30 July 2011

Kenya: France hunt Merali on Kencell

The French government officially requested Kenya to help them interview Sameer Group chairman Naushad Merali over US$20 million (Ksh1.8 billion) deposited in offshore bank accounts in Mauritius and elsewhere. 

The French government sent a letter rogatory (a formal request for legal cooperation in another adjudication) to the Ministry of Foreign Affairs in October 2008 requesting their assistance in making Naushad Merali available for interview. 

29 July 2011

PwC: Sweeping changes to pay heading to many asset managers, private equity firms and hedge funds

Buried in the recent consultation paper on the Alternative Investment Fund Managers Directive (AIFMD) are stringent rules on pay that will have far reaching consequences for the asset management industry, say experts at PwC. The rules, from the European Securities and Markets Authority, will affect alternative investment firms which escaped the FSA’s regulations on bank pay, including many private equity houses and hedge funds. They will also mean more onerous restrictions for those investment firms already caught by the FSA requirements, and could even hit some firms outside Europe.

The rules are in line with those introduced to other financial services firms in Europe via the Capital Requirements Directive and implemented in the UK by the FSA. The main measures, aimed to align pay more closely with risk, restrict the cash element of bonuses, enforcing at least half to be paid in shares or equivalent instruments. A large chunk (at least 40% and up to 60%) of variable pay must also be deferred for around three to five years. Firms must also disclose total pay for the financial year, with a break-down for senior management and other key staff.

Tim Wright, reward director at PwC, said:

“The rules will mean sweeping changes to the pay policies and practices of many asset management firms. Many thought they’d escaped the brunt of banking pay regulations, but they’re coming back to bite.”

While many asset managers had been caught under the FSA rules, they had fallen into the most leniently treated group – tier 4 - with minimum use of deferral and equity. Others escaped entirely. While the AIFMD rules will apply to a varying degree depending on a firm’s risk profile, most alternative investment fund managers will ultimately face far tougher restrictions.

Tim Wright, reward director at PwC, said:

“The rules could arguably put EU regulated firms at a disadvantage not just for recruitment and retention of workers, who tend to be internationally mobile, but for investment opportunities. The Directive is not only aimed at funds based in Europe but those marketed in Europe, which may lead some firms outside the EU to rethink targeting investors here. A US asset manager, for instance, would need to weigh up whether the UK market is worth deferring a sizeable part of their pay for.”

Greater disclosure on pay is likely to be a particular concern.

Tim Wright, reward director, commented:

“Disclosure goes against the grain of the asset management industry, with information on pay seen as highly market sensitive. Moreover, given the small size of many firms, disclosure in this sector becomes much more personal. If the total pay disclosure covers just two employees, you’re as good as naming them.”

For private equity firms, there will be concern that the Directive explicitly says that carried interest will be targeted by the rules.

Tim Wright, reward director at PwC, commented:

“It is something of a surprise that it looks like carried interest will be included. Carried interest is directly linked to realisations made in the fund managed and there are likely to be conceptual difficulties in calculating the annual amount.”

The AIFMD remuneration regulations will come into effect from the summer of 2013. Given the scope of the AIFMD directive, this leaves very little time for firms to prepare for the changes. Key to the practical effect of the regulations will be the manner in which the FSA implements them (most likely as part of the existing FSA Remuneration Code). In particular, whether the FSA is able to apply the rules in a proportionate manner, reducing the impact for certain firms.

Equivalent regulation for managers of UCITS funds will not be in place until UCITS V is implemented some time after AIFMD, putting alternative investment managers at a disadvantage in the meantime.

Jersey’s Insurance Sector Welcomes Regulatory Move

Jersey’s insurance sector has welcomed the announcement from the island’s financial services regulator, the Jersey Financial Services Commission (JFSC), that it has no plans to implement Solvency II measures in Jersey.

Richard Packman, chairman of the Jersey Insurance Industry Association (JIIA) said “ It is important that Jersey, while retaining its own high standards of regulation, offers an environment that is attractive to captive owners and specialist insurers and this move by the Commission would support that objective. This decision also demonstrates the value of the close consultation between the industry, regulator and Government officials.”

The JFSC has confirmed it intends to focus on changes to the international standards set by the International Association of Insurance Supervisors which are due to be adopted later this year and respond accordingly. It is these standards against which Jersey has previously been assessed by the International Monetary Fund.

Geoff Cook, chief executive of Jersey Finance Limited, added:

‘This clarification by the Commission helps to ensure Jersey remains competitive and flexible to meet the needs of the insurance sector and gives certainty over our future direction, while ensuring high regulatory standards are not neglected.’

28 July 2011

US: Corporations Avoid $60 Billion in Taxes, Reap Billions in Federal Contracts

U.S. corporations avoided roughly $60 billion in federal income taxes last year by hiding profits overseas while the Fortune 100 companies alone reaped nearly $90 billion in taxpayer-funded contracts last year, The Greenlining Institute reports in a new analysis.

The report, authored by Greenlining Institute General Counsel Samuel S. Kang and Legal Associate Tuan Ngo, finds that top companies have added 44 new subsidiaries in countries identified as tax havens since the Government Accountability Office analyzed the issue in 2008. The taxes avoided by hiding profits offshore would be enough to pay the salaries of 1.2 million schoolteachers or fund the full budgets of the Departments of Energy, Labor, and the Environmental Protection Agency combined, with money to spare.

“America’s richest corporations avoid $60 billion a year in taxes by hiding $1 trillion in profits overseas while making billions in federal contracts,” said Kang. “It’s unpatriotic, it’s unfair, and we can’t afford it. It should be illegal, yet Congress is looking to cut the deficit by slashing Medicare, Social Security, food safety, education and health without collecting another dime from these wealthy companies.”

“Individual Americans pay on average 20.4 percent of their income in federal income taxes, while Exxon pays 14.2 percent, IBM pays 3.8 percent and DuPont and General Electric pay virtually nothing – even though the corporate tax rate is supposed to be 35 percent,” said Ngo.

Major tax avoiders include General Electric, which paid almost no federal income tax the last three years while reaping over $3 billion in U.S. contracts in 2010, and Google, whose “Double Irish Dutch Sandwich” illustrates a much-used template for corporate tax avoidance.

OECD: Centre for Tax Policy and Administration - Senior Appointment

Mr. Pascal Saint-Amans has been appointed Director of the Centre for Tax Policy and Administration (CTP). He will take up his duties on 1st February 2012 upon the retirement of Mr. Jeffrey Owens.

Mr. Saint-Amans, a French national, joined the OECD in September 2007 as Head of the International Cooperation and Tax Competition Division in the CTPA. He was responsible for the OECD’s work on harmful tax practices, money laundering and tax crimes, the tax aspects of countering bribery of foreign officials and administrative cooperation between tax authorities. He played a key role in the advancement of the OECD tax transparency agenda in the context of the G20. In October 2009 he was appointed Head of the Global Forum Division, created to service the Global Forum on Transparency and Exchange of Information for Tax Purposes, a programme with the participation of over 100 countries.

Prior to joining the OECD, Mr. Saint-Amans worked at the ‘Direction Générale des Impôts’ (DGI) of the Ministry of Finance in Paris, where he was in charge of following the EU work on direct taxes, the legislation on wealth tax, mergers and spin offs; as well as, tax treaty negotiations and mutual agreement procedures. He was also a French delegate to the WP1 of the Committee on Fiscal Affairs, before being elected Chair of that group in 2005. He was a member of the UN Group of experts on international tax co-operation, and a “rapporteur” in 2006. His last position in the DGI was Deputy Director in charge of litigation. Mr. Saint-Amans also served as Financial Director of the Energy Regulation Committee between 1999 and 2002 and was responsible for the introduction of new electricity tariffs in France.

Mr. Saint-Amans holds a BA in History and a degree from the Institut d’études politiques of Paris. In 1996, he graduated from the National School of Administration (ENA), France.

KPMG - The agile asset manager: Organizational strategies and competencies to outmanoeuvre the competition

The agile asset manager : Organizational strategies and competencies to outmanoeuvre the competition was launched at the recent Fund Forum International conference in Monaco where it generated considerable interest and discussion over the three days.

27 July 2011

Malta: Circular addressed to companies authorised to act as trustees in terms of article 43 of the Trusts and Trustees Act

1. Introduction

Over the past year the Malta Financial Services Authority ("Authority") has received notifications from certain authorised trustees with respect to their intention of acting as administrators of private foundations, as well as numerous queries as to whether an authorisation to act as a trustee issued in terms of article 43 of the Trusts and Trustees Act (“TTA”) also covers this additional activity.

In view of this, the Authority is issuing this Circular for the purpose of informing authorised trustees of the approach which it has adopted in connection with this matter with the aim of addressing any existing ambiguities.

2. Authorised trustees acting as administrators of private foundations

A person (an individual or a company) who is currently authorised to act as a trustee in terms of article 43 of the TTA is not required to submit another application to be able to act as an administrator of private foundations. If an authorised trustee wishes to provide the said service, the Authority would treat it as an extension of the authorised trustee’s licence and in this respect it would require the said trustee to submit the following documentation:
  • a covering letter notifying the Authority that the authorised trustee wishes to act as an administrator of private foundations;
  • if the trustee is a corporate entity, a draft revised memorandum and articles of association empowering the authorised trustee company to act as an administrator of private foundations;
  • an updated business plan indicating the additional service to be provided by the authorised trustee, the persons who will be principally involved in the provision of administrative services to private foundations (indicating their qualifications and experience in this field), the clients to be targeted and how the service of administering private foundations will be marketed;
  • three year financial projections (depending on the scale of the business envisaged);
  • Personal Questionnaires (PQs) of any individuals employed by an authorised trustee who will be involved in the day-to-day administration of private foundations and who will be required to report to the board of directors of an authorised trustee, provided they are not already known to the Authority; and
  • in the case of those officers and employees (including directors) of an authorised trustee who are already known to the Authority and who will take part in the administration of private foundations - a declaration confirming whether there have been any changes to the information disclosed in their previously submitted PQs. However, a fresh PQ would need to be submitted where the previously submitted PQ is more than five years old.
Upon satisfactory receipt of the above documentation, the Authority will approve the extension of the authorised trustee’s licence so as to include acting as an administrator of private foundations and will issue a revised trustee licence so as to include a specific reference to this additional activity.

3. Notification requirement

In view of the above, the Authority is hereby requesting all authorised trustees that are currently acting as administrators of private foundations and have never notified the Authority of engaging in this activity, as well as those authorised trustees which intend to provide this service, to notify it accordingly. Once the Authority has collected all the relevant information from its licensed trustees, it will be able to update its register of licence holders and to provide an accurate list of those authorised trustees that are also acting as administrators of private foundations.

4. Persons wishing to act solely as administrators of private foundations

Article 43(12)(b) of the TTA requires any person (not being a person referred to in article 43(6) of the TTA) who acts as an administrator, a trustee, director or similar functionary, exercising control over the assets, by whatever name he may be called, of a private foundation to be authorised in terms of article 43, irrespective of the extent of his activities, whether remuneration is payable therefor or whether he holds himself out as providing such services or not.

Thus, any person (being an individual or a company) who intends to act solely as an administrator of private foundations (and does not qualify for any of the exemptions contained in article 43(6) of the TTA) is required to apply for authorisation in terms of article 43(12)(b) of the TTA and to submit the relevant application documents referred to in the Trustee Guidance Notes and application form for prospective applicants which are available on the MFSA website.

How Basel III threatens small businesses

Basel III requires an increase in the size of banks’ equity relative to their loans and a more formal assessment of risk, says Tim Ambler. Big companies will be able to shop around within the competitive international markets. However, in a situation where five big banks dominate the UK market, Britain’s small and medium-sized enterprises (SMEs) will be hit both by the reduced availability of loans and by higher interest rates. Since SMEs drive the UK economy, the consequence of Basel III is negative for the UK.

Mauritius Hosts General Assembly of African Tax Administration Forum

Tax administrators from the thirty six African countries members of the African Tax Administration Forum (ATAF) are participating from the 25 to 27 July in the first General Assembly of ATAF on the theme: “The International and Domestic Aspects of Tax Fraud, Evasion and Avoidance”.

Organised by ATAF in collaboration with the Mauritius Revenue Authority (MRA), the three-day meeting which is being held at the Intercontinental Hotel, Mauritius, aims at enabling operators as well as policy makers to get a firm hold on the way things are evolving in the area of international taxation both globally and within the region. The meeting is also acting as a platform whereby tax agencies in Africa have the opportunity to discuss on ways to improve on their performance strategies as regards the tax administration system in their respective countries.

In his address at the opening of the meeting on Monday 25 July the Acting Minister of Finance and Economic Development, Dr. Vasant K. Bunwaree, hailed the efforts of ATAF for providing a platform to improve the performance of tax administration in Africa by promoting efficient and effective tax administrations. The Minister is of opinion that the strengthening and enhancement of professionalism in the African tax administrations will consequently improve the mobilisation of domestic resource for economic development.

With increasing cross-border investments and transactions, which are generating more income across country borders, Mauritius, said the Minister, is revisiting its legislative and institutional framework to reinforce financial supervision and strengthen the regime to fight terrorist financing, money laundering and other financial crime. Innovation and the implementation of best practices in the African revenue administrations should be adopted to achieve improvement of good governance, transparency and accountability among tax administrators, thus allowing Africa to influence the global dialogue on tax issues, added Dr. Bunwaree.

ATAF lays much emphasis on capacity development for African Tax Administrations. Besides, the building of effective and efficient tax systems across Africa is vital to meet the development responsibilities of the people in a sustainable manner.

ATAF was established in November 2009 with the main objective of catering for the development and maintenance of efficient and effective administration within the context of taxation while technical workshops and international dialogue remain the core part of ATAF's programme of capacity development. In addition to playing its role as the central platform for African tax administrators to articulate African tax priorities, it aims at developing and sharing best practices in the region and building capacity in African tax policy and administration through peer learning and knowledge development.

The Value of Europe’s International Financial Centres to the EU economy


A new report, The Value of Europe’s International Financial Centres to the EU Economy, commissioned by TheCityUK and the City of London Corporation on behalf of theInternational Regulatory Strategy Group (IRSG) focusses primarily on eight major international financial centres – Amsterdam, Dublin, Frankfurt, London, Luxembourg, Madrid, Milan and Paris. The report suggests that clustering of European financial centres, and the networking between them, delivers significant and tangible social and economic benefits throughout the European Union.

Whilst the tax and employment benefits that a successful financial services industry can generate are often cited, this report, authored by Europe Economics, shows that individuals and households across the EU also benefit from lower costs through cross border competition for products and services, improved financial security for individuals and economic stability for governments.  

With wage growth over the average lifetime of 2 per cent, a well-functioning financial sector can add around 5 per cent to GDP from savings-and-borrowing effects alone. With this figure rising to 8 per cent if income growth is 2.5 per cent, it is clear that financial services have a vital role to play in contributing to and supporting a faster growing EU economy.

The breadth and depth of the EU’s financial services industry provides access to capital for businesses in all industry sectors, encouraging trade-led growth and investment across all EU countries. With some €280bn raised through IPOs on European stock exchanges between 2002 and 2010, businesses have been able to flourish by investing in core areas such as research and development and merger and acquisition activity. 

26 July 2011

Jersey on Course and Confident with its AIFMD Strategy

An expert panel of leading practitioners and regulators from Continental Europe, the UK and Jersey has given further confidence that the island’s strategy for engaging with the Alternative Fund Managers Directive (AIFMD) is proving effective and that Jersey’s growing funds industry is on track to meet the criteria set out in the Directive and to take advantage of potential opportunities.

Jersey Finance hosted a seminar last Wednesday (July 20) that provided industry and regulators the first opportunity to debate the contents of the recently published AIFMD level II draft proposals, in which the detailed rules for the Directive have been outlined for the first time.

Geoff Cook, chief executive, Jersey Finance Limited commented:

‘Jersey is fully committed to the funds market and to ensuring we meet the criteria for participation in the proposed new EU regime for funds. As part of that process, we were keen to hear first hand and as early as possible from leading regulators and practitioners for their initial assessment of the implications of the Draft II measures.

‘Practitioners agreed that there were significant operational implications for everyone in the industry seeking to do business in EU markets and a need to examine the fine detail of the 438 page document but there was also broad consensus that Jersey had the regulatory capabilities and resources to meet any compliance requirements.’

The outcome was also in line with the findings of a survey of European alternative asset advisers undertaken by PwC on behalf of Jersey Finance. Some 83% of those surveyed were confident Jersey would meet the criteria for ongoing access to EU institutional investors. The majority of respondents believe Jersey should prioritise efforts in ensuring ongoing investor access through the private placement regime and they also agreed with Jersey’s strategy which is to introduce an ‘opt in’ AIFMD fully compliant regime. This AIFMD regime should be in place in advance of the implementation of the AIFMD in 2013.

Geoff Cook added:

‘The industry is determined to remain a leading European centre for funds business and the findings of the survey and the broad conclusions from our seminar, are further positive pointers for the future. It’s appreciated by everyone I think, and reinforced at the seminar, that compliance with the Directive requires a significant commitment throughout the asset management marketplace, by both onshore and offshore providers, and we intend to be at the forefront of that process so that our clients have the certainty they need that Jersey will we continue to offer access to EU products when the Directive is in place.’

Brendan McMahon, Partner, PwC, Jersey, who was moderator of the panel debate, added:

‘The debate highlighted that if practitioners or trade bodies want to influence the final outcome, ESMA requires constructive solutions in any submissions that are made. From Jersey’s perspective it was agreed that we are well placed to take advantage of opportunities but there is still a need to better explain Jersey’s high standards of corporate governance and regulation more widely within the EU. However, alternative asset managers continue to locate here, a reflection of their confidence in the jurisdiction to provide the appropriate AIFMD response, while retaining flexibility. Managers whose primary source of institutional capital is outside Europe will not want to be constrained by AIFMD, and Jersey will continue to provide the appropriate investor safeguards through its existing regulatory regime, thus retaining its flexibility. An AIFMD compliant regime will also be put in place. A perfect choice of solutions for alternative asset managers.’

The consultation paper was published by the European Securities and Markets Authority (ESMA) on July 15 and those industry groups and practitioners that wish to comment on the contents have until September 13 to respond to ESMA. ESMA say they will make their final recommendations to the EU Commission by November 16, 2011.

Integreon Sponsors Financial Times’ Innovative Lawyers Programme

Integreon, the largest global provider of integrated research, legal and business solutions, today announced its flagship sponsorship of the Financial Times’ FT Innovative Lawyers program in both the U.S. and the U.K. Now in its sixth year, the annual legal sector analysis and awards program recognizes the innovation demonstrated by the most successful law firms, legal departments and individual lawyers.

The FT Innovative Lawyers program is conducted by the FT and its research partner, RSG Consulting, a U.K.-based legal strategy consultancy. The program is based on a rigorous research process that includes expert analysis, market surveys and interviews with hundreds of legal professionals. This year’s research and reports will explore the innovative ways leaders are addressing the economic and regulatory challenges shaping the legal profession.

“Legal process outsourcing (LPO), the adoption of new technologies and efficiency gains were the dominant themes among the front runners in the Innovative Lawyers 2010 U.K. and in our first report on the U.S. legal sector,” said Ben Hughes, Global Commercial Director and Deputy Chief Executive of the Financial Times. “The theme of this year’s program is bold thinking and we’re delighted that Integreon, a consistent innovator in the legal industry, is our main sponsor.”

“Innovation is at the core of what we do and can be seen in the real results our clients are achieving on both sides of the Atlantic,” said Robert Gogel, CEO of Integreon. “Our partnership with the FT and RSG to support the FT Innovative Lawyers program is yet another way we continue to encourage innovation that benefits law firms and corporate legal departments. The legal profession is changing rapidly and demands new, more efficient and effective ways of working.”

Integreon’s more than 2,000 employees provide the company’s clients – including eight of the top ten global law firms – with a wide range of legal services, technologies and business services. Founded in 1998, the company is a leader in the LPO industry, with demonstrated success transforming the cost base and delivery of consistently high-quality services for corporate legal departments and law firms. Some of its many industry-leading innovations include:

  • The creation of one of first offshore delivery centers in the legal industry – a state-of-the-art facility for a leading U.K. law firm, and the signing of the largest outsourcing agreement in the history of the legal profession;
  • The reengineering of a wide range of legal processes and business functions for law firms and corporate counsel to lower costs and increase efficiency, including the company’sLibrary and Information Services, which provides lawyers with unprecedented access to information;
  • The development of technologies that advance the legal profession, including eView™, a hosted document review platform that improves review efficiency, and Seek & Collect™, an appliance and software solution that significantly lowers the cost and time required to conduct defensible, enterprise-wide e-discovery;
  • The establishment of three state-of-the-art electronic evidence labs in the U.S., which are among the most advanced in the world; and
  • The continued investment in people committed to innovation – a fact evidenced by Integreon’s expansion of its consulting organization, which is led by experts with extensive experience transforming law firms and corporate legal departments; and the company’s introduction of a state-bar-approved CLE Ethics course focused on the ethical implications of LPO.

The FT Innovative Lawyers report will be published as a supplement to the FT this fall and will culminate in an awards ceremony on Oct. 5 in London at the Science Museum. The U.S. awards ceremony will take place on Nov. 2 in New York

Werksmans Attorneys - South African chapter of Getting the Deal Through: Dispute Resolution 2011

South African chapter of Getting the Deal Through: Dispute Resolution 2011

Non-FDI Modes Of International Production Are Increasingly Shaping Global Value Chains

Cross-border non-equity modes (NEMs) of international production generated at least $2 trillion in sales globally in 2010 and are growing rapidly, shaping world trade and investment patterns, with important implications for development, the UNCTAD annual report on global investment trends reveals.

The World Investment Report 2011 (WIR11) , released today, is subtitled "Non-equity modes of international production and development."

The study explains that international production is not exclusively about foreign direct investment (FDI) on the one hand and trade on the other. NEMs - which include contract manufacturing, services outsourcing, contract farming, franchising, licensing, and management contracts - allow transnational corporations to coordinate activities in their global value chains and influence the management of host-country firms without owning equity stakes in those firms. Transnational corporations manage the activities of NEM partner firms in their global value chains - for example, a local company in a host country assembling a product or providing information technology (IT) support - through contracts or, equally important, through access to transnational corporations´ technology, skills, business models or internal markets. Transnational corporations seldom take equity stakes in NEM partner firms, although the partner firms are tied to the transnational corporations´ global networks.

Cross-border NEM activity worldwide is significant and particularly important in developing countries. UNCTAD estimates that contract manufacturing and services outsourcing across borders accounted for $1.1trilllion-$1.3 trillion, franchising $330 billion-$350 billion, licensing $340 billion-$360 billion, and management contracts around $100 billion in sales in 2010 (table 1 for selected industries). In most cases, NEMs are growing more rapidly than the industries in which they operate.

In some industries, major non-equity-mode firms - including from developing countries - are transnational corporations in their own right

The nature and origin of NEM players and their geographical dispersion differ by industry. For example, contract manufacturers in electronics and IT-BPO services (information technology and business process outsourcing) are major transnational corporations in their own right, with large-scale operations in a relatively small number of locations worldwide (table 2 for major players). Those in industries, such as garments and footwear, range from bigger multisite players to small outfits in low-cost locations with very wide geographical dispersion.

Developing economies´ firms are major NEM players in some industries, with significant global operations and footprints in other developing countries, thus boosting South-South ties. In electronics, Foxconn, Quanta, Compal, Winstron (all from Taiwan Province of China) and Flextronics (Singapore) are among the top 10 contract manufacturers. Some developing economy transnational corporations such as Li & Fung (Hong Kong, China) play a prime intermediary role between the major brands and contract manufacturers in the garment and footwear value chains. In services outsourcing, for example in IT, firms such as Tata Consultancy Services and Wipro -both from India - are well established; and many from Brazil, the Philippines, and China are emerging. However, in other industries, such as automotive parts, developed-country firms are still the top contract manufacturers.

Non-equity modes hold a large potential for development gains, while some concerns remain

NEMs can yield significant development benefits; indeed value added by NEMs represents up to 15 per cent of gross domestic product in some economies. NEMs employ an estimated 18 to 21 million workers worldwide (figure 1 for selected industries), the lion´s share of whom are in developing economies (table 1). In some industries, such as electronics, garments, footwear and toys, developing countries account for almost all NEM-related employment and exports, compared with their share in global FDI stock of 30 per cent and in world trade (export) of less than 40 per cent in 2010. NEMs in industries such as services outsourcing and franchising also provide large-scale employment in developing countries and boost entrepreneurial and other skills. NEM exports account for 70 to 80 per cent of global exports in several industries (see figure 2 for these industries). Overall, NEMs can support long-term industrial development by building productive capacity, including through technology and skills dissemination and domestic enterprise development, and by helping developing countries gain access to global value chains.

But UNCTAD also cites concerns about the impact of NEMs in host developing economies. For example, working conditions may be poor, particularly in the case of contract manufacturing in labour-intensive activities, since NEM partner firms are under strong competitive pressure to reduce costs. In some instances, NEMs can be used to circumvent social and environmental standards. The report also points to pitfalls for long-term industrial development: Developing countries need to mitigate the risk of remaining locked into low value-added activities and need to avoid overdependence on foreign technologies and inputs.

Policy matters

Policies are instrumental if countries are to maximize the development benefits that can come from the integration of domestic firms into NEM networks of transnational corporations. Good policies also help minimize the associated risks. According to the report, there are four key challenges:

1. Embedding NEM policies in overall development strategies. NEM policies integrated into industrial development strategies will ensure that efforts to attract NEMs are directed at the "right industries" where host countries have a competitive advantage. Low labour costs can be such an advantage, but in the longer run, development strategies need to help local firms move into higher value-added NEM activities within the global value chains of transnational corporations. To avoid a situation where specialization results in dependence on individual foreign partners, there is also a case for NEM diversification aimed at engaging domestic firms in a broad number and variety of activities, the report notes.

2. Building domestic productive capacity. The success of NEM-related policies crucially depends on the availability of attractive domestic firms that qualify for NEM arrangements with transnational corporations. Proactive entrepreneurship policies can strengthen the competitiveness of domestic NEM partners. Such steps may range from fostering start-ups to promoting business networks. Embedding entrepreneurship knowledge into formal education systems, combined with vocational training and the development of specialized NEM-related skills, is also important. Technology policies can improve local absorptive capacities, enhance technological upgrading, and create technology clusters and partnerships. Improving access to finance is important for small and medium-sized enterprises seeking to engage in NEMs, UNCTAD says.

3. Facilitating and promoting NEMs. NEMs are based on contractual relationships between business partners. Clear, stable, and transparent rules governing these contracts are therefore an important means for promoting and facilitating NEMs. Additionally, an UNCTAD survey suggests that there is potential for strengthening the role of investment promotion agencies in encouraging NEMs, in particular through "matchmaking" and "aftercare" services.

4. Addressing negative effects. To address any negative impacts of NEMs, it is important to strengthen the bargaining power of local NEM partners compared with transnational corporations to ensure that contracts are based on a fair sharing of risks and benefits. The development of industry-specific NEM model contracts or negotiation guidelines can contribute to achieving this objective. If transnational corporations engaged in NEMs acquire dominant positions, they may be able to abuse their market power to the detriment of their domestic and foreign competitors and their own trading partners. Therefore, policies to promote NEMs need to go hand in hand with policies to safeguard competition. Other public interest criteria may require attention as well. These include labour and environmental protection and protection of indigenous capacities and traditional activities that may be crowded out by a rapid increase in market shares of successful NEMs.

Mauritius: Workshop focuses on the Ratification of the Convention on Occupational Safety and Health

A three-day tripartite workshop on the Promotional Framework for Occupational Safety and Health Convention 2006 (C187) opened yesterday at the Gold Crest Hotel in Quatre Bornes in the presence of an expert from the International Labour Organisation (ILO), Mr. Franklin K. Muchiri.

An initiative of the Ministry of Labour, Industrial Relations and Employment in collaboration with the ILO, the workshop aims to sensitize the different stakeholders on the provisions of the Convention, which was adopted in 2006 to promote occupational safety and health as part of ILO's agenda of decent work for all. Convention 187 also stresses the importance of continuous promotion of a national preventive safety and health culture.

Participants, mostly representatives from the Employers' organisations, Workers' organisations and the Government, will examine and identify ways and means of implementing the provisions of the Convention with a view to making every workplace safer and healthier. Convention 187 adopted by the ILO in 2006 aims at ensuring that members ratifying the Convention take appropriate steps towards achieving progressively a safer and healthier working environment through national programmes on Occupational Safety and Health which consists of, a national policy, a national system, a national programme and a national profile.

Addressing the participants, the Minister of Labour, Industrial Relations and Employment, Mr. Shakeel Mohamed, recalled that Mauritius had achieved considerable progress regarding Occupational Safety over the years and that almost all the provisions mentioned in the Convention 187 are adhered to in the country in addition to several measures already in place for compliance with the Convention. In this regard, Minister Mohamed added that Mauritius has already formulated a national Occupational Safety and Health profile with the assistance of the ILO and a national Occupational Safety and Health programme and that the Government is providing the necessary tools to raise the standards of occupational safety and health in the country.

Minister Mohamed further pointed out that the challenges facing the professionals in the field of occupational safety and health are real hence the need to enhance efforts to make the workplace safer and healthier.

It will be recalled that in Mauritius, the Government came up, in April this year, with the Occupational Safety and Health (Scaffold) Regulations to ensure better safety standards in the use of scaffolds. Risk Assessment guidelines have also been issued to enable employers to comply with their legal obligations under the Occupational Safety and Health Act 2005.

According to the ILO estimates the annual losses resulting from the work-related injuries in terms of compensation, lost work-days, interruptions of production, training and retraining, medical expenses amount to over 4 percent of the total Gross National Product of all countries across the world.

25 July 2011

Mauritius: PM Elected Overseas Bencher of Honourable Society of Inner Temple

The Prime Minister, Dr Navinchandra Ramgoolam, GCSK, FRCP, is in United Kingdom to receive the Overseas Bencher Award of the Honourable Society of the Inner Temple. The Award ceremony will be held at the Trinity Term Call Night at the Inner Temple in London.

Dr Ramgoolam was on 3 March 2011 unanimously elected Overseas Bencher at a meeting of the Inner Temple’s Bench Table. This is the greatest honour that the Inn bestows on its overseas members who have attained distinction in legal and public life within their home jurisdictions.

During his visit to the UK, the Prime Minister will have a working session with Lord Phillips of Worth Matravers, President of the Supreme Court of the United Kingdom, and other eminent Justices on the reform of the Judiciary .

He will attend the signature ceremony of the agreement on the establishment and operation of the MIAC-LCIA Arbitration Centre in Mauritius. The agreement will be signed by the Mauritius International Arbitration Centre Ltd (MIAC) and the London Court of International Arbitration (LCIA) in the presence, amongst others, of Baroness Catherine Ashton, High Representative of the European Union and Vice-President of the European Commission; Mr Kamalesh Sharma, Secretary General of the Commonwealth of Nations; and the High Commissioner of Mauritius in London.

Issues relating to the Mauritius–EU cooperation, in particular the Eastern and Southern Africa–European Union Partnership Agreement, the Financial Perspectives for period 2014 – 2020 and Piracy will be the focus of discussions between the Prime Minister and Baroness Ashton.

Dr Ramgoolam will also meet Mr Kamalesh Sharma regarding the Commonwealth Heads of Government Meeting (CHOGM), in particular the case of Small Islands Developing States (SIDS) within the Commonwealth.

22 July 2011

SFO: Action on Macmillan Publishers Limited

The Director of the Serious Fraud Office (SFO) has taken action in the High Court, which has resulted in an Order for the company, Macmillan Publishers Limited (MPL), to pay in excess of £11 million in recognition of sums it received which were generated through unlawful conduct related to its Education Division in East and West Africa. The Order was made under Part 5 of the Proceeds of Crime Act 2002.

The initial enquiry commenced following a report from the World Bank. An attempt had been made by an agent to pay a sum of money with the view in mind of persuading the award of a World Bank funded tender to supply educational materials in Southern Sudan. The Company did not win the contract.

As a result of this report search warrants were executed by the City of London Police (CoLP) in December 2009. In March 2010 MPL reported the corporate case to the SFO. The SFO required MPL to follow a procedure based on the guidance contained within its published protocol document - the Serious Fraud Office's approach to dealing with overseas corruption.

The first stage of this process involved MPL, instructing external lawyers to conduct a review of the books and records of the company with a view to identifying areas of corruption risk. The costs of this exercise were met by MPL. That exercise was completed to the satisfaction of the SFO. The product of that work enabled the SFO, working co-operatively with the City of London Police and the World Bank Group, to identify the limited area within the business which potentially presented a bribery and corruption risk. This work also informed the basis on which, the SFO (again in co-operation with CoLP and the World Bank Group) selected the three jurisdictions (Rwanda, Uganda and Zambia) in relation to which it would require MPL's external lawyers to conduct detailed investigations. These jurisdictions fell within the business activities of the MPL's Education Division operating in East and West Africa. There were parallel investigations relating to these three jurisdictions conducted for the World Bank and the SFO. The SFO remit was broader in its scope in that it required investigation of all public tender contracts in the three jurisdictions over the period 2002-2009[1] whether funded by the World Bank or otherwise.

The investigations were thorough and completed to the satisfaction of the SFO. The costs of those investigations were met by MPL. The substantial product of those investigations was presented to the SFO and in a separate presentation to the World Bank Group.

The contracts under investigation related to the supply of educational material. The materials were supplied by publishers, often following the issuing of a public tender by the national government of a country. Such public tender processes were susceptible to improper relationships being formed and corruption taking place. It was impossible to be sure that the awards of tenders to the Company in the three jurisdictions were not accompanied by a corrupt relationship.

Accordingly it was plain that the Company may have received revenue that had been derived from unlawful conduct. Following an accounting examination and taking an aggressive approach to the revenue received in order to capture all potential unlawful conduct the SFO was in a position to determine the appropriate amount to be recovered. The value of the Order[2] made by the High Court is £11,263,852.28. MPL will also pay the SFO costs of pursuing the order which amount to £27,000.

A number of relevant features, which have informed the resolution of this enquiry include the following:

  1. MPL approached the SFO with a view to co-operation;
  2. MPL had fully co-operated with the SFO throughout the process and complied with an agreed timetable;
  3. MPL had fully complied with other authorities including the World Bank Group;
  4. The Company had, in response to learning of the allegations of bribery and corruption, reacted appropriately in firstly, reviewing its internal anti-bribery and corruption policies and procedures, appointing external consultants to recommend and help implement an internal appropriate anti-bribery and corruption compliance regime;
  5. As a result of the parallel World Bank Process the company has been debarred from participating in World Bank Funded tender business for a minimum period of three years. In addition, the Company has taken the decision to cease all live and prospective public tenders in its Education Division business, in East and West Africa regardless of the source of funds;
  6. The Company, as a result of withdrawing from the sector lost significant revenue including surrendered bid securities;
  7. The actual products supplied were of a good quality; and
  8. There was no material identified to support a conclusion that the products supplied were overpriced.

MPL will be subject to review by a monitor who will report to the Director of the SFO within twelve months and to the World Bank. The monitor must meet strict criteria including clear independence from the company.

Richard Alderman, the Director of the Serious Fraud Office stated: "I am pleased with this outcome. Civil recovery allows us to deal with certain cases of corporate wrong-doing effectively. It delivers value for money to the public by saving the cost of lengthy investigations and protracted legal proceedings and removes any property obtained as a result of the wrong-doing. At the same time it forces the company to reform its practices for the future."

[1] The relevance of the 2002 date reflects the clarification of the jurisdictional reach of the Prevention of Corruption Act 1906 following the implementation of the Anti Terrorism Crime and Security Act 2001 on the 14thFebruary 2002.

[2] The Order is made under section 276 of the Proceeds of Crime Act 2002

Public comments received on the discussion draft on the meaning of “beneficial owner” in the OECD Model Tax Convention

On 29 April 2011, the OECD Committee on Fiscal Affairs released for public comment a discussion draft on the meaning of “beneficial owner” in the OECD Model Tax Convention. The OECD has now published the comments received on this discussion draft, which can be downloaded by clicking on the links below. The OECD is grateful to the commentators for their input. Working Party 1 of the Committee on Fiscal Affairs will examine these comments at its September 2011 meeting.