OFFSHORE
NEWS
FT
Private Banking Surveys
LAST
MINUTE ADDITION
Be
sure to catch this July 1 story that sums up the tenuous calm that exists
between high tax agencies and havens...
Despite reprieve, havens still wary
As an influential global organization retreats from its campaign to end offshore tax breaks, you would think folks doing business with Caribbean financial havens might relax and treat themselves to a celebratory rum punch.
But from South Florida to the Bahamas and beyond, bankers, tax attorneys, public policy advocates and investment advisers remain uneasy.
"What happens next, I don't know," said Saturnino Lucio, counsel to the Florida International Bankers Association in Miami. "Far be it from me to claim victory."
SUMMARY
Wendy Warren, the executive director of the Bahamas Financial Service Board, said the trade group is not ready to drop its vigil, either.
"At the end of the day, the small nations are still dependent on the large countries and their financial sectors," she said.
First, the U.S. government backed out of a three-year-old global campaign to force offshore havens to broaden tax codes to include taxes on income.
And then a series of islands, including the Bahamas and the Cayman Islands, were able to escape from a money-laundering blacklist.
While the international tax crusade has been deflated, efforts aimed at removing offshore bank and financial privacy laws continue.
In fact, the Organization for Economic Cooperation and Development in Paris is demanding that, by November, some 30 offshore havens begin adopting rules for sharing data on bank accounts and other financial statements.
Other islands, including Dominica and St. Kitts-Nevis, remain in the doghouse and face sanctions by the world's industrial powers if they don't capitulate to demands they toughen their anti-money laundering defenses.
And those countries, like the Bahamas and the Cayman Islands, that complied with the money-laundering edicts now have to defuse concerns that investors who park money there will not be exposed.
The OECD issued a report three years ago accusing the Caribbean islands and other offshore havens of using low-tax systems to encourage affluent people in other nations to evade taxes by hiding money offshore.
But the 30 countries they represent, including the United States, the European Union members and Pacific powers such as Japan and Australia, wield enormous power.
Landing on an OECD "blacklist" alone is a substantial blackeye in the sensitive world of international finance.
For example, the Bahamas and the Cayman Islands, a British territory that is one of the world's biggest banking centers, ultimately complied with FATF demands.
They also repealed certain secrecy provisions, such as those that allowed key officials from offshore companies incorporated in these countries to remain anonymous.The OECD taxation effort loomed like an even darker cloud over the islands.
The OECD said its member countries had collected $8 trillion in taxes that year, and the largest share of that money came from personal income taxes.
The OECD study, however, claimed that the industrial countries still lost
out on untold revenues because rich citizens hid money offshore.
In
the Bahamas, for example, the financial services sector accounts for nearly
20 percent of the island's economy. The money infusion has helped the Bahamian economy grow at a brisk yearly pace, including a 5 percent jump in 2000.
With Bush's presidential victory, the OECD campaign against havens lost
momentum. In May, Treasury secretary Paul O'Neill told the OECD that the United States was no longer interested in pressuring the offshore havens to change tax laws.
Meanwhile, the U.S. is pursuing other methods for reducing the flow of funds
offshore. For example, the Internal Revenue Service wants to force foreigners in the United States to report certain income if they have bank accounts in American institutions.
The OECD and
U.S. still agree that offshore centers should relinquish at least a privacy
and secrecy laws that could be used by criminals and tax evaders. Those
failing to comply could face sanctions beginning in April 2003.
Finally, the bruising battle from the blacklisting -- and concerns driven by the new rules -- has created a perception that places like the Bahamas are not as tight-lipped as they once were.
Warren of the Bahamas Financial Service Board admits that repealing some privacy rules -- companies registered in the Bahamas now need to identify their officers and directors -- means there is "no longer a mechanism for absolute" corporate secrecy in the Bahamas.
Havens are now in the tenuous position of having to walk a narrowing line
between providing clients with privacy and complying with demands to hand
over information to international regulators.
http://www.sun-sentinel.com/business/local/sfl-sbtaxes01jul010.story?coll=sfla%2Dbusiness%2Dheadlines
SUMMARY
Financial
officials in the Cayman Islands and the Bahamas celebrated their removal
Friday from an international blacklist of countries deemed lax in fighting
money laundering.
A
task force created by the G-7 group of industrialized nations issued a list
of 15 ``uncooperative jurisdictions'' last June, naming the two offshore
banking centers among those facing potential sanctions unless they cracked
down on financial practices that helped criminals conceal the source of
ill-gotten gains.
Bahamas
Prime Minister Hubert Ingraham was described as jubilant and pleased at the
news, while Cayman authorities celebrated with pledges of continued scrutiny
of the financial sector.
Cayman
officials said they first passed anti-money-laundering laws in 1984,
amending them frequently and providing information to criminal investigators
in other nations, especially the United States and United Kingdom.
In
February, they moved to wipe out ``shell banks'' by ordering 62 private
banks to open and staff offices in the Caymans and maintain records there or
lose their licenses.
The
Bahamas, an Atlantic archipelago of 280,000 people, also adopted new laws to
strengthen oversight of the financial services industry in the last year.
It
tightened requirements for financial institutions to report suspicious
transactions, made it easier for evidence gathered in the Bahamas to be used
in criminal investigations elsewhere, and banned anonymous ownership of its
100,000 international business companies, shelters that have been identified
as cover for money laundering.
``They
got a chance to see the significant improvements we made to our regulatory
and supervisory regime,'' Bahamas Finance Minister William Allen said of the
task force members.
But
some in the Bahamas, with some $90 billion under management at its 600
mutual funds, said the new laws had created too much red tape, raising costs
and causing them to lose business to regional rivals like Barbados, the
British Virgin Islands and Anguilla.
Derek
Ryan, an attorney in the Bahamian capital Nassau, said the new laws in the
former British colony forced bankers to interrogate and investigate their
customers.
http://www.sun-sentinel.com/news/local/caribbean/search/sfl-622hotmoney.story?coll=sfla%2Dnews%2Dcaribbean
SUMMARY
Since
laundered money is invariably the product of illegal onshore activity, it is
time to stop blaming offshore jurisdictions like Bermuda for the problem.
This
was one of the messages to be taken to a global conference the last week of
June by Barry Shailer, Chief Compliance Officer for the Bank of Bermuda.
“It
is estimated that approximately $600 billion dollars a year is laundered in
the world and clearly a large proportion of these illicit gains are
laundered and remain within the onshore territories,” he said.
“I
think it is time to stop blaming the offshore jurisdictions for money
laundering concerns.
The
conference, ‘Global Money Laundering: Developing Effective Prevention
Strategies for Financial Service,’ brings together leading financial
institutions and anti-money laundering organizations to share their
expertise and find practical ways to combat the problem.
Other
speakers at the two-day conference will include representatives from the
Federal Bureau of Investigation (FBI), the Caribbean Financial Action Task
Force (CFATF) Trinidad, Credit Suisse First Boston U.K., Deutsche Private
Bank, Prudential and the OECD Working Group on Bribery and Corruption.
He
will discuss how Bermuda has remained a successful jurisdiction despite
increased international scrutiny – that is, doing all it can to combat
money laundering whilst respecting legitimate business privacy.
“This
conference is a wonderful opportunity for us to engage in an international
dialogue for what is a very global problem,” Shailer said.
He
added “It will give me the opportunity to challenge some of the erroneous
preconceptions that exist about the offshore world and put into context the
great effort put into dealing with money laundering by many offshore
jurisdictions.”
Shailer
will use the conference to show how Bermuda is one of the better regulated
jurisdictions in the world and emphasize the difference between the more
developed offshore territories and those that are more vulnerable to
financial crime.
“Recent
studies demonstrate Bermuda has standards of financial regulation as
effective or in some cases superior to those found in the most sophisticated
onshore jurisdictions,” Shailer added.
http://www.bermudasun.bm/cgi-local/edpull.pl?cat=03Business&ord=01&ed=2001-06-22
SUMMARY
The
description of six Eastern Caribbean states as "tax havens" that
may face sanctions by developed countries has brought howls of protest from
leaders of the six-island community.
The
six members of the Organization of Eastern Caribbean States (OECS) called
the description by the Organization for Economic Cooperation and Development
(OECD) an attack on their national sovereignty.
The
OECD, known as the "rich nations' club," last year threatened it
would take reprisals against 35 offshore financial centers by July 2001,
which it accused of encouraging tax evasion "through bank secrecy and
confidentiality laws."
The
Caribbean leaders, in a declaration released by OECS trade and foreign
ministers in Geneva, defended the region's offshore banking sector, stating
that it constituted "a credible and important instrument to facilitate
national development" in small island states.
The
Caribbean officials took part in a review of their countries' trade policies
this week at the World Trade Organization headquarters in Geneva.
Included
in the six member OECS are Antigua and Barbuda, Dominica, Grenada, St.
Kitts-Nevis, Saint Lucia and Saint Vincent, whose combined populations total
just 425,000.
Offshore
centers arose as an alternative tool for "diversifying our
economies" that was encouraged by the World Bank among others, recalled
Elvin Nimrod, Grenada's Minister of Foreign Affairs.
"We
are sovereign states...and we should have the right to determine our own tax
regimes," added Nimrod, who expressed gratitude for the stance taken by
the United States, which aligned itself with the Caribbean nations on the
issue.
The
rest of the WTO members recognized the efforts the island nations have made
to open up their economies, said Finnish representative Pekka Huhtaniemi,
chair of the WTO Trade Policy Review Body.
http://www.tbwt.com/content/article.asp?articleid=855
SUMMARY
Authorities
in the Cayman Islands have closed an offshore bank classified as a
money-laundering risk in a report by a U.S. Senate subcommittee, an official
government publication reported. Local regulators revoked the operating
license of M.A. Bank Ltd., according to the government's recently published
official gazette. Officials have not given more information about the bank's
deposits nor the reason the license was revoked.
In
March, a Cayman Islands court had ordered that the accounting firm Arthur
Andersen take over as controller of the bank. A month earlier, the U.K.
territory's assistant financial secretary, Deborah Drummond, said the
government was investigating the bank.
The
court order came shortly after the U.S. Senate Permanent Subcommittee on
Investigations released a report on its concerns about possible money
laundering in foreign banks. The subcommittee said in the report it had
concerns the bank was being used to launder drug money.
In
February, Bahamas regulators suspended licenses of two banks on the list,
and Dominica also revoked the license of a bank on the Senate report list.
Full
Article available to paid subscribers
http://interactive.wsj.com/archive/retrieve.cgi?id=DI-CO-20010624-001259.djm
SUMMARY
The
Cooks Islands says Pacific Island countries are being too weak in their
opposition to the campaign by the Organisation for Economic Co-operation and
Development to shut down the region's offshore finance centres.
Prime
Minister Doctor Terepai Maoate says he hopes this week's Forum Economic
Ministers meeting in Rarotonga will result in a stronger and more unified
stance by all Pacific Forum countries.
Doctor
Maoate has been leading the fight on behalf of seven Pacific Island
countries listed as tax havens by the OECD which will be targetted if they
don't agree by the end of next month to a series of measures to reduce their
alleged harmful tax competition status.
He
says he could have done with more support when he defended the Pacific
states at a meeting in Barbados.
"But
to me the representation was rather weak, and I think this is an opportunity
that I can bring that awareness to this meeting in order to get my friends
in the Forum to get around together and face the OECD as a group rather than
being approached by the OECD as individual states."
The
Cook Islands Prime Minister says his country gets a significant amount of
its income from its Finance Centre and it can't afford to lose it.
http://www.abc.net.au/ra/newsdaily/s314052.htm
The
Opposition United Workers Party in Dominica will not support the Exchange of
Information Act when it comes before Parliament this week, Leader Edison
James has said.
James
told the Caribbean News Agency on Saturday that he was backing the calls by
the Dominica Bar Association for government to delay the introduction of the
Bill.
"The
Bar Association has expressed a strong view on this and has cited the Bill
as being hostile to the letter and the spirit of the constitution," he
told CANA in an interview.
The
Exchange of Information Bill, which is geared at further tightening
regulations in the offshore financial services sector, grants the minister
of finance the power to demand information from any person concerning an
inquiry he has received from a foreign regulatory authority.
http://www.cananews.com/news.shtml#Dominica%20Opposition%20not%20in%20support%20of%20Information%20Act
SUMMARY
The
Grenada International Financial Services Authority completed a performance
review of its economic citizenship program in January and found that 249
passports were issued last year, down from 296 the year before.
Despite
a decrease in the number of second passports issued, Barbara Charles, senior
legal assistant with GIFSA, says the program is still going strong.
Last
year, for example, the program generated approximately $8 million in
investment revenue.
The
program came into existence through the Grenada Citizenship Amendment Act of
1997, which amended Grenada's original Citizenship Act.
Under
the program, successful applicants have the right to hold Grenadian
citizenship without ever having to live on the island.
Regardless
of whether or not the citizen chooses to live on the island, the offshore
earnings and assets of that individual will not be taxed.
"It's
a successful program and one through which we can and do attract prominent
world citizens to reside and bring their expertise to the country,"
says Keith Friday, executive director of GIFSA.
Charles
says applying for economic citizenship is simple and swift.
There
is a standard fee of $39,060 per applicant or for a family consisting of a
husband, wife and three children under the age of 25.
Of
that amount, about $22,000 goes to the Treasury of Grenada, while the
remainder goes into an investment program that helps pay for infrastructure,
health and education in Grenada.
They
must first contact an approved agent, who charges about $11,000 for the
processing and administrative work involved in the application.
The
program was one of the reasons Dominica was included on the Financial Action
Task Force's blacklist of non-cooperative countries in the fight against
money laundering.
http://www.belgrafix.com/gtoday/2001news/may/may05/citizenship_for_sale.htm
SUMMARY
The
Grenada government says it is taking steps to tighten laws governing the
local offshore industry as it awaits another review from the Organisation of
Economic Co-operation and Development (OECD) within a matter of weeks.
Finance
Minister Anthony Boatswain announced several amendments to the Offshore
Banking Act 2001, Company Act 2001, Grenada International Financial Services
Authority (GIFSA) Act, 2001 and the International Companies Act 2001 during
a sitting of the Lower House on Friday.
In
speaking on the amendments, Boatswain told the House that these changes are
necessary because government’s intention is to prove to the rest of the
world that it is serious about cleaning up the Offshore Sector in the
country.
As
a result of the amendment to the Company Management Act, the Certificate of
Compliance will in the future relate not to the operations of the licensee
but to the operations of every company which it manages.
Minister
Boatswain stated that failure to comply will result in prosecution by the
court since this is an offence which can go before the law courts for a
ruling.
According
to Boatswain, the International Companies (Amendment) Bill 2001 indicates
that anyone wanting to get involved in offshore banking, international trust
business, international insurance business or international betting must
inform GIFSA of all shares held by the agent.
He
stressed that this will enable the government to keep records of all bearer
shares issued after the commencement of the Act and that only registered
agents, whose activities the Authority will be able to control can
incorporate offshore companies.
He
also stated that additional responsibilities will also be placed on
registered agents with respect to record keeping.
The
Grenada government was left embarrassed last year following the collapse of
First International Bank of Grenada (FIBG) and the disappearance of millions
of dollars in deposits belonging to mainly American and Canadian investors.
The
Chief Executive Officer (CEO) of the bank, Van Brink, a former US felon has
since left the country as is now residing in the West African State of
Uganda.
http://www.belgrafix.com/gtoday/2001news/june/jun09/amendments_to_the_offshore_banki.htm
Eruption
Leaves Hundreds Homeless in Vanuatu
The
Pacific Island tax haven has had to contend not only with pressure from the
Financial Action Task Force and OECD regarding its financial house, it has
now must deal with assault from Mother Nature.
For
the past four days, hundreds of people on the Pacific Islands nation of
Vanuatu have been left homeless and with almost no food or fresh water
following a volcanic eruption on Saturday June 9.
The
eruption blanketed the remote island of Palma in a layer of ash that
destroyed crops and contaminated water supplies used by 2,000 people.
There
were no reports of injuries more severe than sore throats after the nearby
volcanic island of Lopeivi spewed ash into the sky Friday, destroying the
uninhabited island's vegetation.
An
Australian naval vessel had taken emergency drinking water to Palma.
The
ship will also be used to evacuate about 100 high school students and their
teachers.
A
Vanuatu government emergency team was assessing whether to evacuate the
remaining villagers.
Since
the eruption, the island's population had been living off fish and wild yams
roasted on open fires.
http://www.disasterrelief.org/Disasters/worldglance.html#8
SUMMARY
Britain
will next month press Belize to crack down on tax concessions enjoyed by two
companies, including one owned by Lord Ashcroft, the outgoing Conservative
party treasurer.
Clare
Short, international development secretary, has been advised by officials
that Belize is losing considerable revenue that could be used to reduce
poverty because the companies pay no tax.
KPMG,
the professional services firm, has submitted a report to UK development
secretary Claire Short that says one option for dealing with the companies
would be to scrap their 30-year tax exemptions.
A
delegation from the Department for International Development will go to
Belize next month to press the central American country to secure more
taxation from companies in order to reduce poverty.
Ms
Short's department has estimated that the turnover of Carlisle and Sonisa
represents 8.5 per cent of Belize's gross domestic product, which stood at
BDollars 1.35bn (Pounds 485m) in 1999.
Lord
Ashcroft began legal action against Ms Short and Jack Straw, foreign
secretary. He is using the Human Rights Act to claim his privacy has been
breached by the leaking of diplomatic telegrams about his character and his
business interests.
The
Department for International Development's delegation will meet officials
from Belize's ministry of finance to discuss KPMG's report about the
offshore financial centre. The report, jointly commissioned by Britain and
Belize, is understood to set out at least three options for dealing with
Carlisle and Sonisa.
One
is to negotiate with the two companies to seek an agreement under which they
would reduce their tax concessions over time.
Another
is to reduce the scope of the laws by stopping any subsidiaries acquired in
the future by the companies from benefiting from the tax concessions.
It
is believed KPMG is keen to stress the report does not rule out the option
of leaving the tax concessions unchanged.
Ms
Short suspended Belize's participation in a debt relief programme in
September 1999 because of concern about the former colony's tax concessions
to companies.
Lord
Ashcroft's spokesman said yesterday that he would defend Carlisle's tax
concessions.
Lord
Ashcroft announced he would stand down as Conservative treasurer after
William Hague, Tory leader, said he would be resigning in the wake of the
party's election defeat.
He
became treasurer in 1997 and is believed to have given about Pounds 1m each
year since then to the Conservatives.
http://globalarchive.ft.com/globalarchive/articles.html?id=010627001593&query=offshore
SUMMARY
The
end of an era in farming is imminent with phosphate rock from the Pacific
island of Nauru running out. For the past 100 years, New Zealand and
Australia agriculture has been largely developed on fertiliser based on the
purity of Nauru phosphate rock. It has been known for some time the rock
resource was becoming depleted but it is now expected to only last a few
more years.
Larry
Bilodeau, chief executive of Ballance Agri-nutrients (formerly Bay of Plenty
Fertiliser Co-op) said in Hamilton last week that leaders from the tiny
island have said supplies of phosphate rock were limited.
Recent
high demand and exhausted reserves on the island mean no phosphate rock will
be available for six or seven months.
Mr
Bilodeau said his and other fertiliser companies had been sourcing other
supplies of phosphate from areas such as Morocco and China.
http://www1.odt.co.nz/cgi-bin/getitem?date=20Jun2001&object=HJD44C3726LW&type=html
Washington
fears the offshore system inspired by the Tory party treasurer is being
exploited by money launderers
SUMMARY
US
documents obtained by the Guardian reveal for the first time why the drug
enforcement agency and other US authorities were so concerned about
millionaire Tory treasurer Michael Ashcroft's offshore world in the 1990s.
The
original discovery that references to the Florida-based Tory donor existed
in DEA files led to controversy two years ago. Mr Ashcroft issued a libel
writ against the Times, which published a correction, and he declared there
was nothing to support "allegations that I am a drug runner and money
launderer."
Mr
Ashcroft was correct. No evidence exists to implicate him in committing
crimes. Nor was he investigated on suspicion of doing so. What worried the
Americans was that the Ashcroft-inspired tax haven in Belize in central
America was, as a side-effect, encouraging fraud, money laundering, drugs
and bribery in a small, poverty-stricken jungle state with corruptible
officials.
Mr
Ashcroft had arrived in the small former British colony at the beginning of
the 1990s. He moved many of his interests there and bought control of the
largest local bank, the Belize Bank, and encouraged local politicians to
pass laws between 1990 and 1992 which set up flags of convenience, and
secretive offshore "international business companies" and trusts,
in return for paying annual registration fees to the government.
Crimes
that followed in the lawless atmosphere of Belize and alarmed the Americans
included:
•
The Banner Fund. Two Californians exploited the Ashcroft-inspired offshore
legislation to set up a Belize offshore company in 1993 which swindled US
and British citizens out of $6.5m (£4.6m).
•
The Ricke case. A US drug smuggler and his associates moved $700,000 of drug
proceeds into Belize offshore companies, US authorities believed. One sum of
$25,000 was allegedly paid into the bank controlled by Mr Ashcroft (There is
no evidence the bank or Mr Ashcroft knew the money was tainted).
What
worried the Americans was that the Ashcroft-inspired tax haven in Belize in
central America was, as a side-effect, encouraging fraud, money laundering,
drugs and bribery in a small, poverty-stricken jungle state with corruptible
officials.
He
moved many of his interests there and bought control of the largest local
bank, the Belize Bank, and encouraged local politicians to pass laws between
1990 and 1992 which set up flags of convenience, and secretive offshore
"international business companies" and trusts, in return for
paying annual registration fees to the government.
The
half-ton of cocaine.
The
DEA saw a problem in the existence of such tax haven legislation in a
country vulnerable to corruption. A DEA-backed triumph when they arrested in
Belize a trafficker linked to the Cali cartel ended in farce when, as the
embassy reported "he effortlessly escaped from prison" in 1995
with the help of corrupt officials.
The
newly-installed DEA office in Belize sent an excoriating report to
Washington in April 1993 about the tax haven regime Ashcroft had helped to
set up, and which was operated by the local bank he controlled.
The
secrecy of information would allow drug traffickers freedom in establishment
of companies under the IBC act to conceal or transfer drug proceeds.
These
IBC companies were not required to be audited, "so a fake company can
declare whatever profits it wants and then transfer these profits, tax free,
to a legitimate bank account".
It
was in 1992 that two US fraudsters, Eddie Blackwell and Lloyd Winburn
decided to take advantage of the "offshore centre", with its
facilities for secret "IBC" companies, and inaccessible offshore
trusts.
With
the promise of enormous returns, they were busy collecting cash from 10,000
credulous US and British investors whom they referred to contemptuously as
Joe lunchbags.
Handing
control over offshore registrations to Mr Ashcroft's bank had led to
"sidelining of the government of Belize's regulatory and oversight
responsibilities" and the embassy was continuing to receive complaints
about the fraudulent Banner Trust which had "left 10,000 depositors,
mostly Americans, unable to access their funds".
Money
laundering is taking place on a wide scale. Money laundering is taking place
elsewhere on a far wider scale. Why should Belize be singled out?" He
questioned whether the Banner Trust fraud was truly a case of money
laundering. Of the Ricke case, he said the $25,000 deposited in the Belize
Bank was "peanuts". More money had gone through other banks. Asked
about the use of IBCs to launder the Ricke money, Mr Kilkenney said:
"All this is de minimis"
At
the end of May, US government sources specialising in money laundering
issues, said: "The government of Belize knows very little about what is
going on ... the US government has been putting pressure on the Belize
government for years to tighten up the regulation of the IBCs. No one knew,
or could know, how much money laundering was taking place through the Belize
IBCs because it is so furtive."
Experts
believed 90% of money laundering in the world was probably done through
offshore havens. Given this, the sources said, "it is highly unlikely
that all the IBCs are clean".
http://www.guardian.co.uk/uk_news/story/0,3604,500941,00.html
Once
the enclave of the seriously wealthy, offshore jurisdictions now cater for a
wider, but still well-heeled clientele
SUMMARY
The
traditional image of offshore private banks as obscure preserves of the
super-wealthy is changing as institutions woo less exalted clients.
Banks
are trying to cash in on trends as diverse as the introduction of the euro
and the rise of the "mass affluent" - people who are
comfortably-off without being rich.
The
result is that offshore banks are playing an increasing role in the tax
planning of mainstream well-to-do investors who might never have located
their assets in a tax haven before.
"Sophisticated
high net worth individuals understand that their specific situation may
benefit from onshore accounts, offshore accounts or both," says George
Feiger, a partner at Capco, a consultancy that serves the financial services
sector.
"While
there has been a long term trend in Europe, Asia and Latin America to move
assets onshore, the trend in the US has been for high net worth individuals
to develop wealth strategies that now include offshore structures."
Financial
institutions are targeting the mass affluent market in part because they
think these relatively wealthy individuals will be less sensitive to the
higher charges than less well-heeled investors.
While
some services offers clients plenty of advice to help them navigate the
offshore maze others cater for more "self-directed" investors who
are happy to manage their own affairs.
One
example is the joint venture between HSBC and Merrill Lynch, which offers a
relatively small number of extras, such as analyst research and
capital-protected investments.
Many
offshore accountholders set up an account in a tax haven because they want
to deal with a bank from their own nation with which they are familiar but
wish to avoid their home country's tax liabilities.
A
number are residents of their countries of origin, such as well-travelled
British information technology consultants who use offshore accounts to
store up earnings from overseas.
One
growth area for offshore private banks is foreign currency accounts - a
trend driven in part by the introduction of the euro.
On
January 1, 15bn euro banknotes and 50bn coins will be introduced in the 12
euro-zone countries, after which the national currencies will be phased out.
Many
offshore foreign currency accounts offer chequebooks and cards, as well as
higher pre-tax interest than is available onshore.
A
foreign currency account could offer benefits to those who buy second homes
abroad, allowing them to keep outgoings and rental income clear of currency
exchange risks.
The
accounts could also attract those who draw a pension from abroad but find
the rate of exchange into their own currency unattractive.
Other
users of foreign currency accounts include people who invest in equity in
overseas companies and need to operate a local currency account to allow
them to trade shares.
The
service can be convenient for those who travel regularly and need access to
cash machines in other countries - a foreign currency account may allow
money to be taken out free of exchange commissions and withdrawal charges.
One
big issue facing offshore banks and account-holders is the political and
regulatory pressure on tax havens to increase transparency and liaise better
with investigating tax authorities from overseas.
The
Organisation for Economic Co-operation and Development (OECD), a group of 30
leading industrialised nations, has told 35 tax havens that they need to
improve disclosure and be more co-operative with other countries.
A
separate initiative by the Financial Action Task Force (FATF), a body set up
by the G7 group of industrialised nations, resulted in the blacklisting last
year of 15 territories as unco-operative in the fight against money
laundering.
Offshore
centres see this global scrutiny as both a threat and an opportunity: while
some argue it will drive away accountholders seeking privacy, others claim
higher standards will make legitimate investors feel more comfortable.
A
further twist is a drive launched by the US Internal Revenue Service to
target investors who illegally claim tax breaks meant for foreigners.
The
action relates to withholding taxes applied to dividends on US equities and
interest on bonds. Overseas investors enjoy reductions to the standard
withholding rate of 30 per cent, provided they come from a country that has
a tax treaty with the US.
The
change, which came into force on January 1, took place against a background
of strong US support for global action against countries with financial
secrecy laws seen as facilitating tax evasion.
The
IRS and OECD crackdowns are among a panoply of commercial and regulatory
pressures shaping the development of offshore private banking.
Banks
will prosper only if they adapt to changes in secrecy laws and clientele and
ensure their racy image as havens for high-rollers is consigned to the past.
http://globalarchive.ft.com/globalarchive/articles.html?print=true&id=010622001747
SUMMARY
While
the world's retail and investment bankers boasted loudly over what they
could do for their clients, private bankers preferred a more discreet
approach when it came to touting for new business.
Word of mouth was the main marketing tool for private banks keen to
emphasise their exclusivity.
Merrill
Lynch/Cap Gemini's latest World Wealth Report estimates that there are 7.2m
high net worth individuals (HNWI) with liquid financial assets of over
Dollars 1m providing a total pool of Dollars 27,000bn.
The
lure of private banking is not hard to explain. UBS has traditionally earned
nearly half of its profits from private banking which uses less than 5 per
cent of its capital.
Credit
Suisse, its more aggressive rival, earned SFr2.6bn (Euros 1.7bn) after tax
from private banking last year which was more than it did from Credit Suisse
First Boston (CSFB), its buccaneering investment bank.
The
fact that CSFB uses four times as much capital and employs more than three
times the staff of Credit Suisse Private Banking has not been lost on chief
executives keen to improve the quality of their bank's earnings.
Deutsche
Bank, for example, plans to grow its private banking revenues by at least 10
per cent a year, or twice as fast as the corporate and investment bank.
Pierre
Poncet, senior partner of Bordier, which has 120 staff and SFr7bn of assets
under management, says that his 157-year-old bank has grown its managed
assets four-fold over the last 10 years with a 20 per cent increase in
staff.
Gunter
Woernle, editor of the Wernlin private banking directory, says that Swiss
private banks, the traditional market leaders, continue to do suprisingly
well despite the growing international competition, the weaker stock markets
and decline in trading volumes.
Merrill
Lynch/Cap Gemini has revised down last year's forecast growth in financial
asset wealth from 12 per cent to 8 per cent, which means an estimated
Dollars 8,000bn less growth in the overall market.
Georges
Gagnebin, head of UBS Private Banking, which employs over 7,000 staff in
more than 70 offices around the world, agrees with PWC's caution.
"There
will be an increased divergence between the successful and the less
successful players", says Mr Gagnebin.
Mr
Gagnebin believes that the trend towards 'open architecture', where private
banks have to offer their customers their rivals' best products, is the most
fundamental revolution facing the private banking industry.
There
is a big difference between making money and managing money and many of the
world's wealthiest individuals have better things to do than actively trade
their portfolio online.
Joe
Grano, chief executive of UBS PaineWebber, says that the wealthier an
individual becomes, the better the doctors, accountants and lawyers they
employ.
Booz
Allen is also rather bearish about the future of offshore banking, which is
the core business of most of the biggest private banks.
Although
the big Swiss banks in particular still believe that Swiss bank secrecy and
a concern for financial privacy are important calling cards in seeking new
business, the rapid build-up of their onshore wealth management and private
banking operations suggests that they have seen the writing on the wall.
The
salad days of offshore banking, when the money rolled in and banks could
count on returns on equity of over 100 per cent, are almost certainly over.
http://globalarchive.ft.com/globalarchive/articles.html?id=010622001735&query=offshore
SUMMARY
Switzerland,
which accounts for an estimated one third of the private money managed
offshore, would appear most at risk from the changing dynamics of the global
private banking industry. Most of the reasons why Swiss banks became world
leaders in private banking are under threat.
Meanwhile,
the European Union wants Switzerland to be more co-operative in fighting the
international tax evasion which has helped swell the coffers of Swiss banks
in the past.
Nevertheless,
suggestions that Switzerland's private banking industry has gone ex-growth
are wide of the mark. For the first time in more than a decade the number of
Swiss banks rose last year, and total staff numbers grew 4.5 per cent to
125,000.
The
17 most traditional Swiss private banks, whose partners carry unlimited
liability for their bank's losses, increased staff by a whopping 20 per cent
last year.
"Thirty
years ago our senior partner questioned whether a private partnership
structure could survive with over 200 people," says Thierry Lombard,
Lombard Odier's senior partner.
Julius
Baer and Vontobel, Zurich's two biggest private banks, have long since
abandoned their private partnership structure because they needed to tap the
capital markets to finance their growth.
But
Lombard Odier is convinced that a private partnership is still a workable
business model even in the current period of rapid growth.
The
life blood of Swiss private banking - funds under management - rose 8 per
cent last year, to SFr3,716bn, according to the SNB figures.
More
than SFr2,000bn was managed on behalf of foreign clients which is equal to
nearly five times Switzerland's gross domestic product.
Given
that UBS and Credit Suisse, which together account for a third of the Swiss
industry, only increased their private banking assets under management by a
combined SFr20bn, to SFr1,169bn last year, it follows that the vast bulk of
the SFr279bn increase was generated by the smaller Swiss banks.
Nevertheless,
the problems at Vontobel, which sacked three of its top executives, after
losing around SFr250m on a failed attempt to set up a pan-European internet
bank, indicate that the rapid growth of many Swiss private banks is not
without its problems.
Vontobel's
success over the previous five years, when its profits rose more than
seven-fold, had raised the expectations of its highly incentivised top
management team.
http://globalarchive.ft.com/globalarchive/articles.html?id=010622001737&query=offshore
Return
to The Internet Offshore Entrepreneurs