31 December 2012

Seychelles: Revocation of the International Corporate Services Licence Premier Offshore Limited

Revocation of the International Corporate Services Licence
Premier Offshore Limited

Notice is hereby given that pursuant to Section 15 of the International Corporate Service Providers Act, 2003, as amended, the International Corporate Services License of Premier Offshore Limited has been revoked with immediate effect from December 31st, 2012.

Seychelles International Business Authority
Bois De Rose Avenue
P.O Box 991

31st December, 2012

Seychelles: Revocation of the International Corporate Services Licence Zen Offshore Services Limited

Revocation of the International Corporate Services Licence
Zen Offshore Services Limited

Notice is hereby given that pursuant to Section 15 of the International Corporate Service Providers Act, 2003, as amended, the International Corporate Services License of Zen Offshore Services Limited has been revoked with immediate effect from December 31st, 2012.

Seychelles International Business Authority
Bois De Rose Avenue
P.O Box 991

31st December, 2012

Seychelles: Revocation of the International Corporate Services Licence AAMIL (Seychelles) Limited

Revocation of the International Corporate Services Licence
AAMIL (Seychelles) Limited

Notice is hereby given that pursuant to Section 15 of the International Corporate Service Providers Act, 2003, as amended, the International Corporate Services License of AAMIL (Seychelles) Limited has been revoked with effect from December 20th, 2012.

Seychelles International Business Authority
Bois De Rose Avenue
P.O Box 991
31st December, 2012

28 December 2012

STEP Journal - Just a minute

STEP Journal December - January 2012/13
Volume 20 | Issue 10

John Harper on the importance of accurate and efficient minute-taking

STEP Journal - The powers that be

STEP Journal December - January 2012/13 Volume 20 | Issue 10

Emily Yiolitis considers settlor-reserved powers - a new feature in Cyprus trust legislation

Towards the Setting up of the Mauritius Africa Training Institute

The Vice-Prime Minister, Minister of Finance and Economic Development, Mr Xavier-Luc Duval, and the Managing Director of the International Monetary Fund (IMF), Mrs Christine Lagarde, signed yesterday at Labourdonnais Waterfront Hotel a Letter of Understanding for the establishment of the Mauritius Africa Training Institute (ATI).

The Africa Training Institute which will cater for training purposes in the Sub Saharan Africa region will mainly provide training for officials who are involved in the formulation and implementation of macro-economic and financial policies in that part of Africa.

In his address, the Vice-Prime Minister recalled that Sub-Saharan Africa region shall over time develop a network of policymakers and economic operators that will enable the region to have a collective and shared vision of development of the African continent.

The fact that Sub-Saharan Africa is moving at a fast pace we have to ensure shared prosperity of the citizens of the region by sustaining growth, he said.  To achieve this, he said that African countries need to improve their economic management and foster greater integration by lowering barriers to the free movement of goods, services, people and capital.

VPM Duval outlined the rationale behind the setting up of the Institute which, he said is in line with the Government’s strategy to transform Mauritius as a service and knowledge centre, acting as a hub between Asia and Africa as well as with the rest of the world. He further stressed on Government strategy to develop its education and knowledge services as a result of the strong political commitment which  the country has demonstrated by hosting regional agencies such as, AFRITAC South, the Regional Multidisciplinary Centre of Excellence, the COMESA Infrastructure Fund, amongst others.

Mr Duval invited other donors and development agencies to come forward and help expand the training programmes to be offered by ATI. According to him, investment in knowledge is a useful form of development aid.

For her part, Mrs Christine Lagarde commended Mauritius for the various initiatives taken to sustain its economy despite adverse effects of the global economic crisis. The  Government has received plaudits from the IMF with regard to the  strategies that have helped the country to diversify its economy and build resilience.

Upon becoming operational, ATI will be an addition to the network of training centres located in Austria, Kuwait and Singapore and the training programmes being offered in Brazil, China and India.

Mauritius and the IMF have, over the last two years, jointly run eight courses that have benefitted over 200 participants from Africa.

27 December 2012

IMF Managing Director Christine Lagarde Exchanges Financing Documents with Mauritius for New Africa Training Institute

International Monetary Fund Managing Director Christine Lagarde and the Mauritian authorities exchanged letters of understanding today formalizing Mauritius’ commitment to help finance the IMF’s new Africa Training Institute, serving sub-Saharan Africa. Mauritius has committed to provide substantial support through contributions to a dedicated multi-donor trust fund at the IMF, and in-kind contributions including the provision of suitable facilities in Mauritius. The Australian Agency for International Development and the Chinese authorities have also pledged financial support for the Institute, which will start operations in 2013 (see Press Release No. 12/422).

I am delighted to see this Africa Training Institute taking shape. The Institute will help us to respond more effectively to the growing demand for training in sub-Saharan Africa by being closer to the ground, and to support capacity development by better integrating technical assistance and training. The Africa Training Institute will allow us to respond to rising demand for macroeconomic training from our members across sub-Saharan Africa,” Ms. Lagarde said at a ceremony in Port Louis.

The Africa Training Institute will offer courses and seminars for officials from central banks, ministries of finance, and other government departments from across sub-Saharan Africa. Training will cover macroeconomic policymaking and financial programming, public finance, exchange rate and monetary policies, economic integration, and financial sector issues, including banking supervision. The training will complement the activities of the IMF’s Regional Technical Assistance Centers in Africa (AFRITACs)—one of which is also based in Mauritius, serving the Southern African region—as well as other regional initiatives.

The IMF offers technical assistance and training to member countries in addition to its economic and financial surveillance and lending operations. The IMF’s technical assistance helps member countries develop more effective institutions, legal frameworks and policies to promote economic stability and growth, while training strengthens the ability of member countries’ officials to analyze economic developments and formulate and implement effective policies. In the year ending April 30, 2012, some 7,800 officials from member countries attended IMF training courses at headquarters in Washington, D.C., and at donor-supported regional training centers in Austria, Kuwait, and Singapore.

Web links:

21 December 2012


Can a male employer terminate a female employee because the employer’s wife, due to no fault of the employee, is concerned about the nature of the relationship between the employer and the employee?

Singapore: MAS Proposes Rules to Encourage Responsible Use of Credit Cards & Unsecured Credit

The Monetary Authority of Singapore (MAS) has released a consultation paper on proposed changes to credit card and unsecured credit rules. The changes are aimed at improving financial institutions’ lending and disclosure practices, empowering individuals to make better borrowing decisions, and helping individuals who are at risk of credit problems avoid getting into greater debt.

2   The key changes are as follows:

a. Financial institutions will be required to review the outstanding debt and credit limits for all loans1 taken by a borrower across different financial institutions before granting that borrower a new credit card, new unsecured credit facility, or an increase in credit limit. This will help financial institutions make a holistic assessment of whether an individual is borrowing within his means.

b. Financial institutions will be required to disclose clearly to individuals who roll over the debt on their credit cards and revolving credit facilities the potential cost and extent of the debt they will accumulate as a result. This will make the cost of borrowing more apparent to borrowers and help them make informed borrowing decisions.

c. Financial institutions will not be allowed to make unsolicited offers to their customers to increase their credit limits. They will have to expressly obtain the borrower’s consent for the amount of each credit limit increase. This will ensure that borrowers are not offered credit limit increases that they did not ask for. 

d. Individuals whose debts with a financial institution are more than 60 days past due will not be allowed to charge further amounts to their credit cards, charge cards and unsecured credit facilities from that financial institution, or obtain new cards and unsecured credit facilities from any financial institution, until the amounts due are paid. This will help prevent debt from spiralling for individuals who already have problems repaying their debt.

e. Individuals whose interest bearing balances with a financial institution are more than two months of their income for six consecutive months or more2 will not be allowed to charge further amounts to their unsecured credit cards, charge cards and unsecured credit facilities from that financial institution, or obtain new cards and unsecured credit facilities from any financial institution. This will discourage individuals from prolonged reliance on credit cards and unsecured credit to finance their spending.

3   Lenders and borrowers both have a role to play in ensuring that credit cards and unsecured credit are used responsibly and within the borrower’s means to repay. The changes will complement existing measures3 to mitigate the risks of over-borrowing by individuals. 

4   MAS is also proposing to provide financially secure retirees greater flexibility to qualify for a credit card. Under the proposed changes, individuals above 55 years old can qualify for a credit card if they have an annual income of at least $15,000, net personal assets exceeding $750,000, or a guarantor with an annual income of at least $30,000.

5   Details of the proposals are set out in the Consultation Paper which is available on MAS’ website. Comments on the proposals should be submitted by 21 January 2013.


1 This includes credit cards, charge cards, as well as secured loans.

2 Secured credit cards, and persons who only hold credit cards with a credit limit of $500 or less and have no other unsecured credit facilities, are excluded from this proposal.

3 MAS’ existing rules set the minimum annual income requirement for credit cards for individuals who are 55 years old or below at $30,000 to ensure that credit cards are only issued to individuals who have sufficient financial means to maintain them. The maximum credit limit, including any other unsecured credit facilities that a financial institution can give to such individuals, is limited to four times his monthly income.

Aus - NSW: OLSC & Law Society Draft Practice Guidelines on outsourcing and the use of cloud computing services

The Office of the Legal Services Commissioner together with the Law Society of New South Wales have been working on a series of practice guidelines in relation to the use of technology by the legal profession. The practice guidelines are to assist legal practitioners to ensure they meet their ethical and professional obligations when using new technologies and service delivery methods. The practice guidelines are based on the findings of a major research project by the OLSC.

The OLSC and the Law Society are pleased to present the first two practice guidelines on outsourcing and the use of cloud computing services. 

20 December 2012

JCPC: Anthony Lesage (Appellant) v The Mauritius Commercial Bank Limited (Respondent)

Anthony Lesage (Appellant) v The Mauritius Commercial Bank Limited (Respondent)

From the Supreme Court of Mauritius

"Where the appearance of unfairness or bias has been established, ordering a new trial free from the taint of that manifestation is unavoidable. The Board will therefore allow the appeal, quash the decision of the Supreme Court and direct that a re-trial take place before a differently constituted court."

UK: The PRA’s approach to enforcement: consultation on proposed statutory statements of policy and procedure

In this paper from the Bank of England and the Financial Services Authority, we are consulting on the Prudential Regulation Authority’s (PRA’s) approach to enforcement.

Arsanovia Ltd & Ors v Cruz City 1 Mauritius Holdings [2012] EWHC 3702 (Comm)

The Court ruled on whether arbitration tribunals had jurisdiction in respect of awards made in disputes arising between foreign registered companies.

Corporate Shams

Many people — perhaps most — want to make money and lower their taxes, but few want to unabashedly break the law. These twin desires have led to a range of strategies, such as the use of “paper corporations” and offshore tax havens, that produce sizable profits with minimal costs. The most successful and ingenious plans do not involve shady deals with corrupt third parties, but strictly adhere to the letter of the law. Yet the technically legal nature of the schemes has not deterred government lawyers from challenging them in court as “nothing more than good old-fashioned fraud.”

In this Article, we focus on government challenges to corporate financial plans — often labeled “corporate shams” — in an effort to understand how and why courts draw the line between legal and fraudulent behavior. The scholars and commentators who have investigated this question nearly all agree: Judicial decision making in this area of the law is erratic and unpredictable. We build on the extant literature with the help of a new, large dataset, and uncover important and heretofore unobserved trends. We find that courts have not produced a confusing morass of outcomes (as some have argued), but instead have generated more than a century of opinions that collectively highlight the point at which ostensibly legal planning shades into abuse and fraud. We then show how both government and corporate attorneys can exploit our empirical results and explore how these results bolster many of the normative views set forth by the scholarly and policymaking communities.

EU: Commission adopts implementing rules for the Directive on Alternative Investment Fund Managers

The European Commission has acted to solidly underpin the new rules for Alternative Investment Fund Managers (AIFM) by today adopting a Delegated Regulation supplementing the Directive on Alternative Investment Fund Managers (AIFMD).

The AIFMD is part of the Union's response to the financial crisis, and aims to create a comprehensive and effective regulatory and supervisory environment for alternative investment fund managers in Europe. The Delegated Regulation is a precondition for the application of the AIFMD in EU countries and was adopted to supplement certain elements of the AIFMD. These rules concern the:

  • conditions and procedure for the determination and authorisation of AIFMs, including the capital requirements applicable to AIFMs;
  • operating conditions for AIFMs, including rules on remuneration, conflicts of interest, risk management, liquidity management, investment in securitisation positions, organisational requirements, rules on valuation;
  • conditions for delegation;
  • rules on depositaries, including the depositary's tasks and liability;
  • reporting requirements and leverage calculation;
  • rules for cooperation arrangements.

The Delegated Regulation adopted today is subject to a three-month scrutiny period by the European Parliament and the Council and will enter into force, provided that neither co-legislator objects, at the end of this period and the day following publication in the Official Journal.

19 December 2012

Workshop to Promote Mauritius as an Arbitration Centre for Africa

Experts on international arbitration and professionals in the global business and international financial services sector attended last week, at the Financial Services Commission (FSC) House in Ebène, a workshop on international arbitration.

Organised at the initiative of the London Court of International Arbitration (LCIA) and the Mauritius International Arbitration Centre (MIAC), in collaboration with the FSC, the actors evolving in the above sectors were called upon to analyse the promotion of Mauritius as an Arbitration Centre for Africa.

The workshop also served as platform for the delegates to share their views and thoughts on how international arbitration would in practice work in the Mauritian context as well as to see how international arbitration deals with difficult situations. Besides providing an overview of international arbitration and its importance, the workshop focused on ways and means whereby parties to international business disputes are increasingly using arbitration to resolve their differences outside the parameters of traditional courts.

In her address, the Chief Executive of the FSC, Ms Clairette Ah-Hen, underpinned the increasing role of international commercial arbitration and its services at global level. According to her, information and communication technology (ICT) has given a new dimension to international commercial transactions and businesses whereby e-commerce has now become an indispensable part of the daily commercial activities. The development of arbitration will bring further economic benefits to Mauritius since it will invariably bring overseas parties to Mauritius, which in turn will benefit not just the legal professionals, but also other financial service providers, she added.

Ms Ah-Hen also emphasised on the scope of international commercial arbitration which, she pointed out has widened due to several factors namely, disputes arising out of contracts on sale of goods, distributorship, agency and intermediary contracts, construction agreements, engineering and infrastructure contracts, intellectual property contracts, domain name dispute resolutions, online dispute resolutions, joint venture agreements, maritime contracts, employment contracts and medico-legal disputes

Among the topics on the agenda were: An Introduction to Arbitration in Mauritius; Why is international arbitration a benefit to the legal system in a well regulated country like Mauritius; Developing the international arbitration regime in Mauritius; and How does an arbitration in practice work under the LCIA-MIAC Rules.

It will be recalled that international arbitration is governed under the International Arbitration Act 2008 which has been designed with the aim to create and promote a new area of services and to make Mauritius a favourable jurisdiction for all international commercial arbitrations, whether such arbitrations arise under ad-hoc arbitration agreements, or under institutional rules such as those of the International Chamber of Commerce or the London Court of International Arbitration.

Le Figaro: Un patron d'un site offshore en examen

Le patron du site internet France Offshore, qui propose la création de sociétés dans des pays à faible fiscalité, a été mis en examen aujourd'hui pour blanchiment de fraude fiscale en bande organisée.

18 December 2012

Choosing between the UN and OECD Tax Policy Models: An African case study

Almost all the world's tax treaties are based on precedents found in an OECD model tax convention or a UN model tax convention. Both model divide taxing rights on cross-border investment and business activities. The OECD model shifts taxing rights to capital exporting treaty partners while the UN treaty allows capital importing countries to retain more taxing rights. This paper examines the use of OECD and UN precedents in the tax treaties of a group of 11 East African countries. It is difficult to see a link between reduced taxation by the capital importing countries and increased foreign investment. While there are variations within the group, as a group the African countries may have conceded more taxing rights to capital exporting nations than counterparts in Asia.

UK - The Financial Services Bill: implementing markets powers, decision-making procedures and penalties policies

Consultation paper on the new rulebooks and policies for the successor organisations to the FSA

17 December 2012

Mauritius: Safeguarding Privacy – Workshop focuses on Data Protection

A one-day Workshop on Data Loss Prevention Software, Cloud Computing, Social Networking and Forensic Investigation, opened this morning at Le Maritim Hotel in Balaclava.

Organised at an initiative of the Data Protection Office, Prime Minister’s Office, the workshop has as objective to sensitise data controllers, data processors and data subjects on the need to safeguard privacy by understanding the impact of latest technologies on their personal data.

Presentations is focusing on Cloud Security in Government; Cloud Computing, Social Networking and Online Behavioural Advertising; Forensic Detection Tools on Data Breaches; Clearwell - IT forensics; Deepsight Threat Con; Data Loss Prevention Software – Mauritius DPO Template; Bhumishq Data Centre & Cloud Services from a Data Protection Perspective – Sharing the Experience; and, The Role of ISACA (Information Systems Audit & Control Association) in promoting Data Privacy through Information Systems.

In his address, the Minister of Information and Communication Technology, Mr Tassarajen Pillay Chedumbrum, said that today we are living in a world where computer speed is growing so fast that security and privacy issues have become the most important concerns of the ICT sector.  Technology is being used to transfer huge databases of information electronically within a fraction of a second, he noted.

The Minister stressed the need for protecting personal, sensitive and confidential data, which he said, has become the primary concern of all organisations to maintain confidentiality, availability and integrity of information.  All enterprises are required to take the appropriate measures to ensure data security and protection wherever data is being used and/or stored either across networks, storage or endpoint systems, added Mr Pillay Chedumbrum.

For her part, the Data Protection Commissioner, Mrs Drudeisha Madhub stated that the world is faced today, through minute and acute globalisation, with the threats associated with the ignorant use of technology which present data protection and privacy risks.  The internet in particular, she observed, has presented challenges to the protection of people’s privacy and the protection of their data, especially combined with the increasing use of mobile devices.

‘Data protection is the modern fundamental human right of the digital age and will remain so for the future years to come, with its own specificities and complexities requiring a particularly specialised institution to cater for its enforcement’, stressed Mrs Madhub.

16 December 2012

Offshore Pilot Quarterly (December 2012, Volume 15 Number 4)

Rock of Ages

The first book in a series featuring the amateur detective, Isabel Dalhousie, who lives in Edinburgh, Scotland, is entitled “The Sunday Philosophy Club”.  It’s written by Alexander McCall Smith who is perhaps better known in Europe for another series of books about (this time) an African private detective, also a woman, Precious Ramotswe, who lives and works in Botswana and have since been turned into a television series by the British Broadcasting Corporation called “The No. 1 Ladies’ Detective Agency”.

What the author intentionally does in his writing is to imbue it with philosophy, whether it’s a Sunday or not, addressing moral dilemmas and changing values.  All of us in the financial services industry have certainly experienced changing values and this newsletter may be a commentary on matters offshore, but inevitably, that involves matters onshore too, both of which have a common denominator:  human behaviour. 

Adam Smith, when writing Wealth of Nations, drew upon the town of Kirkcaldy, 10 miles north of Edinburgh which, at the time, only had a few lanes but a main street more than two miles long.  He grew up there and that very long, main street would have provided him with a wealth of knowledge, not about nations perhaps, but most certainly about the conduct of commerce and human behaviour.  Actually, the role of small Scottish towns in shaping commerce, politics and culture was a major influence that convinced him of the importance of economic individualism and the dangers of “the wretched spirit of monopoly”. 

Adam Smith’s writings have at their root philosophy, rather than economics, and he believed that it was the philosopher’s ability to illustrate his principles with examples from ordinary life and history that mattered.  As the late philosopher Karl Popper put it, there is both common sense philosophy and academic (professional) philosophy; the Offshore Pilot Quarterly is only interested in the former.

There should be codes of behaviour in business which prevail like the Pyramids or rocks in a river which are impervious to the passage of water.  In the fifth century BC the Greek Philosopher Empedocles described the universe as being in a state of things constantly coming together and splitting apart again, and that should be so because it is how progress is made; like water, the flow of ideas is constant; like rocks in a river, however, the codes of behaviour should stay in place, no matter how strong the current may be.

Today we are confronted with what amounts to nothing less than template platitudes, amply supplied in our electronic age by social media.  Business websites are one thing, but Twitter and Facebook are not compatible with every business – despite what conventional wisdom suggests, with ample evidence of people attempting to hammer square pegs into round holes.  In any business where craftsmanship is its essence, time-consuming Twitter, which calls for a deployment of resources to maintain an active presence, can prove to be a distraction; and if your widget stands out you can stand back because it is likely that word will spread, including via social media, any way.  Word of mouth:  is there any finer way of selling your product? 

Perhaps you recall that back in the late 1990s the perception was that e-commerce would transform retailing completely.  Bricks and mortar shops would disappear in the wake of online shopping; for some who founded companies on this premise, without premises, the result was dismal failure because what has actually happened is that e-commerce complements, rather than replaces, the shop on the street.  It must surely be a question of balance; after all, although ownership and market structures can change, the core product remains.  Coca-Cola is an obvious example and so is Heinz, the food company founded in 1876, just one hundred years after the American War of Independence.

It was back in the dotcom boom days (or should that be daze?) that Count Anton-Wolfgang von Faber-Castell was asked why Faber-Castell, one of the world’s biggest pencil makers, and now in business for over 250 years, was still selling pencils and pens; surely the business would be finished in a few years?  It is many of these dotcoms, however, that are dead, but people still buy pencils. Lego is yet another case, except with an illustrative twist.  The business was started back in 1932 by Ole Kirk Kristiansen, a Danish carpenter.  From making wooden toys he progressed to perfecting small wooden (now plastic) bricks.  Then the company branched out into theme parks, clothes, watches and other ventures; sound familiar?  Business theorists call these activities “adjacencies”, which in Lego’s case ended in abject failure.  Like the wounded Swiss banking giant, UBS, is doing, it eventually cut its losses and went back to the basic business which had made it a success. Additional services should complement, not consume, a business, in the same way e-commerce and shops in the street function in harmony. 

Success in business, however, is never assured and doesn’t stop you falling victim to the hand of fate; but rock-solid values, sensible business strategies, and ignoring the assumptions spread by social media, can reduce the risk considerably.

The Machinations of Mephistopheles

The Italian academic, Giuseppe Felloni, who has studied banking for 30 years and is researching Banco di San Giorgio, a Genoese bank which operated for 398 years successfully before Napoleon’s invasion of Italy (hand of fate) led to the suppression of independent banking, is right to describe a bank as a simple creation that stands between the depositor and the borrower, both of whom share a credit relationship in which “All these elements must be in equilibrium”.  But banking has been the victim of “adjacencies” after retail bankers let go of the reins, allowing a risk-taking investment banking culture to take over.  Whereas the traditional London banker, perhaps a little smug as well as snobbish, would have died of shame if he had to deny his customers access to their accounts, all bets were suddenly now off as banking products grew more complex and high-wire strategies used by traders became more bold and mystifying.  Now, perhaps, some of those young investment bankers, steeped in subprime sorcery, might agree with Charles Dickens when he wrote in his Victorian novel Great Expectations (with its haunting ring of truth today):   “Credit is a system whereby a person who can’t pay gets another person who can’t pay to guarantee that he can pay”. 

Although southern Germans were traditionally more progressive in banking practices, sophisticated finance has never sat comfortably in Germany, which today is the anchor for the European Union’s dire economic mess; there’s a message here.  It had been the Genoese who were the innovators and Banco di San Giorgio became as powerful as the republic of Genoa itself; it was the world’s first modern public bank, a prototype for the Bank of England.  But in Germany, Johann Wolfgang von Goethe, the writer and also privy councillor at the court of Weimar, was well aware of the perils of monetary missteps that could lead to the debasement of currencies.  In part two of his play, Faust, which he finished 99 years before the inflationary collapse of the Weimar Republic, Mephistopheles convinces the emperor to use undiscovered gold beneath his lands as putative collateral for promissory notes to pay the army.  But when the emperor and his court find that they can print money at will, they create an inflationary spiral which leads to civil chaos. 

History has shaped Germany’s banking doctrine, unlike those countries who have relied on the equivalent of undiscovered gold, and used debt to create demand.  Between 2001 and 2008 half the recorded economic growth in the US, for instance, arose from borrowing against the rising value of houses.  The money was mostly spent not on long-term capital investments but, for example, cruises to Tahiti, the latest car model and other items without lasting value.

Bankers also fell fowl of basic principles.  The Romans established a precise judicial doctrine concerning the demand deposit contract, to be found in the Corpus Juris Civilis, the legislative code created by Emperor Justinian.  A demand deposit was never to be construed as a loan to the bank from which it can profit, unlike funds placed on time deposit when the customer relinquishes his claim to the money for an agreed period of time and both the banker and the depositor profit.  So banks in ancient Rome operated with a 100 per cent reserve for demand deposits, but over time the rules were eroded until by the 19th century demand deposits were used for loans, a practice originally considered fraudulent under Roman law and bankers who breached the rule could be charged with theft.  A further development, in order to circumvent anti-usury laws, saw the distinction between deposits and loans on the balance sheets of banks removed which facilitated the introduction of fractional reserve banking (only a portion, say, 10 per cent of a deposit, need be held in reserve by a bank); the remainder could be used for other purposes solely for the bankers’ benefit.

Sir Mervyn King, governor of the Bank of England, speaks of the daunting shift from an economy powered by credit to one that is built on investment, such as in the time of the Industrial Revolution.  He fears that the role of collateral has not been understood (nor adequately regulated or documented) while during the past five years of the Great Recession the principle of secured lending has moved into new territory, the nature of which we are discovering with our torch as we walk along in the darkness. 

The Path of the Sun

In Chicago during the Great Depression the First National Bank of Englewood published a statement of its accounts, as complete as possible, in a double-page advertisement in a local newspaper, the Southtown Economist.  The accounts listed every bond the bank owned with its market price and the one used on the books of the bank; every (unnamed) customer loan was published, detailing each maturity.  What was important to John Milton Nichols, the bank’s president, was transparency which he believed to be the hallmark of a banker.  He at first refused to join the newly-formed Federal Deposit Insurance Corporation because he feared it could lead to irresponsibility on the part of bankers and depositors; his nickname was “100 per cent” due to the level of liquidity he kept available to pay depositors; he described liquidity as “the first virtue” of banking.

Mr. Nichols’s small bank no longer exists, but his principles, thankfully, still survive.  Across the Atlantic ocean, Stafford Railway Building Society (savings and loan in the US) in the West Midlands region of England, which I read about, has for 135 years provided mortgages from its one branch.  It remains independent, avoiding previous merger manias and customers are weighed by experienced negotiators rather than by applying standard credit-scoring methods.  Not more than 75 per cent of a property’s value is loaned:  financial stability, not chasing profit at all cost, is the goal.  The society has survived the Great Depression and in 2009, as the economic downturn really began to bite, it had assets of approximately US$280 million, turning a profit of around US$2 million; last year the figures were, respectively, US$325 million and US$1.7 million; a very respectable result given the times.  Consider Northern Rock, a building society-turned bank in the UK and a victim of complex derivative products, which had to be bailed out by the government with loans at one point of approximately US$160 billion and deposits of some US$38 billion; that’s frictional, not fractional, reserve banking.  What would emperor Justinian’s view of this, from a moral perspective, have been?

This brings us back to moral dilemmas, not just changing values, both of which Botswana’s Precious Ramotswe, the intrepid detective, must tackle.  Adam Smith was committed to developing the mind, but he recognised that manners were an essential lubricant in commercial intercourse, just like Christian Brothers College, some 62 miles southeast of Botswana, in Bulawayo in (now) Zimbabwe does, and which McCall Smith and also David Coltart, the country’s present Minister of Education, Sport and Culture, attended.  It devotes its efforts to providing an enlightened education and inculcating in its students the belief that “manners maketh man”, as William of Wykeham, the 14th- century Chancellor of England, said and believed.

The enlightened mind brings me to the subject of hats.  Fifteen years ago this month, I wrote the first Offshore Pilot Quarterly that featured the Panama hat in the context of misconceptions (in this case that the genuine ones actually come from Ecuador), but Harry Eyres, English writer and poet, speaks of the importance of wearing many metaphorical hats in order to achieve breadth of perspective.  McCall Smith, for example, also holds a doctorate in law, is a musician and has travelled.  The Roman philosopher Seneca described two kinds of citizenship:   the one we have by an accident of birth and one by which “we measure the boundaries of our citizenship by the path of the sun”.  Yes, we live in a global community today where products travel across international borders, but do our minds make the same journey?  Parochialism is a danger because it narrows our vision, encourages assumptions and diminishes any hope of being enlightened.  Rudyard Kipling was right to ask the question:  “And what should they know of England who only England know?” 

As classmates at that College in Bulawayo, Sandy (as he was known to me) McCall Smith and I did share an interest in short-story writing and I sometimes rode his horse; we also wore old-fashioned riot helmets once when we travelled in the back of his father’s car during the Rhodesian racial riots of the 1960s which led to a unilateral declaration of independence by prime minister Ian Smith, an Ex-Royal Air Force pilot during World War Two (shot down over the Western Desert and again over Italy); that declaration was to change my own life radically.

Henry Mencken once said that the aim of public education “is not to spread enlightenment at all; [just] to breed a standard citizenry, to put down dissent and originality”.  I can only say that, thankfully, neither Sandy nor I had to test the assertion.  As young boys, anyway, we were already wearing school trilbys, not to mention riot helmets, and although today I sometimes don a Panama hat, I like to think that it’s not the only one I wear.

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

13 December 2012

Jersey Finance visit to Delhi and Mumbai reaffirms long-term commitment to India

Jersey’s long-term commitment to the Indian marketplace was reaffirmed through a Jersey Finance-led visit to the country last week, almost exactly a year after the Tax Information Exchange Agreement was signed with India.

During a five-day visit to India, Geoff Cook, chief executive of Jersey Finance, met with a range of government, regulatory and senior industry representatives in Delhi and Mumbai.

As well as undertaking a range of high level networking events and private meetings, Jersey Finance was also represented at the 18th annual International Taxation Conference at the ITC Maratha Hotel in Mumbai (6th – 8th December), where Jersey Finance was a gold sponsor.

Geoff Cook had a speaker session within the conference on ‘Jersey’s substance as an IFC’, when he outlined the benefits of using Jersey as part of an international wealth management strategy and its attraction as a tax neutral jurisdiction for structuring investments. Richard Teather, a senior lecturer at Bournemouth University and offshore academic, also spoke at the event on behalf of Jersey Finance, on the application of case law offshore and the importance of businesses demonstrating substance in tax matters.

The conference, one of the leading regular taxation conferences in the world, was organised by the Foundation for International Taxation, and was attended by around 500 international delegates.

Jersey Finance’s visit builds on another busy year of activity for Jersey in the Indian market. In the summer, the Jersey Financial Services Commission hosted a delegation from the Reserve Bank of India to sign a Memorandum of Understanding between the two bodies, whilst in September Jersey Finance hosted a succession planning and wealth management round-table event in Mumbai involving a range of locally based lawyers, bankers and accountants. A Jersey Advisory Group, consisting of senior level individuals from the financial, legal and professional services sectors of both Mumbai and New Delhi, is also well established in India.

Geoff Cook, chief executive, Jersey Finance, said:

With an impressive current growth rate of 5.3%, India remains a key long-term market for Jersey. A rapidly expanding middle class is reinforcing the need for increasingly sophisticated succession planning and wealth management expertise and this is an area where Jersey is seeing real interest, specifically in the use of Foundations. Jersey’s role in facilitating cross-border business has gained real ground over the past twelve months too, particularly amongst high net worth non-resident Indians looking to acquire UK real estate, whilst the strength of Jersey’s company law is also proving attractive for listings work.

It’s vitally important that Jersey looks to maintain its profile in India through visits like this and by sharing its credentials at events like the International Taxation Conference. India is a market that offers huge potential and it is clear that there is scope for further expansion beyond Delhi and Mumbai in the years to come.

Fortune 500 Corporations Holding $1.6 Trillion in Profits Offshore

Among the Fortune 500 corporations, 290 have revealed that they, collectively, held nearly $1.6 trillion in profits outside the United States at the end of 2011. This is one indication of how much they might benefit from a so-called “territorial” tax system, which would permanently exempt these offshore profits from U.S. taxes. 

Just 20 of the corporations — including household names like GE, Microsoft, Apple, IBM, Coca-Cola and Goldman Sachs — held $794 billion offshore, half of the total. The data are compiled from figures buried deep in the footnotes of the “10-K” financial reports filed by the companies annually with the Securities and Exchange Commission.

The appendix includes the full list of 290 corporations and the size of their offshore profits in each of the last three years, as well as the state in which their headquarters is located.

Huge Existing Loophole for Shifting Profits Offshore Would Be Expanded by a “Territorial” System

The U.S. corporate income tax allows these corporations to indefinitely “defer” paying U.S. corporate taxes on these profits until they are brought to the U.S. (that is, until these profits are “repatriated”). Under the “territorial” tax system promoted by many corporate lobbyists in Washington today, U.S. corporations would never have to pay U.S. corporate taxes on these profits.

There is strong evidence that corporate profits are taxed less in the U.S. than they are in most other countries. CTJ’s major 2011 report on the Fortune 500 corporations that were consistently profitable from 2008 through 2010 found that two-thirds of those with significant foreign profits actually paid higher taxes in the foreign countries where they operated than they paid in the U.S.1

In other words, even as corporate lobbyists decry the U.S.’s relatively high statutory corporate tax rate of 35percent, the effective corporate tax rate (what corporations actually pay in taxes as a percentage of their profits) is far lower for most corporations — lower than what they pay when they do business in other countries.

So why should anyone care about the amount of profits held offshore by U.S. corporations? The answer lies not so much in the countries where U.S. corporations are doing real business, producing real products and competing in foreign markets. The real concern is a small number of (mostly tiny) countries and territories where almost no real business is conducted but where corporations park their U.S. profits to avoid taxes.

These countries have no corporate tax at all (or an extremely low one) and have thus earned the title of “offshore tax havens.” U.S. corporations engage in convoluted transactions to make what are truly U.S. profits appear to be profits generated by a subsidiary corporation in one of these tax havens, so that they can indefinitely defer U.S. taxes and not pay foreign taxes either. In many cases the transaction only exists on paper and the subsidiary corporation is little more than a post office box in the Cayman Islands or Bermuda or some other tax haven.

For many U.S. corporations, the majority of “offshore” profits are really U.S. profits that have been shifted to offshore tax havens in this manner. Most corporations provide very little detail that would indicate whether their offshore profits result from real business operations abroad or from shifting profits (on paper) to tax havens. But, as explained in a previous CTJ report, 47 of the corporations revealed how much they had paid in foreign taxes on their offshore profits, and ten corporations, representing over a sixth of the $1.6 trillion in unrepatriated profits, revealed that they paid practically nothing in taxes to any government on their offshore hoards.2 This, of course, reasonably leads to the conclusion that the profits are stashed in a country with no (or an extremely low) corporate income tax (in other words, an offshore tax haven).

The problem of offshore tax havens cannot be solved by lowering the U.S.’s statutory corporate income tax rate (or even its effective corporate income tax rate). Corporate lobbyists claim that the U.S.’s relatively high tax rate is what drives companies to shift profits offshore and that lowering our rate is the answer. The reality is that reducing the U.S. rate is futile because it will never be as low as the rate of most tax havens (which is zero percent).

Nor can this problem be solved by adopting a “territorial” tax system. In fact, a territorial tax system would increase the incentives for abuse. If allowing deferral of U.S. taxes on foreign profits has already encouraged U.S. multinational corporations to shift profits offshore, then eliminating U.S. taxes on foreign profits would logically increase that incentive.3

The real solution is to eliminate the existing tax incentives to shift profits into tax havens — by repealing deferral.4 U.S. corporations would continue to receive a credit for any foreign taxes they pay, to ensure against double-taxation. But there would no longer be any tax incentive for U.S. corporations to shift profits to a country with a lower tax rate, because the IRS would simply require them to pay the difference between the U.S. tax rate and the foreign country’s tax rate (assuming the latter is lower).

In other words, a U.S. corporation would not benefit from pretending that most of its profits are earned by a post office box in the Cayman Islands. 

1- Citizens for Tax Justice, “Corporate Taxpayers & Corporate Tax Dodgers, 2008-2010,” November 3, 2011, page 10. http://ctj.org/corporatetaxdodgers/

2- Citizens for Tax Justice, “Which Fortune 500 Companies Are Sheltering Income in Overseas Tax Havens?” October 17, 2012. http://ctj.org/pdf/offshoreincome.pdf

3- For a fact sheet explaining these issues, see Citizens for Tax Justice, “Why Congress Should Reject A ‘Territorial’ System and a ‘Repatriation’ Amnesty: Both Proposals Would Remove Taxes on Corporations’ Offshore Profits,” October 19, 2011. http://www.ctj.org/pdf/corporateinternationalfactsheet.pdf For a report with more detail, see Citizens for Tax Justice, “Congress Should End ‘Deferral’ Rather than Adopt a ‘Territorial’ Tax System,” March 23, 2011. http://www.ctj.org/pdf/internationalcorptax2011.pdf

4- A bill before Congress that would repeal deferral is the Bipartisan Tax Fairness and Simplification Act of 2011, sponsored by Senators Ron Wyden (D-OR) and Dan Coats (R-IN). This bill could use significant improvements (for example, it does not generate sufficient revenue) but it would create a system in which U.S. corporations would receive no tax advantage from shifting jobs or profits offshore.

11 December 2012

USDOJ: HSBC Holdings Plc. and HSBC Bank USA N.A. Admit to Anti-Money Laundering and Sanctions Violations, Forfeit $1.256 Billion in Deferred Prosecution Agreement

Bank Agrees to Enhanced Compliance Obligations, Oversight by Monitor in Connection with Five-year Agreement

HSBC Holdings plc (HSBC Group) – a United Kingdom corporation headquartered in London – and HSBC Bank USA N.A. (HSBC Bank USA) (together, HSBC) – a federally chartered banking corporation headquartered in McLean, Va. – have agreed to forfeit $1.256 billion and enter into a deferred prosecution agreement with the Justice Department for HSBC’s violations of the Bank Secrecy Act (BSA), the International Emergency Economic Powers Act (IEEPA) and the Trading with the Enemy Act (TWEA).  According to court documents, HSBC Bank USA violated the BSA by failing to maintain an effective anti-money laundering program and to conduct appropriate due diligence on its foreign correspondent account holders.  The HSBC Group violated IEEPA and TWEA by illegally conducting transactions on behalf of customers in Cuba, Iran, Libya, Sudan and Burma – all countries that were subject to sanctions enforced by the Office of Foreign Assets Control (OFAC) at the time of the transactions.

The announcement was made by Lanny A. Breuer, Assistant Attorney General of the Justice Department’s Criminal Division; Loretta Lynch, U.S. Attorney for the Eastern District of New York; and John Morton, Director of U.S. Immigration and Customs Enforcement (ICE); along with numerous law enforcement and regulatory partners.  The New York County District Attorney’s Office worked with the Justice Department on the sanctions portion of the investigation.  Treasury Under Secretary David S. Cohen and Comptroller of the Currency Thomas J. Curry also joined in today’s announcement.

A four-count felony criminal information was filed today in federal court in the Eastern District of New York charging HSBC with willfully failing to maintain an effective anti-money laundering (AML) program, willfully failing to conduct due diligence on its foreign correspondent affiliates, violating IEEPA and violating TWEA.  HSBC has waived federal indictment, agreed to the filing of the information, and has accepted responsibility for its criminal conduct and that of its employees.  
“HSBC is being held accountable for stunning failures of oversight – and worse – that led the bank to permit narcotics traffickers and others to launder hundreds of millions of dollars through HSBC subsidiaries, and to facilitate hundreds of millions more in transactions with sanctioned countries,” said Assistant Attorney General Breuer.  “The record of dysfunction that prevailed at HSBC for many years was astonishing.  Today, HSBC is paying a heavy price for its conduct, and, under the terms of today’s agreement, if the bank fails to comply with the agreement in any way, we reserve the right to fully prosecute it.”

“Today we announce the filing of criminal charges against HSBC, one of the largest financial institutions in the world,” said U.S. Attorney Lynch.  “HSBC’s blatant failure to implement proper anti-money laundering controls facilitated the laundering of at least $881 million in drug proceeds through the U.S. financial system.  HSBC’s willful flouting of U.S. sanctions laws and regulations resulted in the processing of hundreds of millions of dollars in OFAC-prohibited transactions.  Today’s historic agreement, which imposes the largest penalty in any BSA prosecution to date, makes it clear that all corporate citizens, no matter how large, must be held accountable for their actions.” 

“Cartels and criminal organization are fueled by money and profits,” said ICE Director Morton.  “Without their illicit proceeds used to fund criminal activities, the lifeblood of their operations is disrupted.  Thanks to the work of Homeland Security Investigations and our El Dorado Task Force, this financial institution is being held accountable for turning a blind eye to money laundering that was occurring right before their very eyes.  HSI will continue to aggressively target financial institutions whose inactions are contributing in no small way to the devastation wrought by the international drug trade.  There will be also a high price to pay for enabling dangerous criminal enterprises.”

In addition to forfeiting $1.256 billion as part of its deferred prosecution agreement (DPA) with the Department of Justice, HSBC has also agreed to pay $665 million in civil penalties – $500 million to the Office of the Comptroller of the Currency (OCC) and $165 million to the Federal Reserve – for its AML program violations.  The OCC penalty also satisfies a $500 million civil penalty of the Financial Crimes Enforcement Network (FinCEN).  The bank’s $375 million settlement agreement with OFAC is satisfied by the forfeiture to the Department of Justice.  The United Kingdom’s Financial Services Authority (FSA) is pursuing a separate action. 

As required by the DPA, HSBC also has committed to undertake enhanced AML and other compliance obligations and structural changes within its entire global operations to prevent a repeat of the conduct that led to this prosecution.  HSBC has replaced almost all of its senior management, “clawed back” deferred compensation bonuses given to its most senior AML and compliance officers, and has agreed to partially defer bonus compensation for its most senior executives – its group general managers and group managing directors – during the period of the five-year DPA.  In addition to these measures, HSBC has made significant changes in its management structure and AML compliance functions that increase the accountability of its most senior executives for AML compliance failures. 

The AML Investigation

According to court documents, from 2006 to 2010, HSBC Bank USA severely understaffed its AML compliance function and failed to implement an anti-money laundering program capable of adequately monitoring suspicious transactions and activities from HSBC Group Affilliates, particularly HSBC Mexico, one of HSBC Bank USA’s largest Mexican customers.  This included a failure to monitor billions of dollars in purchases of physical U.S. dollars, or “banknotes,” from these affiliates.  Despite evidence of serious money laundering risks associated with doing business in Mexico, from at least 2006 to 2009, HSBC Bank USA rated Mexico as “standard” risk, its lowest AML risk category.  As a result, HSBC Bank USA failed to monitor over $670 billion in wire transfers and over $9.4 billion in purchases of physical U.S. dollars from HSBC Mexico during this period, when HSBC Mexico’s own lax AML controls caused it to be the preferred financial institution for drug cartels and money launderers.   

A significant portion of the laundered drug trafficking proceeds were involved in the Black Market Peso Exchange (BMPE), a complex money laundering system that is designed to move the proceeds from the sale of illegal drugs in the United States to drug cartels outside of the United States, often in Colombia.  According to court documents, beginning in 2008, an investigation conducted by ICE Homeland Security Investigation’s (HSI’s) El Dorado Task Force, in conjunction with the U.S. Attorney’s Office for the Eastern District of New York, identified multiple HSBC Mexico accounts associated with BMPE activity and revealed that drug traffickers were depositing hundreds of thousands of dollars in bulk U.S. currency each day into HSBC Mexico accounts.  Since 2009, the investigation has resulted in the arrest, extradition, and conviction of numerous individuals illegally using HSBC Mexico accounts in furtherance of BMPE activity.  
As a result of HSBC Bank USA’s AML failures, at least $881 million in drug trafficking proceeds – including proceeds of drug trafficking by the Sinaloa Cartel in Mexico and the Norte del Valle Cartel in Colombia – were laundered through HSBC Bank USA.  HSBC Group admitted it did not inform HSBC Bank USA of significant AML deficiencies at HSBC Mexico, despite knowing of these problems and their effect on the potential flow of illicit funds through HSBC Bank USA.  

The Sanctions Investigation

According to court documents, from the mid-1990s through September 2006, HSBC Group allowed approximately $660 million in OFAC-prohibited transactions to be processed through U.S. financial institutions, including HSBC Bank USA.  HSBC Group followed instructions from sanctioned entities such as Iran, Cuba, Sudan, Libya and Burma, to omit their names from U.S. dollar payment messages sent to HSBC Bank USA and other financial institutions located in the United States.  The bank also removed information identifying the countries from U.S. dollar payment messages; deliberately used less-transparent payment messages, known as cover payments; and worked with at least one sanctioned entity to format payment messages, which prevented the bank’s filters from blocking prohibited payments. 

Specifically, beginning in the 1990s, HSBC Group affiliates worked with sanctioned entities to insert cautionary notes in payment messages including “care sanctioned country,” “do not mention our name in NY,” or “do not mention Iran.”  HSBC Group became aware of this improper practice in 2000.  In 2003, HSBC Group’s head of compliance acknowledged that amending payment messages “could provide the basis for an action against [HSBC] Group for breach of sanctions.”  Notwithstanding instructions from HSBC Group Compliance to terminate this practice, HSBC Group affiliates were permitted to engage in the practice for an additional three years through the granting of dispensations to HSBC Group policy.

Court documents show that as early as July 2001, HSBC Bank USA’s chief compliance officer confronted HSBC Group’s Head of Compliance on the issue of amending payments and was assured that “Group Compliance would not support blatant attempts to avoid sanctions, or actions which would place [HSBC Bank USA] in a potentially compromising position.”  As early as July 2001, HSBC Bank USA told HSBC Group’s head of compliance that it was concerned that the use of cover payments prevented HSBC Bank USA from confirming whether the underlying transactions met OFAC requirements.  From 2001 through 2006, HSBC Bank USA repeatedly told senior compliance officers at HSBC Group that it would not be able to properly screen sanctioned entity payments if payments were being sent using the cover method.  These protests were ignored.         

“Today HSBC is being held accountable for illegal transactions made through the U.S. financial system on behalf of entities subject to U.S. economic sanctions,” said Debra Smith, Acting Assistant Director in Charge of the FBI’s Washington Field Office.  “The FBI works closely with partner law enforcement agencies and federal regulators to ensure compliance with federal banking laws to promote integrity across financial institutions worldwide.”

“Banks are the first layer of defense against money launderers and other criminal enterprises who choose to utilize our nation’s financial institutions to further their criminal activity,” said Richard Weber, Chief, Internal Revenue Service-Criminal Investigation (IRS-CI).  “When a bank disregards the Bank Secrecy Act’s reporting requirements, it compromises that layer of defense, making it more difficult to identify, detect and deter criminal activity.  In this case, HSBC became a conduit to money laundering.  The IRS is proud to partner with the other law enforcement agencies and share its world-renowned financial investigative expertise in this and other complex financial investigations.”

Manhattan District Attorney Cyrus R. Vance Jr., said, “New York is a center of international finance, and those who use our banks as a vehicle for international crime will not be tolerated.  My office has entered into Deferred Prosecution Agreements with two different banks in just the past two days, and with six banks over the past four years.  Sanctions enforcement is of vital importance to our national security and the integrity of our financial system. The fight against money laundering and terror financing requires global cooperation, and our joint investigations in this and other related cases highlight the importance of coordination in the enforcement of U.S. sanctions. I thank our federal counterparts for their ongoing partnership.”

Queens County District Attorney Richard A. Brown said, “No corporate entity should ever think itself too large to escape the consequences of assisting international drug cartels.  In particular, banks have a special responsibility to use appropriate due diligence in monitoring the cash transactions flowing through their financial system and identifying the sources of that money in order not to assist in criminal activity.  By allowing such illicit transactions to occur, HSBC failed in its global responsibility to us all.  Hopefully, as a result of this historical settlement, we have gained the attention of not only HSBC but that of every other major financial institution so that they cannot turn a blind eye to the crime of money laundering.” 

                                                                                    *  *  *
This case was prosecuted by Money Laundering and Bank Integrity Unit Trial Attorneys Joseph Markel and Craig Timm of the Criminal Division’s Asset Forfeiture and Money Laundering Section, and Assistant U.S. Attorneys Alex Solomon and Daniel Silver of the U.S. Attorney’s Office for the Eastern District of New York.  

The AML investigation was conducted by HSI’s El Dorado Task Force, a joint task force composed of members from more than 55 law enforcement agencies in New York and New Jersey, including special agents and investigators from IRS-CI and the Queens County District Attorney’s Office, other federal agents, state and local police investigators and intelligence analysts, with the assistance of DEA’s New York Division.  The sanctions investigation was conducted by the FBI’s Washington Field Office.

The Money Laundering and Bank Integrity Unit is a corps of prosecutors with a boutique practice aimed at hardening the financial system against criminal money laundering vulnerabilities by investigating and prosecuting financial institutions and professional money launderers for violations of the anti-money laundering statutes, the Bank Secrecy Act and other related statutes. 

The Department of Justice expressed gratitude to William Ihlenfeld II, U.S. Attorney for the Northern District of West Virginia; Assistant District Attorney Garrett Lynch of the New York County District Attorney’s Office, Major Economic Crimes Bureau; the Treasury Department’s Office of Foreign Assets Control; the Board of Governors of the Federal Reserve System; and the Office of the Comptroller of the Currency for their significant and valuable assistance.

UK: FSA requires action of the HSBC Group

The Financial Services Authority (FSA), as lead regulator for the HSBC Group globally, is taking action in relation to issues in respect of HSBC’s compliance with anti-money laundering rules and US sanctions requirements.

The FSA has worked closely with the relevant US authorities and this action is separate to, but coordinated with the actions taken by them.

The FSA has made a number of requirements of HSBC Holdings plc which are designed to ensure that all parts of the HSBC Group are in compliance with the relevant legal and regulatory requirements across the Group to prevent similar failings occurring in the future. The FSA requires HSBC Holdings to:

  • Establish a committee of the HSBC Board with a mandate to oversee matters relating to anti-money laundering, sanctions, terrorist financing and proliferation financing;
  • Review relevant Group policies and procedures to ensure that all parts of the HSBC Group are subject to standards equivalent to those required under UK requirements;
  • Appoint a Group Money Laundering Reporting Officer (MLRO) who will be an FSA approved person, with responsibility for ensuring that systems and controls are in place across the Group, to ensure the Group is in compliance with all relevant legal and regulatory requirements; and
  • Employ an independent monitor to oversee the Group’s compliance with UK anti-money laundering, sanctions, terrorist financing and proliferation financing requirements and to provide independent reporting to the HSBC Board committee and regulators.

Through its supervision, the FSA will take steps to ensure that HSBC complies with these measures.

These measures are in addition to the requirements of the Cease and Desist order issued by the Federal Reserve Board and the Deferred Prosecution Agreement issued by the US Department of Justice on 11 December 2012.