23 December 2011

Vistra Symposium to promote Mauritius - London, 17th January 2012

Vistra is pleased to organize an educational afternoon in celebration of the imminent opening of our office in Mauritius. The seminar will take place on 17th January at 06:30pm at the Andaz Hotel, London.

We have been fortunate in attracting the following speakers holding short speeches about Vistra Group, its focus on Mauritius and the structuring opportunities to route India and Africa bound investments:

Honourable Xavier-Luc Duval, G.C.S.K, MP - Vice Prime Minister, Minister of Finance and Economic Development of Mauritius

Mr. Ken Poonoosamy - Managing Director of the Board of Investment, the National Investment Promotion Agency of Mauritius

Mr. Richard Arlove - Executive Director, Vistra Mauritius

Mr. Bart Deconinck, Executive Chairman of Vistra

The keynote speeches will be followed by New Year cocktails and canapés.

21 December 2011

SEC Adopts Net Worth Standard for Accredited Investors Under Dodd-Frank Act

The Securities and Exchange Commission has amended its rules to exclude the value of a person’s home from net worth calculations used to determine whether an individual may invest in certain unregistered securities offerings. The changes were made to conform the SEC’s definition of an “accredited investor” to the requirements of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act.

Under the amended rule, the value of an individual’s primary residence will not count as an asset when calculating net worth to determine “accredited investor” status. The amendments also clarify the treatment of borrowing secured by a primary residence for purposes of the net worth calculation. Under certain circumstances, they also permit individuals who qualified as accredited investors under the pre-Dodd-Frank Act definition of net worth to use that prior net worth standard for certain follow-on investments.

SEC rules permit certain private and limited offerings to be made without registration, and without requiring specified disclosures, if sales are made only to “accredited investors.” One way individuals may qualify as “accredited investors” is by having a net worth, alone or together with their spouse, of at least $1 million. The Dodd-Frank Act requires that the value of a person’s primary residence be excluded from the net worth calculation used to determine the person’s “accredited investor” status.

Under the amended net worth calculation, indebtedness secured by the person’s primary residence, up to the estimated fair market value of the primary residence, is not treated as a liability, unless the borrowing occurs in the 60 days preceding the purchase of securities in the exempt offering and is not in connection with the acquisition of the primary residence. In such cases, the debt secured by the primary residence must be treated as a liability in the net worth calculation. This is intended to prevent manipulation of the net worth standard, by eliminating the ability of individuals to artificially inflate net worth under the new definition by borrowing against home equity shortly before participating in an exempt securities offering. In addition, any indebtedness secured by a person’s primary residence in excess of the property’s estimated fair market value is treated as a liability under the new definition.

The amended net worth standard will take effect 60 days after publication in the Federal Register. Beginning in 2014, and every four years thereafter, the Dodd-Frank Act requires the Commission to review the “accredited investor” definition in its entirety and to engage in further rulemaking to the extent it deems appropriate.

SEC has now proposed or adopted more than three-quarters of the rules that the Dodd-Frank Act required the agency to write.

Additional Materials

Financial Sector Blueprint 2011 - 2020

Bank Negara Malaysia today released the new Financial Sector Blueprint. Themed "Strengthening Our Future", the Blueprint charts the future direction of the financial system over the next ten years.

As the country transitions towards a high value-added and high-income economy, the role of the financial sector is envisioned to grow beyond its role as an enabler of growth to be a key driver and catalyst of economic growth. Towards this end, the aim is for the financial sector to be more competitive, dynamic, inclusive, diversified and integrated, with the ability to offer world class financial services, in terms of breadth, depth and quality to serve the needs of Malaysia. The growth of the financial system should be ultimately anchored to the growth in the real sector. Based on the rate of growth of the economy projected for the next decade, the financial sector is envisaged to expand to six times of GDP in 2020 from 4.3 times of GDP currently. Meanwhile, the contribution of the financial services sector to nominal GDP is expected to grow from 8.6% of nominal GDP to between 10 and 12% by 2020.

Recognising the increasingly complex linkages, both between the various components of the financial system and the greater international connectivity and regional financial integration, the Blueprint moves away from the sector-based approach of the previous Financial Sector Masterplan (FSMP). The Blueprint adopts an integrated approach where recommendations are based on shared outcomes applicable to various sub-sectors within the financial sector. Beyond domestic borders, the Blueprint envisions greater participation by the Malaysian financial sector in facilitating regional financial flows, especially in supporting regional trade and investment, regional financial integration, as well as the internationalisation of Islamic finance. The formulation of the Blueprint also draws important lessons from the recent global financial crisis where financial stability is an important prerequisite in ensuring orderly and sustainable development of the financial sector and the economy as a whole.

There are nine focus areas under the Blueprint to further advance financial sector development to drive Malaysia's transition to a high value-added, high-income economy with adequate safeguards to preserve financial stability:

  • Effective intermediation for a high value-added and high-income economy - This entails the mobilisation of diverse savings to productive investments in Malaysia and to meet the needs of both businesses and households. A vibrant risk-capital ecosystem to support innovation-driven economic activities and start-up ventures will be developed. The initiatives will also include enhancing the provision of large and long-term project financing for infrastructure development. As Malaysia deepens its trade and investment linkages, the financial sector is envisaged to have a larger role in supporting the internationalisation of Malaysian businesses. To cater to Malaysia's growing affluent segment and maturing population, emphasis will be placed on enhancing the provision of financial services for wealth management, retirement and long-term healthcare. The development of a vibrant private pension industry is also expected to enhance the role of pension funds as a key source of funding for the longer-term and risk-based financing needs of the economy.

  • Developing deep and dynamic financial markets - Efforts will be directed towards improving the liquidity, depth and participation in the money, foreign exchange and government securities markets in Malaysia, in enabling more effective intermediation, transfer of risks and management of liquidity, and meeting the diverse needs of a more developed and internationally integrated economy. The foreign exchange administration rules will be progressively liberalised to further raise efficiency in financial market transactions. The development of vibrant domestic foreign exchange and money markets, and ensuring sound risk management and corporate governance practices by financial market players, will be an important agenda in the development of our financial system.

  • Financial inclusion for greater shared prosperity - The aim is to enable all members of society, including the underserved, to have access to and usage of quality, affordable and essential financial services. Initiatives will focus on developing more innovative delivery channels such as agent banking to enhance the outreach of financial services in a cost-efficient manner and expansion of the range of products and services such as more flexible micro financing products, long-term contractual micro saving products, and microinsurance and microtakaful products to cater to distinct financial needs of all segments of society.

  • Strengthening regional and international financial integration - As the Malaysian financial sector assumes a larger role in mobilising regional and cross-border funds and supporting the needs of both Malaysian corporations expanding abroad and corporations that invest in Malaysia, efforts to strengthen Malaysia's international financial linkages will be pursued. Moving forward, Malaysia's investment policy will be guided by two key considerations - (i) prudential criteria and (ii) the best interest of Malaysia criteria, which includes the effect of the investment on Malaysia's economic activity, particularly in catalysing new high value-added activities, contribution towards enhancing international trade and investment linkages and impact on financial stability, including the level of competition. A further consideration in assessing the best interest of Malaysia is the continued presence of strong and well-managed domestic banking groups that continue to mobilise a significant share of resident deposits, as this is important for the orderly growth and development of the financial sector.

  • Internationalisation of Islamic finance - While Malaysia has made significant inroads in becoming an international Islamic financial centre, efforts will continue to be undertaken to enhance the Islamic financial ecosystem. This will entail developing a more conducive environment for the mobilisation of higher volumes of international Islamic financial flows from a diverse range of players to be channelled through innovative Islamic financial instruments. In strengthening the legal and Shariah frameworks and further advancing Malaysia's thought leadership in Islamic finance, a single legislated body to be the apex authority on Shariah matters in Islamic finance will be established.

  • Regulatory and supervisory regime to safeguard the stability of the financial system - A comprehensive legislative framework will be enacted to reinforce a sound, transparent and accountable system for effective regulation and supervision. Focus will also be accorded towards enhancing capital and liquidity standards of financial institutions in line with international standards as well as raising their governance and risk management standards. As the financial sector grows to be more regionally-and internationally-connected, greater cross-border collaboration will be pursued with other supervisory authorities.

  • Electronic payments for greater economic efficiency - Accelerating the migration to electronic payments (e-payments) will be emphasized. In the next ten years, the Bank targets to increase the number of e-payment transactions per capita from 44 transactions to 200 transactions, and reduce cheques by more than half from 207 million to 100 million per year. Measures to achieve this aim will include providing the right price signals to encourage the switch from paper-based payments to e-payments, and facilitating wider outreach of e-payments infrastructure, such as point-of-sale terminals and mobile phone banking.

  • Empowering consumers - A comprehensive and holistic approach towards consumer protection and education will be pursued in collaboration with various stakeholders. The aim is to promote a culture of mutual responsibility shared between consumers, who are empowered with the knowledge, skills and financial literacy to manage their personal wealth, and financial service providers, who uphold fair and responsible dealings in the conduct of their business. The infrastructure to support greater consumer empowerment will be strengthened through establishing a single consumer credit legislation, integrated dispute resolution system and an enhanced credit information framework. Measures to promote financial capability among consumers through the integration of financial curriculum at schools and targeted financial literacy programmes based on life events will be pursued.

  • Talent development to support a more dynamic financial sector - A Financial Services Talent Council will be established to drive, oversee and coordinate talent development efforts in the financial sector. Other initiatives include developing talent for entry level, promoting continuous learning for the existing workforce, and attracting talent from abroad. Ensuring an adequate supply of skilled talent to meet the challenges in the new financial landscape will require greater collaboration and coordination among various agencies beyond the financial sector.

The strategies and recommendations of the Blueprint will build on the strong foundation of the Malaysian financial system. Malaysian financial institutions today are well capitalised with strong buffers, improved risk management and corporate governance practices, and greater regional presence. The financial infrastructure in Malaysia has also been significantly strengthened, including the development of a deep and vibrant bond market, robust payment and settlement systems, and an effective financial safety net. This has been supported by a comprehensive and robust regulatory and supervisory framework and effective surveillance that is forward looking and focused on addressing the risks to overall financial stability. In addition, Malaysia has a comprehensive Islamic financial system that is recognised as among the most advanced in the world.

The Blueprint charts a vision and direction for the Malaysian financial sector for the next ten years that will support Malaysia's long-term ambitions. To ensure the achievement of the desired outcomes, a robust implementation and monitoring framework will be put in place, including update on the progress of the implementation of the Blueprint.

20 December 2011

Rezidor announces Hotel Missoni Mauritius

Hotel Missoni, the luxury lifestyle brand of the Rezidor Hotel Group, reaches one of the most fashionable islands in the world: Mauritius, the shooting star of the Indian Ocean, and the 66th country where Rezidor is present. Overlooking the village of Baie du Cap, Hotel Missoni Mauritius will boast 80 luxury suites with unobstructed views of the ocean and the islands unrivalled beaches. It is scheduled to welcome the first guests in 2014.

“Combining Missoni’s iconic design with the local culture influenced by Europe, Africa and Asia, the hotel will be truly unique in Mauritius”, said Kurt Ritter, President & CEO of Rezidor.

“Having been passionate about Mauritius, an island of beauty and charm, its colourful culture and its wonderful population for over 30 years now, I am delighted to partner with Rezidor to bring a new kind of luxury hotel in Mauritius under the prestigious Missoni brand, which will surely be a great success and a new flagship premium quality hotel of the tourism industry in Mauritius”, added Gilles Bouigue, Executive Chairman of Bouigue Développement, owner of the property.

Mauritius is an exclusive and exotic year round destination featuring beautiful palm-fringed beaches and dramatic volcanic landscapes. Each suite of the new hotel will feature Missoni’s signature patterns and fabrics, and will have a large covered outdoor living area, known in Mauritius as a “Varangue”.

Food & beverage outlets will include Hotel Missoni’s signature restaurant “Cucina” with an authentic seasonal Italian menu; “Choco Café”, an intensely flavoured sip of classic Italian café society; a further all day dining restaurant, a lounge bar and a beach/pool bar. Leisure facilities will comprise direct access to a 650 meter sandy beach, outdoor pools, a fitness area including gym and tennis court, a kids club and a 900 square meter spa. Sunbathing, water sports, deep sea fishing, hiking, cycling and golf are just some of the leisure options available in the vicinity. Business travellers will benefit from 235 square metres of dividable meeting space with the latest AV technology.

Hotel Missoni Mauritius is located just 40 minutes from Sir Seewoosagur Ramgoolam International Airport and 50 minutes from the islands capital Port Louis.

Mauritius was an important sugar producer until the 1980s when tourism developed as a major economic sector, followed by textile and garment manufacturing and by an expanding service sector with off shore banking, free trade activities, IT and outsourcing. The number of tourist arrivals reached 935,000 visitors in 2010 – the government plans to further increase arrivals (a new airport terminal is currently under construction, and new airlines and routes are under negotiation) and to focus on high quality tourism products such as 4- and 5-star hotels.

19 December 2011

The Banker: Finance Minister of the Year 2012, Africa

EIB Provides a Line of Credit to Mauritius Leasing for SME Financing

The European Investment Bank, the European Union’s long-term lending institution has agreed to provide EUR 5 million to support small and medium sized companies in Mauritius. This funding will be given to The Mauritius Leasing Company Limited to provide leasing facilities for small and medium sized companies in the country.

The loan agreements were signed today at the Labourdonnais Waterfront Hotel by European Investment Bank Vice President Plutarchos Sakellaris and the CEO of Mauritius Leasing, Ashraf Esmael. Representatives of the European Union Delegation in Mauritius, the First Deputy Governor of the Bank of Mauritius, Mr Yandraduth Googoolye, and other high ranking officials and members of the private sector were also present.

“The European Investment Bank recognises the essential significant contribution of small and medium sized companies to the country's economy. Private Sector growth in Mauritius and elsewhere across the Indian Ocean will benefit from the Mauritius Leasing Company’s long experience in financing small business in Mauritius since 1987” said European Investment Bank Vice President Plutarchos Sakellaris.

“We are delighted and honoured to be the only leasing company in Mauritius to benefit from a line of credit from the European Investment Bank. Mauritius Leasing has played a significant role in Mauritius over the last 25 years, and has been a strategic partner to both large and mid-sized companies, as well as SME’s. This line of credit from the European Investment Bank will enable us to fulfil the medium term asset finance needs of our clients, particularly in the manufacturing, construction, agro industry and export-oriented sectors, in line with the country’s development strategy.” said Mauritius Leasing’s CEO, Ashraf Esmael.

Funding from the European Investment Bank, the European Union’s long-term lending institution, reflects the commitment to supporting both the private sector and financial services in Mauritius and is fully in line with goals of the European Community Country Strategy for Mauritius. Encouraging development of small and medium sized businesses is crucial for improving the competitiveness of the Mauritian economy and overall economic growth through job creation.

The European Investment Bank has been active in Mauritius since 1975 and provided more than EUR 301 million for 38 projects in the country. In Mauritius the European Investment Bank has financed investment in tourism, transport, telecommunications, food, water, energy and textiles, as well as helping the sugar industry and small businesses.

17 December 2011

Offshore Pilot Quarterly (December 2011, Volume 14 Number 4)

Invisible Men

One of life’s little quirks occurred recently at a local business conference at which delegates heard from the Organisation for Economic Co-operation and Development’s head of the organisation’s Global Forum secretariat which, inter alia, is concerned with transparency. As readers know, in the United States of America the Delaware Limited Liability Company has received a lot of flak from the Offshore Pilot Quarterly in the past (as recently as the September issue) because it is a blatant example of the pot calling the kettle black (let me add, other US states offer the same anonymity, but Delaware is the most famous for it in terms of which LLC owners can choose to be invisible men, the ultimate form of anonymity). The US government condones this and these LLCs have featured in tax evasion and money laundering investigations over the years; this newsletter has previously detailed some of them, while the US continues its blitz against several international financial centres, purveyors – it claims – of unwarranted privacy. Why has this situation still not been remedied?

At the end of his presentation the Global Forum head, having detailed the dangers caused by secrecy in international commercial activities, was asked by a delegate to reconcile his concerns with those posed by US LLCs. The question was greeted with applause when suddenly the lights failed and his microphone went dead; was there a cohort from the OECD strategically placed somewhere? No, within seconds both malfunctions were corrected; not that this made any difference because silence would have improved the explanation given and we were still all in the dark. It seems to me that it is more a matter of clout rather than confidentiality.

Meanwhile, the Financial Action Task Force, an inter-governmental body, concluded its October Plenary meeting by highlighting countries that “need to establish and implement an adequate legal framework for identifying, tracing and freezing terrorist assets”. Recalcitrant governments include Cambodia, Mongolia, Sudan, Yemen and Zimbabwe. But why go into the shadows? Have your middle man contact, say, Delaware for an impenetrable LLC that rivals anything on offer anywhere.

Speaking of things impenetrable, Jersey in the Channel Islands with its close links to the City of London, and very much a stepping stone between the rest of Europe and the United Kingdom, is said to have some offshore trusts with a blanket of secrecy that rivals US LLCs. Its trust business has been buttressed by a thriving trust company industry and like many IFCs, Jersey has a privacy-inclined government (PIG) that supports the right to it, unless valid circumstances dictate otherwise. This minuscule IFC in the Channel Islands has also successfully developed banking services and so perhaps Chanel, rather than Channel, Islands is more appropriate when one considers the amount of wealth managed from there; doubtless perfidy and not perfume is the word which comes to mind at OECD gatherings.

One can only imagine the degree of concern the OECD must have over trust companies, wherever they are located, when it is already exasperated over the ownership (as it puts it) of offshore trusts. Much of the frustration is driven by ignorance on the part of those bureaucrats charged with the task of bringing transparency to these trusts. So for the benefit of my readers, and although I have written on the subject before, I will try to be as transparent as I can about just what a traditional British offshore trust company is, having had a close working relationship with them for more than forty years.

Bankers and Blizzards

Tim Rice and Andrew Lloyd Webber have written very successful musicals over the years, such as Evita, and in 2010 they collaborated on a Wizard of Oz musical. Once, over dinner, Tim Rice told me that he understood that I was “some kind of financial wizard” and I was quick to dispel that notion for him. But there’s no denying the fact that, unlike bankers, trustees (and by extension trust companies) are more of a mystery than musicals and that this mystique can fire the imagination, either positively or negatively. Everyone understands what banking means (although one wonders today if bankers themselves do, after its natural boundaries have been lost in a blinding financial blizzard of complexity) whereas the role of trustee is a function that is unlike any other. It is why the observation has been made that “there is a vast deal of magic in words and the word most highly charged with magic [a phrase used by Walter Bagehot to describe the mystery (once) of England’s royalty] to be found in the world is “trustee”.” So let me shine some of Mr. Bagehot’s light on trust companies and their trustee function.

Trustees need enough common sense and business acumen for a role which involves financial and family affairs, calling for careful management of both assets and relationships with families and others. The trust is an ancient tool which has been continually adapted to changing times and its application in financial structures is, like its potential benefits, manifold. But it is also a tool that never changes shape, unlike car models do, although attempts are being continually made to do just that. Often its activities are necessarily secretive, but when these take place offshore this can add intrigue to the mix. Be that as it may, the central business today of these offshore trust companies is to provide a range of services centred around the management of not only trusts but companies and foundations too, so the activities become less defined than other offshore activities such as insurance, for example.

On a point of criticism that the OECD should heed, many IFCs appoint the same regulator to supervise both banks and trust companies and whilst the distinction between insurance policyholders and bank depositors is clear, the difference between a bank’s obligations to customers and those of a trustee to beneficiaries is not. This doesn’t stop the OECD, as I have said, from seeing trusts as having owners, like deposits in a bank do; this has produced a stumbling block in reconciling trusts with transparency. Nor is clarity advanced by the fact that, traditionally, some insurance companies and banks include trust administration as part of their services and yet many of them do not possess the necessary skills.

Banks and trust companies both manage assets, but the fundamental difference between them is revealed in their respective balance sheets. A trust company isolates its trust assets from its balance sheet but a bank’s audited accounts incorporate customers’ deposits and loans because these have an intrinsic link with a bank’s financial health; this is unfortunate because, as we know, many banks today are in the medical equivalent of intensive care. Fortunately, if a bank does happen to engage in trust work, the auditors record such business as being off-balance sheet activity in recognition and confirmation of the difference between bank depositors and trust beneficiaries.

It follows from this that there is much to think about before and after one becomes involved in the business of professional trust management and which reminds me of what Alexander Pope observed: “A little learning is a dangerous thing, drink deep, or taste not the Pierian Spring”. Those wishing to administer trusts as a profession need to acquire a real thirst for the work – and slake it generously. Unfortunately, some bankers wore blinkers when they jumped on the offshore trust bandwagon that started pitching trusts to its customers several decades ago and many have since paid dearly for the folly of placing more emphasis on profit than precaution; as we can see, however, this policy has extended to their banking business as well and for which a very high price will be paid.

They accepted nominations as trustee without having qualified and experienced staff and stepped into a legal minefield which produced even more opportunities for some lawyers to exploit. Numerous lawsuits were filed and countless out-of-court settlements were reached; a sharp lesson was taught about the difference between contractual obligations to specified parties and those which fell under the rules of equity, when there were claims against the trustee which came from beneficiaries previously only names in a trust deed. The shareholders of these banks soon understood, however, that although trust assets have no direct impact on the balance sheet, costly legal expenses emanating from them do.

A Loaded Gun

We are now in an era where regulation of all financial services is sure to increase but governments must fully understand the distinctiveness of trust work. Sadly, like the OECD with trusts and transparency, many just don’t get it. As a result, unnecessary bureaucratic body blows can reign down on professional trustees while, irrationally, because trust work will be undertaken by a bank or large insurance corporation, regulators are disposed towards a short-circuit approach of the initial licensing process. Haven’t we already seen sufficient evidence in banking to know where such ignorance can lead us? The same attention paid to a bank’s capital should be given to the level of expertise in trustee law, accounting and administration that it offers. Human capital, therefore, replaces any normal capital adequacy rules and equally, of course, just because a trust company’s balance sheet is impressive, it can still mask poor trust fund management. It follows, therefore, that a trust company’s real strength lies in the reservoir of skills at its disposal; this is, of course, a truism for all businesses.

In my mind’s eye every offshore trust company must have a few staff with a minimum of 10 years international experience at a senior level, backed by a professional trust-related qualification; and I would want the shareholders to also display a clear understanding and appreciation of the trust business, with all its demands and risks. The motives of both the shareholders and management should never stray from the three certainties of a trust rule that the nineteenth-century British law reformer Lord Langdale established, by only placing a priority on the certainty of a client’s willingness to pay. The use of offshore trusts (and, increasingly, foundations) has become very popular and like transatlantic travel, they are packaged and promoted internationally. I have even seen advertisements in leading international financial magazines offering offshore trust companies for sale that are “legal, legitimate and affordable”. That tag can apply equally to firearms which, like trust companies, are potentially hazardous in the wrong hands. Amateurs managing trusts can be like children with matches in a fireworks factory, unable to perceive the ever-present dangers. Concealed defects in a trust or foundation deed can have a long incubation period and might not become apparent for some years, by which time the problems may well have been compounded.

Pigs and Perception

Regrettably, the degree of competence, prudence and integrity present only becomes apparent once the client agreement has been signed. What’s more, the degree of safety or skill you can expect to find has no bearing on a trust company’s size: big can be either beautiful or bad and so the value of a referral from a trusted source cannot be emphasised enough. These last few years, however, have displayed the remarkable resilience of small, specialised businesses - not just those dedicated to trust work – many of which are not only small by design but built on expertise. Shareholders in public companies usually don’t know what management is up to (how many disastrous examples has the Great Recession provided?) which is rarely the situation with small, focused businesses when the shareholders, more often than not, are also the managers.

More dangerous, however, than the enthusiastic amateurs are the finless sharks that swim in offshore waters. One of them indirectly turned a short consultancy 15 years ago for me into a salvage operation which led to my permanent move to Panama. One must appreciate that modern advances allow such unscrupulous individuals and companies to operate a large part of their business over the internet. The trouble is that this electronic version of a shop’s front window can be just that and nothing more: a front. Considerable amounts can be spent on a very impressive website but which is only like a set for a Western: facades propped-up by supports. These people have scant regard for the best interests of their victims and whether their company has an issued capital of $2 or $2 million, by skilful presentation they confirm what the seventeenth-century Irish philosopher Bishop George Berkeley, who influenced both David Hume and Immanuel Kant, said: esse este percipi (perception turns into reality).

A fine example of the Bishop’s assertion must be Delaware (besides Wyoming and the other US LLC states) where commercial transparency is taken as a given by most people (let’s call them God’s creatures for the reason which follows) and yet it bears the characteristics of a PIG, such as Jersey in the Channel Islands; this may not be the perception but, conversely, it is the reality. On this point, has, I wonder, anyone ever asked the OECD to distinguish the risk levels between, on the one hand, the invisible-man ownership of Delaware LLCs and, on the other, bearer shares issued in an IFC? I suspect that neither sunlight nor being within earshot would help with the answer but as we know from George Orwell’s Animal Farm, a satire of equal unequals steeped in double standards, the end result seems to be much as it was for Orwell’s pigs and humans: “The creatures outside looked from pig to man, and from man to pig, and from pig to man again; but already it was impossible to say which was which”. In other words, privacy for some, persecution for others, only in this case an acronym is substituted for an animal.

The Romans and my form master at school were right: errare humanum est, perserverare diabolicum: to err is human, to persist in erring is diabolical.

Offshore Pilot Quarterly has been published since 1997 by Trust Services, S. A. and is written by Derek Sambrook

15 December 2011

GFSC: New Fee Regulations for 2012

The following Regulations are now available to view and will become operational with effect 01 January 2012:

14 December 2011

KPMG - IFRS for investment funds: Segment reporting

This publication addresses practical application issues that investment funds may encounter when applying IFRS 8 Segment Reporting.

07 December 2011

Asia is driving global growth in offshore industry, according to OIL study

Hong Kong and Singapore, so-called midshore centres, seeing benefit of increased global regulatory scrutiny

Growth in Asia, in particular increasing capital raising and rising individual wealth, is driving growth in the offshore industry globally, but also creating opportunities for ‘midshore’ centres such as Hong Kong and Singapore, according to a study of the industry by Offshore Incorporations Limited (OIL), a leading global company formation specialist based in Asia.

OIL’s annual study looks at the current environment for the offshore industry around the globe, what is influencing it, what has changed since last year, and what trends are expected over the coming years.

Martin Crawford, CEO of OIL, gave an overview of the findings, “There has been a significant shift in the environment for the offshore industry, even over the last 12 months. We have seen four key themes coming out from our research. Firstly, growth of the industry globally is clearly being driven by the growth in Asia, which has weathered the global financial crisis better than other regions. An equally interesting trend, however, is that, because of increased regulatory scrutiny worldwide, midshore centres such as Hong Kong and Singapore are seeing more business. Saying that, it is also clear from the research that, whilst the regulatory demands of the OECD have been a key area of focus for traditional offshore jurisdictions, in reality they have not necessarily adversely affected growth. And lastly, we can see that the sophistication of clients has increased and therefore service providers like ourselves need to respond to that with strong technical knowledge, tailored advice and a global network.”

OIL surveyed 92 participants consisting of consultants, lawyers, banks, accountants, regulators and industry associations from 22 jurisdictions, comprising Anguilla, Bahamas, Bermuda, British Virgin Islands, Cayman Islands, Cook Islands, Cyprus, Delaware, Guernsey, Hong Kong, Ireland, Isle of Man, Jersey, Labuan, Luxembourg, Malta, Mauritius, Netherlands, New Zealand, Samoa, Seychelles and Singapore.

Asia is and will continue to be the biggest driver of new growth in the offshore industry

Participants in the global survey rated Asia as the top region for client origination both in 2010 and 2011 and predicted it to continue being the largest for the next 5-10 years. The reasons were five-fold: Hong Kong leads the world in capital raising; M&A activity, both corporate and private, continues to be strong across the region; the growth in High Net Worth Individuals, with Asia surpassing Europe this year as the second largest region globally; the growth of the wealth management industry, in particular in Singapore, to serve this increase in personal wealth; and the growing awareness in China of the use of offshore companies for trading purposes.

Interestingly, the ratings for Latin America, the Middle East, Australia and New Zealand also went up in terms of importance for client origination, although not as much as Asia, with Europe being the only loser.

Crawford noted, “In terms of the drivers for offshore structures for Asians, currently we estimate only around 5% is led by the need for asset protection, whereas we believe this will increase to at least 10% by 2020.”

Have OECD demands stunted the industry?

Over the past three years, the Organisation for Economic Cooperation and Development (OECD) has been attempting to impose uniform transparency requirements on offshore jurisdictions. To qualify for the OECD’s “white list” of jurisdictions that have shown a willingness to meet these requirements, 12 tax information exchange agreements (TIEA) have to be signed with other nations.

“This has naturally caused a huge amount of activity amongst offshore centres in attempting to comply,” comments Jonathan Clifton, Executive Director of OIL. “Since the start of 2009 to now, 448 TIEAs have been signed and 88 countries are now on the OECD’s white list, versus 4 on the grey list and none on the black. The offshore industry has taken these requirements very seriously. However, very interestingly our survey shows that despite this, any slowdown in business has been driven by economic conditions rather than regulatory, and that in most jurisdictions, business has picked up. In fact, more than half of companies incorporated in the BVI originated out of Asia, which has powered through the global financial crisis, and we anticipate that business there will exceed pre-crisis levels this year.”

Hong Kong and Singapore – the rise of the mid-shores

One of the starkest trends to arise from the study is the growth in demand for structures which combine off-and onshore elements, which was beginning last year but has accelerated faster than expected, with 73% agreeing that it is due to stringent regulations and greater scrutiny of offshore structures. 80% of respondents said that clients are preferring combination structures and favour some tax to no tax solutions. Countries which have set up Double Tax Treaties (DTT) with a wide range of countries are increasingly attractive. In 2011, 77% of respondents said DTTs were more important, versus 15% who opted for zero-tax structures, in contrast to last year where the split was 53% versus 32% respectively.

Clifton noted, “Markets such as Hong Kong and Singapore, which are viewed as midshore
centres are the clear beneficiaries of this trend, in particular for trading and holding purposes, because they can offer low tax but also established and high-performing onshore financial sectors, strong legal systems, high levels of service, relatively painless bureaucracy, and extensive trade links.

“Saying that, it is not a zero-sum game. Business that Hong Kong and Singapore are gaining is not coming out of the pockets of the traditional jurisdictions, the pie is just getting bigger because clients are wanting combinations of the two.”

The debate continues, however, on whether traditional European jurisdictions, such as the Channel Islands, are losing their competitive edge, because of increased regulatory oversight, with 53% agreeing, 30% denying it and the remainder not sure. Whilst the naysayers claim that sustainable structures will thrive under better regulation, allowing traditional jurisdictions to consolidate their positions, the majority believe that higher operating costs increased disclosure requirements and client concerns about loss of privacy will diminish their competitiveness.

“It’s all going to be about playing to one’s strengths,” continued Clifton. “Just as Hong Kong and Singapore are leveraging their roles as the onshore component of financial structures, so other jurisdictions must identify and promote their unique selling points.”

BVI still ranks first in the study for asset protection and estate planning, individual tax planning and special purpose vehicles, while Cayman shared top spot with Luxembourg for fund management. Hong Kong was voted top for both investment holding and trading for corporates. Additional research has shown that Cayman and Bermuda account for the lion’s share of listing vehicles on the Hong Kong Stock Exchange, although Cayman dominates by far the latest 100 listings on the HKEx, and Hong Kong incorporated companies dominate the top 50 by market capitalization.

Service providers for the offshore industry need to adapt

A resounding 86% of respondents agreed that clients were becoming more sophisticated in their understanding of what solutions are available and desirable, driven by a younger generation having access to a wider range of materials and information, in particular through the internet and other media.

Crawford commented, “To adapt to the evolution of the offshore industry and increasing demands of clients, OIL has been moving towards more customized solutions, investing in infrastructure to support larger scale operations and recruiting and training professionals who stay abreast of policy developments and apply them to individual clients’ situations.”

The debate over whether consolidation in the service provider sector would be a positive for the industry as it develops and adapts has swayed squarely in favour.

60% of respondents agree, citing economies of scale delivering increased efficiency and better pricing and broader geographical footprint facilitating the delivery of bespoke products, as well as an ability to lobby regulators as a larger organisation.

Crawford concluded, “The offshore industry has not seen so much attention and change for a long time as it has seen over the past few years. As a Hong Kong company, with a global network, which has seen 25 years of development in offshore services, we are heartened by the trends we are seeing and excited for Hong Kong at the opportunities it faces.”

OIL: Offshore 2020

In our business – the formation and ongoing management of offshore companies for cross-border investment and trade – the market had been robust for many years.

As the global leading company formation specialist, we want to bring a broad perspective to the developments and the longer term key trends that we face as an industry and understand how the offshore industry is likely to evolve in the coming decade. This desire to examine the bigger picture was the main impulse behind our "Offshore 2020” annual market research study.

The inaugural “Offshore 2020” was launched in 2010 with great success. We publish the research findings and share the insights with our clients. You can get a copy of our 1st annual “Offshore 2020” report here

Our 2nd annual report in 2011 examines the big issues, challenges and opportunities facing the industry, and the development of the ‘mid-shore’ market and the competition between Singapore and Hong Kong as regional financial centres in Asia. Nearly 100 industry stakeholders including partners from leading CPA and Law Firms, Private Bankers, Regulators & Academics were interviewed. There are some very interesting insights from this year’s research, drawing on a wider group of respondents including those based Europe. The international contributors have given more richness and broader context to the report. A roundtable was held in Hong Kong and Singapore to share the market research findings with our top clients. Representatives from the BVI, Cayman Islands and Anguilla participated in the panel discussion.

Get a copy of our 2nd annual “Offshore 2020” report here

06 December 2011

Citco Fund Services Receives SOC 1 Type 2 Certification (formerly SAS 70) for 2011 for 8th consecutive year


Citco Fund Services (“CFS”) is pleased to announce that it has successfully completed the eighth consecutive examination of fund accounting and investor relations processes and controls for the annual period ended September 30, 2011 that was performed by an independent auditing firm.

The 2011 Service Organization Controls Report #1 or SOC 1 Reports (formerly SAS 70 Type 2 Reports) have been prepared in accordance with the guidelines contained in the United States Statement on Standards for Attestation Engagements (“SSAE”) No. 16 and International Standard On Assurance Engagements (“ISAE”) 3402 and its related amendments and interpretations.

The scope of the report covers all CFS operations that provide fund administration services to our clients from our offices worldwide.

The independent examination consisted of an evaluation of the design and operating effectiveness of the CFS controls related to month end net asset value (“NAV”) processes, investor relations processes and information technology. From a fund accounting and investor relations perspective, CFS controls included in the examination support trade processing, price verification, reconciliations of cash and positions, NAV production and investor services. From an information technology perspective, the examination included controls related to logical and physical security, change management and job scheduling.

The annual performance of the SOC 1 examination demonstrates our commitment to quality, confidentiality and maintaining a high level of internal control.

UK - Tax Transparent Fund


Who is likely to be affected?

Investors in the new tax transparent fund (TTF) pooled investment vehicle are expected to be UK authorised unit trusts, Open Ended Investment Companies (OEICs), pension funds and insurance companies and similar European investors.

General description of the measure

The measure will facilitate the appropriate tax treatment of the new regulated asset pooling vehicle, the TTF, covering capital gains and stamp taxes on shares. The new regulated vehicle is expected to be in place by summer 2012.

Policy objective

The policy objective is to ensure that the UK can compete as a fund domicile for tax transparent funds. The proposed tax measures are designed to remove any tax obstacles to achieving that objective for TTFs, which are being introduced to facilitate the setting up of UK pooled "master fund" investment vehicles under the Undertakings for Collective Investment in Transferable Securities (UCITS) IV Directive (2009/65/EC of the European Parliament and of The Council).

Background to the measure

The Government announced at Budget 2011 the introduction of a new TTF vehicle to be in place in the summer of 2012. It was then announced in May 2011 that, as most of the legislation required was regulatory and not tax, this would be taken forward as a regulatory consultation. A regulatory consultation document will be published before the end of 2011 or in early 2012. The tax measures in the Finance Bill will provide the necessary powers to provide appropriate tax treatment for investors in TTFs in line with the policy objective.

Detailed proposal

Operative date

The measure will have effect from Royal Assent to Finance Bill 2012.

Current law

The TTF regulated vehicle is not yet in place so no specific provisions exist for these vehicles.

Proposed revisions

Legislation will be introduced in Finance Bill 2012 which takes a power to make regulations about the tax treatment of participants in collective investment schemes for the purposes of tax on capital gains.

Specific anticipated uses of the power will be to:
  • provide that, for the purposes of tax on chargeable gains, assets held by investors as part of certain tax transparent collective investment schemes will not be chargeable assets and that, instead, the investor’s interest in the scheme will be treated as if it were a chargeable asset;
  • provide that, for such chargeable assets, section 212 of the Taxation of Chargeable Gains Act 1992 (TCGA) will apply to interests within the long term fund of an insurance company;
  • provide a relief for insurance companies which transfer assets to such transparent schemes to ensure that no chargeable gain arises at the point of transfer, together with a provision to prevent abuse of that relief; and,
  • enable the provisions in TCGA to be adapted for use at the merger and reconstruction of new and existing types of collective investment scheme so that the provisions will work when applied to interests in tax-transparent schemes and be simplified in application to existing schemes.
For stamp duty and stamp duty reserve tax, it is proposed to take a power to give relief or exemption for transactions relating to collective investment schemes in the context of TTFs.

Specific anticipated uses of this power will be to provide relief:
  • where the TTF acquires securities in exchange for issuing units in itself;
  • where the TTF only has charitable investors; and,
  • in certain other circumstances to be determined following the consultation exercise.
No change will be made to Schedule 19 to the Finance Act 1999 as TTFs will be outside the charge to SDRT under that Schedule.

On corporation tax, it is intended that the regulatory legislation to be consulted upon shortly will add the new TTF funds to the exclusions from charge in section 1121 of Corporation Tax Act 2010, to the extent necessary to put beyond doubt that the fund, which will not be a legal entity, is not chargeable to UK corporation tax.


Draft regulations

The Collective Investment Schemes (Tax Transparent Funds, Exchanges, Mergers and Schemes of Reconstruction) Regulations 2012 (PDF 113K) 

The Stamp Duty and Stamp Duty Reserve Tax (Collective Investment Schemes) (Exemptions) Regulations 2012 (PDF 33K)

The Value Added Tax (Finance) Order 2012 (PDF 23K)

Vistra launches App for iPhone, iPad and BlackBerry

The new Vistra App for Apple and BlackBerry devices is now available to download. Giving streamlined access to local offices and key personal contacts, our news feed and details of our services, the App is designed to enhance clients' and business partners' experience of working with Vistra.

The Vistra App gives quick and easy access to your professional contacts in each of our global offices, wherever you are in the world. Icons allow for one-click to directly phone or email contacts or add the information to your address book on your device. Users can select by office, service or name to search for and locate their Vistra contact and then view their email, bio and LinkedIn profiles.

With access to the latest news from Vistra, this App will also ensure you stay up-to-date with news and contact information for the Vistra group, whilst the locations function will allow you to save office details and contact information when travelling.

Browse our services menu and select a solution to see which local office offers that service for quick and easy access to the right professional support. You can select either by office or service to quickly locate the relevant contact for your needs. If you already know the contact you can also search by name.

As well as our new App, we have also launched a new mobile website - m.vistra.com - for use on mobile browsers.

05 December 2011

Mauritius: IOC-UNCTAD Expert Group Meeting focuses on vulnerabilities of SIDS

A two-day expert group meeting on the theme ‘Addressing the vulnerabilities of Small Island Developing States (SIDS) more effectively’ opened this morning at La Pirogue Hotel in Flic en Flac. A joint initiative of the Indian Ocean Commission (IOC) and the United Nations Conference on Trade and Development (UNCTAD), the meeting is bringing together some 50 participants.

The expert group meeting is providing an opportunity for the IOC and the UNCTAD to enrich the international debate on possible steps and measures, within and outside the United Nations (UN) system, to support the resilience-building efforts of SIDS more effectively. A set of recommendations of interest to relevant intergovernmental bodies and development partners is expected to result from the meeting. These recommendations will be brought to the attention of the Preparatory Committee for UNCTAD XIII (April 2012) towards enhanced UNCTAD action in support of international efforts to address the vulnerabilities of SIDS.

In his opening address, the Minister of Foreign Affairs, Regional Integration and International Trade, Dr Arvin Boolell, said that SIDS are being greatly affected with the advent of several mutations and challenges globally. According to him, efforts have to be intensified so that a specific treatment is given to SIDS. Mauritius, said Dr Boolell, supports the official recognition of the SIDS status within the UN as a category in its own right with particular needs. This much awaited recognition is all the more necessary given the current global climate punctuated by successive economic and financial crises exacerbating the vulnerabilities of SIDS, added the Minister.

‘As small islands far from the incessant interaction taking place on continents, we rely less on our own natural resources and we import ecological notions and tools which we can ourselves create’, noted Dr Boolell. It is therefore necessary to evaluate the advantages, the risks and the challenges associated to the transformation towards a green economy and elaborate a coordinated approach to find sustainable financing which will support such a transformation, he stated, adding that this will imply a reorientation of economic growth towards an efficient, sustainable and more integrated development model.

For his part, the Chairperson of the Council of the IOC and Minister of Foreign Affairs of Seychelles, Mr Jean-Paul Adam, stated that ‘we have been toiling hard for a long time to improve the development context of SIDS.’ In Rio in 1992, the specific vulnerabilities and development needs of SIDS were recognised and today we are still trying to address these vulnerabilities, he observed. ‘SIDS’, he said, ‘can often be considered the barometers for the world economy as they are the first to feel the shocks of the global system’. ‘SIDS are more often than not seen as development success stories but all SIDS are faced with the challenge of ‘where to now?’, said the Minister. ‘The fact that we are still trying to find solutions to the specific development concerns of SIDS displays a wider inability to properly address sustainable development at the global level’, he added.

The first day of the expert group meeting will be followed by a signature ceremony of a partnership agreement to the tune of 10 million Euros between the UN Department of Economic and Social Affairs and the EU Delegation for a project aiming to reduce the vulnerabilities of SIDS and to support efficiently efforts in decreasing small islands’ vulnerabilities by reinforcing their resilience.

01 December 2011

Mauritius: FSC launches the Financial Literacy and Young Talent Competition

The Financial Services Commission (FSC) launched the Promoting Financial Literacy and Young Talent Competition on 01 December 2011 in line with the Celebration of its 10th Anniversary.

The objective of the Competition is to raise awareness among young people on Financial Services.

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