDP) comes from its Port, sector, says Minister Gilbert Licudi, with tial has not been exploited. The A combining a growing cruise ship reduced government income from duty, development of Gibraltar has not been business and substantial bunkering – such corporation tax, fewer employed and because there has been a deliberate, targeted that it is known as ‘a giant fuel filling reduced social security payments in policy of growing the economy, it’s hap - station’ for ships – but now requiring prospect. pened by default,” Bossano said. “serious infrastructure investment” to Apparently not talking up the danger as Listing advantages, he suggested: “The permit expansion, according to Minister for a negotiating political ploy to oppose the UK unique situation for Gibraltar is first, we the Port, Neil Costa. plan, Licudi says he’s seen figures for each of have got all of the powers of a EU member In an interview for a Guardian the 26 licenced e-gaming companies on the State in a town of 30,000 people – there is newspaper report on Gibraltar in late extent of exposure to the UK – but they no other part of the EU that has that. December, Costa made clear: “If we are remain confidential. Second, we have conditions of membership, serious about radically increasing the num - which are unobtainable by anybody else ber of [cruise line] passengers that come (and would not have been available to to Gibraltar, we need to change the Other 10% us if the border had been open and infrastructural mechanisms that Construction Tourism 20% Spain a member).” 8% will allow a doubling of that Gibraltar’s then isola - passenger number.” tion, having to bring every - There is growing compe - e-Gaming 22% Financial Services thing in by air and sea, tition too from neighbouring 20% enabled negotiated exceptions La Linea and Algeciras Port, The Port 20% from a raft of EU requirements where new and expanded facilities that were market orientated. “That are planned, and from the cannot be changed without UK immanent opening of Tangier’s Gross Domestic Product estimated sector contribution agreement since 1972. The new port across the Strait of unique situation is the one that Gibraltar attracting liners with a similar Attracting more gaming companies is makes possible the growth. I would not be ‘duty free’ offering and greater bunkering not the answer. “We have to be selective and able to sell, if Gibraltar did not have the capacity. cautious. We have built up over 15 years a situation [EU access]”, Bossano noted. Costa was upbeat on the 20 per cent or very significant element of quality – not Being small also has advantages. A £240m annual contribution to the economy quantity – of major players. It’s not about business person arriving on a tight from tourism – such as hotels, land, sea and numbers. timescale, could not get a meeting air visitors – which also is his responsibility. “Malta has taken a different route with in the UK with a top decision-maker “My aim is to convert tourism into hundreds of licences – it is not a model we such as David Cameron, unless offering Gibraltar’s principal engine of economic want to emulate,” he emphasised. 10,000 jobs, but in Gibraltar Bossano growth”, he said. Licudi explained: “I don’t foresee declared: “If you come to offer 10 jobs, Although the government was commit - gaming having a bigger share of the I can make that meeting happen with the ted to generate growth in the “critical” area economy. We have to be careful that we Chief Minister. of financial services, he insisted: “Ultimately, have prudent economic management. No “We have to sell a reality – you can do the only asset that Gibraltar can always rely matter how popular or easy it might be to from Gibraltar what you can do from other on is the Rock of Gibraltar and the inherent attract players in a particular sector, we places, but you can do it here more and magnificent opportunities in tourism”. don’t want most of our eggs in one basket, efficiently, quicker and you can make more And private sector money is needed there because things change over time.” money. The only way you can get people to too, he conceded. Charged with attracting inward invest money is if you can persuade them The fast-expanded remote gaming investment, Minister Joe Bassano says “its that the jurisdiction you are offering is going sector, accounting for more than 20 per cent quite obvious that one of the selling points is to be more profitable for them,” Bossano of GDP, is under threat from a planned UK that Gibraltar is an entry point”. boasted. tax from 2014 that could have “serious Investment in Europort, the territory’s Ray spencer

10 GIBRALTAR INTERNATIONAL www.gibraltarinternational.com BUSINESS What’s Your Target?

By Eran Shay, Head of Financial Advisory negative article and other internet Services, Deloitte Limited searches on the company and selected management could easily ver the last few years, the processes l Know the tax flush out key risks or concerns for mergers and acquisitions considerations. about a company’s or manage - O(M&As) have become more Analysing some tax consid - ment’s background and reputation. complex and require a disciplined erations up front also l Beware of window dressing. approach as credit markets have tightened. allows you to introduce key In preparation for a sale many Done well, target screening can improve structuring decisions early companies put their best foot the odds of a successful transaction. on in the process. forward. In some cases, adjust - A well-defined process can also greatly l Understand the capital requirements ments are made to paint the rosiest possible increase the efficiency of a company’s for the transaction. picture to the buyer universe. Cutting M&A strategy, as many potential value Beyond the initial purchase price, will the through short-term increases in sales, killers are identified much before target require a significant cash infusion for profit or cash flow to understand if they are significant organisational resources are working capital and growth? If significant driven by operational improvements or deployed to unproductive deals or capital is required is it financeable in a tight window dressing is key. transactions. credit market? If you as the buyer are already carrying Benefits of screening Know your target- know significant debt, how much cash reserves The rewards of a well-executed target the red flags and pitfalls do you need to keep to service that debt? screening process can be invaluable. If Target screening is the systemic first level What impact will this transaction have on screening is done properly, CFOs and deal review of potential acquisition candidates certain key credit covenants? teams will be more focused, aware of viable to identify a refined list of companies for l Think about liabilities that may not be alternatives, confident as to the benefits further due diligence and consideration. on the books. and risks, and better equipped to respond For companies seeking to acquire Is there a major contingent liability lurking to competitive M&A situations. Similarly, other companies, there’s a large list of behind the scenes that could be a deal a good screening process can provide potential targets ranging from standalone killer? the board with a thorough acquisition story companies to subsidiaries to divisions of A quick search of potential litigation consistent with the company’s strategy. other companies or even carved out or environmental claims may save signifi - Finally, a good process provides a entities. cant time down the road if there is an issue deeper understanding of potential integra - A disciplined target screening process not disclosed in financial statements. tion pitfalls which can help maximize can create a focused list of targets which l Consider deal risks holistically. the probability of integration success. are more likely to meet the needs of the What do you know about the individuals If not, companies may miss important acquirer. with whom you are negotiating? considerations that can increase the poten - High level background checks or tial for integration failure. Red flags - avoiding common pitfalls As part of target screening and the initial Medium List evaluation process, many of our clients find it is important to give due consideration at an early stage to a few key factors that can undermine the potential value of a target or Illustrative Screening Criteria its strategic fit. Some examples include: l Look for financial and operational Market Capacity Revenue Profit red flags. Share Margin Is one customer driving significant revenue? If so, what is their creditworthi - Availability ness? Are there any key suppliers or Geographic Client Base Technology for M&A/ components that could be at risk? Is this an Coverage Partnership industry where a transaction may cause employees or customers to leave immedi - ately after announcement? While not all of these can be identified at an early stage, Short List early identification can eliminate a target as a potential candidate.

12 GIBRALTAR INTERNATIONAL www.gibraltarinternational.com TAXATION

encourage openness in tax matters. Removal from ‘black lists’ “We have had requests [from Portugal] under that TIEA, so there has been co-operation already in terms of tax will see DTAs in 2013 information exchange. There are historical links from the finance centre in terms of ouble Taxation Agreements property held, investments and structures (DTAs) with several countries are using Gibraltar successfully… and we have Dexpected to be in place this year, discussed with Portugal those areas where something the Gibraltar Finance Centre Gibraltar offers services that can be community has long advocated to improved and provide further services to removing perceived barriers to gaining new Portuguese nationals,” Licudi explained. business. Italy presents a similar situation, The DTAs complement Tax although the TIEA with Gibraltar was only Information Exchange Agreements (TIEAs) signed in October. However, Licudi was that the OECD Global Forum has emphatic: “Again we have been led in effect promoted to eliminate “harmful tax to believe that there is absolutely no practices” through developing practical tax impediment, nor reason in practice or in Financial Services Minister Gilbert Licudi raises co-operation between jurisdictions. tax black list issue with Joao de Vallera, principle, why we should be considered as Gibraltar has signed 23 TIEAs, so far and Portugal’s Ambassador to London. a black listed jurisdiction.” says it is open to conclude still more. reasons), is unlikely in the short term to No discussion had yet taken place with The present Gibraltar government in remove The Rock from its ‘black list’; France, but Licudi reasoned: “Ultimately, it its first year in office established an France, is also thought to operate such a is up to each country to decide what industry-led working group to explore the second-tier approval process that affects criteria they use; my understanding, is that possibilities; now going into the second of Gibraltar. But a practical change in attitude those countries that still have a black list – its four-year term, the Minister for towards Gibraltar and tax has been a long it’s not many, quite frankly – look on two Financial Services, Gilbert Licudi revealed: time coming. basis; is there a taxation regime that is “We have made an initial approach to a “Portugal has Gibraltar on an unoffi - essentially mainstream, and is the country number of countries, including the UK.” cial black list DTA, most certainly,” co-operative from the point of view of any He told me: “We are convinced that Minister Licudi admitted to me in an investigations.” DTAs would be useful; they are useful exclusive interview. Gibraltar had been generally in [financial] planning - Malta, encouraged when the Portuguese TIEA was Fighting tax fraud Jersey, Guernsey, for example, all have a signed in 2009. “We were expressly told Whilst Gibraltar waits to see whether both number of them.” this was something that would be sorted Italy and Portugal will stand by their out in terms of so called ‘tax haven’. It is undertakings to remove the ‘tax haven’ No reason why not unfortunate that it hasn’t been resolved yet, label, Minister Licudi assured that his Business areas that could benefit include even though there has been co-operation, government was not simply “going banking, insurance, pensions and private as with any other country with which we through the motions” with regard to client work. “There is no reason in sign a TIEA,” Licudi stated. international tax and money laundering principle why we shouldn’t have them He expressed concern to Portugal’s requirements. [DTAs] - no impediment - and it’s some - Ambassador in London early in December. “When at the OECD conference, I thing we need to explore,” Licudi said. “Our message was very clear. We were made clear to the 82 countries present - However, smaller jurisdictions can find promised that this would happen and it sending out the message - that tax evasion it difficult to secure DTAs, because hasn’t happened yet – it needs to happen is wrong and everybody has to fight tax frequently they stand to benefit to a greater and there isn’t any reason why it shouldn’t fraud by every means possible. When we extent than large countries. Despite happen.” Licudi emphasised. talk of co-operation on tax exchange and any potential “imbalance”, Licudi takes transparency, we cannot just mean paying comfort from the fact that “there is in any Hold up purely administrative lip service to those principles,” he said. event, a greater drive for co-operation in The government believes the hold up “is Gibraltar had demonstrated that it tax matters and that includes TIEAs, so this purely administrative; that there isn’t, so meant what it said. “We are not simply is part of the co-operative process.” we have been led to believe, a political saying we want to be regarded as He is also confident of making agenda, or an issue that Portugal is mainstream and onshore in Europe and progress with some countries that have concerned about with Gibraltar.” therefore be removed from whatever black Gibraltar on an unofficial “black list” of The TIEA was signed in 2009 and list is in place,” Licudi asserted. It was tax havens, in particular Portugal and Italy. implemented in 2011, and since then important for practical measures to be in “We have TIEAs with both and they have Gibraltar has substituted tax-exempt com - place, “so that transparency means promised that we will be removed – but we pany status for some businesses to a low transparency and co-operation means will have to wait and see,” he declared. flat rate 10 per cent corporation tax for all co-operation in practice.” Spain, (for obvious wider political businesses, and other measures taken to Ray Spencer

14 GIBRALTAR INTERNATIONAL www.gibraltarinternational.com FUNDS Investment Managers: Regulatory Overload - AIFM D Aaron Payas, an Capital requirements Self-managed AIFs must have an initial cap - Associate at Hassans ital of at least €300,000. Where an AIFM is International Law Firm appointed as external manager of AIFs, the reports on the impact of AIFM must have an initial capital of at least €125,000. the Alternative Investment Where the value of the portfolio of the Fund Managers Directive, AIFs managed by an AIFM exceeds €250 on investment managers million, the AIFM must have additional capital of 0.02% of the amount exceeding ew investment managers would €250 million, up to but not greater than €10 disagree that the current global state of million. Faffairs has translated into one of the most challenging periods in the history of Delegation the investment industry. Not only is this the AIFMs can delegate certain tasks subject worst economic downturn since the Great when those AIFs are unleveraged and have to specific procedures being followed. Depression of 1929, but investment no redemption rights exercisable during a Delegation of portfolio and/or risk professionals are also facing an period of 5 years following the date of the management is limited only to authorised unprecedented amount of new wide- initial investment in each AIF. and supervised asset managers. The AIFM reaching legislation as regulators attempt to Any investment manager that does not may not delegate its functions to the extent avoid another financial crisis of this fall below these thresholds will have to that it becomes a letter-box entity. The magnitude. mandatorily comply with the AIFMD. AIFM will still be liable towards the AIF Investment managers that fall outside the and the investors notwithstanding any Alternative Investment Fund scope of AIFMD will have to register with delegation. Managers Directive the relevant competent authority and will The directive requires that the AIFM 2011/61/EU (AIFMD) need to provide such competent authority carries out substantially more functions Implementation date: 22nd July 2013. with some information on itself and the than it delegates. This means that the Official purpose: “To establish common funds it manages. However, such so-called common model where a self-managed fund requirements governing the authorisation “small AIFMs” may choose to opt-in and delegates the day-to-day management to an and supervision of AIFMs in order to obtain full authorisation under the AIFMD investment manager and other functions to provide a coherent approach to the related for example to take advantage of the service providers (such as valuation), whilst risks and their impact on investors and passporting provisions of the directive. retaining overall control and supervision, markets in the EU.” Investment managers must pay particular will not be compatible with AIFMD. These Types of investment managers affected: attention to the following implications of models will need to undergo significant All EU investment managers, non-EU AIFMD: restructuring and insource enough investment managers who manage EU funds functions in order to comply. and non-EU investment managers who Depositary costs market funds in the EU. The depositary is the key independent party Private placement AIFMD is the new piece of regulation in AIFMD and is charged with protecting Managers with non-EU funds face which is most concerning to investment the investors in the AIF. The depositary has uncertainty over which distribution managers, especially those who are based in three major roles as safe keeper of assets, channels will be available to them once the EU or who intend to market their funds monitor of cash, and overseer of NAV AIFMD comes into force. According to within the EU. As from 22nd July calculation and fund administration. AIFMD, such non-EU funds may be 2013, all alternative investment fund The depositary is liable for the loss of marketed under the private placement managers (AIFMs) will need to comply with assets and financial instruments in its regimes of each EU jurisdiction until 2018. AIFMD should they fall within its scope. control unless the loss is out of the After 2018, such managers will have to rely AIFMD applies to all AIFMs that depositary’s reasonable control and was solely on the so-called ‘third country manage alternative investment funds (AIFs): unavoidable. provision’ which will first be available as (a) whose assets under management, This liability goes beyond negligence from 2015. These provisions require including any assets acquired through the and is more resemblant of strict liability. the signing of supervisory and exchange use of leverage, in total exceed €100 These increased responsibilities for deposi - of information cooperation agreements million; or taries will translate into increased depositary between all the jurisdictions involved which (b) whose assets under management in costs and larger total expense ratios which total exceed a threshold of €500 million will ultimately be passed on to the investors. Continued on page 18

16 GIBRALTAR INTERNATIONAL www.gibraltarinternational.com FUNDS

Continued from page 16 their remuneration policies to ensure Conclusion compliance. In light of all the new legislation already, or may result in this route to market being soon to be, in force, it is unclear how unworkable or even unavailable for some Operational changes investment managers will tackle the countries. General changes to the investment regulatory challenge, whether it be through manager’s operations will also be required the appointment of compliance officers, Changes in contractual to comply with new rules relating to training individual asset managers within arrangements risk management, leverage, calculation the firm or by engaging third party Managers will need to revise all agreements methodologies, regulatory reporting and compliance advisers. with each service provider to ensure that others. It will be crucial however that they keep they can meet, as AIFMs, the requirements their costs down and be operationally under AIFMD. In addition, there have been Summary efficient if they intend to be competitive in indications that a single entity will not be Investment managers should be running a their particular market. In economic terms, able to simultaneously hold a MiFID and an full gap analysis to identify the areas in the barriers to entry of this industry are AIFM licence, which means that some which they would not be compliant with being raised higher than ever which means investment managers may need to consider AIFMD. Once authorised, AIFMs will be that new firms or latecomers will struggle to restructuring their firm or group of entities. able to passport their services and market gain market share whilst the biggest and Tax residency must also be taken into their AIFs freely within the EU. In addition, most efficient investment managers will consideration if the fund management shifts many are of the opinion that the AIFMD thrive. from one jurisdiction to another. product may create its own brand and reputation similar to the UCITS product in Full article Remuneration the retail sector. This article is a short version of a larger one. These new requirements form part of a Such branding may enhance investor For the full article, please visit the Hassans wider EU initiative to set conditions on confidence in the AIFMD product making it website www.gibraltarlaw.com or simply remuneration to combat excessive risk more appealing to investors. However, search for “Aaron Payas Regulatory taking and to harmonise remuneration becoming AIFMD authorised carries the Overload” in your internet browser. provisions across financial sectors. burden of compliance plus the significant www.gibraltarlaw.com Investment managers will need to revise additional costs. www.gfia.gi

18 GIBRALTAR INTERNATIONAL www.gibraltarinternational.com BANKING State-run bank counting on expansion usiness people strapped for cash to scheme for small business.” In response to GSD Opposition ques - expand their operations and Low initial deposits to open current tions, the government insists GSB will be Bindividuals unable to find a mortgage accounts at the Bank - not to be confused subject to the same ‘Know Your Client’ and are being promised a helping hand by the with the US-based Gibraltar Savings Bank of anti-money laundering requirements as any 130 years old Gibraltar Savings Bank (GSB), New Jersey - means access to balances by other bank in Gibraltar. when its role is expanded from March. debit card, and future on-line banking. Daniel Feetham, acting GSD and Fabian Picardo, Chief Minister, opened According to reports, some investors are Opposition Leader, is concerned to see that new premises for the Bank at Main Street in having difficulty in opening accounts with GSB “has an experienced and independent early December and said expansion of Gibraltar’s three existing retail banks. managerial team with a fully staffed compli - services at a time when other banks were Other retail banks on The Rock - ance function,” issues that an independent reducing showed how “different the Barclays, NatWest and Jyske – are closely regulator would examine before allowing performance of Gibraltar is to the rest of monitoring SBA developments, fearing it expansion of GSB services. the EU.” may have an ‘unfair’ advantage. They face The Opposition Manifesto promised In January, a government statement UK head office-imposed restrictions on Government funded home loans for first added: “The Savings Bank will indeed be interest rates and conditions for their lending time buyers unable to raise mortgages from expanding its deposits-taking function and to business. Some have reached a quota for banks, but committed only to “promoting a this will include the provision of interest- ‘acceptable’ lending at certain government- locally owned and controlled bank, with bearing current accounts and business sponsored housing projects. such Government participation as may be accounts free from any bank charges, The government claims “the Savings necessary”. including free cash handling services.” Bank is more highly regulated (with its own Gibraltar Savings Bank had £330m in The development meets a December Act of Parliament) than any Bank that is deposits at end-March 2011: 10-Year 2011 Socialist/Liberal Alliance election regulated by the Financial Services Accumulator Bonds’, were launched last Manifesto commitment to widen the Bank’s Commission (FSC).” It went on: “Unlike year, guaranteed by Government for deposits services beyond deposit taking to include any other bank, however, the repayment of of £100 or more and paying 2 per cent inter - “loan facilities for small businesses to help all moneys deposited in the Gibraltar Savings est in Year 1, increasing by 1 per cent each them expand and see them through periods Bank, together with interest thereon, is fully year, “as part of the continuing expansion of of difficulty” by operating “a loan guarantee guaranteed by the Government.” the role of the Gibraltar Savings Bank. ”

20 GIBRALTAR INTERNATIONAL www.gibraltarinternational.com EMPLOYMENT More new businesses with EU help to reduce unemployment

ibraltar is fighting for a bigger share amount,” he maintains. Bossano emphasises. of EU funds to help launch In all, nearly 400 new businesses were When including people without a job Gbusinesses, having achieved 20 in registered last year providing some100 more guarantee at the end of their training, the 2012 - the highest level yet of any year. But jobs so far. unemployed total was over 1,000, double there could have been more start-ups if the But despite increasing the number of that previously thought. “The real pressure territory’s £3m allocation was greater. Gibraltar residents working in the last 12 of the labour market in Gibraltar is not With private sector entrepreneurs put - months, Bossano says unemployment still simply the local worker, but everyone who ting up £7m - 70 per cent of the total - 70 remains at 7 per cent, “because there were a comes across [the border]”, he said. new jobs have been created in areas that group of people who no longer sought work promote a green economy, jobs for long- when there was no prospect of getting a job No restriction on staffing term unemployed, and include catering and and who did not bother to register as Bossano denies pressure on businesses to telecoms. EU money covers a third of unemployed.” employ only Gibraltarians. “Any EU capital needed for the structure, premises, He explained: “In a small place like national can come across the border and run etc., and another Euro fund provides money Gibraltar, if we get someone a job, the next from shop to shop, bars and construction to support trainees’ wages. day I get three other guys turning up looking sites offering themselves for work – and However, Employment Minister Joe for work, because they’ve just met a mate there is nothing we can do about that,” he Bossano argues Gibraltar should get more of who had gained that job.” admitted. the funds, which come via the UK as the EU There are 19,000 full time jobs “But we are saying to employers that member. “This [financial] year we have recorded by the government in Gibraltar, we expect them to accept that it is in the used to the full our allocation and as the UK plus 1,000 part time, “but that includes, say, public interest and in their own interest, to has failed to use up all of the money 8,000 cross border workers, which distorts increase the level of the working population, available to it, rather than send it back [to the overall result on [local] unemployment because the more people in jobs here the less the EU], they should give us a bigger and understates the real extent of the issue”, Continued on page 24

22 GIBRALTAR INTERNATIONAL www.gibraltarinternational.com EMPLOYMENT

Continued from page 22 got to a point where we have peaked; And Bossano claimed: “Gibraltar expe - money we [as the government] are spending I hope.” This year, he expects less riences possibly the largest churn or on social assistance and the more spending unemployment. turnover of labour in any economy in the power the consumer has in Gibraltar.” EU – out of something of the order of Whilst some jobs were specialist and the Graduates jobless too 15,000 jobs in the private sector there is a skill not available locally, others – such as Amongst the unemployed, however, are 68 turnover of 5,000 – 33 per cent pa. Given support staff – were on hand and should be graduates in a territory that generously that there is a flow of labour in and out, it taken on with training as required. supports eligible school leavers paying all means that even with zero growth, jobs Employers had responded well; around major costs to attend UK universities: half of become vacant.” 450 trainees this year are covered by the 400 youngsters reaching 16 last summer Bossano predicted: “By the end of our Business Partnership Agreements, “where took up the offer! first term of office in 2015, I aim to get the provider has a contract to provide jobs “We should provide, in terms of man - unemployment down to the level I left it in at the end of the training and so far, no-one power planning, for 400 job seekers every 1996 [when he was Chief Minister], to a has reneged on that commitment”, Bossano year, minus 150 retirees – so we expect the total of 330, which represents just under 3% added. market to grow by 250”, he declared. of the resident population.” People despairing of getting employ - ment have turned up. “I finished up with Betting on more people some 500 more people working and 500 Victor Chandler, Gibraltar’s pioneer of e-gaming 14 years ago, and already the territory’s largest more people, who were already unemployed employer after the government, is in the midst of a “huge” recruitment drive to bring his total local staff to 500 by the end of this year. but not registered. I employ one guy and As chairman of BetVictor, he recently said: “Most people have got bases elsewhere, but we focus two turn up. It’s a nightmare scenario,” he on keeping people here. It’s more expensive than having offices in Eastern Europe, for example, but declared ruefully. I believe in keeping my directors nearby and being able to talk to them.” At the peak of the Victor Chandler operation in the first decade there were 350 staff, mostly from “That hidden labour market - some of Gibraltar, but with the growth of internet use, the number went down to 280 two years ago. Today, he whom logically must have been in the black has a significant number of employees crossing the border from Spain. economy (otherwise they would have been Product and software development is fuelling the expansion. “We try to recruit people from Gibraltar, as that’s cheaper, but when you need such a spread of different talents, it’s impossible,” begging in the streets, but doing odd jobs Chandler stated. here and there, wherever they could) – is an Known as “the gentleman’s bookmaker”, Chandler noted: “It’s the same as anyone that’s produc - element that is reducing and we have now ing cutting edge IT; you’re looking for people that can innovate and that can produce new things.”

24 GIBRALTAR INTERNATIONAL www.gibraltarinternational.com TOURISM Round the world bid to boost visitors ibraltar is to become the focal point Boeing 737 jumbo jet. this year for a “Formula 1 type of According to research by Priddy, who Ground-the-world race for power boasts 37 boating world records, 3,000 boats” that promises to provide a significant people will watch the race start, swelling to business gain for The Rock, attracting an 5,000 visitors for the planned finish in early expected 0.5m visitors over the six months December. Alan Priddy will start his second world record attempt from Europa Point. from July. The visitor influx will bring substantial The ‘Circumnavigation Challenge’, pits new business to Gibraltar adding world- craft must pass through the Suez and America against Britain, in a bid to break wide awareness of its location at the end of Panama Canals, cross the Tropic of Cancer the eleven years old New Zealand-held the Iberian peninsular - but problems may and the Equator. world power boat record of 61 days. arise in meeting demand for hotel rooms. Accomplish More is being built With an eight-strong crew, Portsmouth’s The new tourist attraction will be included shrouded in secrecy at Hayling Island before Alan Priddy, Captain of “ Accomplish More ” on new ‘Rock Experience’ tours that being moved to and registered in Gibraltar, and instigator of the Challenge, leaves another local Challenge sponsor, Bland giving the project an appropriate strapline, Europa Point on November 2nd, aiming to Group International, will aim at cruise line “British – from start to finish”. complete the 23,850 nautical miles race “in visitors. With a support team of 25 working far less than 40 days - certainly well before Priddy’s £2.5m project will be the much as with Formula 1 racing cars, Christmas”, he told Ray Spencer . foundation from 2015 of an all-comers Priddy’s route takes in Puerto Rico, Panama, The 90ft-long, single hull aluminum bi-annual world challenge – five countries Acapulco, Honolulu, Guam, Singapore and vessel will be based at Ocean Village Marina have already shown interest – and this event Oman. – one of the local sponsors – for five months also will use Gibraltar as the focal point. It will be his second attempt at this of trials and at least another month after The American challenger has a smaller world record – in 2002 he failed shortly achieving the hoped-for record. Hundreds of catamaran boat leaving on the same day and after leaving Gibraltar having battled thousands of spectators are expected to see time from Puerto Rico and is expected to storms, mechanical problems, illness, injury the craft that’s about the same length as a call en-route at Gibraltar to refuel. Both - and pirate attacks!

26 GIBRALTAR INTERNATIONAL www.gibraltarinternational.com BUSINESS BUSINESS

New Investor especially the Funds Industry. Google Street View Africa. He wanted to create a Services Firm We provide high quality Following their previous fund for children that ADM Investor Services wholesale brokerage, announcement last year that promoted child health, with International (ADMISI) have specialising in execution Business the Google car had taken the aim of giving them a appointed Chad Thomson to services, utilising leading photos of Gibraltar, U.S. based better future. manage their recently opened trading technology backed up company Google are pleased to He commited one third of Gibraltar branch. by a 24 hour dealing facility.” ROUND UP announce that the Street View his Presidential salary for five ADMISI is a full service He points out: “The imagery is now available to be years to ensure the investment strength lies in the company as The web app is designed thumb taps of arriving on the viewed. international continuation of brokerage a counterparty. Although a to add value to the client and site. the fund and as his charitable company, leading investment brokerage partner experience. Barrister The site seamlessly blends legacy for children. with a 75 company, we are not owned & Business Developement into the desktop version and www.europa.gi year by a bank or larger financial Manager, Selwyn Figueras automatically displays the www.mandela- corporate services firm.” stated: “From the very right version depending on the children.org.uk/ history in ADMISI is part of the beginning, our focus has been OS the visitor is using.” He Gibraltar joins over forty the ambience London ADM Group, net sales for on usability, on ensuring ease added: “Mobile web traffic is other countries available in New terminal’s internet and the international 2012 were $89 billion. of use and that clients and set to surpass desktop internet Street View. Tourists, business appeal investment markets. The www.admisi.com partners alike be able traffic by the end of Q1 2013, travellers, and locals can now Flight information, airline company has membership to to contact a relevant a staggering statistic when you explore the scenery and see timetables and detailed layout over 20+ global exchanges Isolas launches lawyer within three consider how far mobile has points of interest. maps are amongst features on a with offices in Chicago, New mobile had to come and the relatively Local businesses, from pioneering, user-friendly York, Kansas, Mumbai, Hong web App short space of time in which it hotels and restaurants Kong, Singapore, and Taipei. Isolas Law Firm has has gone from frustratingly to shops, can also Chad Thomson stated: announced the launch slow and practically useless, to benefit from the Street “The draw of Gibraltar for the of the mobile a key feature of our daily View technology by company is the increasing optimised version of lives.” embedding Google growth in the Finance Sector, their website. www.gibraltarlawyers.com Maps directly into their site for free, helping them to promote their businesses. Street View is also used in many countries to help disabled people check wheelchair accessibility. Gibraltar Airport terminal www.maps.google.co.uk/ website and Smartphone streetview mobile version just launched. Intended for passengers Europa Trust supports and airport users generally, Nelson Mandela charity local firm Piranha Designs Europa Trust Company Ltd is worked with government proud to announce that it has airline business consultant chosen The Nelson Mandela Stuart Finlayson and Terminal Wedding! Conference! Banquet! Children’s Fund as its charity Director, Terence Lopez, to list Themed Event! Corporate Evening! for the year. airlines serving The Rock, Product Launch! Summer Ball! Christ- retail and catering facilities mas Party! New Years Extravaganza! and reduced mobility travel Whilst enjoying dinner you will not fail to see ‘The information. Khaima’, our brand new Moroccan style marquee and The site lists the THE new venue in Gibraltar for company events, wed- terminal’s corporate area for dings, dinners and a host of other uses. We are partic- private jet travellers, with ularly proud to have already hosted, to some acclaim, separate entrance, dedicated a number of important Gibraltar events this summer security processing, and and you too can use this superb venue summer or The Nelson Mandela “various lounges designed to winter. So, whether it be a summer wedding for 200 or a Christmas party venue for your company or or- Children’s Fund is an make your stay as comfortable ganisation Gibraltar now has a truly unique venue. international, non-profit as possible”. Ask to see it for yourself or for a full info organisation. The airport handled It was set up by Nelson 387,219 passengers last year, pack e-mail us at [email protected] Mandela in 1995, a year after 1 per cent above 2011. he became president of South www.gibraltarairport.gi

28 GIBRALTAR INTERNATIONAL www.gibraltarinternational.com www.gibraltarinternational.com GIBRALTAR INTERNATIONAL 29 GOVERNMENT CHANGES CONTACTS Promises to bring power and right to know Professional Bodies based in Gibraltar solution to Gibraltar’s and transparency”, Gibraltar’s authority and a Financial any recorded information held urgent need for a long- parliament now sits monthly – Services Ombudsman have been by or on behalf of an authority, Association of Pension Fund Administrators (APFA) Gibraltar Federation of Small Business (GFSB) term, stable electricity previously three times annually – allocated for drafting “over the including paper records, emails, Steven Knight, Chairman, Tel: + (350) 200 40466 Stuart Rodriguez, Chairman, Tel: + (350) 200 47722 A Email: [email protected] Email: [email protected] power supply to underpin the and live radio, TV and internet term of office”, a government information stored on computer, economy – the finance centre and broadcasts of proceedings are spokesman confirmed. audio or video cassettes, micro - Association of Trust & Company Managers (ATCOM) Gibraltar Funds & Investments Association (GFIA) Marc X. Ellul, Chairman, Tel: + (350) 200 70921 James Lasry, Chairman, Tel: + (350) 200 64740 e-gaming sectors, in particular - is planned, while Chief Minister A 10 per cent discount for fiche, maps, photographs, hand - Email: [email protected] Email: [email protected] to be revealed by end March. Fabian Picardo answers citizens’ early payment of business rates written notes or any other By mid-year, private sector questions quarterly via TV, radio has been introduced, along with form of recorded information, Bar Council Gibraltar Insurance Association (GIA) David Dumas, Chairman, Tel: + (350) 200 59026 / 79075 Chris Johnson, Chairman, Tel: + (350) 58452000 partnership arrangements for and social media. He says it 20 per cent discount for start-up normally should be supplied Email: [email protected] [email protected] Email: [email protected] renewable energy supply will has “transformed Gibraltar into companies in the first year. within 20 working days! be unveiled, as part of the one of the most transparent Electricity and water costs are to Information can only be Gibraltar Association of Compliance Officers (GACO) Gibraltar Insurance Institute (GII) Ivan Perez, Chairman, Tel: + (350) 200 73520 Derren Vincent, President, Tel: + (350) 200 51801 jurisdiction’s bid to become a democracies in the world”. remain frozen until the next withheld if the cost of doing so Email: [email protected] Email: [email protected] world-leading carbon neutral Neil Costa became Minister election. exceeds set limits, is vexatious, jurisdiction. The government will for Small Business – he also runs The greatest non-infrastruc - covers security issues, or fails Gibraltar Bankers’ Association (GBA) Gibraltar Society of Accountants (GSA) Emma Perez, President, Tel: + (350) 2000 2000 Freddie White, President, Tel: + (350) 200 45502 not generate renewable energy the Port, Tourism and public ture change potentially is a “a public interest” test, but Email: [email protected] Email: [email protected] itself, but buy electricity from transport – and is reviewing Freedom of Information Act, an independent Information renewable sources, and a revised all consumer-related legislation based on the UK seven years’ Commissioner can order disclo - Gibraltar Betting & Gaming Association (GBGA) Society of Trust & Estate Practitioners (STEP) Freddie Ballester, Chairman, Tel: + (350) 200 40595 Peter Isola, Chairman, Tel: + (350) 2000 1892 Environmental Action Plan is prior to the formation later this experience, which Dr Joseph sure. Email: [email protected] Email: [email protected] imminent. year of an Office of Fair Trading Garcia, deputy chief minister, However, scrapping of the The developments form part (OFT), which will have power to says will give citizens access to all previous government’s plans for Gibraltar Chamber of Commerce (GCC) Gibraltar HR Forum Nicholas Russo, President, Tel: + (350) 200 78376 Ruth Halsall, Chair, Tel: + (350) 200 43865 of the Gibraltar Socialist / Liberal investigate and enforce decisions. Government information and a €150m diesel oil-fired power Email: [email protected] Email: [email protected] Party government’s pledge to be Other developments of con - documents - “one of the best station that would have meant Gibraltar Finance Centre Council (GFCC) achieved in its four-year term in cern to business include a Public ways to prevent corruption and increasing electricity supply costs Peter Montegriffo, Chairman, Tel: + (350) 200 79000 office to 2015. In year one, “151 Interest Disclosure Act that bad practice in Government”. by 5 per cent a year for 20 years, Email: [email protected] Manifesto commitments have protects “whistle-blowers’, while The UK Act applies to “is probably one of the best deci - been delivered”. legislation for an independent government departments, public sions we have made”, Picardo Promising greater “openness anti-corruption and anti-bribery authorities and Parliament, and believes. Pure Focus Enabling growth in business and society

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For more information, call Joseph L Caruana or Stephen J Reyes on: Tel: +350 200 41200, Fax: +350 200 41201 [email protected] www.deloitte.gi