IOSCO publishes due diligence good practices for investment managers

The International Organization of Securities Commissions’ (IOSCO) Technical Committee has published a final report - IOSCO Good Practices in relation to Investment Managers’ Due Diligence When Investing in Structured Finance Instruments (Investment Manager Due Diligence Practices) – which contains guidelines aimed at assisting both investment management industry participants and regulatory bodies, in assessing the quality of their due diligence procedures regarding investments in structured finance instruments (SFI) by collective investment schemes (CIS) offered to retail investors.

The Investment Manager Due Diligence Practices were developed in cooperation with industry representatives following the recommendation made in the Report of the Task Force on the Subprime Crisis, published in May 2008, that the Technical Committee’s Standing Committee on Investment Management (TCSC5) conduct work, and develop good practices, on investment managers’ due diligence processes and procedures when investing in structured finance instruments on behalf of collective investment schemes (CIS) offered to retail investors.

Key Messages

The Investment Manager Due Diligence Practices are based on five key messages that should inform any review, development or reconsideration of due diligence policies and procedures. These are:

• Investing in a structured finance instrument (SFI) is different from investing in a more traditional instrument often referred to as a plain vanilla instrument. The risks are different, and call for a tailored due diligence process;
• If you do not understand a SFI, do not buy it;
• Due diligence is and must remain a value-added process. It is not and must never become a plain box-ticking process;
• Due diligence is generally a three step, and iterative process, which is structured around the understanding of the underlying assets of the SFI, of its structure and of how it fits into the CIS mandate; and
• Due diligence is not a static process. It is an on-going process, which starts at the time the initial investment in the SFI is contemplated and ends when the SFI matures or is divested.

IOSCO Investment Manager Due Diligence Good Practices

These good practices are aimed at assisting industry and regulators in their understanding, assessment and monitoring of investments in SFIs on behalf of CIS’. The practices are broken down into the three stages which should be included in the due diligence process, and also address the question of the use of third parties in the due diligence process, including credit rating agencies. The three stages are:

1. Analysing the underlying assets of the SFI

When assessing a SFI, investment managers should assess the availability, reliability and relevance of information available both on the market and on the underlying assets;

i. The unique properties of the specific pool of assets shouldn’t be assumed to be identical to the broader asset category. Investment managers should ensure that their analysis of the underlying assets is based on information that is relevant for that specific type of underlying assets;

2. Analysing the structure of the SFI

iii. The analysis of the structure of the SFI should be conducted both in “normal” and in “stress” scenarios;
iv. The investment manager should also ensure that he has or has access to the right expertise to conduct an analysis of a particular SFI, including legal expertise;
v. Whatever the structure of the SFI, the asset manager should understand how cash flows will be allocated to the different tranches of the SFI;
vi. The asset manager should use the practices laid out in this paper to build his own opinion on the SFI: is the price right for the risks taken on behalf of the investors;

3. How does the SFI fit into the CIS mandate

vii. The investment manager should check that investing in the SFI on behalf of the CIS is consistent with the disclosures, mandate and internal operations of the CIS.

Use of Third Parties in the Due Diligence Process

The investment manager should understand the methodology, parameters and basis on which the opinion of a third party was produced. He should have adequate means and expertise to challenge the methodology and parameters.

The Technical Committee is not adopting principles with respect to due diligence in this paper, however it may choose to undertake such a project in the future.

Insolvency Act 2009: Shoring up Corporate Goodwill and Protecting Stakeholders

A one-day workshop on the Insolvency Act 2009, with the participation of regulators, bankers, accountancy professionals and law practitioners, is being held today at Le Sirius Labourdonnais Hotel in Port Louis.

An initiative of the Insolvency Service in collaboration with the Ministry of Finance and Economic Empowerment, the workshop will serve as a platform where the participants will exchange views on the new legislation. The Insolvency Act 2009 which came into effect on 1st June this year is a fundamental component to improve the ease of doing business in all sectors of the economy and at all stages of an enterprise's development that is from start-up to closing down.

Launching the workshop, this morning, the Vice-Prime Minister, Minister of Finance and Economic Empowerment, Dr. Rama Sithanen, stressed that the Insolvency Act will secure the reputation of Mauritius as a well governed business and financial services centre and a trustworthy investment destination. It is also expected to shore up corporate goodwill and protect all stakeholders, he added.

The main thrusts of the Act are to consolidate and modernise the legal framework for insolvency by updating and integrating it in into a modern, omnibus legislation. In addition, the law redefines the priority of claims in the distribution of assets in liquidation and gives workers' unpaid salary higher priority than the secured creditors. It also sets alternative measures to bankruptcy.

Besides, the Insolvency Act 2009 reflects the objectives of the Government in implementing an insolvency regime that effectively balances the interests of debtors, creditors and other stakeholders while making the insolvency proceedings more transparent.

Mauritius: Workshop on “The Insolvency Act 2009”

Speech by Dr. The Honourable Ramakrishna Sithanen, GCSK, Vice-Prime Minister, Minister of Finance and Economic Empowerment on the occasion of the Opening of the Workshop on the Insolvency Act 2009 at Le Sirius, Labourdonnais Waterfront Hotel, Port Louis on Wednesday 29 July 2009 at 09:15 hours

Mrs Prabha Chinien, Director of the Insolvency Service and Registrar of Companies

Professor Peter McKenzie, Q.C.

Distinguished Guests

Ladies and Gentlemen

It is indeed a pleasure to be with all of you at this Workshop on “The Insolvency Act 2009”, which is organized jointly by the Insolvency Service and my Ministry.  It is encouraging to see that – regulators, bankers, accountancy professionals, and law practitioners are participating in this workshop to exchange views on that new legislation.

Since 2006, we have been implementing unprecedented and bold reforms to radically improve the investment climate and the ease of doing business in Mauritius.  The overarching goal was to move away from an outdated socio-economic model based on trade preferences to a more resilient and globally competitive economy based on the intrinsic strengths of Mauritius.  The reforms we have been implementing have required significant changes to the legal framework governing investment and doing business in Mauritius.    The most prominent of these changes was the Business Facilitation Act 2006 which charted a new vision to lift the country on a higher economic growth path.    A number of other crucial changes have been made to the legislative framework, including the Employment Relations Act, the Employment Rights Act, the Competitions Act, the Insurance (Amendment) Act, the Securities Amendment Act, and the Financial Services Act.   And a Commercial Division of the Supreme Court has been set up with jurisdiction to deal with all matters of bankruptcy, insolvency, matters arising out of the Companies Act and disputes of a commercial nature. 

The Insolvency Act is a fundamental part of this endeavour to improve the ease of doing business in all sectors of the economy and at all stages of an enterprise’s development, i.e from start-up to closing down. 

Prior to June 2009, the statutory framework dealing with insolvency in Mauritius was scattered among various pieces of legislations and had conspicuous gaps.   They did not meet the needs of a modernizing economy with a wider variety of businesses, more globally integrated and where business risk has become more spread and more intense. For these same reasons, many countries around the world have reformed their insolvency legislations and others are now adapting to that trend. 

In fact, the Insolvency Act has drawn on the experience of Australia, Canada, Malaysia, New Zealand, Singapore and UK and has been worked out in close collaboration with the World Bank and the stakeholders in Mauritius.  The consultations have been particularly helpful in drafting the legislation.  Let me here, take this opportunity to thank Professor Peter McKenzie, who has worked tirelessly with our technicians to bring the Insolvency Act to fruitful conclusion. 

We have worked out the Insolvency Act around seven main issues, that we believe are crucial to a modern business environment and an economy that is globalizing at a fast pace. 

First, we have consolidated and modernized the legal framework for insolvency by updating and integrating it in one modern, omnibus legislation.

Second, we have reviewed the process in order to give greater protection to employees while at the same time maintaining the priority of secured creditors.    The law redefines the priority of claims in the distribution of assets in liquidation and gives workers’ unpaid salary higher priority than the secured creditors.   We have thus put the focus on preventing and minimizing the human sufferings that closing down businesses can cause. 

The other striking reform in the area of claims relates to Government, which previously could claim all the amount due to it from a company in liquidation,  Under the new legislation, collection will be restricted to the amount due in one year.

The third pillar of the Insolvency law is that it sets in place alternative measures to bankruptcy. The previous legal framework had a clear bias towards liquidation. In many circumstances, companies were placed into liquidation when alternative resolutions were possible or even less costly. This new legislation corrects this bias by permitting quick and easy access to the process of rehabilitation. It provides for sufficient protection for all those involved. It offers a structure that permits the negotiation of a commercial plan enabling the majority of creditors in favour of the plan or other course of action to bind all other creditors by the democratic exercise of voting rights. And it provides for judicial or other supervision to ensure that the process is not subject to manipulation or abuse.  Workouts and Voluntary Administration are two important alternatives to winding up.  Workouts are now a global reality and a widespread practice, handled by professional insolvency and restructuring practitioners and are usually less expensive and painful as an alternative to outright bankruptcies.  Where rehabilitation is possible, such an approach will be a preferred option as the continued operation of the enterprise will enhance the value of the assets as opposed to liquidation and that production unit can be sold as going concern to minimize hardship on shareholders, creditors and save jobs and protect workers.

As regards voluntary administration, it is another alternative to liquidation that is practiced in major jurisdictions, including UK, New Zealand, and Australia.  It has since become the dominant formal procedure in times of financial distress.  

Thus the Insolvency Act provides for a four-phased process:

• Restructuring  and Work outs
• Administration
• Receiver/Manager
• Liquidation

Liquidation will only take place when there is absolutely no hope of restoring an insolvent person or corporation. 

This will help prevent the destruction of businesses, preserve valuable skills, save jobs as well as give our entrepreneurs a second chance.  Besides, now with hindsight, in midst of the worst global economic crisis in several decades, we see the benefits of having come up with this new Insolvency Act. 

The fourth main thrust of the Act is that it also consolidates and modernises the legal framework for individual insolvency. It brings all individual insolvency matters under the purview of one single legislation.

Fifth, we have included an entirely new regime in the legislation to address the problems which arise from cross-border insolvency. Important issues arise for Mauritius in this area because of the significance of the global business sector.  We thought it was important to have clear and well understood rules governing the insolvency of global business companies incorporated in Mauritius.

Another crucial coverage of legislation is the introduction of a new set of provisions dealing with netting arrangements in financial contracts. It provides for the netting of certain financial contracts, both in and outside of insolvency. 

And a seventh salient feature of the Act, is the  placing of additional responsibilities on directors of companies in the exercise of their duties, including procedures for public examination of directors and debtors by the Official Receiver / Court to prevent recurrence of delinquent behaviour and a sanction mechanism.

To conclude, let me stress that the Insolvency Act 2009 reflects the objectives of Government to implement an insolvency regime that effectively balances the interests of debtors, creditors and other stakeholders.     We strongly believe that the legislation will make insolvency proceedings more transparent and less painful. Under this new legal framework, insolvency will not happen in an opaque world bereft of accountability.   This law also gets the balance of regulation right so that all stakeholders affected by insolvency have confidence in the process.  The Act has put in place a mechanism that identifies early signals of distress in firms and steers them through a well-defined path to rehabilitation.  Only those firms that are beyond redress would take the insolvency route.  It calls upon directors to be accountable and sanctions those who abuse of the system.  The Insolvency Act will also secure the reputation of Mauritius as a well governed business and financial services center and a trustworthy investment destination.  It is an Act to shore up corporate goodwill and protect all stakeholders.  

I thank you for your attention and wish you fruitful deliberations.

HMRC: Offshore Disclosure Initiative Launch

HM Revenue & Customs (HMRC) has confirmed the details of a new disclosure initiative that will allow people with unpaid taxes linked to offshore accounts or assets to settle their tax liabilities at a favourable penalty rate.

Under the New Disclosure Opportunity (NDO) people who make a complete and accurate disclosure between 1 September 2009 and 12 March 2010 will qualify for a 10% penalty. Those who choose not to take this opportunity and are subsequently found to have undeclared tax liabilities are likely to face a 30% or higher penalty and also run an increased risk of criminal prosecution.

The Right Honourable Stephen Timms MP, Financial Secretary to the Treasury said:

“I would urge anyone with offshore accounts holding untaxed income or gains to take advantage of this simple and straightforward scheme.

“Most offshore investors already pay the tax that the law requires and it’s only fair that everyone respects the rules.

“Tax evasion is not a victimless crime. It deprives our public services of vital funding and places an unfair burden on the honest majority of taxpayers.”

Dave Hartnett, HMRC Permanent Secretary for Tax, said:

“I know there are people who regret not taking advantage of our Offshore Disclosure Facility (ODF) in 2007 which focused primarily on the customers of five large banks. Now everybody who has not paid the tax they should in relation to offshore accounts or assets has this New Disclosure Opportunity to pay what they owe with penalties on more favourable terms than normal.

“The procedure is simple and straightforward. Customers will be able to contact us on paper or through a dedicated area of our website.

“This will be the last opportunity of its kind.”

Details

1. To use the NDO a notification of the intention to disclose must be made to HMRC between 1 September and 30 November 2009.

2. Those notifying on paper can do so from 1 September to 30 November.

3. Those notifying electronically can do so from 1 October to 30 November.

4. Disclosures can then be made:

- on paper from 1 September 2009 to 31 January 2010

- electronically from 1 October 2009 to 12 March 2010.

5. The penalty rate of 10% will apply to those who were not written to by HMRC under the ODF in 2007.

6. Those to whom HMRC wrote to in 2007 offering the 10% rate but did not complete the ODF procedure and now want to disclose will have an opportunity to do so with unpaid tax attracting a penalty of 20% which is more favourable than normal whilst demonstrating that special rates once declined are unlikely to be repeated.

7. The ODF ran from April to November 2007.

8. Once this disclosure window closes on 12 March 2010, those taxpayers who have not come forward but are found to have unpaid tax liabilities will face penalties of at least 30% rising to 100% of the tax evaded. They also run a risk of criminal prosecution.

The Jersey Foundation

What is the Jersey Foundation?

The Jersey Foundation has separate legal personality and is therefore able to hold assets, contract with third parties and can sue and be sued in its own name and capacity. There are no shareholders.

Incorporation of a Foundation requires a charter and regulations. The Charter is a public document that sets out the name and objects of the Foundation. The Regulations are private and set out how the assets are to be administered and how the Foundation's objects are to be achieved.

The Foundation's assets are managed by the Foundation's council. The Council can have one or more Council Members (individuals or a body corporate) and must include a Qualified Member.

A Qualified Member will need to be registered under the Financial Services (Jersey) Law 1998 to carry out trust company business that permits the provision by the person of the services mentioned in articles 2(4)(a) and (d) of that Law.

The Jersey Foundation must also have a Guardian. The Guardian has a monitoring function to ensure the Council carries out its functions. The Qualified Member or the Founder (but no other Council member) may act as the Guardian of the Foundation.

A Foundation is not required to provide any person (including a beneficiary) with any information about the Foundation except as specifically provided under the Foundations Law, the Charter or the Regulations.

The Foundations (Jersey) Law came into force on 17 July 2009.

Common uses

The Jersey Foundation may be used for charitable and non-charitable purposes. Some possible uses for the Jersey Foundation are outlined below:

• Private Wealth management
• Succession
• Charitable purposes

Corporate status

A Foundation is capable of exercising all functions of an incorporated body except:

• Acquire, hold or dispose of immovable property in Jersey; or
• Engage in commercial trading that is not incidental to the attainment of its objects

Incorporation

The registrar must enter in the register:

• The name of the Foundation
• The name and business address in Jersey of the Qualified Member of the Foundation

Entry in the register is proof of incorporation & compliance with all matters precedent or incidental to the incorporation of the Foundation

The registrar may refuse to incorporate a Foundation if its objects are unlawful or if the name is undesirable, misleading or does not end with the word Foundation or that word in a foreign language

Mergers, continuance and winding-up

Regulations under the Foundations (Jersey) Law 2009 allow Jersey Foundations to merge with various Jersey and non-Jersey entities, foreign Foundations to be continued in Jersey and Jersey Foundations to be continued in other jurisdictions as well as the winding up of Jersey Foundations.

Powers of the Royal Court

The Royal Court has the power to:

• Order a person to comply with an obligation under the Foundations Law or under the Charter or Regulations of a Foundation
• Order the amendment of the Charter or Regulations
• Give directions in respect of Foundations
• Protect interests of certain persons under a Foundation
• Dismiss or appoint the Qualified Member of a Foundation
• Take action on behalf of others in respect of a Foundation

Confidentiality

Everything regarding a Foundation is confidential except the Charter.

Jersey Law prevails

Article 32 of the Foundations Law deals with the matters of comity and forced heirship rights akin to Article 9 of the Jersey Trust Law.

STEP Study finds international families need global and integrated tax and regulatory advice

Today STEP published a report examining international trends in the trust and estate planning industry.

The report finds wealthy families are increasingly looking to manage their assets internationally and highlights the growing need for their professional advisers to give tax advice on a global, not just local, basis. Those advisors and trustees who master global and integrated tax advice will thrive in this new environment.

Johnston, Director of Policy said: “Tax advice to high net worth families is now global rather than local. Much more sophisticated advice is needed to manage the complexity of tax issues wherever a client may have assets or connections.”

Clients want home country compliance and international tax neutrality to avoid additional layers of tax. The main priority for wealthy families is that assets are well managed in financial centres with a strong regulatory environment and access to a wide range of top-flight professional expertise."

Three key trends were identified which will be felt across the industry for years to come:

The Transparency Dividend - The end of secrecy will mean families will seek out advisors and trustees who can master global tax advice. Economic conditions will mean tax competition between countries will increase and the distinction between offshore and onshore will disappear.

Investors and their advisors will choose jurisdictions for tax neutrality, so that investors from several jurisdictions are not subject to the additional layers of taxation that sometimes arise in a cross-border context.

All this requires much more sophisticated tax and regulatory advice where integration is key. This means bringing together the advice from country A and country B to achieve the best outcome overall for the family.

Transforming Trust and Estate Planning - into Wealth Structuring Modernising practices are integrating trust and estate planning into a wider wealth management business. Trustees are adopting best practices in investment management and enhancing compliance processes to reduce risk.

‘Trust Plus’ Strategies - Products and services are being combined together to create new revenue opportunities for wealth structuring professionals. New strategies are being added to the toolbox and existing strategies are being combined in new ways to create customised solutions in higher value structures.

Thirty-two leading Trust and Estate Planning practitioners were interviewed between March & June 2009 about their predictions for the industry over the next 12-18 months.

Access the Executive summary and buy the report

Cayman Island Funds - Entering the Gateway to Capital Markets in India

Cayman Islands domiciled investment funds historically have faced challenges when seeking to invest into Indian capital markets. One of the major hurdles in this regard has been addressed by the 10 June 2009 admission of the Cayman Islands Monetary Authority (“CIMA”) as an ordinary (i.e. full) member of the International Organization of Securities Commissions (“IOSCO”).

By way of background, the IOSCO Objectives and Principles of Securities Regulation were endorsed by its member regulators of various securities and futures markets in 1998, and generally are viewed by securities regulators as the key international benchmark on sound principles and practices for securities regulation. Currently, IOSCO members regulate the vast majority of the world's securities markets.

To download this article as a PDF, click here

Flying in the face of development. How European Investment Bank loans enable tax havens

The Counter Balance coalition is proud to release the first ever published in-depth analysis of the European Investment Bank loans for development projects to borrowers using tax evasion & tax avoidance schemes.

“Flying in the face of development. How European Investment Bank loans enable tax havens” is a report commissioned by the Counter Balance coalition to Eurodad policy analyst Marta Ruiz.

“This research demonstrates that there is a long list of EIB clients and projects in developing countries which use tax havens and similar secrecy jurisdictions”, reveals Desislava Stoyanova, Counter Balance Coordinator. “One of the most used tax havens for investments in the African region is Mauritius. This is particularly contradictory to the development purposes the EIB has under the Cotonou Agreement. Secrecy jurisdictions foster tax competition, allow bank secrecy and therefore corruption, and facilitate tax evasion and tax avoidance”.

It is little known that the EU House-Bank is increasingly lending outside the EU. With a mandate to lend EUR 27.8 billion over the 2007-2013 outside EU (excluding ACP countries) the European Investment Bank (EIB) is a leading financial powerhouse operating around the globe on behalf of the EU and its member states, the EIB’s shareholders. The EIB’s financing in the developing world is regulated by different EU mandates for each region in which it operates (1). The EIB will, for example, allocate EUR 2 billion to support Africa in the context of the financial crisis over the next three years, mainly for investments in infrastructure, energy projects and the financial sector (2).

In the last five years the EIB has loaned EUR 5.66 billion to the top tax haven users from the UK, France and the Netherlands, while EUR 210 million has gone to African funds using tax havens in their strategies. Furthermore, some of the major infrastructure projects financed by the EIB in the name of development happen to have close links with tax havens, which is also the case with financial intermediaries benefiting via the EIB's Global loans.

The case of Mauritius

Despite being blacklisted by the OECD for years and still considered as a tax haven by many analysts, Mauritius is now part of the OECD’s white list of countries that have “substantially implemented internationally agreed tax standards”. But there are many reasons to believe that Mauritius still poses serious problems in terms of secrecy and harmful tax competition.

A Norwegian government report on tax havens and development (June 2009) finds that; “Mauritius offers a location to foreign investors for a nominal fee to the government and for very low taxes protected through tax treaties. This is an example of a harmful structure, whereby Mauritius offers investors the opportunity to establish an additional domicile which allows the investor to exploit a virtually zero tax regime. In reality, the source country is robbed of tax on capital income through this type of structure, while the tax-related outcome for the investor is very favourable” (3).

See full list of EIB clients 2008/2009 starting p 12.

“Our study confirms what we have been suspecting: the EIB’s capacity to assess its clients is limited”, adds Desislava Stoyanova, Counter Balance Coordinator. “We are extremely concerned the EIB successfully screened out only four projects in recent years, based on evidence that they were or were intending to practice tax evasion. According to our findings, it represents just the tip of the iceberg. We thus demand that EU leaders, the EIB shareholders, practice at home what they preach in international forum such as the G20”.

In addition, the EIB‘s global loans are left out of this screening as these loans are provided on trust to Europe’s biggest banks, the largest users of tax havens. And on its monitoring of clients and projects following project approval – where again companies receiving EIB money are relied on to report against themselves if there is a significant change, a concept open to broad interpretation.

Even in the rare instances where the EIB does identify tax evasion practices, its sanctions are weak. There is no public announcement of companies that are excluded from finance, and no debarment from tendering for other EIB projects unless or until a final criminal conviction has been achieved. This does little to discourage companies, and is a far weaker approach than that being taken by the World Bank and other similar institutions.

Combined with the dramatic lack of transparency in the EIB which prevents concerned citizens’ groups checking up on the due diligence procedures or the evidence that is used, the EIB fails to make a convincing case that its money is all well-used according to its policy on fraud and corruption (4).

“Plugging tax leaks is mandatory to help maintain and extend public services, redistribute wealth, restore government policy space and enable developing country citizens to exert accountability on their governments”, pleads Desislava Stoyanova, Counter Balance Coordinator. “The promotion of progressive tax systems, the strengthening of tax administrations and the fight against tax and regulatory havens are critical in the area of development finance and must be reflected in European investments in developing countries as part of a coherent European development policy”.

Notes

(1) The mandates are given to the bank by the European Council with a double scope: to identify the EIB’s lending priorities and to grant the bank a European Community guarantee – a protection for the EIB against potential losses in riskier markets – for its lending operations outside the EU region. For the Africa, Caribbean and Pacific (ACP) region the EIB’s mandate falls under the Cotonou Agreement, while for Asia, Latin America, pre-accession and neighboring countries (Mediterranean, Eastern Europe, Southern Caucasus and Russia), the Council issues an ad-hoc decision.

In accordance with the Cotonou Agreement, EIB lending directed towards African, Caribbean and Pacific (ACP) countries falls within a development mandate. The Cotonou Agreement states that the EIB shall “act in accordance with the objectives of this Agreement” – defined as “reducing and eventually eradicating poverty consistent with the objective of sustainable development and the gradual integration of ACP countries into the world economy.”

In 2008 the EU Council committed, "to implement the principles of good governance in the tax area” and to “improve international cooperation in the tax area (…) and develop measures for the effective implementation of the above mentioned principles."

These principles are “transparency, exchange of information and fair tax competition”.

The Council added “the need to include in relevant agreements to be concluded with third countries by the Community and its Member States (...) a specific provision on good governance in the tax area”.Source

These principles have been ratified by the European Parliament’s report on tax fraud which says that Europe should take the lead and make the elimination of tax havens worldwide a priority, and “invites the Council and the Commission to use the leverage of EU trade power when negotiating trade and cooperation agreements with the governments of tax havens, in order to persuade them to eliminate tax provisions and practices that favor tax evasion and fraud”. Source

(2) www.eib.org/about/press/2009/2009-079-at-least-an-additional-ususd15-billion-to-respond-to-financial-crisis-in-africa.htm

(3) Commission on capital flight from developing countries. “Tax havens and development" . Status, analyses and measures”. Report from the Government Commission on Capital flight from Poor Countries. Appointed by Royal Decree of 27 June 2008. Submitted to Erik Solheim, Minister of Environment and International development, on 18 June 2009.

(4) Counter Balance (2009). The Long Struggle for Accountability of IFIs – the case of the EIB and the World Bank

Information and communication technologies vital for global economic recovery

The World Economic Forum today released ICT for Economic Growth: A Dynamic Ecosystem Driving the Global Recovery, an analysis of how information and communication technologies (ICT) can serve as fundamental enablers for the global economic recovery. Demonstrating the importance of ICT as a catalyst for growth, the report highlights the industry’s complex and interdependent relationships, new collaborative business opportunities and the need for stable policy frameworks to ensure sustained investment, innovation and fair competition.

The positive correlation between the adoption of ICT and macroeconomic growth is one of the focal points of the analysis. Whether from the rapidly expanding adoption of mobile telephones – particularly within emerging economies – or the impact of ubiquitous broadband access, the economic dividend from ICT is significant.

“In the search for pathways out of the current economic crisis, one of the recurring themes that has emerged from the World Economic Forum Annual Meeting in Davos and through its regional meetings is the global need for a robust information infrastructure,” said Klaus Schwab, Founder and Executive Chairman of the World Economic Forum. “A ubiquitous communications fabric which is adaptive, distributed and interoperable is fundamental for enabling transformational and inclusive economic growth.”

In addition, the complex industry relationships within the ICT ecosystem are presented in the report. Networked and highly connected, the ecosystem continuously changes as its participants grow, adapt, specialize and innovate. “The dynamic and innovative nature of the ICT sector drives its potential to accelerate the global recovery,” said Leonard Waverman, Dean of the Haskayne School of Business at the University of Calgary, Canada. “It’s the cornerstone for the 21st century.”

The report also notes some of the challenges that lie ahead in the evolution of the ICT ecosystem. As business paradigms change, innovative thinking will be required among all stakeholders. Particular issues identified include privacy, security and quality of service. Continued commitments to open standards and interoperability are also viewed as essential for “bottom-up” innovation and the creation of opportunities for entrepreneurs.

Written in close collaboration with leading experts from the Telecommunications Industry Partnership community of the World Economic Forum, this work is the first in a multi-part series highlighting the potential for ICT to serve as a vital platform for addressing the world’s toughest economic, social and environmental challenges. It is available online at http://www.weforum.org/ip/ict

DFSA Forms Panel to Review its Funds Regime

The Dubai Financial Services Authority (DFSA) has established a Market Practitioners Panel (Panel) to review the Dubai International Financial Centre’s (DIFC) Collective Investment Funds (Funds) regime. The Panel, comprises 10 industry experts, who will review the Funds regime to identify what, if any, changes are needed to make that regime more attractive to the funds industry and potential investors.

The members of the Panel are:-

Mr Nick Smith, Partner, Allen & Overy - Chair of the Panel
Ms Lynette Brown, Partner, Al Tamimi - Deputy Chair of the Panel
Mr Kevin Birkett, Executive Director, Asset Management Division - Dubai International Financial Centre Authority (DIFCA)
Ms Farah Foustok, CEO - ING Investment Management (Dubai) Limited
Dr Ryan Lemand, Advisor to the CEO and Head of Risk Management - Emirates Securities and Commodities Authority)
Mr Craig Roberts, CEO - APEX Fund Services (Dubai) Ltd
Mr Nick Savastano, Senior Executive Officer - Invesco
Mr David Smith, Partner - PWC
Mr Tom Speechley, Executive Director, Abraaj Capital
Mr Jacques Visser, Managing Director, Legal and Compliance - Algebra Capital Limited.

Membership of the Panel is honorary and allocated to the individual due to their knowledge and expertise in the Funds industry.

The Panel will undertake this review over the summer months with a view to providing to the DFSA a report setting out its findings at the end of September 2009. The DFSA expects to publish that report.

Mr Paul Koster, Chief Executive of the DFSA said, “The Panel will take this opportunity to shape the Funds regime in a way that best serves the needs of the Funds industry and investors as well as continuing to promote the DIFC as a centre of excellence in Funds management”.

Ugland House: headquarters of the international law firm Maples and Calder

Ugland House is an office building in George Town, Grand Cayman, which for several months has been the subject of highly-charged comment in press and political circles. Amongst other things, companies registered at Ugland House have been described as "shells", owned by individuals to evade tax and take advantage of secrecy laws.

Those comments are wrong, and arise from several myths. This web site sets out to refute those myths and explain what really happens in Ugland House. Far from the negative image generated by those who misunderstand the nature of institutional financial work, offshore vehicles such as those registered at Ugland House operate in a highly developed and stable regulatory structure, make a lasting and necessary contribution to economies and jobs onshore and play a crucial role in the worldwide economic recovery as a whole.

Conyers adds Mauritian capability as it expands in London

Multi-jurisdictional law firm Conyers Dill & Pearman is pleased to announce the addition of Devalingum Gopalla as an associate based in its London office. Dev specialises in hedge funds with a focus on inward and outward investment across India, China, and Africa. He also has expertise in Mauritian compliance matters, non-contentious regulatory issues and securities law.

Prior to joining Conyers, Dev practised as a Barrister at a specialist Mauritian law firm. He has also worked at the Mauritius Financial Services Commission on regulatory law and enforcement, and as sole in-house counsel to one of the largest Indian Private Equity Groups based in Mauritius.

Dev has significant experience in advising on outward investment from Asia into Europe and America, and in advising foreign investors on the establishment of Mauritian based real estate and private equity funds for investment into India, China and Africa. His corporate finance experience includes advising international banks and US private equity groups on using Mauritius as a treaty based conduit finance location for investment into Africa.

Christopher Johnson-Gilbert, managing partner of Conyers’ London office, said: “Dev is an excellent addition to our team. His expertise in Mauritius law coupled with his focus on investment funds will enhance our existing offering, enabling us to provide our London clients with direct access to Mauritius structures. Dev’s addition to the firm reinforces Conyers’ commitment to providing the highest quality legal advice to clients in a responsive and timely manner. We are delighted to welcome Dev to the firm.”

Commenting on his appointment, Dev said: “Conyers has a solid reputation as a leading provider of offshore legal services. The firm’s forward-thinking and innovative ethos, global reach, and international client base make it an exciting firm to join. I look forward to bringing my Mauritius and investment funds experience to bear, and working with Conyers as it expands its practice to meet increasing inflows of Mauritius related work.”

Dev holds an LLB and an LLM, and was admitted to the Bar of Mauritius in 2005, the New York State Bar in 2002 (non-practising), and the Bar of England & Wales at the Honourable Society of Gray’s Inn in 2006. He is currently Mauritius Chapter Chair for the New York State Bar Association and a member of the New York State Bar Association’s International Executive Committee, the International Tax Planning Association and the Mauritius Bar Association.

Conyers’ London office provides corporate and commercial law as well as trust and private client advice, specialising in investment funds, finance, and insurance matters. Conyers has been established in London for over a decade, and advises on the leading jurisdictions of the Cayman Islands, British Virgin Islands, Bermuda and Mauritius.

Conyers opens Law Office in Mauritius

Multi-jurisdictional law firm Conyers Dill & Pearman is pleased to announce the formal opening of its law office in Mauritius. Conyers received regulatory approval and registration of Conyers Dill & Pearman (Mauritius) Limited as a Joint Law Venture under the Mauritius Law Practitioners Act 1984. The Attorney General of Mauritius, Hon. Rama Valayden, presented the registration certificate to John Collis, Chairman of Conyers, in Port Louis in late June. Recent amendments to Mauritius law now allow foreign law firms to establish operations in the jurisdiction to provide Mauritius legal services.

Conyers’ Mauritius office will focus on general corporate and commercial work, with particular emphasis on investment funds, private equity, joint ventures, banking and finance transactions, structured finance, and shipping and aircraft registration and financing, providing a conduit for investment into the burgeoning markets of India and South Africa as the appetite for doing business in these regions continues apace. Conyers’ sister company, Codan (Mauritius) Limited, which was established in March 2008, provides incorporation, formation, administration, corporate secretarial and management services to global business entities.

Conyers’ Mauritius office is located in Ebene, at the heart of the financial and cyber district of the island. The Mauritius practice comprises a globally integrated team, with Nicolas Richard and Sameer Tegally in Mauritius, Sonia Xavier advising on Mauritius law from Dubai, and Devalingum Gopalla advising on Mauritius law from London.

John Collis commented: “We have seen significant interest from multinational clients in India and South Africa and the addition of our Mauritius office further strengthens our ability to facilitate transactions in these key emerging markets. Since establishing a Mauritius presence last year, Conyers has received a significant number of instructions and built a solid reputation for delivering the highest quality legal advice in a responsive and timely manner. We pride ourselves on advising on the world’s leading jurisdictions, and the rise of Mauritius to a highly reputable global business centre following rapid development of its global business sector made Mauritius a natural choice for Conyers. We look forward to continually augmenting our service offering in Mauritius.”

The launch of Conyers’ Mauritius office further consolidates the firm’s position as the leading provider of offshore legal services, in line with its strategy of sustained global and organic expansion. In addition to Mauritius, Conyers advises on the leading jurisdictions of the Cayman Islands, British Virgin Islands and Bermuda, and continues to strengthen its position in those jurisdictions. Conyers comprises close to 600 staff with more than 150 lawyers and spans a global network of 11 locations worldwide.

Top Offshore Law Firms Appleby and Dickinson Cruickshank to Merge

Leading global offshore legal, fiduciary and administration service provider Appleby, has today announced a dramatic expansion of its international reach, merging with Dickinson Cruickshank, the largest law firm in the Isle of Man. The firm will continue to be known as Appleby and the merger is to be effective, once all conditions are met, on 1st October, 2009. Appleby is the first global offshore law firm on the island and the move will see Appleby emerge as the offshore law firm with the widest jurisdictional reach, and become the largest offshore law firm by number of partners. The firm will now have 73 partners and 200 lawyers, and a total of over 800 staff in 9 offices worldwide, including Bermuda, the British Virgin Islands, the Cayman Islands, Jersey, Mauritius, Hong Kong, London, Zurich and the Isle of Man.

Dickinson Cruickshank is the largest and one of the longest established firms of advocates on the Isle of Man. Founded in 1899, it is now one of the two dominant law firms on the island with 11 partners, 27 other lawyers, 17 fiduciary service providers and a total staff of 119. It is a full service firm practicing Isle of Man law with a specific focus on corporate and commercial, private client, dispute resolution, property and fiduciary services. The firm is consistently in the top ranking in the major international legal directories and has twice been nominated as “Offshore law firm of the Year”.

Commenting on the merger, Paul Morris, Dickinson Cruickshank’s Senior Partner said: “We believe that the merger with Appleby, as a global offshore services provider, is not only a first on the island and an invaluable resource for our clients, but it will also provide a huge boost to the Isle of Man’s capabilities, status and reputation in the international offshore sector. Appleby’s global reach in the key offshore jurisdictions, its recent expansion through Mauritius into the emerging markets in India, Africa and Asia, and its market leading position in international financial centres, will have a significant impact on the breadth, range and choice of services we are able to offer to our Isle of Man and international clients.”

Peter Bubenzer, Appleby’s Global Group Managing Partner added: “The opportunity to merge with a firm of the size and quality of Dickinson Cruickshank was compelling for us. The firm’s focus on their clients’ needs and, as the offshore sector evolves, their recognition of the value to clients of truly global resources, as well as a choice of jurisdictions and structures, mirrors our own strategic thinking. The merger will position us as the leading provider of legal, fiduciary and administration services across the offshore world. Our entry into the Manx market further builds our strength and depth across multiple jurisdictions — providing greater resources and greater choice to our clients. In addition, Dickinson Cruickshank’s London presence will strengthen our offering in the UK market. The merger will provide both firms’ corporate, institutional and private clients with greater resources across the locations and time zones in which they do business and a broader choice of structures and jurisdictions, unmatched by any other offshore firm. We believe that the move will reinforce Appleby’s position as the first choice for clients in the offshore sector.”

The merger will enable Appleby to further extend the services it offers to global clients seeking high quality, sophisticated financial centres through which to invest. It follows the firm’s successful opening in Mauritius in 2008, providing clients with greater access to the high growth Middle East, Asian, Indian and African markets, and in Zurich in 2009, offering access to the range of offshore centres to private bank and institutional clients in Switzerland.

Appleby first ventured out from its Bermuda origins in 1979, with the establishment of a Guernsey office for administration clients, and this latest merger is part of a thirty year development of the firm. The firm has expanded rapidly in the last three years and now has a legal and professional staff of approximately 800. It is the only offshore legal, fiduciary and administration service provider with a major foothold in six of the world’s leading offshore business centres in Bermuda, the British Virgin Islands, Cayman Islands, Jersey, Mauritius and now Isle of Man, as well as offices in London, Hong Kong and Switzerland.

G8 Leaders acknowledge progress in promoting tax information exchange and transparency

In a statement following their 8 July meeting in L’Aquila, the G8 leaders stated "all jurisdictions must now quickly implement their commitments... an appropriate follow up framework is needed to fully benefit from this renewed emphasis on tax information exchange and transparency... We ask the OECD to swiftly address these challenges, propose further steps and report by the time of the next G20 Finance Ministers’ meeting.”

Mauritius launches bid as International Centre for Back-Up, Disaster Recovery and Business Continuity Services

The Board of Investment, Mauritius has launched a bid to establish itself as an international centre for back-up, disaster recovery and business continuity services. It has appointed consulting firm BroadGroup as advisors on its data centre strategy, and also as producers of a special 2-day conference for enterprise CIOs, IT directors and senior Data Centre managers and investors

The export-oriented IT-BPO sector in Mauritius contributes to 4% of Gross Domestic Product with 258 operators employing 10,400 people. The sector will continue to grow in 2009 by about 20% with both new entrants as well as expansion of the activities of existing operators. The global economic crisis, instead of being a threat to the sector, is being seen as an opportunity as companies in countries which are severely hit by the global downturn need to restructure their processes and turn to low-cost destinations to maintain a competitive edge.

“Mauritius is ideally positioned at the crossroads of Africa, Asia and Australia and outside major earthquake ridges,” commented Philip Low, managing director at BroadGroup. “The island is also well known as a major financial and infocom hub. Being relatively remote but well-connected to the world is a major attribute for the island-nation to position itself as a disaster recovery and business continuity destination.”

Mauritius is connected to the SAFE/SAT3/W3C international fibre optic cable networks, and a further link is envisaged to the SEACOM/EaSSy cable which will link Southern and Eastern Africa to Europe and India, by mid 2010.

In this context, Mauritius will host the Internet Data Centre Conference which will take place September 30 – October 1 2009, to connect local operators with potential partners. The event will also act as a showcase to position Mauritius as the next emerging data hosting and business continuity destination, which is increasingly recognized as a bilingual, high-quality destination with cost per seat comparable with India, Philippines and Egypt.

The possibility of solving the cooling issues which the data centre industry is facing at the moment through the use of sea-water air-conditioning in a dedicated eco-park will also be presented in the conference.

UK Overtakes US in 2008 to Become World's Leading Centre for International Bond Issuance

The UK has overtaken the US as the leading global centre for international bond issuance accounting for 30 per cent of the global total during 2008.

The figures are revealed today by the Bond Markets 2009 Report issued by International Financial Services London (IFSL), the independent organisation promoting UK financial services worldwide.

With the total of $718bn in international bonds issued in the UK in 2008 constituting a rise of 42 per cent on 2007, IFSL also estimates that London accounted for around 70 per cent of secondary trading in international bonds. Globally, international bond issuance fell 19 per cent in 2008 to $2.4 trillion while amounts outstanding increased 5 per cent to $23.9 trillion.

Sir Stephen Wright, Chief Executive at IFSL, said: “London has cemented its position as the leading global centre for international bond trading. Coming at a time when more and more companies are seeking direct access to the capital markets as a means of counteracting the scarcity of bank debt finance, it is clear that London will continue to meet a large part of global business’s requirements for capital as the global economy begins to recover from recession”.

The report also reveals that overall amounts outstanding in bond markets increased by 6 per cent in 2008 to $83 trillion. Nearly three quarters (71 per cent) of this total was accounted for by domestic bond markets, with international bonds making up the remaining 29 per cent.

Meanwhile a rise in risk averse investor behaviour since the start of the credit crisis has raised investment in government bonds, particularly US Treasuries. The cost of bond market finance for companies and banks increased as yields on corporate bonds rose. After a subdued 2008, corporate bond issuance reached record levels during the first quarter of 2009, particularly in Europe, where issuance of investment grade corporate bonds reached a record €140bn, well above quarterly levels of less than €50bn seen in recent years.

Marko Maslakovic, Senior Economist at IFSL, said: “There are now clear signs that Europe is moving towards a more US-style bond market as companies there diversify away from reliance on banks for funding.

The demand for corporate bonds is being driven by the appetites of institutional and retail investors enticed by higher returns over government bonds. Unlike in the US, corporate bond issuance in Europe remains limited to companies with the best credit ratings.”

The Bond Markets 2009 Report also reveals that:

• The nominal value of bonds outstanding of UK-based issuers increased 43 per cent to a record level of £3,221bn at the end of 2008. This in pound terms owed largely to the fall in the value of the pound versus the US dollar during 2008, combined with the majority share of foreign currency denominated bonds in the UK bond market.

• UK Government net debt issuance, below £50bn in recent years, increased to £126bn in the financial year 2008/09 and is likely to range between £150bn and £200bn in the next three years. The contribution to public sector net debt from financial sector interventions since the start of the credit crisis is £134bn.

Click here to view PDF of Bond Markets 2009 report

The essential role of the FATF Style Regional Bodies (FSRBs) in the fight against money laundering and terrorist financing

Opening remarks by FATF President Paul Vlaanderen at the 12th APG Annual Meeting

Brisbane, Australia, 7 July 2009

Minister O’Connor, Commissioner Keelty, Director Ong, ladies and gentlemen,

It is one week ago now that I took over the Presidency of the FATF. This meeting marks the first occasion that I have the honour of visiting a FSRB in this new capacity.

I start this new assignment while the world is in one of the worst economic and financial crisis in recent history. Although we are all still struggling with the why and the how questions, it is already clear that the enormous growth in the size and complexity of the financial sector over the past decades has contributed to it.

In that same period FATF has evolved substantially as well, putting it in a well prepared position to play its part in fighting undesirable consequences of the crisis. In fact the G20 and the OECD are looking at the FATF model in their search for instruments how to handle the crisis in areas such as regulation and tax. Now in its 20th year of existence, FATF has a very strong structure, both in terms of mandate and geographical coverage:

1.FATF’s mandate has grown in two decades to cover not only drugs related financial streams, but as a consequence of 9/11 also terrorist financing and, more recently, also proliferation financing. That is an extensive mandate!

2.FATF is the only standard setter in its field of expertise in the world; but on top of that it also globally monitors compliance with the standards. And, unique in intergovernmental cooperation, it maintains the standards through public action, including if need be countermeasures. Transparency and accountability are the key driving principles. Jurisdictions that are affected may not be pleased, but history has already shown its effectiveness.

3.FATF has grown enormously in its geographical coverage. From a few members in the early years to a substantial membership of 32 + 2 jurisdictions \ organisations and, and that is the secret of FATF, the 8 FSRB’s. That means that more than 180 jurisdictions are working to achieve the shared objectives against money laundering and terrorist financing. And with the prospect of a 9th FSRB, we can really speak of a FATF family!

FSRBs

I am convinced that the commitment of FSRBs to the FATF standards is crucial for the long term viability of FATF’s mandate. Therefore, it seems impossible to envisage an FATF as effective as it is today without FSRBs.

Here in Australia I would like to underline the close relationship between the FATF and the APG. That relationship is close because of interlinked membership: at this moment 8 FATF jurisdictions – including China - are member of both the FATF and the APG, while Korea and India have applied for full FATF membership. The Mutual Evaluation Report of Korea has been discussed extensively in the last FATF plenary in Lyon, and I am sure that the work with the contactgroup and Korea will lead to a positive discussion in October.

Workwise, the FATF-APG relations are equally close and still growing. Over the past year we have together conducted the mutual evaluations of New Zealand, Japan and Korea, and we also finalised the typologies project on money laundering through the casinos and gaming sector, on which the APG took the lead.

This proves the vital role you have - as APG members - in contributing to FATF work. And I am also looking forward to your contributions on FATF strategic directions, like the planned fourth round of mutual evaluations. I will get back to this issue.

In view of these extensive membership and work related FATF-APG links, I would encourage you to continue attending and contributing to FATF plenaries and working groups.

For the coming year there are a few topics related to FATF-FSRB cooperation that I would like to explore further:

1.I will consider organising a FATF – FSRBs Presidents meeting if that would be appropriate, preferably in the context of a FATF plenary meeting. It is my understanding that APG is in favour of such an initiative. In addition to this, the FATF Secretariat is ready to continue holding regular FATF – FSRBs Secretariat meetings.

2.Another point which could also lead to a closer cooperation with the FSRBs would be the establishment of a closer working relationship for the chairs of working groups in FATF and the FSRBs. A model for this could be the existing cooperation between FATF and APG typology co-chairs.

3.In addition to this, the FATF has developed guidance on the implementation of the FATF standards in low capacity countries (LCC) and jurisdictions, which is now being used by the FSRBs. I would like to encourage all FSRBs, including the APG, to provide feedback to the Working Group on Evaluations and Implementation (WGEI) on the implementation of that LCC guidance. This would contribute to an improvement of the LCC guidance.

At the June FATF meeting in Lyon I presented my priorities for the coming year. FSRB relations is clearly one of them: now I’ll take a couple of minutes to highlight three more issues:

1.The FATF initiative related to the global financial crisis.

2.The work FATF is doing on International Co-operation.

3.Preparations for a new round of mutual evaluations.


The FATF initiative related to the global financial crisis

As you know, the global financial and economic crisis has affected most of the countries in the world, undermining financial markets, with direct consequences on societies and the world’s economy at large. The current financial and economic crisis could present specific new challenges and opportunities to the FATF.

Last February, the FATF plenary decided to launch an initiative to assess the impact of the global financial and economic crisis on AML/CFT.

Last April, the G20 Leaders agreed at their London summit to ‘take action against non cooperative jurisdictions’ and asked the FATF to ‘’revise and reinvigorate the review process for assessing compliance by jurisdictions with AML/CFT standards’’. Moreover, they ‘’called upon the FATF to report to the next G20 Finance Ministers and Central Bank Governors’ meeting in September on adoption and implementation by countries’’.

The FATF is, therefore, currently looking at the consequences of the financial and economic crisis with the objective of identifying vulnerabilities exposed by the financial crisis. Such analysis should enable us react appropriately. In particular the issues of international co-operation, transparency, and global compliance will be addressed.

It is foreseen that FATF will present its report to the G20 Finance Ministers meeting in early September.

Also relevant in this context is the work on a Global Threat Assessment. This work should be completed by June 2010 and analyses the overall threat of money laundering and terrorist financing.

All this should result in an even stronger AML/CFT framework and I would like to thank you for your contributions.

International cooperation

A few separate words about the FATF’s work on international cooperation which is presently so high on the agenda.

Some jurisdictions expose us all to unacceptable risks by failing to implement effective AML/CFT systems.

When a country chooses not to engage with the FATF in a meaningful way, the FATF must be ready to take firm action. As you know, the FATF has made public its concerns with certain jurisdictions, allowing others to alert their financial institutions to take into account the increased risks.

At the June plenary new procedures –the so called ICRG process - have been agreed which are designed to identify high risk and uncooperative jurisdictions. After the initial review (the so called ‘prima facie review’) of those jurisdictions has been made, it will be decided which of these should be publicly identified. The FATF will consider the progress of every publicly identified jurisdiction on an ongoing basis and apply countermeasures where necessary.

When developing this new procedure the main objective was the creation of an inclusive and transparent process. A key element of this process is the strong cooperation with the FSRBs through the establishment of regional review groups. These groups will be co-chaired by representatives of the FATF and FSRBs.

In its most recent statement, the FATF reaffirms its call on FATF members and urges all jurisdictions to apply effective counter-measures to protect their financial sectors from risks to the integrity of the international financial system emanating from Iran. The FATF statement also notes that progress has been made by several jurisdictions. I am happy to note that the northern part of Cyprus is no longer under scrutiny.

Mutual evaluations and the 4th round

Let me turn to the mutual evaluation process. Currently, we are heading towards the end of the 3rd round of evaluations of FATF members. At this moment, 25 of the FATF’s 32 members have been assessed. In APG’s ongoing second round, you will have completed 25 out of 39 evaluations after this meeting. All together, since 2004, 118 jurisdictions have been evaluated using the common AML/CFT Methodology.

As you know, the FATF is about to consider some parts of the Recommendations in preparation of its fourth round of evaluations. Particular emphasis will be given to the impact and effectiveness of AML/CFT systems.

All FATF delegations, including the APG, have provided comments and identified issues to be considered in this context.

In February the FATF Plenary agreed on an initial list of topics for consideration under this project. I will mention a few of them:

1.Customer Due Diligence (Recommendation 5)

2.Law enforcement (Recommendations 27/28)

3.Beneficial ownership (Recommendations 33 & 34)

4.International Cooperation (Recommendations 35-40)

5.Tax crimes as a predicate offence for money laundering


The FATF’s Working Group on Evaluations and Implementation will co-ordinate this work. The APG is also doing important work with its SIP framework.

In parallel to this important exercise, work will also be conducted on preparing the processes, procedures and the methodology for FATF’s 4th Round of Evaluations.

As I already noted, I sincerely hope the APG will continue to provide input to this work.

Conclusion

In conclusion,

1.The commitment of FSRBs to the FATF standards is crucial for the long term viability of the fight against money laundering and terrorist financing. And I repeat: it is impossible to envisage a successful implementation of the FATF standards without FSRBs.

2.FATF is entering a new phase in its existence with a financial crisis that requires attention and action, in any case in the area of uncooperative jurisdictions. FSRB’s will from now on be fully integrated in FATF’s work through their participation in the Regional Review Groups.

3.A new round of FATF country evaluations will provide for a perfect opportunity to draw the lessons of the past years and to further improve our monitoring system, with an appropriate place for effectiveness and law enforcement.

Hon. Minister, APG co chairs, ladies and gentlemen, I am honoured to be here at your annual meeting and I hope to speak with many of you this week.

Thank you very much for your attention.

Economic Crisis Presents Microfinance With Stress Test

The resilience of the global microfinance industry will be put to the test by the economic crisis, according to a new survey of the risks to the business, Microfinance Banana Skins 2009. Far from being insulated from the economic mainstream as traditionally thought, microfinance could face a fall in growth and funding because of the global recession and declining investor confidence.

This will present the industry with its first major stress test since it emerged in recent decades as a fast-growing provider of small-scale financial services to the world's poor.

The survey, published by the CSFI and sponsored by Citi Foundation and the Consultative Group to Assist the Poor (CGAP) and supported by the Council of Microfinance Equity Funds (CMEF), was designed to identify and rank the main risks, or "Banana Skins" facing the industry at a time of economic crisis and change. It reflects the views of more than 400 practitioners, investors, regulators and analysts in 82 countries.

The survey shows that the greatest risks all stem from the crisis: a surge in bad loans, shortages of liquidity and funding, and declining profitability. Other top concerns surround the ability of microfinance institutions (MFIs) to manage their way through the crisis because of weaknesses in management and corporate governance.

The survey updates a previous poll carried out in early 2008 at the beginning of the crisis, and shows how sharply risk perceptions have changed since then. Most of the risks which are now seen as threats to the sector's prospects, such as the world recession and the credit crunch, were considered negligible only 18 months ago.

David Lascelles, survey editor, said: "These findings turn the earlier survey on its head. Last year's result reflected the traditional view that microfinance operates in a world of its own with abundant funding and loyal customers. But the crisis has shown that it is also exposed to the shocks of the 'real economy'".

Bob Annibale, Global Director of Citi Microfinance, said: "This year's report clearly illustrates a dramatic shift in perceived risks within microfinance with credit and liquidity issues rising to the top. MFI clients are being challenged by rising food and energy prices and declining remittance flows. However, strong stakeholder support has ensured that where funding and performance problems exist, these are largely being addressed. Financial inclusion continues albeit with realistic growth expectations, continued sustainable scaling and investment in the sector."

Elizabeth Littlefield, CGAP's chief executive officer, said: "This year's Banana Skins survey highlights cracks and fissures in microfinance that have surfaced with the global economic crisis. But, the sector is basically healthy with strong fundamentals and a solid, reliable and growing client base. Tackling immediate concerns about credit risk, liquidity is important, but remaining focused on longer term issues of management bench strength, governance, and asset and liability management capacity remains crucial for the future."

The Banana Skins report says that the crisis is global in its impact. Every one of the 82 countries participating in the survey reported that financial and economic conditions had worsened, and were affecting local MFIs, though with regional variations.

The responses also showed a strong link between all the major risks, with economic recession potentially hitting growth and profitability, in turn affecting the confidence of investors in microfinance, creating funding difficulties which affect the viability of MFIs. There is a risk that some MFIs will fail.

There is also strong concern that the recession will increase political interference in the industry as governments try to control the availability and cost of microlending, or even encourage borrowers to default. The main sources of comfort are that MFIs have traditionally shown resilience to stress, and could emerge from the crisis with a better reputation for looking after their customers than mainstream banks. The risk of losing depositor confidence was not seen as high.

The 45-page report provides a commentary on each of the 25 risks that were identified, and breaks down responses by type and region, providing a detailed view of the concerns by geography and different classes of respondent.

Download 'Microfinance Banana Skins 2009' here

The Global Enabling Trade Report 2009

East Asian economies – Singapore and Hong Kong SAR – occupy the top two positions in the Enabling Trade Index ranking, followed by Switzerland, Denmark and Sweden, according to The Global Enabling Trade Report 2009, released today by the World Economic Forum. Canada, Norway, Finland, Austria and the Netherlands complete the top-10 list.

The results mirror the openness of Singapore and Hong Kong SAR to international trade and investment as part of their successful economic development strategy. Both economies have put into place highly efficient border administrations and supportive business environments. They are endowed with well-developed transport and telecommunications infrastructures ensuring rapid transit to final destination. These attributes are further supported by business environments that are conducive to trade.

The United States benefits from a conducive business environment, as well as excellent infrastructure. The US position is weakened by restricted access to markets and concerns about costs to business resulting from crime, violence and terrorism. China performs well with respect to transport services and has swift import-export procedures, but trade development is held back by highly restricted access to its markets

The Global Enabling Trade Report 2009 is launched at a crucial time for global trade, as overall economic activity declines, trade volumes drop and public authorities adopt counter-cyclical stimulus policies and institutional reforms. The report serves as a timely reminder of the risks of protectionism and of the widespread prosperity and poverty reduction associated with the expansion of international trade in the years leading up to 2008.

Published for the second time and covering 121 economies worldwide, the report presents a resource for dialogue and provides a yardstick of the extent to which economies have in place the necessary attributes for enabling trade and where improvements are most needed. The index has been revised since it was first published in 2008. The main changes concern the explicit inclusion of the export dimension in the index and the addition of an assessment of overall governance conditions to the business environment subindex.

The Enabling Trade Index uses a combination of data from publicly available sources, as well as the results of the Executive Opinion Survey, a comprehensive annual survey conducted by the World Economic Forum with its network of Partner Institutes (leading research institutes and business organizations) in the countries included in the report. The survey provides unique data on many qualitative institutional and business environment issues, as well as some indicators related to international trade.

The Enabling Trade Index, featured in the report, measures institutions, policies and services facilitating the free flow of goods over borders and to destination. The index breaks the enablers into four issue areas: market access, border administration, transport and communications infrastructure, and the business environment.

“The current challenge is to ensure not only that countries not pull each other down further by restraining trade, but that they help recovery by trading with each other. Further enabling trade across borders can mitigate the effect of the global crisis, as measures facilitating trade will reduce the transaction cost of trade and therefore partially offset the effects of the demand slump. The Enabling Trade Index provides guidance on measures that need to be taken.” said Robert Z. Lawrence, Albert L. Williams Professor of Trade and Investment at the John F. Kennedy School of Government at Harvard University, USA. Professor Lawrence is also academic adviser and co-editor of the report.

“Over the past two years, the World Economic Forum has engaged key industry leaders, academics and international organizations active in the area of trade to identify the main obstacles to trading across borders and to develop the Enabling Trade Index. The goal is to construct a platform for multistakeholder dialogue and to create broad-based support to counter protectionist sentiment from building in the present crisis,” said Professor Klaus Schwab, Founder and Executive Chairman of the World Economic Forum.

The Enabling Trade Index was developed within the context of the Forum’s Industry Partnership Programme for the Logistics and Transport sector in close collaboration with the project’s data partners: Global Express Association (GEA), International Air Transport Association (IATA), International Trade Centre (ITC), World Customs Organization (WCO), United Nations Conference on Trade and Development (UNCTAD), The World Bank and World Trade Organization (WTO). The Forum also received important input from its Industry Partners: Agility, Deutsche Post DHL, DP World, FedEx Corporation, GeoPost Intercontinental, Stena, TNT, Transnet and UPS.

The report also features a number of contributions from trade experts and industry practitioners exploring different aspects of trade enablement. A particular focus has been placed this year on customs, one of the key areas of the Doha negotiations on trade facilitation. Also included are detailed profiles for each of the economies covered by the study.

Download The Global Enabling Trade Report 2009

IMA Chairman frustrated by EU Proposal for the Alternatives Industry

Speaking at a London seminar, Robert Jenkins, IMA Chairman, expressed frustration at the way that the proposal for EU regulation of the alternatives industry, had been prepared:

"It is curious that the response of some European politicians to the banking crisis is to regulate the investment management industry."

"Clearly some political leaders would prefer to focus attention on those who did not cause the problem rather than attend to those who did..."

On the proposal to cap leverage used by alternative fund managers, he noted that it had been much greater within the banking system than in hedge funds:

"Let us then legislate against leverage and maintain a level playing field at the same time. I propose that all alternative fund managers cap their leverage at the level currently prevailing at Deutsche Bank. Well, if you insist, you can cap alternatives at a level equal to ½ that of Deutsche Bank." [Deutsche Bank's balance sheet leverage is currently ca. 25 times - down from over 40 times at the start of the crisis.]

Jenkins noted that many European politicians were perhaps confusing one part of the financial services industry with another:

"Perhaps the problem is not on of malice but rather one of mistaken identity. In this case may I politely point out that investment management is not investment banking."

"When the banks ran out of liquidity, our customers for whom we act as agents, helped supply it. When the banks ran out of capital, the funds we manage contributed to the take up of new debt and equity issues. And when one day, governments divest their shares in the walking wounded of the banking world, to whom do you suppose they will sell? In short, the investment management industry is not part of the problem but we are part of the solution."

Noting the importance of investment management to finance and industry and the importance of alternatives to the money management business, Jenkins criticised short sighted politicians who would do damage to both:

"It would appear that (like many Brits) Mr Steinbrűck has forgotten that his country is part of Europe. He is no doubt painfully conscious that German industry must remain globally competitive but he seems to forget that Europe's financial industry must compete globally as well."

"Alas, Mr Steinbrűck and a number of continental comrades seem determined to shoot a key part of the money management industry in the back and themselves in the foot."

To view Robert Jenkins' speech click here

Top Offshore Law Firm Appleby Opens in Bahrain

Appleby, the leading offshore law firm, has today announced that it has opened a representative office in the Kingdom of Bahrain. The office, operating under the name of Appleby (Middle East) Limited, a part of the corporate administration arm of the Appleby Group, will cover the whole Middle East region. Appleby had previously planned to open in Dubai, but has now chosen to open their first Middle East office in Bahrain instead. However, the Group will continue to look at further options in the region.

Jeanne Bartlett, Appleby’s global leader for Islamic and Structured Finance and a partner in the legal practice in the Cayman Islands, will be the Managing Director of the new office.

The Bahrain office will offer Middle East clients convenient access to Bermuda, the British Virgin Islands, the Cayman Islands, Jersey, Mauritius, Isle of Man and Seychelles structures. Last month Appleby announced the opening of a new office in the Seychelles and its pending (1st October 2009) merger with top Isle of Man law firm, Dickinson Cruickshank. On completion of the merger, the firm will have 73 partners and over 800 staff making it the world’s largest offshore law firm by partner numbers.

Commenting on the new office opening Managing Director Jeanne Bartlett said: “This is a significant opportunity for us to expand our offering to Middle East markets where we already have extensive experience of Islamic and structured finance (conventional and Shari’ah), and investment funds.”

Peter Bubenzer, Appleby’s Global Group Managing Partner added: “Our driving strategy is to be the leading provider of legal, fiduciary and administration services in the offshore world, and this includes being where our clients are located and providing the widest choice of offshore options. By opening in Bahrain, our Middle East clients will have immediate access to our services across a significant range of offshore options. This ease of access to such a variety of products and jurisdictions is unsurpassed by any other offshore firm.”

CDP: The Proposed EU Directive on the Regulation of Alternative Investment Fund Managers - Offshore Considerations for Onshore Managers

On 29 April 2009, the European Commission published a proposed EU Directive to regulate Alternative Investment Fund Managers located in EU Member States (“AIFM”). Despite what the name of the proposed directive might suggest, alternative investment funds (“AIFs”) will, as presently drafted, include all funds which are not regulated as UCITS. Hence, the proposed directive will apply to those who provide management services not only to hedge funds, private equity funds and other alternative investment funds, but also to managers of real estate funds, infrastructure funds and any other types of funds that are not within the UCITS Directive.

The proposed directive is targeted at EU based managers of AIFs rather than the funds themselves. Many AIFs are of course established in international financial centres such as the Cayman Islands, the British Virgin Islands and Bermuda and have managers who are EU based.

Described by AIMA as “hastily prepared and without consultation” and as containing many “ill-considered provisions”, and by the Party of European Socialists as having “more holes than a Swiss cheese” the draft legislation will clearly be the subject of extensive lobbying and revision before being adopted. Even if political consensus can be achieved in 2009, the proposed directive would not come into force until 2011.

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