E&Y - Company residence update : Laerstate

HMRC's recent success in the Laerstate BV case has received a lot of publicity, particularly since, in recent years, it has enjoyed limited success in company residence cases. However, here HMRC successfully argued that a Netherlands incorporated company was UK resident, despite Board meetings having been held, and various resolutions and other documentation also having apparently been signed, outside the UK.

Read the update

FATF: The need for enhanced transparency

By FATF President Paul Vlaanderen at the XVI Caribbean Financial Action Task Force (CFATF) Council of Ministers Meeting, Willemstad, Curaçao, Netherlands Antilles

Madame Prime Minister, Madame Vice Prime Minister and CFATF Chair, Madame Governor of Curacao, Madame outgoing CFATF Chair, Ministers, Executive Director, distinguished delegates and friends,

It is an honour for me to represent the FATF here at your meeting. Not only is it special for any FATF President to be able to attend a meeting of the oldest FSRB, it is an additional pleasure for an FATF President from the Netherlands to being able to speak the CFATF meeting that forms the start of the Netherlands Antillean Presidency of the CFATF.

The title of my contribution is “the need for enhanced transparency”; that is important and I will get to it. But first I like to share with you the need for further investing in the relations between sister-organisation CFATF and mother-organisation FATF. We have to work to get closer to each other, and the “dutch connection”, the coinciding chair positions, may give us an opportunity. Further improving relations with all FATF sister organisations is especially important this year given the challenges we all are facing in the worst economic and financial crisis in recent history. While some say there are signs that the financial crisis may be easing, the world is still trying to determine what the causes were. It is clear that the enormous growth in the size and complexity of the financial sector over the past 2 decades have been highly important contributors to the situation we are in today.

Global AML/CFT Network

In this same period, that is the past 20 years, the FATF and its extended family of FSRBs were not only created, but have evolved substantially as well:

Its mandate has grown to cover not only drug-related money laundering but also, as a consequence of 9/1, terrorist financing and, more recently, proliferation financing.

In these two decades the FATF-network has expanded to include 35 jurisdictions and 8 regional organisations. Last week I had the honour to preside over the plenary decision to admit Korea as the 35th member of FATF. India, now an observer, is working towards full membership as well.

At the same time, through the establishment of CFATF and the seven other FSRBs, there are now more than 180 jurisdictions working together to fight money laundering and terrorist financing. This is a ‘big family’ and an unprecedented achievement in international cooperation!!!

The FATF-family not only sets world-wide AML/CFT standards in its area of expertise; it also monitors compliance with these standards on a global basis: here FATF members work together with its FSRB sister organisations and international bodies like the IMF and the World Bank. Unique in international co-operation, these global standards are maintained through public action, including countermeasures when needed. Transparency and accountability are the key driving principles. This process is stringent but fair and our experience has shown us its effectiveness.

With your permission Madam Chair, I would like to touch upon a number of issues that I think are of mutual concern and interest. These are all current FATF priorities. First there is:

The need for Enhanced Transparency

Vital parts of the FATF standards are linked to transparency. The financial crisis reinforces the need to ensure that those parts of the standards are fully effective. It can therefore be expected that we will see more on this in the post-crisis environment. There are currently three transparency related issues that are already under review within FATF:

• The first issue relates to customer due diligence obligations and beneficial ownership. One of the main principles of the FATF standards is the obligation for financial institutions to identify their customers and underlying beneficial owners. The FATF is revisiting its recommendations to consider whether the current standard still is the best tool for providing maximum customer transparency.
• This question of customer due diligence is closely related to the second issue, that deals with the transparency of legal persons and legal arrangements. The review of the recommendations dealing with this topic will seek to improve the transparency of such persons and arrangements. That should provide authorities with better and more timely access to beneficial ownership information.
• Finally, financial institution secrecy laws and cross-border exchange of information will also be looked at. The FATF will examine whether certain types of laws may inhibit the implementation of the FATF recommendations.

The examination will also consider potential obstacles to cross-border exchange of information within financial services groups and between regulators. The latter issue is of course also linked to the broader issue of international co-operation between regulators, FIUs and other competent authorities. That subject will be examined separately. Ensuring that there is effective and efficient exchange of information is a key objective of the FATF standards.
These three issues will be addressed to ensure that no customer relationship, no legal entity or arrangement and no jurisdiction can provide a cover of secrecy for money launderers and terrorist financiers.

The G20 leaders in their Pittsburg conclusions also referred to the need for the FATF to give higher priority to transparency. They did so in the context of their call to more actively fight corruption.

“We ask the FATF to help detect and deter the proceeds of corruption by prioritizing work to strengthen standards on customer due diligence, beneficial ownership and transparency”.

So the direction of our work is getting more clear and focussed!

I am sure that you will agree with me that a lack of transparency has already caused enough damage, also in this region. Financial institutions can bring relatively small jurisdictions to de-facto bankruptcy. Some say that a lack of transparency was a choice of some jurisdictions to attract business; others argue that the policies of these jurisdictions amounted to naivety or lack of knowledge. However, whatever may have been the case, and I do pass any judgement on either view, I hope we can work together to ensure that illegitimate lack of transparency in a wider sense of the word is no longer available to persons, entities, institutions and jurisdictions.

Let me now say a few words about the

Mutual Evaluation Process

Assessing members against the FATF Standards is one of the core tasks of FATF and the FSRB’s.

Every jurisdiction that has been assessed knows how resource intensive the evaluation process is. Once the assessment is completed, it is tempting to move other pressing duties immediately. However! We need to remember that the effort to implement AML/CFT standards does not stop with the completion of an evaluation. Afterwards, there needs to be effective follow-up: that means that governments of all jurisdictions are required to work hard to remedy any weaknesses identified in these country-examinations. This is an integral part of FATF’s evaluation system. This is costly, I realise that: but there is a flipside to the coin: Bankpresident Tromp referred to that already on Wednesday. We know that the compliance level with the FATF recommendations influences the financial sector of a country. This encourages jurisdictions to enhance compliance with the FATF Standards. Higher compliance means lower corruption and thus, lower cost to the economy. Higher compliance also means lower risks and thus better terms for the financial sector on the global financial markets, which is positive for the economy and investment climate of a country. These are strong incentives for countries to enhance their compliance: it pays to do well!

Having said that, it is understood that not all countries in the FATF family are in the position to comply with sometimes far reaching obligations. Therefore, I encourage CFATF to benefit from the FATF Guidance Paper on Low Capacity Countries. Although not many CFATF members would fit the definition of a low capacity country, the main principles of that paper – commitment, prioritisation, planning and implementation – are essential to any country that is working towards implementing the FATF Standards effectively.

Since you have almost completed your third round of mutual evaluations, you may wish to devote your scarce resources to an effective and thorough follow-up of the recommendations made in your current round of mutual assessment reports. After that you could commence a fourth round, simultaneously with the FATF.

Within the FATF, we are currently resetting the goal posts for the fourth round of mutual evaluations. In that context, we are considering a number of issues related to the current standards; apart from the three transparency related issues just discussed, there are also improved international cooperation and an enhanced focus on effectiveness. Two working groups have started working and will work well into the next FATF year.

I think I should say something about International Cooperation, an issue that is probably high, or highest on your, and our, agenda:

International Co-operation

Obviously, the existence of peer pressure generated by a mutual evaluation and its follow up is important in working toward full implementation of AML/CFT standards. But sometimes – as experience has shown – peer pressure and regular follow up processes are not enough. Some countries achieve insufficient progress towards compliance, sometimes even despite the technical assistance that is provided. The FATF has dealt with those countries in the past, especially with those jurisdictions that lacked political commitment to implement the FATF Standards. I do not envy my predecessors that had to face jurisdictions that were subject to FATF measures during the NCCT-process. At the same time I do realise that many of those formerly listed jurisdictions are now front-runners in their regions. This shows that publicly pointing out problems – when necessary – followed by a close engagement with affected jurisdictions can bring very good results and thus reinforce the global network for combating money laundering and terrorist financing.

Today, the FATF has set up the International Co-operation Review Group (ICRG) and a new process that is designed to notably engage the ‘unwilling’ and those jurisdictions that pose a real risk to the international financial system. The ICRG process is designed to bind FATF and FSRB members that show effective commitment to the standards against those that evade their international obligations. The time and money that you spend on creating an effective AML/CFT system in your country is wasted if your neighbour remains a safe haven for criminals. The ICRG process is focussed on specific threats and specific risk in specific countries. If need be these jurisdictions may be publicly identified by the FATF Plenary. The G20 leaders concluded in Pittsburg in this context: “We welcome the progress made by the FATF in de fight against money laundering and terrorist financing and call upon the FATF to issue a public list of high risk jurisdictions by February 2010”.

The second role of the ICRG is to work with those jurisdictions to remedy the shortcomings underpinning the judgement of the FATF Plenary. That means that there could be a focussed follow up process between the ICRG and a specific jurisdiction. If all evaluation reviews and regular follow ups are conducted properly, there should be no duplication or conflict within the FATF family and between the follow up processes.

Financial crisis

I already spoke about the need to enhance transparency in the context of the global financial and economic crisis. That crisis has affected most of the countries in the world, undermined financial markets, with direct consequences on societies and the world’s economy at large. It presents specific new challenges and opportunities to the FATF.

In February 2009, the FATF launched an initiative to evaluate the impact of the global financial and economic crisis on AML/CFT.

The G20 Leaders asked FATF in April to ‘’revise and reinvigorate the review process for assessing compliance by jurisdictions with AML/CFT standards’’. They ‘’called upon the FSB and the FATF to report to the next G20 Finance Ministers and Central Bank Governors’ meeting on adoption and implementation by countries’’.

In August, the FATF sent a report to the G20 Ministers of Finance and Central Bank Governors in preparation for their meeting early September. This report was welcomed and found its way into the Pittsburg meeting of G20 leaders. They concluded on corruption and international cooperation as I just quoted to you.

The role of FSRBs

Although it has been said many times, it is necessary to continue emphasising that the FSRBs have an important role to play. It seems impossible to envisage an FATF as geographically comprehensive and effective as it is today without FSRB member jurisdictions engaging in the fulfilment of our common mandate and showing ownership of their regional body. The FATF membership has acknowledged the important work that is done by FSRBs, and adapted its procedures to allow a larger input from FSRBs and their membership. As I am sure you all know, CFATF’s enhanced status as an Associate Member of the FATF means that

• all CFATF members have access to all FATF documents,
• all CFATF members have the right to provide written input on all documents just like FATF members,
• all CFATF members have the right to attend all FATF working groups and
• up to five CFATF members can attend our plenary meetings.

Madame Chair, in your work programme for this and next year you call on all CFATF members to fully use the possibilities of the Associate membership status of CFATF. I fully support that call, as it is our experience that in practice, the input from FSRB members could be higher. In my view, the global standards can only be truly global if jurisdictions from FATF and FSRBs provide substantial input into the decision making process. I understand the difficulties that countries face but as the French say: noblesse oblige! As it is one of the priorities of my Presidency to further enhance the role of FSRBs, I consider organising a FATF – FSRBs Presidents meeting in Amsterdam in June next year, back to back with the Plenary. At such a meeting, we could discuss issues of common concern to FATF as well as to FSRB’s.

Conclusion

Madame Chair, I started my address expressing my satisfaction that I, as a Dutch FATF President, can speak at the beginning of the Dutch Antillean CFATF chairmanship. I do not know if this is the first step of the Kingdom towards world supremacy in the area of AML/CFT, or just a sign of our common commitment to this good cause. Ik wil u graag hartelijk danken voor de uitnodiging om hier te komen spreken en ik wens u alle succes toe tijdens u voorzitterschap. (In any case I would like to thank you for your invitation to speak here today and I wish you all the success for your chairmanship during the next 12 months).

Masha danki pa boso atencion / thank you for your attention.

FATF President

PwC: Singapore Fund Management Incentives

This paper contains a summary of the tax implications and available incentives for fund managers wishing to operate in Singapore.

In the absence of a tax treaty or tax incentive, income and gains of the fund due to the activities of a fund manager will potentially be taxable in Singapore. However, the Singapore domestic legislation provides tax exemption to funds under:

• Offshore fund regime
• Singapore resident fund scheme
• Enhanced-tier fund scheme

To find out more, please download the Singapore Fund Management Incentives publication

STEP Welcomes Release of Foot Review as Underlining Key Role of Offshore Centres as Contributors to Liquidity

The Society of Trust and Estate Practitioners (STEP), the worldwide professional body for practitioners in the fields of trusts and estates, today welcomed the release of Michael Foot’s review for the UK Treasury of the long-term opportunities facing the British Crown Dependencies and Overseas Territories as financial centres.

The report highlights the significant positive contribution these jurisdictions make to the liquidity of the UK market, providing net financing to UK banks of $332.5 billion in Q2 2009. It also acknowledges that most jurisdictions in the developed world seek to make their tax regimes internationally competitive. It recommends improved standards in financial regulation and tax information-sharing alongside moves by the Crown Dependencies to broaden their tax bases by collecting income or sales taxes.

STEP particularly welcomes the solid research base that the Report’s recommendations are based upon. Too often in this area debate has been based upon political pre-conceptions rather than factual analysis.

Director of Policy and Communications Keith Johnston said: “The release of the Foot Review finally recognises the key role these jurisdictions serve in securing liquidity for the city of London. The G20 needs to take account of the potential this positive role has in helping the global economy recover. The report gives them a platform to secure their future with some certainty. Many of our members are based in the jurisdictions concerned and we look forward to working alongside them to make sure their concerns are addressed.”

STEP would note, however, that the review’s calls for a move to automatic exchange of information must be met with caution in the wake of the results of the recent STEP survey, Offshore Evolution: The STEP Membership Perspective. The survey highlighted real concerns that exchanging tax information in an effort to flush out a minority engaged in evasion may compromise the confidentiality of those who are totally tax compliant, particularly if information is passed to unstable governments or potentially corrupt institutions in some countries.

STEP Offshore survey released: Results reveal members views on the future of international planning

STEP today released the results of a global survey of its members which, amongst twenty predictions, reveals international clients are worried about the security of their personal data. The survey also reveals members views on trustee independence, tax advice and the future of international estate planning.

In a statistically significant survey of 526 advisors around the world, STEP was concerned that only 45% of respondents expressed agreement with the prediction that "Client confidentiality will be respected in the future".

For free access to the STEP Offshore Survey click here

STEP Director of Policy Keith Johnston said "This report reveals concerns amongst clients that the attack on secrecy, designed to flush out a minority engaged in evasion, is threatening those who are totally tax compliant. Clients want their personal information to be better protected from corrupt institutions and careless governments. They want compliant confidentiality."

"Governments must answer questions about how personal information is safeguarded when it's exchanged across borders, especially to countries with suspect and leaky institutions."

The new report, Offshore Evolution: The STEP Membership Perspective, offers up two main conclusions and views on twenty other themes. The first conclusion is that clients' concerns that, now that secrecy is dead, legitimate confidentiality may not be respected in the future.

The second conclusion suggests private banks, and particularly those in Switzerland, will have to work harder to convince advisors that their services are client-focused. Not only is there widespread disagreement with the prediction that Swiss private banking will thrive in the future, there is also a complete rejection of the prediction that professional advisors will prefer bank owned trust business to independently owned trust business.

The STEP advisors who replied are mainly lawyers, accountants and bankers who help families in their long-term personal financial planning. This survey was conducted in October 2009 and the geographic breakdown of respondents was 10% Asia, 10% Canada and USA, 9% Caribbean, 23% Channel Islands, 20% Continental Europe, 17% England & Wales, 6% Scotland, Ireland, Isle of Man, and 5% other.

This quantitative survey builds on the work of the fifty-page parent report: Offshore Evolution: Transparency and Solutions in Cross Border Wealth Structuring

To access an executive summary of the parent report, click here

G20 approach to sharing tax data creates worries over security, new report finds

The Society of Trust and Estate Practitioners (STEP) today released the results of a global survey of its members which reveals families are worried about the security of their personal data.

In a survey of 526 advisors around the world, STEP found that less than half (45%) of respondents expressed agreement with the prediction that "Client confidentiality will be respected in the future".

STEP Director of Policy Keith Johnston said “There are real concerns among clients that the G20 attack on secrecy, designed to flush out a minority engaged in evasion, is threatening those who are totally tax compliant. Clients want their personal information to be better protected from corrupt institutions and careless governments. They want compliant confidentiality.”

“The G20 must answer questions about how personal information is safeguarded when it’s exchanged across borders, especially to countries with suspect and leaky institutions.”

The report, Offshore Evolution: The STEP Membership Perspective, highlights two main results. First, clients are concerned that, now secrecy is dead, legitimate confidentiality may not be respected in the future.

The second notable result is that there is a consensus that private banks, particularly those in Switzerland, will have to work harder if they are to convince advisors that their services are client–focused. Most professional advisors say they will prefer to work with independently owned rather than bank owned trust businesses.

STEP advisors, mainly lawyers, accountants and bankers, help families in their long-term personal financial planning. This survey was conducted in October 2009. The breakdown of respondents is 10% Asia, 10% Canada and USA, 9% Caribbean, 23% Channel Islands, 20% Continental Europe, 17% England & Wales, 6% Scotland, Ireland, Isle of Man, 5% other.

STEPOffshoreSurvey09.pdf

British OFCs : Michael Foot publishes final report

Michael Foot has today published his independent review of British offshore financial centres.

Michael Foot was asked by the Chancellor of the Exchequer to conduct a review of the long-term opportunities and challenges facing the British Crown Dependencies (CDs) and Overseas Territories (OTs) as financial centres.

The report covers a number of important areas that impact on the future sustainability of these jurisdictions and sets out a series of robust and sensible standards that Crown Dependencies and Overseas Territories will be expected to meet.

The report clearly states that British offshore financial centres must ensure they meet international standards on tax information exchange, financial regulation, anti-money laundering and countering the financing of terrorism, as well as ensuring, they put their public that finances on a firmer footing by diversifying their tax bases.

Financial Secretary to the Treasury, Stephen Timms said:

“I welcome Michael Foot’s report which comes amidst a real step change in the international determination to tackle tax and regulatory havens under the UK’s leadership of the G20.

This report sends a strong signal to overseas financial centres that they must ensure that they have the correct regulation and supervision in place, while also ensuring their tax bases are more diverse and sustainable to withstand economic shocks – this is essential to their long term stability”

Minister for the Overseas Territories, Chris Bryant said:

"I welcome Michael Foot's balanced and intelligent report. I have argued for some time that the Overseas Territories need to have robust governance of financial institutions, transparency in financial systems, proper regulation of off-shore financial services and a broader tax base.

The Overseas Territories have made substantial progress, especially in relation to financial transparency. I shall be working closely with the governments and governors to ensure that these recommendations are taken forward. There is still work to be done, but the Overseas Territories play a unique - and uniquely British - role, which I want to protect. "

Lord Bach, Ministry of Justice Minister for the Crown Dependencies:

“I welcome the publication of this considered and helpful review. As it recognises, the Crown Dependencies have much to be proud of in terms of meeting high international standards.

This is, however, a fast changing and increasingly complex financial environment. The report is clear that there is no room for complacency and we are confident that the Crown Dependencies will continue to lead the way in terms of meeting new standards as they evolve”

Final report of the independent Review of British offshore financial centres (PDF 626KB)

Launching a Hedge Fund: Critical Considerations for Managers

Thursday, October 29, 2009 1:30 pm
Eastern Daylight Time (GMT -04:00, New York)

Launching a hedge fund can be a challenging and sometimes overwhelming experience. How should you structure your business? What service providers do you need? What do you need to do first?

Fortunately, you need not face these decisions alone. During this webinar, our experts will offer an introduction to a number of critical criteria when considering the launch of a hedge fund, and provide a framework for making informed business decisions.

• Aaron Steinberg, Vice President of Pershing Prime Services, will discuss operational infrastructure, selecting service providers and building a sustainable infrastructure to make your firm attractive to institutional investors.

• Evan Rapoport, Co-Founder of HedgeCo Networks will review how to most effectively raise capital including marketability, fund administration and regulations and registration.

• Vinod Paul, Managing Director at Eze Castle Integration will explore how to best implement and design a highly secure and efficient office infrastructure, including telecommunications, data protection, co-location and disaster recovery planning.

New reports assess EU policy coherence for development

Development is about far more than providing aid. Many policies in other areas can affect poorer people across the world. Accepting this, the European Union has committed to ensure that policies such as fisheries, energy and trade do not undermine its development pledges. This Policy Coherence for Development approach was launched in 2005 as part of the European Consensus on Development. Now the European Commission has published a progress report, and NGOs have published their own analysis urging extending and strengthening the process. This among other issues will be discussed at this week's European Development Days in Stockholm.

The PCD review published by the European Commission in late September says that its framework “allows for a systematic exploration of the effects that EU policies other than aid might have on development and on the achievement of the MDGs”. This is to be achieved by consultation between different ministries and branches of the Commission and by impact assessments that can be triggered to assess policies’ likely results on development countries. The European Commission claims that these are “powerful mechanisms to promote PCD”. However the report also acknowledges several obstacles. They include:

• “lack of awareness of development issues” by other ministries;
• “difficulty of providing evidence about the ultimate impact of non development policies on poverty in developing countries”, and;
• “lack of political will and the limited priority given to world poverty reduction”.

A new CSO report Spotlight on Policy Coherence shows that the current PCD mechanism has serious deficiencies and loopholes. The new report by the European Confederation of Development NGOs (CONCORD) says this is because there is “no robust legal mechanism” nor “any complaints procedure open to governments, civil society organisations and local communities”. The EC also states that it plans to reduce the number of policy areas covered by its coherence mandate. Justin Kilcullen, president of CONCORD and chief executive of Trocaire, a Eurodad member, comments “the Commission appears to be moving away from the broader PCD agenda to a set of political priorities with which they feel more comfortable”.

A chapter by Eurodad and its members Glopolis and CNCD argues that the opposite should be the case. It proposes a more comprehensive approach that tackles the financial and economic policies that triggered the current crisis. The massive worldwide impacts of financial deregulation and inadequate economic policies are now plain for all to see. Several estimates show that an additional 50-100 million people will be pushed below the poverty line during the crisis. Yet the EU coherence framework entirely omits the financial and economic policies which cause instability and massive financial outflows from developing countries.

A European Commission communication which accompanies the PCD report states that “new developments make it necessary to rethink our approach to PCD” due to the “growing impact of internal policies in external relations” and “growing non-ODA financial flows to developing countries”. Despite this so-called “Whole of the Union” approach the EU overlooks the links between financial policies and development impacts. European public and private banks can seriously impact developing country economies, depriving developing countries of fiscal resources. For example, recent research by Eurodad shows that the European Investment Bank supports projects led by private equity funds using tax havens to minimise tax paid in the South. Yet, this is not addressed in the draft EU directive that is supposed to regulate private equity companies.

Similarly speculation has played an important role in the rise and fall of food, oil and other commodity prices in recent years. Hedge funds have very actively invested in commodity markets, driving prices up and artificially inflating the market. This behaviour has had dramatic consequences for poor countries. UNCTAD in its recent Least Developed Countries Report finds that price hikes between 2007 and the middle of 2008 resulted in an additional 100 million people having inadequate access to food. UNCTAD found that the positions held by finance companies such as hedge funds became “so large that they can significantly influence prices and create speculative bubbles, with extremely detrimental effects”. The Financial Times this month agreed that “the circumstantial evidence for a connection between increasing financial market involvement and last year’s [commodities] boom and bust is strong”. But again, when it comes to regulate derivatives markets and hedge funds European governments are failing to look at their implications for development.

The Commission’s PCD progress report concedes that at present “diverging interests can make it difficult at times to ensure consistent [European] Council messages”. These clashes of interests are nowhere clearer than in the massive finance lobby mobilisation that is seeking to dilute proposed EU directives on hedge funds, derivatives and other financial instruments. The PCD consultation and impact assessment framework counts for very little by comparison with well-resourced and vocal European special interest groups.

Coherence requires looking at the outflows: the EC communication rightly states that “Official Development Assistance (ODA) must be complemented by other financial sources”. Additional resources beyond ODA are certainly needed, but this is only one side of the coin. It is also essential to stop the huge outflows that developing countries lose each year. As highlighted in the Spotlight on Policy Coherence report, illicit capital outflows from developing countries represent some $1 trillion per year, a figure that is growing at around 18% per year.

Half of the 70 tax havens around the world are in Europe or European overseas dependencies, and Europe-based secrecy jurisdictions account together for at least 70% of tax haven-related activities in the world. Over 65% of these illicit flows are driven by transnational corporations’ tax evasion and tax avoidance schemes and transfer mis-pricing through the misuse of internal financial transactions.

Tax havens are also helping feed a race to the bottom in tax policy, which prevents both developed and developing countries from investing in public services, social protection and human welfare. Tax losses as a result of these practices dwarf the €50bn European ODA that poor countries receive annually. Yet, the EU coherence framework fails to address this crucial challenge.

The current global crisis has shown that developing countries’ economies are not decoupled from the financial markets in the North. It has also shown that secrecy and lack of regulation provided by tax havens allow hazardous behaviours and massive tax evasion. The EU should include these aspects in its policy coherence for development approach.

The new Spotlight report recommends extending, not reducing the Policy Coherence for Development approach. This should include measures to address speculation on food, and to clamp down on tax evasion. Governments and citizens in Asia, Africa and Latin America know that this financial and economic crisis was started and transmitted due to misguided European and North American policies. They will continue to demand – at the G20, United Nations and indeed at this week’s European Development Days – that they be changed. Until they are there is little hope that any policy coherence for development approach will be taken seriously.

CSO analysis

Spotlight on Policy Coherence, CONCORD, 2009

Gaping holes limit proposed “whole of the Union” ODA plus approach, Eurodad 2009

A European Agenda to Fight Capital Flight, Eurodad, 2009

Dangerous Derivatives at the heart of the financial crisis, Eurodad and members, 2008

Speculation undermines the right to food, Eurodad and members, 2008

Official documents

Policy Coherence for Development - Establishing the policy framework for a whole–of–the-Union approach, European Commission, 2009.

EU 2009 Report On Policy Coherence For Development, European Commission, 2009

The Least Developed Countries Report 2009, UNCTAD, 2009

Kroll Global Fraud Report - 2009/2010 Edition

The global financial services industry saw a dramatic spike in fraud activity with companies losing an average of $15.2 million over the past three years, according to the 2009/2010 Annual Edition of Kroll's Global Fraud Report. Despite sector-specific spikes and declines in fraud activity, the worldwide fraud rate remained steady in 2009. Companies lost an average $8.8 million to fraud over the past three years, an increase of seven percent over last year’s figure which stood at $8.2 million. The findings are the result of a survey Kroll commissioned from the Economist Intelligence Unit of more than 700 senior executives worldwide.

Global Fraud Report – Annual Edition 2009/2010 (U.S. English)

STEP Explained

The Society of Trust and Estate Practitioners (STEP) is the leading worldwide professional body for practitioners in the fields of trusts, estates and related issues. STEP members help families plan their long term financial future, facilitating good stewardship and financial planning across future generations. STEP members also help families comply with the often complex tax rules surrounding trusts, estates and inheritance. “STEP Explained” gives an overview of the Society, its membership and activities.

Step_Explained.pdf

ECB's opinion on the European Parliament and the Council proposal for a Directive on Alternative Investment Fund Managers and amending Directives...

On 3 June 2009 the European Central Bank (ECB) received a request from the Council of the European Union for an opinion on a proposal for a Directive of the European Parliament and of the Council on Alternative Investment Fund Managers and amending Directives 2004/39/EC and 2009/…/EC (hereinafter the ‘proposed directive’)

The ECB’s competence to deliver an opinion is based on the first indent of Article 105(4) of the Treaty establishing the European Community. In accordance with the first sentence of Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion.

Financial Markets In Europe Lose Some Ground To US In 2008 But Europe Fares Better Over Long Term

• In 8 out 17 financial markets US improves its share relative to Europe in 2008 while losing ground to Europe in 6; no relative change in 3 markets

• Europe’s share of 13 out of 17 financial indicators has risen relative to US over long term between 2001 and 2008

In nearly half of indicators - 8 out of 17 – the size of financial markets in the US improved relative to those in Europe in 2008. In most cases this was because US markets declined by less than those in Europe. Europe’s position relative to the US improved in 6 markets with the relative position unchanged either way in 3. These are the key findings in the annual report Financial Market Trends Europe vs. US from International Financial Services London (IFSL), the independent organisation promoting financial services throughout the world.

The largest relative gains in Europe and the US in 2008 were in those markets where each was already stronger. For Europe this included international bank lending, foreign exchange turnover and insurance premiums. While for the US it included foreign equity trading, equity market turnover and domestic bonds. Over the longer period since 2001 the picture for Europe is more positive with activity in Europe relative to the US improving in 13 out of 17 markets, with a rise in US share relative to Europe in the other 4.

Duncan McKenzie, Director of Economics at IFSL, said: “Recent trends have been slightly less favourable for financial markets in Europe but, led by London as its financial capital, Europe has the opportunity to build on its cluster of expertise”.



Click here to view pdf of report

Offshore Evolution - Transparency and Solutions in Cross Border Wealth Structuring Survey

In June 2009 STEP commissioned research into the future of the international wealth structuring business. The report which was produced "Offshore Evolution: Transparency and Solutions in Cross Border Wealth Structuring" offered twenty predictions for the future. We want to test those predictions in this survey.
Once the survey is complete you will get a report on the findings in October.

To complete the survey, please click here

IMA responds to the Walker Review

The Investment Management Association (IMA) has published its response to the Walker Review, which looks at the future of corporate governance in the financial services industry and proposes measures to improve the quality of bank boards.

Commenting, Liz Murrall, Director of Corporate Governance at the IMA, said:

"The IMA supports Sir David Walker's Review and many of its recommendations aimed at improving corporate governance in response to the financial crisis. We welcome the review ruling out legislative proposals and not adopting a rules-based approach.

However, we have concerns about proposals that the FSA should encourage fund managers' commitment to the Principles of Stewardship ‘as a matter of best practice'.

Undoubtedly, managers have an important role to play in ensuring good governance and need to be more effective in the future. But they do not run companies. They do not set strategy. Nor are they insiders - in that they only have access to information that is available to the market as a whole.

We think that proposals that address systemic issues, such as risk and remuneration, in banks and other major financial institutions should be implemented by way of FSA guidance rather than via the Combined Code as is suggested. The Combined Code applies to all listed companies - not all financial institutions that pose systemic risks are listed, and many listed companies do not give rise to systemic issues."

Sir David Walker is expected to publish his final recommendations at the end of November.

IMA's full response can be viewed here

Jersey Finance response to recent media coverage regarding Chief Ministers meeting with HM Treasury

Jersey Finance welcomes the recent announcement of the planned review of Jersey’s fiscal strategy.

Following the last review throughout 2001-3, which resulted in the restructuring of Jersey’s corporate tax regime under “Zero-Ten” in June 2008, every effort has been made to ensure Jersey’s conduct in tax matters is Code Compliant (as outlined by the EU Code of Conduct Working Group on Business Taxation), and does not constitute Harmful Tax competition.

However in the current climate, more scrutiny in all areas relating to financial policy and practice is to be expected. During this period Jersey’s finance industry has repeatedly demonstrated its commitment to transparency and co-operative practices as shown by the Jersey’s recent inclusion on the OECD ‘White List’ and the extremely favourable IMF review, which confirmed Jersey as the best jurisdiction with the highest standards of regulation and supervision. Jersey was also praised by the UK Government in June this year for its firm commitment to transparency and exchange of information in tax matters and has been cited by the OECD as an example for other jurisdictions to follow.

Comment from Geoff Cook, chief executive, Jersey Finance:

“This review is an opportunity for Jersey’s finance industry to demonstrate once again that it meets the highest global standards of regulatory cooperation and is a Code Compliant jurisdiction, as well as ensuring its internal tax regime remains sustainable, efficient and competitive.

While no financial centre has been immune to the current economic crisis, the Government of Jersey has maintained sound public finances and recognises the importance of Jersey’s finance industry.

Jersey’s finance industry has full confidence it operates in a fiscally stable, well-regulated and diversified jurisdiction with attractive future prospects for investors and businesses looking for reassurance in a time of uncertainty.”

Jersey Wins STEP Award as International Finance Centre of the Year

Jersey’s finance industry has further enhanced its reputation, winning best ‘International Finance Centre of the Year’ in the Society of Trust & Estate Practitioners (STEP) Private Client Awards for 2009/2010 in London earlier this week.

The Chief Executive of Jersey Finance, Geoff Cook and Head of Marketing, Dara Lutes, received the award at a prestigious ceremony at the Hilton Hotel on Park Lane, London on October 13th.

The STEP awards are judged by a panel of 14 experts in the UK, supported by a selection of more than 100 industry professionals worldwide. STEP’s judges decided that Jersey’s legislative and regulatory developments were the most impressive over the last year and commented:

“Jersey Finance has used the last year putting themselves back at the forefront of international finance with a number of important legislative and practical initiatives and a stronger framework for government and industry dialogue. In the IMF’s recent Financial System Stability Assessment Update, the Fund placed Jersey in the "top division" of finance centres and highlighted the effectiveness of its anti-money laundering rules.”

Geoff Cook commented:

“We are delighted that industry professionals working in the wealth management arena have been so impressed by developments in our finance industry and selected Jersey as the top international jurisdiction. The award is further endorsement of the Island’s supervisory and regulatory regime and highlights the unstinting efforts of Jersey’s, Government and the Regulator in meeting the challenges of an evolving global financial services industry.”

Australia Well-Placed to Weather Global Economic Challenges, Legatum Prosperity Index Suggests; Leads the World in Promoting Prosperity

The Legatum Institute ranks 104 countries in the Legatum Prosperity Index by how well they foster economic growth and personal wellbeing.

Australia is the most successful country at promoting well-rounded national prosperity, and narrowly leads Austria and Finland in the 2008 Legatum Prosperity Index, published today. The Index defines prosperity as a holistic combination of material wealth and life satisfaction, measuring how well nations are promoting both economic growth and quality of life. Yemen ranks last, following several African nations including Zambia and Zimbabwe.

The top ten countries in the Index represent multiple regions including five European countries (Austria, Denmark, Finland, Germany and Switzerland), four from the Asia Pacific region (Australia, Hong Kong, Singapore and New Zealand) and one from North America (United States).

The Prosperity Index assesses 104 nations around the world by measuring 44 different indicators of both economic competitiveness and liveability. Full rankings are available at www.prosperity.com

Australia leads the Index because of its strong performance in education, governance, and promoting entrepreneurship. It has reinvented itself as a wealthy service-oriented economy with good scores on liveability indicators, including health, charitable giving and effective governance. Strong norms of civic participation, robust health, and plenty of leisure time contribute to the high liveability rating.

Austria scores highly in education, which is vital to long term income growth, as well as health, a key to quality of life. Looking at the promotion of entrepreneurship as a driver of economic competitiveness, Austria has one of the lowest rankings in the top ten. Finland boasts of high governance, helping to drive both wealth and wellbeing in the country. In addition, the Finns report very high levels of satisfaction with the freedom to choose the course of their own lives.

This group of countries tops the Index because of imbalanced results from other world regions. Several Nordic countries score very well on liveability indicators, but poorly on some wealth drivers, most notably in the promotion of entrepreneurship. Many Asian countries on the other hand, score well on the economic competitiveness indicators, but have comparative weaknesses in liveability, including limited equality of opportunity for women, a degraded natural environment, and long working hours.

While no country has poor scores in every category, Yemen comes closest. While its people maintain a strong religious faith, they also suffer from extreme levels of poverty and poor governance. For most of the countries in the bottom ranks of the Index, extreme poverty appears to be the main cause, which further impacts wellbeing by contributing to ill health and unemployment. A number of countries, such as Zimbabwe and Sudan, are both impoverished and politically repressive.

Dr. William Inboden, Senior Vice President of the Legatum Institute commented that, “true prosperity consists of more than money. It also includes happiness, health, and liberty. The Prosperity Index shows that in addition to economic success, a society’s prosperity is based on strong families and communities, political and religious liberty, education and opportunity, and a healthy environment.”

All successful countries demonstrate several common attributes, with the top ten scoring especially high on five economic indicators:

• Growth in Invested Capital;
• Good Governance on economic issues;
• Commercialising Innovation;
• Good Governance on political issues;
• High Incomes.

All but Singapore and Hong Kong scored nearly as well on community life and family life indicators, which are important measures of Social Capital. Conversely, the bottom 25 percent of the Index countries get especially low marks on the above indicators as well as Freedom of Choice. They are particularly burdened by low incomes and high dependence on foreign aid.

The 2008 Prosperity Index finds that both individuals and governments have a role to play in promoting national prosperity. Alan McCormick, a Managing Director at Legatum, observed, “The 2008 Legatum Prosperity Index reveals that governments alone cannot mandate prosperity, but they can foster an environment that encourages prosperity through implementation of wise policies. Individual citizens are responsible for taking ownership of their lives and, in richer countries, embracing the opportunities that accompany increased freedom and privilege.” A website dedicated to measuring personal prosperity has been created at www.myprosperity.com

Mr McCormick concluded that, “Amidst widespread global economic insecurity, the findings of this year’s Index could not be timelier. The Prosperity Index is a manifesto for advancing long-term national prosperity which can act as a guide for leaders from all sections of society.”

Chief Ministers in meeting with HM Treasury

The Chief Ministers of Jersey and Guernsey met the Financial Secretary to HM Treasury yesterday. During the meeting, which was held following the annual dinner for Crown Dependencies, the Chief Ministers discussed how the economic crisis is rapidly changing international norms for the regulation of the finance industry and particularly for taxation.

Ministers discussed the possibility that a new business tax regime may be proposed before the EU Code Group* has formally considered the 0/10 tax regimes of all the Crown Dependencies. The views of EU Member States seem to be evolving, and it appears that some Member States are increasingly unlikely to accept that the fiscal regimes in the Crown Dependencies are fully compliant with the EU Code of Conduct on Business Taxation.

Following the meeting Senator Terry Le Sueur said: “We have worked well, with the UK’s support, in implementing the zero-ten corporation tax system. It is clear that we will need to continue to work in partnership with the UK on engagement with EU Member States so we can maintain a viable and competitive tax system supported by our European neighbours.

“I am fully committed to ensuring Jersey’s regulatory standards and tax structures remain compliant with emerging global attitudes and standards. We have already announced a comprehensive review of our fiscal strategy, and we are pleased to announce that the Treasury Ministers of Jersey and Guernsey have decided to work closely together on this.

“Our meeting yesterday was very helpful. It is a very positive step that the two islands will now be working together. It will ensure that any changes that may arise from our Fiscal Strategy Reviews are consistent with the EU Code of Conduct on Business Taxation and are in line with our European good neighbour policy.”

Jersey’s Treasury Minister, Senator Philip Ozouf, said: “I am committed to working more closely with Guernsey, so I am particularly pleased that we are now going to cooperate on our fiscal strategy reviews. This means we will be able to share resources and research costs, and approach our European neighbours together. Working in combination will help us to develop strategies that are right for our individual circumstances, but which are also complementary.”

The ministers have agreed that in order to ensure sustainable public finances and to support their economic objectives, the islands need to assess their options carefully. Senator Ozouf added: “The unprecedented change in the world economy is leading many countries to re-appraise their tax systems. New international norms for business taxation will evolve, and both Jersey and Guernsey must be ready and able to respond to those changes. We believe conducting a joint Fiscal Strategy Review will help us achieve this.”

Senator Le Sueur is keeping States members informed of developments and these matters will be discussed with the Council of Ministers tomorrow.

*The EU Code Group assesses the tax measures that may fall within the scope of the Code of Conduct for business taxation.

Business Annual 2010

BA 2010

Jersey Achieves Listing Success with Hong Kong Exchange

Jersey companies have been approved for listing on the Hong Kong Stock Exchange.

The move is a significant development for Jersey’s finance industry, which is seeking to increase business flows from the Asia Pacific region and its confirmation comes only days before a delegation from Jersey, led by Jersey Finance, undertakes its latest visit to the region.

The formal inclusion of Jersey companies on the Hong Kong Exchange’s approved list of companies able to float on its Exchange is the result of more than a year’s negotiation, research and document preparation involving Government officials in Jersey, representatives from Jersey Finance and the finance industry.

The approval enables Jersey’s finance industry to compete on an equal footing with other competitor jurisdictions, which have been established longer in Asia. Jersey has achieved this recognition ahead of some of its closest competitors including Guernsey and the Isle of Man.

Robert Kirkby, Technical Director, Jersey Finance, commented:

“Gaining access to a major capital market such as Hong Kong is further excellent news for Jersey and is a step forward in our ability to attract new business from the region. The move by the Exchange authorities adds weight to Jersey’s reputation as a rigorously supervised, highly regarded jurisdiction and also demonstrates how the market in Asia views the quality and robustness of Jersey company law. Moreover it gives further impetus to the formal opening of our second overseas office in Hong Kong later this month and is very welcome news.

Especially with China anticipated to become the world’s most powerful economy and as Hong Kong is already such an important financial centre, the listing approval for the Hong Kong Exchange is timely and will support our efforts to develop commercial links with the region.”

The approval success came as a result of two concurrent applications to the Hong Kong Exchange. In the first, Jersey Finance has worked with Carey Olsen (who gave their time and resources, providing Jersey legal advice free of charge) together with Hong Kong law firm Stephenson Harwood & Lo on the application in principle for the flotation of Jersey companies on the Hong Kong Stock Exchange. Martin de Forest Brown, Director of Finance at the States of Jersey, led the negotiations with the Stock Exchange officials. In the second, Ogier acted for an existing Jersey company, who sought a pre-IPO ruling, which was given by the Exchange on the same day and which has recently been published on the Exchange's website.

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World Economic Forum’s Financial Development Report shows global financial centres’ lead is weakening

The world’s largest economies took the biggest hit in the World Economic Forum’s second annual Financial Development Report released today. Global financial centres still lead in the report’s Index, but the effects of financial instability have pulled down their scores compared to last year. The United Kingdom, buoyed by the relative strength of its banking and non-banking financial activities, claimed the Index’s top spot from the United States, which slipped to third position behind Australia largely due to poorer financial stability scores and a weakened banking sector.

The Financial Development Report ranks 55 of the world’s leading financial systems and capital markets. It analyses the drivers of financial system development and economic growth in developed and developing countries to serve as a tool for countries to benchmark themselves and establish priorities for reform.

The rankings are based on over 120 variables spanning institutional and business environments, financial stability, and size and depth of capital markets, among other factors.

The financial crisis was acutely felt in most global financial systems and caused most countries’ scores to drop significantly compared to 2008.

“The change in scores does demonstrate the implications of the downturn on our assessment of the long-term development of financial systems,” said Nouriel Roubini of New York University and Chairman, RGE Monitor who is the lead academic on the report.

Germany and France suffered a heavy fall in overall scores that pulled them out of the top 10. They dropped in the rankings but demonstrated financial stability scores that were significantly higher than the United Kingdom and US. Australia showed particular strength this year, a trend that is echoed in many Asia Pacific economies.

The breadth of factors covered in the report means that countries with high financial instability scores like the United Kingdom and US could still achieve a high relative ranking in the Index due to other strengths.



“We hope this report will provide some insight as to how the financial crisis has affected the world’s major financial systems. It draws attention to the diversity of factors beyond financial stability that must be addressed to support the role of financial systems in driving economic growth. The United Kingdom and US may still show leadership in the rankings, but their significant drops in score show increasing weakness and imply their leadership may be in jeopardy.” said Kevin Steinberg, Chief Operating Officer, World Economic Forum USA.

Some developing countries performed well in the financial stability section of the Index. Chile came in third while Malaysia, Mexico and Brazil are all in the top 15. Norway and Switzerland took the top two spots in this category.

“Developing countries exhibited a relatively strong showing in the financial stability pillar of the Index. For some, this is the result of learning from the mistakes of past financial crises, while for others it may reflect the relative lack of complexity and global integration of their financial systems,” said Co-Author Nouriel Roubini.

Developing countries also earned many of the top spots with respect to commercial access, which measures the availability of capital through such means as commercial loans, IPOs and venture capital.

Developing countries, however, did not score nearly as well in terms of retail financing provided to individuals and small enterprises through savings and demand accounts, microcredit, ATMs and point-of-sale financial services.

“One possible explanation of these figures is that big corporations in developing countries can access global financial markets, whereas smaller businesses struggle to get the same access,” said James Bilodeau, Co-Author of the report, and Head of Emerging Markets Finance at the World Economic Forum USA.

Changes to this year’s Index include improved data on retail, financial access such as bank account penetration, microfinance and point-of-sale access. Refinements to measures of financial stability were also made.

The Industry Partnership Programme of the World Economic Forum, under whose auspices this work was undertaken, provides a platform for the world’s leading companies to define and address critical issues. The Financial Development Report benefited from the guidance and support of its Industry Partners with particular contributions from Barclays Capital, EFG Hermes, JPMorgan, Standard Chartered Bank and Troika Dialog. It is the culmination of a year-long partnership between the World Economic Forum and academic scholars, industry practitioners, and other distinguished experts and stakeholders.

The report draws on data taken from a variety of publicly available sources such as the World Bank as well as the World Economic Forum’s 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). The Forum’s Global Competitiveness Network, which also sponsors related initiatives such as The Global Competitiveness Report, also supported this work. There is necessarily a lag in obtaining complete cross country data used to calculate the Index. As successive iterations of the report are published, the long-term effects of the crisis on financial system development will become increasingly clear.

Contents (PDF)

Preface (PDF)

Foreword (PDF)

Download the full Report (PDF)

Download the 2009 rankings in PDF and Excel

Read country highlights

Watch a video interview with Co-author James Bilodeau

OECD: New handbook boosts anti-money laundering efforts

Money laundering is a serious threat to the legal economy and affects the integrity of financial institutions. If left unchecked, it will corrupt society as a whole. The OECD has just released a handbook to help tax administrations detect and deter money laundering.

Criminals accumulate significant sums of money by committing crimes such as drug trafficking, human trafficking, theft, investment fraud, extortion, corruption, embezzlement and tax fraud. There are substantial similarities between the techniques used to launder the proceeds of crimes and to commit tax crimes. Tax crimes may also indicate that money laundering is taking place.

As far back as May 1998 the G7 Finance Ministers encouraged international action to enhance the capacity of anti-money laundering systems to deal effectively with tax related crimes, which would also increase the effectiveness of tax information exchange arrangements. More recently the G20 Leaders have called for further efforts in combating illicit financing, and acknowledged the progress being made by the Financial Action Task Force (FATF) in improving the standards for combating money laundering and the financing of terrorism and by the OECD on international standards of tax transparency.

The Money Laundering Awareness Handbook for Tax Examiners and Tax Auditors provides guidance in identifying money laundering during the conduct of normal tax audits, and describes the nature of money laundering activities so that tax examiners and auditors can better understand how their contribution can assist criminal investigators in countering money laundering.

AIMA signals new phase of engagement on Directive

The Alternative Investment Management Association (AIMA) – the global hedge fund industry association – has signalled a new phase of engagement with European policymakers on the European Commission’s draft Directive on Alternative Investment Fund Managers.

Andrew Baker, CEO of AIMA, said: “There is now a broad consensus among European policymakers that the Directive does need a lot of work and that there will be significant revisions. The question of course, is what will replace what is currently in the draft Directive. As the global hedge fund industry association, representing not only managers but investors and service providers, we believe we can provide useful technical assistance in this respect.”

The move comes as AIMA publishes its Position Paper (and Executive Summary) on the Directive and issues a newsletter for European policymakers.

AIMA welcomes the parts of the Directive which relate to the G20 process, such as the reporting of systemically relevant data by managers to their national supervisors in the interests of financial stability, and the registration and authorisation of managers. But AIMA has argued that there are other elements of the Directive - such as those relating to leverage, depositaries and marketing among others - which have been poorly drafted and which will have many unintended and potentially damaging consequences.

AIMA has a long tradition of working very closely with regulators and policymakers around the world to achieve effective industry regulation that serves the needs of both regulators and the industry.

Andrew Baker added: “We think that the directive should focus on the three key issues of registration and authorisation; reporting of systemically relevant data; and a workable passport. If it did so then it would create a progressive framework for the industry within the European Union to operate that addresses the concerns raised about systemic risk issues. We also think it’s important that the policymakers looking at the Directive take their time to ensure that it’s properly thought through and are informed by a European-wide impact assessment.”

Links to documents

AIMA newsletter for European policymakers:
http://www.aima.org/filemanager/root/site_assets/directive_centre/12001_aima_eu_newsletter_autumn_2009_lowres.pdf

AIMA Position Paper:
http://www.aima.org/en/document-summary/index.cfm/docid/84F2C795-8895-4945-AED17E9521E45C60

Executive Summary of Position Paper:
http://www.aima.org/en/document-summary/index.cfm/docid/0E8C0F1B-8DAF-478F-B9C8DDF012839DF9

Mauritius tops the 2009 Mo Ibrahim Index of African Governance

The Mo Ibrahim 2009 Index of African Governance ranked Mauritius first out of the 53 African countries. Among the other top 10 performers Botswana (4th), South Africa (5th), Namibia (6th) and Lesotho (9th) were from Southern Africa.

Mauritius, with 82,8 points, has topped the list of Africa's best-governed nations for the third year in a row, followed by Cape Verde (78) and the Seychelles (77,1), while Somalia (15,2) again landed at the bottom.

The Ibrahim Index measures the delivery of public goods and services to citizens by government and non-state actors across 84 indicators of governance. Those governance indicators are grouped in four overall categories: Safety and Security, Participation and Human Rights, Sustainable Economic Opportunity and Human Development.

The Ibrahim Index of African Governance was created in recognition of the need for a robust, comprehensive and quantifiable tool for civil society to track government performance in Africa. This year data were compiled with the active advice and assistance of a number of African institutions, including Afrobarometer, the American University in Cairo , the Council for the Development of Social Science Research in Africa (CODESRIA), and L’Institut de Recherche Empirique en Economie Politique (IREEP).

Southern Africa outpaces North Africa in governance performance

The 2009 Ibrahim Index of Governance is published today by the Mo Ibrahim Foundation, an organisation committed to supporting great African leadership. The Ibrahim Index is Africa’s leading assessment of governance, established to inform and empower the continent’s citizens.

The Ibrahim Index measures the delivery of public goods and services to citizens by government and non‐state actors across 84 indicators of governance. Those governance indicators are grouped in four overall categories: Safety and Security, Participation and Human Rights, Sustainable Economic Opportunity, and Human Development. All 53 of Africa’s countries are then ranked according to their total scores across the categories.

• Mauritius tops the 2009 Ibrahim Index with a total score of 82.8, ranking first in all four main categories. Cape Verde is ranked second with a total score of 78.0. Seychelles is ranked third with a total score of 77.1, followed by Botswana with a total score of 73.6. South Africa is ranked fifth with a total score of 69.4.
• Southern Africa is the continent’s best performing region, with an average score of 58.1, followed closely by North Africa with an average score of 57.7. West Africa is ranked third with an average score of 51.7, followed by East Africa with a score of 46.9. Central Africa is the worst performing region, with an average score of 40.2.
• Southern Africa is ranked highest in both Safety and Rule of Law and Participation and Human Rights, with five of Africa’s ten best performing countries ‐ Mauritius, Botswana, South Africa, Namibia and Lesotho ‐ coming from southern Africa.
• North Africa is ranked highest in both Sustainable Economic Opportunity and Human Development. However, in the category of Safety and Rule of Law, North Africa is ranked third out of five, and in the category of Participation and Human Rights, North Africa comes second from bottom. While all North African countries apart from Mauritania feature in the top half of the rankings, only Tunisia appears in the top ten.
• West Africa is ranked second in both the categories of Safety and Rule of Law and Participation and Human Rights, coming third in Sustainable Economic Opportunity and second from bottom in Human Development. While the region’s 16 countries include Cape Verde and Ghana which are ranked second and seventh respectively, they also includes Guinea and Cote d’Ivoire which are both ranked in the bottom ten.
• East Africa is ranked third in both the categories of Participation and Human Rights and Human Development, and is ranked fourth in both the categories of Safety and Rule of Law www.moibrahimfoundation.org and Sustainable Economic Opportunity. While the region’s 12 countries include Seychelles and Tanzania which are ranked third and twelfth respectively, they also include Eritrea, Sudan and Somalia which are all ranked in the bottom ten.
• Central Africa is the worst performing region across all four categories. All seven Central African countries are ranked outside the top 20 in the 2009 Ibrahim Index, with all of them except Gabon performing below the average for the continent.
• Somalia is the worst governed country on the continent, with a total score of 15.2. In 52nd place, Chad has a total score of 29.9, while Zimbabwe is third from bottom in 51st place with a total score of 31.3.

Reflecting important structural and methodological improvements to the Ibrahim Index over the last year, the 2009 Ibrahim Index includes a new framework for assessing governance, and improvements to make the index more reflective of current governance realities. For the first time, in 2009 the Ibrahim Index covers all 53 countries in Africa. It also includes data from 2008, making it more current than any other assessment of African governance.

The full Board of the Mo Ibrahim Foundation convened in Cape Town this morning for the launch of the third iteration of the Ibrahim Index. Mo Ibrahim, the founder and Chairman of the Foundation, says: “The 2009 Ibrahim Index gives us the clearest – and most current – snapshot of governance performance on the continent we have ever had. With Southern Africa outperforming North Africa, we can see a picture emerging that fundamentally challenges our perceptions about Africa. Our objective is to generate debate about what we can expect our governments to deliver in our name.”

The Mo Ibrahim Foundation is supported by a research team at the Foundation, headed by Dr Hania Farhan, a Technical Committee of representatives from key African institutions, and Dr Daniel Kaufmann of the Brookings Institution, who co‐produces the World Bank’s Worldwide Governance Indicators. The Foundation also draws on the expertise of an Advisory Committee of academics drawn from institutions across Africa.

Paul Collier, Director for the Centre for the Study of African Economies at the University of Oxford, and author of The Bottom Billion says “The new Mo Ibrahim index on African governance is important. It has three key strengths. First, it is based on a comprehensive trawling of available indicators, and so is not overly dependent upon any single one. Second having no institutional affiliation it is free of political bias. Third, it is an exclusively African undertaking. As a result, both Africa’s citizens and its governments stand to benefit.”

The Ibrahim Index of African Governance was created in recognition of the need for a robust, comprehensive and quantifiable tool for citizens and civil society to track government performance in Africa. The development of the Ibrahim Index reflects the Foundation’s long‐term commitment to support African ownership of the governance debate, to develop capacity in African institutions, and to improve the quality, reliability, and availability of data about Africa.

Disparity in regulation and tax legislation main barriers to efficient European fund distribution

Disparity in regulation and tax legislation between individual member states means that it will be more than five years before there is a fully functioning cross border fund distribution market in Europe. These are the main findings of a fund manager survey recently conducted by KNEIP, the leading service provider to the fund management industry, in the run up to the EFAMA Investment Management Forum in Brussels.

The survey interviewed CEOs of European fund management houses with a combined total of AUM of €1.8 trillion. According to the findings, 83 per cent of respondents think that it will be more than five years before an efficient cross-border fund distribution market can become a reality, with 67 per cent citing disparity in regulation and tax legislation as key obstacles.

In addition, half of the respondents said the lack of distribution partners is a prominent issue in distributing funds abroad. The majority (67 per cent) said the market for European crossborder distribution is currently to less than 15 per cent efficient. There is little expectation that the forthcoming implementation of UCITS IV will resolve these issues, with 83 per cent believing that the proposed regulations will tackle the problems only to ‘some extent’.

Bob Kneip, CEO of KNEIP, commented: “The European market is far from harmonised. Unfortunately, ongoing national protectionism in tax and regulation has hindered the move towards open architecture and the creation of a fully functioning international distribution market.

“While it is unrealistic to expect to have all answers right away, the discussion about the nuts and bolts of the implementation of UCITS IV is still in its infancy. For instance, facilitating fund registration across the European markets will present a significant reporting challenge. There is still much work to be done around standardisation of information and documentation on a pan-European basis if distributors are to understand what they are selling, and investors what they are buying.”

According to KNEIP, the European Commission, the European member states and the European asset management industry should take the following steps towards ensuring a fully functioning cross-border distribution market:

— The European Commission should implement standardised, more transparent and easy-to-understand reporting across markets
— Member states should address the higher-level issues of unifying taxation legislation with respect to management company domiciliation
— Market players should establish centralised information platforms that cater to the end investor and optimise management of cross-border funds
— Asset managers should streamline their fund ranges and increase efficiency of their operations by focusing on their core business

Bob Kneip concludes: “Now is the time to think about how UCITS IV will work in practice. For truly efficient European fund distribution to work, an even playfield with fixed goal posts in every member state needs to be established. Even if a fully functioning cross-border distribution market is not yet in sight, we believe in both the potential of UCITS IV to streamline the fund industry, and in our ability to rally together as an industry to do the right thing for investors.”

Shipbrokers underpin record UK maritime overseas earnings in 2008, but downturn affects activity in 2009

• UK maritime services overseas earnings reached £2.1bn in 2008 up 40% from £1.5bn in 2006
• Maritime services worldwide seeing downturn in business in 2009 due to a drop in seaborne trade
• London maintains lead in global maritime service provision owing to its shipbroking, insurance, ship classification, finance and legal services

Buoyant markets underpinned record UK maritime services exports of £2.1bn in 2008 with nearly half originating from shipbrokers. The two-yearly Maritime Services report from International Financial Services London (IFSL), the independent organisation promoting UK financial services around the world, confirms London’s position as a leading centre worldwide in the supply of business services to the international maritime community.

In particular, IFSL’s report highlights London’s strength in the following key areas:

Shipbroking: London’s 400 shipbroking firms generated net exports of £948m in 2008, 23% up on £769m in 2007. The Baltic Exchange Dry Index (BEDI) has reflected the drop in seaborne trade, with a peak-to-trough decline from 11,793 to 663 during 2008, and averaging 2,400 in 2009 up to mid-September. Shipbrokers in London perform a key global role matching ships and cargoes for 50% of the tanker and 30-40% of the dry bulk chartering business. They are also involved in the sale and purchase of over half the world’s new and second hand tonnage. The notional value of Freight Forward Agreements (FFAs) traded by shipbrokers in over-the-counter derivatives market reached a record $163bn in 2008, but is expected to drop to $40bn in 2009.

Insurance: With 17% of premiums in the international marine insurance market in 2008, London remains the leading centre in the face of fierce competition from Japan, the USA and Germany. London is also the largest centre in the management of protection and indemnity insurance, with P&I clubs operating in the UK accounting for 62% of the global market in 2008.

Ship finance: In ship finance, the loan book of $50bn provided by commercial banks in London accounted for 13% of the world book at end-2008, down from 16% in 2006. The world loan book soared to $391bn in 2008, on the back of the surge in shipbuilding orders, but is expected to contract sharply as the supply of finance is limited by banks’ capital and credit constraints.

Ship classification: Lloyd’s Register is the second largest ship classification society in the world, accounting for 18% of the world fleet.

Legal services: London is the leading centre in legal services involving about 30 law firms. English law is widely applied to shipping disputes, usually involving foreign interests.

Duncan McKenzie, IFSL’s Director of Economics, notes “The global economic downturn has contributed to an expected 10% drop in seaborne trade in 2009. The knock-on impact on maritime services means that UK overseas earnings in 2008 represent a high point unlikely to be exceeded for a few years.”

Click here to view PDF of the Maritime Services 2009 report

HMRC - The Offshore Funds (Tax) Regulations 2009: Draft guidance for consultation

Draft guidance is published consultation purposes and to assist in understanding the effect of The Offshore Fund (Tax) Regulations 2009, which were published in draft form on 4 September 2009.

The Regulations are subject to affirmative resolution of the House of Commons. It is emphasised that this guidance on the Regulations is a draft only and that it should not be relied upon at this stage as a final HMRC view of the Regulations.

Comments on the guidance are welcome (please see below for contact details).

Please note that this draft covers only the offshore funds regulations. Draft guidance on the definition of an offshore fund was published on the HMRC website on 11 May 2009, and will be updated in a new Offshore Funds Manual once comments received on the regulations have been considered.

The draft guidance is published here as three separate documents: ‘Draft Offshore Funds Manual – Introduction’, ‘Draft Offshore Funds Manual – UK Investors in Non-Reporting Funds’, and ‘Draft Offshore Funds Manual – Reporting Funds & UK Investors’. We are sorry that the links within the guidance will not work at this stage and it is necessary to search within the document to find particular pages of guidance. A guidance map is also published to assist in navigating the document. The links will be operational in the final guidance.

Please send any comments by Friday 7 November to:

Wayne Strangwood
HM Revenue and Customs
CT &VAT, 3rd Floor
100 Parliament Street
London
SW1A 2BQ

Email: Wayne Strangwood

Tel 020 7147 2545

The draft guidance can be accessed via the following links –

Draft Offshore Funds Manual – Introduction (PDF 46K)
Draft Offshore Funds Manual – UK Investors in Non-Reporting Funds (PDF 108K)
Draft Offshore Funds Manual –Reporting Funds & UK Investors (PDF 164K)
Draft Offshore Funds Manual – Guidance Map (XLS 21K)

Identifying Secrecy Jurisdictions

This project relates to illicit financial flows. By definition illicit flows are illegal or of dubious legality. Those who manage such flows are well aware of this. As such they wish as little information to be available about them as they can possibly achieve.

As has been noted in the section entitled ‘Finding the Secrecy World’, there are many jurisdictions that that intentionally create regulation for the primary benefit and use of those not resident in their geographical domain that is designed to undermine the legislation or regulation of another jurisdiction. They do in addition create a deliberate, legally backed veil of secrecy that ensures that those from outside the jurisdiction making use of its regulation cannot be identified to be doing so. Their appeal to those seeking to hide illicit financial flows is obvious as a result.

Having a definition of secrecy jurisdictions is one thing, identifying them in practice is something quite different. This task was, however, a key element within this project. We thought it essential that we identify sufficient potential secrecy jurisdictions so that we could then appraise the facilities they provided so that we might determine with greater accuracy the role they played in assisting illicit financial flows.

There was an obvious ‘chicken and egg’ problem in doing this. We could either search all jurisdictions in the hope of identifying those characteristics that might suggest some were secrecy jurisdictions or we could establish a list of those places that were by consensus considered tax havens / secrecy jurisdictions and appraise the financial services environments of those places to see what they had in common.

We chose the second approach, largely because we are not the first to tackle this issue and plenty had before us both sought to define what either tax havens of offshore financial centres might be – and then list those places they thought had those characteristics. For reasons noted in this report, we had problems with many of the definitions offered by all those others. There were, however. Sufficient such exercises to allow us to use them as a data set from which conclusions could be drawn.

Twelve listings in all were used, dating from 1982 to 2007. These were prepared by academics, regulatory agencies of various sorts, legislators, civil society groupings and those promoting tax haven use. The sheer variety of sources did, we hoped, add credibility to the likely findings. This, we think, was the case.

It was this process that resulted in our initial selection of all 61 jurisdictions with two or more listings for study, one listing being considered insufficient evidence of concern. However, upon review minor changes were made as follows:

1. Niue was eliminated from the survey as the IMF had indicated in 2008 that it was no longer providing any significant secrecy jurisdiction services;

2. John Christensen and Mark Hampton, who prepared the Tax Justice Network listing suggested that both Tonga and South Africa could be removed from their list for the same reason, downgrading them to having one listing each;

3. The EU states of Austria (no listings) and Belgium (one listing) were added because of their refusal to cooperate with the European Union Savings Tax Directive, indicating serious secrecy jurisdiction activity.

The resulting list was therefore of sixty jurisdictions.

Download full report by clicking here