UK Residence, Domicile and the Remittance Basis: Operational changes

The Finance Act 2008 made a number of changes to the remittance basis tax rules and some changes to the residence rules. These changes followed the ending of the review of residence and domicile which started in 2002. The changes can be found in sections 24 and 25 and Schedule 7 of the Finance Act 2008 but can be summarised broadly as:
Most individuals now need to make an annual claim to the remittance basis.
Individuals claiming the remittance basis of taxation, where they have unremitted foreign income or gains of £2,000 or more arising in the tax year, lose their entitlement to personal allowances and the annual exempt amount for Capital Gains Tax.
The introduction of an annual £30,000 tax charge for adult remittance basis users resident in the UK in the current year and for seven or more of the previous nine years where they have unremitted foreign income or gains of £2,000 or more in the current year.
Changing the day counting rules that determine when someone becomes resident in the UK under the 183-day rule to count as a day any day upon which an individual is in the UK at the end of that day (ie at midnight), subject to a new rule for transit passengers.
Closure of a number of loopholes and flaws in the remittance basis that allowed people to bring untaxed income or gains into the UK tax-free.
In the light of these changes HM Revenue & Customs (HMRC) is making some changes to the way we deal with residence, domicile and the remittance basis of taxation.
Guidance
The main HMRC guidance for residence, domicile and remittance basis issues has for many years been the IR20. This was updated last year to incorporate some changes introduced by Finance Act 2008 but, as already announced; we recognise that IR20 needs significant revision. So guidance to replace the IR20 will be published soon and at the same time the IR20 will be withdrawn. We will also be withdrawing any other HMRC guidance on residence and ordinary residence contained in other HMRC manuals, Statements of Practice and publications (for example R&CB 01/07, TB52, SP/A10, SP3/81, SP2/91, SP17/91). In the light of this any practices associated with the old guidance, whether in IR20 or elsewhere, will not apply from 6 April 2009, unless provided for in the new guidance. That new guidance will be in the form of a new set of internet based guidance supported by HMRC guidance manuals for our staff which are also published on the Internet.
The new guidance reflects the 2008 Finance Act changes, other changes from other Finance Acts and recent court decisions in this area. Some wholly new guidance is being issued in some areas, such as domicile, to help people correctly self-assess their tax liability.
Some interim guidance had been made available already, mostly in the form of Frequently Asked Questions (FAQs) and the explanatory notes for Schedule 7 Finance Act 2008. This interim guidance will be incorporated into the new permanent guidance as appropriate. The following guidance has already been released:
Guidance on Employment Related Securities
Guidance on section 690 ITEPA directions as explained below
Statement of Practice 1/09 (which replaces Statement of Practice 5/84).
Coming to work in the UK
The remaining guidance will be published shortly and will include:
A simple guide to residence, ordinary residence and domicile.
The 'Residence, Domicile & the Remittance Basis’ guidance (HMRC6). This replaces the old IR20.
New guidance on the remittance basis rules. (This will form part of the new 'Residence, Domicile and Remittances' manual for HMRC staff.)
Some new guidance on domicile. (This will move to the Residence, Domicile and Remittances manual in due course.)
Some new guidance on non-resident trusts.
Some guidance on the application of the remittance basis to the Transfer of Assets legislation. (This will form part of the new 'Transfer of Assets' manual for HMRC staff.)
Updates to the Capital Gains Tax manual to reflect the changes to the remittance basis.
A new short guide for international students.
Revised guidance on letting property abroad.
Most of the guidance will initially be published on the 'Residence and domicile : Guidance on the new tax rules' pages but over the coming months it will be incorporated into existing guidance manuals as appropriate and published as part of our general internet guidance. The same webpage will provide links to any guidance published in existing guidance manuals
Initial non-domicile claims – Form DOM 1
Tax Bulletin 29, published in June 1997, announced that following the introduction of self assessment HMRC (the former Inland Revenue) would no longer provide a residence rulings service. However we continued to accept initial non–domicile claims on forms DOM 1 or P86. Enquiries are sometimes undertaken into such claims under Schedule 1A TMA 1970. In addition an enquiry under section 9A TMA 1970 can also be made into a claim to non-domicile status made on a Self Assessment tax return either as a stand alone enquiry or as part of a wider enquiry.
The publication of our new guidance on domicile, plus the fact that from 2008-09 onwards a claim to the remittance basis is no longer mandatory, and must be made on a year by year basis where an individual has unremitted foreign income or gains of £2,000 or more arising in the tax year, mean that HMRC will no longer accept initial non-domicile claims on form DOM 1 or form P86. Form DOM 1 is being withdrawn completely. It will be replaced by the new comprehensive domicile guidance mentioned above that will allow the vast majority of people to self assess their own domicile status. Form P86 will also be withdrawn soon and replaced by a new form. Until such time as the new form is issued individuals do not need to fill in boxes 12 to 17 on the P86 when submitting it. If they choose to fill in those boxes HMRC will ignore the content when processing the form.
Any DOM 1 forms received by HMRC by close of business 25 March 2009 will still be processed but any received after that date will be returned unexamined.
In future, subject to the comments below about Inheritance Tax, enquiries about domicile status will be dealt with by way of an enquiry into a Self Assessment tax return which an individual has made on the basis that they are not domiciled in the UK.
Where an individual has already submitted a form DOM 1 or P86 and obtained an initial view from HMRC about their domicile status it will be unusual for us to open an enquiry into domicile status in the few years after that, unless new information becomes available that indicates our initial view was incorrect or there has been a change in circumstances. However with the passage of time, circumstances and intentions change and so that initial view from HMRC can become less and less useful as an indicator of domicile status. For example if an individual had advised HMRC on their arrival in England a decade or so ago that they planned to leave the UK after five years but had since married, had a family and decided to make England their permanent home then they will have adopted a domicile of choice within the UK.
Domicile and Inheritance Tax
Where an individual who is not domiciled in the UK settles non-UK assets into a non-UK resident trust then assets in that trust will not be subject to inheritance tax. Following the release of the new HMRC guidance on domicile most settlors should now be able to decide for themselves whether or not they are UK domiciled.
An individual setting up a non-resident trust who, having taken account of the new HMRC guidance, considers they are non-UK domiciled is not obliged to submit an Inheritance Tax account to HMRC. If the settlor is non-UK domiciled then no Inheritance Tax is due. But if an Inheritance Tax account is submitted in these circumstances, HMRC will continue its existing practice and only open an enquiry into that return if the amounts of Inheritance Tax at stake make such an enquiry cost effective to carry out. At present that limit is £10,000.
As is currently the case, where HMRC has expressed an opinion on the domicile status of a settlor for Inheritance Tax purposes we will not normally seek to reconsider that opinion unless new information becomes available that indicates our initial opinion was incorrect or there has been a material change in the circumstances of the settlor. However, when we make a decision it applies only to the date of the transaction concerned. So if circumstances change, the individual returns to the UK for example, that individual’s domicile may need to be considered again at another point in time. Domicile is not a static thing, it can change as people’s circumstances and intentions change.
Enquiries into domicile status
For 2008-09 and later years, in order to make a valid claim to the remittance basis individuals will be required to state on their Self Assessment tax return the grounds for their entitlement by stating either that they are not domiciled in the UK or that they are not ordinarily resident in the UK (or both). The new domicile guidance will help individuals decide their domicile status, supported as appropriate by any professional advice they may obtain. As a result, if HMRC decides to enquire into an individual’s domicile status this will be by way of a section 9A TMA enquiry into their Self Assessment tax return. (Alternatively in appropriate cases HMRC may enquire into an individual’s domicile status by way of a Part VIII IHTA enquiry into an Inheritance Tax return.) Where a claim to the remittance basis is not challenged for that year it does not mean HMRC necessarily accepts the individual’s domicile is outside the UK and does not prevent HMRC from later opening an enquiry to consider the domicile status of the individual in relation to that, or any earlier year.
Enquiries aimed at establishing an individual’s domicile are, by their very nature, examinations of an individual’s background, lifestyle, habits and intentions, possibly over the course of a lifetime. Consequently, any such enquiries conducted by HMRC will, where necessary, extend to areas of individuals’ and their families’ affairs that may not normally be regarded as relevant to their UK tax position. As a result of some feedback from customers on such domicile enquiries our new domicile guidance includes a section starting at paragraph 49600 which explains the nature of a domicile enquiry and the sorts of questions an individual will need to answer as part of that enquiry.
Where HMRC has expressed a view on an individual’s domicile status for income tax or capital gains tax purposes, as a result of an enquiry, then that view will also apply for Inheritance Tax purposes at that time. Likewise a HMRC view expressed for Inheritance Tax purposes, following a Part VIII IHTA enquiry, will also apply for income tax and capital gains purposes at that time. However, it is important to remember that each decision on domicile will be made at a certain point in time, if circumstances have changed since the time of the relevant decision, the domicile of the taxpayer may also have changed.
Remittance basis users whose foreign income and gains is less than £2,000
Under section 809D ITA 2007 an individual who is entitled to claim the remittance basis of taxation but whose total unremitted foreign income and gains is less than £2,000 in any tax year, can use the remittance basis without having to make a formal claim each year by submitting a Self Assessment tax return. Also, such users will not lose any of their Personal Allowances or their Annual Exempt Amount.
Individuals making use of section 809D are still taxable on any foreign income or gains remitted to the UK. Remittances may be in the form of cash, assets or services enjoyed in the UK. Taxable remittances have to be included on a self assessment tax return. Also, some people who are able to use the remittance basis under section 809D will already be within self assessment and so have an annual Self Assessment tax return to make. There is a new box on the supplementary 'Residence and Remittance Basis etc.' pages (SA109) for such individuals to advise HMRC of their use of the remittance basis under section 809D. This ensures they continue to get their Personal Allowances and the Annual Exempt Amount.
It is recognised that some individuals, in particular those on low income, may make small cash remittances to the UK, out of foreign income or gains, and as a result have to complete a Self Assessment tax return possibly to pay only a small amount of tax. This is particularly the case where foreign tax has already been paid on the income or gains. Where an individual who is making use of section 809D remits less than a total of £500 in cash, which arises from foreign income or gains, into the UK during the tax year, then HMRC will accept that such an individual does not need to make a Self Assessment Tax return simply to pay the tax on those cash remittances. However where such an individual is required to complete a Self Assessment tax return for any other reason, or HMRC serves them with a notice to make a return, then they will need to include those remittances on the return and pay the tax due. This practice will apply for 2008-09 and subsequent years.
Individuals paying the £30,000 Remittance Basis Charge
The £30,000 charge is not a separate stand alone tax charge but rather a charge to income tax or Capital Gains Tax on unremitted foreign income or gains. The fact that the £30,000 constitutes income tax or Capital Gains Tax (or a combination of the two) ensures that individuals who remit all of their foreign income and gains to the UK can get credit for the £30,000 against their UK liabilities. In order to obtain that relief individuals have to make sure they make appropriate nominations of the income or gains upon which the £30,000 is paid.
The rules for nominating income and gains upon which the £30,000 is paid, and the rules for identifying what is taxed if those nominated income or gains are later remitted to the UK, can be complex. To help ensure individuals who pay the £30,000 get the right level of customer support from HMRC, we have decided that most individuals who pay the £30,000, or have paid it in the past, will have their tax affairs dealt with in one HMRC office from 2009-10. This will be the CAR Residency office in Castle Meadow, Nottingham.
Customers who are sent a self assessment return by a different office should make the return to the office issuing that return. Once the return has been received by HMRC we will arrange for the individual’s tax records to be transferred to the CAR Residency office in Nottingham and advise the individual and any agent, accordingly. Until such time as individuals or their agents receive such a notification they should continue to deal with their current tax office.
Section 690 ITEPA directions
Prior to April 2008 non-domiciled individuals and not ordinarily resident individuals were automatically taxed on the remittance basis on their foreign employment income. However since April 2008 individuals have to make an annual claim to the remittance basis. Section 690 ITEPA was amended in Finance Act 2008 to reflect this change for not ordinarily resident employees. Prior to April 2008 employers were able to ask for a section 690 direction which permitted them not to apply PAYE to certain employment income paid to not ordinarily resident employees entitled to be taxed on the remittance basis. These rules have been amended to allow this procedure to continue.
As mentioned above, revised guidance on this has already been published on the HMRC website.

OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions

The OECD Anti-Bribery Convention establishes legally binding standards to criminalise bribery of foreign public officials in international business transactions and provides for a host of related measures that make this effective. It is the first and only international anti-corruption instrument focused on the ‘supply side’ of the bribery transaction. The 34 OECD member countries and four non-member countries - Argentina, Brazil, Bulgaria, and South Africa - have adopted this Convention (Entry into force and Status of ratification).

Implementing the Convention, country by country

The Convention itself establishes an open-ended, peer-driven monitoring mechanism to ensure the thorough implementation of the international obligations that countries have taken on under the Convention. This monitoring is carried out by the OECD Working Group on Bribery which is composed of members of all State Parties. The country monitoring reports contain recommendations formed from rigorous examinations of each country.

2009 Anti-Bribery Recommendation

The 38 countries have agreed to put in place new measures that will reinforce their efforts to prevent, detect and investigate foreign bribery with the adoption of the OECD Recommendation for Further Combating Bribery of Foreign Public Officials in International Business Transactions.

OECD Working Group on Bribery in International Business Transactions

The OECD Working Group on Bribery in International Business Transactions (Working Group) is responsible for monitoring the implementation and enforcement of the OECD Anti-Bribery Convention, the 2009 Recommendation and related instruments. Made up of representatives from the 38 States Parties to the Convention, the Working Group meets four times per year in Paris.

Report on global financial crisis points to ´systemic failures´, disconnection from ´real economy´

Self-feeding speculation in housing, currencies, and commodities through complex financial instruments where appropriate prices could not be determined led to a divorce from the "real" economy, a new UNCTAD report contends -- and by the time these speculative bubbles burst, the global financial crisis was a foregone conclusion.
The herd behaviour that characterized these speculative positions went unregulated. Reforms should be made to the international financial and monetary systems allowing appropriate government intervention and international oversight so that these systems to do not get so far out of balance in the future.
"The United Nations must play a central role in the reform process," the report urges, "not only because it is the only institution which has the universality of membership and credibility to ensure the legitimacy and viability of a reformed governance system, but also because it has proven capacity to provide impartial analysis and pragmatic policy recommendations."
The report, titled The Global Economic Crisis: Systemic Failures and Multilateral Remedies , was released today. It was written by economists serving on UNCTAD´s Secretariat Task Force on Systemic Issues and Economic Cooperation in advance of several upcoming international conferences on the global economic crisis.
Financial deregulation, driven by blind faith in the virtues of the market, allowed forms of financial innovation that were completely detached from productive activities in the real sector of the economy, UNCTAD experts contend. Such instruments favour speculative activities that build on apparently convincing information which is little more than an extrapolation of trends into the future. "Speculation on excessively high returns can support itself -- for a while," the report says. But the realities of slow growth of the real economy, where investment can generate increases in real incomes, eventually catch up with the illusions of risk-free speculative finance.
The sudden and almost simultaneous collapse of speculative positions across global financial markets may have been triggered by the bursting of the United States housing-price bubble. But other bubbles, including those related to speculation in currencies and commodities such as oil, also were unsustainable. They would have popped sooner or later even without the spark caused by the US mortgage debacle.
Without greed, the crisis would not have erupted with such force, the report says -- and regulations and practical policies should have been in effect anticipating such greed and short-sightedness. Experience has shown that financial markets do not function well without effectively designed and enforced regulation. "We have learnt now that financial market participants not only have no idea about the equilibrium, but they tend to drive financial prices systematically away from the equilibrium. Governments do not know the equilibrium either, but at some point they are best-positioned to judge when a market is in disequilibrium."
In a globalized economy, interventions in financial markets call for cooperation and coordination by national governments, and for specialized institutions with clear orders for international surveillance.
In confronting the next wave of the crisis, it will be critical to stabilize exchange rates by direct and coordinated government intervention, supported by multilateral oversight, the study contends. Governments should not leave it to the market to find the "bottom line," and international institutions should not make their emergency finance to crisis-stricken countries conditional upon pro-cyclical policies such as public-expenditure cuts or interest rate hikes, which would be damaging in the current situation.
Excessive speculative financial activity should be tackled as a whole, the report recommends. Establishing national regulations to prevent housing bubbles and the creation of risky financial instruments alone would only intensify speculation in other areas such as stock markets, it points out. And preventing currency speculation through a global monetary system with automatically adjusted exchange rates might simply redirect speculators searching for quick profits into commodities futures markets, thus increasing volatility there. The same is true for regional steps to fight speculation, the report says -- that might only make other regions the focus of speculators. "Nothing short of closing down the big casino will provide a lasting solution."
Speculation that develops into a sustained pattern of betting on ever-rising prices is not stabilizing. On the contrary, it destabilizes prices. The key condition for stabilizing speculation is that the "true" price be known in a global economy characterized by objective uncertainty. But this "true" price cannot be known in markets spiralling upwards amidst uniform, but wrong, expectations about long-term price trends. During the recent speculative boom, many agents disposing of large amounts of money bet on the same "plausible" outcome, and saw their expectations confirmed by media opinion, by analysts presumed to be experts, and by policy makers who respected their opinions, the report says There were no regulations -- and little oversight -- in place to halt the upward spiral and to break the illusion of risk-free profits.

The report highlights three specific areas in which the global economy experienced systemic failures. While there are many more facets to the crisis, UNCTAD examines here some of those that it considers to be the core areas to be tackled immediately by international economic policy-makers because they can only be addressed through recognition of their multilateral dimensions.

The global economic crisis: systemic failures and multilateral remedies

The report investigates three interrelated issues of importance to developed and developing countries alike, and proposes measures to address the systemic failures they have entailed:

• how the ideology of financial deregulation within and across nations allowed the build-up of pressures whose unwinding has damaged the credibility and functioning of the market-based models that have underpinned financial development throughout the world;
• how the growing role of large-scale financial investors on commodities futures markets has affected commodity price volatility and fed speculative bubbles; and
• the role of widespread currency speculation in exacerbating global imbalances and fuelling the current crisis in the absence of a cooperative international system to manage exchange rate fluctuations to the benefit of all nations.

Read the report

False Profits: robbing the poor to keep the rich tax-free

As the G20 meet in London to discuss a way out of the global economic crisis, new research commissioned by Christian Aid shows how billions of pounds are lost each year to countries both rich and poor through tax dodging.
False Profits is a shocking indictment of a financial system that allows such abuse to thrive.
Author Dr David McNair, Christian Aid’s senior economic justice adviser, says: ‘Paying as little tax as possible, regardless of the social consequences, has for many become an acceptable way of doing business.
‘The money lost could be used to provide schools, hospitals and better living conditions worldwide.’

Read the report

Internet Intelligence Course : How to use the Internet as an Effective Investigative Research Tool

27-30 September 2009

ICC Commercial Crime Services have developed a three-day course to be held in state of the art computer facilities at Cambridge University which will provide delegates with:

• An overview of the Internet and how it works
• The ability to use the Internet in a more effective way as an open source/competitive intelligence tool
• Advanced techniques to mine data using different search tools and uncover hidden information
• Strategies for filtering, analysing and organising research data
• An awareness of security and privacy issues including techniques to both hide and increase visibilities of sites

The course will be highly practical and interactive and is led by David Toddington, who is a leading expert with a wealth of experience in this field. It will be of interest to a range of different individuals, including:

• Corporate security professionals in banks, insurers and multinationals
• Fraud investigators, accountants and analysts
• Competitive intelligence researchers
• Government and private sector investigators
• Law enforcement officers
• Knowledge workers and researchers

Each delegate will receive a 250-page comprehensive manual, as well as various shareware software applications, and a certificate of attendance. Click here to download a course brochure

Who should attend?

This unique course is designed for anyone who wishes to use the Internet more effectively for research, investigation and information gathering. It will appeal in particular to:

• Corporate security professionals in banks, insurers and multinationals
• Fraud investigators, accountants and analysts
• Competitive intelligence researchers
• Government and private sector investigators
• Law enforcement officers
• Knowledge workers and researchers

What the course includes

• Intensive 3 day training for up to 25 delegates using networked computers
• A 250 page course manual and shareware software applications
• Accommodation in single ensuite rooms at the college
• All meals
• Evening social programme

About the Speaker

David Toddington, is a former Vice President and General Manager of a national Canadian Internet Service Provider. David has operated an Information Technology consulting firm that provides services to a diverse selection of Law Enforcement, Public and Private Sector clients for the past eight years.

DM Toddington & Company provides advanced Internet technologies support, computer forensic data examination and Internet based intelligence services to a number of operational units within the Royal Canadian Mounted Police. In addition to the RCMP, the company has also provided services to sections within the British Columbia Organized Crime Agency and a number of municipal police agencies across Canada.

David regularly lectures on Internet related investigative matters to various police and related groups in Canada, United States, Asia, Europe and the Middle East, and has developed a number of training programmes focused on Information Technologies as they relate to security and police investigations. In addition to his teaching at the Canadian Police College, David also instructs through a number of different police academies including the RCMPs Pacific Region Training Centre, the Idaho State Police Academy (US) and the West Yorkshire Police Training and Development Centre (UK).

Retrenchment and back to basics as financial services stave off impact of global recession

Retrenchment, across the board cost reductions and disposal of non-core businesses and assets are becoming the default strategies for the financial services (FS) industry as it navigates its way through the global recession, according to Ernst & Young.

Opportunities in Adversity, conducted by The Economist Intelligence Unit for Ernst & Young, was based on a poll of 90 financial services organisations around the world with turnovers in excess of $1bn.

As credit availability remains tight and the broader financial distress intensifies, unsurprisingly financial services are most affected by the downturn: 60% of businesses polled said that net profitability within the FS sector had significantly deteriorated. This compared to 40% across the other industries polled in the research. Additionally, almost 75% of financial institutions had experienced a slight or significant deterioration in their organisation compared to just under two thirds of all the businesses polled.

Tom McGrath, managing partner for Ernst & Young’s European, Middle East, India and Africa (EMEIA) financial services business, says: “Across the FS landscape we are seeing a real focus on operational efficiency and cost reduction, either through headcount reduction, demand management or heightened focus on outsourcing.

“We are also seeing an almost ‘real time’ definition of what constitutes core and non-core for our clients, with the focus on accelerated disposals of newly defined non-core businesses or assets. The challenge is to have a clear view of how businesses will continue to perform effectively in its chosen marketplace. Our research shows that future sustainability will be achieved by reshaping not downsizing.

“The current marketplace is also presenting unprecedented growth opportunities for businesses that are relatively capital or cash rich to take market share in profitable segments from weakened competitors or pick-up ‘game changing’ acquisitions. We are already seeing the impact of the slowdown on the financial services landscape with banks on both sides of the Atlantic divesting assets to free up capital. This has to be anticipated over the coming months and we should expect to see a considerable reshaping of the financial services landscape.”

Faring up in the global recession

The research also found that almost 90% of financial institutions have already started or are starting to implement overall cost savings analysis; just under three quarters are doing the same with headcount reduction; and more than half are rationalising employee benefits.

Over the next year and in direct response to current market conditions, more than 50% of the respondents are planning to divest non-core or non performing business; almost 40% plan to increase outsourcing or ‘co-sourcing’; and just over a third are considering moving their operations to lower cost locations.

Andy Baldwin, markets managing partner for Ernst & Young’s EMEIA financial services business, explains: “Traditional outsourcing and co-sourcing has tended to focus on enabling functions, with a particular emphasis on IT, finance and data management and selective voice processes with businesses being largely driven by a mixture of ‘wage arbitrage’ and ‘improved productivity’ .

“In future, it’s likely that this trend will continue at a new, more aggressive level in FS – although the direct financial interest of many European governments in a number of financial institutions is likely to heighten the political sensitivity around this topic.

“In addition, uncertainty in the future regulatory landscape, future fiscal policy and the impact on remuneration structures are likely to feature prominently in the decision of where to locate some of the smaller, entrepreneurial FS businesses that retain a strong owner-managed culture. For some of the major FS centres across EMEIA, this represents a particular set of challenges which the authorities will need to navigate with great care.”

Balancing the customer and supplier tightrope

Financial institutions are also treading a fine balance in their relationships with customers and suppliers alike: almost three quarters have increased their focus on key accounts; just over 50% have terminated high-risk contracts with customers; while just over a third have launched new products or services to maintain customer numbers.

When it comes to suppliers financial institutions are split into two camps: almost 55% have narrowed their supplier base to obtain more favourable prices or terms, while precisely a third have broadened their supplier risk to reduce the impact of a supplier’s bankruptcy.

Cash is king

The old adage that cash is king still rings true: just under 75% of FS respondents had seen the credit worthiness of their customers fall away; well over half said that some key customers were experiencing financial distress; and almost a third were seeing an increase in customer order and cash collection.

Where suppliers are concerned, more than half of financial institutions are communicating more proactively with suppliers as they seek to maintain cash management, and a third said they were negotiating more frequent payment terms.

In terms of their own cash management, almost 70% of the companies polled have conducted a top-down review of current cash management and flows; half have considered possible assets that could be turned into cash; and almost four in ten are building working capital measures into the performance objectives of their management teams.

Andy Baldwin commented: “Over the last 10 years many FS businesses have experienced a period of unprecedented boom. Inevitably during such periods of high growth the basic housekeeping of cash and working capital management received less management attention. Any manufacturer will tell you that cash flow has brought down many businesses long before the profit & loss showed a loss.

“With the deteriorating market conditions, increases in corporate defaults and the risk of bad debt, many FS businesses are refreshing skills and putting increased organisational focus around cash in and cash out processes. We have found that by getting this right some FS businesses can generate a further 3-5% of total sales value.”

Other findings from the research:

• 63% of financial services companies expect a significant increase in efforts to protect their assets, compared to almost 40% of overall respondents;
• Just under half (46%) expect a significant increase in restructuring their business to meet new conditions (compared to 37% overall);
• Six in ten firms are considering alternate sources of liquidity while almost half are obtaining access to short term finance facilities and/or credit. A similar number were also proactively communicating with lenders, analysts and ratings agencies;
• Protection of the brand and financial reputation was the key driver for an enhanced risk assessment in the current environment (62%), closely followed by better liquidity and cash management (61%);
• Sales and marketing is the activity that six in ten financial services businesses thought would be most affected by decline in investment (compared to a third of all businesses); and
• Just over four in ten financial institutions believed that an information security breach could severely impact their brand and financial reputation (compared to 32% overall).

Opportunities in Adversity

The Economist Intelligence Unit on behalf of Ernst & Young surveyed in January 2009, 337 board members of international corporates, over half of which had turnover of $10billion plus, on how the downturn had impacted on their strategic objectives and the way they do business.

Download the whitepaper

FICCI Grant Thornton Corporate Governance Review 2009

Corporate governance and its implementation in India is not only being seen as an aftermath to recent corporate frauds, but also as a consequence of the increasing emergence of the Indian economy, as a global powerhouse. With greater integration within the global framework, Indian companies realise that they also need to be seen as being sound, ethical and transparent in their operations. And it is not simply legislation that will facilitate greater adoption of good governance practices - it is softer aspects that need greater attention in India. The inaugural FICCI GT: India 101-500 CGR 2009, was designed specifically to analyse corporate governance practices at 'mid-market' listed companies in India. The review methodology was based on a survey to gauge the nature and extent of corporate governance practices and approximately 500 companies across various sectors were targeted to participate in the survey. In addition, views of strong advocates of corporate governance in India were obtained on specific issues emanating from the survey and these were analyzed by a team of experts from FICCI and Grant Thornton. The results of this study and review have been thoroughly brought out in the FICCI GT: 101 - 500 CGR 2009 report, which was released on 25 March 2009, at a press conference with FICCI.

Click here to download the report

Singapore: 100,000 employers to receive $920 million in first payment of Jobs Credit

100,000 employers employing some 1.3 million local workers will receive $920 million in the first payment of Jobs Credit on 31 March 2009.

2. The Jobs Credit scheme is part of the $20.5 billion Resilience Package announced in Budget 2009 to help Singapore see through the severe economic downturn this year. The Jobs Credit scheme provides cash grants to employers to help them preserve jobs. Under the scheme, an employer will receive a 12% cash grant on the first $2,500 of each month’s wages for each employee on their CPF payroll. It is a one-year scheme with four quarterly payments.

First Payment of Jobs Credit on 31 March 2009

3. Eligible employers[1] will receive a notification letter by 27 March 2009 from the Inland Revenue Authority of Singapore (IRAS) which administers the scheme. The letter will inform them of the amount of Jobs Credit they will receive for the first payment, which will be based on the wages that they paid in October to December 2008.

4. The First Payment will be made on 31 March 2009. The remaining three payments will be made on:

Second Payment : 30 June 2009
Third Payment : 30 September 2009
Fourth Payment : 31 December 2009

5. Employers eligible for future payments will receive a notification letter from IRAS prior to the payment dates.

No Sign-Up Necessary to Receive Jobs Credit

6. The Jobs Credit will be automatically granted to eligible employers – employers do not need to apply for it. The Jobs Credit will be computed based on CPF contribution data and will be paid via direct credit into employers’ bank accounts or by cheque[2].

Further Extension of CPF Contribution Deadline for Jobs Credit

7. As the Jobs Credit scheme was announced on 22 January 2009 and is new, a further extension of deadline has been granted for employers to qualify for the First Payment of Jobs Credit. Employers who make late CPF contributions by 15 April 2009[3] for wages that were paid in October to December 2008 will receive Jobs Credits on these wages on 30 June 2009. (They will hence receive the First Payment of Jobs Credit at the same time as the Second Payment that will be made on 30 June 2009.) There will be no extension of deadline for the Second and Third Payments of Jobs Credit. Employers will have to make CPF payments on time in order to qualify for these Jobs Credit payments.

DTAA Between Mauritius and Germany to be Revised

A first round of discussions on a revised Double Taxation Avoidance Agreement (DTAA) between the Federal Republic of Germany and Mauritius ended yesterday at the headquarters of the Mauritius Revenue Authority (MRA) in Port Louis.
An official delegation from the Federal Republic of Germany, headed by Dr Wolfgang Lasars from the Federal Ministry of Finance, was in Mauritius since the 18 March in the context of a revision round on the existing Mauritius-Germany DTAA which dates as far back as 1978.
The Mauritian negotiating team comprised a representative from the MRA, the State Law Office and the Ministry of Finance and Economic Empowerment.
At this stage, both parties have agreed on some of the provisions of the new treaty and further discussions will be pursued at a second round before finalising the treaty which will be beneficial in terms of boosting economic transactions as well as encouraging cross-border transactions between both countries.
Double tax treaties comprise of agreements between two countries which, by eliminating international double taxation, promote exchange of goods, services and investment of capital. They are bilateral economic agreements where the countries concerned evaluate the sacrifices and advantages which the treaty brings for each contracting State, including tax forgone and compensating economic advantages.
The objectives of double taxation avoidance agreements are to help in avoiding and alleviating the adverse burden of international double taxation by means of laying down rules for division of revenue between two countries, by exempting certain incomes from tax in either country, and reducing the applicable rates of tax on certain incomes taxable in either countries.
It is recalled that so far Mauritius has concluded 34 tax treaties and is party to a series of treaties under negotiation.

AIMA statement on IOSCO short selling consultation report

“This consultation report from IOSCO’s Task Force on Short Selling is admirably sensible.
AIMA, as the global trade body for the world’s hedge fund industry, believes that short selling is a wholly legitimate market practice, is not abusive and helps capital markets function more effectively. We therefore particularly appreciate the positive comments from Kathleen Casey, Chairman of the Technical Committee, who said ‘IOSCO believes that short selling plays an important role in capital markets for a variety of reasons including more efficient price discovery, mitigating price bubbles, increasing market liquidity, facilitating hedging and other risk management activities.’
AIMA absolutely agrees with the Task Force that it would be desirable to establish a more consistent international approach to the regulation of short selling. At present the many discrepancies worldwide create unnecessary uncertainty.
We also agree that there should be appropriate reporting regimes for disclosing short positions to national regulators, although we believe that any reporting of short positions to the market should be in aggregate form only.
We support the Task Force’s suggestion that regulators worldwide should have an effective discipline for the settlement of short selling transactions, particularly the settlement of failed trades. Indeed in our new policy platform of 24th February we said we would support measures to reduce such settlement failures.
Finally, we think the conclusion by the Task Force that ‘it is necessary that there is flexibility in short selling regulation in order to allow market transactions that are desirable for efficient market functioning and development’ is a wise one, and we are glad that IOSCO has taken such a pragmatic approach.”

Andrew Baker, Chief Executive of AIMA

IOSCO consults on regulatory approach to short selling

The International Organization of Securities Commissions’ (IOSCO) Technical Committee has published a consultation report entitled Regulation of Short Selling prepared by its Task Force on Short Selling (Task Force), which contains proposed principles designed to help develop a more consistent international approach to the regulation of short selling. The Task Force was established by the Technical Committee in November 2008 in response to concerns regarding the impact short selling was having in the extreme market conditions created by the financial crisis. The Task Force's aims were to work to eliminate gaps between the different regulatory approaches to naked short selling whilst minimising any adverse impact on legitimate activities, such as securities lending and hedging, which are critical to capital formation and reducing market volatility. The report recommends that effective regulation of short selling should be based on the following four principles:

1. Short selling activities should be subject to appropriate controls to reduce or minimise the potential risks that could affect the orderly and efficient functioning and stability of financial markets;
2. Short selling should be subject to a reporting regime that provides timely information to the market or to market authorities;
3. Short selling should be subject to an effective compliance and enforcement system; and
4. Short selling regulation should allow appropriate exceptions for certain types of transactions for efficient market functioning and development.

Kathleen Casey, Chairman of the Technical Committee, said: “IOSCO believes that short selling plays an important role in capital markets for a variety of reasons including more efficient price discovery, mitigating price bubbles, increasing market liquidity, facilitating hedging and other risk management activities. However there is also a general concern that, especially in extreme market conditions such as we have recently experienced, certain types of short selling or the use of short selling in combination with certain abusive strategies may contribute to disorderly markets.” “These principles have been developed with a view to striking a balance between realising the potential benefits of short selling and reducing the adverse impact on financial markets that may arise from abusive short selling.” Martin Wheatley, Chairman of the Task Force on Short Selling, said: “We believe that short selling should operate in a well structured regulatory framework in the interests of maintaining a fair, orderly and efficient market. The objective of such regulation being to reduce the potential destabilising effect that short selling can cause without exerting undue impact on its legitimate benefits in capital formation and volatility reduction.” “While IOSCO encourages a concerted move towards a consistent approach to short selling, it recognises that the case for the regulation of this activity varies from jurisdiction to jurisdiction and depends on a range of domestic factors. These principles will provide guidance to market authorities and assist them in assessing and developing their short selling regulatory framework.”

RECOMMENDATIONS

The report outlines the minimum that regulators should do in order to support each of the four principles. The First Principle – appropriate controls to reduce or minimise the potential risks that could affect the orderly and efficient functioning and stability of financial markets In order to reduce or minimise the potential risks from short selling, regulators should have an effective discipline for the settlement of short selling transactions. As a minimum requirement this should impose strict settlement (such as compulsory buy-in) of failed trades. The Second Principle - a reporting regime that provides timely information to the market or to market authorities In order to achieve this enhanced level of transparency regarding short selling activity, jurisdictions should consider some form of reporting of short selling information to the market or to market authorities. The Third Principle - an effective compliance and enforcement system This is essential for an effective short selling regulatory regime. The regulators should:

· monitor and inspect settlement failures regularly;
· consider whether they are able to extend the power to require information from parties suspected of breach, beyond the scope of licensed or registered persons if they lack such power;
· establish a mechanism to analyse the information obtained from the reporting of short positions and/or flagging of short sales to identify potential market abuses and systemic risk; and
· review whether their existing cross-border information sharing arrangements are sufficient to facilitate cross-border investigation.

The Fourth Principle - allow appropriate exceptions for certain types of transactions for efficient market functioning and development It is necessary that there is flexibility in short selling regulation in order to allow market transactions that are desirable for efficient market functioning and development. Therefore regulatory authorities should at a minimum clearly define the exempted activities and the manner in which these exemptions should be reported. The deadline for responses to this consultation paper is 4 May 2009.

Download Consultation Report

Guernsey: Unregulated PCCs and ICCs

Until March 2009, the Guernsey Financial Services Commission ("GFSC") attached a standard condition, when granting consent to the registration of Protected Cell Companies ("PCCs") and Incorporated Cell Companies ("ICCs"), requiring that any changes in beneficial ownership be notified to the GFSC. The GFSC will no longer impose this requirement when granting consent for new cell companies and is willing to remove the condition for existing companies on request to the Intelligence Team. For the avoidance of doubt, the requirement for cell companies to be administered by a licensed financial services business will continue to apply to existing and new unregulated cell companies.

The nationalisation of Northern Rock

The NAO has reported that the nationalisation of Northern Rock in early 2008 offered the best prospect of protecting the taxpayers’ interests and was based on a sufficiently robust analysis of the options available. However, the Treasury was stretched to deal with a crisis of this nature and there were lessons to be learned.

In 2004, the Tripartite Authorities – HM Treasury, the Bank of England and the Financial Services Authority - had identified gaps in their capability for dealing with a failing financial institution, but although work was taken forward it was not judged a priority in the circumstances at the time.

At the time of the initial run on deposits at Northern Rock, the Treasury put in place guarantee arrangements for retail depositors and wholesale creditors. The immediate risk of instability in the financial system was stemmed. But the Treasury could have been more engaged with the actions being taken in the early stages by Northern Rock. As a condition of public support, mortgage lending was reduced but the company still went on writing high-risk loans up to 125 per cent of a property’s value. Mortgages of this type have a higher default rate.

In late 2007 and early 2008 the Treasury conducted a comprehensive review of the long-term options for Northern Rock. It considered the deliverability of private sector bids for the bank, but concluded that there was insufficient prospect of their attracting the financial backing or demonstrating the resilience needed for a viable solution. Public ownership therefore became the best course in the interests of the taxpayer.

When considering Northern Rock’s first business plan in public ownership, the Treasury could however have done more to test the company’s initial business plan, and to challenge with greater rigour its forecast of trading conditions.

Tim Burr, head of the National Audit Office, said today:

“The Treasury successfully met its objective to protect Northern Rock’s depositors and stopped the run on the bank. It rightly concluded that the private sector bids for the bank gave insufficient prospect of safeguarding the taxpayer’s interest. The Treasury could however have conducted a more systematic assessment of the risks it was taking on and more thoroughly tested the bank’s initial business plan in public ownership.”

Full report (PDF - 932KB)

The FSA publishes "The Turner Review": a wide-ranging review of global banking regulation

The Financial Services Authority (FSA) has today published the Turner Review of global banking regulation. Lord Turner, chairman of the FSA, was asked by the Chancellor of the Exchequer to review the events that led to the financial crisis and to recommend reforms.
The Review identifies three underlying causes of the crisis – macro-economic imbalances, financial innovation of little social value and important deficiencies in key bank capital and liquidity regulations. These were underpinned by an exaggerated faith in rational and self-correcting markets.
It stresses the importance of regulation and supervision being based on a system-wide "macro-prudential" approach rather than focussing solely on specific firms. It recommends:
Fundamental changes to bank capital and liquidity regulations and to bank published accounts;
More and higher quality bank capital, with several times as much capital required to support risky trading activity;
Counter-cyclical capital buffers, building up in good economic times so that they can be drawn on in downturns, and reflected in published account estimates of future potential losses;
A central role for much tighter regulation of liquidity;
Regulation of "shadow banking" activities on the basis of economic substance not legal form: increased reporting requirements for unregulated financial institutions such as hedge funds, and regulator powers to extend capital regulation;
Regulation of Credit Rating Agencies to limit conflicts of interest and inappropriate application of rating techniques;
National and international action to ensure that remuneration policies are designed to discourage excessive risk-taking;
Major changes in the FSA’s supervisory approach, building on the existing Supervisory Enhancement Programme (SEP), with a focus on business strategies and system wide risks, rather than internal processes and structures; and
Major reforms in the regulation of the European banking market, combining a new European regulatory authority and increased national powers to constrain risky cross-border activity.
The Turner Review distinguishes between those areas where the FSA has already taken action, those where the FSA can proceed nationally, and those where international agreement needs to be achieved. It also recognises that there may be alternative specific ways to achieve the essential objectives of effective regulation.
In addition the Review highlights areas where it is premature to recommend specific action, but where wide-ranging options need to be debated. These include product regulation in retail (e.g. mortgage) and wholesale (e.g. CDS) markets.
Lord Turner said:
"The financial crisis has challenged the intellectual assumptions on which previous regulatory approaches were largely built, and in particular the theory of rational and self-correcting markets. Much financial innovation has proved of little value, and market discipline of individual bank strategies has often proved ineffective.
"A global market economy remains the best means of delivering global prosperity: it requires a global banking system focussed on serving the needs of businesses and households, not in taking risks for quick return. Major changes in regulation and in supervisory approach are required to deliver that. The approach has to build on a system-wide perspective: failure to look at the big picture was far more important to the origins of the crisis than any specific failures in supervising individual firms. And it must reflect the reality of a global financial system without a global government; we need both far more intense international cooperation and greater use of national powers.
"The changes recommended are profound, and the banking system of the future will be different from that of the last decade. The world’s economy will be better served as a result."
Lord Turner warns that the transition to higher bank capital will need to be managed carefully. UK banks are now capitalised at a level which will enable them to absorb severe stresses, and the short-term priority is to maintain bank lending to the real economy.
Published alongside the Review is an FSA discussion paper (DP) which sets out more detail on specific policy proposals. As the current crisis arose in the banking, investment banking and "shadow banking" sectors, most of these proposals focus on these sectors. Possible implications for some other sectors are however identified.

The Turner Review can be found on the FSA website.

Discussion paper 09/2 can be found on the FSA website.

Statement of Senator Carl Levin on New Limits on Offshore Secrecy

13 March 2009

Senator Carl Levin, D-Mich., chairman of the Senate Permanent Subcommittee on Investigation, issued the following statement today:
“Yesterday and today, in response to growing international pressure, several offshore secrecy jurisdictions, including Andorra, Austria, Belgium, Liechtenstein, Luxembourg, and Switzerland, have announced significant changes in how they will apply their bank secrecy laws. Each of these countries seems to say that it will no longer use secrecy laws to help people evade taxes, and will begin exchanging information on all types of alleged tax evasion, not just so-called ‘tax fraud.’ That is a very welcome development which is long overdue, and we look forward to effective implementation of the promised new policies. Hopefully, dozens of other secrecy jurisdictions which have cost the U.S. Treasury so many billions of dollars will follow suit.
“At the same time, the promised new limits on offshore secrecy will not only likely take years to implement, but even after taking effect, will not eliminate all offshore tax abuses. That’s why we will continue to press Congress to enact our Stop Tax Haven Abuse Act, S. 506, to strengthen U.S. offshore tax enforcement and help end offshore abuses that enable U.S. tax cheats to offload their tax burden onto the backs of honest, hardworking taxpayers.”

Enquête exclusive : la présence des entreprises du CAC40 dans les paradis fiscaux

Des Bermudes à la Suisse en passant par Panama, toutes les grandes entreprises françaises possèdent des filiales dans les paradis fiscaux. C'est ce que révèle l'enquête sur la présence des entreprises du CAC40 dans les centres financiers "offshore".

Voir le tableau complet : les sociétés du CAC40 implantées dans les paradis fiscaux.

http://www.alternatives-economiques.fr/paradis-fiscaux---le-cac40-et-les-paradis-fiscaux_fr_art_633_42326.html

Finance ministers pledge further action to restore global growth

An important milestone has been reached on the road to the London Summit, with a successful meeting of the Finance Ministers and Central Bank Governors of the G20 countries at Horsham in Southern England. The communiqué issued on Saturday afternoon showed progress on the main issues on the agenda for the summit on 2nd April, with agreement on action to restore global growth and restore lending by the world’s banks.
The first point in the communiqué was a ringing endorsement of the importance of maintaining free trade, with a commitment to fight `all forms of protectionism’. Fiscal expansion was providing vital support for growth and jobs, the communiqué said, pledging to deliver `the scale of sustained effort necessary to restore growth’. The central bankers said they would maintain expansionary monetary policies, consistent with price stability.
Developing and emerging countries were promised several measures to help them cope with the reversal in international capital flows. Reform of the international financial institutions was also included, with measures to strengthen the voice and representation of the emerging and developing countries, tied to firm deadlines. There was agreement on the need to increase the resources of the International Monetary Fund, as well as support for other international institutions.
Several measures were recommended to strengthen the financial system, including appropriate regulation and oversight of all `systemically important financial institutions, markets and instruments’, which would cover hedge funds and derivatives. Financial regulations should be reassessed to ensure they dampen rather than amplify economic cycles, with strengthened international cooperation on financial regulation. Regulation of credit rating agencies was part of a series of proposals to ensure greater transparency in the financial sector.

Moves by financial centres boost OECD fight against tax evasion

Moves by a number of financial centres over recent weeks in favour of transparency and exchange of information on tax matters have given a welcome boost to efforts to counter international tax evasion, OECD Secretary-General Angel Gurría said.

While many jurisdictions still maintain arrangements that prevent them from assisting foreign authorities in tax investigations, recent actions and statements consistent with the OECD standards in this area on the part of some show that real progress is being achieved.

Among other recent moves, Mr. Gurría noted:
Singapore has announced that it endorses the principles and standards for transparency and exchange of information agreed by a majority of OECD countries and several dozen non-OECD countries and territories and will introduce legislation by mid-2009 that will allow it to implement them.
Hong Kong, China, has announced that it will introduce a bill in mid-2009 to allow it to negotiate agreements implementing the OECD standard for effective exchange of information.
Andorra has announced its willingness to enter into tax information exchange agreements and its intention to eliminate strict bank secrecy for tax purposes by November 2009.
The Isle of Man has signed a tax information exchange agreement with Germany, raising to 13 the number of such pacts that it has with other economies.
Liechtenstein, which has already signed a tax information exchange agreement with the United States, has announced its acceptance of the OECD standards and its willingness to negotiate agreements that provide for effective exchange of information in all tax matters.
The Cayman Islands has announced that it will sign tax information exchange agreements with seven Nordic economies on 1 April, 2009, bringing to eight the number of such agreements that it has with other economies.
Altogether, since G-20 leaders signalled their determination at their summit in Washington last November to combat cross-border tax evasion, more than 20 bilateral tax information exchange agreements have been signed between different partners.

Mr. Gurría welcomed these developments, noting that “ending the abuse of banking secrecy arrangements that facilitate tax evasion is part of a broader drive to clean up one of the more controversial sides of a globalised economy.” He added that “the support of the G-20 for efforts to improve transparency and exchange of information has underscored their relevance for both developed and developing countries.”

Good access to information is a prerequisite for the effective and fair application of each country’s tax laws. The OECD standards in this area provide for an exchange of information between tax authorities on request in cases of specific inquiries into suspected tax evaders. They prohibit so-called “fishing expeditions” and are designed to protect the confidentiality of the information exchanged.

Tax haven crackdown could deliver $120bn a year to fight poverty

Developing countries miss out on up to $124 billion every year in lost income from offshore assets held in tax havens, Oxfam said today ahead of the G20 Finance Ministers’ meeting on Saturday.A new analysis conducted for Oxfam by James Henry, former Chief economist at McKinsey& Co, found that at least $6.2 trillion of developing country wealth is held offshore by individuals, depriving developing countries of annual tax receipts of between $64-124bn. If money moved offshore by private companies was included this figure would be much higher. The scale of the losses could outweigh the $103bn developing countries receive annually in overseas aid. And capital flight is a growing problem with an additional $200-300 billion being moved offshore each year. Tighter regulation of tax havens will be a key item on the agenda of G20 Finance Ministers meeting ahead of the London Summit on April 2 and is the subject of a public seminar and demonstrations on Jersey today (Friday, March 13).Oxfam is calling for reform of tax havens and wider reform of the financial system to reduce volatility, increase accountability and give developing countries a greater say in the management of the global economy. It is also pressing G20 leaders to agree a bailout for poor countries to help them escape the worst affects of the financial crisis.British Prime Minister Gordon Brown has recently spoken of the need for action on tax havens, which include British territories such as Jersey, Isle of Man and the Cayman Islands, but has not yet come up with any concrete proposals. France and Germany have been leading calls for a crackdown.Oxfam Ireland Chief Executive Jim Clarken said: “Developing countries are losing billions of pounds every year that would provide a vital boost to their economies and could be spent on reducing poverty.“This money could pay for health and education services, for protection against the deepening impact of the economic crisis such as safety nets to help those who have lost jobs and for projects to protect poor people already affected by climate change. $16bn a year would be sufficient to give every child a school place and $50bn a year is needed to help poor countries protect their people from climate change. “The current financial crisis shows our leaders can no longer afford to stand idly by whilst tax havens take billions of pounds from the pockets of taxpayers in rich and poor countries alike.”Reform of tax havens would be an easy win for our leaders that would benefit ordinary people at home and abroad alike. There is no longer any excuse for delay.” Oxfam is calling for new rules requiring tax havens to disclose information on money entering their jurisdiction and for multinational companies to report the taxes they pay in each country in which they operate. This would allow countries to identify individuals and organisations that illegally avoiding tax and take action to recover it

Undue Diligence: How banks do business with corrupt regimes

Global Witness' new report Undue Diligence names some of the major banks who have done business with corrupt regimes. By accepting these customers, banks are assisting those who are using state assets to enrich themselves or brutalise their own people.
This corruption denies the world's poorest people the chance to lift themselves out of poverty and leaves them dependent on aid. The report sets out what governments, regulators and banks need to do in order to tackle this complicity with corruption.

The world has learnt during 2008 and 2009 that failures by banks and the governments that regulate them have been responsible for pitching the global economy into its worst crisis in decades. People in the world's richest countries are rightly angry at the increasing job losses and house repossessions.
What is less understood is that for much longer, failures by banks and the governments that regulate them have caused untold damage to the economies of some of the poorest countries in the world.
This is happening despite anti-money laundering laws that require banks to know who their customers are and what the source of their funds is. But there are huge loopholes in the system that mean it isn't working.
Undue Diligence presents evidence that:
Barclays kept open an account for the son of the dictator of oil-rich Equatorial Guinea long after clear evidence emerged that his family were heavily involved in substantial looting of state oil revenues.
A British tax haven, Anguilla, and a Hong Kong bank, Bank of East Asia, helped the son of the president of Republic of Congo, another oil-rich African country, spend hundreds of thousands of dollars of his country's oil revenues on designer shopping sprees. Read his credit card statements.
Citibank facilitated the funding of two vicious civil wars in Sierra Leone and Liberia by enabling the warlord Charles Taylor, now on trial for war crimes in the Hague, to loot timber revenues.
HSBC and Banco Santander hid behind bank secrecy laws in Luxembourg and Spain to frustrate US efforts to find out if Equatorial Guinea's oil revenues had been looted and laundered.
Deutsche Bank assisted the late president Niyazov of Turkmenistan, a notorious human rights abuser, to keep state gas revenues under his personal control and off the national budget.
Dozens of British, European and Chinese banks have provided Angola's opaque national oil company, Sonangol, with billions of dollars of oil backed loans, though there is no transparency or democratic oversight about how these advances on the country's oil revenues are used, and they have a recent history mired in corruption and secret arms deals.

Download the report:
Undue Diligence (4.5mb)

A Long Road Ahead for Portfolio Construction: Practitioners’ Views of an EDHEC Survey

In order to obtain feedback from the industry on the findings of the EDHEC European Investment Practices Survey 2008, which showed that current practice in the industry fails to draw on widely-published and freely-available techniques in portfolio management techniques, EDHEC issued a “call for reaction” asking for explanations and ways to improve portfolio construction.

When asked for the reasons behind the insufficient application of portfolio construction research to practice and for ways out of the current situation, more than half of the responding industry professionals see the level of knowledge within their profession as the main barrier.

95% of the practitioners who responded share EDHEC's opinion that improvements need to be made to portfolio construction practices. Even though the recent events in financial markets are likely to increase investors' needs for portfolio construction that take into account extreme market scenarios for various asset classes, investment managers do not fully take into account extreme risks when constructing portfolios. They also fail to employ techniques that avoid generating overly-concentrated portfolios because of poor input estimation.

86% of the professionals responding to the questionnaire report that further education and effort on the part of investment managers are highly important in closing the gap between real-word practice and academic research.

The EDHEC European Investment Practices Survey was produced with the support of Newedge, a brokerage affiliate of Calyon and Société Générale.

A copy of A Long Road Ahead for Portfolio Construction: Practitioners' Views of an EDHEC Survey can be downloaded here

Jersey: Consultation Paper on Investment Business Regulatory Fees

The Jersey Financial Services Commission has today published a Consultation Paper setting out the proposals for an increase in regulatory fees for investment business.

The proposed increase is the first for three years and will take effect when licence renewals next fall due, which is 1 May 2009.

In recognition of the difficult trading environment that investment businesses are currently operating in, the Consultation Paper sets out two alternative approaches by which the increase in fees may be implemented. One of these options allows for the increase in fees to be phased in gradually over the next three years.

Responses to the Consultation Paper are invited and should be provided in writing to either the Commission or Jersey Finance Limited in line with the timescale stated in the Consultation Paper.

The Consultation Paper may be viewed on the Commission’s website by clicking here

Sovereign Wealth Funds up 18% in 2008 to $3.9 trillion despite losses on investments

Assets under management of sovereign wealth funds (SWFs) increased 18% in 2008 to reach $3.9 trillion according to IFSL’s report Sovereign Wealth Funds 2009. The losses SWFs incurred on some investments during the past year were more than offset by inflows of new funds. There was an additional $5.5 trillion held in other sovereign investment vehicles, such as pension reserve funds, development funds and state-owned corporations’ funds and also $6.1 trillion in other official foreign exchange reserves.

The pace of growth of SWFs’ assets may slow somewhat in the next few years due to falls in commodity prices and the global economic downturn which may result in slower accumulation of foreign exchange reserves. IFSL nevertheless expects assets of SWFs to double to $8 trillion by 2015. Since the start of the sub-prime crisis SWFs, mostly from Asia, have made substantial losses on $60bn invested in US, Swiss and UK banks. Partly as a result of this and the global economic downturn, SWFs have placed more emphasis recently on injecting liquidity and helping to revive their local economies.

Countries with SWFs funded by commodities’ exports, primarily oil and gas exports, totalled $2.5 trillion at the end of 2008. Non-commodity SWFs totalled $1.4 trillion and are projected to increase their 35% share of assets in 2008 to 55% by 2015. Non-commodity SWFs are funded by transfer of assets from official foreign exchange reserves, and in some cases from government budget surpluses, pension reserves and privatisation revenue.

Marko Maslakovic, Senior Economist at IFSL said “SWFs have increased their influence on global financial markets since the start of the credit crisis. London is an important centre for SWFs both as a clearing house for transactions and a location from which some funds are managed. The many advantages it offers as a business location should allow it to capture a growing share of this market in the coming years.”

Sir Andrew Cahn, Chief Executive Officer at UK Trade & Investment (UKTI) said: “The UK’s long history of openness to foreign investment has seen SWFs be part of the UK financial services sector for more than 50 years. Economies best prepared to overcome the current global economic downturn will be those maintaining open markets to attract overseas investment, including SWFs.”

View PDF of report

UK Law Firms Climb Up Global Rankings

London has strengthened its position as one of the top global centres for legal services in 2007/08 according to IFSL’s – Legal Services 2009 report. UK firms are expected to maintain their strong international position in 2008/09 as they rationalise their operations in response to the credit crisis, in common with law firms around the world.

Based on fee revenue, in 2007/08 the largest three global law firms were from the UK, while on head-count UK firms held five out of the top seven places. The IFSL report says that most UK firms amongst the top 100 have improved their ranking during the year. This was largely due to the combination of strong growth at UK practices, strength of the pound against the US dollar during the last financial year and UK law firms’ international expansion in recent years and focus on key emerging markets such as the Middle East and Asia.

Fee income of the largest 100 law firms in the UK increased 14% in 2007/08 to a record £14.0bn. Much of this growth came in the first half of the financial year as the effects of the credit crisis spread to international markets in the second half. This resulted in less revenue in practice areas such as merger and acquisition and capital markets advisory. Revenue in 2008/09 is likely to be flat or slightly down on the previous year.

Marko Maslakovic, IFSL’s Senior Economist said, “In response to falling revenues in 2008/09, UK law firms are cutting costs by reducing partner numbers, moving lawyers between practice areas and diversifying their international exposure. There is no indication that international law firms are planning to reduce the scope of their overseas networks.”

Andrew Cahn, UKTI Chief Executive Officer said, “Not only is English the language of international business but English law is globally recognised to be fair, transparent and dependable. In the current global downturn, now is the time for UK legal firms to look into diversifying into new markets or strengthening their position in established ones to reduce risk. Despite the current global slowdown there remain opportunities within areas of the legal profession and the UK is well-placed to make the most of these.”

Click here to view PDF of report

Fifth Global Financial Centres Index

Financial centres worldwide are suffering as a result of the economic crisis, according to new research published today by the City of London Corporation. All 62 centres saw their ratings fall since the last Global Financial Centres Index (GFCI) report six months ago.

London and New York remain in first and second place respectively. Centres at the top of the table seem more resilient to the current crisis, losing fewer points than centres lower down the rankings.

Lord Mayor of the City of London Ian Luder said:

“This research confirms that the financial services industry in countries around the world has been seriously damaged by the crisis. Our task now is to climb out of the despair and to restore a sense of proportion and reality. We need to move to the reconstruction phase immediately.”

Sir Michael Snyder of the Policy and Resources Committee of the City of London Corporation said:“These new results demonstrate London’s resilience: although London’s rating has dropped, it remains the world’s top financial centre.”

The GFCI tracks the underlying competitiveness of the world’s financial centres. It is published every six months by the City of London Corporation. The rankings are compiled by Z/Yen Group from surveys of finance professionals around the world and competitiveness indicators. The survey responses were collected between July and December 2008.

As in previous GFCI reports, respondents rated the quality of the business environment – especially regulation and taxation – as the most important factor for a centre’s competitiveness.

Download GFCI 5

EDHEC sets up a research chair in ALM and Sovereign Wealth Fund Management in partnership with Deutsche Bank

The EDHEC Risk and Asset Management Research Centre has created a research chair in "ALM and Sovereign Wealth Fund Management", in partnership with Deutsche Bank, under the scientific responsibility of Professor Lionel Martellini, Scientific Director of the EDHEC Risk and Asset Management Research Centre.

The rapid growth of sovereign wealth funds and its implications pose a series of challenges for the international financial markets, but also for sovereign states. The purpose of this research chair is to focus on improving our understanding of optimal investment policy risk management practices for SWFs. In particular, we aim to analyse the optimal investment policy of a SWF in a dynamic ALM framework that will allow us to formalise the impact on the optimal allocation policy induced by the presence of risk factors affecting both the state surplus dynamics and the implicit or explicit liabilities the fund is facing, commented Noël Amenc, Director of the EDHEC Risk and Asset Management Research Centre.

Deutsche Bank is pleased to be partnering with EDHEC in the area of ALM and Sovereign Wealth Fund Management and we are looking forward to the results of expanded academic knowledge in this field. We are confident that this research will further our understanding of optimal investment policy, optimal risk management and the long-term alpha possibilities for SWFs, said Yassine Bouhara, Head of Global Markets, EMEA, at Deutsche Bank.

This research chair will include the following developments:

• Introducing a formal dynamic asset allocation model that will incorporate the most salient factors in SWF management
• Proposing an empirical analysis of the risk factors impacting the inflows and outflows of cash of sovereign funds
• Discussing how investment banks and asset managers could design dedicated solutions for SWFs based on the financial engineering of customised building blocks aimed at facilitating the implementation of hedging demands related to the presence of a variety of risk factors impacting sovereign surpluses and liabilities.

The results of the ALM and Sovereign Wealth Fund Management research chair will be widely disseminated to finance professionals, notably through the specialised website, www.edhec-risk.com, and at conferences organised by EDHEC.

Seychelles : Foundation Courses in Offshore Services

Given the enthusiastic interest and demand received for the Foundation Course in Offshore Services being held at SIM during the course of the week of the 2nd March 2009;

The Seychelles International Business Authority in collaboration with the Seychelles Institute of Management is undertaking to repeat the course on the following dates irrespective of the number of applicants:

May 2009
September 2009
March 2010
September 2010

This course is part of a new partnership between the SIBA and the SIM that will provide continuous training to persons wanting to join and persons already in the financial services industry. The course is the starting point for a much larger training scheme that will be confirmed and addressed in detail over the coming months.

The SIBA and the SIM takes this opportunity to further engage themselves to providing training of international repute which is directly relevant to the current and ever changing industry needs.

For more information contact us at training@siba.net

Insurance Banana Skins 2009

What are the risks facing the insurance industry as it grapples with the financial crisis? The CSFI's new Insurance Banana Skins survey reports on the views of more than 400 insurance practitioners and observers. Click here to download.

Madoff: A Riot of Red Flags

In a new position paper from the EDHEC Risk and Asset Management Research Centre, François-Serge Lhabitant and Greg Gregoriou, two of academia’s recognised worldwide authorities on hedge funds, have reviewed some of the red flags that any operational due diligence and quantitative analysis should have identified as a concern.

In the report, Madoff: A Riot of Red Flags, the authors highlight some of the salient operational features common to best-of-breed hedge funds, features that were clearly missing from Madoff's operations. Indeed, according to Lhabitant and Gregoriou, the list of due diligence red flags was so long and unsettling that it should have deterred potential investors.

The EDHEC position paper looks at the events leading up to the fraud and considers how the alleged split-strike conversion strategy would have worked before exploring the due diligence aspects of the case in detail.

Among the areas which should have been seen as a concern were both operational red flags (lack of segregation amongst service providers, obscure auditors, an unusual fee structure, heavy family influence, lack of disclosure, insufficient staff, etc.) and investment red flags (black-box strategy, questionable style exposures, incoherent 13F filings, excessive market size).

A copy of the EDHEC position paper Madoff: A Riot of Red Flags, can be downloaded here or here

BoE : Why Banks Failed the Stress Test

"Why Banks Failed the Stress Test", The basis for a speech by Andrew Haldane, Executive Director for Financial Stability given at the Marcus-Evans Conference on Stress-Testing, 9-10 February 2009

KPMG selects 'locations to watch' for next outsourcing boom

The credit crisis seems set to prompt a new rush for outsourcing services across the I.T. sector, with a number of new locations worldwide emerging as viable Business Process Outsourcing (BPO) hubs, according to KPMG's Advisory practice.

Launching their Exploring Global Frontiers report at this week’s NASSCOM outsourcing event in India, KPMG claims to have identified 31 cities which are rapidly emerging as leading pretenders to the BPO crown held by the traditional powerhouses such as Bangalore, Chennai or Shanghai.

As those locations rapidly approach saturation point, there is a sizable opportunity for these new and emerging locations to swallow up a large proportion of the new outsourcing work which the credit crisis is apparently creating.

The 31 locations are an eclectic mix, ranging from well-known cities in developed countries to lesser-known places in the emerging markets, well off the tourist track. Winnipeg and Belfast all feature for example, alongside Queretaro, Davao City and Cluj-Napoca.

On the KPMG list, Buenos Aires, with its population of nearly 13 million, thus features alongside tiny Port Louis (population 130,000) in Mauritius. Despite the difference in size, both are emerging as important future outsourcing centers, with the latter rapidly developing an international reputation as a disaster recovery center.

Speaking at the report’s launch, Edge Zarrella, Global Head of IT Advisory at KPMG and a partner in the Hong Kong firm, said: “Traditional sourcing locations, which have been at the forefront of the outsourcing boom, were always going to reach saturation point. Corporates now need to know which locations to consider next for their outsourcing activities. There are many locations around the world which are able to supply a credible outsourcing capability. However, there are subtle nuances in terms of labor skills, niche specialisms and government incentives which have led us to highlight these 31 locations as stars of the future.”

“The need to develop new, cost effective, viable outsourcing locations has been highlighted by the economic events of the past few months. Companies are focused on reducing their cost base, both for short-term and long-term gain. As a result, more organizations are considering savings obtained through outsourcing parts of their operations. Most importantly, they should be convinced that by doing so, they are not sacrificing performance for the sake of cutting costs. Our location study aims to highlight the benefits brought by the different city choices available to them.”

The full list of highlighted destinations includes 10 locations in the Americas (including Calgary, Guadalajara and Indianapolis); 10 in Asia-Pacific (Including Changsha, Jaipur and Ho Chi Minh City); and 11 in Europe, the Middle East and Africa (including Sofia, Gdansk and Belgrade).

The reasons for these locations making it on to the final KPMG list are varied but cities in the Americas should typically benefit from large labor pools, scalability, a more mature service offering, proximity to the major client base and multiple language skills. AsPac benefits from lower costs, younger populations, plenty of government incentives and the lessons learned from the numerous outsourcing centers which already dot the region. The Europe, Middle East and Africa region offers great diversity, excellent infrastructure and numerous niche specialisms.

Zarrella concluded: “These are fascinating times to be choosing a new outsourcing provider or location as there is simply so much choice. New cities are emerging as outsourcing contenders all the time, each boasting a different set of characteristics. Just within our 31 for example, there are specific specialisms on offer — such as accounting, R&D or even animation — driven by an apparent skills bias within the pool of locally available graduates. As a word of warning though, these locations are still ‘emerging’ and, as such, can still carry a degree of risk; an element of venturing into the unknown. This is why all outsourcing location decisions should be carefully thought through on a case-by-case basis; there is no ‘one size fits all’ approach to outsourcing.”

Exploring global frontiers