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gbm November 2012
global business magazine
The Vote Heard â€˜Round the World: U.S. Presidential Elections 2012
TrusTee & fiduciary services
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LeadiNG LaWyers Of MeNa
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INSIDE This Month:
TrusTee & fiduciary
LeadiNG LaWyers Of THe MiddLe easT & NOrTH africa
Business Talk As America takes to the polls in what promises to be a closely fought race, this month’s cover story focuses on the presidential election. Proﬁling both candidates, we look at what a two-term administration would mean for Barack Obama; Mitt Romney’s vision for change; and the importance of the outcome, not only to America but also to the rest of the world. Our Anti-Monopoly Law focus ﬁnds out about overseeing antitrust enforcement in Slovakia; important developments to competition laws in the Asia Paciﬁc region; the regulatory agency involved in reviewing competition-related conduct; and the issues that arise enforcing antitrust laws in Japan. And from enforcing laws to breaking them – Business Crime reveals how white-collar crime is becoming a growing concern in Poland’s economy, and current criminal law regulations regarding companies in difﬁculty in France. With change still on the agenda, Banking and Finance looks at the future signiﬁcance of the upcoming changes to bank regulatory reform; whether complying with the US means the end of banking secrecy; and what the future holds for the Spanish ﬁnance sector. Keeping our focus in Europe, we reveal the main reasons why Finland is being called ‘the world’s best country’. On the subject of unstoppable growth, our Liqueﬁed Natural Gas focus examines how the Australian LNG industry is leading the world, and the political and economic impact of exporting LNG from the US. We also get a unique insight into how regional liqueﬁed gas markets can become more integrated globally. MENA Advisors uncovers the Egyptian legislations that are providing major incentives for investment; how Saudi Arabia’s market is offering new investors unrivalled opportunities; and the objectives of the CMA laws in Kuwait. Trustee and Fiduciary Services ﬁnds out about the professionals and jurisdictions protecting private wealth in Europe; how individuals are using insurance as a comprehensive wealth planning tool; and the impact of wealth management trends on the industry. Finally, as we head into the winter months, our Luxury Brand Series showcases worldwide destinations that encapsulate everything that is good about the summer. There’s no need to bid farewell to the sun just yet.
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November 2012 • Global Business Magazine • 3
THe vOTe Heard ‘rOuNd THe WOrLd - u.s. PresideNTiaL eLecTiONs 2012
The Vote Heard ‘Round the World: U.S. Presidential Elections 2012 The U.S. Votes, the World Watches
No other national vote attracts quite the same degree of international scrutiny as the quadrennial U.S. presidential election. While Americans themselves have not been as enthusiastic about this election as the Obama vs. McCain battle in 2008 - the Pew Research Center has 66% of Americans declaring that they are interested in this election, versus 80% in 2008 – watchers overseas are still taking a keen interest: the same research shows that 36% of Germans and 36% of Chinese people are very or somewhat interested in the outcome of this election. But how important is the 2012 U.S. presidential election to the rest of the world? Should investors be paying so much attention to the outcome or are there more important political battles at stake? The United States is responsible for over a fifth of the gross world product and is second only to the EU in GDP. While the answer to the global downturn does not rest in the hands of one particular country, there is no doubt that a faltering U.S. economy has exacerbated the worldwide crisis. Does either President Obama or Mr Romney hold out hope for the rest of the world? Facing the Fiscal Cliff Debt has been a cornerstone of both campaigns with Mr Obama Calling debt-reduction a “moral obligation” and Mr Romney likening the U.S. national debt to a “wildfire.” Yet neither candidate has presented a convincing debt-reduction strategy. On the 25th October a group of CEOs made a final appeal to both candidates to commit to radical action. "Policymakers should acknowledge that our growing debt is a serious threat to the economic wellbeing and
4 • Global Business Magazine • November 2012
security of the United States," says an open letter from lobby group Fix The Debt which was signed by 80 chief executives including Steve Ballmer of Microsoft and Jamie Dimon from JP Morgan. "It is urgent and essential that we put in place a plan to fix America's debt. An effective plan must stabilize the debt as a share of the economy, and put it on a downward path” The truth is that, whoever wins the presidential election, the U.S. faces what Federal Reserve Chairman, Ben Bernanke, calls the “fiscal cliff”. On January 1st 2013 a number of existing measures are set to expire. For example, the Bush-era tax cuts, extended by President Obama for two years, expire on January 1st. January also sees the expiration of a payroll tax cut of 2%, the end of extensions to unemployment benefits, and the beginning of a programme of “sequestrations” – across the board cuts on all government spending. While this fiscal cliff would lead to a sudden, dramatic cut in the budget deficit, it is likely to push the U.S. economy deeper into recession as foreclosures increase and spending falls. This in turn will reduce demand and increase unemployment. Throughout the campaign trail, both candidates have avoided giving any details of how they will avoid the fiscal cliff. In the final debate there appeared to be some hope as Mr Obama said that the sequestrations “will not happen” – a statement that senior advisers were quick to play down. “Believe me, when he said that, I jumped to my feet,”
Marion Blakey, president of the Aerospace Industries Association, told the Washington Post. “I think Americans hope he meant what he said.” If the sequestration plan does go ahead, Pentagon cuts alone are projected to lead to the loss of one million jobs. Better for Prosperity: Romney or Obama? Both candidates have adopted centrist position in their attempts to court the middle classes; on payroll taxes, on small businesses, on China and on capital gains taxes, both candidates have adopted broadly similar positions. Both Mr Romney and Mr Obama have made pledges to cut taxes for small businesses in an attempt to engineer growth. In an address to Congress, Mr Obama said, “Everyone here knows that small businesses are where most new jobs begin... Pass this jobs bill, and starting tomorrow, small businesses will get a tax cut if they hire new workers or if they
raise workers' wages. Pass this jobs bill, and all small business owners will also see their payroll taxes cut in half next year.” Meanwhile at the Republican National Convention, Mr Romney also promised tax cuts for small businesses. Both candidates are promising a reduction in corporation taxes from 35% to a level in the mid 20%. While Mr Romney has talked about broadening the base of taxpayers he has given few concrete details as to how he would make up the tax revenue shortfall. One thing he has made clear is that he would switch the U.S. corporation tax November 2012 • Global Business Magazine • 5
THe vOTe Heard ‘rOuNd THe WOrLd - u.s. PresideNTiaL eLecTiONs 2012
code from a “worldwide” taxation system to a territorial one: “The United States currently operates under what is known as a ‘worldwide’ tax system, meaning that business income is taxed at the U.S. rate regardless of whether the income is earned within American borders or overseas. Under this collection method, American companies pay the corporate tax in the host country, and when profits are repatriated back to the United States, the company pays the difference between what was paid to the host country and what would have been owed under the U.S. rate. Given our higher rates, the effect of this is to penalize those U.S. corporations that bring their foreign profits home to invest in the United States,” he said. “A territorial system must be designed to encourage the creation of jobs in the United States, not to outsource them. A Romney administration will begin work on the transition to a territorial system on day one. As much as $1 trillion, that could be invested in the United States, is at stake.” But Mr Romney himself admits that “Complex technical issues will arise during the transition: amendments to the tax code need to be crafted in a way that does not encourage corporations to game the system and export jobs or to move their U.S. headquarters abroad.” As yet it is unclear how Mr Romney will encourage that $1 trillion to “come home.” Mr Obama’s plan is also to lower corporation taxes, but in return he wants to close numerous loopholes that allow large corporations to pay effective tax rates in the single digits. These loopholes don’t just lead to haemorrhages in tax revenues; they also encourage inefficiencies, according to Aswath Damodaran, finance professor at New York University. “Companies should be making investments based on their commercial potential, not for tax reasons” he told the New York Times. Large corporations make decisions that lower their tax rate but introduce inefficiencies. “Inefficiencies like these slow economic growth, and they are the reason that both conservatives and liberals criticize the corporate tax code so harshly,” says David Leonhardt, Washington Bureau Chief of the New York Times. Mr Obama said that he would also introduce a minimum tax on multinationals to prevent “accounting games [that] shift profits abroad,” and to slow down the offshoring of U.S. Jobs. Standing Up to China The rhetoric in this presidential election has included a significant amount of Chinabashing from both candidates. In October,
6 • Global Business Magazine • November 2012
the WTO found that duties on U.S. steel imposed by China were illegal: the case is one of four brought to the WTO against China by President Obama in the last year. “This is a victory for the United States as well as for American workers and manufacturers,” said United States Trade representative, Ron Kirk. “The Obama Administration will not stand by and allow China to break international trade rules. American manufacturers and workers can compete and win on a level playing field, but China’s unfair duties choked off nearly all U.S. [electrical steel] exports to its market. Today we are again plainly stating that we will continue to take every step necessary to ensure that China plays by the rules and does not unfairly restrict exports of U.S. products.” Mr Romney, too, is talking tough on China. He has pledged to “brand China a currency manipulator” on his first day in office. His rhetoric has been bellicose throughout his campaign. In September 2011 he announced: “[Donald Trump and I] see eye to eye on China. Not only as an economic threat, cultural threat, [but] down the road they're building a very strong military with potentially the intent to dissuade us from sending ships to the South China Sea, military ships.” This rhetoric may play well at home, but it is fuelling tensions in China. “The most popular explanation is that the candidates find fault with China simply to win more votes. There must be something wrong with the country’s political system if such downright lies can be used to lure voters,” said senior journalist Ding Gang in his column in the state-run People’s Daily Online. “The United States has not become so powerful because of scapegoating others or creating imaginary enemies. Politicians who always look for scapegoats are either stupid or cowardly. If Barack Obama or Mitt Romney really won more votes by slandering or playing tough on China, it would be a shame for the American politics, and [trouble] for the world.” A recent Pew Research Center study showed that the percentage of Chinese people who characterise their country’s relationship with the U.S. as “cooperative” has fallen from 68% in 2010 to 39% today. Over a quarter of the respondents classified the relationship
between the U.S. and China as “hostile”, up from 8% in 2010. Suspicion is growing on both sides of the Pacific. A Pew poll this October showed that nearly half of all American voters want the U.S. to send a tough message to China, up from 40% in March of 2011. The percentage of voters who want the U.S. to build a strong relationship with China has moved in the opposite direction, with over half of the electorate wanting closer ties in March last year but just 42% feeling the same way in October this year. The truth is that the U.S. can ill-afford a trade war with China. According to the U.S. Census Bureau, the U.S.-China trade volume in 2011 broke the $500 billion mark, a volume which has quadrupled in the last decade. The U.S. holds $60 billion in Chinese stocks and China owns $3 billion in U.S. stocks. While the U.S. has a goods trade deficit of $295.5 billion with China in 2011 it also has a services trade surplus of $13.4 billion, and the services surplus is growing at a faster rate than the goods deficit. The two economies are so interdependent that a trade war would damage both sides. A Feat of Misdirection While the world holds its breath to discover who will be the next president of the United States of America on November 6th, there are far more important races, economically speaking. On the same day, the congressional elections will determine the composition of the Senate and House of Representatives that the new president must work alongside. “We had a lot of numbers last night, but in the context of the presidential debate they don’t really mean anything,” said Financial Times Editor Lional Barber after the first presidential debate. “[The economic future of the United States] doesn’t really depend on who is in the Whitehouse,” he said. “It will
depend on the composition of the new Congress.” The likelihood is that the new Congress will be just as finely balanced as the last one, and whoever sits in the Oval Office will have their work cut out trying to build bilateral agreements. Sir Martin Sorrell, Chief Executive of WPP told the Financial Times that business activity is being depressed by uncertainty over the U.S. deficit and that “a comprehensive bilateral plan for solving the national debt problem,” is required in order for the economy to rally. With bilateral spirit in short supply, that uncertainty looks set to continue. Another, perhaps more important date is receiving very little attention, despite the potential ramifications for international trade and relations. On November 8th China’s ruling Communist Party holds its five-yearly congress and 2012 will usher in a new era of power. “The party sets strict age limits for its leaders and seven out of the nine current members of the all-powerful Politburo Standing Committee - the party's ruling body - are expected to step down. They include President Hu Jintao, who is head of the party and China's head of state, and Premier Wen Jiabao, who is like a prime minister in charge of the government,” according to the BBC Monitoring Service. The last 20 years of stratospheric growth under presidents Deng Xiaoping and Hu Jintao have seen the rise of an aﬄuent
middle class as well as the fastest-growing population of “super-rich” individuals in history. But the new leader - Xi Jinping – is inheriting a country where economic growth is slowing, the appetite for more democracy is growing and where rising inequalities are sowing widespread discontent. According to scholars at a recent government conference: “[China is] unstable at the grass roots, dejected at the middle strata and out of control at the top”. Mr Xi says he has heard the calls for reform and will take “a bolder path” – but what this will consist of, and whether the other members of the Politburo will allow this, remains to be seen. While a very public presidential struggle in the West has captured the world’s imagination, a more secretive succession in the East may have a far greater impact on the rest of the world.
November 2012 • Global Business Magazine • 7
TrusTee & fiduciary services
Trustee & fiduciary services
Trusts and Trustees Introduction Dating back to the Middle Ages, trusts are a fundamental concept of English property law. They can be constituted formally by way of a trust deed or informally by action of law as a constructive trust. Most people go through life as a beneficiary of a number of trusts without ever realising it. The trust has shown an amazing ability to evolve and within the business context, trusts are used for succession planning (family and will trusts), employee remuneration (pensions, share ownership plans and employee benefit trusts) and raising finance (loan capital trusts and joint venture arrangements). Depending on the nature of the trust and the duties and responsibilities involved, trustees may include family members, employees, professional advisers or professional trust companies. The Association of Corporate Trustees (TACT) is the membership organisation of the UK corporate trustee sector. Its members include trust companies owned by banks and major financial institutions as well as those set up by firms of accountants, lawyers and pensions advisors. Those trust companies are responsible for the management of over £1trillion worth of assets, including sovereign and company debt of over £900million and occupational pension funds with in excess of 1.25 million members, representing over 10% of that sector. For many, trusts are associated with the offshore financial centres. The tax advantages afforded by offshore structures have been under concerted legislative attack from onshore jurisdictions, neutralising their effectiveness. The choice of trustee now tends to be dictated by the applicable law, the local regulatory regime and the perceived professionalism of the individual or company approached. For the owners of small and medium sized enterprises, trusts are an essential part of
8 • Global Business Magazine • November 2012
succession planning, protecting family wealth and ensuring that as far as possible, it remains within family ownership. Their usefulness in enabling an orderly transition of ownership to take place has attracted the attention of families outside the Anglo Saxon world. English law trusts, which are regarded as tax neutral vehicles, have proved particularly attractive to Italian families and even the Germans, a jurisdiction notably hostile to trusts, have begun to consider their use in wealth and succession planning. Whilst family members and trusted advisers comprise the majority of trustees, there is much to be said for employing the services of a trust company to provide continuity, independence and professional standards. The provision of trustee services is not a regulated financial services activity in the UK as it is in the offshore jurisdictions, other than for the purposes of anti money laundering legislation, although most corporate trustees are themselves owned by regulated businesses. Many of the offshore jurisdictions did not have their own trust law until relatively recently, indeed Switzerland, which has a huge trust industry, still does not. Trusts had to be constituted under the law of a jurisdiction such as England and foreign resident trustees appointed. The choice of law and residence will depend on a number of factors. These may include: 1. How easy is it to communicate with the trustees; 2. How is the trust taxed; 3. How experienced are the trustees; 4. What regulation is in place to protect the beneficiaries; 5. Does the jurisdiction recognise trusts as a legal concept and if so, does it have a trust law that reflects the current needs of trustees and beneficiaries;
6. How experienced are the courts at dealing with legal disputes. Rewarding employees Recent tax legislation dealing with disguised remuneration has killed off a lot of the more aggressive tax planning involving employee benefit trusts. Share incentive and ownership plans however remain an attractive method of encouraging employee participation and are structured via trusts. The trustees are invariably corporate and unless the rules require that they should be UK resident, most of this work is carried out by trustees resident offshore in either the Channel Islands or the Isle of Man. There are still capital gains tax advantages, and that is where the experience and skill base lie. Trustees of pension funds operate in a highly specialised and heavily regulated arena. Their work entails investing large sums often into complex financial products designed to match pension fund liabilities. They engage actuaries to produce complex valuations to determine the amounts likely to be needed to provide pensions far into the future. These depend on numerous assumptions such as future investment returns and estimates of how long scheme members will live. Whilst the actuary can advise, the trustee is responsible for the various assumptions. If the conclusion is that more funds are needed, the trustee has to negotiate with the sponsoring employer a recovery plan setting out how quickly any deficit can be made good. This can require considerable diplomatic and negotiation skills. Pension fund trustees also have to keep accurate data relating to scheme members, of whom there may be many thousands, perform complex calculations to determine with precision the amounts to be paid to members, and then deliver these payments on time. These tasks are usually delegated to specialist administrators, but the trustee
remains responsible for ensuring everything happens as it should. The trustee is also responsible for communications with scheme members – not an easy task when pensions regulations are made ever more complex by Parliament and HMRC. The trustee is required to keep on top of all the regulation, as well as the complex deeds and rules that govern pension schemes Strictly there are no minimum qualifications for a pension fund trustee, but this is a highly responsible and technical role and it is essential to check that a potential trustee has a good track record in this specialist field . The Pensions Regulator maintains a register of trustees who have applied to and met its standards. Most are companies with large staffs that can field appropriate specialists in the differing disciplines involved as and when the need arises. Raising debt capital The City of London has a preeminent role in the international bond markets. This is in no small part down to the existence of a legal system that provides for loan capital to be issued via a trust arrangement. The trustee is the representative of the investors, and owes its duties to them (although its fees and expenses are paid by the issuer). The primary trust property is the obligation to repay principal and to pay interest, which the trustee holds on behalf of itself and the bondholders. It is extremely important to note that the Trustee represents the holders as a body or class of persons – and not the interests of each individual investor. In the simplest of terms, its role is to assist in the efficient running of the bond market, not to act in favour of, or against, a particular individual or investor. In some cases, a trustee may be necessary, e.g. because of a listing requirement or because of the need to hold security on behalf of the investors. Generally, the decision is based upon whether the advantages of
having a trustee are sufficiently attractive. There are advantages both for the investors and for the issuer. Cost is not normally a significant factor, as the fees charged by trustees are usually minimal within the context of the overall expense of an issue. The advantages of having a trustee include: 1. The trustee is independent of the issuer. 2. The trustee provides one responsible body as a focal point for investors. 3. The trustee has the ability to discuss confidential matters without causing market disturbance. 4. The issuer can deal directly with the trustee rather than the investors in the reporting of compliance with covenants.
Giles Orton Bridge Trustees Limited President, TACT 0845 497 1094 firstname.lastname@example.org www.bridgetrustees.com
5. The trustee has the right to obtain information in order to monitor compliance with covenants, identify breaches and take appropriate action. 6. As the trustee is responsible for enforcement, proceedings are taken in one unified action on behalf of all the investors, and the legal and financial advice which the trustee obtains is for the benefit of all of them. 7. Any monies recovered by the trustee are distributed to all the investors pro rata, thereby avoiding any risk that only some investors may recover in excess of their entitlement. Acting as a trustee of loan capital is a specialist role, carried out almost exclusively by trust companies owned by major financial institutions. Contacting TACT More information on trusts and the role of trustees can be obtained from TACT whose website is www.trustees.org.uk
November 2012 • Global Business Magazine • 9
Trustee & fiduciary services
Isle of Man The Isle of Man: Trusts or Foundations? Trusts Trusts can play an important part in any wealth management and estate planning structures, as well as offering an effective philanthropic solution for funding social and environmental projects.
Steve McCafferty email@example.com M: +44 (0) 7624 490561 IQE Limited Licensed by the Isle of Man Financial Supervision Commission www.iqe.im
Over the decades, trust law in the Isle of Man has developed largely in parallel to the equivalent in England. However, the island is a separate legal jurisdiction from the United Kingdom and its laws are a combination of common law, custom and statute. Trusts are most commonly used for asset protection, investment or property holding, as well as succession and inheritance planning by both individuals and corporate entities alike – usually operating on either a discretionary or fixed interest basis. Discretionary Trusts afford greater flexibility as the trustee has the power to determine how much, if anything, each potential beneficiary should receive and when. The discretionary beneficiaries have no right to enjoy the trust assets, only a hope. By contrast, Fixed Interest Trusts, as the name suggests, give more certainty, and the deed specifically identifies the beneficiaries, and stipulates how and when they will benefit from either the income or capital of the Trust fund. Over the years, Private Trust Companies have gained in popularity with high net worth families seeking to retain a greater degree of control and involvement over their trust affairs, while maintaining the integrity and validity of the trust structure. A Private Trust Company is a special purpose vehicle established specifically to be appointed as the trustee of a family trust or a number of related family trusts, and will not offer trustee services to the
general public. It is controlled by the board of directors of the Private Trust Company, who can also direct the fiduciary function of the trustee. The advantages of establishing a Private Trust Company extend to family members, or trusted advisers, who wish to have an active role in the administration of the trust at the board level of the Private Trust Company. While keeping the residency of the trust offshore, it can also provide a convenient way to gradually transfer control and influence over family wealth and business interests to future generations. Foundations In further recognition of the global needs of high net worth families, on 1 January 2012, the Isle of Man introduced legislation to enable Private Foundations to be established under Isle of Man law with the enactment of the Foundations Act 2011. A Private Foundation is a separate legally registered entity (unlike a Private Trust), which acts like a trust and operates like a company. It is generally preferred for clients who are more familiar with civil rather than common law jurisdictions, and thus understand the concept of a Foundation better than a Trust. An Isle of Man Foundation is effectively an enduring vehicle, having its own separate legal personality which can allow the Founder, if they so wish, to participate in the running thereof. A Foundation is taxed as a corporate vehicle in the island, at the corporate rate of zero per cent. Trending Towards Philanthropic Use Currently, charitable Foundations and Trusts are being utilised by successful entrepreneurs and high net worth individuals who want to ‘give back’ to the community that helped them become successful. The Isle of Man has introduced
a new and distinct regime to assist with the establishment of such privately funded Charities. The Charities (Exemption) Regulations 2009, provides a reduced level of regulation for such private arrangements, when compared to the level of regulation attributed to publicly funded Isle of Man Charities. For example, a Trust can provide a relatively simple structure for the establishment of a Charity, and can be suitable where Charity trustees are not accountable to membership and wish to appoint their own successors. With the establishment of a Charitable Trust, the assumption is that the charity will generally be a grant making body only (as opposed to a public fund raising body). If there is a requirement for the Charity to have limited liability or legal personality of its own, then it may be more appropriate to structure the Charity as a corporate entity, or alternatively, a Foundation. All of these attributes, together with the island’s strong professional network of specialist lawyers, continue to make the Isle of Man an attractive jurisdiction for all variations of fiduciary related work, whether that involves a private or corporate client relationship, a family office requirement, or even a philanthropic purpose. About IQE’s Services IQE is a licensed, experienced and leading Trust and Corporate Service Provider, offering specialist and complex Trust and Corporate structures, Private Trust services and Charitable Trust services to a wide range of clients. We work closely with professional advisers in providing bespoke solutions for corporate and private client requirements. Focusing on quality, our professionally qualified team adopts best practice in their particular field of expertise, to ensure a personal and confidential service. IQE can establish a Trust, Foundation or Company tailored to individual requirements, and provide ongoing tenure with the support of our professional administration, accounting and bookkeeping services.
10 • Global Business Magazine • November 2012
Luxembourg Vistra Fund Services to Act as Fund Administrator to Privium Fund Platforms Vistra Fund Services (‘VFS’) is the fund administration and fund formation division of the Vistra Group, a leading global provider of corporate, fund administration and outsourcing services. Vistra has 23 offices in 19 jurisdictions, with specialist fund teams based in Jersey, Luxembourg and Hong Kong. VFS establish and administer a wide range of different types of funds, and works together with clients to establish a structure that is most suitable to their needs. From the beginning, VFS will work closely with its clients and advisors to develop the fund structure and its processes. VFS will then manage the operations of the fund, and offer its experience and guidance with regards to the choice of structure, jurisdiction, service provider, working procedures and regulatory matters. VFS will always adapt to fit its clients requirements, not make the clients change to fit VFS. As an independent service provider VFS is also free from the usual conflicts of interest, which means it does not manage proprietary funds, nor does VFS provides legal advice, tax advice, banking or investment services. The role from VFS is to provide its clients with ‘virtual’ middle and back offices and infrastructure, so that they can concentrate on what they do best – managing a fund. The Privium Selection Fund and Privium Capital Fund provide simple and fast solutions to the challenge of designing and establishing new fund structures. This streamlined approach allows for rapid fund establishment, with Privium providing support in the areas of marketing; set up and design; compliance and approval; and physical office and risk management models. All of these are of particular relevance to those first time or start-up managers launching their funds. VFS provides fund administration services for the Privium Selection Fund, a Luxembourg investment company with variable capital-
specialised investment fund (the ‘Privium Selection Fund’) via its fund services operating out of Luxembourg. The Privium Selection Fund will be managed by Privium Fund Management (UK) Limited. This umbrella platform proves a flexible one stop Luxembourg based solution for the launch of differing styles and sizes of funds, each backed by competitive pricing options. VFS also provides fund administration services for the Privium Capital Fund (the ‘Privium Capital Fund’), a Cayman Islands-based umbrella fund structure. VFS will offer this dedicated fund platform to clients, within which they can establish their own segregated portfolio or sub-funds and build fund management expertise located in four major jurisdictions – Hong Kong, Cayman, The Netherlands and the UK. VFS will provide the fund administration and associated services from its Hong Kong, Luxembourg or Jersey office. VFS has worked closely with Clayton Heijman of Darwin Platform on the set up and marketing of the two abovementioned platforms. Ivo Hemelraad, Managing Director of VFS, Luxembourg, comments; “In today’s competitive environment, time-to-market and costs are of the essence. Privium provides a high quality and high-speed set up which still allows for tailor-made solutions. Privium therefore lives up to our credo of ‘We will adapt to your requirements, not force you to fit ours’.” Regulated by the FSA, Privium Fund Management (UK) Limited benefits from the knowledge of internationally experienced industry veterans Paul Smith, Clayton Heijman and Nick Paris. They have started this new business to support the launch of various fund management operations that are anticipated in the financial industry. Providing a one-stop solution for new and alternative fund managers, Privium has the experience and expertise to contribute to the success of new funds and support new projects. Services offered include asset
management, middle and back office administration, marketing, office infrastructure and support. “The infrastructure that we have put together is a combination of top-quality systems, together with an umbrella fund structure in Luxembourg. This means that a manager can set up a fund in Luxembourg in record time. Managers can also benefit from all areas of our expertise ranging from capital introduction to providing office space.” Clayton Heijman then continues; “Our set-up is ideal for managers who want to establish their fund on a solid foundation which allows for flexibility and growth.” Commenting on the launch of Privium Capital Fund, Charles Kwun, Managing Director of VFS Asia says; “The new Privium Capital Fund adds to our range of services and delivers a higher level of flexibility. It allows clients to have fund and management separately domiciled in a range of locations of their choice, and offers tremendous savings of initial set-up and ongoing cost as well as implementation time, which we think will be of particular interest to the Far East and Asian markets. This new flexibility will also help to resolve other logistical factors such as time zone differences, communications and control.”
Vistra Fund Services S.à r.l. Jan Vanhoutte Managing Director Tel: +352 422 229 333 firstname.lastname@example.org www.vistrafundservices.com
For more information about Privium, please visit our website www.priviumfund.com. For more information about Vistra Fund Services, please visit us at www.vistrafundservices. com.
November 2012 • Global Business Magazine • 11
TrusTee & fiduciary services
USA / Multi-Jurisdictional
Insurance Planning for Uncertain Times
Baker & McKenzie Hong Kong Paul DePasquale Tel: +852 2846 2317 email@example.com www.bakermckenzie.com
Increasingly, individuals are utilising private placement life insurance and private placement variable annuities as part of their comprehensive wealth planning. Many individuals combine insurance products with trust structures to enhance the tax benefits of insurance. However, in a world of increasing tax rates, such as those expected because of the US ‘fiscal cliff’ in 2013, the tax benefits of life insurance should be even more pronounced. This article will discuss generally insurance as a wealth-planning tool, but will use the US perspective to highlight certain aspects. Overview of the Beneﬁts of Insurance For US persons, there are several key tax advantages to investing in a US-compliant life insurance contract. Firstly, the policyholder is not taxed annually on the increase in the contract's cash value, which allows for a tax-favoured compounding of investment returns on the investments backing the policy: Secondly, if properly funded, withdrawals from the policy or policy loans are tax-free up to the policyholder's investment in the contract, providing some measure of liquidity: Thirdly, the death benefit proceeds from a compliant life insurance contract are not subject to US income tax, and the US estate tax can be mitigated through use of a trust structure to hold the contract: Lastly, certain exchanges of contracts are not taxable events. Life insurance also provides non-tax wealth planning benefits. These benefits include the insurance coverage on the insured person's life; asset protection; the ability to transfer assets on death outside of probate; and simplified reporting and disclosures for the policyholder. Insurance is also better understood by tax authorities in civil law jurisdictions as compared to
12 • Global Business Magazine • November 2012
trusts, which provides more certainty for multi-jurisdictional planning. Overview of Product Structure Private placement life insurance contracts are generally structured as variable contracts. For a variable contract, the insurance company sets up a segregated account into which it deposits the policyholder's premiums, which are then invested in accordance withpre-defined investment strategies. The segregated account is separate from the insurance company's general asset account, and generally insulated from attack by the insurer's creditors. The cash value of the contract and the contract's death benefit fluctuate over the term of the policy, in accordance with the investment performance of the assets in the segregated account. The US tax rules on variable contracts require that the assets in the segregated account must be adequately diversified within the meaning of the applicable regulations. This requirement (among others) is meant to differentiate life insurance contracts from other types of passive investments that do not receive the tax benefits provided for life insurance contracts. In addition, the policyholder cannot exercise control over the investments in the segregated account. If the adequate diversification or investor control rules are not satisfied, then the income on the contract will be taxable to the policyholder annually. Qualifying as a Life Insurance Contract To qualify as a life insurance contract for US tax purposes, the contract must meet certain statutory and common law requirements. The statutory rules require that the policy (a) be a life insurance contract under the applicable law, and
(b) meet either (i) the ‘cash value accumulation test’, or (ii) the guideline premium and cash value corridor tests. The purpose of these tests is to distinguish life insurance contracts from other types of investment products that are not tax-favoured. Therefore, these rules provide that there must be a certain relationship between the cash value of the contract and the insurance benefits provided under the contract. To be an insurance contract under the US common law, there must be risk shifting and risk distribution. Risk shifting requires that the risk of economic loss must be shifted from the policyholder to the insurance company. Risk distribution requires that the risk assumed by the insurance company must be distributed among sufficient numbers of policyholders. Pay Out of Proceeds Proceeds from a compliant life insurance contract that are paid by reason of the death of the insured person are generally not subject to US income tax. For estate tax purposes, the death benefit of an insurance contract on the decedent's life is includible in the decedent's gross taxable estate if the estate is the beneficiary of the policy, or if the decedent has incidents of ownership in the policy. Because of the potential for estate tax exposure, insurance may be combined with a trust structure to achieve enhanced tax-efficiency.
arrangement, the settlor transfers ownership rights in property to the trustee who holds and controls the property for the benefit of beneficiaries. The settlor, therefore, divests his ownership rights in the property. An irrevocable life insurance trust is used in a similar way when planning with insurance contracts. In this arrangement, a trustee enters into the life insurance contract with the insurer as the policyholder and pays the life insurance premiums. This provides estate tax benefits because the death benefit is not included in the gross estate, as the settlor has divested his interest in the contract to the trust. There could be gift tax consequences, however, upon settling the trust with the funds to purchase the policy. Variable Annuities Private placement variable annuities are generally structured as deferred variable annuities. Under these contracts, the owner pays periodic payments to an insurance company. The payments are kept in a segregated account and invested according to certain predefined investment strategies. In
exchange for the premium, the insurer makes annuity payments to the beneficiary over time. The key tax benefit from an annuity is the ability to defer income tax on the inside build-up in the policy. Upon receipt of an annuity payment, a portion will be taxable to the policyholder, and a portion will be excluded from tax as a recovery of capital. Investing in a properly structured variable annuity can be an effective planning technique for clients contemplating a temporary move to the US. Prior to relocating to the US, the client can purchase a US-compliant annuity contract from a non-US insurer. By purchasing the annuity, the client can avoid the tax on the income from the assets held in the insurance company's segregated account. When the client moves out of the US and resumes nonUS taxpayer status, the client can cash out the annuity. However, key to this planning is that the US compliant contract must be purchased from a non-US insurer by an individual (or so-called grantor trust settled by that individual), with the annuitant being a non-US person.
Planning for Uncertainty It is no secret that the US tax landscape beyond 2012 is subject to considerable uncertainty. The ‘Bush-era’ income tax rates are set to expire at the end of 2012 along with reductions in government spending. Many have referred to this as the "fiscal cliff". Unless Congress acts to extend or modify the rates, the US federal income tax rates applicable to many types of income will increase because of the expiration. The fact that 2012 is a presidential election year makes it more unlikely that there will be Congressional action prior to late 2012 at the earliest. Aside from the income tax, absent Congressional action, the maximum US estate tax rate currently set at 35% will increase to 55%, and the current USD 5.2 million exemption will decrease to USD 1 million. If these tax increases go into effect, then the tax benefits of US-compliant life insurance and variable annuities will be further enhanced, compared to today’s planning environment.
A trust can be utilised to minimize the risk of exposure to US estate tax because the death benefit from a life insurance contract is not includible in the decedent's gross estate if the decedent lacks the incidents of ownership at the time of his death. In a typical trust
November 2012 • Global Business Magazine • 13
Trustee & fiduciary services
UK Joined-up Thinking: Protecting Private Wealth from Europe to the Far East and Beyond
Taylor Wessing LLP Steven Kempster Tel: 020 7300 4404 firstname.lastname@example.org
The world is becoming an increasingly smaller and more interconnected space. However, in a period of major global economic uncertainty, there are two certainties – death and taxes (attributed to Benjamin Franklin, 1798). It is equally certain that a large number of families with significant privately held wealth, will at some stage be subject to a seismic event or events that could seriously damage, if not wipe out, that wealth, whether it be the death of the family/ business leader, divorce of a family member, or political, or even currency instability. Not surprisingly, there are a wide range of professionals and jurisdictions now promising to offer a safe harbour for private wealth. According to recent estimates, the Asia-Pacific region now has over 3.3 million HNWIs (high net worth individuals) – higher than any other region, with an estimated 18,000 centamillionaires (those with a net worth of US$100 million+). But this fast-growing and dynamic constituency needs to pause and think about how to protect that wealth for the future. Even once that crucial decision has been made to set up more robust holding structures, using such vehicles as trusts, foundations and perhaps a private trust company, proper implementation and management is key to address the serious risks. Governance and Control Whilst there are many professional fiduciaries offering their services, there has been a marked increase in demand – in the Asian market in particular – for the use of private trust companies (PTCs) to act as trustee of a particular family trust. Setting up a bespoke company to act as trustee of a specific trust (as opposed to using a bank-owned
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or established independent trust company which will act as trustee for many trusts) is intended to have the promised benefits of confidentiality and control by the family, rather than by some unfamiliar professional trustee. Family members or their trusted advisers then take up a formal role in the governance of the PTC and therefore the operation of the family trust, without damaging the integrity of the trust (provided that the PTC and trust are properly administered). Jurisdictions are increasingly adapting structures to make it simpler for the family to understand. In the past, it might have been typical in some jurisdictions for the shares in the PTC to be held in a separate trust that had no living beneficiaries, just purposes (so-called Purpose Trusts). However, this had increased cost and complexity for clients. Instead, jurisdictions such as Singapore (and the UK has been adopting this model for decades) allow PTCs to be established as companies limited by guarantee, with the directors, or some other group of persons, having membership rights rather than shareholder rights. But there needs to be careful planning with regard to the succession of future members once the original members die, or become mentally incapacitated: Otherwise, the other members, a child or children of the settlor for example, may suddenly find themselves with substantial and disproportionate influence over the PTC and the operation of the trust. What remains to be seen is the extent to which PTCs could, inadvertently, introduce a further layer to a family dispute. Family members/ beneficiaries (who will generally be disgruntled at the PTCs actions, or unhappy that the trust violates their rights as fixed heirs under a foreign system of
law) might well choose to litigate issues in relation to the corporate administration of the PTC, in a bid to gain indirect control over the operation of the trust. Family members on the board of the PTC could find themselves subject to personal claims for causing loss to the trust – claims that would be much harder to bring against a professional trust company and its directors. How can this be mitigated? Proper administration, regular meetings, proper minutes and proper consideration from time to time of the PTCs role as trustee of the family trust. Having proper professionals on the board, with high-level trust and/or business experience, is also crucial to demonstrating that the holding structure has integrity and cannot be challenged. There are lessons that can be learned by all families and professional advisers from some of the cases that are already hitting the courts, and (worse for many families) hitting the press. Take the Yung-Ching Wang dispute involving the founder of the Formosa Plastics empire. Leaving no written will to determine the devolution of his estate, Mr Wang left his family, and a number of senior executives in the business, fighting over the control of the PTC that had been holding and administering the business interests, involving claims over the alleged dissipation of sums totalling $4 billion. The battle now rages over which jurisdiction – Hong Kong, Taiwan, or New Jersey, USA (where Mr Wang died) – should be the right legal system to determine the family's rights. Getting the Implementation Right An increasingly challenging issue, amply demonstrated in the Wang case, is the problem of clashing legal systems, coupled with a lack of familiarity
amongst business owners, and even some professional advisers, as to how to address conceptually different legal systems. Due respect must be given to the rules that could be imposed by relevant legal systems with regards to property rights and formalities for a transfer into a trust. In a number of jurisdictions, the concepts of fixed and immutable heirship or spousal rights can form an intrinsic part (and fetter) on what can be achieved by way of tax and succession planning. A number of legal regimes, for example Russia, impose strict written notarised consent requirements on the disposition (whether into a trust or some other holding structure) of matrimonial property. If the law applicable to the assets put into trust is not complied with, the transfers could prove to be vulnerable, even years (decades perhaps) after they were purportedly put into trust. Some jurisdictions – the Cayman Islands being one in point (in 1987), Singapore being another (in 2004) – have sought to enact protective so called ‘firewall’ legislation, to ensure that what is done in that jurisdiction by way of creating trusts cannot be challenged. However, not all attacks on a trust structure will be caught in the so-called firewall legislation. Claims arising under certain types of matrimonial property regimes will not be easily deflected by so-called ‘firewall’ rules in the offshore centres because the nature of the claim, a proprietary claim, may not be caught by those rules. Plotting a Safe Course What are the key pointers for families and advisers? Firstly, it is vital to consider all possible jurisdictions and local law restrictions when advising a family on the creation of the trust. Particular formalities, such as written or notarised consents
for example, might be a strict requirement, or at least desirable, in order to effect a valid transfer that cannot be subsequently challenged by a disgruntled heir, spouse, or creditor. Secondly, flexibility is important, and is the very reason why a broadly drafted discretionary form of trust is often ideal. But it is also often the case that patriarchs or matriarchs of the family will have a firm view of how a structure should operate and what rights it should, and should not, give to the beneficiaries, and those who are entrusted with power and responsibility over the assets need firm guidance on that. Giving flexibility to the trustees combined with a clear and considered memorandum of wishes, which should be reviewed and updated regularly, is key to avoiding the risk of future dispute. The courts will generally protect the inherent confidentiality of such memoranda, although that cannot be guaranteed if a beneficiary raises a complaint in the future. Thirdly, securing the engagement of family members and other parties whose interests are reflected in the structure will greatly enhance its robustness. Seek to achieve a reasonable balance between the interests of relevant stakeholders, namely the family members, those ‘inside’ and ‘outside’ the business, or children from prior marriages. This may or may not be the equivalent of all family members/beneficiaries signing up to the structure in a formal way, but the worst examples of families falling out occur where the power vacuum left by the death of a dominant family member is coupled with an information vacuum. Therefore, there is now an increased demand for family governance protocols, and these can often be integrated into
established corporate governance procedures. Conclusion The demands of the world's wealthiest families demonstrate that there is considerable need for bespoke highquality professional advice on structuring their assets. Only those organisations and advisers who can get the joined-up thinking right, and have the strength-in-depth of international knowledge and resource, will be able to help families achieve their objectives. As Singapore increasingly looks to become the jurisdiction of choice amongst the burgeoning wealth creators of the Far East, it is a blend of international private wealth experience coupled with crucial local knowledge that is key to helping families protect and enhance their wealth, and equipping them with the tools to weather whatever storms might one day be headed their way. Taylor Wessing LLP is a fullservice law firm with over 900 lawyers practising from 22 offices throughout Europe, the Middle East and Asia. There are over 60 lawyers practising in Singapore within local member firm RHTLaw Taylor Wessing LLP, offering local law capability in Singapore and other SouthEast Asian jurisdictions such as Indonesia and Malaysia. The Taylor Wessing private client and contentious trust teams in the UK are rated in the top tier in the Legal 500 directory, and won the prestigious Society of Trust and Estate Practitioners Awards for Teams of the Year in 2011 and 2012. By Steven Kempster, Private Client Partner & Head of Contentious Trusts group, international law firm Taylor Wessing LLP, London & Ryan Myint, Private Client Partner, RHTLaw Taylor Wessing LLP, Singapore
November 2012 • Global Business Magazine • 15
Trustee & fiduciary services
Mauritius Trusts in Mauritius – Double Tax Treaty Advantages
Steve McCafferty email@example.com M: +44 (0) 7624 490561 IQE (Mauritius) Limited Licensed by the Financial Services Commission Mauritius www.iqe.mu
Mauritius has developed an excellent reputation as an international finance centre, and is seen as a pivotal platform for structuring investments into, amongst many other countries, Africa, India and China. Having firmly established itself as a modern and flexible jurisdiction Mauritius offers both high quality and good value service through competent professionals. One of the distinguishing features of Mauritius is its interesting taxation treaty network, which allows the country to serve as a gateway for African and Asian investments. Trusts Trusts can play an important part in any wealth management and estate planning structures. In Mauritius, the Trusts Act 2001 (based on English Common Law) and the Code Civil Mauritian provide for the setting up of private trusts, such as discretionary or fixed interest trusts. There is no express provision for the registration of a trust in Mauritius and generally the perpetuity period of the trust may not exceed 99 years (with the exception of charitable or purpose trusts). The legislation in force also offers favourable features such as specific asset protection provisions; the accumulation of income over a period of time (which must not exceed the perpetuity period); the ability to segregate roles of a Managing Trustee and a Custodian Trustee; and confidentiality that is guaranteed by the Trusts Act, under which a Trustee has a requirement to keep all information concerning the trust confidential. Subject to professional advice, a trust established in another jurisdiction can also be easily migrated to Mauritius.
Double Taxation Treaty Access for Trusts A Mauritius trust may either elect to be a resident trust or a non-resident trust for tax purposes – a choice that depends upon the primary objectives of the trust. A trust that elects to be treated as a non-resident trust will not benefit from the network of Double Taxation agreements that Mauritius has in place. These types of trust are more commonly used in the case of a family trust or finance transactions and, so long as an election is made, will be exempt from taxation in Mauritius. However, a resident trust is licensed as a Category 1 Global Business and is taxable in Mauritius. The main advantage of a resident trust is its accessibility to the extensive Double Taxation network the country offers. While subject to tax on its chargeable income, under Foreign Tax Credit Regulations currently in force, the resident trust is allowed a credit for foreign tax on its income that is not derived from Mauritius, effectively resulting in a minimal rate of tax payable thereon. Cyprus, Singapore, India and China are included in the list of 36 Double Taxation Treaties with Mauritius, thereby establishing the jurisdiction as a truly global offering for international structures. With its commercially effective and ever increasing extensive network, Mauritius is at the forefront of foreign direct investments – especially into Africa and Asia. Private Trust Company Regulations also allow for a Private Trust Company (‘PTC’) to be established. An efficient wealth management and successionplanning tool, a PTC is a company limited by shares, formed for the specific purpose of acting as a trustee of a trust (or limited number of trusts) for the benefit of a single family, or for branches of family. Therefore, rather than transferring assets to an external
professional trustee service provider, wealthy families or individuals may wish to consider establishing their own dedicated PTC. Legal titles to assets are then transferred to the PTC, thereby retaining a measure of family control in relation to the structure. A PTC can also provide a convenient way to gradually transfer control and influence over family wealth and business interests to future generations. Trusted family advisors, with a detailed understanding of the family dynamics and commercial instincts, can also be appointed to the Board of the PTC. Alternatively, to protect confidentiality, the Board can comprise of independent professionals. Foundations as an Alternative In July 2012, the Foundations Act came into force, bringing a new dimension to a Mauritius offering. A foundation is a legal entity with hybrid features of both a company and a trust, and can undertake any business or activity whether charitable or non-charitable. This Act allows business opportunities for global investors, high net worth individuals, and philanthropic organisations operating from civil law jurisdictions where the trust concept is not familiar. Foundations established in other jurisdictions can also make an application to redomicile to Mauritius, perhaps to take advantage of the treaty network in cross-border structures. IQE (Mauritius) Limited IQE (Mauritius) Limited is licensed by the Mauritius Financial Services Commission to provide Trust and Corporate Services, having received its Management License in August 2012. We work closely with professional advisers in providing bespoke solutions for corporate and private client requirements. Focusing on quality, our professionally qualified team adopts best practice in their particular field of expertise, to ensure a personal and confidential service. IQE can establish a Trust, Foundation or Company tailored to individual requirements, and provide ongoing tenure with the support of our professional administration, accounting and bookkeeping services.
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The Bahamas The Bahamas, Moving Smart: The Super Qualiﬁed Investor Fund The Bahamas, as an offshore jurisdiction, prides itself in being flexible and robust in its investment funds industry in meeting the needs of sophisticated offshore clients. This is once again exemplified by the creation of the latest SMART Fund Model: SMART Fund 007, which continues to maintain an appropriate level of corporate governance and recognition of international regulatory standards. SMART Funds The Specific Mandate Alternative Regulatory Test Fund (‘the SMART Fund’ or ‘the Fund’) regime was introduced in 2003 with the passing of the Investment Funds Act as an alternative to predefined fund classes, which, with their rigid regulatory structure, proved to be too cumbersome in creating client-tailored offshore investment solutions for private investors looking to structure private equity or family office funds. From its inception, the goal of the SMART Fund has been to achieve a level of flexibility, which, unlike the traditional investment funds (whose approval for licensure are clearly defined within the law), has no specific requirements to obtain a licence; its licence being alternatively approved on a case by case basis by means of submission of templates submitted to the Securities Commission of The Bahamas (SCB). This unique framework allows promoters to seek approval for a specifically tailored fund structure, and a corresponding license to be issued for use solely in connection with that fund. Other features include: the ability for same day licensing by unrestricted fund administrators; 72-hour licensing by the SCB; the ability to waive annual audits; the requirement for registration of a limited content offering memorandum; and an inexpensive licensing process with reduced costs due to audit waiver and term sheet.
SFM007 SMART FUND 007 can be offered on a private placement basis to a minimum of one and up to a maximum of 50 qualified investors – each making a minimum initial investment of $500,000. This expanded investor base is a notable distinguishing feature when compared with other established Fund Models, which have up to a maximum number of ten investors. Most notable is the ability for operators to self-administer the fund, or through its Board of Directors, to appoint a reputable fund administrator of their choice in any jurisdiction on an ‘as needed basis’, without being restricted to licensed fund administrators. This important feature allows the Board of Directors to select preferred service providers having regard to key drivers such as the investor profile, time zones, investment strategy, location of investors and costs. Clientele What is the target market for the SFM007? Industry executives have boasted that this Fund is ‘an attractive option to Brazilian and other Latin American asset managers and investors’! This view is primarily predicated upon the previously referenced expanded investor pool offered by SFM007 and the minimum investment requirement, which has a direct correlation to clients in jurisdictions such as Brazil that permit external investments only where they meet or exceed this minimum amount – that is, $500,000. However, overall this Fund is investor-centred and its ‘custom-made’ design targets the ‘super-qualified investor’ (high net worth, ultra high net worth and institutional investors) from any jurisdiction seeking to take advantage of The Bahamas’ flexible regime, to set up private placement funds to diversify their portfolios and manage investments.
Furthermore, since the launch of SFM007 in August of this year, industry professionals have witnessed immediate interest and excitement for this new product, and confirm receipt of instructions to create investment structures utilising this Model. This, as well as the use of predecessors to SFM007, evinces the dynamism of the SMART Fund regime and the ‘clientdriven’ outlook of The Bahamas as regards the investment funds sector of its financial services industry.
Bay Court Chambers Bahamas Law Firm Raynard Rigby Principal Suite 3.1 Frederick House Frederick Street P.O. Box SS-6836 Nassau, the Bahamas firstname.lastname@example.org Phone: 1 (242) 302-9200 Fax: 1 (242) 323-8036 www.baycourtlaw.com Shannelle Smith Associate Suite 3.1 Frederick House Frederick Street P.O. Box SS-6836 Nassau, the Bahamas email@example.com Phone: 1 (242) 302-9200 Fax: 1 (242) 323-8036 www.baycourtlaw.com
Market Reaction As at 31st December 1996, there were 125 licensed SMART Funds in The Bahamas. Todate, there are seven approved SMART Fund templates.
November 2012 • Global Business Magazine • 17
TrusTee & fiduciary services
Switzerland Developments in the Wealth Management Industry
Baker & McKenzie Zurich Marnin Michaels Principal Tel: +41 44 384 1208 firstname.lastname@example.org www.bakermckenzie.com
Never before have developments in the wealth management industry transpired so rapidly, and on so many levels, as right now. It is ironic that a deluge of regulation driven in part by the need for governments to increase revenues, following a ‘bust’ caused to some extent by complex financial transactions, is turning an industry – that though often opaque, used to be relatively simple in its operation – into something far more complex that relies on evermore sophisticated approaches to deliver value to clients. These changes also impact how practitioners work within this space. This article will explore the basic trends impacting the industry and practitioners, specifically (1) legacy issues, (2) revenue, (3) regulation, (4) transparency, and, (5) the greater use of insurance products – each of which is outlined below. Legacy Issues ‘Legacy issues’ refers to problems that have plagued the industry for the last 50 years. The concept of ‘statutory bank secrecy’ is not even 80 years old, and it was only codified into law as a result of the events in Germany surrounding Kristallnacht. The original purpose of bank secrecy was to help protect those suffering from persecution in Europe. It is now almost 70 years since the end of World War II, and a little more than 20 years since the end of the Cold War. The reason why many people kept money secret was replaced by a practice of not paying taxes – a significant issue because the European Union could throw 40% to 50% of its countrymen in jail. Countries and financial institutions struggle to solve this issue. Whether it is the approach of Switzerland with its new withholding tax agreements with countries like Germany, the United Kingdom and Austria (with others to come), or the
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Lichtenstein approach, each of these approaches are attempts to resolve the past historical legacy issues associated with undeclared money, and to create a uniform basis for all taxpayers in a given country going forward. While countries such as Switzerland and Liechtenstein have been very good about taking this approach, other countries have not been as interested. Revenue We are currently entering our fourth year of recession. Gross domestic product is down, tax revenue is down, debt service costs are up, and the need to spend continues to grow as populations age. Countries need revenue and attempt to find it in any way they can. Approaches vary, including finding new and unique tax systems and approaches, such as that the French have taken with respect to trusts. The other approach is just to increase tax rates and impose austerity measures. The United States is at the forefront of attempts to generate revenue by not changing its tax laws but rather by greater and more significant extra-territorial enforcement of its tax laws, particularly in the offshore arena. As the need for revenue increases, and as the sources to generate it from decrease, tax authorities become more creative as to how to generate it. This results in more aggressive enforcement actions, such as those we have seen against individuals in the United States and Germany; and against banks, such as those (also by Germany and the United States) in Switzerland, or by more complicated and sophisticated tax laws such as those established in the United Kingdom and in France. In fact, over the course of the recent Hollande-Sarkozy election, the French even threatened taxation based on citizenship.
Regulation No country or securities regulatory agency wants to be responsible for another Madoff event. Regulators are scared of their banks failing and of a major fraud being perpetuated under their watch. As such, we have seen an unprecedented global increase in regulatory requirements, both in actual law and in practice, as to how they are to oversee financial services and how clients must behave. It can be argued that this is more about governments being seen to be doing something than about helping customers. In fact, many of these rules arguably do not help customers at all, but in fact make for a harder, more complex system for everyone. When we look legislation such as Dodd-Frank, or the legislation in Switzerland regarding ‘too big to fail’, one has to ask whether these are more about regulators protecting regulators than about protecting the interests of the companies they regulate. Furthermore, the cross-border regulation of financial services continues to increase, and this is resulting in customers unable to bank at all in certain situations.
Transparency means, among other things, fiscal transparency. However, transparency is not limited to this concept. There is a perception among many that the financial crisis was caused by financial institutions lacking transparency as to their financial operations. We see greater pressure from governments to force transparency on the market place and its financial institutions, which is not necessarily resulting in stronger financial institutions, but in more transparency by numbers. Arguably, it could be said that this is good, however, it can also be perceived as an unnecessary regulatory burden. The Enhanced Use of Insurance Products Increasingly, individuals are utilising private placement life insurance and private placement variable annuities as part of their comprehensive wealth planning. Many individuals combine insurance products with trust structures to enhance the tax benefits of insurance. In a world of increasing tax rates, such as those expected because of the US ‘fiscal cliff’ in 2013, the tax benefits of life insurance should be even more pronounced. This
article will discuss generally insurance as a wealth-planning tool but will use the US perspective to highlight certain aspects. How Does this Impact on the Wealth Management Industry? The key message to take away from these trends is an evolution of the wealth management industry from a relatively unsophisticated business to an ultra-sophisticated business, which relies on this extreme sophistication for its value proposition. The days of being able to merely collect 100bps per annum are gone. Clients expect more value: The regulators expect more of the institutions that drive compliance costs. It is also no secret that the tax landscape beyond 2012 is subject to considerable uncertainty. While the ‘Bush-era’ income tax rates are set to expire at the end of 2012, the tax situation in most of Europe is completely unclear. Thus, we live in a world of uncertainty that hasn’t been seen in the last 50 years.
jurisdictions in which the client operates. Practitioners also need to practice defensive law. Our experience is that clients are not looking for the correct advice, but rather for the advice that they can hand out which states that what they are doing is permissible. Often, this comes at the expense of clients not telling their lawyers the entire situation. It means having two lawyers in the room to ensure that what was said can be relied on. It may also mean longer and more documented memoranda, and more sophisticated advice that has an element of defensive lawyering. However, that means that the cost of advice goes up at a time when clients have fewer funds. This is not ideal. by Marnin J. Michaels
No longer can one look only at one’s home country’s rules. Instead, practitioners need to approach their clients’ issues from a global perspective, and get input from many different
November 2012 • Global Business Magazine • 19
TrusTee & fiduciary services
The Channel Islands Jersey’s Credentials as a Leading Jurisdiction for Stock Exchange Listings
Kathy Gillen Partner Trust and Corporate Tel: +44 (0)1534 880088 email@example.com
With a total market capitalisation exceeding £135 billion, Jersey has close to 100 companies listed on stock exchanges globally, including London, New York, Hong Kong, Toronto, Luxembourg, Oslo and the Channel Islands itself. Recent figures compiled by the Hemscott Group Limited (a Morningstar company), confirmed that Jersey continues to be the number one ranked jurisdiction for registering FTSE 100 companies outside of the UK. Eight out of eleven such companies are Jersey registered, with a combined market capitalisation of £69 billion. Jersey has a further nine companies registered in the FTSE 250 Index, and a total market capitalisation value from both exchanges of more than £78 billion – at least six times higher than any of its closest competitors in the market. Jersey
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is also one of four jurisdictions alongside Bermuda, the British Virgin Islands and Guernsey, with the most Alternative Investment Market (AIM) companies registered outside of the UK.
Offering (IPO) on the London Stock Exchange; and Genel Energy, which was admitted to the Main Market in June, and was the second largest flotation on the London Stock Exchange that year.
One of Jersey’s strengths in the global markets is its appeal as a jurisdiction for listings. These latest figures on the listings on London’s Main Markets highlight the pre-eminent role of Jersey in attracting the large scale listings. The rankings also help to demonstrate that the Island has the skilled practitioners to advise some of the world’s leading companies on the advantages of registering in Jersey, and that when combined with the attractive companies law, robust regulation and tax neutrality, the Island is an ideal choice for this type of business.
Jersey is becoming increasingly well known in the BRIC countries, and as a result, there are a number of Jersey companies that have already listed, or are intending to list. In fact, approximately 25% of the Chinese companies that have listed in London have done so using a Jersey company.
Notable Jersey companies that listed on the main London Exchange in recent times were Glencore, the world’s largest commodity trader, which was the biggest ever Initial Public
Listing on a major Stock Exchange can be an important step in the development of private companies, by providing capital for growth, creating a market for the company’s shares, enhancing the profile and credibility of the business and, ultimately, providing an exit strategy for its owners. Moore Stephens provides full corporate services for Jersey companies listing on major Stock Exchanges.
iNTerNaTiONaL BusiNess criMe
INTERNATIONAL BUSINESS CRIME The Value of a Fraud Fighter in 2012 Organisations around the world lose an estimated five percent of their annual revenues to fraud, according to the Association of Certified Fraud Examiner’s (ACFE) Report to the Nations on Occupational Fraud & Abuse (‘the Report’). Applied to the estimated 2011 Gross World Product, this figure translates to a potential total global fraud loss of more than $3.5 trillion. These findings, among others, were compiled from a survey of Certified Fraud Examiners (CFEs) who investigated fraud cases between January 2010 and December 2011. According to ACFE President and CEO James D. Ratley, CFE, the latest findings continue to validate statistical trends from previous ACFE reports. “As in previous years, what is perhaps most striking about the data we gathered is how consistent the patterns of fraud are around the globe and over time.” In the introduction to the 2012 Report, Ratley writes: “We believe this consistency reaffirms the value of our research efforts and the reliability of our findings as truly representative of the characteristics of occupational fraudsters and their schemes.” In today’s economic climate, companies are forced to ask themselves, “Who is helping to protect my company and clients from the devastating impact fraud can have?” That is where the ACFE comes in. As the world’s largest antifraud organisation and premier provider of anti-fraud training and education, the ACFE boasts more than 60,000 members worldwide, spanning 150 countries. They represent a global community of individuals from the private and public
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sectors and in organisations of all sizes. From entry-level fraud examiners to top-level executives – forensic accountants to IT professionals and those transitioning from one line of work to another – all make up the diverse membership of the ACFE. What sets ACFE members apart from the crowd? Through unparalleled live and online training, seminars and educational tools like webinars, publications and newsletters, ACFE members stay at the forefront of fraudfighting trends. Networking opportunities available through ACFE chapters, conferences and seminars, as well as social media, also give members an edge on the latest anti-fraud prevention techniques and education. Equipped with knowledge, tools and connections, members are then able to stay one step ahead of the fraudsters. Many ACFE members hold the distinction of Certified Fraud Examiner (CFE), a credential denoting proven expertise in fraud prevention, detection and deterrence. CFEs around the world are not only trained to identify the warning signs and red flags that indicate fraud but to help protect the global economy, by implementing processes to prevent it from occurring in the first place. It is because of the diligence and contribution of CFEs from all over the world that the data compiled and presented in the Report to the Nations is even possible. In the 2012 study, the ACFE received information on nearly 1,400 cases of occupational fraud, which provided a tremendous data set with which to work. “It is a testament to the dedication of our members
Andi McNeal, CFE, CPA, ACFE Research Director
that they are willing to give their time and share this information not for any personal gain or notoriety, but simply to contribute to our growing understanding of occupational fraud and to support the antifraud community,” says the Report’s co-editor, John Warren, J.D., CFE, ACFE VP and General Counsel. Key Findings from the ACFE’s Research Fraud schemes are extremely costly. The median loss caused by the occupational fraud cases in the study was $140,000, with more than one-fifth of these cases causing losses of at least $1 million. Schemes can continue for months, or even years, before they are detected. This was found in the study, with the frauds lasting a median of 18 months before being caught. Tips are key in detecting fraud. Occupational fraud is more likely to be detected by a tip than by any other method, with the majority of tips coming from employees of the victim organisation. Occupational fraud is a global problem. While findings differ slightly from region to region, most of the trends in fraud schemes, perpetrator characteristics and anti-fraud controls are similar, regardless of where the fraud occurred.
fraud controls than their larger counterparts, which increases their vulnerability to fraud. The Report also details findings such as how organisations were affected based upon industry; how the implementation of antifraud controls affected exposure to fraud; the breakdown of fraud statistics by geographical region; and lastly, the most common behavioural traits observed among fraud perpetrators. Such information is particularly noteworthy to forensic accountants and other anti-fraud professionals, who are charged with detecting and investigating instances of suspected fraud. By educating themselves on trends in occupational fraud, forensic accountants can more effectively identify warning signs of fraud, assess fraud risks, evaluate anti-fraud initiatives, and protect organisations’ assets from would-be thieves. Andi McNeal, CFE, CPA, ACFE Research Director About the Association of Certified Fraud Examiners The ACFE is the world's largest anti-fraud organisation and premier provider of anti-fraud training and education. Together with more than 60,000 members, the ACFE is reducing business fraud worldwide and inspiring public confidence in the integrity and objectivity within the profession. For more information about the ACFE, visit ACFE.com.
High-level perpetrators do the most damage. The median loss among frauds committed by owner/executives was $573,000, by managers – $180,000, and by employees – $60,000. Small businesses face increased risk. The smallest organisations in the study suffered the largest median losses, as they typically employ fewer anti-
November 2012 • Global Business Magazine • 23
iNTerNaTiONaL BusiNess criMe
Linklaters LLP Kiril Bougartchev Partner, Head of Litigation/ Arbitration Tel: +33 (0) 1 56 43 58 52 firstname.lastname@example.org
Emmanuel Moyne Counsel Tel: +33 (0) 1 56 43 57 03 Emmanuel.email@example.com www.linklaters.com
Managing the criminal risk in the context of the financial crisis
a five year’s prohibition on running any company and an obligation to pay approximately €2.6 million in damages.
Law sometimes develops as a reaction to current events, which are often tragic. Following the major financial crisis that has hit Europe, criminal law has not escaped this “trend”. We can even say with some confidence, that criminal law has been characterised over the last few years by legislative turmoil, which unfortunately results in legislation which “reacts”, rather than purely protects.
Whilst French criminal law does not have the near-life sentences of American law, its severity, when exercised, leaves a lasting impression on those who are prosecuted.
In France, the crisis has been the origin of countless calls for a tightening of sanctions against “rogue bosses” and adjustments to regulations for companies in difficulties. The most striking example of regulatory adjustment is the so-called “Petroplus” law of 12 March 2012, which provides for interim measures to be taken against a company in cases of confusion of assets and/or for the seizure of the asset of legal or actual company executives as compensation for their defaults. This is in spite of the fact that the current law already provided the means to implement a repressive judicial policy. The penalties inflicted by the Paris Court of Appeal in its decision of 6 July 2012 against the purchasers of the HéninBeaumont Samsonite factory as a result of a conviction for bankruptcy by misappropriation of assets, aiding and abetting and receiving the proceeds of an offence, provides a good example. The Paris Court of Appeal sentenced the General Secretary to three years’ imprisonment (two of which without parole) and the Chairman, to three years’ imprisonment (one of which without parole), a €75.000 fine,
In times of crisis, this severity can be surprising and in certain cases led astray from its primary purposes, with a great deal of support from the press. It is true that while the loss of an international contract, which is the source of substantial revenue, usually only interests the economic and financial newspapers, in times of crisis it falls under greater scrutiny. During the insolvency proceedings of a company, prosecutors may confidentially request the opening of a preliminary investigation to find out whether any offence has been committed, regardless of the market losses (misuse of corporate assets, distribution of fictitious dividends, bankruptcy by misappropriation of assets, fraud or receiving the proceeds of these offences etc.). This investigation could have a significant effect on those very persons who were in charge of the company– whether or not they committed a fault. A parent company may receive information requests. Failing to comply within a short period of time may result in dawn raids. The opening of a judicial investigation, assigned to an investigating judge, would be the next step. Such investigating judge would then be able to seize, merely on the basis of non-contradictory investigative reports, tens of millions of euros’ worth of assets – even though no individual or legal entity may yet
24 • Global Business Magazine • November 2012
have been formally charged with anything.
shareholders thus ignoring any economic considerations.
The second phase of the procedure would be the arrest of the executives concerned including those of any subsidiary or parent company – followed by their indictment and placement under judicial control. The latter generally requires the payment of a substantial bail amount and the implementation of various prohibitions (prohibition on travelling, getting in contact with
Savvy entrepreneurs will not fail to measure the risks before making decisions which economic conditions may require them to consider. They should also be prepared to manage the ensuing crisis which may come.
certain individuals and/or even managing a company) In parallel, executives who may not actually have committed any mismanagement – would be “invited” to participate in supporting the efforts of a rescuer or even financing the offer of a rescuer without resources. At the same time, the French public authorities are sometimes slow, for political reasons, to react to the seizure of company facilities by its employees. A long series of challenges are to be expected in these circumstances, as due process is sometimes far away from what happens in reality. In such cases, it is critical to identify at the outset whether a company is in financial difficulties and to gather all the evidence likely to cast light on these difficulties, including at the investigation stage. A key feature of judicial investigations is the lack of access to a case file which is inherently secret. In this respect expert reports conducted by independent third parties will be required. What is true for French groups is also true for international groups which can quickly generate hostile reactions from unions and the press may be quick to portray the matter as just another malicious relocation by
Mr Nicholas Purnell QC - Author and Head of chambers
July 1st 2011 saw arrests in Australia of Securency International PTY Ltd personnel under (a previously dormant) Division 70 of the
Australian Criminal Code and the coming into force in the UK of the Bribery Act 2010. The criminal investigation into alleged payments by executives to officials in Vietnam, Malaysia and Indonesia caused a ripple in the UK when a UK executive was charged with allegedly paying for the university education of the son of the Governor of the State Bank of Vietnam. Because of the identity of the agent involved, this investigation has now been connected to the wider investigation into Alsthom sprawling across much of Europe. The specific facts are
unimportant but this is a current example of the impact of the tentacles of anti-bribery and regulatory regimes on companies seeking to conduct business on a global scale and on Special Purpose Vehicles commonly created to carry out multinational business activities. These tensions frequently develop unrecognised by corporations and commercial advisers. The seven specialist barristers at Cloth Fair Chambers find themselves engaged to provide advice to companies seeking to avoid the risk of criminal transgression and companies finding themselves embroiled in the nightmare of criminal investigation and needing a strategy to take the business forward and to defend themselves. Take a hypothetical Indonesian JVC, for example, created by Australian and UK parents, each listed on the NY Stock Exchange and with UK shareholders, on a 51%/49% ownership which discovers, a year into the project, systemic bribery had taken place between a JVC employee and an Indonesian Official. The JVC, a subsidiary of the Ausco , has appointed UKco as project director. At once there are risks that the criminal law may expose each corporate entity, Ausco, Ukco and the JVC, to criminal investigation and prosecution in three jurisdictions, the UK, Australia and the USA. The factors which may determine the extent of the risks will differ among the different jurisdictions. Section 7 of the UK Bribery Act requires a company to implement anti-bribery systems which will serve to protect the company from the incidence of bribery. The UK offence differs from its US and Australian
counterparts by containing no carve-out for facilitation payments.
mail or inter-state commerce or transferring money through the US banking system ?
The offence can be committed where bribery has been carried out by a person ‘associated’ with a ‘relevant commercial organisation’. Neither the nationality of that person, the location where the offence took place or whether the root offence is prosecuted, will affect jurisdiction.
Australia: Criminal Code 1995: Section 70 .5 casts jurisdiction across acts of bribery which: partly occur in Australia; are committed by a company incorporated by or under Australian law and targets acts ‘within the actual or apparent scope of the employee’s employment.’
What was the degree of control exercised by the parents? To what extent does the target company carry out business in the UK? Why is the company listed on the UK (or US) stock exchanges? Was the JVC employee performing services for Ausco or UKco? Was the bribe paid or received with the intent to benefit Ausco or UKco? These are all factors which relevant to UK jurisdiction for s7 offences.
The Australian Code and US FCPA share this wider corporate liability, extending the UK definition from corporate responsibility covering acts of those who are identified with the ‘directing mind’ of the company ( the identification doctrine ) to requisite knowledge through an officer, director, employee, agent or any stockholder , ( the respondeat superior principle).
If any part of the act or omission forming part of the bribery took place within the UK; or the JVC employee is a British subject; or if ‘participating’ telephone calls are made or ‘participating’ emails sent to or from the UK; or funds transferred to or through the UK, then the principal bribery offences may be engaged and be justiciable in the UK. US: Federal Corrupt Practices Act 1977. The legislation focuses on two targets, the main antibribery provisions and the books, records and internal control provisions. The issues for jurisdiction include whether the offender is a ‘domestic concern’, i.e. has a US principal place of business or is a ‘foreign business’. Did the offender offer a bribe ‘while in the territory of the US (and the threshold is very low); or do any act in furtherance of the bribery within the US , e.g. by using
The JVC, its parent s and the senior personnel of each of them may confront risks in any one of three jurisdictions whether brought about by a local agent, or historically, in circumstances when assets are still in the possession of or are come into the possession of the JVC and, indirectly , to the financial advantage of the parents. Cloth Fair Chambers. headed by Nicholas Purnell QC and the range of talent of Tim Langdale QC, John Kelsey –Fry QC, Ian Winter QC, Alison Pople, Jonathan Barnard and Clare Sibson, offers a unique service to international business by its combined experience in handling all stages of business risk from pre-transaction advice to investigation response and the conduct and strategy of litigation arising from prosecutorial and regulatory investigations.
November 2012 • Global Business Magazine • 25
The hazards of conducting cross border business ventures.
Cloth Fair Chambers Nick Newman Clerk to Chambers Tel : 00 44 207 710 6444 firstname.lastname@example.org www.clothfairchambers.com
iNTerNaTiONaL BusiNess criMe
White & Case P. Pietkiewicz, M. Studniarek i Wspólnicy – Kancelaria Prawna sp.k. Tomasz Manicki Local Partner Tel: +48 22 50 50 116 email@example.com www.whitecase.com
White-Collar Crime Trends in Poland – A Practitioner’s Observations White-collar crime is becoming a growing concern in Poland’s economy. Surveys conducted by independent forensic investigators, as well as our own observations of the market, show that in recent years, the number of business entities who continue to suffer from economic crimes in Poland has been increasing. This trend is most commonly explained by the economic crisis and downturn, which not only encourages people to violate the law (due to decreasing incomes, increasing costs, etc.), but also affects internal controls by reducing staff with the necessary expertise. However, it is fair to say that corporations and their officers are becoming increasingly aware of the problem. This has resulted in increasing efficiency of internal audits, self-control through whistle-blowing mechanisms, and compliance with standards set forth in the codes of conduct. All these elements together, as well as systematic training, are contributing to the rise in the number of disclosed business crimes. The number of consulting and law firms that have sufficient expertise and can advise on how to prevent a crisis resulting from a crime or, ultimately, how to manage it, is still too low in Poland. Only a few big law firms possessing thorough knowledge of the Polish business environment, have been able to establish white-collar crime practices which are recognised and appreciated by the most demanding clients – especially those coming from jurisdictions where the compliance standards are far more developed than in Poland. White & Case established one of the first white-collar crime teams, and is one of the most experienced. It has now been operating for around 10 years, during which time it has advised on a number of cases involving government investigations; internal audits and pre-closing due diligence; fraud; antimoney laundering; fiscal offences; criminal IP rights violations; international FCPA investigations; and many other similar issues. It has also helped a number of clients develop sustainable internal controls and compliance programmes, keeping them up-to-date and adjusted to the changing legal environment. Although the insurance and financial services sectors continue to be more prone
26 • Global Business Magazine • November 2012
to these crimes than any other industry, our experience shows that no sector is immune to business crimes. In fact, other highly regulated industries – pharmaceuticals, energy, construction, gambling and all those where there is a predominant element of state ownership, or where government contracts are involved – are also reporting more business crimes. However, larger corporations are more likely to suffer from cases of fraud because they operate in more countries, have more agents and customers and, finally, have more assets and employees. As a result, investors from the US and UK, mindful of the particular risks existing in some industries and potential successor liability, are conducting very detailed compliance audits prior to acquiring Polish entities. The majority of the business crimes we have come across in our practice – the most popular being asset misappropriation, accounting fraud, bribery or unfair competition acts – were committed by perpetrators from inside the organisation, commonly coming from the director or other decision-making level, in particular in all cases in which assets were misappropriated. However, a substantial crime can be committed and damage caused by any employee, as long as he/she possesses confidential information, or has access to customer data. Some crimes cannot be committed without the help of individuals from outside the organisation. This is usually the case in crimes affecting financial institutions. We have handled numerous cases in which money was transferred outside an
organisation to accounts held by accomplices under the pretence of a loan or investment. Sometimes an insurance holder, broker and insurance company employee agree beforehand on the circumstances that would trigger payment under an insurance policy. As mentioned in the opening paragraph, we believe that internal control mechanisms play a significant role in detecting and combating business crimes. These mechanisms first require that proper compliance procedures is in place, and employees should be trained on a regular basis how to apply those procedures. Organisations should also encourage employees to inform the appropriate parties about any suspicion of fraud by providing whistle-blowing channels. Once the relevant procedures are implemented, their application needs to be audited by internal audits and adjusted to the changing business environment. When fraud is suspected, we always advise our clients to involve external counsel – preferably members of the Polish bar of advocates (adwokat) – in the company’s investigation. Due to their presence and involvement, any results of the investigation are then covered by the attorney-client privilege. Last but not least, we have no doubt that the best possible outcome of our efforts is never achievable without establishing proper cooperation and communication with the authorities, no matter whether the client is the victim of a crime, or is itself under investigation.
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LeadiNG LaWyers Of THe MiddLe easT & NOrTH africa
LEADING LAWYERS OF THE MIDDLE EAST & NORTH AFRICA There is great potential in Algeria for UK companies because the market is just beginning to open up. Companies that persevere and decide to enter the market now will reap the dividends. The economic fundamentals are strong and there are plans for significant government spending over the next 5 years, in particular on infrastructure projects.
Azerbaijan might not sound like your next target market. But look a little closer and you’ll discover rocketing oil revenues bringing new opportunities for UK companies across a wide range of sectors. The UK is strongly positioned; we’re already the largest foreign investor in Azerbaijan, with plenty of British companies successfully doing business here.
Bahrain is a major trading hub and financial centre in the Middle East and is one of the UK’s smallest export markets in the Gulf countries. Strategically located in the Gulf with a causeway connection to Saudi Arabia and the rest of the GCC, Bahrain is seen as a gateway to the Gulf, a market of over 100 million people. Bahrain's diversity and openness continue to present opportunities for exporters. It has the most diversified economy in the Gulf
Egypt today is a growing attractive market that can offer major business opportunities to informed traders and investors. Trade and investment between the UK and Egypt is promising. UK Trade & Investment has identified opportunities that exist across a wide range of sectors including Education & Training, Engineering, Oil & Gas and ICT.
Iraq is a country rich in history and culture. As the country continues to rebuild its economy following years of war and insurgency, business opportunities for overseas businesses are increasing. While it is not an easy market to do business, many British companies are looking with a growing interest at Iraqi prospects There are a wide range of opportunities available in Iraq to companies who are not looking for a quick return on their investment and who have the patience to overcome bureaucratic hurdles
In 2009, UK exports to Jordan were £245 million while UK imports from Jordan reached £40 million. Opportunities in Jordan for British companies are available in water and wastewater; energy; defence; construction; education and real estate development and furnishings; retail as well as the fast growing ICT sector. Jordan is a hub for doing business in Iraq. Most of the largest Iraqi companies have their base in Amman and it can be an ideal location to conduct business for UK companies unable to travel into Iraq.
Kuwait is the UK’s 45th largest export partner and is 37th in terms of UK imports. It is UK's third largest trading partner in the Gulf Cooperation Council (GCC) countries; the bilateral trading relationship is very healthy and growing.
Lebanon is the UK's 2nd largest trading partner in the Levant and the UK's 6th trading partner in the Middle East. It is the UK's 60th largest market overall. Located on the Eastern shore of the Mediterranean Sea, it’s
30 • Global Business Magazine • November 2012
strategic geographical location and the excellent overseas contacts of the business community make it an excellent gateway to the Middle East region for exporters new to the region. There are business opportunities in a range of sectors including construction, healthcare, consumer goods, oil & gas and the service sectors.
Vision 2030 continue to generate opportunities for UK businesses across a wide range of sectors.
Designated a ‘High Growth Market’ by UK Trade & Investment, Saudi Arabia is the UK’s largest trading partner in the Middle East. The UK is Saudi Arabia's second largest foreign investor after the USA.
Morocco is situated in the north west of Africa and has a unique & strategic position. Britain is one of Morocco’s oldest partners. Morocco is UK’s 47th largest export market worldwide and one of the top 8 in the MENA region. The UK is among the top ten foreign investors in Morocco and UK expertise is welcome in many sectors.
Saudi Arabia’s fast-growing economy is creating opportunities for both exporters and investors. These are further boosted by moves to diversify the economy away from dependence on oil and gas, economic reform, market liberalisation and a growing private sector.
Turkey is one of the most dynamic and attractive markets for UK companies.
The location of the Palestinian Territories is geographically excellent, forming an economic and cultural platform and point of contact between three continents - Europe, Asia and Africa. This make it excellently placed for trade and there are numerous opportunities for UK companies to be engaged in the process of development and aid. There are a number promising sectors ready for investment including the Service sector and construction, manufacturing, mining, and chemical industries sectors.
The UK enjoys a healthy trading relationship with Qatar and British exports to Qatar have more than doubled in the last few years. Designated as one of UK Trade & Investment High Growth Markets Qatar has one of the highest rates of GDP per capita in the world and a high rate of economic growth. Qatar’s economic diversification and investment in human capital in accordance with the Qatar
Already sizeable, the Turkish economy will be the second fastest growing economy in the world by 2018 and will out-strip those of Italy and Spain in the next decade. Turkey with its large, young and well-educated population (latest estimate 77 million), is already a member of the EU Customs Union and is negotiating for full EU membership.
United Arab Emirates
The United Arab Emirates (UAE) is the UK’s largest export market in the Middle East and North Africa. It is the UK’s 16th largest export of goods market at around £4.7 billion and is designated as one of the UK Trade & Investment High Growth Markets. Key sectors for the UK in the UAE are: infrastructure (construction and mass transport); energy; defence and security; education and training; financial and professional services; and creative and media.
Source: UK Trade & Investment (UKTI)
Faten AL Naqeeb Principal Managing Partner Al Naqeeb & Partners Tel: + 965 – 2244 - 7415/6 Fax: + 965 – 2246 – 6780 www.mideastlaw.com www.alnaqeebpartners.com Kuwait
Kuwait Launches Company Governance: Capital Market Authority Laws As a governmental entity, the Capital Markets Authority (CMA) was established by law number 7 of year 2010, with its bylaws issued shortly afterwards in March 2011. However, the CMA laws and its executive bylaws are still under the initial stages of application, as the instructions issued by the Ministry of Commerce and Kuwait Stock Exchange are still applicable. This has lead to a duality and difference in procedures among the other monitoring bodies by virtue of their laws of establishment. Consequently, apparent defects have arisen in the correct application of these procedures and instructions. Primarily, it is crucial to outline what the CMA laws entail, as well as addressing their objectives. These laws propose to provide a neutral body, which controls and supervises the entire financial market. This requires having a legal basis, which classifies the authorities of the CMA thereby granting it with extensive powers. Basically, the CMA is an authority and its objectives revolve around: organising stocks and securities in a fair, transparent, and competitive way; providing protection to those partaking in the activity of securities and stocks; and ensuring the compliance with the laws and regulations related to the activities of securities. The execution of these laws have led to realising a number of clear achievements, which include fighting bubble companies, activating the disclosure process, and regulating the acquisition processes. In spite of what the CMA laws entail and aim to achieve, the aforementioned duality has created an evident delay for the listed companies in complying with these procedures in an effective manner. This is particularly due to the fact that time is considered one of the most vital factors for the stock companies whose shares are circulated within the Kuwait Stock Exchange. However, this has created negative results that not only have caused damage to the companies and the dealers; they have impacted the local economic atmosphere by reducing the chances of welcoming foreign investors. Applying the CMA laws and its executive bylaws has also formed a defect in the actual application mechanisms used at companies, because of the presence of contradictions regarding the rules and regulations of the other monitoring bodies – the Ministry of Commerce and the Kuwait Stock Exchange. Furthermore, as a result of stock companies feeling a dire necessity to pay attention to the instructions of the direct monitoring body in order to avoid conflict, these discrepancies have hindered the promptness of such procedures.
in the area, fit for further progress in the near future. The CMA, along with the instructions and tight measures that it is constantly issuing, will eliminate predicaments faced by investors and companies in the state of Kuwait, promoting the applicable regulations and laws, so as to serve towards the benefit of the Kuwaiti economy and the Kuwait Stock Exchange. This will in turn make more room and attract foreign investment in a manner that will revive the market of the state. Therefore, it is of utmost importance that companies and bodies acquire a full understanding of CMA laws and regulations. However, this subject cannot be addressed without making a reference to the world financial crisis, as speculation processes and the absence of transparency are some of the main contributing factors. The financial crisis also proved that practicing governance on Kuwaiti companies did not coincide with the growth rate of competing companies in neighbouring and global markets. The state of Kuwait was classified at a lower rate among GCC states because of high levels of corruption within the economy, and the difficulty of practicing commercial activities. It is therefore crucial to apply the concept of governance, stressing the importance of the rules to investors and consumers. Amending all the laws and bylaws also complements the concept of governance with the CMA laws and regulations, resulting in the stability of legislations. It is noticeable that, due to the evident confusion and misinterpretation regarding CMA laws and the manner of their applications, listed companies in Kuwait – often family owned – still struggle to comply as they see them as challenging and too strict to follow. Conversely, foreign and international companies are looking for merger and acquisition deals within the Kuwaiti Market and the CMA laws and regulations to be in place, as it creates an attractive economic atmosphere. As a fully established law firm with international and local practice, Al Naqeeb and Partners has a specialised merger and acquisition division, as well as a companies registration and formation division. The firm has found it vital to set up a division in the firm, specialising in the CMA compliance, in order to successfully bridge the gap between the international and local market. Authored by: Faten Al Naqeeb
In light of the above, in order to avoid hindrances and discrepancies, it is important that many laws from all participating bodies are amended to suit CMA laws. It is safe to state that the issuance and practice of a new law will regulate the stock market, and will govern companies in a similar way to the laws found in the economically developed countries of the world. The establishment of the CMA and the issuance of its bylaws and regulations are considered an important step for the Kuwaiti economy, suiting the requirements of the global market. One must not fail to mention that it also realises the ambitions of His Highness Sheikh Sabah Al Ahmad Al Sabah, Emir of Kuwait, in changing Kuwait into a distinguished commercial and financial centre
November 2012 • Global Business Magazine • 31
LeadiNG LaWyers Of THe MiddLe easT & NOrTH africa
Mr Osama Fathy Tel: 002 0100 30 141 95 | 002 0122 0800295 firstname.lastname@example.org www.lawsanswer.com Egypt
Investment Opportunities in the Egyptian Market With 90 million people, Egypt is a large and promising market in the North Africa, filled with investment opportunities in all fields – in particular, trade, agriculture, industry, touristic, oil and mining, and transportations projects. Furthermore, high top officials, including the Head of State and the Prime Minister, positively affirm in daily messages that Egypt is able to provide the right atmosphere for investment, without any obstacles at all. Egyptian legislations provide major incentives for Egyptians and foreigners to invest in certain fields of activities, for those companies incorporated under the Investment Guarantees and Incentives Law No. 8/1997. These include inter alia the following: Reclamation and/or cultivation; Animal, poultry and fish production; Industry and mining; Equipping and developing specific industrial areas; Hotels, tourist villages and touristic transport; Refrigerated transport of goods in refrigerators for storage; Air transport and directly connected services; Overseas maritime transport; Oil services; Transport and delivery of gas; Housing projects; Infrastructure comprising drinking water, drainage, electricity, roads and communications; Multi-stores garages under the BOT system; Hospitals and medical and treatment centres; Financial leasing; Guaranteed subscription in securities; Risk capital; Production of computer software and systems; Projects funded by the Social Fund for Development; Development of new Urban Communities; Design of programmes and production of electronic components; Formation and management of technology areas; Credit classification of establishments and provision of information; Purchase and liquidation of debts of small and medium-size establishments; Management and touristic marketing; And lastly, the building and management of Nile River docks. As a corporate full service law firm, Laws Answer is highly specialised in cross-border legal, tax and IP issues in Egypt. The Firm is divided into groups that specialise in the following practice areas: Corporate; Mergers and Acquisitions; Capital Markets; Banking and Finance; Intellectual Property; Oil, Gas and Renewable energy; Real Estate; Construction; Maritime; Aviation; Labour Law; Immigration (Expatriates); Family Law; Civil, Commercial and Criminal Litigation; Alternative Dispute Resolution, Mediation and Arbitration. Laws Answer has earned an international reputation in the areas of economic development and optimisation of tax incentives. However, our invaluable role extends far beyond just that, as we advise our clients of the legal solutions available, to enable them to carry out business in a proper and effective manner. We also guide them through choosing between the various corporate legal vehicles possible to conduct their activities, all the while minimising their tax liabilities in Egypt. Having been sought by a diverse group of multinational corporations, as well as individuals locally and internationally, Laws Answer prides itself for being at the forefront of Business Law in Egypt. For further information, please visit our website at: www. lawsanswer.com; contact Mr Osama Fathy on: 002 0100 30 141 95/ 002 0122 0800295; or email: email@example.com.
32 • Global Business Magazine • November 2012
AL-SOAIB LAW FIRM Mohammed Hamad Al Soaib Chairman/Lawyer Telephone: +966 1 472 6362 firstname.lastname@example.org www.soaiblaw.com Kingdom of Saudi Arabia
Al Soaib Law Firm – Empowering Business…Building Bridges Have you considered investing in Saudi Arabia but haven’t yet? Think again! Saudi Arabia’s booming market offers new investors unrivalled lucrative and favourable opportunities, compared to other regional markets. With a high demand for infrastructure investments and a government tendency to decrease overreliance on oil industries, many investors around the globe have been interested in establishing their legal presence in the Kingdom, and to take advantage of the promising and smooth-running Saudi market. All of this comes with outstanding political stability, a unique geographic location and investor-friendly economic policies – exceptional features that boost the country towards regional and international peaks in terms of trade and commerce. Investing abroad is not an easy task. Given the unusual business circumstances and the risky-look investment decisions that may be taken, many considerations and concerns loom large in the minds of an investor. To this end, an expert legal advice is a must. Picking a law firm in an unfamiliar jurisdiction might be a cumbersome job because of many uncertainties and concerns regarding the trustworthiness, professionalism, reputation and affordability of the available firms. However, when there is a law firm that has accrued two decades of local market experience coupled with adopting international standards, it needn’t be a difficult decision. Our mission is to accommodate clients' business aspirations with the local business environment. With a full team of bilingual legal consultants and local attorneys, our Riyadh-based law firm manages to add a flavor of international legal practice to the unfamiliar business environment flavor generating an extremely unique legal experience. Al-Soaib law firm is the most reputable and progressive law firm in Saudi Arabia. Serving clients for almost 17 years, at present we have nine lawyers who specialise in different branches of laws in KSA. The Firm's strength lies in its team of professional and experienced lawyers who treasure the value of diligence and knowledge, as well as implementing creative and innovative methods to fully address their clients' needs. Al-Soaib Law Firm is one of the ten ‘cooperation firms’ of the Saudi Arabian General Investment Authority (SAGIA). Illustratively, the Firm is officially one of the 10 most recommended firms in the area of incorporating companies in Saudi Arabia. Our considerable experience as well as our high standard of service, has attracted the attention of several multi-national clients. We have a fully-fledged team of lawyers experienced in foreign investment; commercial; banking and finance; dispute resolution; real estate; due diligence; capital market; mergers and acquisition; and lastly, Sharia law.
Ozulku Attorneys At Law Ms. Sadiye Ozulku Partner Tel: +90 212 272 35 93 email@example.com www.ozulku.com Turkey
Incentives for the Renewable Energy Resources in Turkey Turkey has a vast potential of renewable energy resources and has a target to use this huge potential and to increase the share of the usage of renewable energy resources in power generation. In 2009, the Government prepared and accepted a master plan for the energy market of the country called Electricity Market and Security of Supply Strategy Paper. According to this paper, the share of renewable energy resources in power generation will reach at least 30% by 2023. Furthermore, it is also set forth within the same document that by 2023 technologically and economically feasible hydro potential will be totally exhausted (approximately 140 TWh); the wind power capacity will reach at 20,000 MW; 600 MW geothermal potential will come online; and the necessary steps will be taken to promote electricity generation based on solar energy. Thanks to these targets and consequent initiatives, the wind power capacity exceeded 1,793 MW as of March 2012 from an almost zero level in 2002, and 2.140 MW capacity based on renewable energy was added to countryâ€™s installed capacity during the past two years (the figures are published by the Turkish Electricity Transmission Company in 2012).
Among these incentives, the most important one is the guaranteed unit price by the kilowatt-hour for generated energy from a renewable resource. According to the current Renewable Energy Law, a unit price of 7.3 USD/cents per kilowatt-hour is to be applicable for wind and hydroelectric power; 10.5 USD/cents for geothermal energy; and 13.3 USD/cents for solar energy and energy from waste products.
To make use of such renewable energy resources in energy generation, the government policy is to grant incentives for promoting renewable energy investments, such as guaranteed purchase prices, lower license fees, license exemptions, connection priorities, purchase guarantees, and various practical conveniences in project preparations and land acquisitions by the new regulations and related law amendments.
Therefore, with the opportunities offered and such tempting government policies, it is seriously worth considering investing in energy generation in Turkey.
These incentives, including guaranteed unit price, will be applicable for a period of 10 (ten) years by the operation date of the renewable energy facility (if the operation date is between 18 May 2005 and 31 December 2015). For the facilities established or operated after 31 December 2015, the guaranteed unit prices will be set by the Council of Ministers. According to the current regulations and rules, a licence is required from EMRA for the production, transmission, distribution, or selling, of electrical energy. EMRA will give priority to the companies and facilities that wish to generate energy from renewable resources. Depending on the request, such licenses may be granted for 49 years.
November 2012 â€˘ Global Business Magazine â€˘ 33
The Best Wine Destinations in Europe If you have a penchant for a glass of wine or two this list of Europe’s best wine destinations from TripAdvisor is the perfect guide for picking a wine getaway. With picturesque architecture, scenic landscapes, and seemingly endless miles of vineyards, these destinations are some of Europe’s best when it comes to wine escapes according to TripAdvisor’s 60 million plus users, who have visited and explored destinations throughout the continent. “These are the best destinations Europe has to oﬀer for wine according to those that really matter – travellers themselves,” commented Emma Shaw, TripAdvisor spokesperson. “Travellers seeking a break to indulge in wine of all varieties should use this list as a starting point to plan their trip.”
The Best Wine destinations in europe 1. Tuscany, Italy
One of twenty regions in Italy, Tuscany is known for its landscapes, history, artistic legacy and of course its wine. Chianti is one of the most well-known internationally, and every year tourists visit the area to discover where the wine is produced. As one TripAdvisor traveller said, “I love Tuscany. There is so much to see such the beautiful villages, castles and landscapes. A must visit is the Chianti region where you can take a wine tour.”
2. Aquitaine, France
The third biggest region in France, Aquitaine is home to a vast coastline, mountains, impressive architecture and exceptional wine. Often described as “one big vineyard”, the region celebrates its produce through yearlong festivities. As one TripAdvisor traveller said, “Aquitaine is a fabulous region. There are so many villages, castles and wine festivals worth visiting.”
3. Provence, France
Located in South-Eastern France and adjacent to Italy, Provence is renowned for its rosés and table wines. The Mediterranean influence has resulted in French gastronomy in the region which is very distinctive from the rest of French cuisine or cooking. As one TripAdvisor traveller said, I love Provence and highly recommend it. It has absolutely gorgeous scenery and wine tasting.”
4. Umbria, Italy
Known as “the green heart of Italy”, Umbria is comprised mainly of winding green valleys, hills and mountains, and is the only region that borders neither the sea nor another country. Thanks to its mild climate, the region is particularly suitable for wine growing and produces top quality wines, including the celebrated Orvieto. As one TripAdvisor traveller said, “Beautiful rolling countryside, great medieval buildings and no difficulty finding wonderful food and wine wherever you go.”
5. Sicily, Italy
Boasting impressive arts, cuisine and architecture, Sicily is a culturally rich island. With Sicilian grapes playing a large role in creating dessert wines, the island is renowned for the world-famous Marsala. As one TripAdvisor traveller said, “I loved the beautiful beaches, awesome food and wine, and the medieval old city.”
6. Languedoc-Roussillon, France
Bordering the Mediterranean Sea to the East and the Pyrenees Mountains to the South, Languedoc-Roussillon has been an important winemaking centre for several
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centuries. Travellers exploring the region can indulge in free wine tasting at vine yards displaying the sign “degustation”. As one TripAdvisor traveller said, “If you like wine and food, and dramatic scenery, this part of France is paradise.”
7. Burgundy, France
One of France’s main wine producing areas, it is well-known for both its red and white wines. With some Burgundies ranking among the most expensive wines in the world, the reputation extends to cuisine as some famous Burgundian dishes include coq au vin and beef bourguignon. As one TripAdvisor traveller said, “Burgundy is beautiful, historic and well worth a visit to taste the wine.”
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8. Champagne-Ardenne, France
Famous all over the world for producing the king of wines, Champagne, production of the sparkling wine dominates the region. Champagne-Ardenne is also noted for its rolling landscapes, immense forests and vast rivers. As one TripAdvisor traveller said, “The area is filled with stunning countryside to explore and scenic trails to follow, and we also tasted and bought some lovely Champagne.”
9. Costa de la Luz, Spain
Meaning “Coast of Light” Costa de la Luz is a world away from its partying Costa cousins. Travellers will discover nature reserves, rugged cliffs, unspoilt beauty and the celebrated wine of the region, Sherry.
by wonderful places to see and taste some Sherry.”
10. Porto District, Portugal
Located on the North-West coast of Portugal, Porto District is a striking mix of contemporary and historical, visible through its attractions, architecture and medieval quarter. Famous for its production of Port, travellers can not only enjoy the full taste of the wine but of the city too. As one TripAdvisor traveller said, “I love Porto. It is a perfect city for walking and it seems like every other corner has some hidden gem and incredible Port to taste.
As one TripAdvisor traveller said, “The Costa de la Luz is beautiful and surrounded
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November 2012 • Global Business Magazine • 35
LuXury BraNd series – WiNTer GeTaWays
Winter Get aways LUXURY BRAND SERIES
November 2012 • Global Business Magazine • 37
LuXury BraNd series – WiNTer GeTaWays
Rosedon Hotel, Bermuda Hotels oftentimes market themselves as ‘ Your Home away from Home.’ But when the Rosedon Hotel, a small, Colonial –style gem in Hamilton, Bermuda says it, they mean just that. And they back it up with homey treats like a’la Carte luncheons, picnic lunches and light evening meals – all on request for the guest seeking home-style service in an atmosphere of gentility and elegance. Over a half century old, the Rosedon prides itself in its high repeat factor. A total of 39 38 • Global Business Magazine • November 2012
rooms (three double rooms in the Main Hose and remaining rooms in the lush gardens overlooking the swimming pool) all equipped with private bath, heat/cool A/C, voice mail, complimentary wireless internet access and a host of features from cable television, coffee makers and mini refrigerators, to hair dryers, a wall safe and robes and slippers. The Luxury and Royal rooms have DVD players and in-room snacks. Then there’s Beau’s Honour Bar,( Beau is a long-serving staffer who does everything from tend bar to deliver luggage to rooms) replete with every beverage of choice and all the guest need do is pour and
sign. It will be conveniently added to the bill. For that late night nosh there’s Clarabelle’s Pantry( Clarabelle is also a long-serving member of the Rosedon team) with sandwiches, salads and other goodies for that quick snack. Traditions are still maintained at Rosedon: a precisely 4 o’clock traditional English tea is served on the terrace, with miniature sandwiches, cake, scones and clotted cream for freshly-baked pastries. Every Tuesday evening there’s a complimentary Rum Swizzle party hosted by Muriel, the Manager who was named Hotelier of the Year for her demonstrated skills in providing comfort for guests.
Since the hotel is located on the outskirts of the city of Hamilton management put on their thinking caps and provide complimentary shuttle service to the nearby South Shore beach.The hotel rates include BP full breakfast, which can be taken in the room, in the garden or on the Main House verandah. Choose the pool area and the atmosphere is one of a luxuriant garden with every conceivable plant or flower maintained by their skilled gardeners. A mere walking distance from main street Hamilton, guests may take advantage of the many restaurants along Front Street, where is also located some of the island’s
finest shopping. Many discerning guests have discovered Rosedon. The hotel enjoys a host of recognitions and awards. To name a few: Trip Advisors “Travelers Choice of 2012. Conde Nast Johansens Award in recognition of continued standards of excellence. Here you escape the effects of a large hotel, which is often impersonal. At the Rosedon, staff immediately know your name and address you as such, but there’s still the friendly efficient service.
One of Bermuda’s finest, charming boutique hotels. Rosedon Hotel P.O. Box HM 290 Hamilton HM AX, Bermuda Telephone: (441) 295-1640 Fax: (441) 295-5904 firstname.lastname@example.org www.rosedon.com
No doubt about it. It’s Home away from Home. November 2012 • Global Business Magazine • 39
LuXury BraNd series – WiNTer GeTaWays
Le Méridien, Dubai A NEW PERSPECTIVE Set amidst 38 acres of landscaped gardens, Le Méridien Dubai is strategically located just minutes away from the commercial and shopping districts of the city and within close proximity to Dubai International Airport. Le Méridien Dubai - Your Luxury Dubai Hotel Whether you are attending an exhibition in town or working on a golf swing, Le Méridien Dubai is in easy reach of everything that a modern business traveler needs. A short ride takes you to one of the city’s top Golf courses if relaxation is on your mind while Dubai International Convention Centre and Dubai International Financial Centre can be accessed within 15 minutes. Relax in one of our 4 outdoor temperaturecontrolled swimming pools. Reﬁned and Relaxing Hotel Rooms Everything about Le Méridien Dubai is understated and detailed and that includes the hotel rooms. Wrapping around the lush green courtyard and outdoor pool all 383
rooms and suites share the same quality and comfort standards providing a complete break from the outside world. The rooms and suites are grouped into four categories: Classic, Superior Deluxe, Executive Club and Royal Club for you to select the accommodation that suits you best. In addition the Presidential Suite and the two-level spacious Royal Suite are designed for those requiring a little more space. Staying at Le Méridien Dubai also means you have access to Natural Elements, our state-ofthe-art fitness centre located in the grounds of the hotel. As well as offering some of the best Dubai accommodation Le Meridien’s
Unlock Art™ programme allows our guests to experience some of the best of local art which has thoughtfully been incorporated into our hotel through artwork, projections and unique soundscapes; much of it created by members of the LM100™ Creative Community, Le Méridien's group of cultural innovators.
Like our Facebook page and win exciting prizes’ Dining at Le Méridien Dubai When dining at Le Méridien Dubai, we are focused on excellent service and quality food and nowhere is that more evident than in our restaurants and bars. Local residents looking for great restaurants in Dubai often choose Le Méridien Dubai simply because of our longstanding reputation for friendly service and excellent food. Likewise those looking for stylish bars in Dubai are often to be found enjoying a drink in one of our lively pubs and lounges. Our aim is simply to ensure that our guests want to come back after spending an evening with us. Creative Dining - Restaurants As you would expect, staying in Dubai gives you access to so many great places to eat and our vast choice of 18 distinctly different restaurants means you never have to eat in the same place twice. From the tranquil Long Yin Chinese restaurant in the hotel lobby to the popular Seafood Market along the Promenade or the
many lively outlets in Méridien Village you really will be spoilt for choice. Dine at any of our Dubai restaurants whether for breakfast, lunch or dinner and you are assured of a superb dining experience and unparalleled service. Dubai Nightlife - Le Méridien Dubai's popular bars As the sun goes down Dubai bars come to life and at Le Méridien Dubai we’ve got plenty of options to keep you entertained the whole night long. Whether you are out for a glass of wine in one of the bars in Warehouse, a sociable get together with friends in the Pearl Bar or a livelier gathering in Dubliners, there are plenty of options, whatever your plans. With ample parking and our central location it’s no wonder Le Méridien Dubai is often the first choice for those looking to enjoy a vibrant and varied Dubai nightlife. Natural Elements Spa & Fitness
Spa Dubai you enter a serene sanctuary where peaceful and private spaces have been designed to instantly relax and rejuvenate. Here our personally selected treatments are conducted by professionally trained therapists using Pevonia Botanica and organic ila-spa products. Your visit to the Natural Elements Spa includes access to our aroma heat cave, a themarium that combines subtle heat with aromatherapy and subdued lighting for a truly relaxing experience. It houses nine treatment rooms two of which are designed for hydrotherapy treatments. CONFERENCE AND BANQUETTING Our 12 Conference & Banqueting venues are tastefully decorated fitted with the latest audio-visual equipment and can cater from 12 to 1200 guests. Poolside lawns and the terrace can accommodate functions for up to 400 guests making it the ideal outdoor venue for private dinners or cocktail receptions.
Natural Elements Fitness The Natural Elements Fitness centre is a spacious state-of-the-art facility that is one of the largest fitness clubs in Dubai. Personal trainers are on hand to offer advice or guide you through your workout as you enjoy the magnificent views of the lush gardens from this first floor facility. Equipped with an extensive range of user friendly equipment this Dubai fitness facility is a little different to most hotel health clubs. It is a lively area that is bustling with energy at any time of the day or night and is always popular with hotel guests and local residents.
Le Méridien Dubai Airport Road P.O. Box 10001, Dubai United Arab Emirates Phone: (971)(4) 217 0000 Fax: (971) (4) 282 9329 email@example.com www.lemeridien-dubai.com
Natural Elements Spa When you step into the Natural Elements November 2012 • Global Business Magazine • 41
LuXury BraNd series – WiNTer GeTaWays
Amanpulo, The Philippines Amanpulo, which means "peaceful island" is on Pamalican, which is part of the Cuyo Archipelago, located 288 kilometres south of Manila. This private island retreat offers a luxury stay in utter seclusion. The tropical white sandy beaches are surrounded by clear turquoise waters teaming with marine life and a coral reef lies only three hundred meters from shore. The entire island is dedicated to Amanpulo and the resort’s facilities are spread out across the island complementing their natural surroundings. The resort has 40 casitas (little houses) and 11 villas scattered from the beach up to the hillside amongst lush tropical forests. Each casita is styled on the traditional Filipino "bahay kubo" home. The spacious bedrooms have a king size bed along with two window beds and are decorated to provide understated luxury with wooden floors and furniture. Each guest casita has its own private buggy for getting about independently on the island. The Cebu marble bathrooms are very generously sized with a raised bathtub, shower and a large dressing area. Each casita has its own wooden sundeck with loungers. The Club House restaurant and bar opens out to spacious terrace with views over 42 • Global Business Magazine • November 2012
the swimming pool and out to sea. The restaurant offers a la carte dining with a varied menu including Asian and Continental cuisine and specialises in seafood. The resort has a 30 metre pool, tennis courts and watersports including scuba diving, windsurfing, fishing and sailing. The Aman Spa is situated on a hillside above the treetops with views of the Sulu Sea. It consists of a series of pavilions constructed of native wood and other natural materials. Each treatment room offers a deep-soaking bath tub, washroom, dressing area and steam shower, along with magnificent sea views. The Yoga and Meditation Pavilion has treetop and sea views and is available for private or group classes. The Fitness Pavilion houses the Pilates Studio, an airy gymnasium and wet areas including steam rooms, cold plunge pools and outdoor relaxation areas. A casita at Amanpulo starts from US$ 1,100 for a treetop cassita (plus tax and service charge). For more information and reservations visit www.amanresorts.com or call toll free on 00 800 2255 2626.
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LuXury BraNd series – WiNTer GeTaWays
bathroom. They also have lovely private heated swimming pools, most of which overlook the bassin.
Amanjena is the first Aman Resort on the African continent. The resort is set in Marrakech's Palmeraie, an oasis of palms and old olive trees just outside the city, within view of the snow-capped High Atlas Mountains.
Amanjena's dining options are extensive - dine either the Thai Restaurant or the main restaurant which specialises in Mediterranean and Moroccan fare. The Pool Terrace and the bar are also other relaxed dining options or opt for a private meal in your Pavilion or Maison or in a romantic Caidal tent in the olive grove, accompanied by traditional music.
The Moorish heritage of Marrakech is reflected the design of the pisé-walled (rammed earth) resort, including the pavilions that radiate out from an ancient bassin (lake), echoing the style of a sultan’s palace. There are 32 pavilions and seven, twostorey maisons. All are spacious with high ceilings, huge amounts of space and elegant Moroccan-inspired decor. The pavilions have domed living areas, open fireplaces and private courtyards with gazebos, sofas and dining areas. The maisons are like Moroccan townhouses with an upstairs master bedroom and ground floor living and dining areas with connecting bedroom and
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The resort's Spa features two Turkish-style hammams (steam baths) complemented by showers, washrooms, a dressing area and a glassed-in whirlpool. The whirlpool opens onto a fountain courtyard bordered by a two-metre pisé wall. Spa treatments range from traditional Moroccan gommage (scrubs) to a selection of massages and other services include reflexology, facials, manicures, pedicures and waxing. Private treatment rooms offer a peaceful sanctuary for relaxation. Amanjena offers a variety of guided excursions on foot, bicycle or private car into
the Medina, the famous Djemaa el Fna square and the palaces, gardens and craft shops of ancient Marakech, as well as further afield into the High Atlas Mountains. A room at Amanjena starts from Euros 800 per room per night (plus tax and service charge) and include airport transfers. Between 1 December and 22 March 2013 guests staying three nights or more will also enjoy a complimentary breakfast and a complimentary three course lunch or dinner. Guests staying for four nights or more will receive a complimentary neck and shoulder massage. For more information and reservations visit www.amanresorts.com or call toll free on 00 800 2255 2626.
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BaNKiNG & fiNaNce
Banking Finance The Institute of International Banking Law & Practice The Institute of International Banking Law & Practice – a non-profit educational and research organisation headquartered in the United States, with Associate Directors in Singapore and Ireland and Associates and Fellows in more than 15 countries – sponsors projects, programmes, and publications intended to harmonise letter of credit law and practice. Since its formation in 1987, the Institute has been a leading force in the letter of credit world. It has formulated widely used practice rules, worked with leading organisations, published books and conducted highly influential programmes. ISP98 Recognising the need for rules to address the particular issues and problems inherent in the US$ 1.5 trillion standby letter of credit field, the Institute has developed the International Standby Practices (ISP98) – practice rules that articulate standby letter of credit practice. The United Nations Commission on International Trade Law (UNCITRAL) and the International Chamber of Commerce (ICC), has endorsed ISP98, publishing it as ICC Publication 590. Conservatively, more than US$ 500 billion in standbys and demand guarantees are subject to ISP98. ISP98 has been translated into 13 languages, including Bulgarian, Simplified Chinese, Traditional Chinese (Taiwan),
48 • Global Business Magazine • November 2012
By Professor James E. Byrne, Director of the Institute of International Banking Law and Practice, and Professor at the George Mason University School of Law in Arlington, Virginia. Institute of International Banking Law & Practice (IIBLP) T: +1 (301) 869-9840 F: +1 (301) 926-1265 E: firstname.lastname@example.org W: www.iiblp.org
French, Greek, Hebrew, Italian, Japanese, Korean, Portuguese, Russian, Spanish, and Turkish. To assist in the interpretation of ISP98, the Institute has issued The Official Commentary on ISP98 and released the ISP98 Model Forms. The Commentary contains the official interpretation of the rules, as agreed by the Council on International Standby Practices. The Model Forms are available without charge at www.iiblp.org/ISP98ModelForms. The eight forms that have been released include extensive endnotes explaining the terms selected and other options. In addition to the basic form, these forms include standbys providing for automatic extension clauses, automatic reduction, transfer on demand, counter standbys, authorisation to confirm, and confirmation. The Institute is also continuing to work on forms for commercial standbys, expedited letters of credit, bonds for appeals in courts, and undertakings to local governments. Cooperation with Other International Organisations The Institute has worked closely with a number of leading organisations in the field of trade law and practice, including UNCITRAL, the ICC, SWIFT and other organisations. UNCITRAL and the UN Convention on Independent Guarantees and Standby Letters of Credit
The principals of the Institute were active in drafting the UN LC Convention. Furthermore, the Institute has cooperated with the UNCITRAL Secretariat in promoting understanding and adoption of the Convention. This has included working with the US State Department and the US Commissioners on Uniform State Laws to obtain US ratification, and working with national groups in various countries as well. SWIFT The Institute has cooperated with SWIFT in a variety of ways, including providing a forum for its updates to the trade community, and participating in its project to develop an XML format for standby letters of credit and demand guarantees – in addition to its FIN standards. To date, two programmes have been hosted by SWIFT at its headquarters in La Hulpe, Belgium. ICC Banking Commission In addition to cooperation regarding ISP98, the Institute has also cooperated with the ICC in publishing and distributing books, as well as in programmes. It works closely with ICC National Committees, including ICC China, ICC Turkey, ICC Mexico, ICC Malaysia, ICC Russia and ICC Czech Republic. Principals of the Institute have been active in several ICC Banking Commission drafting or advisory groups, including those that produced texts including the eUCP, the International
Standard Banking Practices and UCP600.
The Institute has worked on these and other projects, with organisations such as BAFTIFSA, the National Law Centre for InterAmerican Free Trade, the Association of Banks in Singapore, and the Dubai Chamber of Commerce.
The Institute’s Work Its work involves diverse issues – from rulemaking, amicus curiae briefs, risk management, product management, consultation on litigation issues and standard forms – to reviews of international operational procedures, new products and systems evaluations. Consulting: Governments and Companies The Institute is regularly consulted by various governmental agencies, regulators, banks and companies, with regards to issues of law and practice, including drafting the text of forms and contracts. Programmes The Institute regularly brings together leaders of the letter of credit community, such as banks, law firms, regulatory agencies, importers, exporters, and third party intermediaries. It does so through interactive forums and educational events designed to foster and promote the exchange of ideas. Annual LC Survey The Institute’s Annual Survey of Letter of Credit Law & Practice Conference, the premier LC event of the year, is held in locations around the world, including Hong Kong, China, Singapore, North America, the Middle East, Russia and Europe. Guarantee & Standby Forum The Institute also sponsors an annual LC Law Summit for lawyers, as well as various local and onsite training programmes and seminars. LC Law Held in New York City each year, this event brings together the top legal minds in the field from North America and globally, to discuss recent court cases and legal interpretations that affect LC practice. The session is ideal for lawyers working for firms or banks, as well as bankers and corporate LC users with an active interest in banking law, and a desire to further their knowledge of how legal issues are impacting LC practice today. Law firms that are serious about trade finance matters and banks with significant LC portfolios, will want to be represented for this
IIBLP offers focused instruction and analysis on topics of significant importance to LC specialists, available by Online Replay or DVD. Webinar recordings include: LC Disclaimers for Government Regulations, Inoperative Conditions, Drafting Evergreen Clauses, Lost Documents & UCP600 Art. 35, and Chinese LC Rules. DCW The Institute publishes the industry’s leading monthly journal, Documentary Credit World (DCW), which is an electronic publication to which the major LC banks in the world subscribe. In its 10 issues per year, DCW addresses timely topics and issues facing specialists from the banking, legal, business and academic sectors. It provides updates on current litigation and detailed reports on decided cases from around the world. Each edition of DCW includes a feature topic intended to inform, prophesy, alert or caution. Other regular sections of DCW include: Updates (current news, trends and developments); The Readers Speak (addressing questions submitted to DCW); Government Report (text of proposed and final actions impacting the industry); Litigation Digest (abstracts and notes of leading court cases); Articles (Editorial Board members and other accomplished professionals offer insight on a particular subject); Conference Reports (on-the-ground reporting of discussions taking place at major industry events); Statistics (quarterly reporting of LC values for banks); Scam Survey (reporting of efforts to expose and prosecute fictitious instrument activity); LC Trade News (reporting of recently issued LCs); and Information Digest (summaries of LC news from other publications in the field). Books The Institute publishes a series of educational products, including its acclaimed Annual Review of International Banking Law & Practice. Published annually since 1996, this series collects all of the literature in English and abstracts or notes all reported decisions. The 670-page 2012 Annual Review has summarised over 115 court decisions from around the world and also includes 25 articles. A cumulative version of the publication with a cumulative index is available on a USB drive. UCP600: An Analytical Commentary by Byrne, Maulella, Soh, & Zelenov is a 1,500page unparalleled study of each article
of UCP600, tracing them to their origins in the UCP and foundations in letter of credit practice. It refers to all ICC Banking Commission opinions, ISBP provisions and major court decisions. LC Rules & Laws: Critical Texts (5th Edition) gathers together in one convenient volume all of the letter of credit laws and practice rules, including UCP600, ISP98, URDG 758, URR 725, US Revised UCC Article 5, a translation of the Chinese Supreme People’s Court LC Rules, and other laws, regulations and matters of interest to LC bankers, lawyers, and business people. Certiﬁcation of Standby & Demand Guarantee Specialists The Certified Standby and Guarantee Programme (CSGP) is an internationally recognised certification for standby and demand guarantee practitioners, developed by the IIBLP. It consists of a six-part online course and an examination, both of which are conducted in English. Hosted on an electronic platform accessible online, the course work contains text, interactive review questions and a sample review test. The certification is awarded as a result of the successful completion of an examination. Persons holding a CSGP designation are required to complete approved continuing education courses and renew their certification every three years. Commercial Fraud The Institute has also been at the forefront in the battle against financial instrument fraud, sponsoring international programmes and publications directed at combating these scams. Arbitration Rules and Centre The International Centre for Letter of Credit Arbitration (‘the Centre’) was founded as a result of an initiative from within the letter of credit community. The Centre was created after extensive consultation with corporate, legal and banking representatives throughout the United States and the world. Formally established in September of 1996 and located in metropolitan Washington, D.C, the Centre has two main purposes, namely, to act as an administrative authority, and a resource centre for information, training and research for letter of credit-related disputes. For further information about the Institute of International Banking Law & Practice and details on its programmes, publications and products, visit www.iiblp.org.
November 2012 • Global Business Magazine • 49
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Hogan Lovells International LLP Steven McEwan Hogan Lovells Atlantic House Holborn Viaduct London EC1A 2FG email@example.com 0207 296 2972
THE 2012 Banking Reform and Regulations The year 2012 has been a year of anticipation for bank regulatory reform. Many changes are planned and the detail is still being worked out. For banks, this has meant a time of planning, often with uncertainty about exactly what is being planned for. In a time of economic gloom, such uncertainty is particularly unwelcome. Nevertheless, as many of the upcoming changes will have great significance over many years to come, it is crucial to avoid a wrong step. The top three areas of bank regulatory reform which are poised to affect global business are: 1. Increasing regulatory capital requirements, including the introduction of liquidity requirements and leverage ratios 2. Changes to the criteria that capital instruments need to satisfy in order to qualify as bank regulatory capital 3. Moves in various countries to segregate retail banks from investment banks Why are these areas of interest to global business? Because, in different ways they affect the relationship that businesses have with banks. Increasing regulatory capital requirements will mean that banks are required to hold more capital against the loans that they make, thereby making the supply of credit more expensive than under current rules. This effect will be tempered by two factors. Firstly, the increasing requirements will be introduced gradually between 2013 and 2019, rather than all at once: Secondly, over the past four years, regulators have used their discretion to require banks to hold much more capital than is strictly required by current rules, so the actual increases will be lower than the black letter of the rules would imply. The cost of credit, and the terms on which banks will offer it, will also be affected by new liquidity requirements that will require banks to hold high quality liquid assets to cover cash outflows over the next 30 days. These requirements will be of less significance in countries such as the UK which have existing well-developed liquidity regimes, but much more significant in countries where regulators have not previously focused on liquidity. However, a reform that remains of much concern to banks is the new leverage ratio, under which the exposures of banks will be analysed, without taking into account risk mitigation techniques (such as collateral) on which banks have traditionally relied to reduce their capital requirements. A practical effect of this new ratio will be to make it significantly more expensive for banks to offer committed facilities, than to offer uncommitted facilities under which they can cancel
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the facilities without notice at any time. Banks will therefore increasingly ask businesses to accept that they (the banks) should be able to cancel liquidity and overdraft facilities at any time. Businesses that accept will face uncertainty, since they will not know if their line of credit will be available when they need it. Those businesses that do not accept may have to pay significantly higher facility fees. Businesses – especially those focusing on investments – are commonly holders of capital instruments issued by banks – particularly, tier one securities and subordinated debt. These instruments usually operate like ordinary corporate bonds, but they have certain loss-absorbing features (write-down and equity conversion mechanisms), which provide protection to the bank so that they allow the banks to treat them as regulatory capital. Such loss-absorbing features create extra risk for investors who receive a higher coupon rate than they do on ordinary corporate bonds. These upcoming reforms will change the criteria that such instruments have to satisfy in order to be eligible as regulatory capital. This means that banks will wish to replace, or restructure the terms of, their existing tier one securities and subordinated debt, which is likely to lead to opportunities for investors. At least three countries with major internationally active banking industries (the USA, the UK and Germany) are now implementing, or considering introducing rules requiring the segregation of, retail banking services from other functions performed by banks, such as investment banking and proprietary trading activities. If all three countries ultimately implement this segregation requirement, it is likely to spread widely, perhaps to a fully global level. The main implication of this segregation for large businesses will be further pressure on the supply of credit, since the non-retail banks from which they will seek loans, will no longer have the large depositor bases which currently support commercial lending by retail banks. Support will therefore have to come from other sources that are probably more costly for banks to maintain, making it likely that any additional costs will be passed on to businesses. Therefore, in summary, most of the upcoming reforms are likely to make it more difficult and more expensive for businesses to borrow from banks. This is not surprising – the regulations are intended to make banks less likely to fail, which will inevitably have a cost that banks will need to pass on. However, steps already taken by regulators in the past four years may mean that the impact will be less severe than many currently fear and, at least for investment businesses, the reforms may offer new opportunities. By Steven McEwan, Hogan Lovells. Steven specialises in advising on the prudential regulation of banks, investment firms and insurers.
November 2012 • Global Business Magazine • 51
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The Reshaping of the Spanish Banking Sector
Jose Luis Vazquez Partner Hogan Lovells International LLP Paseo de la Castellana, 51 28046 Madrid Tel: +34 91 349 82 00 Direct: +34 91 349 82 63 Fax: +34 91 349 82 04 firstname.lastname@example.org www.hoganlovells.com
Alejandro GonzĂĄlez Associate Hogan Lovells International LLP Paseo de la Castellana, 51 28046 Madrid Tel: +34 91 349 82 00 Direct: +34 91 349 82 46 Fax: +34 91 349 82 01 email@example.com www.hoganlovells.com
The Spanish banking sector is one of the European banking sectors that have been ravaged the most by the economic crisis. In particular, some of the Spanish banks will need a bailout from the European rescue fund amounting around 54 billion Euros. Furthermore, this bailout money will be used as capital to strength the position of certain Spanish credit entities (most of them, entities emerged as a consequence of the integration of saving banks) in case of a deeper downturn in the Spanish economy. It is fair to say that while the mentioned bailout will not affect all the Spanish financial entities such as Santander, BBVA, Caixabank and Banco Sabadell, most of them will need the funds made available by the European rescue fund. Furthermore, although the figure could be considered as enormous, the 54 billion Euros is certainly a lower figure than the one some expected, following the rescue of one of the biggest Spanish financial entities, the recently listed company Bankia who will receive almost half of the total 54 billion bailout. Nowadays, the Spanish financial sector is still being reshaped with all the uncertainties this process may involve, and also with all the opportunities that may arise for some financial players. The Last Reforms Since 2009, different Spanish governments have passed at least six economic reforms related with the reorganisation of the Spanish banking system. In particular: (1) the establishment of the Fund for the Acquisition of Financial Assets and other measures to grant liquidity to financial entities (Royal DecreeLaw 9/2009); (2) the reform of the legal regime applicable to the savings banks (Royal Decree-Law 11/2010); (3) the strengthening of the solvent level of the financial institutions (Royal Decree-Law 2/2011); (4)
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the rationalisation of the Spanish financial system (Royal DecreeLaw 2/2012); (5) the reform on the write-down and sale of real estate assets of the banking sector (Royal Decree-law 18/2012); and (6) the reform on restructuring and resolution of credit entities (Royal Decree-Law 24/2012). The Aims of the Above Reforms Strengthening the Financial Entities financial condition Among others measures, it is worth mentioning those measures purported to cleanup the balance of the financial entities in order to improve the confidence, credibility and strength of the Spanish financial system in the context of lack of liquidity existing since the commencement of the crisis. A clean-up balance is a fundamental requirement in order for the Spanish financial institutions to accede to both the interbank and the capital markets, and thus to get funding to comply with their essential function of channelling savings to efficient investment projects to encourage growth and employment. Also to this end, the new regulations provided for an increase of the provision requirements for credits that are classified as normal, substandard and real estate backed credits. This increase in the provision requirements pursued to dispel the uncertainties over the Spanish financial sector, and its ability to perform its core function of channelling savings. Financial entities corporate governance The corporate governance package recently enacted for credit entities includes certain rules to limit the remuneration of directors and managers in financial institutions supported by the fund for the orderly restructuring of the Spanish financial system. Managing Crisis Situations
A legal framework for the management of crisis situations in credit entities is established. Such legal framework contemplates three different procedures to address such crisis depending the application of one or other procedure on the nature and materiality of the crisis affecting the relevant credit entity. The main goal of such procedures is to ensure the continuity of the essential functions of the affected entities, their long-term viability, and to preserve the stability of the financial sector as a whole.
reorganisation of the Spanish financial market, incentivising integration processes among Spanish financial institutions, in particular, in relation to saving banks.
New regulations are also established in relation to (i) the management of the Spanish fund for the orderly restructuring of the Spanish financial system, including provisions for the removal of the representatives of the private financial sector in the fund’s management body; (ii) the incorporation of the future asset management company, the so-called ‘bad bank’; and (iii) the increase of protection for retail investors who acquire complex financial products that are not covered by the Deposit Guarantee Fund of Credit Entities).
The Spanish banking map has also changed dramatically. For instance, there were in Spain more than forty saving banks in 2009. As a consequence of the mentioned integration measures nowadays there are just nine saving banks. Further changes in the Spanish financial sector are expected in the near future.
Furthermore, in relation to real estate assets, some of these measures are intended to encourage Spanish financial institutions to market their real estate assets, and to reduce their exposure to real estate risk related assets. Financial Sector Commitments The new regulations are also aimed at complying with certain commitments assumed by Spain pursuant to the memorandum of understanding on financial sector policy conditionality dated 20 July 2012 (including the implementation of certain regulations such as the amendment of the core capital requirements for credit entities). In addition to the foregoing, another part of the measures implemented since 2009 by the different Spanish governments is focused on the
The Current Situation of the Spanish Banking Sector As a consequence of, among others, the measures mentioned above, the uncertainty over the Spanish banking and financial sector has been mitigated. However, the Spanish financial sector has lived a convulsed period in the last few years.
While the Spanish financial sector is still is in a weak position (save for certain well positioned players) vis-à-vis its European peers, in the last few months, particularly since the announcement of the Spanish banks bailout, it faces a less convulsed period. However, the fact that the Spanish financial sector faces a calmer situation does not necessarily mean that the position of the Spanish financial institutions to accede to the capital markets – getting funding to comply with their essential function of channelling savings – has been improved significantly. Conclusions and Opportunities The set of measures recently imposed to the Spanish financial institutions is effectively a continuation of the policy initiated by the Spanish government in 2009, in order to clean up the balance of the Spanish financial institutions. They ultimately pretend to facilitate the access of these entities to the capital markets, by increasing the confidence of the market in the Spanish financial
system. Although there were several integration processes between Spanish financial institutions since the commencement of the crisis (as mentioned above), we cannot rule out new integration processes between Spanish financial institutions being announced in the near future. In particular, it might well be expected that the biggest Spanish financial institutions will take over other smaller financial players, to take advantage of the incentives conceded by the recently passed Spanish regulations. The objective of all these reforms adopted by the Spanish governments since 2009 is basically to improve the image in the international markets of the Spanish financial sector, easing their access to funds in the current context of lack of liquidity. Therefore, while most of the measures imposed have deserved some criticism by certain financial players, who consider that the combination of new capital requirements and more stringent accounting rules may in the short term adversely affect the ability of the Spanish financial institutions to lend money in the market, the general perception in Spain is that the financial sector reforms will encourage the reorganisation of the Spanish financial system. As a result thereof, in the midterm, once such reorganisation is completed, the outcome of these measures will be certainly positive. Authors’ biography box: Jose Luis Vázquez is a partner in Hogan Lovells and the head of the Banking and Finance department of the Madrid office. Alejandro Gonzalez is an associate of the Banking and Finance department of Hogan Lovells in Madrid. (Jose Luis Vázquez and Alejandro González, lawyers at Hogan Lovells Madrid)
November 2012 • Global Business Magazine • 53
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FATCA: A Serious Threat to Lebanon’s Banking Secrecy? The countdown has begun: Foreign financial institutions (FFIs) worldwide must comply with the US Foreign Account Tax Compliance Act (FATCA) by July 2013. FATCA is a US endeavour to combat perceived tax abuse by US persons through the use of offshore accounts. At its heart, FATCA is about disclosure. Under FATCA, FFIs around the world are required to provide the Internal Revenue Service (IRS) with information on certain US persons invested in accounts outside of the US. FFIs that refuse to follow disclosure rules will be subject to a burdensome 30% withholding tax on US sourced income, and arguably risk seeing their US source transactions intercepted. Unlike the implementation of the 2001 US Patriot Act for the interception and obstruction of terrorism, the main speculation surrounding FATCA’s enactment was that it seemed to outline the road map to the end of banking secrecy. Banking secrecy in Lebanon, a principle inherent to the country’s history and financial system, is governed by the provisions of the 1956 Law. This Law binds all financial entities regulated by the Central Bank of Lebanon (BDL) to absolute secrecy with respect to their clients’ personal and account related information, and provides that banking secrecy can only be lifted in very limited circumstances. Despite increasing international and domestic regulations aimed at combating money laundering and FATCA’s entry into effect, banking secrecy remains at the core of the banking system, and plays a key role in attracting funds to Lebanon. FATCA and Banking Secrecy BDL and the Association of Banks in Lebanon seem inclined to adopt a constructive approach towards a well-orchestrated implementation of FATCA in accordance with Lebanese law, without compromising
54 • Global Business Magazine • November 2012
Abou Jaoude & Associates Law Firm Carlos Abou Jaoude Managing Partner Tel: +9611395555 firstname.lastname@example.org www.ajalawfirm.com
on banking secrecy. The implementation of FATCA will require Lebanese FFIs to set-up costly screening, implementation and compliance processes infrastructure, in order to identify and report information about their U.S clients to the IRS. Banks are considering having all clients with US citizenship sign special waivers, allowing the bank to report on their accounts to the IRS. If a client refuses, the bank will alert the IRS of such refusal in line with FATCA stipulations. As such and from a legal standpoint, Lebanon’s banking secrecy law does not have to be amended for banks to comply with FATCA. Many believe that, like the passing of the AML Law 318, FATCA will not wither the Lebanese banking system nor affect the flow of remittances to Lebanon. Increasing AML Regulations In 2001, the Lebanese legislature enacted a comprehensive Anti-Money Laundering Law 318, in an effort to comply with international AML standards while reconciling with the principle of banking secrecy. The AML Law provides for increased reporting obligations and the establishment of a Special Investigation Commission (SIC), whose mandate includes investigating suspected money-laundering offences and deciding to lift the banking secrecy. BDL Decision 10725 of May 21 2011 imposes ‘caution’ measures on banks in their operations with money dealers. In the same context, BDL issued a set of decisions in May 2011 instating stringent new requirements on money dealers in Lebanon, in order to deter their usage for money laundering and terrorism financing. More recently, BDL Decision 10965 of April 5 2012 institutes certain AML and terrorism financing obligations on banks including: (i) adopting a risk-based approach and vesting the identity of customers and economic right owners; (ii) updating the corresponding AML and terrorism financing databases; and (iii) notifying the SIC of any suspicious operation.
Finally, the Central Bank has presented a proposal for the amendment of the AML Law 318 to include tax evasion as part of money laundering offences, allowing the lifting of banking secrecy. The amendment was approved by Lebanese Council of Ministers and is awaiting parliamentary approval. In any case, the AML Law 318 allows waivers of secrecy if a client is suspected of embezzling public funds, which one could argue is a definition of tax evasion, and therefore the amendment is ideal but not strictly necessary. New Capital Markets and Insider Trading Laws On August 4 2011, the Lebanese Parliament finally enacted the long-awaited Capital Markets and Insider Trading Laws that set the legal organisational framework of the Lebanese financial markets in line with international norms. The Capital Markets Law provides for the formation of the National Council for Financial Markets as a ‘watchdog’ entrusted with a mission of organising, regulating and controlling the capital markets and its participants. The Council’s functions are similar to those of the SEC with a considerable autonomy in setting its policies. In addition to a solid financial sector, Lebanon is endowed with several investment-enabling strengths: a free market; a highly dollarised economy; absence of controls on the movement of capital and foreign exchange; tax-friendly joint stock companies; a highly educated and multilingual workforce; and limited restrictions on foreign investment. The expected imminent ratification of a number of other laws, including the law related to the Organisation of Electronic Transactions and other laws modernising the corporations’ chapter of the Lebanese Code of Commerce, is hoped to significantly impact the country’s legal environment, as well as confirm the role of Lebanon as a regional and international business platform; a great country to live, work and invest.
IIBLP REFERENCE MATERIALS The Institute offers the most comprehensive collection of reference materials in the industry. It also regularly conducts seminars on topical issues, general educational forums, and custom training for bankers, lawyers and corporate financiers. All of these products are designed to assist the letter of credit professional, with the practical issues you face on a daily basis. Its most popular reference materials include:
ONLINE PROGRAMMES INTRODUCTION TO INDEPENDENT UNDERTAKINGS
1996-2012 ANNUAL REVIEW OF INTERNATIONAL BANKING LAW & PRACTICE
Containing all material from past editions, this cumulative volume on CD is the industry’s definitive record of international banking activity.
UCP600: AN ANALYTICAL COMMENTARY
An exhaustive, analytical, and historical interpretation of the text of the UCP in light of LC practice.
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Updated for 2012, this 5th edition is your all-in-one reference guide for letters of credit and guarantees.
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Allow one of the world’s leading experts to steer you clear of common problems & confusion surrounding transport documents!
THE INTRODUCTION TO UCP600 FOR STANDBYS & GUARANTEES THE URDG 758 COMPARED WITH ISP98 AND UCP600 Parts of the CSGP Certification Programme, the above titles deliver thorough analysis of these instruments and relevant rules of practice. Other Focused Instruction and Analysis on Topics of Significant Importance to LC Specialists is also available by Online Replay or DVD. Webinar recordings include:
LC DISCLAIMERS FOR GOVERNMENT REGS INOPERATIVE CONDITIONS DRAFTING EVERGREEN CLAUSES LOST DOCUMENTS & UCP600 ART. 35 CHINESE LC RULES ... and Other Key Titles
For a complete list of the Institute’s publications, programs, and products, contact the Institute or visit its website. 20405 RYECROFT COURT, MONTGOMERY VILLAGE, MD 20886 USA TELEPHONE: +1 301 869 9840 • FACSIMILE: +1 301 926 1265 E-MAIL: INFO@IIBLP.ORG • WEBSITE: WWW.IIBLP.ORG
anti-Monopoly Law The International BaR Association Over the past two decades, competition regulation has expanded across the globe, with over 100 regulatory agencies involved in review of competition-related conduct. Dozens of jurisdictions around the world have enacted laws to prevent the restraint of competition or the creation of monopolists. Generally, antitrust and competition law focuses on three areas: firstly, mergers, acquisitions and joint ventures; secondly, agreements among competitors, suppliers or customers that could reduce or eliminate competition in a market; and thirdly, unilateral conduct by dominant firms designed to exclude competition and maintain monopoly. In this article, we briefly address each category. Mergers, Acquisitions and Joint Ventures For mergers, acquisitions and joint ventures, jurisdictions have increasingly turned to premerger notification rules that require firms to notify the jurisdiction before consummating the acquisition or merger. Typically, only transactions involving a certain level of business volume in a jurisdiction or a certain level of individual or combined assets, will trigger the requirement to notify a jurisdiction’s competition authority. Once the parties to the transaction have filed the required notice, there is usually a waiting period before the transaction is allowed to close, during which time the firms must continue to remain separate. This allows 56 • Global Business Magazine • November 2012
the jurisdiction to consider the potential anti-competitive effects that a merger or acquisition may have in a market, and provides the jurisdiction with a window to intervene before the involved firms expend significant costs and efforts to implement the transaction. In many cases, even when an objection arises, the jurisdiction and the firms involved will discuss and resolve those concerns. The contemplated transaction will then be allowed to proceed (sometimes conditioned on certain changes to the transaction such as divestiture of specific assets). Agreements Restraining Trade Competition agencies are also concerned with agreements between firms that have as their object or effect the reduction or elimination of competition in the market. Agreements that might run afoul of a jurisdiction’s competition law could include those entered into with a competitor, a supplier or a customer. For example; price fixing, customer allocation or market division by competitors are acts that are generally regarded as ‘hard core’ restrictions of competition, and are readily condemned with harsh penalties including fines and, in some jurisdictions, criminal sanctions. Other agreements among firms may be deemed to infringe competition law only after detailed evaluation of the facts and circumstances involved (a ‘rule of reason’ approach).
Unilateral Conduct by Dominant Firms Lastly, competition law also is focused on regulating unilateral conduct that threatens to unlawfully maintain, or obtain monopoly power or dominance in a market. Conduct such as predatory pricing (pricing below cost to drive out competition), tying arrangements (conditioning the sale of one product on the purchase of another product), exclusive dealing and refusals to deal, are some types of unilateral conduct that could lead to the maintenance or creation of monopoly power or dominance in a market. Competition law seeks to foreclose firms from engaging in these and other types of conduct, when they are shown to be predatory or exclusionary. It is impractical here to attempt to summarise the differences and nuances of competition law among the many jurisdictions that regulate in this area. This illustrates the important role the IBA Antitrust Committee plays as both a repository and meeting place for practitioners around the globe to learn and engage on these and other competition issues. The IBA Antitrust Committee The IBA Antitrust Committee (‘the Committee’) provides antitrust practitioners with professional opportunities to keep abreast of legal developments around
the world, expand skillsets, network, and increase their profiles within the international competition law bar. Furthermore, the Committee plays a leading role in the international competition policy community as a contributor of submissions to government agencies considering proposed changes to competition laws or enforcement practices. Over the past five years, our working groups have made over 20 submissions to agencies in numerous jurisdictions, including the EU, India, China, the UK, the U.S. and Canada, which are publicly available on our website (www. ibanet.org). The foundation of our success in this area has been active participation by geographically diversified groups of volunteer members. The Committee offers a variety of programmes throughout the year and publishes regularly on a wide range of competition issues. We invite those interested in international competition issues to join us in Sydney, Australia on 20-22 March 2013 for the Committee’s Mid-Year Meeting. Every autumn, the Committee also organises a competition law conference in Florence, Italy. In 2013, it will be held on 13-14 September. The Committee also has several publications, including a bi-annual journal, Competition Law International and the Antitrust
Committee Newsletter. The Committee has recently published a book titled Competition Law in the BRICS Countries. This publication is a joint project of the Antitrust Committee, the European Regional Forum and Kluwer Publications. Lastly, in conjunction with the IBA Trade Committee, we organise an annual writing competition and scholarship for lawyers age 35 and under. The Committee’s co-chairs are Cani Fernandez (cani.fernandez@cuatrecasas. com) and Jose Regazzini (jregazzini@ tozzinifreire.com.br). Our working group coordinators, Elizabeth Morony (elizabeth. email@example.com) and Philippe Rincazaux (firstname.lastname@example.org) are always on the lookout for proposed changes in law or policy so that we can consider whether the Committee will submit comments. Koya Uemura is the Committee’s website officer (koya.uemura@amt-law. com), and publications are coordinated by our publications officer Dan Swanson (email@example.com), or the newsletter editors Thomas Janssens (thomas. firstname.lastname@example.org) and Yong Seok Ahn (email@example.com). We welcome your participation in the Committee.
November 2012 • Global Business Magazine • 57
Competition Law in the Asia Paciﬁc Region
Georgina Foster, Partner, and Sonja Eibl, Special Counsel Baker & McKenzie, Sydney
Competition law, or anti-monopoly law as it is sometimes referred to, is becoming an increasingly important issue for companies doing business in the Asia Pacific region, or looking to invest in this region. However, failure to comply with competition laws, whether through engaging in conduct that is prohibited under competition laws, or failing to make a mandatory filing for a merger, acquisition or other investment, can expose companies to significant financial penalties. Over recent years, there have been a number of important developments to the competition laws in the region. A number of jurisdictions, notably Malaysia and most recently Hong Kong, have introduced general competition laws for the first time. There have also been important developments in China, whose Anti-Monopoly Law has been in effect since August 2008, as well as in established competition law jurisdictions such as Japan. An overview of some of the key recent developments is set out below. China China’s Anti-Monopoly Law has now been in effect for over four years. While the Anti-Monopoly Law includes prohibitions on monopoly agreements and abuse of dominant market position, most of the attention to-date has been on the merger control regime established under this law. The Ministry of Commerce (MOFCOM) has reviewed over 450 deals since 2008 and, although the vast majority of deals have been unconditionally cleared, MOFCOM has been seen to take a different approach to regulators in other jurisdictions, in conditions it has imposed on a number of major global transactions. MOFCOM has also introduced a number of important changes to the merger
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control regime. Over the past year, MOFCOM has demonstrated that it will take a different approach to overseas regulators in its review of global transactions, as seen in its review of Seagate’s acquisition of Samsung’s HDD division in late 2011; Western Digital’s acquisition of Hitachi’s HDD division in March 2012; and most recently in Google’s acquisition of Motorola Mobility in May 2012, where MOFCOM imposed a range of behavioural remedies as a condition of granting clearance. MOFCOM’s use of behavioural remedies contrasts with overseas regulators who tend to have a strong preference for structural remedies, and are often reluctant to accept behavioural remedies. These cases are also important, as in each case MOFCOM went further than overseas regulators, who had either cleared the transactions without remedies, or imposed less stringent remedies. On the procedural front, in February 2012, new merger control rules were brought into effect threatening stricter enforcement against companies that fail to notify reportable transactions to MOFCOM. The new rules establish a formal ‘whistle blowing’ mechanism, which can be used by companies and individuals to bring an unnotified transaction to MOFCOM’s attention. If MOFCOM’s ensuing investigation confirms that the transaction should have been notified, then the parties can be fined up to RMB500,000 (approximately US$80,000). More recently, MOFCOM released an updated merger control notification form. Taking effect from July 2012, this form introduces a number of new information requirements, as well as some welcome clarifications (including as to the notifying parties). In relation to the new information requirements, these include additional information regarding the parties, customers, suppliers, market entry and cooperation
agreements. The new form also includes requests for internal and external studies, analyses and reports (although said to be optional, parties are required to give reasons for not producing such documents). Finally, MOFCOM is in the process of developing a new fast track procedure for merger control reviews. The draft proposal classifies transactions as simple, normal and major, depending on the market shares of the parties and the Herfindahl-Hirschman Index (a commonly used measure of market concentration). It is proposed that simple transactions will be decided in a Phase I review within 30 days; normal cases will be decided within 30 days or 75 days; and in major cases MOFCOM will issue a decision within 120 days, or 180 days, following its formal acceptance of a filing. Hong Kong In June 2012, the Hong Kong Legislative Council enacted the Competition Ordinance, introducing a general competition law in Hong Kong. The Government is yet to set the date when the Competition Ordinance will come into effect, but it appears likely that the substantive provisions of the Ordinance will come into effect in late 2013 or early 2014. It is expected that the Competition Authorities will issue guidelines on the new laws. The Competition Ordinance contains two main prohibitions known as the First and Second Conduct Rules. There is no general merger control regime under the Ordinance, however it does introduce a revised sectorspecific merger control regime for licensed telecommunications carriers. The First Conduct Rule prohibits undertakings from making or giving effect to an agreement, concerted practice or decision, if the object or effect of the conduct is to prevent, restrict or distort competition in Hong Kong. The Ordinance does not distinguish between vertical and horizontal arrangements, but categorises agreements as ‘hardcore’ and ‘non-hardcore’ violations. Hardcore agreements are per se illegal and include conduct such as price fixing, market sharing, bid rigging and output restrictions. There is also provision under the Ordinance for individual or block exemptions to be granted. The Second Conduct Rule prohibits undertakings that have a substantial degree of market power from abusing that power, with the object or effect of preventing, restricting or distorting competition. The Government has indicated that an undertaking with a market share of less than 25% will be unlikely to be held to have market power.
In the event of a breach of the First or Second Conduct Rules, the new Competition Tribunal may impose a fine of up to 10% of the turnover achieved by the infringing undertaking in Hong Kong for each financial year of the infringing conduct, for a period of up to three years. In addition, the Tribunal has the power to disqualify individuals from managing or promoting companies in Hong Kong, or from acting as a director, for a period of up to five years. The Ordinance provides for the competition authority to grant leniency or immunity to undertakings that come forward with information regarding illegal activity, and assist the competition authority in its investigation. No details have yet been released regarding the policy. Malaysia Malaysia’s new competition law, the Competition Act 2010, came into force at the start of this year. In that time, the Malaysian Competition Commission (MyCC) – the independent statutory authority with responsibility for enforcing this new law – has issued a number of guidelines to assist businesses with the application of the new law. The Competition Act contains two basic prohibitions: Firstly, a prohibition on agreements which have the object or effect of significantly preventing, restricting or distorting competition in Malaysia (known as the ‘Chapter One Prohibition’); and, secondly, a prohibition against the abuse of a dominant position (known as the ‘Chapter Two Prohibition’). The Competition Act does not include any merger control regime. The Chapter One Prohibition applies to horizontal as well as vertical agreements. Certain horizontal agreements, notably those that have the object of price fixing, market sharing, bid rigging or output restrictions (i.e. cartel conduct), are deemed to be per se illegal. Consistent with other jurisdictions around the world, there is a leniency regime under which a business, which admits its involvement in cartel conduct, may obtain a reduction of up to 100% of any penalties, which would have otherwise been imposed. Other agreements will only breach the Chapter One Prohibition if they have a ‘significant’ impact on competition in Malaysia. MyCC has indicated in its published guidelines that in general anti-competitive agreements will not be considered ‘significant’ if the parties to the agreement are competitors and their combined market share does not exceed 20%, or if the parties to the agreement are not competitors and each of the parties
holds a market share of less than 25%. The Competition Act also provides for individual and block exemptions to the Chapter One Prohibition to be granted where certain criteria (largely going to public benefit considerations) are met. The Chapter Two Prohibition prohibits undertakings from abusing their dominant position in a market. The Guidelines issued by MyCC state that a market share of above 60% would generally be considered indicative of dominance. However, consideration will also be given to the competitive conditions in the market, and in particular the competitive constraints that the undertaking is subject to. MyCC can impose significant financial penalties for breach of the Competition Act. The maximum penalties that can be imposed for breach of the Chapter One and Chapter Two prohibitions are up to 10% of the worldwide turnover, achieved by the infringing undertaking over the course of the infringement. Japan The Japanese Fair Trade Commission (JFTC) introduced changes to its merger review process with effect from 1 July 2011. The changes streamline the JFTC merger review process and bring it into line with those in the European Union and United States, by abolishing the compulsory pre-consultation notification process. Under the revised system, there is an initial 30-day review period after filing of the notification, during which the JFTC will either determine that the proposed business combination is not problematic in light of Japan’s Antimonopoly Act, or determine that a more detailed review is necessary. The new process also allows the JFTC to shorten the review period for transactions that do not raise competition concerns. If the JFTC decides that a more detailed review is necessary, the review period is extended to until 120 days after the date of the receipt of notification, or 90 days after the date of the receipt of all reports and supplementary materials are received – whichever is later. Another important change to the review process that was introduced in 2011 has been in relation to the defining the relevant markets. Previously the JFTC limited the geographic market range to within Japan. However, under revised guidelines issued in 2011, the JFTC has made it clear that it will take into consideration the presence of competing overseas suppliers, which can affect the market within Japan. November 2012 • Global Business Magazine • 59
The Fair Trade Commission of Japan: No Longer a Toothless Tiger? In the pursuit of its basic policy to swiftly and efficiently enforce antitrust laws, the Japan Fair Trade Commission (‘JFTC’) has given priority to exposing and strictly sanctioning, firstly, cartels and bid rigging which may have a material detrimental effect on the lives of people; secondly, certain unfair trade practices (abuse of dominant position, sale below cost price and discriminatory pricing) which may adversely affect the business activities of small and mediumsize enterprises, and thirdly, obstacles to new market entrants in the IT and public infrastructure sectors, and in the use and dissemination of intellectual property rights. During fiscal year 2011, the JFTC issued statutory sanctions, i.e. cease and desist orders and surcharge (see below) payment orders in 22 cases. Predictably, a large majority of cases relate to bid rigging (12 cases) and price cartels (five cases). Although the number of cases in the last five fiscal years has remained stable, the number of companies subject to legal action reached a record high in FY 2011, indicative of a surging number of participants in illegal practices – and also of the fact that the JFTC is more efficiently cracking down on unfair practices. The total amount of surcharge – an administrative fine imposed by the JFTC for certain types of violations – was JPY 44.25 billion in FY 2011. Although the amount of surcharge imposed by the JFTC is at a significantly lower level than that of fines imposed in the EU or the US, this was the highest amount the JFTC had ever imposed in a single fiscal year. This is mainly attributable to two large cases in which the surcharge exceeded JPY 10 billion – a bid rigging case in the automotive wire harness sector involving Yazaki and other manufacturers, and a price-fixing cartel relating to industrial gases involving Taiyo Nippon Sanso and others. The above facts and figures clearly illustrate the JFTC's strong motivation to enforce antitrust laws, in order to stop the proliferation of illegal practices. However, the US Department of Justice is still critical of the Japanese approach based on relatively modest financial sanctions, viewing jail sentences – a key feature of the US approach – as a far more efficient deterrent. The JFTC's investigative powers are greatly assisted by a leniency programme, a most important investigative tool for detecting cartel activity. Companies and individuals who report their cartel activity and cooperate in the JFTC's investigation of the cartel reported, can avoid or mitigate surcharges, and escape criminal conviction,
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fines, and prison sentences if they meet the requirements of the programme. The programme, which began in January 2006 and was initially met with much scepticism, has actually been reasonably successful. In January 2010, the leniency programme was revised, and the total number of applicants who can now benefit from leniency is five as opposed to three previously. Group companies are now able to jointly apply for leniency in a common application, allowing them to be eligible and share the same ranking order. In respect of unfair trade practices giving an unfair advantage to small and medium-sized enterprises, a recent revision of antitrust laws allows the JFTC to impose surcharges for abuses of dominant position. ‘Abuse of dominant position’ bears some resemblance to, but still differs from, the concept of ‘abuse of dominance’ in the EU. A party to a contract is said to be in a ‘dominant position’ when this contractual party exerts power over the other contractual party, where the latter heavily relies on its business dealings with the former and can be forced to bow to the latter's unreasonable demands. In FY 2011, for the first time the JFTC ordered payment of a surcharge for ‘abuse of dominant position’. In one of three cases, the JFTC condemned Yamada Denki, a large electrical appliance retailer, for forcing its suppliers to second their employees to provide assistance at the retailer's shops without charge. The JFTC ordered payment of a JPY 4 billion surcharge. The retailer has requested a JFTC panel review and thus the order is yet to be finalised. In addition to this, the JFTC established an ‘Abuse of Dominant Position Task Force’ in November 2009 and issued 52 instructions in FY 2011. The JFTC is also active in the area of sales below cost. As a consequence of a recent revision of the law, in case of frequent sales of products at prices significantly below cost, which may harm other businesses, the JTFC now has the authority to order the payment of a surcharge if the company has already been sanctioned by the JFTC for sales below cost within the last 10 years. In FY 2011 alone, the JFTC issued 1,772 instructions – mainly in the retail sector. In August 2012, the JFTC issued a warning to three liquor wholesalers suspected of (although sufficient evidence to enforce statutory sanctions was lacking) selling beer to Aeon, a large supermarket chain, at a price below cost, consequently damaging the business of liquor shops located near the supermarkets. The case drew widespread publicity, principally due to the absence of warning from the JFTC to the supermarket chain, in spite of widespread
suspicion that such sales could only have resulted from the supermarket's pressure aiming at pushing prices down. Aeon has strongly denied any wrongdoing. In the IT sector, the JFTC issued a cease and desist order in 2011 to DeNA, a leading social game provider, for ‘interfering with a competitor's transactions’, as it effectively prohibited game developers from supplying games to GREE, its biggest competitor. After this order was issued, GREE commenced a civil action claiming JPY 1 billion in damages. What is currently being evidenced is stronger political will to enforce antitrust laws by the JFTC, now endowed with increased enforcement powers and benefiting from a clearer acceptance amongst business people of the JFTC's supervisory and policing role. There is, however, an element of concern. Keidanren, the Japan Business Federation, an economic organisation with a membership of 1,300 representative companies in Japan, has robustly requested on more than one occasion to revise the current appeal process, to review the JFTC's cease and desist and surcharge payment orders. As they correctly point out, the current system is akin to ‘self-review’ because the JFTC panel itself hears appeals by parties against the JFTC's orders. A party dissatisfied with the panel's conclusion may further appeal to the High Court. However, the High Court is bound by the facts determined by the JFTC with substantial evidence. This request, heard by the government, has submitted a bill to the Diet, aiming to abolish the JFTC's panel and establish a review system by the courts.
However, since 2010 there has not been any substantial discussion regarding the bill. Other points of concern relate to a company's defence rights during the investigation. Since there is no ‘client-attorney privilege’, communications between clients and lawyers are not excluded from the JFTC's investigation (with the exception of protection by a lawyer's professional duty of confidentiality). Lawyers are not permitted to attend interviews by the JFTC, and the interviewees must endure rigorous and intensive questioning by the JFTC without legal assistance. The JFTC may raid offices of companies and remove all relevant original documents, but the right of a company to request to take photocopies of these documents is not legally established. For the time being however, these issues are not likely to be addressed. Lack of predictability and transparency as to what activities are deemed unlawful by the JFTC is becoming a more acute issue, as the JFTC's authority to order surcharge payments is being broadened. The JFTC has issued guidelines (such as guidelines on the abuse of dominant position and on sales below cost), along with the revision of the law in order to mitigate such concern. Businesses are expected to carefully read and understand the guidelines in order to defend themselves. In the global economy, corporate activity is often cross-border. As a result, violations of competition law can also go beyond borders. International cooperation among competition authorities is gradually increasing. In
addition to the competition authorities of the United States, the EU and Canada, countries, or areas with which Japan has entered into bilateral antitrust cooperation treaties, the JFTC regularly communicates with competition authorities of various countries through various forums such as the International Competition Network (ICN), the OECD and APEC. In real-life cartel investigations, the JFTC does not exchange confidential information on the parties with competition authorities in other countries. Notwithstanding this, there is active cooperation with other authorities, principally before the commencement of an investigation in areas, such as the provision of information about a potential cartel, or discussions on general strategy to conduct investigations, including the timing of dawn raids. Needless to say, foreign companies are not exempt from the JFTC's enforcement of Japanese antitrust laws. In 2008, the JFTC issued a cease and desist order to foreign cartel participants for the first time (in a marine hose cartel involving Bridgestone). In 2009, it issued a surcharge order to foreign cartel participants for the first time (a cathode-ray tube cartel involving Samsung and LG Philips). The JFTC is still being criticised for being too soft on unlawful practices but it is making the most of its comparatively limited legal tools and means of actions. However, those who still believe the JFTC is a toothless tiger should beware…
November 2012 • Global Business Magazine • 61
Slovakia Has its First Cartel Settlement Decisions
SALANS EUROPE LLP Ms. Sona Hanková Counsel Tel: +421 2 2066 0111 firstname.lastname@example.org www.salans.com
Act No. 136/2001 Coll., on the Protection of Economic Competition as amended (‘the Act’) is the main source of competition legislation in Slovakia. The Antimonopoly Office of the Slovak Republic (‘the Office’) is the national competition authority in charge of overseeing antitrust enforcement. It has decision-making and supervisory powers and it may apply administrative antitrust measures in administrative proceedings. While the Act has specific provisions regulating a leniency program (enacted in 2001), it does not explicitly govern settlement procedures in cartel cases. In 2012, the Office introduced this new method of fighting cartels by issuing guidelines ‘Conditions for the Application of Settlement Procedure’ (‘the Rules’). The Rules, as a soft law, contribute to the transparency of settlement, which the Office already applies in practice – as demonstrated in the 2009 ‘Elcom’ case. Similarly, as in other jurisdictions, the settlement brings economic approach into strictly formal proceedings, by simplifying procedural steps, speeding up the proceedings, and saving costs and time of the involved parties. The settlement procedures before the Office are informal, and based on intensive cooperation in good faith between the Office and participants to the cartel case. Both the Office and the parties are entitled to initiate the settlement, with procedures that are similar to those applied in cases before the European Commission. Thanks
62 • Global Business Magazine • November 2012
to the settlement, companies in Slovakia can also benefit from substantially reduced fines. According to the Rules and the recent settled cartel cases, the Office can reduce the imposed fine up to 50 %, in comparison to the Commission that grants only 10 % reductions. Moreover, according to the Rules, reducing the fine in the settlement and reduction of the fine under the leniency can be cumulative – a practice yet untested. While the Office is under no obligation to settle the cartel case, it must provide fine reduction if the applicant for the leniency fulfils criteria stipulated by the Act. Although there was no significant boom of cases ended with the settlement, this institute has potential. The reductions of the fines are very interesting for participants to the cartel, while the Office can still enhance efficiency in fighting cartels. Salans is an international full-service law firm present in 17 countries worldwide. Our Global Competition, Regulatory and Trade Group advises on cartel investigations, dominance cases, distribution systems, technology licensing, and mergers and joint ventures on a multi-jurisdictional basis. Salans’ competition lawyers provide bespoke advice in the areas of Competition and EU Law, Regulatory, Public Procurement, Compliance and Trade. We work on high profile matters across Europe, and have developed competition jurisdictions in Russia, Central Asia and China. Our Brussels team also provides a link to the key competition policy officials and decision makers in the European Commission.
Skadden, Arps, Slate, Meagher & Flom LLP
BRUSSELS FRANKFURT LONDON MOSCOW MUNICH PARIS VIENNA
TORONTO WASHINGTON, D.C. WILMINGTON
523 avenue Louise, Box 30 | 1050 Brussels, Belgium | T: 322 639 0300
Skadden’s Brussels office handles merger control, cartel, abuse of dominant position and state aid issues. We advise clients on investigations before various agencies and in litigation, including enforcement proceedings, before European courts. Our lawyers assist businesses and governments on regulatory and liberalization issues, and we work closely with clients to design, implement and monitor worldwide antitrust compliance programmes. Our focus is on EU competition issues raised by mergers, acquisitions and joint ventures, and we are highly experienced in dealing with EU institutions and member state authorities.
Skadden’s Brussels office was recognized as one of the top firms in the area of European Union and International Competition by Chambers Europe 2011 and The Legal 500 2011. ‘This US M&A powerhouse has a highly respected competition and antitrust practice operating on both sides of the Atlantic.’ Chambers Global 2011 ‘An extremely strong player in the US and worldwide.’ Chambers Europe 2011 ‘Delivers an excellent service.’ The Legal 500 EMEA 2011
LiQuefied NaTuraL Gas (LNG) rePOrT 2012
Liqueﬁed Natural Gas (LNG) Report 2012 The Future Role of the Liquefied Natural Gas in the World Energy Context
The international gas trade, by pipeline and LNG tanker, is already well established, and will continue expand rapidly to link additional resources to fast-growing markets. LNG and long-distance gas pipeline deliveries are projected to grow at around 4.4%/year to 2030 – faster than global gas supply, with Asian imports growing the strongest. However, as regional gas markets become more integrated globally, regional developments will increasingly have a global impact. The expansion of international trade will be tempered by the support for trade and investment from national and international policies and regulations. The North American market will move from a marginal net importer of natural gas in 2010, to a net exporter in the second half of the decade. According to CEDIGAZ’s forecasts, the market will remain relatively balanced through the projection period, with rising demand. Thus, LNG exports are expected to remain relatively limited, and will not have a significant impact on the global gas market in the future. The largest growth in exports is expected in the CIS and the Middle East. The CIS will
64 • Global Business Magazine • November 2012
reinforce its standing as the world’s largest net exporting region. Despite the rapidly growing demand for gas, the Middle East will benefit from a growing potential for exports, overtaking Africa to become the second largest exporting region after the CIS. Geographically, the Middle East is ideally located to arbitrate between exports to Europe and Asia. However, in Africa, production growth will surpass demand, giving room for a significant rise in exports, with LNG deliveries from sub-Saharan projects increasing strongly. Africa therefore has a critical role in the diversification of supply in consuming markets.
flexibility. In the energy sector, as LNG is the fastest growing fossil fuel, only renewables are a rival for the exponential growth the LNG trade is currently enjoying. The Fukushima crisis has only increased and accelerated the expansion that was already well underway.
In Latin America, led by Brazil, the fastgrowing demand, as well as the decline in conventional gas production in mature basins, will restrain the growth in exports. Therefore, the region is likely to remain a marginal exporter on the international scene.
Beyond the factor of transport flexibility, the price arbitrage strategies, the internationalisation of the players – traditional and new – and their positioning in the various links of the gas chain as a whole, are a major development towards the globalisation of the gas trade. LNG is thus becoming an increasingly important component of gas supply. Global LNG demand is projected to grow at a rate of almost 5% a year to 2030, according to CEDIGAZ. By 2030, LNG supplies could account for more than 15% of global gas needs.
LNG – Representing a Growing Component of Gas Supply
CEDIGAZ’ Forecasted LNG Demand by Region for the Period 2010-2030
The LNG trade is one of the fastest growing components of the gas market, attesting to the rapid development of natural gas. LNG benefits both producing and consuming countries, mainly because of its inherent
In the Asia Pacific region, the demand was expected to grow from 204 billion cubic meters (‘bcm’) in 2011 to 285 bcm in 2015; 356 bcm in 2020; 430 bcm in 2025; then 505 in 2030, with an annual growth rate of 6.4%
1 & 4 avenue de Bois-Preau, 92852 RueilMalmaison Cedex, France http://www.cedigaz.org email@example.com Tel: 33 1 47 52 60 12
between 2011 and 2020; then 3.6% between 2020 and 2030. In North America, the demand was expected to grow from 17 bcm in 2011 to 18 bcm in 2015; 20 bcm from 2020 to 2030, with an annual growth rate of 1.8 between 2011 and 2020. In Europe, the demand was expected to grow from 89 bcm in 2011 to 120 bcm in 2015; 147 bcm in 2020; 157 bcm in 2025; then 178 in 2030, with an annual growth rate of 5.7% between 2011 and 2020; then 1.9% between 2020 and 2030. In Latin America and Middle East, the demand was expected to grow from 14 bcm in 2011 to 25 bcm in 2015; 32 bcm in 2020; 35 bcm in 2025; then 40 in 2030, with an annual growth rate of 9.6% between 2011 and 2020; then 2.3% between 2020 and 2030. Globally, world demand was expected to grow from 324 bcm in 2011 to 448 bcm in 2015; 555 bcm in 2020; 642 bcm in 2025; then 743 in 2030, with an annual growth
rate of 6.2% between 2011 and 2020; then 3.0% between 2020 and 2030. The bulk of this growth is expected to come from the Asian market, where market conditions are anticipated to be the most favourable for LNG suppliers; high LNG prices as indexed to oil prices; the boom of emerging markets and, accordingly, the arrival of plentiful new LNG importers. These include recent and likely new markets in the short-term such as Singapore, Vietnam, Indonesia and Malaysia, but also possible longer term markets such as Bangladesh, Pakistan, the Philippines and New Zealand. However, an increasingly exciting market for LNG, Southeast Asia (including Thailand, Singapore, Indonesia, Malaysia, Vietnam and the Philippines) shows a growing gas shortage and a growing reliance on imports. In addition, the demandside impact of Fukushima has had a longterm effect, and while estimated at 10 bcm in 2011, could represent approximately 20-25 bcm a year up to 2030. Considering that projects have been significantly delayed, CEDIGAZ expects
an extended tight market period until the end of this décade before a more balanced market emerges. Moreover, the growth in global LNG demand is predicted to slow to 3% a year after 2020 because of several major reasons, such as the shift from gas use to greener fuels, improvements in energy efficiency, and growth in unconventional gas in importing markets. CEDIGAZ is an international association dedicated to natural gas information, created in 1961 by a group of international gas companies and IFPEN. Based near Paris, CEDIGAZ has more than 100 members in 40 countries, associating with most of the leading international oil and gas companies, national and international organisations, banks, consultants, engineering companies and equipment suppliers. CEDIGAZ’ goal is to gather, compile and analyse worldwide economical information on natural gas, LNG and unconventional gas, in an exhaustive and critical way.
November 2012 • Global Business Magazine • 65
LiQuefied NaTuraL Gas (LNG) rePOrT 2012
Why Australia’s LNG Industry is Leading the World from Down Under While global demand for liquefied natural gas (LNG) imports continues to grow, at the same time technology is evolving such that sources of gas previously considered unviable for commercial production can now be economically produced and exported as LNG. Although price (including production and transportation costs) is paramount, international LNG customers consider a range of factors when determining where to place their long-term LNG purchase contracts. These factors include the size and nature of reserves; domestic gas needs and policies; available technology; access to infrastructure; environmental factors; and sovereign risk. Australia is on track to become the world's largest LNG producer by 2017, with abundant reserves of natural gas in both conventional and unconventional forms. As a world leader in the development and application of innovative LNG production and supply technologies, Australia’s governments encourage and support foreign investment and participation in its LNG industry. Australian LNG has been delivered to the Asia Pacific market for many years. Both the world’s first project to supply LNG from coal seam gas (CSG) and the first floating LNG facility (which will supply LNG directly from otherwise stranded gas reserves), are being constructed in Australia. As a result, Australia is well positioned to respond to the dynamic demands of the global LNG market, and provides many opportunities for participation in, and contribution to, the ongoing growth and success of its LNG industry. Australia’s LNG Projects Australia's favourable fiscal and policy environment and global demands for LNG, have incentivised locally based junior explorers to invest significantly in exploration and technology development to locate and produce Australia's abundant and diverse gas reserves. Over time these juniors have consolidated with, or been acquired by, global industry majors with the financial and
66 • Global Business Magazine • November 2012
further technical resources to deliver these reserves to the domestic gas and global LNG markets. At present, Australia has three producing LNG projects – the North West Shelf, Darwin LNG and Pluto LNG – with another seven large projects under construction. The chart below illustrates the extent to which foreign participation has helped shape Australia's LNG industry, as well as the variety of existing customers for Australian LNG. This chart also evidences the confidence global LNG majors have in the Australian LNG industry.
New and Diverse Sources of LNG In addition to conventional sources of natural gas (both on and off-shore), Australia has vast reserves of unconventional gas in the form of coal seam gas (CSG), shale gas and tight gas. Until recently, these forms of gas were considered too difficult and expensive to extract for conversion and sale as LNG. As noted above, Australia’s favourable fiscal and policy environment, and the growth of global demand for LNG, have incentivised companies to invest heavily in both exploration and technological research
Figure 1 - LNG Projects currently operating or being constructed Project
North West Shelf
Western Australia (WA)
Conventional off-shore gas reserves
Conventional off-shore gas reserves in Joint Petroleum Development Area Conventional off-shore gas reserves Conventional off-shore gas reserves
Conventional off-shore gas reserves
Conventional off-shore gas reserves
Queensland Curtis LNG
Coal Seam Gas (CSG)
Australia Pacific LNG
Australia's LNG Projects Size Equity partners (*Denotes also an customer) Producing 16.3 Woodside (operator)(Aus), (since 1989) million Shell, BHP Billiton Petroleum, tonnes BP, Chevron (US), Japan per Australia LNG (MIMI) annum (mtpa) (5 trains) Status
Producing (since 1986)
3.5 mtpa (1 train)
Inpex ConocoPhillips (operator)
Japanese utilities including Chubu Electric, Chugoku Electric, Kansai Electric, Kyushu Electric, Osaka Gas, Tohu Gas, Tohoku Electric, Tokyo Electric, Tokyo Gas, Shinoka Gas Guangdong Dapeng LNG (China) Korea Gas Spot sales Tokyo Electric Tokyo Gas
Producing (since 2012)
4.3 mtpa (1 train)
15 mtpa (3 trains, from 2014)
Woodside Tokyo Gas* Kansai Electric* Chevron (operator) ExxonMobil Shell Osaka Gas* Tokyo Gas* Chubu Electric*
Under construction. Production targeted from 2016/2017 Under construction. Production targeted from 2016 Under construction. Production targeted from 2016
Chevron (operator) Apache Corp Kufpec Shell Kyushu Electric* Inpex (Japan) Total* Tokyo Gas* Osaka Gas* Chubu Electric* Tohu Gas* BG Group Queensland Gas Company China National Offshore Oil Corporation (CNOOC)* Tokyo Gas* Santos (Aus) PETRONAS *(Malaysia) Total* KOGAS* (South Korea)
Tokyo Electric Chubu Electric Tohoku Electric plus *
Origin Energy (Aus – upstream (CSG) operator) ConocoPhillips (US – downstream (LNG) operator) Sinopec* (China)
Sinopec* Kansai Electric
Under construction. Production targeted from 2014 Under construction. Production targeted from 2015 Under construction. Production targeted from 2015
8.4 mtpa (FID for two trains) 7.8 mtpa (FID for two trains) 9 mtpa (FID for two trains)
Tokyo Gas* Kansai Electric* GS Caltex (South Korea) Nippon Oil Kyushu Electric Petronet LNG (India) PetroChina plus * Shell’s portfolio
GNL Chile Chubu Electric Energy Market Authority of Singapore plus * All *
181 William Street Melbourne Victoria 3000, Australia Direct: +61 3 9617 4322 Tel: +61 3 9617 4200 Fax: +61 3 9614 2103 firstname.lastname@example.org www.bakermckenzie.com
Samantha Siebel Consultant Energy, Resources, Infrastructure & Corporate Australia Baker & McKenzie Level 19, CBW and development, to enable previously uneconomic and unconventional sources of gas to be brought to market. This in turn has seen coal deposits in Queensland's Surat and Bowen basins being developed into worldclass CSG provinces. It has also enabled the world's first commercial production of LNG from CSG.
Accessing Australia’s Gas Reserves
Australia's Foreign Investment Policy
Australia does not have a Production Sharing Contract (PSC) regime. Instead, access to oil and gas reserves is facilitated through licensing systems, which confer exclusive rights of access to undertake petroleum exploration and production.
However, despite the existence of suitable technology, production of LNG from Australia’s shale and tight gas reserves is not currently economically viable. In contrast, in the United States over the past decade, the emergence of shale gas has greatly increased domestic gas supplies, and caused prices to drop to the lowest levels seen in decades, such that the US no longer expects to import LNG. Instead, a number of LNG export project developments are currently being progressed which will enable cheap North American shale gas to be exported. Once operating, these facilities will have a significant impact on the dynamics of the global LNG market by introducing another competitively priced source of supply. Nevertheless, for a range of reasons, including the cost of transportation, this is unlikely to lessen demand for Australian LNG – particularly in South East Asian markets.
Licences are granted and administered by the relevant State or Federal Government (depending on where those reserves are located). In some States, CSG is regulated under a minerals licensing regime. Subject to compliance with licence conditions (which require specific amounts to be spent annually on a work programme) and industry-wide regulations (which include technical, environmental and health and safety requirements), licence holders control how the reserves in their licensed areas are developed and exploited. The relevant Government has neither the ownership interest in any gas (including CSG) extracted from the licence area, nor the infrastructure used to deliver it.
The Australian Federal Government welcomes foreign investment in the LNG industry. Foreign companies (other than foreign government agencies) granted a new mineral or petroleum exploration right (or acquiring an existing right through a ‘farm-in’ or other arrangement) are not required to seek approval to take up the exploration right, or to seek Australian equity participation in their exploration activities.
China, one of Australia's LNG customers, is estimated to have the world's largest shale gas reserves, and is implementing policies to promote the exploitation of these reserves to meet China's huge domestic gas needs. However, China's unique geology, water issues and lack of local technical knowhow pose significant challenges to the development of these reserves. Although it is unlikely that China will follow the US's path and change its status from an LNG importer to a supplier, there is a good prospect that its requirements for LNG imports may lessen over time if it develops the ability to produce and use its significant shale gas reserves.
Australia’s Federal Government encourages global participation and investment in offshore petroleum exploration through an annual release of petroleum exploration acreage. Generally, around 30 offshore areas with differing characteristics are released each year and bids are sought for these. Exploration permits are awarded to the bidders considered most likely to achieve the fullest assessment of the petroleum potential within each permit area in the minimum guaranteed period of the permit. In contrast, Queensland (the State where all of the current CSG to LNG projects are being built) has just announced a plan to auction permits in highly prospective CSG areas under a cash bidding system. Further details on the Federal Government’s 2012 Acreage Release can be found at http://www. petroleum-acreage.gov.au.
Subject to the value or structure of a transaction, proposed investments in existing Australian corporations, businesses or assets may need to be notified to Australia’s Foreign Investment Review Board. Such proposals are examined thoroughly but usually raise no objections, unless they are contrary to the national interest. However, all direct investments by foreign governments, or their agencies, require prior approval. Australian governments obtain revenue from their mineral and petroleum resources by imposing taxes and/or royalties (which vary across the States and territories). Providing that royalties and taxes have been paid, proceeds from LNG sales are not payable to the Federal or State Governments. Conclusion Despite the dynamic nature of the global LNG market, requirements for secure, longterm and competitively priced LNG imports remain, and demands will continue to rise. However, Australia has the natural resources to meet these demands. Furthermore, its established, transparent and stable regulatory and fiscal framework will enable the country to respond to changes in the global LNG market, and remain one of the world’s largest LNG suppliers.
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LiQuefied NaTuraL Gas (LNG) rePOrT 2012
U.S. LNG Exports – Should it Stay or Should it Go? The recent discovery of shale gas through technologies primarily with hydraulic fracturing (‘fracking’) and horizontal drilling, have caused a sharp increase in the production of unconventional natural gas supplies in the United States. Companies are scrambling to convert regasification sites to liquefaction sites in hopes of seizing the once in a lifetime opportunity for profit. Domestic production growth has been so strong that the United States is now for the first time viewed as a possible global exporter of LNG. The decision to export liquefied natural gas (‘LNG’) from the United States is an easy one for the natural gas industry, but implementing it has been fraught with political, economic, and policy driven impacts. Firstly, there are regulatory hurdles in the U.S. that restrict exports of natural gas, especially to non-free trade agreement (‘NonFTA’) countries. The Department of Energy (‘DOE’) is required under Section 3 of the US Natural Gas Act to consider each application to export LNG to Non-FTA countries on a case-by-case basis, to ensure that such exports are consistent with the American pubic interest. To date, there is a perception that the DOE is delaying processing export applications to Non-FTA countries until after the U.S. Presidential election on 6 November 2012, as well as elections that will determine the members of the U.S. Congress in 2013. Secondly, there is much debate concerning the domestic and global impact of LNG pricing if and when the U.S. is allowed to freely export LNG. The sharp increase in U.S. natural gas production has been sufficient to substantially reduce natural gas prices within the North American natural gas market to
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10 year lows. While some assert a global gas market will emerge, currently there are three distinct regional gas markets, each of which sets natural gas prices differently. The U.S. has gas-on-gas competition, Asia indexes to crude oil and Europe sets prices indexed to certain oil products, although hubs are starting to change this pricing structure. While there is very limited trade between these regional markets, there is debate that a supply surge of LNG through U.S. exports could lead to an abundance of supply and accelerate the move from oil-linked pricing to a convergence of a global gas market. The U.S. Energy Information Administration reported in January that, according to its simulations, more exports would mean higher prices for gas and electricity, and some fuel switching back to a coal-fired electricity generation. Some dismiss the predictions that a supply surge could disrupt traditional LNG markets. A study by Rice University's Baker Institute concluded in August that there's nothing to guarantee that the world market will always look as enticing for U.S. exports as it does now. The report states that fluctuation in exchange rates, potential foreign gas discoveries and the global price effects from the U.S. increasing world supply, could all change the picture in unpredictable ways, creating risk for exports. Regardless, natural gas, like most commodities, is subject to price swings. Some believe that the current pricing gap presents opportunities for U.S. natural gas producers, as faster increase in exports will mean higher profits in the short term. Others fear that exporting LNG would increase U.S. gas prices, sending electricity bills and adding more pressure on domestic manufacturing.
Thirdly, an LNG Project is very complex with investment uncertainty and huge capital requirements, in connection with converting current LNG import facilities in the U.S. to liquefaction and export facilities. In particular, with project financings of a LNG project, there are a range of incremental credit issues that would be analysed in depth by potential LNG project developers, investors and other participants. Country risk (shipper, buyer) – currency risk, liquefaction and regasification technology risk: Ship construction (or leasing) – cost, timing and reliability: Shipping risks – weather, damage/spill, jurisdiction issues Gas supply – price and adequacy, safety and terrorism. Companies lucky enough to obtain project financing anticipate a reasonable rate of return, addressing the foregoing. Will the cumulative increase of demand offset the increase of supply to the point that marginal changes on either side result in the excesses of volatility seen in the years leading up to the bubble burst of 2008? It’s a question that deserves discussion, particularly in the light of the crude prices over the last few decades. Therefore, LNG exports will be constrained by bankability of the project and overall viability of the project. At the end of the day, many believe that the LNG market is not expected to experience the boom some predict. In summary, this is not a Republican/ Democrat/right/left, rich/poor or business/ anti-business issue. We have serious energy challenges in the U.S, and we should allow our Federal Government to consider the longterm impact and unintended consequences. Hopefully they will rely on sound analysis, observation and history.
sPOTLiGHT ON fiNLaNd
sPOTLiGHT ON fiNLaNd FINLAND – THE COUNTRY WHERE EVERYTHING WORKS Finland has a well-earned global reputation for innovation, competitiveness and reliability, having transformed its economy in a matter of decades to become one of the richest, most stable societies in the world. Today, the country is leading, or near the top of most international comparisons, in terms of growth and development in the economic, technological and social spheres. Finland is a country where everything works. Finland's GDP in 2011 was EUR 189.4 billion and per capita income EUR 35,150. GDP growth in 2011 was 2.9%. Services make up the largest sector of the Finnish economy (69.4 %), followed by manufacturing and refining (27.8%) and primary production (2.9%). The main industries include metals and metal products; electronics; machinery and scientific instruments; shipbuilding; pulp and paper; foodstuffs; chemicals; and textiles and clothing. Although Finland is a member of the European Union and uses the euro as its currency, within the euro zone the country has been among the fastest to recover from the global recession in 2009. Consequently, Finnish banks and financial markets have not been greatly affected by the financial crisis. Stable and Efficient Society Finland is known for its social and macroeconomic stability, transparent institutions, lack of corruption, low levels of public debt, and strong budgetary discipline in public finances. Furthermore, the consensus-based Finnish political system delivers pragmatic, business-friendly policies and an unusual level of political continuity. This creates a high degree of predictability and security for international investors. As a telling measure of its macroeconomic stability, Finland enjoys
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the highest possible status with the global credit rating agencies Fitch Ratings, Moody’s and Standard & Poor’s. According to Fitch, the country’s AAA status ‘is underpinned by sound public finances, a solid external position, high income per capita, demonstrable political and social stability and an impeccable debt service record’. Finland has also been consistently ranked at the top of international sustainable development indices. For example, the American magazine Newsweek ranked the country as the world’s best country, based on criteria that focuses on the environment, education and the quality of life. Dynamic and Innovative Economy The Finnish economy is knowledge-based and strong on innovation and high-tech industries. As a global leader in terms of R&D spending per capita and the availability of scientists and engineers, the country has world-class expertise in many sectors. These include the metal, engineering and electronics industries; ICT; the forest industry; cleantech; biotechnology; energy; chemicals; shipbuilding; and design and creativity. Led by Nokia, the engineering and high technology industries have long been the leading branches of manufacturing. Exports account for more than a third of GDP – the main ones being chemical products; pulp and paper; metals and metal products; machinery and equipment; and electric and electronic products. The main imports are chemicals; minerals; electric and electronic products; machinery and equipment; and vehicles. Aside from Nokia, major Finnish companies include Neste Oil, SOK (retail and wholesale), Stora Enso (paper & paper Products), UPMKymmene (paper & paper products), Kesko (retail and wholesale), KONE (lifts and escalators), Wärtsilä (power plants and ship engines), Fortum (energy), and Outokumpu (mining). Finland is ranked as the most competitive country in Europe and third overall in the Global Competitiveness Report 2012. Published by the World Economic Forum (WEF), this report also places the country second in the world for innovation, and among the top four countries for its capacity
for innovation, company spending on R&D, university-industry collaboration in R&D, and the number of PCT patent applications. According to the WEF report, Finland boasts well-functioning and highly transparent public institutions – topping several indicators included in this category such as property rights, intellectual property protection, efficiency of the legal framework, and the reliability of police services. Finland’s private institutions, ranked third overall, are also seen to be amongst the best run and most ethical in the world. Foreign Investment As one of the most dynamic and open economies in the world, Finland has a great deal to offer international investors, including reliable infrastructure, a highly skilled workforce and business-friendly policies. The Economist Intelligence Unit has ranked the Finland’s business environment as the best in the world. Not surprisingly, many international companies have made their base here, attracted by the efficient infrastructure, innovative approach and strategic location. Foreign investment in Finland is often related to knowledge-driven investments. The country has several high-tech clusters with many technology companies that have cutting-edge expertise. These include companies specialising in wireless and mobile solutions; cleantech; healthcare and life sciences; and new materials and processes. Finnish companies and consumers are early adopters of emerging technologies, which also makes the country an ideal test bed for new solutions and technologies. Furthermore, foreign-owned companies doing business in Finland enjoy the same benefits and equal treatment with Finnish companies. For example, the extensive research cooperation between Finnish universities and the public and private sectors offers good opportunities for international companies. Gateway to the East Finland offers a central location in the expanding markets of Northern Europe, which is home to 80 million consumers, and provides an ideal entry point to the East. Helsinki Airport provides the fastest air route from Northern Europe to Asia. Finland’s long experience of trade in Northern Europe, combined with its
historical and cultural ties to neighbouring countries, offer valuable insights to doing business in the region. The country is also the ideal business gateway to Russia, with most of the transit trade from the EU to Russia already passing through Finland. The countries also share the same rail gauge, so rail cars do not require modification or reloading when they cross the border. Finland boasts functional infrastructure and modern logistics and communications networks. As the common language of the country’s highly international business community, over 90% of Finns under thirty speak English. In addition to Finnish, Swedish is Finland’s second official language, however many Finns also speak Russian. Information and Communication Technology ICT has been an important growth driver in the Finnish economy, with Eurostat estimating that the Finnish software and IT services industry grew by 5% in 2010 and 8% in 2011. The Finnish software industry is predominantly a B2B business and is dominated by small and medium-sized companies in terms of number, and large firms by volume. Major companies in the ICT sector include Nokia, Tieto, Telia-Sonera Finland, Elisa and DNA. As the home of Nokia, Finland has a great deal of expertise in mobile communications, with strong corporate and consumer demand for ICT products and services. The country’s cool climate, good security and low electricity prices make it an ideal location for energyefficient data centres, attracting major investments from companies like Google and Atos. The country also offers an excellent test bed for new technologies, and easy access to public R&D and developer networks. There are three major ICT clusters – Finnish Digibusiness, Ubiquitous Computing and the Nanotechnology Cluster. Thanks to the success of Angry Birds, developed by the Finnish company Rovio, the country’s gaming cluster is also growing fast and attracting international attention. Competent Workforce Finland’s education system has consistently achieved outstanding results. In OECD’s Programme for Student Assessment (PISA) surveys, Finnish students lead the rankings in combined learning results for science,
mathematics and literacy. As a result, Finland’s workforce is highly educated and computer literate, with about a third of Finland’s working population having a degree or higher qualification. In fact, the knowledge transfer between business and universities has been one of the key factors in the country’s track record of innovation and economic success. Finland's labour force is about 2.6 million strong and as of May 2012, the unemployment rate was 7.6%. Labour costs are lower in Finland compared to the other Nordic countries. According to WEF’s Global Competitiveness Report 2010-2011, Finland not only has the best availability of scientists and engineers in the world; they are trained by one of the best educational systems in the world. The workforce also includes a large number of other competent professionals with university degrees in diverse fields. Furthermore, Nokia's restructuring process has recently released a large number of highly qualified and experienced ICT engineers to the labour market. Invest in Finland – At Your Service Invest in Finland is the government agency that promotes foreign investments into Finland, and offers a wide range of professional consulting services, free of charge. It provides all the relevant information and guidance required to establish a business in Finland, and assists international companies in finding business opportunities in Finland. Invest in Finland’s expert teams provide comprehensive information concerning specific sectors of the economy. Currently, Invest in Finland’s work is focused on these highly promising industries: Business Services; Cleantech; Healthcare and Wellbeing; ICT; Mining; Retail; Travel and Tourism; and Research, Development and Innovation. Invest in Finland is also unit of Finpro, a consulting organisation focused on accelerating the internationalisation of Finnish companies. Funded by the Ministry of Employment and the Economy, Invest in Finland’s activities are steered by the government's economic and innovation policies. Invest in Finland – for more information please visit www.investinfinland.fi November 2012 • Global Business Magazine • 71
LONdON sTOcK eXcHaNGe aLTerNaTive iNvesTMeNT MarKeT
London stock exchange alternative investment Market conditional dealings in its shares ahead of its admission on 16 October. The Group's shares were priced at 175p each, valuing the company at £2.6 billion. The offering raised £787 million, making this the largest UK company fundraising on London's markets this year.
The London Stock Exchange welcomes blur Group to AIM
London Stock Exchange today welcomed Direct Line Insurance Group plc ("Direct Line Group" or "The Group") to open its UK markets, marking the start of
blur Group owns and operates the online Global Services Exchange at blurgroup.com where businesses buy, sell and pay for business services, including marketing, design, advertising and technology. Making use of cloud technologies
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Paul Geddes, CEO Direct Line Group, said:
Xavier Rolet, CEO at London Stock Exchange Group, said:
"We are delighted with the level of demand institutional and retail investors have shown in Direct Line Group, reflecting the recognition of our clear strategy and key strengths of distribution, scale and market leading brands. We look forward to life as a publically listed company with the support of a strong and diverse shareholder base.
"We are delighted to welcome Direct Line Group to open trading on our markets today. This significant capital raising demonstrates that London remains very much open for business for ambitious
"As we move forward we will continue with our aim of providing customers with excellent products and service levels, whilst seeking to deliver sustainable returns for our shareholders."
and expert sourcing techniques, it started building expert crowds in 2007 and formally launched in 2010. In 2012 it received its 1,000th brief and now has over 20,000 experts from over 130 countries.
Admission to AIM, Philip Letts, Founder and CEO said
To mark the occasion Paul Geddes, CEO at Direct Line Group joined Xavier Rolet, CEO at London Stock Exchange Group, to open trading in London this morning.
London Stock Exchange welcomes Direct Line Group to the Main Market
companies. Of particular note is the level of retail interest in this issue, underlining the appeal of London's vibrant equity markets to private investors."
The Company’s trading symbol is BLUR and the market capitalisation of the Company following the Admission is $32m. The total number of Ordinary Shares in issue at Admission is 24,555,259,and Singer Capital Markets acted as Nominated Adviser and Broker to the Company. Commenting on the successful
“I am delighted by the positive response we have received from the UK market. We feel we now have a strong institutional shareholder base and the funds to deliver on our stated growth strategy. We believe the scalability of the blur model, in terms of volume, size and value of projects as well as buyer and seller profiles, creates a unique reach and proposition for creative and business services and we look forward to a successful future as a public company.”
oil and gas exploration and production business with activities in both the UK and Norway. Incorporated in Norway, the Company was listed on Oslo Axess on 21st May 2010. The Group is a growth business and has plans to increase both production and resources through a balanced programme of acquisition, exploration and development, using its existing portfolio as a foundation.
The London Stock Exchange welcomes Bridge Energy ASA to AIM
The London Stock Exchange is delighted to welcome Bridge Energy ASA to AIM today. Bridge Energy is an independent
The Group’s trading symbol is BRDG.L and the market capitalisation of the Group following the Admission is c. £75m. The total number of Ordinary Shares in issue at Admission was 63,429,169 and Cenkos Securities acted as Nominated Adviser and Broker to the Group.
Clinigen comprises two divisions – Services and Products. Within the Services division, there are two operations: ClinigenCTS, which offers Clinical Trial Supply services, and ClinigenGAP, which offers Global Access Program (“GAP”) services. The Products division owns and supplies Foscavir® (acquired from AstraZeneca in 2010) and intends to acquire, and grow sales of, additional niche hospital-only drugs.
The London Stock Exchange welcomes Clinigen Group plc to AIM
Clinigen Group plc, the fastgrowing, global specialty pharmaceuticals and pharmaceutical services business, was at the London Stock Exchange today, celebrating the Company’s Admission to AIM and the listing of its shares, which commenced trading on 25 September 2012.
Clinigen currently manages the supply of drugs into a total of 53 countries, which are used in the therapeutic areas of leukaemia (and other oncology), haematology, transplantation, anti-infective, pain management, gastrointestinal and hospital and critical care, as well as orphan diseases. The Company will use the gross proceeds of £10 million it has raised from the placing to support the acquisition of the
Commenting on the successful Admission to AIM, Tom Reynolds, Chief Executive Officer of Bridge Energy commented: “I am very pleased to announce the first day of dealings of our shares on AIM; it is another very important step in realising our strategy of becoming an established, mid-cap exploration and production company. “We feel that this is the right time to bring the Company to AIM in order to further support the next stage in Bridge’s development I would also like to thank our existing shareholders for their continued support and I look forward to welcoming new investors from the London market.
rights to new products, to invest in IT systems and for general working capital. Peter George, Chief Executive Officer of Clinigen Group, commented: “I am delighted that Clinigen has joined AIM and our share price has made a good start. We believe that a listing on the London Stock Exchange is critical for the development of the business. The funds raised will enable us to maintain our strong international growth record by providing a solid platform to continue to develop both organically and through acquisition of new pharmaceutical products. Our underlying principle remains to get ‘the right drug to the right patient at the right time’.” Numis Securities acts as Nominated Adviser and Broker to the Company.
November 2012 • Global Business Magazine • 73
LONdON sTOcK eXcHaNGe aLTerNaTive iNvesTMeNT MarKeT
for listed securities of the London Stock Exchange through the regulated market segment of the International Order Book.
The London Stock Exchange welcomes Sberbank
The London Stock Exchange is pleased to welcome Sberbank of Russia (“Sberbank”) after the admission of its global depository shares (“GDSs”) and American depositary shares (“ADSs”) to the official list of the UK Listing Authority and to trading on the regulated market
Sberbank is the largest bank of Russia that holds about 27% of the Russian banking assets and employs nearly 240,000 people. The Bank has one of the largest networks in Russia: 17 territorial banks, about 19,000 branches as well as subsidiaries in Kazakhstan, Ukraine and Belarus, a branch in India, representative offices in Germany and China. With the acquisition of Volksbank International in 2012 Sberbank gained presence in nine Central and Eastern European countries. Herman Gref, President and Chairman of the Executive Board of Sberbank, said: “For Sberbank transition from admittance to trade to
London Stock Exchange welcomes Workspace Group PLC, London’s leading provider of tailored business space to new and growing companies, to its Order Book for Retail Bonds, with the launch of its 6% 2019 debut retail bond, which raised £57.5 million.
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The GDSs are traded under the ticker symbol “SBRF” and the ADSs under the ticker symbol “SBER”. Credit Suisse, Goldman Sachs International, J.P. Morgan, Morgan Stanley and Troika Dialog are acting as Joint Global Coordinators and Joint Bookrunners in connection with the Global Offering. Cleary Gottlieb Steen & Hamilton and Linklaters acted as legal advisers to the transaction and FTI Consulting were communications advisers.
Founded in 1987 and listed on the London Stock Exchange (LSE) since 1993, Workspace owns and manages over 100 London properties, home to some 4,000 businesses across a broad range of sectors employing more than 30,000 people.
issuances, with encouraging uptake from the private investor community, and growing amounts of secondary trading after listing.”
Jamie Hopkins, Chief Executive Officer of Workspace Group PLC, commented:
“Investec is delighted to have joint led Workspace’s retail bond which has set a new benchmark in the sector for covenants and investor protection. It is encouraging to see new issuers access the retail bond market as this becomes an increasingly relevant and reliable alternative source of finance.”
"We are delighted with the success of Workspace’s debut retail bond, which exceeded our target. It is excellent to see such a positive response from the private investor community which highlights the attractiveness of Workspace’s recurring revenue streams, high occupancy rates and operational resilience.”
The London Stock Exchange welcomes Workspace Group PLC to the Order Book for Retail Bonds
a full listing on the London Stock Exchange is a natural evolutionary step. It further broadens and diversifies the universe of international investors who can access our shares as we continue to deliver on our long-term strategy.”
Gillian Walmsley, Head of Fixed Income at London Stock Exchange, said: “We are delighted to welcome Workspace’s retail bond to market. This is an exciting British company serving innovative young businesses. As our ORB market goes from strength to strength we are delighted to see an increasing number of such
Chris Babington, Joint Lead Manager, Investec commented:
Oliver Cardigan, Joint Lead Manager, Numis commented: “Numis is very pleased to have worked with Workspace on its first retail bond. The success of this bond demonstrates the growing investor appetite for these products, particularly for issues with attractive banking covenant arrangements. This bond also marks a growing trend of property companies choosing to raise money and diversify sources of financing through this market.”
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Published on Nov 5, 2012
Published on Nov 5, 2012
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