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gbm June 2011

global business magazine

Business security it’s not a Game

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the home of

international finance entrepreneurs are making the Isle of Man their

· Breadth and depth of corporate and trust provision

home of international finance.

· Effective public and private sector partnerships

The reasons are simple:

· Internationally responsible and OECD White Listed jurisdiction

A growing number of global businesses and

· Strong stable economy with AAA Sovereign credit rating · Mature financial services industry including banking, fiduciary, insurance, fund administration

For more information go to or email Tel: +44 (0) 1624 686400 2 • GBM • June 2011

· Well-established regulatory environment · Excellent quality of life · Clear and simple taxation policy.

INSIDE This Month:

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Business Talk The mid-way point of the year always plays a good point to take stock on what has or hasn’t happened over the last 6 months. Many firms and individuals have started to plan for the second half of the year and want to ensure the following 6 months remain problem free. The first half of 2011 has proven to be very eventful and keeping the news reels ticking, including stories of political unrest in the middle-east, economies being bailed out by the IMF, and even the sporting world being alleged of corruption. Let’s hope the next 6 month prove to be more positive and beneficial to all. The June issue of the Global Business Magazine covers the highly publicised security breach with Sony’s PlayStation Network (PSN). We look at the impact it had on a wider scale and the implications to other businesses. What can businesses learn from such a large organisation being compromised by so called ‘cyber-terrorist’ and how can you stay safe are some of the topics reported in our cover story. Staying with gaming, we also feature the laws surrounding Gaming and Gambling across the world. We team up with lawyers and associations who give their expertise and understanding on how to reap the maximum benefit when investing into the growing Gaming industry. A jewel in the Mediterranean, Cyprus is our country focus. We look at the how this small island flexes it muscle against other larger nations and what it can offer potential investors to the country. We also keep our focus on the small islands, including the business services provided by the Isle of Man. Considered as a tax retreat for businesses, we report on how f operating there can assist you in all degrees of business services. The healthcare, medical and pharmaceutical industry takes its place within the magazine. We highlight some of the world’s leading lawyers and firms who advise and report on the legal practices involved in Intellectual Property law and Medical Insurance. With many firms looking to drive results and exceed targets as quick as possible, sometimes the resources they have just is not enough to get the results desired. We look at the experts who do this for a living – Interim and Turnaround Managers. The feature profiles firms and individuals who assist in getting you the results you want in the shortest time possible.

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interim & turnaround management rePort


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Finally, we open the doors of GBM to the experts from all industries to give their view and analysis on various topics in the Expert Forum. Our Luxury Guide covers the most amazing and breath taking private islands of the world, exclusive and open only if your worth it!

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Mining for metals and minerals use to be as easy as digging up the ground and taking what was found. Not anymore. There are thousands of laws governing this industry across the globe and it has become a minefield to understand. Don’t worry, we’ve got the legal experts featured this month to dig you out!

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The opinions expressed in GBM do not necessarily reflect those of the editors, publishers or their agents. The information provided in GBM is general and may not be applied to a specific situation. GBM does not purport to provide legal or other professional advice and takes no responsibility for actions taken on the basis of information provided herein. Legal advice should always be sought before taking any such action. Laws and government policies are constantly changing and accordingly GBM takes no responsibility for the accuracy or currency of the information provided herein. If you require particular information you are advised to consult with the article’s author or seek legal advice.


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June June 2011 2011 • GBM • GBM • 3 • 03

Business News

• US Stock Falls due to Weakening Economy The US stock market was sent plummeting in the latter part of May as jobs and manufacturing data showed deep weaknesses in the US economy . The tech-heavy Nasdaq Composite lost 66.11 points to 2,769.16. The Dow Jones Industrial Average fell 279.14 points (2.22%) to 12,290.65, with all 30 of the blue chips in the losing column, led by Alcoa. The first data release of the month upheld the glum picture of the past two weeks. Payrolls firm ADP said the private sector added 38,000 jobs in May, well below the 170,000 expected. Meanwhile the Institute of Supply Management’s manufacturing survey

plummeted nearly seven percentage points from April to a 19 month low, as new orders alone dropped by almost a fifth. The market was not helped when, late in the session, Moody’s again downgraded Greek debt and gave it a negative outlook, raising the already high stakes in rescue negotiations for the imperiled eurozone member. Also hitting tech was Microsoft’s 2.3 percent drop and a 4.7 percent plunge in Nokia’s US-traded shares. Rumors spread during the day said Microsoft would take over the struggling mobile phone manufacturer. Big industrial groups that gain a lot from Chinese growth were hit: in addition to Caterpillar, Deere and Co. lost 3.9%, Cummins 4.4%, and Boeing 3.4%.

Tech stocks were hauled down by chipmakers: Micron fell 6.3 percent, Intel 2.3 percent, Applied Materials 5.1 percent, Nvidia 4.5 percent, and Texas Instruments 3.8 percent. Also driving the sellers was news that China’s manufacturing sector expanded at the slowest pace in 10 months in May, as measure by the HSBC China Manufacturing PMI, or purchasing managers index. Bond prices rose. The yield on the 10-year Treasury bond fell to 2.97% from 3.05% later, while that on the 30-year bond dropped to 4.15% from 4.22%. Bond prices and yields move in opposite directions.

• Ploycom Buys Out HP Videoconference Business At the start of June, Ploycom said that it will buy Hewlett-Packard’s (HPQ) array of pioneering videoconference business in an $89 million deal that will help the Pleasanton company exercise a superior hand in the burgeoning market. Polycom agreed to buy Palo Alto-based HP’s Visual Collaboration business, including the Halo Products that were jointly development by HP and DreamWorks Animation in 2005. Polycom will be able to organise the new array of videoconferencing systems to hawk every kind of unified communication, including Web-, video- and audio-based systems. Polycom’s products will range from the prosaic tripod-shaped audio conferencing phone to the top-of-the-line video products from HP. The deal aids struggling HewlettPackard refocus its business on software and products and services delivered through Internet-based, or “cloud,” computing. Videoconferencing, more of a telecommunications business, didn’t fit HP’s new emphasis.

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At the centre of the agreement is the Halo technology, a high-end videoconferencing system. Halo’s clientele include major corporations and high-profile celebrities. With Halo and the other HP visual collaboration products, Polycom will be able to more adeptly challenge some behemoths in the tech world. San Jose-based Cisco and Fremontand Switzerland-based Logitech have attempted to muscle more strongly into the videoconferencing market in recent years. In 2010, Cisco completed a $3.3 billion deal to buy Norway-based Tandberg as part of its gambit to compete in videoconferencing. A few months before that, in 2009, Logitech bought Texas-based Lifesize Communications for $405 million, which vaulted Logitech into corporate videoconferencing. Microsoft also has poked around in this market. It steadily has intensified its ties to Polycom by collaborating with the Bay Area firm. In addition, Microsoft said last month that it would pay $8.5 billion for Skype. Revenue in the fast-expanding videoconferencing and telepresence market totaled $2.2 billion in 2010, up 18 percent from the year before, Infonetics Research, a market analysis firm, reported earlier this

year. Revenues should more than double to $5 billion by 2015, Infonetics estimated. Despite the potential, it appeared that HP determined that videoconferencing and telepresence were no longer core offerings for the Silicon Valley titan. The roughly $500,000 cost of Halo could have been a factor in keeping the system from catching on with companies that had less costly alternatives. Polycom plans to integrate the HP offerings into its own line of products. In addition, HP simply may have felt it wouldn’t have been able to focus properly on the increasingly competitive telepresence sector. Hewlett-Packard also agreed to exclusively sell Polycom’s products to HP customers. Polycom will integrate HP’s video conferencing systems into its own line of products. Plus, Polycom will create video apps for WebOS, a mobile operating system that HP owns through its purchase of Palm, a pioneer in hand-held devices. Investors appeared to like Polycom’s gains from the deal. On a day when the S&P 500 and the tech-focused Nasdaq each plunged 2.3 percent, Polycom’s shares rose 0.3 percent, or 16 cents, to finish at $57.57. HP fell 2 percent, or 75 cents, to close at $36.63 on Wednesday.

• FTSE Withdrawal Creates Global Recovery Concerns The FTSE 100 fell in May as investors continued to react to the downbeat global economic data in previous sessions and as a result cast doubt over the global economic recovery. Retailers, which are fundamentally exposed to the health of the economy, were among the top fallers with Europe’s biggest home improvements retailer Kingfisher Plc. Despite reporting a 19% increase in retail profit, Kingfisher remained watchful on its outlook, promting Investec to forecast profit taking on the stock due to the lack of upgrades to estimates. FTSE 250 .FTMC peer Home Retail dropped 2.3%, while online fashion retailer ASOS fell 10.6% after its own full-year results, which analysts said failed to justify the shares’ swollen valuation. London’s blue chip index extended Wednesday’s 1% slide, which came

after a below-forecast U.S. ADP private employment report and a weak ISM survey. They followed bleak PMI data in the UK and Europe. U.S. stock index futures pointed to a slightly higher open on Wall Street on the Thursday after sharp declines in the previous session. Investors, however, were wary of taking too bullish a position ahead of U.S. weekly jobless claims and more importantly nonfarm payrolls data due out on later in the month. Should the non-farm payrolls go on to disappoint, the calls for QE3 in the U.S. will get louder, which would see investors rush back towards equities. Phil Roberts, chief European technical strategist at Barclays Capital, sees enough bull support, supported by yields, to stop Britain’s FTSE 100 falling too far below 5,850, and keeping within its 250-point trading it’s been in since mid-April.

He said at the very least the FTSE would have to close below its 200-day moving average of around 5,790 or more importantly the trend line of 5,717, before he started getting concerned. London-based outsourcer Serco gained 2.8% as Credit Suisse upgraded its target price and estimates for the outsourcing group, following its recent acquisition of Indian private sector outsourcer Intelent. Upbeat broker sentiment also gave Experian a lift, up 0.6% as Nomura started coverage of the credit information firm with a “buy” rating highlighting a clear growth strategy. Back on the downside, British chip designer ARM dipped 3%, in a weaker European market for tech stocks .SX8P, despite Microsoft giving a glimpse of Windows 8, which will run on ARM architecture

• China Targeted by ASOS as Profits Excel A 41 % rise in profits by online fashion firm ASOS Plc gave further indication that they would soon be entering the Chinese markets. It stated that it was a question entering China was a question of “when not if” said it was on track to make 1 billion pounds of sales by 2015. Chief Executive Nick Robertson said in May that China had been identified as ASOS’s fifth strategic market after Britain, the United States, France and Germany. ASOS, which targets internet-savvy 16 to 34-year-old women looking to emulate the designer looks of celebrities, but at a fraction of the price, posted an underlying pre-tax profit of 28.6 million pounds in the year to March 31. Robertson would not commit to entering China with a local language website in 2011 but promised an update when the firm reports interim results in October. He said the

partner would “more than likely” be Chinese. Shares in ASOS have more than tripled over the last year, powered by resistant trading and speculation it could attract a bid from firms as diverse as 20.3% Danish shareholder and supplier Bestseller, U.S. internet retailer Amazon (AMZN.O) and retailers Marks & Spencer (MKS.L) and Tesco (TSCO.L). That compared with analysts’ average forecast of 27.2 million pounds, according to reports and 20.3 million made in 2009/10. The business was valued at 1.6 billion pounds due to the fact that the stock was down 8.6% at 2,138% in late May.

tough macro headwinds, ASOS has thrived, benefiting from a young core customer base and the migration of spending from the high street to the Internet. The firm has a Facebook store and mobile applications. ASOS will not formally update on first quarter trading until mid-July. However, Robertson said the trend was positive. Robertson also stated that the royal wedding favourite Pippa Middleton had also provided a boost. “She’s a great advert for British fashion,” he said

With retail sales on the rise and international sales forecasted at 142%, ASOS’ revenue increased 52% to 339.7 million pounds in the 2010-11 year, helped by the launch of United States, French and German websites. Websites for Spain, Italy and Australia will be launched in 2011. While many retailers have grappled against

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coVer story

the playstation security breach — a timely warning? by steven Miscandlon

In the latter half of April 2011, the Sony Corporation found itself the subject of news headlines worldwide — for all the wrong reasons. A sustained and ongoing outage of its PlayStation Network online gaming service was eventually revealed to have been the consequence of a serious security attack, which had compromised the personal data of approximately 77 million Sony customers.

In the aftermath of the security breach, many tough questions are being asked. You can be sure that internally, Sony will be probing not only the security issues, but also their handling of the public relations circus that inevitably ensued. Questions have been and will continue to be asked of Sony — by their customers, by government and regulatory bodies, and perhaps even in the courts. But beyond this, businesses worldwide should see this as a “wakeup call” to examine the integrity of their own online security practices, and at a higher level, the fundamental risk management attitudes and strategies that go towards deciding and shaping those practices. playstation network outage Sony’s PlayStation 3 games console, first launched in Japan in 2006, was part of the first generation of games systems to incorporate online functionality, allowing users to play multiplayer games against (or in cooperation with) other gamers via the Internet. The company’s online gaming service, branded as the PlayStation Network or PSN, became available around the same time, and is actively used by customers in 60 countries across North and South America, Europe, Asia, Africa and Australasia. Another Sony service, called Qriocity, also runs alongside the PlayStation Network — providing online access to music, e-books, games and videos. On the 20th of April 2011, many PlayStation Network users were disappointed to find the service unavailable, being presented instead with a message advising them that it was “undergoing maintenance”. It’s probably fair to say that most Sony customers didn’t read too much into the situation, taking the holding message at its word. On the same day, a brief update on the company’s dedicated

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possible was being done to investigate and resolve the situation as quickly as possible. Similar updates and assurances were issued over the following three days … while the PlayStation Network and Qriocity services remained unavailable. Then, on Tuesday the 26th of April, the bombshell dropped: “We have discovered that between April 17 and April 19, 2011, certain PlayStation Network and Qriocity service user account information was compromised in connection with an illegal and unauthorized intrusion into our network … Although we are still investigating the details of this incident, we believe that an unauthorized person has obtained the following information that you provided: name, address … country, email address, birthdate, PlayStation Network/Qriocity password and login, and handle/ PSN online ID. It is also possible that your profile data, including purchase history and billing address … and your PlayStation Network/Qriocity password security answers may have been obtained … While there is no evidence at this time that credit card data was taken, we cannot rule out the possibility. If you have provided your credit card data through PlayStation Network or Qriocity, out of an abundance of caution we are advising you that your credit card number (excluding security code) and expiration date may have been obtained.” — Message sent by Sony Computer Entertainment and Sony Network Entertainment to PlayStation Network and Qriocity customers on the 26th of April 2011. Sony’s message went on to provide customers with further information and advice such as recommendations to remain vigilant against email, telephone, and postal mail scams; details of how to obtain reports from the major credit reference agencies; and government and law enforcement contact details for those concerned about, or subject to, identity theft.

PlayStation Blog advised users: “We’re aware certain functions of PlayStation Network are down. We will report back here as soon as we can with more information. Thank you for your patience.” Public responses to the short statement on the blog displayed frustration among the service’s users, however. Many commenters conjectured that the situation likely related to external hacking or an attack on the PlayStation Network, citing various smaller-scale outages and network problems over the previous few days. Some speculated that there may have been a more serious “distributed denial-of-service” (DDoS) attack on the Network by a group such as the informal hacking coalition Anonymous. While condemning the actions of the supposed hackers, user comments on the official PlayStation Blog also exhibited a degree of anger towards Sony for the lack of information given about the situation. Typical comments posted by customers included remarks such as, “I don’t like the way you guys are hiding this situation from us,” and “Vaguest update ever.” Network users’ frustrations were only to grow, however, as the service outage extended into the following day. On the 21st of April, Sony released a further update, advising customers that the cause of the Network outage was being investigated, and that “it may be a full day or two before we’re able to get the service completely back up and running”. revelation and reaction It wasn’t until the following day, the 22nd of April, that Sony officially acknowledged that the ongoing outage on the PlayStation Network and Qriocity services had resulted from what it referred to as an “external intrusion on our system”. Once again, the company’s statement sought to reassure customers that everything

Reactions among the gaming community were mixed. As technology blogger Jared Newman later commented, “Judging from the reader reaction here and on other blogs, there was a strong sentiment of ‘I don't care about the data, just let me play Call of Duty again’.” There was, naturally, anger towards the criminals who had carried out the apparent attack and data theft. But as the seriousness of the situation began to sink in, customers began to register their frustrations against Sony and the PlayStation Network — not only for allowing such a substantial security breach to happen in the first place, but also for their failure to immediately inform their customers about the theft of their personal data. A comment left by one user on the PlayStation Blog concisely summed up the sentiment expressed by many in the gaming community: “If you have compromised my credit information, you will never receive it again. The fact that you’ve waited this long to divulge this information to your customers is deplorable.” Sony under attack As more information emerged about the scale and severity of the security breach, criticisms of Sony’s security procedures, and their handling of the matter, continued to mount, with both Sony customers and industry experts expressing surprise and indignation that such a breach could be allowed to occur. Eugene Spafford, a specialist in information security and computer crime investigation at Pardue University, commented: “The evidence we’ve seen so far speaks to a lack of a good data management plan and a good security plan.” Although a spokesman for Sony was quick to claim that the delay in advising customers of the extent of the security breach was due to a genuine “difference in timing” between becoming aware of the network intrusion, and the conclusion that customer data had been compromised, this seems to have made little impression on

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coVer story the company’s critics. Sony has since been called to account at the highest levels, including a House Subcommittee review in the United States, and promised investigations by the Information Commissioner’s Office in the UK, and the Privacy Commissioner of Canada. Sony’s reaction to the exploitation of their online service was to pull the plug on the PlayStation Network on the 20th of April. While the reasons behind this decision were justifiable and defensible, it has done little to appease many of their customers who, on top of having been subjected to data theft, feel frustrated at being denied what they see as a basic customer service. Although a “phased restoration” project started in the middle of May, at the time of writing the PlayStation Network is still unavailable in parts of Asia including, significantly, Sony’s core Japanese market. The delay in restoring the Network on Sony’s home turf isn’t entirely by the corporation’s own choice, however. On the 15th of May, the Japanese government stated its intention to block restoration of the service until it was satisfied that their security concerns had been addressed. Kazushige Nobutani, a director at the Japanese Ministry of Economy, Trade and Industry, said: “We met with Sony on May 6 and 13, and basically we want two things from them … The first is preventative measures. As of May 13, Sony was incomplete in exercising measures that they said they will do on the May 1 press conference.” He also made reference to consumer confidence in the firm with regard to the security of personal data: “There were similar cases in the past that were caused by other firms, and we are asking Sony whether their measures are good enough when compared to countermeasures taken in the past.” Case study The sequence of events surrounding the PlayStation Network breach forms a veritable case study for data security in modern businesses. At its most basic level, the story should prompt companies in all industries to think carefully about their approaches to data storage, online security and encryption. At its root, a firm’s decisions about what security measures to employ stem from high-level risk management decisions and attitudes. What is the cost of implementing X, compared to the impact if Y goes wrong? What is the likelihood of Y happening? It could be argued that in Sony’s case, we have seen a stark example of the differing risk attitudes that exist between diverse business sectors. In the financial industry, for example — particularly in retail banking where you have, in most cases, an established online service provided to individual customers — data protection and information security form an intrinsic and constantly-reviewed part of companies’ key risk management strategies. Sony’s corporate background, on the other hand, is primarily as a provider of entertainment products and media. It could be argued that in terms of business culture, the company lacked the ingrained vigilance that firms in financial and related business sectors have had to develop. Recent comments by Howard Stringer, chairman and chief executive of the Sony Corporation, have done little to deflect accusations of corporate naivety: “Obviously our network security didn’t stop the attack and we’re trying to understand why … We have a network that gave people services free. It didn’t seem like the likeliest place for an attack … I really don’t think I could apologize for not knowing [how serious the attack was]. It’s a whole new experience for everybody at this scale.” The attack on Sony has brought home the fact that no company, government agency or even charity that conducts business online

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should consider itself immune to the possibility of such a security breach. Indeed, it could be argued that hackers and criminals are much more likely to exploit what they see as a “soft target”. Hacking a credit card company directly, for example, is going to be considerably more complicated than hitting an entertainment provider that may have failed to properly secure or encrypt its customer database. Many companies are guilty of doing only the minimum necessary to comply with laws or industry regulation governing the security of their customers’ personal information. In the UK, the Data Protection Act sets out detailed guidelines for the storage, processing and security of personal data, and includes as one of its key principles: “Appropriate technical and organisational measures shall be taken against unauthorised or unlawful processing of personal data and against accidental loss or destruction of, or damage to, personal data.” Breaches of the Data Protection Act, either through intent or negligence, can result in corporate fines and even personal prosecution. While the UK has on occasion been subject to criticism for its “draconian” data and privacy laws, a more libertarian attitude to personal privacy in the United States and some other nations means that the security of such data isn’t so strictly regulated. There may be no clear and definitive answer to the question, “Exactly how much security is enough?” However, the breach against Sony has surely highlighted the need for businesses of all sizes, and in all sectors, to think carefully about their risk attitudes and strategies where it comes to their customers’ personal data. customer relations Sony’s handling of the public relations storm that resulted from the security attacks could be held up as both a negative, and positive, example of how to deal with your customers in the face of such a situation. The company has been heavily criticised, not least by its own customers, for a lack of honesty and transparency, particularly in the first few days following the Network outage. People don’t like to be told that their personal data has been accessed by a cyber-criminal. They like it even less when they learn that it actually happened almost a week before, and they’re only just finding out about it. More recently, Sony does seem to have redeemed itself by offering all customers who could potentially have been affected a year’s worth of free identity theft protection, to be provided by credit monitoring service Debix. Overall, Sony may have weathered the worst of the situation, not least due to the brand loyalty of PlayStation gamers, many of whom tend to stick with their choice of hardware in the same way as Mac or PC users. However, not all companies can rely on such commitment from their customers, and this example should shake all businesses into considering the adequacy of their security systems and procedures. Sony should, all things considered, have the market clout to ride out the share price impact, the cost of putting things right, the threat of both regulatory fines and private legal action, and of course the resulting loss of reputation. But can your company say the same?

a whole new world of fund solutions For innovative fund solutions please contact: Colin Stott Manager, Business Development Tel: + 44 (0) 1624 630660 Mob: + 44 (0) 7624 410660 Email: IFG Fund Administration (IOM) Limited is licensed by the Financial Supervision Commission of the Isle of Man. IFG Fund Administration (IOM) Limited is a member of the IFG Group plc.

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isle of man Business rePort 2011

isle of man Business services report 2011 a track record of international business and finance, but still plenty of capacity for growth The Isle of Man’s financial services industry is a key driver within the Island’s international export-led economy. The Island has been consistently recognised as a leading finance centre, having been winner of the Best International Finance Centre award eight times out of the past 11 years. During recent years, the Isle of Man’s economy has diversified considerably into sectors as wide-ranging as high-tech manufacturing, space and e-business. However, financial services remains the largest sector, accounting for around 36% of the Island’s national income and employing 23% of the working population. The financial services sector provides solutions for the international needs of individuals and corporations alike and can draw on a full raft of international expertise: from banking, fund management and administration capabilities; to the captive and life insurance industries, as well as fiduciary services including corporate and trust provision. As a jurisdiction, it’s credentials include a AAA Sovereign Rating from Standard & Poor’s and Moody’s and received a glowing International monetary Fund (IMF) report in 2002, with a similarly positive report in 2009. Since the early 1960s, a stable and sustainable taxation base has been held, which complies with the current EU Code of Conduct corporate tax requirements, while levying low personal taxation on its citizens. The Island has a continued commitment to tax transparency and the effective exchange of information, evident in its continued signing of double tax and exchange of information agreements, including those with the Organisation for Economic Cooperation and Development (OECD) nations such as the UK, US, France and Germany, securing mutual economic benefits for its businesses where possible.

The G20 white listing significantly recognised this continued commitment in 2009, highlighting the Isle of Man’s good ‘international citizenship’ in leading other international financial centres in the expansion of exchange of information agreements. Fundamentally, the Island provides a secure base for investment built on political and economic stability, a clear and simple taxation regime and a firmly established fiscal and regulatory environment, independent of the UK and fully supported by a world-class physical and professional infrastructure, and all within a competitive cost base. Furthermore, it is an Englishspeaking jurisdiction, in the GMT time zone with a world-class telecommunications infrastructure catering for a full range of modern corporate voice and data communications requirements, making it attractive as a platform to doing business globally. With only 80,000 people living in 221 square miles, the Isle of Man has a much lower population density than most of its comparative jurisdictions, meaning there is still much more room for expansion in the Island for almost any type of high addedvalue business, including certain types of manufacturing. It maintains an open residence and housing policy, and thus has the capacity for growth and hosting of the establishment of new business and their employment needs for the foreseeable future. The Isle of Man Government’s Department of Economic Development’s holds a close working partnership with the Island's financial services industry and is committed to promoting and enhancing the Island’s reputation as a well-respected international business centre. This effective working partnership facilitates an innovative composite approach to enabling business to flourish and provides solutions for the

Steven Beevers Head of financial services Department of Economic Development Tel: +44 (0) 1624 686400

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Island’s growing international client base, helping develop new financial services and products demanded by our international clients. The Department of Economic Development actively encourages inward investment through its Financial Assistance Scheme. The scheme can offer grants of up to 40% for the setting up of new financial institutions and other businesses on the Island, which are export related. There is a strong crossover role to be played in relation to the Island’s diverse international business sectors it has built upon, including the financial services sector. It is recognised that within a close environment like the Isle of Man, there is opportunity for synergies of ideas and alignment of propositions. For instance, how specialist banking services can assist the e-business and e-gaming sectors to flourish; how captive insurance expertise can be useful for the shipping and aircraft industries; how access to structured finance and asset management can assist in foreign-owned property development in the UK, or even in the space satellite industry; how fiduciary expertise can help to service the wealthy owners in the superyacht sector; or, how the international listing capabilities of our law firms has helped companies from India and other countries raise capital in the international markets. The Isle of Man is increasingly becoming the choice of home for many blue chip household names at one end of the spectrum, but has also helped get new business off the ground through innovative business incubator services. If the Isle of Man is seen as the right home for your business, the Department of Economic Development provides a onestop-shop for assistance with all business enquiries and needs, whether large or small, and we look forward to assisting you and your business to flourish!

oil and gas sector rePort 2011

Angus Gilmore Director, Ernst & Young Chairman, Isle of Man Fund Management Association 01624 691800

The Isle of Man – a global centre of excellence for the fund industry Over the past 20 years, the Isle of Man has developed into a global centre of excellence for the fund industry, with world-class fund managers, fund administrators, banks, accountants and lawyers. Although the Island, like every other jurisdiction, has been challenged by the storms in both the financial markets and the political environment, the Island now finds itself ready to play a leading role as the fund industry recovers, thanks in part, to the unique partnership between the private and public sector.

The Isle of Man Fund Management Association is a unique industry body that provides a powerful voice both to work with and lobby government and regulators for the benefit of the Isle of Man fund industry. We work closely with the Isle of Man government’s newly created Department of Economic Development, as well as our regulator, the Financial Supervision Commission. With over 60 members, our membership spans the whole spectrum of the Island’s investment community, including fund managers and administrators, trustees and custodians, stockbrokers, private client asset managers, life assurance companies and investment banks, as well as professional firms such as accountants and lawyers who provide services to the investment business industry. Despite the current economic turbulence that has embroiled every economy throughout the world, the Isle of Man finds itself in its 27th consecutive year of growth, with economic output expected to grow at a rate of 4% for the year 2010/11, and, in sharp contrast to most European economies, the Island has not entered recession and is not currently forecast to do so. Robust public finances, with in excess of £1bn in reserves, have meant that the Island has retained its coveted AAA stable rating from both Moody’s and Standard & Poor’s. As well as economic stability, the Island boasts an enviable record of political stability. The Isle of Man is at the heart of the British Isles and is a selfgoverning dependent territory of the British Crown (a ‘Crown Dependency’). It is not part of the UK but is a member of the British Commonwealth. Tynwald, the Island’s 1,000-year-old parliament, makes its own laws and oversees all internal administration, fiscal and social policies, while external issues, such as foreign representation and defence, are administered by the UK government. The Manx legal system will be familiar to any lawyer familiar with English Law on which it is closely based, although it has been developed in certain areas to meet

the Island’s needs, particularly with regard to taxation, company law and financial supervision. The Isle of Man was in the first tranche of countries placed on the Organisation for Economic Co-operation and Development (OECD) White List in 2009, joining top tier jurisdictions such as the UK, US, Germany and France. Over the past few years, the Isle of Man has led the way for smaller countries with financial services centres, and this endorsement from the OECD confirms the Isle of Man as a jurisdiction of choice when the issues of probity and stability are at the forefront of investors’ minds. In addition subsequent reviews, such as the Foot Report, demonstrated the Island’s importance and value to the City of London. The Island supports international tax transparency and continues to pursue meaningful tax information exchange agreements and double taxation treaties with the world’s leading jurisdictions. The Island is a leading centre for fund administration with three clear advantages in cost, capability and capacity. Moving an existing fund to an Island-based administrator can deliver significant cost savings, as our lower costs compared to other jurisdictions allow our administrators to offer competitive pricing. With a readily available, well-educated workforce, we have the capacity to grow while still delivering the very highest level of service. The expertise of our administrators, backed up by significant expertise in the legal and accountancy sectors, means that the Island can service every type of fund from a vanilla long equity fund to one with the most esoteric alternative strategy. The Island’s primary product offering, the specialist fund, is viewed as a highly flexible structure suitable for all institutional funds including hedge funds, property funds and private equity. There are no regulatory preapproval requirements and no restrictions on asset class or trading strategies. With the uncertainty facing other major fund centres, the specialist fund will be an ideal vehicle for those managers wishing to re-domicile their funds to a more acceptable jurisdiction.

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isle of man Business rePort 2011

The Isle of Man tax regime offers both the specialist fund structure and Isle of Man domiciled managers and administrators a zero corporate tax rate, making the Isle of Man’s proposition even more appealing. Although the Island is already host to a number of established, well-known managers, such as Charlemagne Capital and Tufton Oceanic, a strategic review of our fund industry identified a great opportunity to attract start-up fund managers to the Island. A graduated manager licensing process for new start-up fund managers had been introduced, and this is a great example of the cooperation between the public and private sector. Working closely with the Financial Supervision Commission, the necessary regulatory amendments were quickly made to deliver a graduated process that ensures the regulatory requirements realistically match the commercial capabilities of a new manager. A prospective manager can apply to the Financial Supervision Commission for a start-up licence that will allow them to begin fund-raising. Once they reach the stage of wanting to accept funds, they can then apply for a full licence. This initiative, along with a government financial assistance scheme that can provide capital and operating grants of up to 40%, has directly lead to the establishment of new fund manager operations on the Isle of Man. There is uncertainty and disquiet among fund managers with regard to the recent personal tax increases in the UK, and this has lead to some managers considering relocation to a more favourable tax regime. However, with Switzerland considering ending the regime of favourable tax treatment for expatriates, the number of viable jurisdictions for relocation appears to be

decreasing. In this regard, the Island has a strong offering to managers wishing to relocate. An investment manager or fund management company based onshore can establish a front or middle office operation and qualify for zero corporate tax. Office rental costs are lower than equivalent jurisdictions, there are no restrictions on house purchases and there is a £115,000 cap on personal income tax. On a personal level, the Island offers space to breathe, with a fine education and healthcare system. The Island is only an hour by air from London with up to eight flights a day, as well as direct links to a number of UK and European destinations. Offering all the services and facilities expected of a modern international finance centre, while retaining a pace and quality of life that is the envy of most urban dwellers, it is no surprise that many high-net-worth individuals, both from within and outside the fund industry, have chosen the Isle of Man for relocation. The EU concluded the form of the Alternative Investment Fund Managers Directive (AIFMD) in late 2010. It is currently now in the implementation process, and the Isle of Man has moved quickly to ensure that we can deliver a fully AIFMD compliant regime. The strength of our current regulatory environment, coupled with the Island’s track record of working with international bodies, should ensure we gain equivalence. However, the Isle of Man is keen to ensure that any AIFMD compliant regime is complementary to our existing flexible regimes for managers who have no wish to use an AIFMD passport to gain access to institutional capital in the EU. These same regimes will prove attractive to EU-based managers of funds for non-EU investors who now face increased costs and regulatory burden and may wish to consider moving their management business offshore. Looking to the future, the Isle of Man is well placed to take advantage of the recovery in the fund industry. As institutional investors continue to exert more influence, we expect to see a movement of funds, both in terms of domicile and administration, towards a jurisdiction where there is legal recourse, a familiar legal system, and which is in a convenient time zone for global operations. The Isle of Man is that jurisdiction. As an organisation, the Fund Management Association will continue to work closely with the Isle of Man government to develop and innovate as we seek to remain at the ‘leading edge’ of offshore jurisdictions.

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Alan Lawrence, Director and David Chatel, Director BlackRock (Isle of Man) Limited 3rd Floor, Atlantic House, 4-8 Circular Road, Douglas, Isle of Man, IM1 1AG 01624 662255

Inflation, earthquakes and oil The global economy has more recently had to confront a broader range of challenges not wholly evident in published economic data. Growth numbers generally continue to suggest that the reacceleration in the global economy last autumn has yet to fade, and economic activity in most regions remains robust. Three separate challenges have emerged, as detailed below: a cyclical challenge; a political challenge; and, an environmental challenge. In many developed economies, inflation risk remains low, and that the commodity price-driven acceleration will fade into 2012, depending partly on what happens to commodity prices. Since it is the acceleration in commodity prices rather than their level that drives inflation, the early part of 2011 may prove to be the peak in commoditydriven inflation impetus. The inflation and policy challenges in many emerging economies are different. In general, emerging economies’ recoveries have been much stronger than those in developed economies. Many countries have left the output level prior to the recession well behind, whereas most developed economies have yet to get close to re-attaining them. Estimating excess capacity in emerging economies is difficult. Nevertheless, as a broad generalisation, many appear to have reached the stage at which additional strong growth would be very likely to lead to higher inflation, independently of any rise in commodity prices. In addition, higher commodity prices have a greater impact in emerging economies, where the weight of food prices in inflation indexes is higher than for developed economies. As a result, inflation risk in emerging economies is higher. The second threat to the global economy has been political disturbances in the Middle East, and the associated increase in the oil price. The Brent oil price had previously risen from $50 per barrel in 2008/9 to around $100 per barrel at yearend. As with other commodity prices, this was more an indicator of strong global

demand than a leading indicator of a future growth slowdown. Political tensions have since pushed the Brent price to $110-$115 – reflecting actual and potential supply constraints. While supply-driven increases in the oil price are potentially more damaging than demand-driven rises, the move in the oil price to date has not been sufficient to be more than a minor headwind for the global economy. However, tail risks persist that could have highly damaging implications. Neither inventories nor spare capacity in the oil market are particularly high, so that further material disruption in supply could lead to the oil price rising dramatically. Sustained political turbulence in the larger oil producers in the region appears far from the most likely outcome, but it nevertheless would have highly adverse consequences for the global economy should this occur, or financial markets sense that it might. The human cost of the earthquake in Japan has been substantial, but the challenge to Japanese growth in the medium term should not be overstated. The immediate consequence will be highly adverse, and an outright decline in GDP is highly probable. We would expect this period to be short lived, probably a single quarter. After that, reconstruction efforts are likely to lead not only to a recovery, but also to a stronger period of economic growth than would otherwise have occurred. The earthquake is also likely to deliver greater policy stimulus in Japan: fiscal stimulus associated with reconstruction, and larger asset purchases from the Bank of Japan. As to the impact on the global economy, we continue to stress the range of supportive factors: policy stimulus, cash-rich companies, diminishing financial sector constraints, and the recovery in Anglo-Saxon savings to more sustainable levels. These suggest that the recovery theme will persist, and while inflation risk is higher than a few months ago, we do not expect a dramatic deterioration from here.

There are three key risks to this central case: no growth slowdown, so that inflation risk in developed and emerging economies increases and policy is tightened more aggressively; a financial market ‘event’ the sovereign debt crisis in Europe is on hold rather than fully resolved, and risks persist, alternatively, the combination of large budget deficits and very low real interest rates in a number of countries proves unsustainable and government bond yields increase sharply; and, political risk has become more visible, particularly in the context of the Middle East and the potential for much higher oil prices. The level of uncertainty around the central case has therefore risen compared even to the end of last year. BlackRock have had a presence in the Isle of Man for over 30 years, providing a range of investment services and solutions for a wide range of clients based both on the island and internationally. From our offices in Douglas, a small dedicated team provide local expertise in accessing the services of the world’s largest investment manager. BlackRock’s foundations are based around our industry leading risk management platform, BlackRock Solutions. This ensures client return aspirations are finely balanced alongside an appropriate risk profile delivering investment returns in a professionally risk aware manner. With the ability to offer both active and passive investment solutions via our market leading Exchange Traded Funds, iShares, BlackRock have a proven track record in delivering the right investment solution in an ever more challenging financial environment. The views expressed herein do not constitute investment or any other advice and are subject to change.

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isle of man Business rePort 2011

aIFmD and the resulting opportunities in the Isle of man The Isle of Man has long encountered stormy seas, both physically given its location and metaphorically given the many challenges that international financial centres have faced, particularly over the past decade or so. These experiences, gained in adversity, have contributed to our resilient nature as demonstrated in our national symbol, the ‘Three Legs’, as well as in our willingness to adapt to change when it serves our interests to do so.

Gordon Wilson PwC | Advisory Director +44 (0) 1624 689689 PricewaterhouseCoopers LLC Sixty Circular Road, Douglas, Isle of Man, IM1 1SA

The Alternative Investment Fund Management Directive (AIFMD) undoubtedly caused a wave of uncertainty to wash over our fund industry in 2010. However, the final directive issued late last year provided some long overdue clarity and was broadly welcomed by the Isle of Man, with the result that we are poised to respond well to the changes that AIFMD is bringing about. The next stage of the AIFMD process, a detailed consultation prior to final implementation, will soon be upon us, and it is timely to recap on the process that is underway as well as the Isle of Man response. In December 2010, the European Commission asked the newly formed Committee of European Securities Regulators (CESR) for assistance to prepare an extensive set of implementing measures covering a wide range of topics relevant to the AIFMD. CESR duly issued a call for evidence and advice from participants in the European fund industry on how the AIFMD should be implemented and there has been a significant response from throughout Europe and further afield. The evidence and advice that has been gathered is now being considered by CESR, and draft implementing measures are expected to be issued over the summer of 2011, at which point the formal consultation on the implementation of the AIFMD will commence. The Isle of Man awaits the publication of these implementing measures along with every other offshore fund jurisdiction and in the intervening period, a group has been formed from across the Isle of Man fund industry and its government, with a specific mandate to study developments in Europe and help to devise our strategy going forward. At the highest level, it has already been decided that the Isle of Man will do all that is within its power to have an AIFMD compliant fund product in its offering, building upon the successful Isle of Man authorised scheme, which is recognised as being equivalent to its UK counterpart. The imminent publication of the draft implementing measures will offer us further clarity and enable our process of change to move forward.

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While it is safe to say that changing the Isle of Man offering will undoubtedly present challenges, if history is any guide, it will also give rise to opportunity. It has already been noted that AIFMD includes closed-ended schemes within its scope, whereas in the Isle of Man, closed-ended investment vehicles have hitherto largely been excluded from collective investment scheme regulations on the basis of their closed-ended nature. The Isle of Man has developed a creditable niche allowing closed-ended funds to operate outside of the burden of regulation, however a change in approach will be needed to ensure that any Isle of Man closed-ended schemes that want to become AIFMD compliant will be able to do so. In addition, the Isle of Man is home to many non-Isle of Man domiciled schemes that are managed and administered from here. It has been recognised that some of these schemes may well want to become AIFMD compliant, but that they could be hindered in doing so by their jurisdiction of domicile. A mechanism to allow non-Isle of Man schemes to opt in to AIFMD compliant Isle of Man regulation if they want to, and if they meet the standards that we set, is a definite possibility. The final part of the Isle of Man offering receiving attention in light of AIFMD is our fund manager licensing regime. Passive marketing of alternative funds in the EU is exempt from AIFMD, however EU-domiciled alternative fund management businesses are more than likely caught by it regardless of their approach to marketing their funds. The Isle of Man offers a highly credible licensing regime for fund managers that allows them to operate from a conveniently located base outside of the EU and thereby outside of the scope of AIFMD. Provided appropriate documentation is put in place, Isle of Mandomiciled managers can delegate investment advisory responsibility to EU based affiliates, often allowing investment decision-making to continue on a business-as-usual basis, as well facilitating the continuation of passive marketing in the EU without the burden of AIFMD compliance. So, as the AIFMD wave continues to make its presence felt, the message from the Isle of Man is clear: we are responding to the AIFMD in a positive way and there will be opportunities in the Isle of Man for those that wish to take them. Gordon Wilson is a director of PwC Advisory in the Isle of Man. The views expressed above are his alone and not necessarily those of PricewaterhouseCoopers LLC. The above article does not constitute advice and all liability is specifically excluded.

The Isle of Man has long been established as the offshore financial centre of choice for investors, whether individuals or businesses looking for a stable environment that supports and encourages growth. The island has a long and proud history of being self-governing, and as a crown dependency is not part of the UK and therefore has no representation in British parliament. Its own parliament Tynwald is considered to be the oldest continuous democratically elected parliament in the world with over 1,000 years of government. In the latter half of the 20th century, with tourism dramatically affected by the increase of foreign holidays, the Island reinvented itself as a financial centre. Today, the Island enjoys the highest financial rating of AAA by ratings agency Standard & Poor’s and is believed to be the only government in the world that cannot set a deficit budget by law. Although the Island has attracted many international companies from e-gaming to telecoms and even space exploration; the largest economic sector remains financial services. Following the Insurance Act 1986, the Island’s insurance industry blossomed and is now the 2nd largest sector behind banking. With the Island situated in the middle of the Irish Sea and just some 31 miles from the UK, it’s perhaps easy to see why it would be a more comfortable choice for UK investors looking for offshore finance. However, more lately it is attracting foreign resident investors at a higher rate than ever seen before. The reason for this increase could be the Island’s strength and stability and its independent depositors and policyholders compensations schemes that are more valued following the global financial crisis The growth of the insurance sector really started to take-off during the late 1990s, although at this point it was still considered to be for the extremely wealthy and didn’t compare well on costs for smaller investors against the UK insurance industry. Throughout the early 2000s, the cost of offshore insurance policies began to reduce as the companies gained critical mass and competition grew. By 2010, the offshore market had almost recovered to its highest level following the global crisis and now represents 120% of the size of the UK market. The basic principle of a life policy, often referred to as an investment bond, is that it must provide an element of life cover although this can be as little as £100 with the rest of the premium being invested. While the investments remain inside the policy, they are effectively only taxed to UK income savings rate of 20% for UK polices giving

higher rate tax payers some deferral of tax and basic rate payers no further liability on final encashment. They also provide the owner with a return of capital each year of up to 5% with no liability to tax at that point. Unused allowances can be carried forward and become cumulative. For offshore policies, like those issued by the Isle of Man, there is virtually no tax liability for the whole period the policy remains in force and only when withdrawals are made in excess of the cumulative 5% per year allowance or on full surrender is there an assessment to UK income tax, assuming the owner is still UK resident. This means that investments can be bought and sold endlessly within the policy without triggering a tax charge at that time. Early offshore life policies mirrored their UK originators in that they offered only a few funds to choose from which were mainly managed by the insurance companies themselves. These are known as pooled offshore life policies and today are still available although there are more likely to be anything from 100 to 2000 funds to choose from. In the 1980s, however, it was realised that the restriction to insurance company funds was a provider restriction and not legislative. Soon, the personal portfolio bond was developed that could hold almost anything one could invest in outside of a policy. Most popular investments were direct equities and securities along with fine wines, antiques and works of art to the slightly more exotic rare classic cars, precious metals and even trading companies. By the late 1990s, the labour government had decided enough was enough and challenged the tax benefits of the offshore life policy and lost, the House of Lords eventually agreeing that the policyholder had done nothing wrong and was simply making the most of legitimate financial planning opportunities as establish in law. Perhaps, not surprisingly, the Revenue consequently changed the law. All the tax benefits remain but the allowable investments were vastly reduced to broadly investment funds and cash.

David Gregory Head of institutional relationships, Canada Life International

The modern personal portfolio bond, although now restricted by these investment regulations is becoming more popular than ever. Over recent years, many other more aggressive tax mitigation vehicles have been closed down making the legitimate and long-standing insurance policy even more attractive. The offshore policy today can defer an ongoing tax liability of up to 50% to a point where the highest rate is back to 40%, even if no other planning undertaken. However, the real benefit of offshore investing is that by using some simple financial planning techniques it is perfectly possible to end-up paying just 20% tax on gross gains even for a policyholder that has been and may continue to be a higher rate taxpayer. Although Manx people still have a fondness for fairies and other superstitions, believe me the offshore centre and its benefits to investors is no fairy tale.

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isle of man Business rePort 2011

Fund Services

SmP Fund Services - successfully leveraging the benefits of being part of a large professional services group SMP Fund Services, the fund administration business of the SMP Partners Group, approaches its fourth anniversary firmly recognised as one of the Isle of Man’s leading players. With its well established client base and a steady pipeline of new prospects, the business continues to thrive alongside the accounting, corporate service and trust businesses that make up the rest of the SMP Partners Group.

Vincent Campbell Director, Fund Services SMP Fund Services Ltd Clinch’s House, Lord Street, Douglas, Isle of Man IM99 1RZ Tel +44 (0) 1624 682216 Fax +44 (0) 1624 691773 Mob +44 (0) 7624 487897

As Steve McGowan, Group Chairman, explained: “We established our fund administration business just after the management buy out from the Fortis Intertrust Group back in 2007. We could see that fund administration would ideally complement the Group’s range of services and that by giving access to our existing expertise across the Group, we could provide a unique, full service offering. Since inception, our focus has been on developing this expansive client offering and establishing a sound operational base for the business rather than necessarily being ‘out in the market shouting from the rooftops.’ From the outset, we were confident that from across the Group’s international client base we would have a strong pipeline of new business. It was with that in mind that we recruited Vincent Campbell to head up the business and to build the infrastructure and systems that we would need. Vincent, as a chartered management accountant with over 20 years in the fund industry, brought us the systems and regulatory knowledge that we needed to establish the business on a firm footing. Since joining, Vincent and his team have delivered a fantastic level of service to our fund clients and as a result are now making a very positive all round contribution to the Group.” This strategy has certainly served the business well. Steady growth and sustainable

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revenues have been achieved largely through referrals from the large professional intermediary client base that exists across the Group and from the Island’s business community. Whatever, the source of the referral or size and complexity of the fund being considered, the client’s are clearly benefiting from the Group’s ability to offer more than just ‘fund administration’. As Vincent Campbell commented: “There is no doubt that with the constant changes to the international regulatory landscape the establishment of appropriate fund structures is becoming far more complex and demanding. With fund promoters vying for shareholder funds, they increasingly look to enhance their achievable trading ratios and fund performance by optimising their tax position and minimising their administrative and accounting costs. Whatever, the fund type, we find that our ability to engage with a client alongside our in-house tax consultants brings real added value to the engagement and provides the client with an immediate understanding of the wider structuring issues they face. If we need to consider VAT we can again turn to our in house VAT expert, Peter Duchars for specific advice.” But as Steve McGowan explained, the Group’s expertise in relation to funds goes well beyond administration, tax structuring and VAT consultancy: “As one of the largest corporate service providers on the Island, we have a pool of talented and experienced individuals regularly serving as directors or company secretary on fund companies here on the Island. Also, with SMP Accounting & Tax being one of the Island’s largest providers of accountancy services, we have the resource and capability to offer full book-keeping and accounting services to offshore funds of all sizes and complexity. Together with our now well established network of custodians, managers and fund trustees both on and off the Island, our fund administration and the specialist services from across the group creates a compelling fund offering that sets SMP Fund Services apart from other offshore providers.”

interim and turnaround management rePort

interim and turnaround management report institute of interim Management Interim Management is an accepted and growing profession in the UK, Holland and Germany. Other European countries are becoming aware of the long-lasting benefits of bringing expertise as a service into organisations. In the UK, many sectors have experienced sluggish activity recently, but the Institute of Interim Management’s (IIM) 2011 survey indicates an upturn of 5% on activity over 2010 and of 6% increase in the fees achieved. This year, more respondents predict steady growth into 2012. Interim Management is not developed in the US, but there is growing take-up in Canada. Expertise as a service, just like software as a service, is a ‘buy what you need when you need it’ service provided uniquely by interim managers who are well qualified and experienced their specialist areas. More and more, clients are realising that accredited professional interims are a safe pair of hands, particularly in crucial areas such as turnaround. Interims don’t pose a threat to employees. They bring in and share their specialist knowledge and skills as part of the process of creating changes to improve quality and costs. Interims and Consultants do have crossover offerings and customers often find it difficult to know which specialist to call in. Many consulting firms have thousands of consultants and deliver a recognised format, while 90% of interim managers operate with small limited companies. Many consulting companies consider that their work is completed with the production of a report advising the customer what needs to be done. Interim managers work with the customer to ensure the outcomes are delivered and the organisation is ready to progress. Some assignments are divided into two separate parts: analysis and proposal for change; and, implementation and handover. Interim managers provide the end-to-end service. What do interims deliver? Interims will roll up their sleeves and work within organisations, taking on line management responsibilities to support, train and mentor staff so that they are fully engaged in the changes. This ensures continuity of ownership when the interim leaves. The interim manager will plan his exit from day one, finding the stars in the organisation and ensuring that they are equipped and supported to drive improvements. Outcomes will be planned at the outset and evaluated at the end so that the customer can see the tangible benefits. In 2011, it appears that turnaround assignments are in less demand at approximately 7%, down from 11% in 2010. Growth areas in 2011 are indicated as change management, procurement and HR, differing from many previous years in which finance was the predominant sector. However, change management often incorporates turnaround as one of its objectives. Could it be that organisations have realised that the real changes need to be operational to impact on the finances?

35%) were sourced via recruiting providers. Could this be because stretched employing managers don’t have the time to pursue direct contacts? The threat of disintermediation, which troubles many providers, appears to be less significant with less than 1% of interim roles being reported as secured through networking sites. However, networking sites remain a key element in the marketing process and are used by customers to verify credentials of candidates, using mutual contacts as informal referees. Men outnumber women by 4:1 in the interim market, the exception being in HR where the ratio is more even. It is possible that this is because 56% of assignments involve working away from home during the week. A higher percentage of women than men found work during 2010-2011, but the rates were a little lower for women. Accredited interims are professionals who have made a specific career choice and established themselves in the interim arena. They are able to advertise themselves using post-nominals such as member of the Institute of Interim Management (MIIM). They will have signed up to codes of conduct that govern how they behave towards customers, providers and peers. Accredited interims have chosen the fast-paced and challenging interim way of life. It can be no co-incidence that of the 16 Myers Briggs profiles, 70% of interims match only four profiles. Interim managers, particularly those who belong to accrediting organisations, tend to build strong supporting skills to facilitate reaching their objectives. Communication skills top the list, closely followed by planning and prioritising, relating to and influencing others and ethical behaviour. In a 2010 survey by the Professional Contractors’ Association, customers believed that being current with continuing professional development (CPD) is an important part of the value of any outsourced expertise. Hiring a member of an accrediting organisation brings benefits to customers in assurance of standards, professional indemnity insurance, proven record of delivery and back up in the event of an interim being unable to continue for any reason. Membership of the IIM brings benefits to individual interims with recognition of their achievements, knowledge and support resources, group networking events, and discounts to many facilities and resources such as training, insurance, accounting and marketing. Hilary Husbands, MBA, FCMI, FISMM MIoD is a director of the IIM ( Full survey results are available at Tel: 0800 030 4716 (Professional Contractors Group)

Unexpectedly, in a year when margins were cut and customers were reducing costs, more assignments than normal (50% compared with

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interim and turnaround management rePort

The economic pressures of the last couple of years have been well documented, but there are some encouraging signs that the worst might be behind us. However, the global recession has certainly left its mark, with a large number of companies unable to keep their heads above water. For many of those that managed to weather the storm, 2011 is a year dedicated to turnaround – capitalising on emerging opportunities and streamlining strategies, operations and processes to mitigate the risks and failings of the past. It’s a time to look for fresh approaches, more direct connections with customers, and revised operating models that will drive more value and provide a new set of answers. Raj C. Tulsiani Deputy Chair, Interim Management Association Chief Executive, Green Park Interim & Executive Search

For a lot of companies, it is unlikely that those answers will be found within existing teams and structures. For companies looking to halt the slide, or even rise from the ashes, bringing in specialist turnaround skills on an interim basis is a compelling option, allowing for a ‘short term’ solution that can set the platform for a long term legacy. It’s not a case of patching over holes or looking for a quick fix: it’s about hiring a highly specialised resource with the remit to proactively tackle the company’s key challenges head on. In the case of private equity or venture capital backed organisations, turnaround interims represent the opportunity to parachute talent in at short notice to drive a business forward, sidestepping political or cultural pitfalls and very quickly having an independent ‘voice on the inside.’ But what should a senior turnaround interim bring to table? In essence, their value should be based around their ability to swiftly and accurately find ways and means to maximise the effectiveness of the organisation in a situation where time, resources and finances are already stretched to extremes. The turnaround job is in no small part precise analytics; assessing and appraising existing systems, structures and people – making tough decisions on what needs to change, and, importantly, what it needs to change to. It requires a complete picture of the ways organisations work on an internal front, as well as a deep understanding of the market and the end customer – so it’s no surprise that genuine turnaround professionals are few and far between, and always in demand. While some interims operate at group board level, others are brought in to apply their turnaround skills to a particular division, answering the very same key question on a divisional level. They have the experience to know which parts of strategy and operations need changing, which need investment, and which need divestment. They can quickly assess the capabilities and failings within particular departments or teams, and provide a blueprint to initiate immediate change. Crucially, they also have the ‘arms length’ objectivity to make brave decisions and tough recommendations and follow

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them through to completion; delivering sustainable results, and realising planned benefits. In the UK, there is only a very small group of senior turnaround professionals with the experience and track record to make a difference. The beauty of the true turnaround interim is that they are easy to judge on their successes or failures, because their assignments are so tightly focused and closely linked to the results they achieve. But the best aren’t easy to find - these individuals are always in demand, since there are always companies struggling, regardless of the state of the market. In these difficult times, their skills become even more valuable, and therefore even harder to find and attract. Companies that can access the UK’s limited pool of turnaround professionals will certainly have a headstart on the competition. Turnaround interims are also very careful to manage their portfolios. They won’t take on what they perceive as truly lost causes, and they won’t accept assignments where their recommendations and strategies are likely to be blocked by stakeholders protecting their own interests. That isn’t to say they’re shy of a challenge – they’ve just become experts at understanding the structures and situations in which they can add genuine value.

USA interim & turnaround management for the restaurant industry Interim and turnaround management can rejuvenate distressed or challenged brands, returning businesses to stable financial and operating positions. The Restaurant Management Group (RMG) is the only turnaround management company that specialises exclusively in the restaurant space. We provide turnaround management, interim executive management (CRO, CEO, CFO, COO), outsourced back office, assessments, analysis and due diligence services to clients ranging from operating companies, to financial institutions and franchisors. our approach RMG’s comprehensive approach involves all aspects of the restaurant, from operational to administrative. We work to identify and manage specific areas of opportunity and develop efficient and cost-effective strategies to improve capital structure, maximise margins, reduce costs and improve profitability. Through strong, proven leadership, the setting of specific goals, development of efficient processes and establishment of achievable incentive programmes, RMG is able to produce successful turnarounds. These catalytic mechanisms transform optimistic aspirations into actual results. the team Because we are a highly specialised boutique firm, RMG is comprised exclusively of current and former senior level restaurant company executives from multiple brands and segments. This enables us to provide our clients with both ‘top down’ and ‘ground up’ analysis and management. Leadership is critical to the success of any foodservice organisation, and our specialised team of experienced restaurant experts provides the necessary guidance to achieve high levels of success. RMG is uniquely positioned to move quickly in crisis situations as well. With experts from across all areas of foodservice operations and management, RMG delivers positive results under almost any circumstances.

clients Our clients range from financial institutions to private equity companies, and from quick service restaurants to fine dining establishments. A small sampling of the financial institutions we work with include GE Capital Solutions, Wells Fargo, Milestone Partners, Pallisade Capital, and CIT. Our vast and diverse restaurant experience includes Dunkin’ Donuts, Wendy’s/Arby’s Group, KFC, Nobu, Buffalo Wild Wings, Smith and Wollensky’s, Famous Dave’s, Bertucci’s, On the Border, Burger King, and many more. Why choose rMG? RMG is the only turnaround management company comprised exclusively of restaurant executives and operating only the restaurant space. Our team has worked their way through the rankings and understands all aspects of the restaurant business from menu, to marketing to finance. Unlike other turnaround firms, our professional team is uniquely qualified to effectively turnaround restaurant companies through times of economic, operational and other challenging environments. We have a combined 150 years of restaurant experience that provides our clients with an unparalleled foundation for success. Lastly, through our involvement across multiple brands and segments (from fast food to fine dining) we are able to extrapolate best practices and deploy the most cost-effective and proven initiatives in existence. We welcome the opportunity to assist your business with its interim and turnaround management needs.

The Restaurant Management Group Jim Balis Founder and senior managing director (212) 300-5676 (877) 590-3929

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interim and turnaround management rePort

USA, ITALY, SWEDEN interim management in turnarounds and corporate restructuring Employing interim (or transitional) management is often the key to successfully implementing a turnaround or restructuring strategy, particularly when success and even corporate survival is dependent on effecting major strategic or operational change in a highly compressed timeframe. gibraltar Corporate Renewal Gibraltar Corporate Renewal (GCR) is the transitional management services affiliate of Gibraltar Foundation, a well established and successful US and European private equity fund specialising in distressed investing and strategic restructuring. GCR was borne out of Gibraltar Foundation’s distressed investing needs for a pool of immediately available executives capable of implementing restructuring strategies and rebuilding management teams for long-term viability and sustainable growth. It is axiomatic that many troubled businesses, certainly the case in most of the troubled businesses in which Gibraltar Foundation invested over the past 30 years, have significant management gaps and limitations. However, it became equally clear that the transitional skills necessary to lead a business through major strategic change are vastly different from the leadership skills required of a stable business pursuing a strategy of growth and development. The former is purposefully discontinuous, while the latter purposefully continuous. Certainly, any major strategic realignment, whether in the context of a turnaround, post-acquisition integration or major strategic redirection driven by external changes in the competitive, economic or regulatory environments, requires such unique transitional skills. GCR’s work is focused primarily in the former of these areas: turnaround management and corporate renewal. turnaround v conventional interim management Interim management is often engaged by corporate clients for a variety of different reasons, the most frequent of which is the short-term transitional staffing of a senior-level position brought about by a resignation, termination, business integration, acquisition or divestiture. In many cases there was no succession plan in place, or a situation emerged for which there was insufficient time to develop an internal succession plan. In these cases, a client must look outside its own management ranks. The client typically begins a search and frequently enlists a search firm. But, a successful executive search usually takes time. Meanwhile, the leadership void can be costly, if not debilitating. The ability to quickly bring in an experienced, recognised, industry-knowledgeable interim 20 • GBM • June 2011

executive can provide leadership continuity and streamline the transition process to permanent management. Turnaround management is a more narrowly focused area of interim management. The unique management skill set required to develop and successfully implement a major restructuring plan is almost never found internally, nor should one expect it to be. It is a transitional skill set needed at a critical juncture at which the company hoped it would never find itself. Moreover, it is generally difficult, often impossible, for incumbent management to envision radically different strategies from those they authored. Turnaround management is a unique management skill set. It is by very definition transitional, analytic, surgical, time critical, task oriented and most often brutally pragmatic. Turnaround management skills differ dramatically from those that define successful operating management in a stable, growth-oriented business. turnarounds are strategic, not operational GCR believes that all corporate turnarounds are first strategic, then operational. We believe that trying to cost-reduce a business to profitability, or making incremental operational improvements, rarely results in the fundamental renewal of a business. We believe that to successfully restructure a business in distress, a new and significantly different ‘game plan’, and often a radical change, is needed. Dramatic change isn’t brought about by incremental or ‘safe’ moves. Strategic problems require strategic solutions just as operational problems require operational solutions. The starting point is an in-depth, externally focused, corporate analysis out of which the turnaround or restructuring strategy emerges. This strategy is close-coupled with the development of a detailed, pragmatic, realistic and implementable restructuring plan having a strong predisposition to rapid change. GCR partners with its clients to develop the restructuring strategy and detailed implementation plan and then directly provides the transitional management resources needed to ensure successful implementation. Gcr - restructuring strategy through implementation All of GCR’s turnaround management associates have served as senior executives or restructuring practitioners with extensive and proven, turnaround and corporate restructuring experience. All are effective change agents, able to drive strategic transitions in the tight time frames and resource constraints that invariably define the difference between success and failure. All have extensive transitional management experience in corporate turnarounds, restructuring, merger integration or strategic rationalisation. Several are certified

Michael L Cappy US: +1-888 666 0562 Italy: +39 055 3989572 Sweden: +46 8 4030 9914 GCR’s offices: US 12123 Shelbyville Rd, Suite 100-166, Louisville, KY 40243 US tel: +1-502-324-1118, fax: +1-586-283-0531 ITALY Via dello Studio 8, 50122 Florence, Italy tel: +39.055.0776222, fax: +39.055.5370797 SWEDEN Östermalmstorg 1 – 4tr, 114 42 Stockholm, Sweden tel: +46 8 5016 4619, fax: +39 055 5370797 turnaround professionals through the Turnaround Management Association. GCR uniquely offers its clients a partnership in developing an effective, time-critical and resource-responsive restructuring strategy and access to the immediately available transitional management needed to successfully implement the restructuring strategy. An essential part of the implementation is rebuilding the permanent management team as the restructuring work is completed and transitional management is withdrawn. It is this combination of turnaround and restructuring strategy development together with GCR’s interimtransitional management resources that assures implementation and the successful restructuring and renewal of a client’s business. Generally, GCR works with the ownership or governance body of its clients, whether privately held or institutionally owned. Michael L Cappy serves as managing director for GCR and is based in Stockholm. Mr Cappy has an MBA from Harvard Business School and formerly served as director of strategic planning and development for the General Electric Company, senior associate with Booz Allen & Hamilton’s corporate strategy practice and managing director for Gibraltar Foundation. He has over 30 years of turnaround and corporate restructuring experience and serves as chairman of the Stockholm Chapter of the Turnaround Management Association.


Chris Burford, Managing Partner The Royd, 40 Duchy Road, Harrogate North Yorkshire HG1 2ER 0771 421 8560 08451 306 252

The Pathfinder operations are divided into two: Pathfinder Strategic Partners LLP (Partners) involved in interim turnaround management since 2003; and, Pathfinder Strategic Investments Limited, which we have recently set up to invest in turnaround situations. There are three principals involved in Pathfinder. Pathfinder’s main strengths are our experience and track record of getting a result, often in difficult circumstances. As managing partner of Partners, I have worked with and for mainly UK companies in distress for 28 years and in various capacities including, administrative receiver, bank adviser, company adviser, company non-executive director and company director. Recently, I worked for a large European group based in Finland helping the Group CFO in a large and complex financial restructuring. As an interim manager, I work for the company under a written contract (letter of engagement) and not as an employee. Often an external stakeholder, such as the company’s banker, makes the introduction and their ongoing support can be conditional on the company making the appointment. This can lead to some suspicion, at least initially, that I am the banks’ man and this suspicion needs to be carefully managed throughout the assignment. Initially, I report to the chairman or CEO. The assignment usually starts off as task/ outcome based, the specific tasks/outcomes being set out in the letter of engagement. More often than not the brief involves going everywhere, seeing everything and talking to everyone. I have to get to know the business very quickly and need to understand the critical issues on the first day. The title I am given is usually chosen to complement the existing executives’ titles and with due regard to how external stakeholders might see things. Turnaround interim managers tend to be experienced executives from 40 upward who have decided to move out of full time corporate life and enjoy the challenge and variety of dealing with companies in distress. We get involved at short notice to address critical issues (often involving corporate survival) and once the position has been stabilised set the plans for a sustainable future, which might involve us changing roles to a more non-executive capacity. Life being what it is, plan A sometimes doesn’t work and we need to be very nimble on our feet to adopt plan B, changing strategy and direction as required.

Companies that would particularly benefit from an interim turnaround manager are those that are in or on the way to intensive care and that haven’t the skills or resources internally to keep the company alive. The period of the assignment can vary; the longest I’ve been involved in is two and a half years. Most of us will agree to be appointed as director if the circumstances are right. Interim turnaround managers can charge anywhere in a range £1,000 to £3,000 per day depending on the role and size of company. The higher end of the range would be for a chairman and for the larger international companies the rate might even be higher. The role of interim mangers is often misunderstood and confused with consultants; we are not consultants. We become an integral part of the management team and carry out a management function. Our neck is on the block with the management team, particularly if we have become directors. We are not looking for a permanent job and enjoy being able to step back from the politics of employment to say it as we see it; if we upset someone who is in denial and get manoeuvred out then so be it. We will go and get another assignment. It is not unusual for the role to change as the assignment progresses, and once the initial tasks/outcomes have been completed/ achieved then a different set can be agreed. The assignment ends when the company and the interim agree the time is right, and in practice this is usually an amicable parting with friendly contact continuing for a long time thereafter. The attraction of an interim is that the company is getting a skilled and experienced individual who tells it how it is and who will move heaven and earth to get a result. Also, the arrangement is flexible in that it can be ended at short notice and the interim only gets paid for the days/hours he or she works. The daily rates might seem daunting, but in the long run the positive impact of an additional resource dedicated to a set of specific tasks/outcomes is usually worth the cost.

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IP patent and Trademark in the pharmaceutical technology and drug sector

IP, Patent & Trademark Law in the Pharmaceutical Technology & Drug Manufacturing Sector Patent protection is crucial to the innovative pharmaceutical industry. Innovative companies require the guaranteed period of market exclusivity afforded by patents in order to sustain drug prices, recoup research and development (R&D) expenditures and finance the development of new products.

Like other inventions, medicines are entitled to patent protection if they meet certain requirements. Unlike other products, however, medicines are required to undergo a strict regimen of tests and evaluations to determine their safety and efficacy before they can be sold commercially. The testing process is rigorous and time-consuming, involving animal and clinical trials of each prospective new drug. Much of the testing takes place after a patent for a drug has been applied for and results in significant lag between the invention of the drug and its sale to the public. Meeting government-imposed regulatory requirements consumes part of the period of patent protection, so that this is shorter for the pharmaceutical sector than for other industries. Innovative companies have responded to this disadvantage by lobbying vigorously for measures to strengthen the patent system and for changes to the regulatory process that would decrease the time involved in obtaining marketing approval for a drug. The pharmaceutical sciences have long been closely entwined with the patent system. Pharmaceutical products often rely on substantial amounts of upfront investment and technical knowledge but may be relatively straightforward to copy once they are widely distributed. Providing market exclusivity to an inventor through patent protection can encourage the initial outlay of resources needed to develop the product. In fact, most significant pharmaceutical products have at one time been the subjects of patent protection, even including ones that today are considered to be as fundamental as aspirin, whose patent was held by the Bayer Company in the early 20th century. Legal issues surrounding IP law with the pharmaceutical and drug industry can become very blurred and confusing. Investors and individuals can become very disorientated by varying laws from around the world. Each pharmaceutical firm carries their own regulations and this is further convoluted by stringent regulations enforced by government bodies. This is where IP lawyers earn their keep, as they specialise within the industry to such an extent that their understanding of the rules is as important as the drugs and medicines themselves. As the drug and pharmaceutical industry moves into new frontiers day-by-day with the advent of new technologies, medicines, processes and procedures, the need for lawyers that specialise in this industry will be at the forefront for years to come.

22 • GBM • June 2011

india 2005 is remembered as a watershed in the Indian patenting system. Landmark amendments were introduced in the Indian Patent Act 1970 (PA), providing a huge stimulus and incentive for the innovations by introducing product patent regime. Earlier, only process patent could have been granted in India. While bringing the amendments in 2005, Indian policymakers felt a need to accommodate reasonable requirements of public at large at reasonable cost, while providing incentive for the innovation. This was driven by notion to make pharmaceutical products available at reasonable prices for the poor. Special provisions were required against ever greening of patents in the filed of pharmaceutical by incremental innovation. Thus, in spite of paradigm shift, unique restrictions affecting pharmaceutical products were also carved out in the amendment of 2005. These restrictions were incorporated under section 3(d) PA. Section 3(d) seeks to restrict patentability of mere discovery of a new form of a known substance that does not result in the enhancement of the known efficacy of that substance or mere discovery of any new property or new use for a known substance, etc. As per section 3(d), any new use of known substance is not patentable. Thus, second medical use of a known substance is not patentable in India. Various other countries, such as the EU, may allow second medical use or Swiss-type claims format for pharmaceutical products. In India, in cases of products other than pharmaceuticals, a new use may be protected by amending the claims and by directing the specification towards a different product or process. For example, it may be possible to claim a new use of a known product by adding/ introduction of a new ingredient. However, this may not be possible in case of a pharmaceutical product. Though, if the claims are directed towards basic method/ process without showing new use, then probably second medical use may be indirectly claimed. Again, if the claim is directed towards a product e.g. kits or devices, made of known substance, it may fulfil the patentability criteria in India. Though, care should be taken that the invention/specification is not directed towards use of the known substance. As noted earlier, unless the new form of a known substance is not resulting in enhancement of the known efficacy of that substance, such new form is not patentable in India. This covers secondgeneration products such as salts, polymorphs, etc. Generally speaking, an application seeking patent must show: first, that the claimed compound is novel; second, that the claimed compound involves an inventive step; and, third,

that the claimed compound has industrial application. In addition to meeting such requirements, an applicant must also meet the rigor of patentability requirements stipulated under section 3(d). Thus, if the compound claimed is a novel compound and is a derivative of a known compound, then it is necessary to show that this novel compound has enhanced efficacy over the known compound to be patentable under Indian patent law.

K&S Partners Devadoss Calab Gabriel Senior partner 91-124-4708700 91-124-4708760

The word ‘efficacy’ in relation to section 3(d) has been defined by the Madras High Court, Chennai to mean ‘therapeutic efficacy’. Therefore, the phrase ‘enhancement of the known efficacy’ is to be understood in this perspective. Though the word ‘efficacy’ stood defined, the increase/enhancement in such efficacy would be a subjective issue and to be considered on the facts of a particular case. By restricting grant of patent to the second generation pharmaceutical products only upon demonstration of enhanced efficacy, section 3(d) encourages the sequential development of existing products or technologies to help bring in improved products that address unmet public health needs. And, at the same time, discourses ever greening of patents by cosmetic incremental innovation. Though challenging, obtaining protection for second-generation pharmaceutical products in India is not barred. Section 3(d) should not be misconstrued to debar all kind of incremental innovations in the field of pharmaceuticals. However, one must keep object, purpose and intent of section 3(d) in mind while drafting and filing patent application for second generation pharmaceutical products. It requires an altogether different strategy in India to protect the derivatives of a known compound. Generally derivatives are sought to be patented on the premise of their having better effect or some advantageous properties. This is equally true in a case of selection patent. While filing application in India, an applicant should show in vivo results to establish such better effect-better by way of a comparative chart. While showing improvement in efficacy over the prior art, in certain cases, some leverage/ flexibility may be available to an applicant. This relates to ascertainment of as what constitutes a known substance. A little careful and intelligent drafting of patent application is required not only to protect a second-generation pharmaceutical product, but also to effectively enforce the same. During the filing stage itself, some support for enhanced efficacy of second-generation products needs to be incorporated into the description. The subject matter of second medical use could be drafted and protected under device. Pharmaceutical companies can maintain competitive advantage by devising strategies and changing the nature of protection under Indian patenting system.

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IP patent and Trademark in the pharmaceutical technology and drug sector

south africa Adams & Adams Dario Tanziani Patent Attorney Tel: +27 (0) 12 432 6000 Fax: +27 (0) 12 432 6547

The South African business and legal landscape as regards pharmaceuticals is well developed and active, mirroring in many respects the situation in developed market economies. The Medicines and Related Substances Control Act No 101, 1965, as amended from time to time (MA), and the Regulations thereto, govern the marketing authorisation and pricing of all pharmaceutical products. The creation and patentability of pharmaceuticals is governed by the Patents Act 57, 1978, as amended (PA). In terms of the PA, new and inventive compounds, processes for producing them, pharmaceutical formulations, medical

devices, and basically any new invention that involves an inventive step and that is capable of being used or applied in trade or industry or agriculture, can be patented. Notable exceptions are methods of treatment of the human or animal body by surgery or therapy or diagnosis. New and inventive first medical uses of known substances are also patentable. New and inventive second and subsequent medical uses are patentable if the claims are written in Swiss form. A South African patent grants to the patentee the right to exclude others from making, using, exercising, offering to dispose of, disposing of and importing the invention in South Africa, so that the patentee has the whole profit and advantage accruing by reason of the invention. Provisions allowing the Minister of Health (the Minister) to grant compulsory licences to provide for the supply of more affordable medicines in certain circumstances so as to protect the health of the public, as well as parallel importation of branded medicines, were introduced into the MA in 1997, based on article 8 of the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS). To date, however, the

Minister has not invoked these provisions. The Competition Act 89, 1998, (CA) is a further factor. As in most other jurisdictions that have well developed and functioning competition law regimes, it can override the PA in cases where there is abuse of a dominant position by a patentee, or where there is price fixing, division of markets, collusive tendering and generally anticompetitive practices. A patentee of a pharmaceutical patent can be dominant in a market merely by virtue of the patent, if the patented product is not substitutable in its therapeutic class and is actually found by the competition authorities to define the class. Interlocutory injunctions are available to patentees and are not infrequently granted. The generic industry is very active in South Africa and litigation on blockbuster drugs in foreign countries is usually also contested in South Africa, given the comparatively low cost of litigation, a centralised Court of the Commissioner of Patents, which has first instance jurisdiction in all patent matters, and direct appeal to the Supreme Court of Appeal, the highest court in the land on all matters other than constitutional matters.

vietnam 80% of the patent applications that have been filed in Vietnam are from the PCT route. Subject matters excluded from patentability

Chien Le Quoc Managing partner (844) 3718 6216

IP protection of pharmaceutical products in Vietnam Vietnam is a member of the Patent Cooperation Treaty (PCT) and the Trade Related Aspects of Intellectual Property Rights (TRIPS) Agreement. Therefore, almost “product” or “process” subject matter that is patentable by the European Patent Office (EPO) or the United States Patent and Trademark Office (USPTO) (except “treatment method” and “use” subject matter) are patentable in Vietnam (eg, compounds, compositions, medicine, kit, process, etc). From 2005 to 2010, the number of patent applications and granted patents were more than 20,000. Many of them were for pharmaceutical products. The protection term of a patent is 20 years from the filing date of the application. In the practice of patent examination in Vietnam, the Vietnamese patent office always accepts the examination results issued by the EPO or USPTO. This makes it easier and faster for the examiners as well as to the applicant to get their patent in Vietnam. More than 24 • GBM • June 2011

The following shall not be considered as inventions or utility solutions: scientific ideas, principles and discoveries; methods and systems for economic management organisation; methods and systems for education, teaching, training; methods for training animals; linguistic systems, information systems, classification systems, and documentation compiling systems; design and planning diagrams for construction facilities; projects for regional planning and zoning; solutions concerning only the shape of articles, bearing only aesthetic character but not technical character; symbols, time-tables, rules, signs and regulations; computer software, electrical circuits, mathematical models, reference diagrams and the like; methods for the prevention, diagnosis and treatment of diseases; “use” subject matter; and, technical solutions that are contrary to social interests, public order, humanitarian principles or socialist morality. Compulsory licences in the pharmaceutical industry The laws in Vietnam are in compliance with the provisions of GATT/TRIPS. Compulsory licence is regulated by the IP law. However, compulsory licence only applied in case there is an ‘urgent need of society’. In fact, there is not any compulsory licence that has been issued in Vietnam up until now. This is because of the following reasons: the government of Vietnam understands that compulsory licence can impact on the foreign investment into the country; the local pharmaceutical industry have no capacity to produce the patented products; and, parallel importation can be an option instead of compulsory licence. In case of a decision on compulsory licensing has been issued, according to article 147.4 of the IP law: “A decision on compulsory licensing or a decision on refusal of compulsory licensing shall be subject to an administrative appeal or a judicial litigation in accordance with the laws”.

Mexico Patent protection for the pharmaceutical industry in Mexico Mexico has become one of the most important markets for the pharmaceutical industry around the world. As such, intellectual property, and especially patent protection, is a paramount issue for companies interested in the market share. Below some relevant information on the topic is provided. Under the current Mexican Industrial Property Law, patent protection is available for products (ranging from new molecules, compositions, dosage forms and combinations to new apparatuses and packaging used in the industry) and processes (eg, for manufacturing said products or, in the case of apparatuses, for using them). It should be pointed out that patent protection is not available for therapeutic methods; however, trained attorneys can handle redrafting the language of the application to obtain protection for the corresponding use. The rights granted to a patent holder are reasonably broad: a product patent confers the right to exclude others to produce, sell, offer in sale or import the patented product; and, a process patent confers the right to exclude others to use the process and to use, sell, offer in sale or import the product directly obtained from the patented process. Moreover, a legal framework is provided to assign or license patent rights. As to enforcement, the principle of ‘literal infringement’ is followed. Even though, litigation involving pharmaceutical patents is very active, reflecting the importance of the market as well as an increasing reliance on the system. In fact, some of the hot topics in the Mexican patent system relate to the pharmaceutical industry. One of them is the ‘linkage system’ between the Mexican Patent Office (MPO) and the Ministry of Health to try to prevent sanitary health institutions from inadvertently providing marketing approval for copies of drugs that have a grated patent. Although,

Víctor Garrido Technical department manager Tel: (52) (55) 5322-6230 Fax: (52) (55) 5661-3056

under a polemic environment, the ‘linkage system’ has been evolving since its first implementation in 2003. The linkage system is based on the publication by the MPO of a list of patents protecting drugs. A company is not allowed to obtain a sanitary registration (approval) for such drug unless it demonstrates to be the patent owner or an authorised licensee. Initially, the list was conceived solely for active ingredients. However, judicial decisions obtained by patent holders have had other types of patents published in the list, including patents on combinations, compositions, dosage forms and even uses. Said trend was been reinforced on 13 January 2010, when the Supreme Court issued a decision confirming that pharmaceutical formulation patents are entitled to be published in the list. Pharmaceutical companies with interests in the Mexican market should take the above and other relevant information into account. Also, they should make sure to be properly advised on the topic to successfully participate in the market share.

poland The differences between pharmaceutical trademarks and pharmaceutical product names in Poland Trademark examination/registration proceedings before the Polish Patent Office are independent of the proceedings before the Office for Registration of Medicinal Products, Medical Devices and Biocidal Products. However, one institution’s earlier findings cannot be disregarded by the other official body. Pharmaceutical trademarks must not only comply with the Law on Industrial Property, but also meet the requirements for pharmaceutical product names set out in other regulations. The name of a pharmaceutical product can be: an invented name not liable to be confused with a common name; a common or scientific name accompanied by a trademark; or, the name of the marketing authorisation holder. Common names should be international non-proprietary names (INNs) recommended by the World Health Organization. Optionally, if such name has not been attributed to a given product, an ordinary chemical name should be used. According to the established case law, obtaining an authorisation to release a medicinal product under a given name is not exempt from liability in cases where the name violates third parties’ trademark rights. The applicant must therefore pay attention to the Industrial Property Law and the Law on Combating Unfair Competition. Right holders should comply with the announcement of the president of the Office for Registration of Medicinal Products, Medical Devices and Biocidal Products issued on 12 March 2008. The announcement concerns the process of naming medicinal products and substitution of names that are similar or identical to those already registered. Accordingly, new names of medical products should: differ from earlier registered product names by at least three letters and not include a sequence of more than two of the same letters - the applicant must issue a justified written statement if seeking a waiver from this rule; avoid any likelihood of confusion (eg, in print, spelling and pronunciation) with regard to

Mrs Katarzyna Karcz Managing director Mrs Anna Zakrocka Postal Address PATPOL, PO Box 168, 00-950 Warszawa, Poland Office Address: PATPOL, 162J, Nowoursynowska , 02-776 Warszawa, Poland +48 22 64496 57 +48 22 644 96 59 +48 22 644 9600 +48 22 644 44 02 earlier registered names; not carry any promotional or advertising information related to the application process or use of the product; not comprise symbols such as ® or TM; and, not contain the following: personal names and surnames (including the name of the product inventor); names of abstract persons, which are used together with scientific titles, aliases or pseudonyms; expressions with a religious, geographical or historical association; or, obscene words or words suggesting obscene content. Apart from these specified exceptions, there is a wide choice of names that can be used for medicinal products. In the event of decentralised procedures or mutual recognition, it is recommended that the name of the product be the same in each EU member state. INNs must be used within the EU territory. A medicinal product for which authorisation is sought at EU level must have the same name across the EU. The name of a medicinal product shall also be written on the packaging in Braille. June 2011 • GBM • 25

IP patent and Trademark in the pharmaceutical technology and drug sector

Philippines CVCLAW Villaraza Cruz Marcelo & Angangco Susan D. Villanueva Intellectual Property Department Head Tel: +632 988 6088

For instance, to demonstrate the variations in the litigation strategy, in the US, two patents were the subject of the AC litigation - US Patent Nos 4,681,893 and 5,273,995. US ‘893, also known as the ‘molecule’ patent, was supposed to expire on 30 May 2006, but the patent term was extended, a feature available under US patent laws. Apart from the molecule patent, generic companies in the US were also sued for infringement of US ‘995, commonly known as the ‘enantiomer’ patent. The UK AC litigation is similar in the sense that both the molecule (UK 0 247 633) and enantiomer (UK 0 409 281) patents were subsisting at the time of the AC litigation.

Atorvastatin Calcium patent infringement suits in the Philippines The worldwide patent battle over Atorvastatin Calcium (AC) has been so heated, which is not surprising, considering that AC is considered as the world’s top-selling drug. Generic pharmaceutical companies worldwide have launched their own generic version, prompting suits for patent infringement. The litigation strategy and outcome of these AC litigations worldwide vary depending on the circumstances and applicable law in each jurisdiction.

In the Philippines, patent protection lasts for 20 years without the possibility for an extension. Hence, unlike in the UK and US, the Philippine equivalent for the molecule patent or Philippine Patent No 24661 already expired without benefit of extension when AC patent suits were filed. This made the defence for Atorvastatin infringement in the Philippines simpler as the litigation focused on Philippine Patent No 29,149 or the enantiomer patent. In their defence, generic companies mainly argued that Philippine Patent No ‘149 is void for lack of novelty and inventiveness in view of the teachings made in the earlier Patent No ‘661 for the molecule patent.

This is a departure from the strategy in other jurisdictions where the generic competitor generally argued that their AC product is non-infringing by claiming that their product is not covered by the broad molecule patent, and at the same time argued that the enantiomer patent is void or unenforceable. Considering that the validity of Philippine Patent No ‘149 was already in issue after it was argued that such patent was already disclosed in Patent No ‘661, generic manufacturers and distributors of AC were also able to prevent an injunction from being issued. Under Philippine laws, a patent holder needs to clearly establish the validity of the patent before an injunction may be issued and the mere issuance of letters patent standing alone is generally not sufficient to support an injunctive relief. The importance for patent holders to establish the validity of their patent is essential considering that patent linkage is not available in the Philippines. The Philippine Food and Drugs Administration (FDA) has authority over matters on safety quality and efficacy of drugs and medicines, and procedures on parallel importation. The Philippine FDA, however, has no authority over patent matters.

INDONESIA Ms Nadia Am Badar, SH Ms Annisa Am Badar, SH, LLM Mr Anis Am Badar, SH Ms Nabila Am Badar, SH, LLM Ms Dora Am Badar, S Psi Intellectual Property Right Attorney Plant Variety Protection Attorney Tel: +62 21 398 37314, 398 37315 Fax: +62 21 398 37300, 398 37319

The law firm Am Badar and Partners was founded by Mr Toetoen Am Badar, SH, and established as legal entity on 2 September 1965. Now it is one of the most prestigious law firms in the field of intellectual property (IP) rights in Indonesia. As one of the oldest law firms in the field of IP rights in Indonesia, Am Badar and Partners has longstanding and strong client relationships and is consistently committed to protecting the interests of the clients. 26 • GBM • June 2011

Since 1999, the firm has been run by the second generation Nadia Am Badar, SH, Annisa Am Badar, SH LLM, Anis Am Badar, SH, Nabila Am Badar, SH LLM, and Dora Am Badar, S Psi.

trademark registrations, assignment, licensing, maintenance of registered trademarks, giving advice on trademark matters, ownership search, opposition and litigation on trademark cases.

All members of the firm are highly qualified and well versed in the subjects of their specialisation. The works of the firm are dealt by professional staffs of IP administration, IP technological experts and IP litigators. The firm comprehends all areas of legal practice with special focus on IP laws and their applications.

Industrial designs: Filing and prosecution of industrial design registrations, search, licensing, assignment and giving advice on industrial design matters.

Am Badar & Partners has hundreds of associates-foreign agents that represent thousands of applicants of IP rights all over the world. In order to develop this office, we have become members of several international organisations in IP rights, such as: the International Trademark Association (INTA), the International Association for the Protection of Intellectual Property (AIPPI), the Asian Patent Attorneys Association (APAA) and the Institute of Intellectual Property Studies (IIPS). Areas of practice and services: Patents: Filing and prosecution of patent applications to grant, assignment, cancellation, maintenance of granted patents, search, counseling, and advising on the patent matters. Trademarks: Filling and prosecution of

Copyrights: Filling and prosecution of copyright registrations, search, licensing, assignment and giving advice on copyright matters. Annuity service: The service provided: search and maintenance of granted patent, trademark renewal. Litigation: Representing clients before the commercial court and the Supreme Court for cassation the cases of patents, trademarks, industrial designs, layout designs of integrated circuits, copyrights, trade secrets, plant variety protections and geographical indications. Others: Providing services on layout design of integrated circuits, trade secrets, enforcement of IP rights, plant variety protections and geographical indications.

japan Because pharmaceutical inventions are a technology based on state-of-the-art knowledge and findings in chemistry, biology, pharmacology, medicine and genetic engineering, etc, the acquisition of, and a deep understanding of, the latest knowledge in these fields is indispensable.

The registration, manufacturing and sale of the pharmaceutical is independently examined and authorised, regardless of the patent law, by the Ministry of Health, Labour and Welfare.

In addition, it is important to choose a law firm or patent attorney who is well experienced and well aware of the special legal and practical characteristics involved, and is also able to make good decisions from a strategic standpoint.

Up to now, inventions concerning pharmaceuticals have had a lot of important judgements and trial examples and have the following special characteristics.

Legal characteristics Under Japanese patent law, inventions concerning medicine have the following features. A “pharmaceutical (composition)” invention, is patentable: It must be a “limited use invention”, which is clearly defined by an “active ingredient” that affects a “specific disease”.

Practical characteristics

The screening criterion concerning “pharmaceutical composition” inventions, especially the examination and judgment of the description requirements, in the specification (enablement requirements and disclosure requirements) have become more stringent. The strength of the patent can be greatly affected by the strategy and handling of the patent process.

Recently, it has become possible to patent “medicine related inventions”. For example: solubility improvement, medication administering devices, diagnostic preparation (kits), health maintenance medicine and health foods, etc.

The main contention in most trials concerning pharmaceutical inventions is the description requirement in the specification. In cases of especially wide claims, the enablement and disclosure requirements in the specification are contended.

In addition, an extension of the patent is allowed. The patent duration is for up to 25 years.

Recently, the intellectual property High Court seems to have the tendency to protect pharmaceutical (and related) inventions more widely than before.

ITOH International Patent Office 32nd Floor, Yebisu Garden place Tower Ebisu 4-20-3 Shibuya-ku, Tokyo 150-6032 Japan Tadahiko Itoh +81 (0) 3-5424-2511 +81 (0) 3-5424-2530

Business characteristics The business concerning pharmaceutical (and related) inventions is greatly different in the following respects from other technologies: strong wide rights are secured by a small number of patent applications; sales and profit is of great importance; and, the market is always on a worldwide scale. Patent rights concerning pharmaceutical (and related) inventions are mainly targeted at pharmaceutical products that have received manufacturing approval and the technology transfer is extremely active.

June 2011 • GBM • 27

IP patent and Trademark in the pharmaceutical technology and drug sector

UNITED ARAB EMIRATES (UAE) Hasan Irfan Khan Senior Partner Irfan & Irfan Tel:0092 42 3628 5571-74 Fax:0092 42 3628 5586-87

An overview of protecting innovation in the UAE: A pharmaceutical perspective Although a relatively new sector to the Middle East, the UAE has shown significant progress in intellectual property (IP) rights within a short span of time thanks to the advent of globalisation and local policies. These, among other factors, have stimulated an increasing venture in both research and manufacturing facilities by multinational pharmaceutical companies. According to the economic report released by Business Monitor International, the drug market in the country is estimated to reach $1.45bn by 2012. The UAE legislated to protect novel, inventive and industrially applicable innovations on 12 October 1992 (Federal

No 44 of 1992) and has since repealed and replaced several federal laws to incorporate changing needs and abide with international treaties. The current legislation (Federal Law No 17 of 2002, as amended), among others, gives the right to claim 12-month priority from an earlier filed patent application, both product and process innovations for a period of 20 years from the date of patent application, temporary protection and compulsory licensing. However, inventions pertaining to diagnostic methods, treatments and surgical operations needed for humans and animals are expressly excluded from patent protection, similar to section 4A 1(a) and (b) of the UK Patent Act 1977. There is not much case law to overcome these exclusions while drafting pharmaceutical patents. Further, the substantive examination for a patent filed in the UAE has been outsourced to the Austrian Patent Office due to a lack of technical examiners available within the country. Apart from the federal laws relating to patents, pharmaceutical profession and establishments, additional protection is given to the pharmaceutical industry through Ministerial Decision No 404 of 2000 concerning pharmaceutical products and patents. Article 1 stipulates that any new medicine or pharmaceutical preparation

that does not enjoy a patent may not be registered. However, this is not valid for those medicine and pharmaceutical preparations listed in the international drugs registers or other international bodies (expressly mentioned in article 2) and for those products where the period of patent protection has expired. Although, there are no local laws that exclusively provide regulatory data protection, the rules for protection of confidential information mentioned in this Ministerial Decision can arguably ensure protection of test data (including protection of undisclosed pharmaceutical data) submitted for marketing approval against unfair commercial use. In addition to the aforementioned federal laws and Ministerial Decision, adequate protection can also be obtained under the GCC patent system, where the protection of the patent extends to six member countries, including the UAE. Although the field of IP law is drastically evolving in the country, this sector needs radical changes, among others: enforcement of laws, which include curbing counterfeits; higher standards of patent prosecution, which must start from access of patent documents for public search; and, better understanding of the various legal provisions by the local administrative authorities.

Singapore Winnie Tham Director, Patents & Trade Marks +65 6303 6217

A snapshot of pharmaceutical drug industry IP Law In Singapore, patent rights are generally governed by the Patents Act (Cap 221, 2005 Rev Ed). Filing, infringement, invalidation, revocation and other legal matters pertaining to patents are overseen by the Intellectual Property Office of Singapore (IPOS), which administers the Registry of Patents, and the Singapore courts. The Health Sciences Authority (HSA) is the local authority that administers the national regulatory frameworks for pharmaceuticals, complementary medicines (such as Chinese proprietary medicines, other traditional medicines and health supplements), medical devices and other health products to ensure that these products meet the appropriate 28 • GBM • June 2011

standards of safety, quality and efficacy before reaching the market. The Medicines Act and related regulations are the main legislation regulating the licensing of medicinal products, as well as the activities of manufacturers, wholesalers and importers dealing with these products. Different licences are issued for the different types of activities. For controlled drugs, more stringent measures are in place. The Drug Administration Department also issues a Certificate for Importers of Medicinal Products, and this requires prior proof of registration of medicinal products in the country of origin. Besides the Medicines Act, the Misuse of Drugs Act, the Sale of Drugs Act, the Poisons Act also help to regulate drug use and abuse in Singapore. The Good Manufacturing Practice Unit within the National Pharmaceutical Administration (NPA) of the local Ministry of Health also coordinates the centralised inspection of manufacturers of medicinal products. The Medicines (Advertisement and Sale) Act, in addition to the Medicines Act, further regulates the advertisement and labelling of medicinal products to ensure that medicinal products promoted for sale to the general public are safe, and do not mislead or

induce unnecessary use. One interesting aspect of medicinal product registration in Singapore is that the HSA must also ensure that the new product sought to be registered does not infringe any existing patent. This has particular impact on generic drugs. As part of Singapore’s obligations under article 16.8.4(c) of the US-Singapore Free Trade Agreement, the Medicines Act was amended such that sections 12A, 16 and 20 of the Act, and paragraph 5B of the Medicines (Licensing, Standard Provisions and Fees) Regulations provide for this. The applicant of the new medicinal product must declare that the use or sale of the product does not infringe any existing patent, or that he has obtained the consent of the patent proprietor (and has furnished such evidence), or that in his opinion or to the best of his belief, that the patent is invalid or will not be infringed (and to notify such patent proprietor of his intent to sell the new product). The patent proprietor has 45 days from the date of the notice served to apply for an order from the court or the Registry of Patents to restrain the act of the applicant, and such order must be obtained within 30 months. Otherwise, HSA has the discretion to approve licensing for the new product.

vietnam Vietnam is a developing country with a scattering small-scale low-level pharmaceutical industry, the products of which fail to meet the increasing needs of people. That is why Vietnam is so attractive for foreign pharmaceuticals. Data shows that the number of international drug applications for visa in Vietnam is always much greater than that of local ones. And Vietnamese patents in the pharmaceutical sector from 2000 to 2008 are humble. The data updated by the National Office of Intellectual Property (NOIP) up to 2009 show that during the eight years mentioned above, only 13 patents were granted to Vietnamese patentees, far lower than 1,198 patents to foreign applicants. It shows a weak level of pharmaceutical research and development in Vietnam. Vietnam is member of the Madrid Protocol (since 2006) and the Madrid Agreement (since 1949) for international trademark registration, the Patent Cooperation Treaty (PCT) for patent registration (since 1993), the Berne Convention (since 2004) and is a member of the World Trade Organization (WTO) (since 2007). Vietnam has nevertheless promulgated the Law on Pharmacy (effective since 1 October 2005) for people’s health care and pharmaceutical business administration.

The Intellectual Property Law (IP Law) of Vietnam has been in effect since 1 July 2006, revised in 2009 and took effect since 1 January 2010. In the pharmaceutical industry, the IP Law of Vietnam allows foreign pharmaceutical manufacturers to register trademarks, industrial designs for their products and packaging of products, inventions of drug formulae, formulae manufacturing processes and apparatus, and treatment devices. Further, under the IP Law, testing data provided in the procedures of drug registration are also under protection. Yet methods of disease prevention and diagnosis for human being are not subject to patent protection because of humanitarian reasons and, in fact, the Vietnamese government can impose compulsory licences to pharmaceutical patents. At present, Vietnam still recalls foreign investment in pharmaceutical industry as well as in the healthcare services industry. Set up in 2003, Ahoa Law Office is a reliable agent in Vietnam for foreign pharmaceutical companies in the following jobs: execution and following up of drug registration procedures; conducting search on trademarks and the registrability of pharmaceuticals; application for trademarks, industrial designs and patents; cancellation

Mrs Nguyen Minh Huong, Chief Attorney HP: 84-903650925 Tel: 84-8-38342 361/38328 230 Fax: 84-8-38328 229

of validity of trademark registration on bad faith or on five-year non-use basis; proceeding IP enforcement activities including anti-counterfeiting, intellectual property rights (IPR) infringement and customs monitoring action and warning of IPR infringements; and, guidance, negotiation and registration of licensing agreements in relation to the trading and manufacture of pharmaceutical products and technology transfer.

June 2011 • GBM • 29

country Profile - cyPrus

Country Profile - cyprus CYSEC The Cyprus Securities and Exchange Commission (CYSEC) was established in accordance with section 5 of the Cyprus Securities and Exchange Commission (Establishment and Responsibilities) Law of 2001 as a public corporate body. CYSEC is administrated by a five-member board, which is composed of the chairman and the vice-chairman that provide their services at complete and exclusive employment. In addition, the board is composed of three other members. In the board’s meetings, a representative of the governor of the Central Bank is represented, who has the right to register subjects in the agenda, to participate in the discussions and to express opinions, but deprived the right of vote. The members of board are named by the Council of Ministers following a proposal of the Minister of Finance. Their service is a five-year term, with the exception of the service of the vice-chairman and two from the other members that are named for first time, which is four-year and three-year respectively so as to ensure the continuity in the composition of CYSEC. The service for all the members is renewable for five additional years. The current board comprises: Georgios Charalambous as chairman and Christina Christou as vice-chairman, and Spyros Kokkinos, Menelaos Kyprianou and Marios Moiseos as the three members. The board is supported by the following departments. The Strategy, Economic Analysis and International Relations Department, whose responsibilities mainly comprise: support to the chairpersons and issues of strategy and policy; internal and external communication; financial education; international relations; and, coordination and representation of CYSEC. The Department of Listed Companies, whose duties consist of granting licences, listing and continuous obligations of listed companies including, for example: the examination of applications of listing securities in the Stock Exchange, the examination of applications, in accordance with the Securities offered to the Public Law of 2002 on granting licences for invitation

30 • GBM • June 2011

to the public for investment in financing means; and, the examination of documents of public offer for acquisition or takeover bids. The Department of Investment Service Companies, whose responsibilities include: the examination of applications for registration of members of CSE and Stock Exchange representatives; the contacts and meetings with companies that are in the stage of preparing their application for an operational licence of Cypriot investment services, and discussing subjects that are related to their application; and, the examination of applications for issuing of operational licence of the investment services company as well as applications for amendment of already granted operational licences. The Department of Collective Investment Schemes, whose responsibilities include: examining applications for granting incorporation and operation licences to local Open-ended Undertakings for Collective Investment in Transferable Securities (UCITS); examining applications for granting incorporation and operation licences to local management companies; and, examining proposed amendments of the existing legislation. The Department of Market Surveillance and Investigations, which covers, among others: infringements of possible unlawful conduct as far as the capital market is concerned, as well as deceptive statements; conduct of investigations in EPEY and/or in public companies; and, undertaking of deposits by individuals to assist the work of CYSEC. The Legal Department, which covers such areas as: follow-up of the capital market legislation (preparation/submission of proposals for amending related laws and regulations); legal processing; subjects of harmonisation with the EU; and, court affairs - archiving, follow-up, co-ordination and collaboration with outsourced lawyers employed by CYSEC.

Finally, the Administration Department, the duties of which include: monitoring of the Personnel Regulations; preparation of budget and monitoring the expenses in accordance with the articles of budget; and, preparation of CYSEC’s financial statements. CYSEC itself has the following responsibilities: To supervise and control the operation of the Stock Exchange and the transactions carried out in the Stock Exchange. To supervise and control the issuers of securities listed on the Stock Exchange, the licensed investment services companies as well as the collective investment schemes. To carry out inspections over companies, the securities of which are listed on the Stock Exchange, over brokers and brokerage firms, investment consultants, mutual fund management companies. To request and collect information necessary for the exercise of its responsibilities, to demand in writing the provision of information from all natural or legal persons or organisations that are considered to be in a position to provide such information. To grant operation licences to investment firms, including investment consultants, brokerage firms and brokers. To recall these operation licences for special reasons, as it is more specifically determined in Regulations that are published in accordance with the Law of Establishment of the Cyprus Securities and Exchange Commission. Finally, to impose administrative sanctions and disciplinary penalties to brokers, brokerage firms and investment consultants, as well as to in any other legal or natural person falling under the provisions of the Stock Market legislation. For more information please visit: www.

country Profile - cyPrus

Graham Donald Public Relations Director Cyprus International Financial Services Association P.O.Box 23403 1683 Nicosia 00 357 22 496179

What is cifsa? CIFSA is the Cyprus International Financial Services Association (CIFSA) Limited (formerly the Association of Cyprus Offshore Financial Services Companies (ASCOFC) Limited), a grouping of those international companies based in Cyprus that provide financial services and advice to clients overseas. CIFSA was established as a result of an initiative by the then regulator Central Bank of Cyprus, which required a single association to represent the international financial services companies in Cyprus. After a consultation period in 1992, ASCOFC was established as a company limited by guarantee in 1993.

cifsa’s role CIFSA was established to assist ICCS/CYSEC (the regulator) in particular with the control and discipline of CIFSA member firms with respect to any contravention of rules and professional codes of conduct by reporting any such contravention to the regulator. It is there to inform the regulator of the temporary or permanent presence in Cyprus of any person (natural or legal) who appears to be providing international financial services to the public, in or from within Cyprus, without proper authorisation. They promote the high standards of professional conduct within the financial services sector and act as a conduit for information between the regulator and other professional bodies. Another role is to provide and establish a complaints procedure for the initial investigation of complaints received, whether directly or indirectly, from clients of member firms. They will reply to the client concerned and inform the regulator. Principles for the provision of international financial services from within Cyprus The following principles set out the standards that are expected from all those providing international financial services from within Cyprus. While member firms of CIFSA are bound to fully implement these principles on their own initiative and as part of a policy of best practice, either the ICCS or CYSEC, as the country’s licensing regulatory authorities, monitor such implementation by way of offsite reviews and onsite examinations of international financial services company (IFC) operations. Integrity and high standards of market conduct: An IFC should observe high standards of integrity and fair dealing in the provision of its services and its market conduct, including compliance with any rules, standards or guidelines as they apply to IFCs and in accordance with the terms and conditions of its licence. Skill, care and diligence: An IFC should act with due skill care and diligence. Information about clients: An IFC should seek from the clients it advises, or for whom it exercises discretion, any information about their circumstances and investment objectives that

might reasonably be expected to be relevant in enabling it to fulfil its responsibilities to them. Information for clients: An IFC must take reasonable steps to give the clients it advises, in a comprehensible and timely way, any information needed to enable them to make a balanced and informed decision. In this regard, an IFC must not recommend a transaction to a client, or act as discretionary manager for him, unless it has taken reasonable steps to enable him to understand the nature of the risks involved. An IFC should similarly be ready to provide a client with a full and fair account of the fulfilment of its responsibilities to them. Conflicts of interest: An IFC should either avoid any conflict of interest arising or, where conflicts do arise, ensure equal treatment for all its clients by disclosure, internal rules of confidentiality, declining to act or any other appropriate action. An IFC should not unfairly place its interests above those of its clients, and, where a properly-informed client could reasonably expect that the IFC would place his interests above its own, the IFC should live up to that expectation. Clients assets: Where an IFC has control of, or is otherwise responsible for, the safeguarding of assets belonging to a client, it should arrange proper protection for them by way of segregation, specific identification or any other suitable method, in accordance with the responsibility it has accepted. Financial resources: An IFC should ensure that it maintains adequate financial resources to meet its business commitments and to withstand the risks to which its business is subject. Internal organisation: An IFC should organise and control its internal affairs in a responsible manner and ensure that it has well-defined procedures to facilitate compliance with regulatory requirements. Where the IFC employs staff or is responsible for the conduct of investment business by others, it should have adequate arrangements to ensure that they are suitable, adequately trained and properly supervised and that it has well-defined compliance procedures. Relations with the Regulator: An IFC should deal with the ICCS and/or CYSEC in an open and co-operative manner and keep them promptly informed of anything concerning the IFC, which might reasonably be expected to be disclosed to it.

June 2011 • GBM • 31

country Profile - cyPrus

The Cyprus Bar Association (CBA) For more information please visit

The Cyprus Bar Association (CBA) is the professional body of lawyers with more than 2000 members. Established under the Advocates Act in 1960, the bar has been operating since then and growing year by year. All the necessary work of the Association, including handling administrative matters, was volunteered by members of the Board and the Office of the President. In 1992, the Board decided to hire full time staff to carry out the work. Over recent years, through growth and expansion, the CBC has met new requirements arising from the full accession of Cyprus to the European Union. The future is the hope to operate and be more recognised in Europe. The association organise seminars on European law and other important issues that help member lawyers and keep abreast of latest developments and to obtain more information on how European law is consistently changing and the effects on the nations law. One of the association’s goals is to provide the best services and support to lawyers of Cyprus, who in turn can benefit from current and up-to-date information. This i further strengthened by the fact that under the Advocates Act, the Cyprus Bar Association, the Disciplinary Council and the Legislative Council are the bodies that regulates the legal profession in Cyprus. The Local Bar Associations include all lawyers practicing in each province. The CBA have six local bar associations, one for each of the six districts of Cyprus and is independent from the local Bar Associations. The Cyprus Bar Association consists of: 1.

The president, elected by the General Assembly of the Bar held every three years.


The presidents of local bar association and one member from each district elected to represent the Law Society,


Four members elected by the General Assembly of the Bar Association.

The Attorney General is regarded as the Honorary Chairman of the Board of Bar. The Cyprus Bar Association spent approximately three years before obtaining full membership of Cyprus to the European Union and its registration as a full member of the CCBE (Council of Bars and Law Societies of Europe). This integration is one of the most important events in the history of Cyprus. The membership of Cyprus guarantees a peaceful future for the nation and benefits our legal and legislative sector with a supportive and experienced environment. The membership to the European Union also promises stability to the economic environment of Cyprus. Membership to the EU requires our country’s legislation to align with the rules and regulations of other member states and to protect

32 • GBM • June 2011

the principles of the European Union, which include the protection of basic human rights principles within the framework of European law. Lawyers are always regarded as the defenders of human rights. Having experienced the continuous violation of human rights by Turkey since the Turkish invasion of 1974, Cyprus and the profession have clearly expressed their commitment to promote and protect human rights within the European Union. However, the above creates the need to exchange views on closer cooperation between Member States and their legal systems and the need for new laws and methods of application. The creation of a common competitive market and the free flow and services within the European Union is one of the basic principles in Europe. Inevitably, this affects the legal profession in Cyprus where, on one hand it reveals the challenge to upgrade the services of lawyers and on the other, creating obligations for changing attitudes and adopting new methods. The new conditions require a high level of knowledge and continuous training. Above all it requires seriousness and responsibility on the part of lawyers in connection with the conduct and protection of human rights. The protection of the interests and rights, both between the same individuals and between individuals and governments is a basic principle of any legal system. The obligations to find ways to safeguard these interests and rights conferred on members of the profession. Cyprus has adopted harmonized legislation to implement the directives of the European Union to facilitate the permanent practice of the profession in a Member State other than that the qualification was obtained and to facilitate the effective exercise of freedom to provide services.

country Profile - cyPrus - corPorate serVices

Bybloserve Management Ltd Iosif Frangos, Managing Director Telephone: +35724812575 Fax: +35724812583,

Cyprus holding companies Cyprus is an established, reputable and trustworthy financial and business centre with well developed infrastructure, advanced banking, legal and accounting system, plentiful supply of high skilled and multilingual workforce and excellent telecommunication systems. Over the past decades, there has been an increasing trend for using Cyprus Companies as holding companies and for international tax planning because of its advantageous tax system, which is now considered as the most favoured jurisdiction in Europe to conduct international business from. the Cyprus tax system at a glance Although Cyprus is a low tax jurisdiction, it is not a ‘tax haven’, and due to its favourable tax regime and the wide network of tax treaties, it has attracted businesses from around the globe to establish international business companies with the purpose of carrying and monitoring their international business operations. Corporation tax is a 10% flat rate, which is the lowest within EU and the lowest ‘non-offshore jurisdiction corporate tax rate’ in the world. As an EU member state, its tax system is inline with EU requirements and also within the Organisation for Economic Cooperation and Development (OECD) requirements against harmful tax practices. In effect, Cyprus provides full tax exemption on the payment of dividends to its non-resident shareholders and has a comparative advantage over the other traditional holding jurisdictions. the use of Cyprus as a holding company Holding companies usually perform the following actions within a group: asset ownership/participation interest in operating and non-operating group of companies; accumulation of capital and shareholder value; consolidation of business segments; asset protections/mitigation of risks; receiving dividends from operating companies; distribution of profits to shareholders; and, reinvestment of capital into new projects. When one is looking for a holding company jurisdiction, there are some criteria that are always taken into consideration (note: the list below is not exhaustive). For comparison purposes, the table below shows the main criteria that are usually taken into account and how the Cyprus holding company meets these criteria: Criteria for the ideal holding company Cyprus holding company jurisdiction No or low tax on dividends, capital gains, interest or royalties and no withholding taxes (WHTs) imposed

10% corporate tax, no WHTs on dividends, interest and royalties (in most cases). Exemption on capital gains on shares and securities

‘Tried and tested’ jurisdiction

Tax structuring jurisdiction for over 30 years

No local stamp duty, capital duty or other similar taxes

No stamp duty on contracts relating to matters outside Cyprus

Access to strong network of (double tax treaty) DTT/EU Directives

Extensive DTT network (almost 50 DTT) and benefit from EU Directives

No (controlled foreign corporation) CFC or thin capitalisation rules

No CFC rules, no thin capitalisation rules

Sound and stable economy

EU/OECD approved system stability

Qualified resources

Excellent service sector

Looking at the table above, one can confidently say that Cyprus meets all the main criteria of an ideal holding company and it is the new competitor of classic holding jurisdictions such as Luxemburg and The Netherlands. Before deciding whether to use Cyprus as the jurisdiction to set up your holding company, it is strongly advisable to contact your tax and legal tax adviser for an opinion as some times, best results can be achieved by combining Cyprus with other jurisdictions as well when setting up the holding structure. Company overview Bybloserve Management Ltd & Bybloserve Financial Ltd fall under the umbrella of Frangos & Associates LLC, a lawyer’s limited company, licensed by the Cyprus Bar Association. Frangos & Associates LLC is comprised of high calibre lawyers, most of which are UK-educated, and has been providing high quality legal services to local and international clients, with attention on corporate, commercial, banking, property and litigation issues. Bybloserve Management & Financial Ltd are specifically designed to provide services that include corporate management, trust, fiduciary, bookkeeping, tax advisory, corporate consultation and liaison with external auditors services to a respectable volume of high-net-worth corporations and individuals around the globe. The Bybloserve team comprises of lawyers, chartered accountants, national and international tax experts, administrators and staff with expertise in the field of corporate management. Worldwide corporate services Bybloserve can register, manage, administer and advise on their tax and legal implications, companies or entities in all major jurisdictions and/or offshore, such as private, public, partnerships, European Companies, investment, holding, insurance companies and investment funds. Advisory services that form part of Bybloserve’s daily professional work include, inter alia: the selection, establishment and maintenance of corporate or trust structures, foundations, restructuring of international and/or offshore jurisdictions, implementation of trading, investment and other structures, cubic/physical presence operations, and generally on contractual matters, billing and other day-to-day affairs of corporate entities, on domestic and overseas property ownership and on the utilisation of DTTs, banking, management and administration, accounting and tax implications, such VAT, corporate and personal taxation and international tax planning.

June 2011 • GBM • 33

country Profile - cyPrus - financial serVices

Panikos N Tsiailis Tax and legal services leader Member of the executive board of PwC PricewaterhouseCoopers Ltd, Julia House, 3 Themistocles Dervis Street, CY-1066 Nicosia, Cyprus P O Box 21612, CY-1591 Nicosia, Cyprus +357 - 22 555 000

Cyprus-Russia tax protocol It is well known that since December 2007 there has been a lot of uncertainty surrounding the bilateral economic relations of Cyprus with Russia. This uncertainty negatively affected the flow of investment from one country to the other.

Negotiations commenced between the two countries for the purpose of clearing the differences that arose between the two countries in the application of the Double Tax Treaty that was in place since 1998. Negotiations were successfully concluded with the signature on 7 October 2010 of a protocol to the treaty during the visit of the Russian President to Cyprus. Relations are again excellent. Certainty of the status of the treaty is in place and investor confidence is restored. Russia is renegotiating its treaties with Luxembourg, Austria, Belgium and Switzerland. Therefore, the status of the treaties of some of the more important competitors of Cyprus enters into a place of uncertainty that is expected to drive investors away from these countries. The Netherlands, until recently, was refusing to renegotiate and as a result is in danger of having its treaty denounced. The mere fact that Cyprus is the only European financial centre with stability/ certainty in its relations with Russia puts Cyprus ahead of the competition. In a nutshell, Cyprus, under the circumstances, has the best treaty available at present. In summary, the protocol provides the following: The withholding tax rate on interest and royalties is zero, whereas for dividend is 5% or 10%. The 5% is available to investments of at least €100,000. The rates have not changed. The definition of interest income is now the same as the Organisation for Economic Co-operation and Development (OECD) definition, which adds clarity to the treaty because the OECD has explanatory commentary that can be used to assist in the treaty application. The definition of dividends is now OECD model-treaty-based, with some additions to cover peculiarities of the Russian legal

34 • GBM • June 2011

system in the area of funds. This also adds clarity and certainty because the OECD explanatory can be used in the interpretation of the definition. Changes in the definition of resident and permanent establishment are cosmetic and again they add clarity to the process. The change that is of significance is the one that relates to the taxation of the sale of shares in companies deriving more than 50% of their value from immovable property. This provision will come into effect four years after the date the protocol comes into force. There is a new article on the exchange of information based on the OECD model, which is in full compliance with the initiative to fight against non-cooperative, non-transparent and secretive jurisdictions. Transparency enhances Cyprus’s reputation. There are hardly any jurisdictions that do not comply with the OECD requirements. This analysis has been deliberately drafted in a non-technical manner. The purpose being to emphasise the fact that the protocol is a welcomed resolution of the treaty disagreements that surfaced between Cyprus and Russia in December 2007. The treaty between Cyprus and Russia is the best treaty available to investors at present and is likely to remain such for many years to come. Potential investors will discover these when they do their due diligence for a contemplated investment.

PwC - Tax Services New Distinctions. Dynamic Challenges. The tax system in Cyprus

The new award by the World Finance Magazine as The Best Tax Firm of the Year in Cyprus - 2011 strengthens even further our commitment to offer services of the highest quality. It paves the way for new goals. And reinforces our resolution in addressing major challenges concerning the progress of our society and our economy. The tax team of PwC Cyprus is at the forefront of developments and pioneers in contributing with its know-how in establishing Cyprus as an International Financial centre. It is very important that our local efforts are supported by the global tax network of PwC. The award winning specialised tax team of PwC counts today 165 people, partners and staff. It has experienced rapid growth during the last six years based on the successful strategy of PwC. Strategy which focuses on the quality of our people, our clients and the services offered. In tax issues what counts above all is the result. This is where success is determined. And here, the know-how, experience and expertise of the tax team of PwC are verified. Our services cover all the tax needs of a corporation or an individual across all industry sectors as follows: Corporate: Tax planning on structuring, mergers and buyouts and other business issues, tax returns administration, agreement with Tax Authorities and obtaining tax rulings. VAT: Advisory services for tax planning, VAT recovery and VAT minimisation and tax compliance (administration of tax returns, communication with VAT authorities, agreement of disputed assessments etc). Personal: Tax planning, completion submission and agreement of tax returns, tax services to expatriates, pensioners and other non-Cypriot individuals. The “Tax Facts & Figures - Cyprus” guide includes the recent changes in Tax and VAT legislation. It is a comprehensive source of Tax information for clients, associates and the society in general and it is published by PwC for the past 19 years in both Greek and English and for the past two years in Russian. The guide for 2011 is available at no cost from the reception areas of the PwC offices all over Cyprus. You may also find the guide in electronic form from our website PwC Cyprus Julia House, 3 Th. Dervis Street, Cy-1066 Nicosia, Cyprus P.O.Box 21612, CY-1591, Nicosia, Cyprus T: +357 - 22 555 000, F: +357 - 22 555 001

©2011 PricewaterhouseCoopers Ltd. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers Ltd of Cyprus, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.

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country Profile - cyPrus - legal serVices

Soteris Pittas & Co LLC Mr Soteris Pittas Managing director Tel: +357 25028460 Fax: +357 25028461

Soteris Pittas & Co LLC is an experienced, dedicated law firm located in Limassol, Cyprus. The firm focuses on the areas of law related to business activity and dedicated to providing its clients with outstanding, highly personalised legal representation.

Lawyers of the firm are authors of various publications and articles about arbitration and mediation, and furthermore they serve as members of arbitration tribunals in numerous multi-jurisdictional and complex disputes.

With their combined skills-set and knowledge, the lawyers and associates of the firm can provide comprehensive legal solutions according to the clients’ particular business needs, requirements and objectives. We are committed to representing our clients at all stages of disputes, including negotiation, mediation, arbitration and litigation, in order to secure just compensation and legal vindication.

Corporate law services: The firm offers comprehensive legal advice and services in general commercial and corporate matters including: drafting of commercial contracts; merger and acquisitions; corporate governance; strategic legal advice; registration and administration of Cyprus companies; establishment and administration of international trusts; incorporation of funds (open and closed) and collective investment schemes; and, legal audits. The firm provides reliable, sufficient and professional services to a wide range of clients ranging from medium-sized enterprises to multinational corporations.

The firm’s practice includes the following. Corporate and commercial litigation: The lawyers of the firm have an extensive history of representing both corporate and individual clients in commercial and corporate litigation, handling a wide range of commercial litigation including, breach of contract, fraud and misrepresentation, partnership and shareholder disputes, corporate dissolutions, shareholder’s rights and derivative actions, construction disputes, commercial assets recovery or ‘collection’ cases, etc. Although the firm is proud of its aggressive legal handling, at the same time it maintains a friendly ‘boutique’ approach to its clients, striving to resolve their problems and give them the utmost attention. Admiralty and maritime law: The firm’s partners and associates have more than 20 years of vital industry experience, and over the years they have acquired considerable exposure in both contentions and non-conventions aspects of shipping law, advising on matters ranging from cargo claims to marine casualties and from admiralty processes to insurance law. The lawyers of the firm have acted in every area of shipping business. The firm’s clients include shipowners and charterers, P&I clubs, shipyards, ship and bunker supply companies, ship and chartering brokers, freight forwarders, hull and cargo insurers, marine engineering companies, etc. International and domestic arbitrations: The firm offers assistance, representation and advice at all stages of the arbitration process. This includes pre-contentious negotiations, the conduct of arbitral proceedings, advocacy at trial and the challenge and enforcement of arbitral awards. We also appear before Cyprus courts to prosecute or defend applications for interim measures in support of arbitrations such as injunctions, attachments and orders preserving evidence.

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International business transactions: The lawyers of the firm are uniquely positioned to advise multinational corporations and international investors on the most complex cross-border business transactions. They regularly structure, negotiate and implement complex cross-border acquisitions, tender offers, joint ventures, private equity investments, workouts and restructuring, and commercial contracting relationships for clients around the world. The firm handles equity and debt financing, and complex project and structured transactions, providing the clients with services tailored to meet their foreign transactional and operational needs. International tax planning: The lawyers of our firm have great experience in international tax planning, strategic consulting and wealth management. Our lawyers provide tailor-made tax planning and management all over the world. All cross border transactions have a tax implication. Our tax specialists can assist clients covert tax traps for the unwary into opportunities. They can join the Cyprus and foreign tax sides of a company’s business into a coherent tax and business strategy.

Tonia Antoniou 35, Thekla Lysiotis St, Eagle Star House, 6th Floor, Limassol 3030, Cyprus +357 25363685

Michael Kyprianou & Co. LLC has established an enviable reputation as a broad-based legal practice based in Cyprus and Greece. One of the areas of our specialisation is the company formation, management and administration of Cyprus and offshore companies, and the formation and administration of trusts. Cyprus companies - legal requirements A Cyprus company needs to have at least one director, one shareholder, one secretary and a registered office in Cyprus. The minimum share capital of the company is €0.01 (or in any other currency). The first step in the process is the choice of the name of the company to be approved by the Registrar of Companies. The name must include the word ‘Limited’ or its abbreviation ‘LTD’ to signify limited liability status. The period for the approval of the name is six to seven business days, but for urgent cases our law firm can offer a list of names already approved by the Registrar of Companies. Then the memorandum and articles of association of the company are prepared and submitted for registration to the Registrar of Companies, together with the information regarding the officers and shareholders of the company. It will take approximately five working days to obtain a company registration number and another five working days to obtain the company’s corporate documents. For urgent cases, our law firm can offer a list of shelf dormant companies already registered with the Registrar of Companies. Cypriot jurisdiction Cyprus has a very advanced tax planning culture based on an extensive double taxation treaties network. In recent years, and further to the accession of Cyprus into the EU, a large number of international structures involve a Cypriot company. Cyprus, at present, features the lowest fixed corporate tax rate (10%) in the EU and a very competitive VAT rate (15%). Up to 31 December 2010, there were 237,372 companies registered with the Registrar of Companies in Cyprus and 19,278 new incorporations in 2010. The Cyprus government recognises the importance of company formations and protects such services by maintaining tax rates at the lowest rates and other measures to attract foreign investors in Cyprus. our services When using our law firm, you can enjoy a complete provision of services under one roof with the highest level of secrecy. We can provide the full scale of services necessary for the prudent administration and management of companies and trusts. Our personnel includes experienced corporate administrators, lawyers, tax advisers, accountants and auditors that all work together to provide a complete package of services to cover the client’s needs.

Christodoulos G. Vassiliades & Co LLC Christodoulos G Vassiliades Managing director Tel: +357 22 55 66 77 Fax: +357 22 55 88

Christodoulos G. Vassiliades & Co. LLC is a professional firm of advocates and legal consultants that was established in 1984 and that has grown into one of the most reputable law firms in Cyprus. Today, Christodoulos G. Vassiliades & Co. LLC is internationally acknowledged to be one of the leading law firms in Cyprus and is also viewed as a pioneer in its field. The firm offers the diverse professional skills of approximately 130 employees including qualified lawyers, legal consultants, administrators and legal assistants, all dedicated to providing immediate, viable and comprehensive solutions to clients. Christodoulos G. Vassiliades & Co. LLC has developed expertise in both domestic and international law to private and corporate clients in the corporate, intellectual property, trust, mergers and acquisitions, and commercial legal fields. The firm sets uniformly high standards of quality services from its base in Nicosia, the capital of Cyprus, with coordinated teams in its branch office in Limassol, and affiliated offices in Athens, Moscow, Budapest, Belize and Seychelles. The firm also has an extensive international network of correspondent law firms worldwide and is a member of the Cyprus Bar Association, International Bar Association, International Tax Planning Association, Interlaw, Lexwork International, Laworld, Mackrell International, Legus, International Trademark Association, and the Institute of Trademark Attorneys. Through these networks, the firm is able to call on the expertise of financial and legal professionals worldwide to tailor its services to specific client needs. Christodoulos G. Vassiliades & Co. LLC has been involved in many international transactions and has been appointed as a legal representative in Cyprus, having worked with a number of leading international law firms, including Magic Circle firms. Generally, the firm’s clients range from private individuals to corporate clients in diverse fields including shipping, construction and development, oil and energy, information technology, investments firms, entertainment and prominent banks in Cyprus and Russia. Further, the firm acts for the Attorney General’s office in various civil actions, such as, among others, recovery of amounts due to the Republic based on leases of land owned by the Cyprus government and VAT liabilities.

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country Profile - cyPrus - corPorate seVices

Magnumserve Limited Mr Soteris Flourentzos Position: Director +357 25028460 +357 25028461

Magnumserve serves the needs of international clients. It was founded on the principle of providing a new platform for the international financial industry by offering a full spectrum of consulting and administrative services and professional corporate formation and administration services from a broad range of domiciles, with particular focus on Cyprus. The products and services of Magnumserve are based on reduced risk. Through a series of private consultations, Magnumserve will ascertain the best strategy for the particular circumstances and work with investment advisers, lawyers and other key professionals to provide the most appropriate international structure for the clients’ needs. Through careful planning and corporate management techniques unique to international structures, Magnumserve ensures that its clients will have greater control of their international investments. Magnumserve has all the expertise required to place investments globally - a strategy used by investors seeking to develop structures to minimise taxes, protect their assets, better plan their estates and enhance the privacy of their financial affairs. Client companies represented by Magnumserve are used for many purposes, including portfolio and property investment, trading, patent, royalty and copyright holding, and ship and aircraft ownership. The many years of experience accumulated by Magnumserve’s directors and senior officers ensure that its clients receive the high quality, responsive services required to meet their international financial needs on a worldwide basis.

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country Profile - cyPrus - reccomended hotel

le meridien limassol Spa and Resort The Luxurious ‘residents only’ Le Meridien Limassol Spa and Resort is situated on 100,000 square metres of landscaped gardens and is the only five star international chain hotel on the beach in Cyprus. The hotel is renowned for its award winning Spa, delicious range of dining options, unrivalled children’s facilities including Penguin Village and Leisure Land, and not forgetting its impeccable service and warm hospitality. There is an excellent choice of very spacious accommodation to choose from, and also an ‘adults only’ spa wing for couples wanting to enjoy full privacy. It has eight restaurants to suit the most discerning of gourmands with a choice of International, Fusion, Mediterranean and open air (May – October) a Japanese, Italian, Greek and seafood restaurants. A highly refined bar service is offered at our “La Promenade” Lounge and Terrace

and cool drinks can be enjoyed either under the shade of “Le Cool Bar” Poolside Bar or at “Le Lagoon” Bar, next to the seawater pool. The “Amber Bar” is the ideal venue for after dinner drinks in a relaxed and cosy atmosphere with live music, “Pier Bar” available June to October and not forgetting “La Sirene” Fun Room with electronic games for teenagers such as juke box, pool table, air hockey. Le Meridien Limassol Spa & Resort has also five outdoor swimming pools, one of which is a sea water pool and a well equipped gym centre. Its renowned spa & Thalassotherapy Center has seven seawater pools and 34 treatment rooms and offers over 125 treatments to choose from. The hotel’s ‘Leisure Land’ offers a wide range of sport facilities for teenagers and adults with 4 tennis courts, basketball and volleyball courts, football pitch, mini golf, pool tables, table tennis, archery, badminton and even

a bowling centre. The children’s club has fully trained staff to organize activities and games for children from 3 to 12 years old as well as a crèche facility (at an extra charge) is available for babies from 1 month old. The hotel also offers “Theatro” Entertainment Piazza with a professional stage, light and sound engineering, a seating area and bar where live concerts, entertainment shows and various international programs are performed during the summer season (June to October). Tel: +357 25 862 000 Fax: +357 25 634 222

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Luxury Brand Series – pRIVATE ISLAND ESCAPES

Luxury Brand Series

Private Island Escapes The idea in the business world is to make the world a smaller place for people to trade and work, but it seems that the “smaller” the world becomes, the harder it is to find a quiet place to sit back and relax. Even when it is possible to go away for a holiday to a quiet place, you feel like the world has followed you because everyone knows about this place. However, there are private islands out there that offer you peace, tranquillity, luxury and more!

Long gone are the days when a holiday was considered a few days away from the office with family and friends to a nearby villa, resort or beach. Today, with the expansion of flights and transport around the world, no place seems too far away or too remote. Nearly every place in the world seems accessible and with the hospitality industry competing intensely to lure tourists to their destinations, these places are quickly becoming overcrowded and too commercial even for the most avid traveller. However there are islands in the world that will only open their doors to the lucky few. These islands are owned and maintained not by franchised tourist operators or so –called premier resort businesses, they are private islands that are run completely independent from any commercial firm. Private Islands are swiftly becoming the number one destination for those of us who to go somewhere without the crowds, the commercialism or clamour. What these private islands offer is pure indulgence, luxury, peace and relaxation, which is only available to those who want more than the average island resort can offer. In this issue of the Luxury Brand Series we’ve found some of the world’s most unique and amazing private islands that will get you really thinking about your next holiday. These islands not only offer peace and tranquillity, but also a service that is second to none. So why not put your feet up, relax and enjoy the best private islands in the world!

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Oil Nut Bay British Virgin Islands Nestled on a private peninsula on the eastern tip of Virgin Gorda, Oil Nut Bay is a sparkling jewel in the British Virgin Islands’ (BVI) archipelago. The crystalline waters and protected anchorages of the BVI have long beckoned to yachtsmen, sailors and divers alike. Now, a world-class resort community provides a rare lifetime opportunity for freehold home ownership. Created by Victor International Corporation’s David V. Johnson, Oil Nut Bay is a unique Caribbean destination. As with Mr. Johnson’s other luxury resort communities, Oil Nut Bay was founded on an extreme low-density master plan concept that promotes luxury with environmental stewardship and integrity. Eightyeight residences are strategically placed throughout Oil Nut Bay’s hillsides and beachfront with 50% of the land dedicated to nature preserves and open space. The best of both worlds Accessible only by boat or helicopter, Oil Nut Bay spans across 121.4 hectares (300 acres), stretching from Eustatia Sound at its north shore, to the Caribbean Sea to the south. The community features an exquisite portfolio of home sites that blend a private island lifestyle with world-class resort amenities. A select number of hilltop estate parcels, some as large as 4.05 hectares (10 acres), provide breathtaking panoramic views. Ridge and beach villas are thoughtfully positioned to take advantage of stunning land, beach and sea lifestyle choices. Today, only three beach villas remain available. Oil

Nut Bay’s close proximity to neighbouring Biras Creek Resort, a Relais & Chateaux property, Necker Island and the world-class Yacht Club Costa Smeralda Virgin Gorda, suggest why the area is considered home to some of the world’s most desirable real estate. Respect for the area’s natural beauty has been a guiding principle in the creation of Oil Nut Bay. Residences and resort elements — including the Oil Nut Bay Beach Club and Wellness Centre —reflect a commitment to architectural integrity in harmony with the land. Residential sites have been meticulously crafted to afford owners stunning vistas as well as a peaceful and mindful environment. Relax, dine and enjoy If you’ve ever considered purchasing your own sun-drenched private island, Oil Nut Bay has all of the advantages of private island life without the headaches. From the miles of pristine shoreline to the luxurious amenities and lifestyle, you owe it to yourself to explore Oil Nut Bay. The attention to your comfort begins as you land at the Oil Nut Bay arrival dock. Guests are graciously welcomed with a cool towel and a refreshing drink. The Beach Club is a soothing oasis where you can unwind, swim, dine and connect with the sea. Lounge at one of the three Beach Club’s pools and enjoy your favourite tropical drink — or frolic in the waves on the white sand beach. If you’re feeling adventurous, snorkel, sail and explore the waters and islands of the BVI.

The dramatic architecture of the Beach Club’s soaring open-air palapa is a perfect combination of the exotic and the luxurious — precisely the catalyst to put you in a vacation frame of mind. The Beach Club’s chef de cuisine and dining staff will create a delicious repast that will delight your taste buds. Oil Nut Bay Beach Club access is also provided with a Yacht Club Costa Smeralda Virgin Gorda berthing membership. YCCS Virgin Gorda, a state-of-the-art marina accommodating superyachts, recently hosted the inaugural Caribbean Superyacht Regatta and Rendezvous. This exceptional marina — the only one of its kind in the Caribbean is an environmentally unique deep-water superyacht pier that can handle yachts up to 100m (328ft) with three-phase electric power and pump-out at each berth, and onsite concierge. Contact the Oil Nut Bay concierge team to schedule your visit and discover why this island paradise will capture your heart and inspire your dreams. Victor International Corporation +1(248) 364-2400,

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Luxury Brand Series – pRIVATE ISLAND ESCAPES

Four Seasons Resort Maldives Purveyor of legendary service and unsurpassed experiences the world over, Four Seasons treats its guests to not one but two private islands in the Maldives: Kuda Huraa and Landaa Giraavaru. And because choosing between the two is nigh on impossible, the islands’ inimitable live-a-board, Four Seasons Explorer, cruises between the two on all-inclusive three, four or seven night itineraries that include everything from three dives a day to sumptuous barbecues on deserted coral islands. But first, Kuda Huraa. Just 25 minutes in a speedboat (or ten minutes private seaplane charter) from Male airport, this charming garden island houses 96 thatched bungalows and pavilions arranged in the style of a traditional Maldivian village. All accommodation, restaurants and recreational facilities flank a colourful central promenade lined with bougainvillea, frangipani and hibiscus flowers. The resort is close to some of the best , and warmest, surf in the world and has a Tropicsurf Surf School offering classes,

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courses and clinics for water babies aged six and up. The Island Spa - the only one in the Maldives on its own private isle - offers innovative treatments with an emphasis on wholly natural products and restorative marine nutrients. Other highlights include over 30 dives sites within a ten to 45 minute sail, thrilling shark safaris, three world-class restaurants and a chilled-out Sunset Lounge. Kuda Huraa’s sister island, Landaa Giraavaru is located 100kms north in the remote Baa Atoll. Guests can fly direct by seaplane from either Male or Kuda Huraa, or sail via Four Seasons Explorer. Those choosing the latter option are in for the biggest treat. Complete with its own PADI 5-Star Dive Centre, spa therapist, marine biologist, gourmet chefs, whirlpool, water sports and remote island excursions, the luxurious three-deck catamaran leads a maximum of 22 guests on an unforgettable odyssey into the undiscovered Maldives.

Upon arrival at Landaa Giraavaru, the first thing that hits you is the vast turquoise lagoon stretching two kilometres into the deeper blueness beyond. Home to turtles and rays, pilot whales, dolphins and baby lemon sharks, the lagoon is also the perfect arena for water sports ranging from catamaran sailing to kite surfing and seabobs. The island itself is a natural wonderland with vast accommodation compounds, isolated restaurants and extensive recreation facilities hidden down dense jungle paths. Join pioneering conservation projects in the Marine Discovery Centre or immerse in the healing heart of The Spa & Ayurvedic Retreat, complemented by complimentary ayurvedic consultations for all guests, and doshaspecific options in all four restaurants.

Four Seasons Resort Maldives at Kuda Huraa Four Seasons Resort Maldives at Landaa Giraavaru and Four Seasons Explorer The central reservations department of Four Seasons Resorts Maldives Tel: + 960 66 00 888 Fax: + 960 66 00 800

Last but by no means least, the island is just 20 minutes from Hanifaru Bay, one of the best places in the world to snorkel with mass gatherings of manta rays and whale sharks (May to October). You won’t ever want to leave.

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Luxury Brand Series – pRIVATE ISLAND ESCAPES

Lily Beach Resort Maldives Lily Beach Resort & Spa enjoys a worldwide reputation for its pristine beaches, lush tropical vegetation and the exotic house reef only few meters away from the shore. Located within the spectacular Ari Atoll, Huvahendhoo Island is in close proximity to some of the most amazing dive sites on the planet. After an extensive renovation, Lily Beach resort & Spa reopened in 2009 as a luxury, All-Inclusive ‘Platinum Plan’ five star resort, the first of its kind in the Maldives and a true pioneer of “Affordable Luxury”. All 119 villas employ natural materials in a fusion of contemporary design and local Maldivian architecture. During the day, guests enjoy all manner of water sports and excursions, as well as a state-of-the-art gym, spa, sports complex and two fresh-water pools. Evenings at Lily Beach bring pleasant breezes and fine dinners, live music, variety shows and beach games.

“Tamara Spa by Mandara” - The Over-water Spa Complex offers Holistic Therapies that reach far beyond the traditional spa experience. Inspired by the various liferejuvenating rituals practiced by various Asian cultures, “Tamara” has merged techniques and philosophies, to produce a Fine collection, promising a fulsome wellness experience.

All 3 bars and “Lily Maa” main restaurant are included in the Platinum Plan. The fine dining specialty restaurant ‘Tamarind’ offers a fusion of Indian and Chinese cuisine, which can be experienced once a week on Platinum Plan.

Located amongst the exceptional dive sites in Ari Atoll, Lily Beach Resort has excellent dive facilities and a choice for everyone. “Ocean Pro” Dive Center conducts courses for beginners and advanced alike as per PADI standards. Children 8-11 years can enjoy the Bubble-makers course too.

Inspired by the refined taste and presentation of the renown French Cuisine “Terrace la France” offers a true culinary Journey. Romantic ambiance, excellent wine selection and A-la-carte French specialties complimented with premium service and attention to details

Lily Beach Resort offers a range of facilities and services for families with children. The in-door and out-door facilities of “Turtles” Kids Club offers various entertainment options providing comfort for the parents and plenty of fun for the kids. Daily activities organized by our kids club

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attendants, baby sitting service on request and a dedicated Kids buffet are some of the additions designed to ensure a memorable holiday for the little guests. Lily Beach Resort & Spa Ms. Teo-Dora Karsheva Director of Sales & Marketing Tel: +960 668 0013 Fax: +960 668 0646

“a little piece of heaven on Earth”

Cousine Island Seychelles COUSINE ISLAND situated 6kms from Praslin, refurbishes its interior decor and introduces swimming pools in each villa in its continued efforts to ensure maximum privacy and strike that rare and wholesome balance between luxury and simplicity, development and conservation, deluxe comforts (flat screen DSTV, CD/DVD player, mini-bar, ice-maker, Ipod docking station and internet) and raw nature, remoteness yet proximity to civilization. Why choose this deluxe eco-tourism resort for your holiday? How can one describe the ineffable, define the surreal…. Only four, spacious, French colonial styled villas hug one km of deserted beach where seashells still lie scattered in the mid-day sun. They are each 175 m² , with sitting and dining room, bedroom, kitchenette, front and rear patios. They host so few visitors - a maximum of eight people - at a time that guests have a distinct sensation of a whole 62 acres of island bliss to themselves - a tropical hideaway from the usual crowds, the hustle and bustle and paraphernalia of many hotel resorts. A handful of discreet local staff offer a very personalized service that induces complete ease and relaxation; a home away from home feel - where you partake of delectable local and international gourmet cuisine where, when and how you please! You can choose a leisurely, ‘do nothing’ type of tropical vacation on a beach nestling beneath a hillside of lush green vegetation, pampered by the soothing, exotic ingredients of Ligne St Barth in a Wellness retreat and fragrant, romantic candlelight suppers, or a more activity based one with diving, snorkeling, fishing, treeplanting, turtle monitoring, kayaking, nature walks, gym exercises and island hopping on the Sunseeker Superhawk 43. Surrounded by an environment restored to its original endemic state, the silence is broken only by the sound of the waves, the rustling of fronds, the chorus of six endemic and thousands of sea birds and the heaving of the friendly giant tortoises that come up for a pat on the head. During the nesting seasons, a close and intimate encounter with

hundreds of fluffy chicks waiting for their evening meal of silver fish or the vulnerable hawksbill emerge from the ocean to lay her eggs is an awe-inspiring experience! By your very presence on Cousine, you are a contributor and active protagonist in this epic story of Nature conservation as all the proceeds from tourism is ploughed back into the programme. You benefit in return from a holistic, therapeutic rejuvenation of body and mind as you re-discover the oneness of the universe. Cousine Island P.O Box 977 Victoria Mahe Seychelles Tel: +248 4 32 11 07 Fax: +248 4 32 38 05 Mobile: +248 2 71 34 18 June 2011 • GBM • 45

metals, mining, & minerals

metals, mining and minerals After several years of an unprecedented boom in commodity prices, the mining, minerals, and metals industries are experiencing a significant contraction driven by falling demand and lower prices. As a result, project and engineering organizations are experiencing cutbacks and downsizing. Nevertheless, understanding the laws around this industry is key to gaining the upper hand.

Share prices across the natural resources sector have been falling. The greed and excited anticipation that was so evident at the start of the year has turned to fear. Private investors have been running for their lives. Some commentators have said that the current setback in mining stocks is due to three dynamics. A slender decrease of growth in the Chinese markets; a general withdrawal from the Eurozone; and growing tension between minors and varying governments. However, although share prices have been falling, global mining expenditure is set to hit a record $115bn-$120bn this year, above the peak of $110bn set in 2010, according to a survey of senior industry executives and consultants. The rise is being driven by miners such as Vale of Brazil, Rio Tinto and Xstrata, who want to take advantage of generational boom in demand and pricing for raw materials. In Australia, the hottest mining region and the government’s resources forecasting agency predicts expenditure to jump by 58 per cent year-onyear. Whether the markets favour the natural resources or whether they favour rare metals, the underlying laws governing each resource hold the key to the markets. Many investors and firms have found that by understanding the ever changing laws

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surrounding mining, they can reap the maximum benefit and rewards from this industry. Many of the legal issues surrounding the mining, metals and minerals sector cover vast areas and affect nearly all industries across the globe. Governments and legal bodies across the world formulate these laws to control and coordinate the influx of investors and miners who want to profit from the increase in global demand for natural resources. The laws cover areas such as the mining of rare metals, minerals, foreign firms mining in another jurisdiction, the environment and legal rights of miners. All these have a profound influence on the price of commodities and natural resources causing a knock on effect of the global markets. Today many investors are looking to the new emerging superpowers such as India and China. With high demand for resources such as iron, copper, coal and timber, prices around the world are determined by how much these countries are willing to spend. The future in the metals, mining and minerals industry will always fluctuate and make headlines around the world, however the legal experts will always be at hand to advise and give help when required.

CANADA Mark Zastre, CA, MBA, CPA (Illinois) National leader Mining Grant Thornton LLP

Mining for success “All the world’s a stage.” Or so William Shakespeare said. While he was not referring to mining and exploration, it’s not a bad analogy. In fact, mineral extraction by its very nature takes place on the grandest of world scales — the global stage. In Canada alone, the mining industry accounts for 3.5% of Canada’s GDP, employing over 350,000 people, from exploration to extraction, through to processing and manufacturing (‘The Canadian Mining Industry: Overview, Issues and the Way Forward’, Gordon R Peeling, Mining Association of Canada [April 2010]). It’s a similar story that is being told in many countries and one that that will feature ever more prominently in the economies of those countries endowed with a wealth of natural resources. The insatiable appetite for mineral resources of such emerging economic powerhouses as China, India and Indonesia, among others, continues to grow and will continue to put increasing upward pressure on commodity prices as demand begins to outstrip supply as based on current resource estimates. The increasing demand for mineral resources is not limited to emerging economies, however. Recent statistics from the US show a decline in high-quality US ore reserves, as production is exceeding the discovery of new deposits (Metal Ore Mining, First Research Inc, Industry Profile [4 April 2011]). As a result, deposits that were once considered not economically feasible are now being contemplated. This includes mineral deposits in jurisdictions that have traditionally been deemed too risky to invest in. As companies, especially small exploration stage entities, move into increasingly more remote and politically hostile jurisdictions to undertake exploration activity, new and potentially greater risks and uncertainties are introduced into what is an already risky industry. Smaller mining companies may not, in all cases, have the depth of resources and know-how to successfully manage the risk of doing business in a foreign country. Success in this area is dependent on many factors, not least of which is a strong knowledge of, or access to advisers knowledgeable about, the rules and regulations that vary from country to country. due diligence is the best diligence Country-specific differences can be significant or they can be very subtle. Take the tax advantages available to companies carrying on mining activities in Canada, for example. In an effort to encourage mineral exploration activity, the government of Canada introduced flow-through share rules permitting companies to renounce exploration expenses to shareholders who can then deduct these renounced corporate expenses at the personal level. Similar tax incentives in respect of flow-through shares exist in Australia as well.

Local knowledge can provide mining companies with competitive advantages in a foreign country where the company and its management have had limited previous exposure or experience. The country-specific benefits that may be applicable to specific situations will almost always need to be examined on a case-by-case basis. The devil is in the details, and company and country-specific issues and opportunities are important to identify, analyse and plan around. The few examples listed above illustrate just a fraction of the equation, but they demonstrate that it’s worth undertaking the necessary due diligence at the front end of the process to see where costs can be saved, and risks, whether they be political or economic in nature, mitigated to an acceptably low level. outside expertise is the key Mining company executives usually have enough to worry about without attempting to understand all the regulatory issues and opportunities that present themselves through expansion into foreign countries and markets. Hearing the words ‘tax incentives’, for example, may seem very enticing, but what you gain through a tax incentive in one country may negate or eliminate preferences that are possible or currently realised in another jurisdiction. Additionally, there are more things to consider other than simply the tax regulations and incentives currently on the books. Political instability in a host country, interventions from local interest groups and local governments that are looking out for the interests of local communities, are just a couple of examples of the ‘plot twists’ that can accompany a mining company’s foray into a foreign market. The above considerations aside, access to advisers with a global presence can help ensure that local ‘on the ground’ expertise in multiple jurisdictions across the globe will be readily available to you at all times. Shakespeare also wrote that: “A fool thinks himself to be wise, but a wise man knows himself to be a fool.” Our suggestion? Don’t be ‘a fool’ when it comes considering whether to engage in exploration and development activity in a foreign jurisdiction. It may be that you’re ready, but not sure about the next steps. Or it may be that you’ve already taken the leap of faith and aren’t sure of where to go next. We’ve considered here only a very small part of the myriad of topics and issues you need to consider when expanding your mining business. Having the right advisers on your side — those with the capabilities to work closely with you in your home country and with their counterparts in your destination nation — will be absolutely critical to your success as you expand into foreign markets.

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metals, mining, & minerals

INDONESIA Al Hakim Hanafiah Partner +6221 5701837, 5746545

the Mining industry in indonesia Hanafiah Ponggawa & Partners (HP&P) is one of Indonesia’s premier law firms engaged in a transnational practice. With roots in one of Indonesia’s first postindependence law firms, the Law Offices of Mr L Hanafiah established in 1953, HP&P was reconstituted in 1990 as Hanafiah Soeharto Ponggawa and reorganised at various times in the 1990s to reflect Indonesia’s changing situation before taking its present structure in June 2004. The organisation is also a reflection of HP&P’s clients’ need for specialised legal services in various areas of law. While keeping themselves a general practice firm, HP&P has formed several practice groups that cover most areas of law, one of which is natural resources with particular strength in the mining sector. In the mining business sector, HP&P has been retained by numerous multinational and domestic companies, such as JSW Energy Limited, Jindal Stainless Limited, MGM Global Resources Group, Bhoruka Energy Limited, PT Sugico Graha, and PT Darma Henwa Tbk, to assist in various stages of their mining related businesses in Indonesia. HP&P representation has encompassed a wide variety of mining business activities, from the acquisition of mining companies, establishment of mining service companies for structure purposes, conversion of coal contract of work (CCOW) agreements, legal due diligence exercises upon mining concession and CCOW holders, and operational regulatory needs of mining and mining service companies. The mining industry in Indonesia is guided and regulated under the Mineral and Coal Mining Act, Law No 4 of 2009, (the Act), which was followed by four government regulations (GRs), as the implementing regulations: GR No 22 of 2010 concerning Mining Areas; GR No 23 of 2010 concerning Mining Business Activities; GR No 55 of 2010 concerning Guidance and Supervision of Administration of Mineral and Coal Mining Business Management; and, GR No 78 of 2010 concerning Reclamation and Post Mining. Some of the key provisions under the existing Mineral and Coal Mining Regulations cover the following. Mining areas: These are divided into three categories - mining business areas (wup), small scale mining areas (wpr) and state reserved mining areas (wpn). Mining authorisations: Under existing regulations there will be no new contracts of work (kontrak karya) but the existing ones are honoured until the end of their

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respective terms, and instead mining business are now subject to the following mining licences issued by the Indonesian government: mining licences (IUP), available for companies, cooperatives, and individuals; small scale mining licences (IPR), available for Indonesian individuals, cooperatives and groups of persons; and, special mining licences (IUPK), available for Indonesian legal entities, including state owned companies, regional government owned companies or private companies through a bidding process. Finally, mining business conducted by foreign investors: Foreign investors now have basically the same opportunities as local companies in mining business in Indonesia but they have to meet certain administrative, technical, environment and financial requirements in order to obtain IUP or IUPK. Furthermore, the Act requires that after five years in the production phase, a foreign investment company engaged in the mining industry has to divest shares owned by a foreign party(s) to the government, regional government, a stateowned company, regional governmentowned company, or local company. In Indonesia’s current economic situation, the exploitation of its natural resources has become even more important than before and it has become a great opportunity for Indonesia with its huge reserves of natural resources. In line with these, HP&P has expanded to cope with the potential increase of workload in this area. HP&P has extensive experience in covering clients’ needs in all aspects of Indonesian regulations, policy and common structures used in the mining industry. Natural resource-related work can be politically and socially sensitive, and our long experience in these sectors enables us to help clients anticipate and minimise the risks such factors can bring into play. Business in these sectors is very much dependent on approvals from a multiplicity of central and provincial government institutions, and our firm’s track record in this respect has proven our ability to assist clients achieve their goals through cooperation with officials in the relevant departments.

CANADA John Wilkin Partner Blake, Cassels & Graydon LLP Tel: 416-863-2785

Capital markets for mining in Canada Canada is known for its natural resources. It is a major producer of minerals and other resources and is home to the world’s leading capital market for natural resources companies. The TMX Group, owner of the Toronto Stock Exchange (TSX), Canada’s senior market, and the junior TSX Venture Exchange (TSXV), reported that at the end of 2010, 58% of the world’s mining companies were listed on the TSX or TSXV. During 2010, these 1,531 companies raised approximately $17.8 bn in equity financing (60% of the world’s mining equity capital) and saw C$416 bn in value being traded during 2010. This depth of liquidity is accompanied by broad analyst coverage. Investors on the Canadian stock exchanges have also proven receptive to diverse commodities and geographical risks. Of the

nearly 9,500 exploration projects held by TSX and TSXV listed companies, nearly 50% are located outside of Canada. In addition, the number of dual listed and international companies continues to increase, with 154 international mining companies being listed on the TSX and TSXV. Equinox Minerals Limited is a good example of a focussed strategy of accessing the strength of the Canadian equity markets by an international mining company. With the large Lumwana copper project to develop, Equinox determined it needed to look beyond its home Australian market for the substantial amount of capital required. ASX-listed Equinox re-domiciled to Canada and became dual listed on the TSX in July 2004, raising C$15.2 million on its IPO. Setting up an office in Canada and working hard at communicating its story to Canadian investors, Equinox raised over C$600 million in equity in a series of private placements and public offerings, which provided all of the equity required for the project. Production at Lumwana commenced in December 2008. In April 2011, Equinox agreed to be acquired by Barrick Gold Corporation for approximately C$7.2 billion. A hallmark of the Canadian capital markets’ success in the resources sector is a strong securities regulatory and disclosure regime. The Canadian securities regulators prescribe detailed disclosure standards for listed companies, which are required to

provide the market with timely updates of material information and detailed periodic operational and financial disclosure on a quarterly and annual basis. Disclosure on mineral projects must also comply with National Instrument 43-101 – Standards of Disclosure for Mineral Projects. This rule requires companies to disclose all scientific and technical information about their material mineral projects in a prescribed and detailed form of technical report which, in many circumstances, must be authored by independent technical experts. All mineral resource and mineral reserve information must be presented in accordance with standards set by the Canadian Institute of Mining, Metallurgy and Petroleum, or be reconciled to those standards if presented using a foreign code. Blakes offers mining industry clients a multidisciplinary approach that draws on our extensive experience in M&A, corporate and project finance, competition, tax and environmental law. Our leading mining practice is primarily focused on sophisticated M&A and corporate finance transactions, areas in which Blakes consistently ranks at or near the top of the league tables. For 2010, Blakes was ranked No.1 for Global announced mining M&A deals by deal count by Bloomberg and Thomson Reuters, and No. 1 for Canadian announced mining M&A deals by deal count and deal value by mergermarket and Bloomberg.

CHILE Urrutia & Cia. Abogados Enrique Benítez Partner (56-2) 499 5940

chile’s mining sector Chile is the most fiscally sound and best rated of the Latin American economies. As of December 2010, S&P had provided Chile with an ‘A+’ foreign currency rating and a ‘AA’ local currency rating, clearly indicating the strong political and economical position of the country. Although the Chilean economy is rapidly diversifying and expanding, mining continues to be its foremost industry. Chile is rich in ore deposits and, as such, the mining industry has been regulated by special legal mechanisms throughout its history. The 1980’s Political Constitution and Chile’s Mining Code (MC) and its regulations (1983) updated and improved Chilean mining laws to ensure they could

match the country’s general interests, with the interests of mining concession owners and surface estate owners. Noteworthy, Urrutia & Compañía’s (U&C) lead partner co-authored the current Chilean MC. In Chile, mineral rights are owned by the government. Private persons may obtain the right to explore for and exploit minerals through concessions granted in a judicial procedure. An exploration concession, subject to the payment of an annual fee, is valid for two years, renewable for an additional two years with respect to half the area of the original concession. An exploitation concession is valid indefinitely, subject to the payment of an annual fee. In regard to surface rights, in Chile ownership of a mining concession does not include ownership of the surface estate. However, mining rights are dominant to surface rights and the MC grants the owner of the mineral concession the right to impose easements or rights of ways over surface land subject to the payment of a reasonable compensation. U&C’s vast experience in mining law has allowed its clients to maximise the opportunities available. The firm has a broad range of experience in: the legal procedures for establishing mining concessions; reviewing mining deeds;

negotiating purchases and sales of mining concessions and projects; land option and joint venture contracts; all to do with the environmental and permitting approvals needed for the project; all types of trials related to establishing mining properties; and, negotiating, establishing and defending mining easements or rights of ways. Its client base includes both Chilean and foreign large metallic and non-metallic mining companies. It is not surprising that the firm has provided services to several institutions, organisations, and companies on the legal aspects of mining in Chile. Our clientele includes the National Chilean Mining Service and the Chilean Geological Research Institute, several of the world’s largest transnational mining companies, Chile’s most important mining companies and state-owned mining company, the UN mining programme, and several other mining commissions. A few years ago, U&C successfully helped a multinational mining company in its bid for one of the largest Chilean state-owned copper deposits. The firm is presently the chief legal adviser for the largest trans-boundary mining project in Latin America, with an initial investment of over US$3.2bn.

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metals, mining, & minerals

HONDURAS CENTRAL LAW Honduras- Medina, Rosenthal & Fernández Jesús Humberto Medina Alva, Partner Tel: +504-2550-2155 Fax: +504 2550 2159

Nº292, 1998). The MGL created the mining national authority Defomin, which regulates the industry, approves and denies mining concessions. The environmental and administrative laws support this law, along with different agreements pertaining minerals, natural resources and property law. As the MGL does not provide certain basic aspects crucial to the regulation of that needed in mining, a new law has been under National Congress review for many years ago.

CENTRAL LAW Honduras Medina, Rosenthal & Fernández (1989) has consolidated into one of Honduras’s best law firms in corporate and business legal counselling according to Chambers and Partners and International Financial Law Review international rankings. The firm has grown both locally and internationally, conforming CENTRAL LAW along with other prominent law firms from Guatemala, El Salvador, Nicaragua, Costa Rica, Panama and Dominican Republic. The firm has expanded its geographic influence and jurisdictional reach, through 11 offices within the region. The law governing mining in Honduras is the Mining General Law - MGL(Decree

There are six mining companies operating in Honduras, exploring or exploiting silver, gold, lead, zinc, cadmium, opals, copper, antimony, topaz, manganese, salt, onyx, clay and marble. Mineral resources are classified into metallic, non metallic, gems or gemstones. The state has domain in metallic minerals in the ground. There are different mining activities, such as prospection and trade, which are free for everyone; whereas exploration, exploitation and benefit are subject to concessions. The law gives concessions according to a grid system of 100 hectares dividing the national territory according to Universal Transversal Mercators coordinates (UTM). The Honduran Constitution grants the same

treat to nationals and foreigners residing in the country as workers or as investors. In order for mining companies to be in compliance with environmental laws these must not carry out any activity causing damage to people, aboriginal or not, living nearby. Companies must pay the sale tax and a City Hall tax of 1% over the total monthly value of sales or exports. Investments projects over ten or $20M are granted with a tax stability regime during ten years and those over $30m are granted with tax stability regime during 15 years. Banks and foreign investment: the domestic public securities market follows the international price of gold to see how the business in the mining industry is going and whether loans given to mining companies are protected or not. Owners of concessions must protect their employees with prevention and mitigation measures, security and health and they have to release a programme of these policies before the Defomin. The international legal framework for the mining industry is the free trade treaty the Dominican Republic Central America United States Free Trade Agreement (CAFTA-DR) and temporary import regimes.

PHILIPPINES Julito R Sarmiento Senior partner Tel: +63-2-6311261 Fax: +63-2-6317585

transformative mining - anyone? Mining in the Philippines today faces one of its most difficult challenges for its actual or perceived failure to sustain a sufficient and meaningful level of social acceptability. It is tragic, given the Philippines’ mineral bounty and its comprehensive legal framework. The Philippines has mineral resources estimated at $840bn. Foreign investments in the mining industry may reach $11.3bn in 2011, and $18bn by 2016. In 2010, the country produced more than $2bn worth of precious metals and base metals, a substantial increase over production in 2009. The Philippine Constitution mandates that the state owns all mineral resources and controls and regulates their exploration, development and utilisation. The Mining Act, administered by the Mines and Geosciences Bureau, contains the qualifications and procedures for acquiring 50 • GBM • June 2011

mining rights, except for small-scale mining, which is regulated under a separate law. The Indigenous People’s Rights Act protects the lands and rights of indigenous peoples and communities; they have to give their free and prior informed consent before the grant of any mining rights affecting their ancestral lands. The Philippines also has laws on environment, ecological solid waste management, clean air and water, toxic substances, and a new Climate Change Act mainstreaming climate change policies into government programmes. Yet, despite such otherwise positive context, mining’s litany of unfulfilled promises makes us realise that mining is an industry in dire need of a new paradigm where, at its core, the paramount goal must be to achieve and sustain social acceptability, over and above anything else - even profitability. If a mining project cannot be socially acceptable, it will not be profitable particularly in the long-term. However, when all relevant stakeholders accept a mining project as capable of transforming each of them in a deeply social way, (ie, transform their mutual relationships from: givers or takers to sharers; owners of capital, technology, lands and resources to co-stewards; employer-

employee to partners; antagonists to friends) each stakeholder will have the compelling motivation to invest all appropriate forms of equity even beyond each other’s expectations to ensure the mining project’s long-term success and profitability for the sake not of a few but for all. The term ‘transformative mining’ is founded on relationships as the greatest resource, not metal or any material matter. Its true measure of success is not the extraction of minerals from the earth as much as the transformation of human relationships from the heart in all aspects of the mining project. Puno and Puno has put up a distinct social licence practice within the firm, the only one of its kind in the country to complement its mining practice and advance transformative mining where any resurgence in the mining industry ultimately lies. The firm has been involved in significant mining projects, notably in the country’s first greenfield polymetallic project and in one of the world’s largest operating copper mines. Besides the usual full gamut of legal services, Puno and Puno has pioneered in deeply immersing itself with affected communities to successfully obtain the social licence to operate from all relevant stakeholders both for its international and local clients.

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gaming law and regulation

gaming law & regulation The International Masters of Gaming Law (IMGL) is a non-profit association of gaming attorneys, regulators, educators, executives and consultants from around the world who are dedicated to the education and the exchange of professional information concerning all aspects of gaming law. IMGL membership consists of over 200 members and represents over 38 countries, as well as members in 32 states and the District of Columbia in the US. General membership is by invitation only to lawyers who: distinguish themselves as having at least five years of gaming law experience; are able to demonstrate skills or knowledge that distinguish their performance as a gaming attorney; and, have a substantial gaming clientele and participate in philanthropic, charitable or educational programmes related to the gaming industry. IMGL members are named in Chambers Global 2011 and also, 42 of IMGL’s attorneys were honoured in the Best Lawyers in American 2010. There are affiliate memberships for gaming regulators, educators, consultants, accountants, compliance officers, young attorneys and in-house counsel of companies involved in the gaming business. IMGL members are committed to participation in industrysponsored conferences (such as The 5th Annual BetMarkets on 8-9 June 2011 in Vienna, Austria and The 10th Annual European iGaming Congress and Expo held on 2-22 September 2011 in Milan, Italy), as well as the two yearly conferences organised by the IMGL. The IMGL conferences focus on issues facing the gaming practitioner worldwide. The 2011 IMGL Spring Conference will be held on 22-24 May 2011 at the beautiful Meritage Resort in California’s Napa Valley, US. The world’s top gaming attorneys, regulators, compliance officers, executives and educators will join together to further their knowledge and contacts in gaming law. The 2011 IMGL Autumn Conference will also be held in Vienna, Austria, on 14-16 September 2011. For more information on both conferences please visit: where you can register online and make your hotel reservations. For speaking and sponsorship International Masters of Gaming Law Melissa Lurie Executive Director +1 303 449 9955 +1 303 449 9977 52 • GBM • June 2011

opportunities, please contact the executive director: IMGLDirector@ The IMGL is creating a substantive body of gaming law work with our four magazines Casino Lawyer (edited by Sue McNabb), Canadian Gaming Lawyer (edited by Michael Lipton), European Gaming Lawyer (edited by Nick Nocton) and the Spanish language La Ley del Juego (The Law of the Game) (edited by Santiago Asensi and Alfredo Lazcano), as well as publishing the International Casino Law & Looseleaf Service, sponsoring the UNLV Gaming Law Journal and the Gaming Law Review and Economics publication and coordinating gaming articles for publication in various law school law review journals in conjunction with gaming law symposiums. The open networking and collective experience of its members makes the IMGL an integral and effective tool for the dissemination of gaming law developments worldwide. The IMGL members practice independently and not in a relationship for the joint practice of law. IMGL also has a discussion group on LinkedIn with over 300 participants and several lively discussions. The discussion group has become a major place on the social networks to discuss gaming law issues, view the news related to gaming law and regulation, and learn of new jobs in the legal industry. Members are free to post news articles, start discussions and provide links to cases, government documents, presentations and other documents. To become a participant in the International Masters of Gaming Law Current Issues Discussion Group simply sign up at www.linkedin. com, do a group search for ‘International Masters of Gaming Law Current Issues Discussion Group’ and request to join. In his May 2011 message, Tony Coles, president of the IMGL, (a partner at Jeffrey Green Russell in the UK), noted the continuing expansion of IMGL and its embracing of new opportunities. Also, he mentioned the inaugural IMGL reception held at the Southern Gaming Summit in Biloxi, which follows the very successful reception held by IMGL during ICE in London in January 2011 and the Annual Receptions at G2E and at EiG. The IMGL receptions provide opportunities for IMGL to become better known in the industry and to develop its ability to provide its members’ services whenever, and wherever, they may be needed.

IAGR The International Association of Gaming Regulators (IAGR) is an organisation of gaming regulators from around the world who communicate on a continuing basis about matters of common interest and convene annually at a formal meeting. IAGR began informally in the 1980s as an adjunct to the annual meeting of the International Association of Gaming Attorneys (IAGA). For a number of years, regulators attended the IAGA annual conference and convened for luncheon discussions on topics of significance to them. Starting in 1993, IAGR became more formalised and commenced its own annual conference in conjunction with the annual conference of IAGA. IAGR recently became an independent, non-profit association, incorporated in the state of Nevada, US as International Association of Gaming Regulators, Inc. Serobi Maja, chief executive officer, Limpopo Gambling Board (who took over as chair of IAGR in October 2010, from Peter Cohen, executive commissioner and CEO of the Victorian Commission for Gambling Regulation in Australia) sees the reorganisation as a tremendous opportunity to grow the already successful association. “By becoming an independent, non-profits corporation, IAGR sets the stage for a new spirit of togetherness and cooperation among all gaming jurisdictions of the world and solidifies its place as the premier international association of gaming regulators,” Maja says.

Maja adds that the association chose to incorporate in Nevada because it has a well-established governance regime for non-profit organisations, as well as a strict gaming regulatory environment. Maja indicated that as a result of the reorganisation, IAGR is poised to begin a membership drive to reach out to countries and other gaming jurisdictions throughout the world and will, for the first time, extend membership opportunities to gaming jurisdictions as well as individual regulators.

gaming regulators in the performance of their official duties; and, a central point of contact for inquiries from governments, gaming regulatory agencies and personnel, and representatives of the international gaming industry. The IAGR conference has grown from onehalf day to its present format of three days. IAGR holds its annual conference every autumn. In October 2000, the organisation adopted for the first time written Rules of Procedures to govern its expanding and diverse membership.

The reorganisation saw the forming of three sub-committees by the Steering Committee, namely a governance sub-committee, a communications sub-committee and a Conference sub-committee.

The 2011 International Association of Gaming Regulators’ conference and business meeting will be held in Cape Town, South Africa, from Sunday 23 October 2011 to Thursday 27 October 2011.

The governance sub-committee, chaired by T Raja Kumar, is responsible for developing the IAGR’s governance framework including a review of the IAGR’s membership structure, its financial arrangements and the election process of Steering Committee members. The communications subcommittee, chaired by Susan Hensel, aims to improve communications outside of the annual conference as a means of facilitating an exchange of information and ideas between regulators on an ongoing basis. The Conference sub-committee, chaired by Serobi Maja, is responsible for the planning of the 2011 Conference.

The conference is scheduled to be held at the Cape Town International Convention Centre. Five hotels within the precinct of the International Convention Centre have been identified to accommodate various budgets. They include: Westin Grand Hotel; Southern Sun’s Cullinan Hotel; Protea Hotel North Wharf; Southern Sun’s Waterfront Hotel; and, City Lodge.

The IAGR consists of representatives from gaming regulatory organisations throughout the world. IAGR’s most recent membership totalled 150 regulators from 43 gaming jurisdictions throughout the world. The mission of IAGR is to advance the effectiveness and efficiency of gaming regulation by providing: a forum in which gaming regulators from around the world can meet, exchange views and information, and discuss policy issues among themselves and with representatives of the international gaming industry; a means of fostering cooperation between

The IAGR Conference sub-committee will be meeting with these hotels to discuss the hotel rates for conference participants. The Conference sub-committee has also received feedback from some members on the discussion topics and conference sessions and is working to ensure that the conference program is relevant and fruitful. If you would like to participate as moderators for the panel sessions or contribute any ideas, please contact secretary James Chan at jamescra@starhub. and IAGR trustee Atle Hamar at aha@ Additional details for the 2011 conference are being finalised and will be communicated to you at the earliest opportunity. We look forward to seeing you at the 2011 conference. For more information please visit:

IAGR James Chan Secretary

Atle Hamar Trustee

June 2011 • GBM • 53

gaming law and regulation

ITALY Despite the world economic crisis, the Italian gambling and betting market is constantly growing and has now reached more than €60bn (4% of the GDP).

The Italian state has adopted the so-called “channelling into controlled circuits” formula, which is mainly focused on regulation, and whose aim is the co-existence and protection of the consumers’ interests, the operators’ needs and the state and tax-related interests. The formula has so far proven to be successful. At the European level, the Italian model, as well as the French one, is carefully analysed and copied by EU members and the European Community; the recently-published ‘Green Paper’ on illegal gambling has launched a consultation round aimed at fighting against illegal gambling and promoting cooperation among the member states. The Italian 2011 Budget Law (Law No 220 of 13 December 2010), the so-called Legge di Stabilità (Stability Law) has brought in some novelties: a ‘gambling package’, with provisions to ensure the Treasury an annual income of €500m, some strong measures to fight against illegal gambling and a series of provisions to protect minors and help the Italian Authority to monitor online gambling and slot machines efficaciously. Having chosen a licensing system, the parallel market becomes a serious problem for the Italian Authority, according to which it counts almost a thousand agencies, working on behalf of foreign companies, without any licence in Italy and with an estimated turnover of €1bn per year. Therefore, the legislator is stimulated to intervene. The 2011 Budget Law rules that a “taxable person” is any unlicensed operator who manages “any kind of bets, tips or forecast with any means, computer included, on behalf of itself or third parties, even located abroad”. The regulator aims at punishing, also with economic and financial measures, those subjects who have operated gaming in Italy without any licence and circumvented measures like the banning of their websites (there is a black list of illegal sites published by AAMS - the Italian Regulator); no doubts, in fact, that by avoiding regulations and taxation, offered conditions are more favourable than those of licensed operators (taxable subjects) thus adversely affecting competition and market balances. The Stability Law also provides for an extraordinary control plan through which AAMS, in conjunction with Guardia di Finanza (the Italian Financial Police) and SIAE (the

STUDIO SBORDONI Olivia Rodrigo Perales Tel: (+39) (06) 6832692 - (06) 6834021 Fax: (+39) (06) 6833990

54 • GBM • June 2011

Italian Society of Authors and Publishers) will carry out an overarching control activity (30 controls at least) on online gambling, betting, and gambling through VLTs (video lottery terminals), AWPs (amusement with prizes), activating also specific monitoring systems on slot machines (a massive census to create a data base with the number of machines, kind of premises where these machines are located and their ownership). Also, the Stability Law provides for new specific measures to grant online gaming licences. As concerns consumers’ protection, the Stability Law provides for tougher rules to avoid access to minors by increasing relevant penalties for the owner of the gambling spot, as well as measures to be adopted by the Regulator to prevent, fight against and recovery from problem gambling. The Stability Law follows important regulations enacted by the Italian State in 2010: implementing Legislative Decree No 39/09 (now Law No 77/09, which included cash poker and casino games, and provided for the final regulation of the video lotteries); enacting the Law for the Implementation of EU obligations No 88/09 (providing for the expansion of the offer of online gambling, by issuing 200 new licences and regulating ‘live poker’); and, enacting Law No 102/2009, providing for an “extraordinary plan to fight against illegal gambling” and provisions on “the granting of licences on gambling”, thus launching new procedures for the granting of licences for traditional lotteries, scratch cards (to be offered also online), as well as, with reference to slot machines, launching new procedures for the licensing of networks, as provided in article 14-bis, paragraph 4, of the Presidential Decree No 640/72. All these rules have thrown the Italian gambling market into a positive turmoil, especially after the introduction of cash poker and video lotteries; the number of licensees, according to forecasts, will grow rapidly, but always through highly-selective procedures complying with European Community laws.

MICHIGAN, USA I am: chair of the Dickinson Wright PLLC Gaming Practice Group; chair of the American Bar Association Gaming Law Committee; founding member and immediate past president of the International Masters of Gaming Law; chair of the American Bar Association Gaming Law Minefield Conference; and, an adjunct professor teaching gaming law, business planning and business organisation courses at Thomas M Cooley Law School.

Dickinson Wright PLLC is an AmLaw 200 law firm that has been in existence for over 130 years. Members of the firm are recognised in Chambers Global, Chambers USA and Best Lawyers in America. In addition to its gaming practice, the firm has extensive practices in banking, finance, intellectual property, litigation, real estate, administrative law, taxation, bankruptcy and creditors’ rights, immigration, international law, labour, employee benefits, insurance and general business law, as well as other specialty fields.

Can states really do this? The Tenth Amendment to the US Constitution answers that question in the affirmative. It provides that the powers not delegated to the US by the Constitution nor prohibited by the Constitution to the states are reserved to the states or the people. This is often referred to as the ‘States Rights’ amendment. Recent appellate court decisions, namely, Northville Downs et al v Governor of the State of Michigan [622 F3d 579 (6th Cir 2010)] and Russo v The State of Washington [239 P3d 1084 (Wash 2010)], recognise the authority of the state to regulate gambling within the state’s borders.

The recent indictments of three online i-poker companies accepting players from the US has been referred to by some commentators as ‘Black Friday’. Does the US Department of Justice take a hard line on Internet gaming? Yes. Does that mean that Internet gaming will never become a major form of legal gaming in the US? No. The demand for Internet gaming in the US is high, notwithstanding the efforts of the Justice Department - think prohibition era. Many i-poker players are shocked that the government claims that what they believe to be a game of skill is being attacked. The reality is that the Justice Department has been consistent in its opposition to all forms of i-gaming. That does not mean that its position is always correct and it does not mean that i-gaming will die on the vine in the US. It does mean that companies that want to enter the i-gaming market when it opens up with a vengeance in the US need to keep their shirts clean while the Internet battle is fought at the federal and state legislative levels. Will i-gaming be legalised in the US? Yes. How will it happen? The most likely scenario commences with the enactment and implementation of intrastate Internet gaming legislation at the state level. The Unlawful Internet Gambling Enforcement Act specifically provides that “unlawful Internet gambling” does not include placing, receiving or otherwise transmitting a bet or wager where the bet or wager is initiated and received or otherwise made exclusively within a single state where such a bet or wager is authorised by the laws of the state. In other words, states can legalise i-gaming that is engaged in exclusively within their boundaries.

Early this year, the New Jersey legislature enacted i-gaming legislation. The legislation was vetoed by New Jersey’s governor, but the legislature is reworking the legislation to address the governor’s expressed concerns. Meanwhile, the District of Columbia has enacted intrastate Internet legislation and Congress did not veto the legislation within the allotted time period for action. The District of Columbia has retained and is now working with Intralot on establishing the regulatory system for intrastate i-gaming. This has placed pressure on the New Jersey legislature to get its act together in concert with its governor. Other states, most notably California, are also in the mix. The bottom line is that states will start adopting intrastate i-gaming legislation pursuant to their authority under the Tenth Amendment. This will place pressure on the US Congress to address i-gaming in a responsible fashion at the federal level. The end result will ultimately be the legalisation of i-gaming in the US. Once that happens, the commercial land based industry, in combination with online gaming companies that have not operated illegally in the US, will form i-gaming powerhouses to satisfy the pent up demand for i-gaming in the US.

Robert W Stocker II Dickinson Wright PLLC 215 South Washington Square, Suite 200 Lansing, Michigan 48933-1816 (517) 487-4715

June 2011 • GBM • 55

gaming law and regulation

FLORIDA, USA Warning: Internet poker may cause seizures

Lawrence G Walters Walters Law Group Lawrence G Walters Managing partner Tel: 407 975 9150 Toll free: 800 530 8137 Fax: 407 774 6151

15 April 2011, which has become uniformly known as ‘Black Friday’, will be remembered as the day the US Department of Justice (DOJ) single-handedly crippled the online poker industry by seizing the domain names of the three largest online poker forums in the world:, and (see DOJ Press Release, US Attorney for the Southern District of New York, ‘Manhattan US Attorney charges principals of three largest internet poker companies with bank fraud, illegal gambling offenses and laundering billions in illegal gambling proceeds’ 15 April 2011). The executives of each site were indicted on bank fraud, wire fraud, money laundering and illegal gambling offenses, including charges under the controversial Unlawful Internet Gambling Enforcement Act (UIGEA). The jurisdictional issues alone demonstrate why this case is of particular significance to the future of online poker. The fact that the indictment involves several foreign defendants begs the question whether anyone will ever see the walls of a US courthouse, given the difficulties associated with international extradition. Should the courts find that the DOJ acted properly, the US would effectually be permitted to utilise its law enforcement muscle to prosecute foreign residents for online activity that is completely legal within their home jurisdiction. Furthermore, this case of first impression may compel US courts to decide if the UIGEA prohibits financial transactions associated with online poker, given the absence of a specific federal law prohibiting that gaming activity. However, due to the government’s focus on the fraud allegations, it is questionable whether the courts will ever be forced to address the merits of the gambling-related charges. A significant side effect of the recent US. crackdown was the seizures; specifically domain name seizures at the registry level. Finally learning to bypass individual registrars – most of whom are located beyond the jurisdiction of the US. authorities - the DOJ double jumped right to the .com registry to grab control of the online poker domain names. In previous domain seizure cases, the focus has been on wresting control of the domain from the registrar where the name happened to be registered. For example, in one of the first highly publicised domain name seizure, a private company obtained a default judgment from a US court against, in a patent dispute. One day the company realised that its domain name had been seized by the plaintiff in the case, who executed on the asset by

56 • GBM • June 2011

seizing it from an American registrar, to satisfy its judgment. The company was forced to use an alternate domain until resolving the dispute and regaining control over its primary .com domain (see, 1st Technology LLC v Bodog Ent Group SA [2009 WL 426605 WD Wash 2009]). The state of Kentucky also pursued domain name seizure at the registrar level, but with less success. In Interactive Media Entertainment & Gaming Association v Wingate [320 SW3d 692 (Ky 2010)], Kentucky pursued 141 domain names associated with gambling, by obtaining a pre-trial seizure order, and emailing that order to various registrars where the domains were registered. Some registrars complied, by transferring the names to the state, while others locked the domains, and still others (primarily the foreign registrars) simply ignored the order as not binding in their jurisdiction. This civil suit is still making its way through the judicial channels almost three years after the state’s initial seizure order was implemented. The DOJ has learned to avoid issues with foreign registrars, instead choosing to directly seize the valuable domains at the .com registry level. Now that the cat is out of the bag, so to speak, the online gaming industry is considering whether to abandon the iconic .com domain space in favour of less-recognised, but potentially safer, top level domains with registries located outside of the US. Not surprisingly, within hours of the Black Friday seizures, PokerStars, FullTilt, UB and AbsolutePoker had all relocated to fully operational foreign domains (see Mitchell, A, ‘Full Tilt Changes Site to Fulltiltpoker.’,, 19 April 2011; Cypra, Dan, ‘PokerStars Moves to’ 16 April 2011). Given the increasingly brazen nature of domain name seizure, participants at every level of the industry cannot help but wonder how far US authorities will go in their efforts to exert worldwide jurisdiction and control over online gaming activities. Some speculate that the US is purging the online poker space of potential competitors before finally legalising the activity. Others say that operators simply took advantage of the America’s limbo-like enforcement of online gaming prohibitions and that the free ride has simply come to an end. Either way, the industry has learned that valuable .com domains are at risk if they are being used in a manner that is considered illegal by the US Attorney’s Office. The lack of due process afforded to those who lost control of their domains prior to any finding of guilt is disturbing, and sets a dangerous constitutional precedent.

MALTA WH Law is a multi-disciplinary niche practice offering legal, regulatory and technical assistance to clients primarily engaged in information and communications technology (ICT)rich businesses (IT, remote gaming and high-tech industries, e-payments, telecommunications, digital content, software development) and the financial and investment services sector. The services offered by WH Law include: licensing and regulatory assistance, company incorporation and maintenance, corporate restructuring, contract drafting and negotiation, intellectual property protection, advice on EU cross border trade matters, taxation issues (both direct and indirect), e-commerce compliance, key official services, strategic consultancy regulatory risk assessment and technical advice on high-performance systems. The firm’s founder and managing partner, Dr Olga Finkel, is the first ever lawyer from Malta specialising in gaming law having received recognition from the prestigious and most respected Chambers

and Partners (Gaming & Gambling: Global). WH Law has recently been involved in a good number of high profile mergers and acquisitions, corporate restructurings, transfers of business and setting up of corporate joint ventures in the gaming sector. “The assistance in such transactions normally ranges from drawing up the memorandum and articles of association of the joint venture to drafting and negotiation of the shareholders’ agreement, advice on regulatory matters, vetting of finance documents as well as direct and indirect tax advice to implement the most tax-efficient structure,” explained Dr Finkel. “Our team obtained competition law clearance in Malta for the joint venture.” 2010 saw WH Law gain further standing in the investment services sector. The firm was also awarded the New European Economy Best Competition Law Team award. In 2011, the firm aims to continue to consolidate its position as an expert in ICT-

related and financial services-related areas of practice. “At the same time, 2011 will focus on consolidating the diversification and expansion project of our practice into related and new business sectors. In 2011, WH Law has formed a strategic alliance with Dickinson Wright, a well known and highly regarded law firm in the US and Canada, with the aim of providing comprehensive legal services to their respective clients. 2011 will also see the completion of WH Law’s new business premises,” concluded Dr Finkel. Olga Finkel Managing partner and founder WH Law T: +356 21332657 F: +356 21332490

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gaming law and regulation

CALIFORNIA, USA I.Nelson Rose Professor of law & attorney 17031 Encino Hills Drive Encino, California 91436 (818) 788-8509 Fax: (818) 788-3104

Nelson Rose I.Nelson Rose is an internationally known scholar, author and public speaker, and is recognised as one of the world’s leading experts on gaming law. He is a distinguished senior professor at Whittier Law School, in Costa Mesa, California, and a visiting professor at the University of Macau. Prof Rose is best known for his internationally syndicated column, ‘Gambling and the law®’, and his 1986 landmark book by the same name. He is the co-author of Internet Gaming Law (both 1st and 2nd editions), Blackjack and the Law, and the first casebook on the subject, Gaming Law: Cases and Materials. Prof Rose is co-editor-inchief of the Gaming Law Review & Economics. His website, www., which includes his blog, is recognised as a unique and reliable source of objective information on developments in gaming law. Prof Rose is a member of the: Gaming Law Committee of the American Bar Association; International Association of Gaming Advisors; National and California Councils on Problem Gambling; European Association for the Study of Gambling; and, is vice president-educators of the International Masters of Gaming Law. His government appointments include the California Gaming Policy Advisory Committee, Arizona Office of Problem Gambling Advisory Board, and California Task Force on Problem Gambling. Harvard Law School educated, Prof Rose developed the first law school course in Gaming Law in 1985. He has also taught Gaming Law in Macau, Mainland China, Spain and France, and to the FBI. In 1993-94 he was named the first visiting scholar at the University of Nevada-Reno’s Institute for the Study of Gambling and Commercial Gaming. Prof Rose was the only person in the nation’s leading legal gambling state teaching gaming law. With the rising interest in gambling throughout the world, Prof Rose has addressed such diverse groups as the National Conference of State Legislatures, Congress of State Lotteries of Europe and the National Academy of Sciences. He has taught classes on gaming law to the FBI and at the University of Ljubljana in Slovenia, and has presented scholarly papers on gambling in Nevada, New Jersey, Puerto Rico, Canada, England, Australia, Antigua, Portugal, Italy, Argentina and the Czech Republic. Prof Rose often acts as a consultant to governments and industry. He has testified as an expert witness on gambling issues in administrative, civil and criminal cases, throughout the US, in Australia and New Zealand, including the first North American Free Trade Agreement (NAFTA) tribunal on gaming issues. His clients include major law firms, international corporations, licensed casinos, Indian tribes, leading online gaming sites, and local, state and national governments, including the provinces of Ontario and Québec, the states of Arizona, California, Delaware, Florida, Illinois, Michigan, New Jersey, Texas, and the federal governments of Canada, Mexico and the US.

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medical and healthcare insurance rePort

medical and healthcare insurance Healthcare and medical insurance law concerns the rights and obligations of the medical profession and the rights of the patient. There are three main fields within medical and healthcare; the law on confidentiality, negligence and other misdemeanours in relation to medical treatment and the criminal law in relation to medical practice and treatment. There are also a range of issues concerning ethics and medical practice which are increasingly coming before the courts.

Issues of confidentiality arise with regard to the recording of information concerning the patient's health position and access to that information by both the patient and others. Medical Law is not just a set of rules; it also involves questions of morals. The criminal law intersects with medical law at a number of points. The first concerns the matter of consent to treatment. Medical and healthcare law involves a competent patient to consent to medical treatment or the doctor will be guilty of assault and battery. The law sets out when consent is not required and when a patient is deemed not competent. The question of consent has been of vital importance when cases concerning forced medical treatment have arisen. The criminal law will also be relevant when a patient dies while in medical care when the question of the medics' intention has to be determined. This question has arisen in a number of recent difficult cases, in particular the conjoined twins and the decision to separate them even though one would almost certainly die thereafter. Furthermore, medical law intersects with criminal law to carve out immunity for medical conduct such as restraining a patient on mental health grounds or performing a lawful abortion. Negligence suits for medical malpractice represent a flourishing growth area within the legal practice sector. Causes of action can range from harm caused by failure to remove all medical equipment from the site of surgery to actions for wrongful birth following a failed sterilisation. Actions may also arise from the tort of trespass to the person when a doctor does not seek consent prior to treatment. Lastly, medical law addresses a number of important ethical questions. These include questions as to the nature, quality and duration of life. These questions have come before the courts recently with regard to euthanasia, reproductive technology and sterilisation of non-competent patients. These same areas have given rise to questions as to quality of life. Nowadays, medical law is acknowledged as a separate branch of law but its procedure is based on the wider context of the legal system.

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medical and healthcare insurance rePort


insurance law The scope of representation provided by Bressler, Amery & Ross’s insurance practice group is comprehensive, covering a broad range of property-casualty, annuity, life, health and disability insurance issues, as well as managed care law and reinsurance issues. Our attorneys handling these matters appear before various state and federal regulatory agencies and self-regulatory bodies, administrative law judges, and state and federal courts. The firm’s clients include insurers, reinsurers, managed care organisations, insurance holding company systems, insurance agents, brokers and consultants, broker-dealers and investment advisers.

We advise clients on a variety of corporate, marketing, product development and regulatory compliance matters, and we provide representation in regulatory enforcement, litigation, arbitration and appraisal proceedings, including the following: drafting broker compensation disclosures; providing advice regarding insurance producer licensing and appointment; conducting compliance reviews, in particular regarding advertising, sales practices and disclosure rules; assisting with targeted market conduct reviews (including multi-state exams) and providing defence in enforcement actions before the New Jersey and New York Insurance Departments regarding propertycasualty, life, health and annuity products; addressing sales practice and employment issues regarding registered life insurance and annuity products and representing clients in regulatory proceedings before the Financial Industry Regulatory Authority (FINRA); providing professional liability defence of E&O claims; negotiating contracts between insureds, self-insureds, third party administrators (TPAs), producers and sub-producers; representing producers in the sale of books of business and in both asset and stock sales of insurance agencies; drafting and enforcing restrictive covenants covering insurance producers; settling/ mediating/litigating insurance coverage disputes and disputes among producers, insurers, risk retention groups, reinsurers and reinsurance intermediaries; reviewing and drafting complex policy forms and endorsements; forming captive insurers; providing advice in connection with retrospective premium dispute resolution; drafting reinsurance agreements and trust agreements; and, providing advice with respect to global insurance programme. We also provide counsel to the New Jersey Life and Health Insurance Guaranty

Cynthia J. Borrelli, Esq. 973-966-9685 325 Columbia Turnpike Florham Park, New Jersey 07932 973-514-1200

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17 State Street New York, New York 10004 212-425-9300 2801 SW 149th Avenue Miramar, Florida 33027 954-499-7979

Association, the New Jersey PropertyLiability Insurance Guaranty Association, the New Jersey Surplus Lines Insurance Guaranty Fund and other quasi-state and governmental entities, and draft proposed regulations and legislation (members of the practice group are also New Jerseyregistered governmental affairs agents). Our practice group members are also increasingly involved in non-traditional insurance issues emerging from the broad platform of financial service providers the firm represents and work closely with attorneys in the firm’s litigation, taxation, employment, securities and workers’ compensation practice groups on a myriad of issues. These include questions concerning employee benefits and executive compensation, registered representatives/ financial advisers, registered products and the Employee Retirement Income Security Act (ERISA) welfare benefit plans (including insurance funding mechanisms for health and pension plans and plan designs), and agent disputes and workers’ compensation benefits and related issues, enabling the firm to offer a broad scope of legal services to the insurance industry.


Costa Rica: a Rising Insurance market Prior to 2008, the insurance and reinsurance industry in Costa Rica was under a state-owned Monopoly. Such monopoly started in the 1920’s and, consequently, local policies could only be offered and sold by the National Insurance Company (“Instituto Nacional de Seguros”), the Government´s insurer. This situation impeded the modernization and diversification of our insurance market. Due to commitments agreed by Costa Rica under the Central America Free Trade Agreement (DR-CAFTA), our local market was opened to competition in August 2008 through the enactment of the Insurance Market Regulatory Statute (“Ley Reguladora del Mercado de Seguros”). This regulatory statute, hereinafter referred to as “IMRS”, established the general framework for conducting the business of insurance in Costa Rica, as well as the duty for insurers, reinsurers, producers, local service providers, and cross-border providers to register before and/or be licensed by the local regulator. It also created the General Insurance Superintendence, hereinafter “SUGESE”, the local authority in charge of regulating the market, supervising its participants, and protecting consumers. Due to the annual premiums sold and growth potential, the Costa Rican insurance market is considered the most important insurance market in Central America (excluding Panama). In 2009, annual premiums sold climbed to $618.8 million, nearly duplicating its size since 2005. Early results of the year 2010 show a 17% increase, as the amount of net premiums sold totaled $739 million. Economy experts have predicted that the local insurance market could generate approximately $1,100 million in annual premiums once the market fully develops, especially in the rising Life and Health sector. It is important to point out that annual premiums sold currently represent 2.01% of the country’s Gross Domestic Product, and consequently, when compared to the 3% average for the rest of Latin America, this figure indicates that our market has a solid growth potential. This business opportunity has interested various foreign insurers, who seek an early advantage in our emerging and promising industry. Currently, there are 9 authorised insurance companies, including local company and market leader National Insurance Company, as well as renowned international insurers like MAPFRE and ALICO. The market regulator SUGESE expects this number to increase in 2011, since a number of companies are still completing registration. Moreover, policy registration has skyrocketed from 68 products by the end of 2009 to 200-plus products in 2011, which has also caused a higher consumer awareness of the benefits of a competitive insurance market. It is very important to point out that the IMRS provides that only SUGESE-authorised entities may conduct the business of insurance and the public offering of policies

in Costa Rica. Although DR-CAFTA provides exemptions to such general rule by allowing certain cross-border insurance services, any interested cross-border provider must also get register before SUGESE. From a regulatory perspective, SUGESE was very active in the enactment of necessary regulations in 2009 and 2010. Since the IMRS establishes a general framework for conducting the insurance business in Costa Rica, it is SUGESE’s duty in conjunction with the Financial System Supervision Commission, to issue further and detailed regulations for specific aspects of such business. Among others, we can highlight important regulations such as the Authorisation Requirements for Market Participants, the Solvency Requirements for Insurers and Reinsurers, the Rules for the Offering of Insurance by Insurers and Producers, and the Corporate Governance Requirements for Supervised Entities. During the upcoming months, it is expected that SUGESE will issue additional regulations such as: (i) Regulations for the defense and protection of Insurance Consumers, (ii) a complete amendment to the current solvency requirements, which will aim to a transition into risk-based capital supervision. Moreover, the Costa Rican Congress is in the final stage to pass Bill #16304 Insurance Policy Regulatory Act, which will regulate almost all insurance policies in Costa Rica and will establish additional rules to ensure appropriate consumer protection. In addition to the evident business opportunities in the insurance field, we consider that business will also keep growing in two other insurance-related areas. The first area is the reinsurance business, as most of the local providers seek international reinsurers to transfer part of their policy risk. In this aspect, please note that the IMRS establishes that local reinsurers must be licensed with SUGESE but international reinsurers may not require any licensing or registration if certain parameters are met. The second field of interest is the medical tourism industry, where international insurers and local service providers will definitely play an increasing role in the upcoming years. Thanks to the intensive work by the local medical industry, its competitive prices and quality, and the Government’s strong support to medical tourism, Costa Rica has positioned itself as a very attractive destination and is now a top choice for patients around the globe. Business continues to rise in Costa Rica, and insurance is no exception. The efforts by the market participants and the local regulator have facilitated a positive industry evolution from monopoly into a competitive market, while consumer reactions to new participants and additional products signal further market growth. Costa Rica is, without a doubt, a rising insurance market.

Arias & Muñoz Daniel Araya / Esteban Carranza Partner / Associate (506) 2204-7575

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medical and healthcare insurance rePort


Developments in Social health Insurance By Neil Kirby, Director, Werksmans Attorneys The construction of a National Health Insurance Scheme (NHIS) in the United States of America (US) recently came under judicial attack. This matter, offers insight into some of the issues that the introduction of a similar system in South Africa (SA) could present. the precursor to the judicial challenge Recent US reforms banned health insurers from denying anyone cover or charging discriminatory premiums based upon age or health status. In current SA law, the same privileges are afforded to consumers applying for cover by medical schemes. However, the new American legislation made it mandatory for all citizens of the US to purchase private health insurance whereas there is no such obligation to join a medical scheme in SA. The US was a voluntary market prior to this, very much like SA is now, but without any obligation on health insurers to accept members or to charge them the same premiums - very unlike SA is now. But US legislators agreed that because no one could be denied cover or be charged higher premiums, people would only buy cover when they were sick. This would seriously destabilise the market since there would be fewer healthy people in the risk pool, making it unsustainable and leading to its ultimate collapse. Ironically, SA’s health legislation currently places medical schemes in exactly this ‘destabilised’ predicament. The principle of mandatory cover was therefore introduced – effectively meaning that every US citizen had to buy health insurance. the florida court ruling The healthcare reforms were challenged in a matter brought by various States against the United States Department of

Werksmans Attorneys Neil Kirby Director and Health Pharmaceutical and Life Sciences Practice Area Head +27 (0)11 535 8198

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Health and Human Sciences and others in the United States District Court for the Northern District of Florida, Pensacola. The bases for the attack are set in the American Constitution but relate to the coercive nature of the spending required by the Act. In reaching the ruling, the court was required to balance the interests of the Federal Government in creating a compulsory healthcare infrastructure with the interests of both the States and the individuals in being required to purchase such healthcare cover. The court found that the legislation forcing a citizen to make a health insurance purchase, as a matter of mandatory spending, breached the constitutional rights of US citizens. This further compelled the same court to consider the remaining components of the American Act (The Patient Protection and Affordable Care Act), since the original writers of the legislation had argued that without this piece of protection - the mandatory cover - the entire healthcare system would be commercially unsustainable. Because this provision was not severable from other provisions contained in the Act, the court struck down the entire Act as being unconstitutional, including the guaranteed acceptance provisions and uniform premiums. how are US developments of interest to sa? This ruling is of interest in SA as the State is currently investigating introducing a NHIS-type system. Although the way it will work has not been confirmed, there is talk of having mandatory cover – possibly for citizens earning above a certain salary threshold. Whether or not local medical schemes will form part of SA’s NHIS is also not yet known, but what is very pertinent, is that SA already has the elements of guaranteed acceptance and community

+27 (0)11 535 8698

rating firmly entrenched within the medical schemes environment – it was the aspect of mandatory cover that the Florida Court found to be unconstitutional. Debate in SA will follow that in the US especially in relation to the construction and financing of a local NHIS: will such a system require every individual, whether they like it or not, to contribute to or buy into such a scheme? Health services is always an emotionally charged debate. So when it comes to reform – and in SA, 80% of the population currently only has access to the ailing public sector services – the demand for quality healthcare is vast. The challenge for SA legislators will be meeting the demand for healthcare services – which is uniform regardless of employment status – and the ability to fund such a massive insurance scheme. Cost estimates have already been criticised as being “hopelessly unaffordable”. Another critical aspect of a NHIS is the state of public services – if these facilities are to be used to deliver under the NHIS instead of private facilities, there may be scope for a constitutional challenge on the freedom to receive care at a provider of one’s choice. conclusion The repercussions of a NHIS are yet to be seen in SA, but the country has a Constitution comparable to most first world countries and it would not be a long stretch of the imagination to foresee challenges if the proposed workings of the NHIS start to conflict with these entrenched rights

medical and healthcare insurance rePort - reccomended ProVider


Forward evolution: JIC and innovative insurance services Since its foundation in 1951, Jordan Insurance Company (JIC) - the most prominent insurance company in Jordan has continually pioneered the Kingdom’s insurance landscape by devising innovative products and strategies tailored to the local market.

At inception, the company’s start-up capital was estimated at JD100, 000; a number that has since then been multiplied to reach JD30 million. This is by no means a humble achievement, particularly given the degree of competitiveness that defines the Jordanian insurance industry. The company today offers a fully integrated line-up of insurance solutions, ranging from medical, life, motor and property insurance, all the way to more niche insurance categories like marine, casualty, engineering and many others. JIC was founded in 1951 by a group of ambitious businessmen who sought out to establish what they hoped would become a pillar of Jordan’s then fledgling economy. The company’s rapid rise to success baffled the imaginations of all those involved in the project, impelling its founders in 1958 to branch out regionally. Today, the company operates a total of four regional branches and three local ones, each catering to an ever-expanding client base. This rapid evolution was undoubtedly a result of JIC’s aggressive product development strategy, which tactfully targets key revenue pockets with highly versatile, custom-tailored insurance solutions. The company has also lent considerable focus to developing its customer care approach in an attempt to address some of the longstanding shortcomings of the local insurance industry.

This approach is further balanced by the company’s continued efforts to improve its customer experience. Over the years, the company has amassed an impressive backlog of contracts with some of the world’s largest reinsurance providers, which has enabled it to multiply its scope of services and to offer its customers a host of added benefits. The company has also partnered with leading Jordanian IT firm ESKADENIA to revolutionise its internal infrastructure, establishing a cutting-edge customer relationship management (CRM) database that truly redefined its service benchmarks. The database allows for the storage and management of detailed client portfolios, automating routine policy-related procedures to deliver more reliable and expedited services. Over the years, the company’s accomplishments have received recognition from various regional and international bodies, including Euromoney Award, Mena Award, and AM BEST. The company is fully committed to maintaining this unparalleled success streak and to continue serving as a catalyst for Jordan’s ever-growing economy.

A key concern for the company has been the industry’s lack of underwriting principles, which serve to safeguard the market’s integrity on the long run. The company has dedicated substantial resources to address this particular issue, which has allowed it to act as a pacesetter for the local market, becoming a robust model of an evidencebased insurance provider in a market that is continually being stifled by short-sighted hyper-competition.

Jordan Insurance Company

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64 • GBM • June 2011

exPert forum

exPert forum honG KonG

Corporate rescue reform – time to sharpen the existing tools? There is a sense that Hong Kong has fallen behind other jurisdictions in enabling corporate rescues. Legislation to introduce a corporate rescue procedure has been in the pipeline for years, but it is still not clear when this will take effect. However, whilst the new law will be welcomed, the existing legal framework does provide stakeholders with more tools than is sometimes assumed. existing legal framework There is currently no statutory reorganisation procedure available under Hong Kong law. The primary options when considering the rescue of an insolvent company are a consensual out-of-court restructuring or scheme of arrangement. A scheme of arrangement is a useful tool to bind dissenting creditors to a restructuring. It is a compromise or arrangement between a company and one or more classes of its creditors. It requires the approval only of certain thresholds of creditors, but if sanctioned by the court will become binding on all. In circumstances where the company is being or, is about to be, liquidated, an arrangement may not need court sanction. Provisional supervision Proposed legislation will introduce a procedure to be called provisional supervision, the key steps of which are: (a) The company's members, its directors or its (provisional or actual) liquidator appoints a provisional supervisor. (b) Appointment triggers a moratorium on enforcement by creditors. (c) The provisional supervisor develops a voluntary arrangement proposal. (d) Creditors vote whether to accept the voluntary arrangement or for the company to be liquidated. (e) If the voluntary arrangement is accepted, it becomes binding on all creditors that had notice of the relevant meeting.

Ordinance (which is an extremely technically demanding legislative process). The overhaul will take place in phases, the second of which will deal with insolvency. It was originally intended that rescue process legislation be introduced as part of that second phase, but (presumably as a result of the financial downturn) it was subsequently decided to expedite this legislation with a separate bill. It is now unlikely that legislation will be enacted before 2012. Indeed, the history of this legislation suggests that the bill's passage through LegCo may not be smooth and there is a possibility that it will be caught up with the second phase of the Companies Ordinance overhaul, particularly as the global economy appears in recovery. time to re-evaluate the existing options? Accordingly, stakeholders should not lose sight of the existing options as these may need to be relied upon for longer than anticipated. Fortunately, the picture is not as bleak as the absence of obvious legislation would suggest as, notwithstanding this, the courts have pragmatically assisted through alternative methods of implementing rescues. The key difficulty in pursuing a rescue in the absence of appropriate legislation is the lack of a moratorium against creditor action. It might be possible for one disgruntled creditor to derail a rescue by threatening action. Provisional liquidation, which triggers a moratorium on enforcement, was developed to protect assets between the date of a petition and the subsequent winding-up order. However, it has also now been used to enable a restructuring to be pursued with the benefit of a moratorium and has become a valuable tool particularly when combined with a scheme of arrangement. There has even been at least one recent case of a "pre-packaged" restructuring being implemented by provisional liquidators. Receivership is a commonly used creditor remedy and there have been a number of recent cases of receivers using their powers to enter into complicated arrangements to compromise parties' claims. The appointment of a receiver and manager over the whole of a company is a realistic option for rescuing a sound underlying business.

However, given the tortured history of this proposed legislation it remains most uncertain when it might become law.

In many restructurings, a dissenting creditor's leverage is an ability to disrupt the process by petitioning for a winding-up rather than being able to block the restructuring itself (because, for example, its rights under the relevant documentation could be amended by majority creditors). The Hong Kong court has discretion to adjourn the hearing of a petition and may be minded to exercise such discretion to allow restructuring negotiations to continue where there is a reasonable prospect of a better result than could be achieved in a liquidation.

"Provisional supervision" was originally recommended by the Law Reform Commission of Hong Kong in 1996 and proposed in the Companies (Corporate Rescue) Bill 2001 (the 2001 Bill). The 2001 Bill was the subject of a consultation process and was considered by the Hong Kong legislative council (LegCo) Bills Committee. However, at that stage, it was decided that certain amendments were needed.

Hong Kong does not currently have any concept of "insolvent trading" (which was proposed in 2001 but shelved along with the provisional supervision law). Therefore, despite the lack of a statutory rescue procedure, directors of troubled companies may be more comfortable incurring credit in continuing to run the business while exploring a restructuring than may be the case in other jurisdictions.

A consultation paper was published in 2009 (substantially based on the 2001 Bill but including those amendments) and consultation finished in 2010. A revised bill was expected to be put before LegCo in late 2010. However, this has not yet happened. Simultaneously, LegCo is considering a comprehensive overhaul of the Companies


Although this procedure is imperfect (because, for example, creditors do not have a right to initiate the process), its introduction will mark a significant step forward in reforming Hong Kong's rescue framework. progress of legislation

About Allen & Overy Allen & Overy is one of the world’s leading law firms, with around 5,000 staff and 500 partners worldwide. Since opening its first office in 1930, the firm has grown into a global organisation with 36 offices in 26 countries across Europe, Asia Pacific, the Americas and the Middle East.

With the right advice and experienced stakeholders/professional advisers, the existing legal framework can often be used to implement even complex restructurings with less than unanimous creditor support.

Allen & Overy 9th Floor Three Exchange Square Central Hong Kong.

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exPert forum

uK Despite the ongoing instability surrounding the UK taxation of trusts, and the global crack down on ‘tax havens’, domestic and international trusts continue to be used for a huge variety of commercial and private purposes. They remain the vehicle of choice for succession planning for wealthy business owners. A trust is a legal relationship between the person providing the assets, the beneficiaries of the assets and those entrusted with looking after the assets. Sometimes the boundaries between these categories can be blurred and an individual can fall into more than one. Trusts may be created during an individual’s life or on death either orally or in writing. In legal terms, a trust is different from a company; it has no freestanding existence and therefore acts through and in the names of its trustees. Trusts can be useful tax and estate planning vehicles in a large and varied number of contexts. The following are the most relevant for business owners: Rationalise asset management to consolidate assets located in a number of countries:a trust offers a tidy solution for families with a global footprint. Succession planning of a business or family fortune: transfers to trusts cut the chain of legal ownership, but do not necessarily leave the assets under the beneficiary’s free control.The transferor can retain a degree of control and prescribe how the assets should be managed and distributed after death. Flexible planning: unlike with a straightforward gift, a settlor can enable the trustees to adjust beneficial entitlement to trust assets while they remain held in trust. In addition, the settlor can distinguish between rights to the income produced by trust assets, and rights to the capital. Asset protection: trusts can be used to protect assets from future creditors, possible claims from disappointed heirs and seizure as a result of political instability. Reducing the tax bill to mitigate income and capital gains tax: in some jurisdictions, there are still tax benefits to holding business assets in a trust structure. Where a person is moving between jurisdictions they can be particularly useful in securing tax advantages. For a UK-domiciled living settlor, often the income and gains arising in an offshore trust will be treated as belonging to the settlor for UK tax purposes. Where a settlor is not planning on giving away assets during his or her lifetime, then an offshore trust set up under a will can be a useful solution as it is possible for the income and gains realised post-death to roll up inside the trust free of tax.

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Reducing the tax bill to mitigate inheritance tax (IHT): when assets are transferred to trustees by the settlor, his or her estate is reduced by the value of the transfer assuming the settler is not a beneficiary. By contrast, on a transfer to a company or partnership, the transferor usually receives back shares, loan capital or a partnership interest. Reducing the value of an estate results in a reduction of the amount of IHT payable on death. A trust made by a person who is non-UK domiciled will be free of IHT to the extent the assets are located outside the UK. A person who is UK domiciled or deemed domiciled for UK tax purposes can take advantage of his or her nil-rate band by transferring an amount equal to this to a trust, waiting for seven years and then making another transfer of an amount equal to the nil-rate band at the time thereby reducing their taxable estate. Certain business assets might also qualify for 100% relief from IHT. Importantly, any growth in value of these assets once they are in trust will be outside the settlor’s estate. To set up a trust, first, work out what the objectives are. The choice of trustees and jurisdiction will often flow from this. There are many reputable jurisdictions to choose from. The offshore centres have, in recent years, been increasingly keen to utilise and adapt trusts. It is important to consider obvious issues such as location and impending changes to tax laws and regulatory aspects, but also less obvious ones like the extent to which local courts will recognise court orders made in other jurisdictions. Issues to consider regarding the choice of trustees include whether to use an established trust company, a private trust company, family members or professional advisers. If a number of family members or advisers are to be involved in running a number of trusts, it might make sense to establish a private trust company. The actual rules by which the trust is to be governed will be set out in a document called a ‘declaration of trust’ or a deed (or instrument) of settlement. Key terms to consider include: the beneficiaries; the level of control retained by the settlor; the extent to which a family business should be preserved; and the intended duration. It is common for the settlor also to prepare a letter of wishes to set out the vision for the future and guidance on how the trustees should exercise their powers. The final step is to sign up to the trust documents, and then to transfer the assets to the trustees.

Macfarlanes LLP Jonathan Conder Partner Jennifer Hooke Solicitor Tel: +44 20 7831 9222 Fax: +44 20 7831 9607 E: E: W:

englanD & WaleS QEB Barristers Chambers Tim Amos QC Duncan Brooks Tel:+44(0)2077977837 Fax: +44 (0) 20 7353 5422

Family law – england & Wales Freezing assets and reversing transactions – asset protection in england and Wales With the increase in cross-border relationships, disputes surrounding the appropriate forum for divorces have multiplied. In England and Wales (which form one jurisdiction - Scotland being separate), a spouse or former spouse may bring an application for financial provision following an English divorce or (providing certain preconditions are met) an overseas divorce. One problem relating to cross-border divorces is the preservation of assets, before, during or even after proceedings. English courts have two main weapons in their armoury: (a) Injunctions to preserve (or ‘freeze’) assets; and, (b) Orders to set transactions aside. freezing injunctions There are two routes the courts may use to freeze assets: s.37, Matrimonial Causes Act 1973 (MCA), and s.37, Senior Courts Act 1981 (SCA. Under the MCA (which only relates to matrimonial disputes), the court may injunct a spouse about to make a disposition intending to defeat the applicant’s claim for financial provision. If the proposed disposition would defeat the applicant’s claim for financial provision, the requisite intention will be presumed (s.37(5)). The MCA cannot be used to injunct third parties, nor used in disputes between unmarried ex-partners. Further, a spouse may wish to make a transaction adversely affecting the applicant’s claim for financial provision without defeating the claim. In such circumstances, the court falls back on the SCA. The applicant needs to show that there is a real risk that judgment will go unsatisfied because of the disposal by the respondent of their assets, unless they are restricted by court order from disposing of them. Although there is some debate, the better view is that the applicant need not show that there is a real risk that the respondent will dissipate those assets

(Roche v Roche [1981] Fam Law 243); Matthews v Countache [2001] JLR 671; and, cf Re M [2006] 1 FLR 1031). The SCA also gives the court power to freeze assets not yet in existence, whereas the MCA only allows the court to freeze “property” already in existence. Both acts give the court wide powers, including the ability to order that money be paid into court as security for the claim (Mordant v Halls [1996] 1 FLR 334 (Ch D)). Under the SCA, the court can also prevent a company from removing a spouse as a director (Poon v Poon [1994] 2 FLR 857). The court can also make a freezing order in support of an order obtained in foreign proceedings, even where there are no proceedings in England (s.25, Civil Jurisdiction and Judgments Act 1992), although the circumstances in which it will do so are limited. orders to set transactions aside If a spouse makes a disposition intending to defeat the applicant’s claim, then that transaction may be set aside pursuant to s.37, MCA. The court will presume such intention if a transaction with that effect has occurred within three years of the application being brought. Otherwise, the burden falls on the applicant to prove intention. The disposition must be made by a party to the marriage (Ansari v Ansari [2009] 1 FLR 1121). Any disposition is reviewable, unless it is “made for valuable consideration (other than marriage) to a person who, at the time of the disposition, acted in relation to it in good faith and without notice of any intention on the part of the other party to defeat the applicant’s claim for financial relief” (s.37(4), MCA). This does not require that the transaction be at full value - a transaction at a gross undervalue may be for ‘valuable consideration’ (Re Windle (A Bankrupt) [1975] 1 WLR 1628).

aside, as the court may find that the transferee holds the asset on bare trust for the transferor (Purba v Purba [2000] 1 FLR 444). The transferee must be joined to the proceedings if the applicant seeks an order enforceable against them. The court also has the power to set aside transactions made at an undervalue in order to defeat a creditor’s claim (s.423, Insolvency Act 1986). This can be deployed in matrimonial and non-matrimonial cases. Despite the name of the Act, there is no requirement that the transferor be insolvent. The interests of bona fide third parties (other than the person who transacted with the respondent) are protected by s.425(2). The court can only reverse the situation - it cannot change it. Therefore, where a husband was bankrupt before the wife made an application under s.423, the court could not vest the relevant property in the bankrupt, because the property would have vested in the trustee in bankruptcy (Ram v Ram [2004] EWCA Civ 1452). in summary The courts have wide powers to preserve assets and reverse transactions. In an international case with an English dimension, it is wise to seek urgent advice from an English lawyer about the protective steps to be taken.

If a spouse has already transferred an asset to a third party, then it may not be necessary to apply for an order to set that transaction

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Deal Directory

Cinven to sell Phadia to Thermo Fisher for €2.47 billion

On 19 May 2011, European private equity firm, Cinven, announced that it had reached an agreement to sell Phadia Group (the Company), the leading in-vitro allergy diagnostics company based in Uppsala (Sweden), to Thermo Fisher Scientific Inc. (NYSE: TMO) for an enterprise value of €2.47bn.

Having identified the diagnostic testing sector as a segment with strong growth characteristics, Cinven’s Healthcare team led the acquisition of Phadia in early 2007 for an enterprise value of €1.285bn. Phadia’s position as the market leader in in-vitro allergy testing and European leadership in auto-immune testing provided the opportunity to create significant value through a programme of targeted investment in people, products and geographic expansion into previously under-developed, markets outside Europe. Since 2007, Cinven together with Phadia’s management team, led by Magnus Lundberg, have invested to accelerate top-line and profit growth. This has been achieved by expanding Phadia’s sales and marketing capability across its global footprint and broadening the diagnostic offering. These initiatives included the following. Developing and expanding Phadia’s US sales force from 40 outsourced representatives at acquisition to nearly 200 Phadia-employed representatives today. In combination with careful marketing initiatives to clinicians, Phadia has seen US sales grow at a compound annual growth rate (CAGR) of 23% since 2007, the year Cinven acquired the business. Cinven Asia working in partnership with Phadia to develop the Asian opportunity, acquiring the company’s Chinese distributor, and supporting the Company in entering India - both key growth markets for the

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future; and, Finally, investing in research and development to improve the speed, scale and diagnostic capabilities of its current product sets, and further developing its molecular allergology technology, which is widely considered to be the future of allergy testing. As a consequence of these initiatives, Phadia accelerated its revenue growth rate from 6% prior to Cinven acquiring the company, to a CAGR of 12% between 2007 and 2010. This acceleration in growth was achieved despite the recessionary economic environment. The Group reported revenues of €367m in 2010. Despite the significant investment in operating expenses to drive this growth (which has seen headcount grow from 1,000 in 2007 to approximately 1,500 today), Phadia has expanded its margins and grown EBITDA in the same period by a CAGR of 14% to €149m in 2010. Today, Phadia enjoys market leading positions in many geographies, with more than 5,000 systems installed in more than 3,000 laboratories worldwide. Commenting on the successful investment in Phadia, Stuart McAlpine, a Partner at Cinven, said: “Cinven’s Healthcare sector team had identified diagnostics as an attractive area for investment. In Phadia we saw a compelling opportunity to partner with the management team of a market leading business that could accelerate growth by penetrating new, high growth markets. Together we designed

a strategic plan to invest significantly in people, products and new geographies. This has not only delivered significant value, but also made it a highly attractive acquisition for a well respected industry leader such as Thermo Fisher who is perfectly positioned to take Phadia into the next phase of development and growth.” Magnus Lundberg, CEO of Phadia commented: “Phadia is a business that has gone from strength to strength over the past 4 years of Cinven ownership. We have forged a very close partnership with Cinven who have brought real sector insight, clarity of thinking to our strategy, and hands-on support to help us grasp the opportunities in the US and Asia. We are excited about our future within Thermo Fisher, a business with a leading reputation in scientific technology and services.”

AXA Private Equity acquires a 25% stake in Ticket Surf International

On 19 May 2011, AXA Private Equity, the leading diversified private equity firm announced that it had acquired a 25% stake in Ticket Surf International (TSI), the leading French provider of e-money services, as part of an owner buy-out (OBO).

A capital restructuring at TSI will enable minority shareholders to withdraw and marks a new phase in the company’s development.

for expertise where the web is concerned, and the firm was able to help us finalise this complex transaction within a very tight timeframe.”

AXA Private Equity’s support, through its innovation & growth funds, will enable TSI to reinforce its leading position in the French online gaming market. The company aims to expand its international operations and also achieve deeper penetration in the e-commerce sector by launching a prepaid Mastercard and an electronic wallet.

With a wide range of products and a presence in over 20 countries maintaining 27,000 points of sale, TSI generated nearly €100m in transactions and €4.8m in revenue in 2010, with €200m in transactions expected in 2011.

Spun off from Orange in 2005, TSI has become the leader in the French market for prepaid cards for online gaming. It was the first company to be authorised as an e-money issuer by the Banque de France, a status that enables it to market its products throughout the EU. Antoine Lacour, director at AXA Private Equity, said: “We look forward to working with the management and staff of TSI and are pleased to have the opportunity to help them grow strategically. TSI has been able to gain market share in a fast-growing industry by offering something that genuinely meets the needs of Internet users.” TSI’s founder and director, Gilles Moro, said: “Innovation is at the heart of what we do; it has enabled us to tailor our solutions ever more closely to Internet users’ need for secure payment solutions. We are well aware of AXA Private Equity’s reputation

AXA Private Equity is a leading private equity firm with US$25bn in managed assets and a global reach extending across Europe, North America and Asia. The firm offers investors the full spectrum of private equity services for every market segment: direct funds, infrastructure financing, mid cap and small cap buyouts, venture capital, co-investments, and fund of funds, as well as mezzanine financing.

Ticket Surf International has become in six years one of the leading provider of e-money services offering prepaid cards: Ticket Surf, Ticket Premium and prepaid Mastercard Ultreia. After a strong development in the e-gaming market, TSI will achieve a deeper penetration in the international e-commerce. The parties involved were as follows: AXA Private Equity, investor -Antoine Lacour and Laurent Foata; financial adviser to TSF - Paul Bougnoux and Tanguy Mantelin at Largillière Finance; legal adviser to the investor - Vincent Libaud at HPML; and, due diligence adviser to the investor - Didier Amphoux at Fiduciaire Leydet

With offices in Paris, Frankfurt, London, New York, Singapore, Milan, Zurich and Vienna, AXA Private Equity supports the development and long-term growth of its portfolio companies with sustainable growth strategies and by granting them access to the AXA international network. AXA Private Equity has earned the trust of its investors by regularly supplying them with transparent performance data on its funds and portfolio companies. For more information see www.

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Deal Directory

AMEC acquires leading US engineering and environmental services company MACTEC

On 18 May 2011, AMEC, the international engineering and project management company, announced that it had agreed to buy MACTEC, a leading US engineering and environmental services company, from its private equity and other individual shareholders for a cash consideration of US$280m. Completion is subject to regulatory approval and is expected by the end of June 2011.

Headquartered in Georgia, MACTEC has some 2,600 employees, mostly highly skilled technical professionals, and 70 offices, which are mainly in the eastern part of the US. The company provides a similar wide range of services to AMEC’s existing earth & environmental (E&E) business, including environmental planning, assessment and remediation, infrastructure engineering, water resources and construction support services. It has a broad range of high-quality, long-term clients operating in the energy, commercial/industrial, transportation/ infrastructure and federal sectors. In North America, E&E has previously had a stronger presence in the Western US and in Canada, so the combination allows AMEC greater access to new customers and regions and MACTEC a better international platform for growth. AMEC chief executive, Samir Brikho, said: “This acquisition is fully aligned with AMEC’s Vision 2015 growth strategy and provides AMEC with the right scale to service this important and growing environmental and infrastructure engineering services market.” “MACTEC and E&E are highly complementary businesses, in terms of geographic footprint, customer base and service offering,” said Neil Bruce, chief operating officer of AMEC. “The combination will provide great opportunities to grow our position with existing clients and attract new ones, through our proven life-of asset expertise and scale. The growth drivers in our markets are strong and we will now be better placed

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to take advantage of them.” Ann Massey, president and chief executive officer of MACTEC said: “We are very excited to add MACTEC’s technical capability, resources, and customer base to AMEC’s successful business. Together, we offer a strong, global platform of consulting, engineering, and project management expertise. The close alignment between our companies’ cultures, services and expertise will provide immediate value to our customers and foster future growth.” At 31 December 2010, MACTEC’s gross assets were US$283m and its earnings before interest and tax in 2010 were US$32m. The business will be integrated into AMEC during 2011. It is expected to be earnings enhancing immediately and to achieve its weighted average cost of capital by the second full year. Ms Massey and her management team are expected to remain with the combined entity and contribute to its continued growth. AMEC (LSE: AMEC) is a focused supplier of high-value consultancy, engineering and project management services to the world’s oil and gas, minerals and metals, clean energy, water and environmental sectors. With annual revenues of almost £3bn, AMEC designs, delivers and maintains strategic and complex assets for its customers. The company employs some 23,000 people in around 40 countries worldwide. See MACTEC, based in Alpharetta, Ga, US, is a leading engineering and design,

environmental, and construction firm focused on four strategic business lines: industrial/commercial, infrastructure (transportation and municipal), energy, and federal. MACTEC offers an ever-broadening portfolio of sustainable solutions, from renewable energy to facility asset management. With annual revenues of more than $411m, MACTEC’s 2,600 employees work from over 70 offices nationwide. MACTEC consistently ranks in the top 10% of Engineering News-Record’s Top 500 Design Firms. See Deutsche Bank and Bank of America Merrill Lynch are acting as financial advisers to AMEC plc.

His dad’s smile

Our children are our future. They learn from us, share our interests and inherit our funny little ways. What will you leave children?

NSPCC registered charity numbers 216401 and SC037717.

Please add your thoughts on the website and inspire others to help protect children through a gift in their will.

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Global Roundtable 2011 Washington, DC, USA 19-20 October 2011


Sustained stability in the next economy

Tipping point (physics): the point at which an object is displaced from a state of stable equilibrium into a new, different state. Tipping point (sociology): the event during which a previously rare phenomenon becomes dramatically more common. Tipping point (climatology): the point at which global climate changes irreversibly from one state to a new state.

What is the next tipping point...? Join leading experts to hear (and debate) their answers: Gordon Brown, former Prime Minister of the UK, current MP Nassim Taleb, author of best-selling book The Black Swan James Balsillie, co-CEO of Research in Motion and member of the UN High Level Panel for Global Sustainability

For more information and to register, visit

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Global Business Magazine - June 2011  

The June issue of the Global Business Magazine