Axiom Legal Financing Fund facing serious allegations

The Axiom Legal Financing Fund is rapidly becoming engulfed in a storm of controversy.

The Cayman Islands fund  was established to provide finance to a select panel of UK regulated law firms, to enable them to conduct "no win, no fee" litigation cases. As the legal actions were all to be backed by insurance policies, the fund was offering what appeared to be an attractive, low risk, uncorrelated investment opportunity.  And by all accounts there were plenty of investors happy to put their money in to the venture - it is understood that  well over £100 million has been invested in the 3 years that the Fund has been up and running.

However OffshoreAlert has been raising red flags about the probity of the Axiom fund since August, initially because of its links to Tim Schools, an English solicitor who is being investigated by the Solicitors Regulation Authority for alleged misconduct at ATM Solicitors, an English law firm which he sold last year. The allegations made against Mr Schools, which he strenuously denies, include failing to maintain proper books and records, acting recklessly and without integrity.  As there has not yet been a final hearing into Mr Schools conduct by the SRA, it is not known at this stage whether there is any substance to the complaints, but it was enough for a red flag to be raised and for OffshoreAlert to take a closer look at the dealings of the Axiom fund and its Cayman Islands based investment manager, Tangerine Investment Management.  

Mr Schools was a director of Tangerine until his resignation last week in light of the escalating allegations by OffshoreAlert.  

The claims being made by OffshoreAlert against the Fund became more serious when they alleged that all of the loans which have been made have gone to firms which are affiliated to Mr Schools (some of which are heavily indebted) and that the insurance company backing the loans is an unregulated firm currently fighting a fraud case.


Tangerine has strenuously denied any wrongdoing and has confirmed to investors that it has retained KPMG to provide an outside audit of the legal fund’s assets by the end of the month in light of the press stories.

In the meantime, OffshoreAlert have claimed that the Fund has suspended redemptions and ceased accepting new investments whilst the situation is reviewed, a move which will no doubt leave the existing investors nervously awaiting the outcome of the report.

Corinthian closed down following JFSC investigation

Investment firm Corinthian Holdings Limited (formerly Corinthian Financial Services Limited) has ceased trading following an investigation by the Jersey Financial Services Commission that concluded that it was ‘not fit and proper’ to be registered for the conduct of investment business.

The JFSC investigated concerns over compliance with the laws and codes of conduct governing investment business.  Corinthian, a company established in 1988 by Gary McLelland and specialising in international pensions, Insurance Wraps and offshore funds, co-operated with the Investigation.

FATCA implementation pushed back 12 months

In what will be seen by financial services companies as a welcome move, the IRS has extended the dates for foreign financial institutions (FFIs) and withholding agents to complete due diligence and other requirements under FATCA.

FATCA, which was enacted by the US government in March 2010, was due to come into effect in a phased manner.  Withholding agents would have to have new account opening procedures in place by 1^st January, 2013. FFIs would have to enter an agreement with the IRS to provide information on each account and US account holder by 30^th June, 2013.  Basic account details would need to be reported for 2013 and 2014 with fuller and more detailed reporting for the calendar year 2015.

There has been a widespread outcry about the disproportionate cost of implementing the requirements, with many businesses having to make significant IT system and process changes as a consequence.  Another key source of criticism has been the lack of detail at this late point in the day, which has made it very hard for firms properly to prepare for the new regulations.  Not only is detail lacking from the IRS on important areas of clarification, but many territories are only in the early stages of deciding whether or not to put inter-governmental agreements in place with the IRS for the purposes of reporting. FFIs therefore do not know exactly what they will be required to report, and to whom.

The IRS has finally responded to the barrage of criticism by agreeing to push back by one year the date by which withholding agents, including participating FFIs, will be required to implement new account opening procedures.  The new processes will now have to be in place by 1^st January, 2014.  In addition, additional time will be given to FFIs for reporting details of transactions in the 2013 and 2014 calendar years.

Although these changes do not do anything to allay the key concerns of financial businesses that the cost and difficulty of implementation is disproportionately high, they will nevertheless be welcomed by an industry which has been struggling to get itself sufficiently prepared for the changes.

Guernsey hopes to have ground-breaking new Image Rights legislation by the end of the year

In a celebrity-obsessed world, the commercial exploitation of a person’s image has never been more commercially valuable.  David Beckham undoubtedly nowadays earns more from commercialising the enormously powerful “Brand Beckham” than he earns on the pitch, and he is but one of a growing band of sportsmen, musicians and actors who have built an income stream from a personal brand which can be expected to subsist long after their initial careers may have ended.

Over the years, individual countries have tweaked their IP laws to try to protect an individual’s image, but still no legislation currently exists anywhere in the world that is exclusively drafted for the protection of all aspects of someone’s personal brand. But that is about to change.  Guernsey has identified the gap and is bringing forward legislation specifically for the registration and protection of “Image Rights”, establishing the world’s first Image Rights Register.  Although the process of crafting the new law has been a long drawn out process, there is now an expectation that it will be in force before the end of the calendar year.

The new law will not only cover individual people, but also groups of individuals (such as bands and sports teams), legal entities and even fictional characters. 

Guernsey is hoping that the new legislation will lead to celebrities centralising the ownership of their image and other intellectual property rights in the Island. For example, many stars who are resident but not domiciled in the UK already try lawfully to save large sums of UK tax on revenue from sponsorships, merchandising and promotional work (as opposed to income from their primary employment) by structuring them in offshore jurisdictions and not remitting the proceeds to the UK. Guernsey will hope that in the future it will become the leading jurisdiction in which to make such arrangements, because of its clear protective image rights legislation.

 At a time when a chunk of Guernsey’s traditional UK-orientated private wealth business is experiencing tough times due to threats such as the implementation in the UK of a GAAR, the Island’s authorities should be commended on coming up with an innovative new idea. Being first mover is often a crucial advantage in the offshore world, as once a location has a reputation as being the best for a particular type of structure, it becomes difficult for rivals to threaten that status effectively. 

London, Netherlands, Ireland and Luxembourg look set to gain from FTT implementation

A Financial Transaction Tax (“FTT”) could be in place in 11 EU Member States as early as January of 2014, following a meeting of EU finance ministers meeting in Luxembourg.

Although there is as yet little detail regarding the proposal (such as the level of the tax), it is expected that the FTT would be imposed on the purchase and sale of all financial assets and all derivative transactions.

EU Tax Commissioner Algirdas Semeta said that the transaction tax would be a source of new revenue from an under-taxed business sector, and a means of encouraging more responsible trading.

Some commentators thought that the proposals for an FTT were effectively dead earlier this year when an attempt to get the principle agreed by all 27 European failed in the face of strong disagreement from territories such as the UK and Sweden, which fear that the proposals would drive business out of Europe. There was a belief in many quarters that concerns over maintaining a competitive “level playing field” would deter a subset of EU members from forging ahead whilst others held back.  However, it seems that this analysis was wrong.  Following strong lobbying from France and Germany, 11 member states have confirmed their support for the tax and are prepared to go it alone. The eleven countries are Austria, Belgium, France, Estonia, Germany, Greece, Italy, Portugal, Slovenia, the Slovak Republic and Spain.  Not surprisingly, those EU countries with significant international finance centres (such as Netherlands, Luxembourg and Ireland) are not amongst the supporters.

There are still a number of hurdles to be overcome before an FTT is in place in the 11 countries - all Member States have a say in whether or not to authorise the proposals, with a qualified majority of member country votes needed for authorisation to be granted.  However there is clearly a momentum building regarding the tax and, if countries like the UK are right that an FTT will lead to business moving away from territories which impose it, then there is a powerful incentive for them  not to try to block the move by the 11, in the hope that a consequence would be a move of work from places such as Frankfurt to the UK.

This is a view which is supported by many industry insiders.  Last week David Stewart, CEO of London-based hedge fund firm Odey Asset Management commented that if an FTT was introduced "People will arbitrage it. People will find a way around it.  If someone really wants to buy a company that's good, I'm sure they'll keep on buying it. But if it's a synthetic derivative then they may go somewhere else ... More volume will go through London."  

Places such as the UK, Netherlands, Ireland and Luxembourg should therefore see this as a move which will enhance their international competitiveness, at a time when the fight for business has never been more fierce.

State Street to sell Mourant Trustee businesses to Dominion

The Jersey competition regulator has approved a proposed sale by State Street to Dominion Corporate Holdings Limited ("DCH") of Mourant & Co. Trustees Limited ("M&Co Trustees") and Mourant & Co. Property Trustees Limited ("Property Trustees") (together the "Target Businesses").  The principal business of the Target Businesses is the provision of trustee services to Jersey Property Unit Trusts - a field in which the Target Businesses are the market leader in Jersey.

State Street acquired the Mourant International Finance Administration business in 2010.

The effect of a fairly complicated series of proposed transactions outlined in the ruling is that DCH will ultimately become the beneficial owner of the Target Businesses.  DCH and State Street will jointly offer services to real estate clients, with DCH taking the trustee roles and State Street providing underlying fund administration services.

Although the ruling does not outline the reasons for the transaction, it is known that some banks (and particularly US banks) have a decreasing appetite for the fiduciary risk associated with trustee and director roles, preferring instead to focus on their core fund administration and processing capabilities.

DCH is a Jersey head-quartered company with additional offices in Luxembourg, and is a specialist and corporate and fund administration business.

Guernsey to introduce 10% tax on financial services companies?

It is looking increasingly likely that financial services companies in Guernsey could soon find themselves having to pay 10% tax. 

Earlier this year the EU Code of Conduct Group approved Guernsey's zero-10 tax regime, following the Island agreeing to scrap "deemed distribution" rules to which the EU had earlier objected.  The scrapping of the deemed distribution rules has, however, left a significant hole in the Island's finances and one way of addressing that issue would be to require financial services businesses to pay tax at 10%, rather than at the 0% rate which is currently applicable.  This would bring the Island into line with Jersey, which already levies 10% tax on financial services businesses, and therefore there is a good degree of confidence that the move would not lead to a loss of business to the Island.  

Treasury and Resources minister Gavin St Pier has confirmed that extending the scope of 10% taxation had been widely discussed in various circles.  Although he refused to be drawn on whether this will be included in his budget proposals, it would be a brave man who bet against it.

USA lambasted as second worst performing jurisdiction in the world for shell company abuses

For many years, but particularly since the global economic crisis began, the overwhelming consensus of G20 and a plethora of NGOs has been that tax havens provide strict secrecy and lax regulation, and as such are responsible for many of the world’s ills, from tax evasion to terrorist financing.

The offshore centres are easy targets for this sort of negative propaganda, not least because, for the most part, they are not represented on the bodies which make the accusations and lack the resources to defend themselves effectively.  It’s very tempting for politicians in the OECD and the G20 to point the finger of blame anywhere but at themselves, and they do so frequently and vociferously. 

The offshore centres have been protesting about the unfair characterisation of the businesses they conduct for years, claiming that they operate to stringent international standards, but few people want to listen or believe – after all, they would say that, wouldn’t they?

 It is always interesting, therefore, to hear some genuinely objective research on what the reality of the situation is.  Back in May, I referred to some research being done at Griffith University into the subject which seemed to show that the accepted consensus of the developed countries is very wrong, but now we are able to dig in to the detail of the findings.  The University has published a report, authored jointly by 3 academics from the US and Australia, which outlines the results of a huge experiment into the degree to which Corporate Service Providers adhere to international rules.  A research team impersonated a variety of low- and high-risk customers, including would-be money launderers, corrupt officials, and terrorist financiers, requesting the incorporation of a shell company, in order to see whether KYC procedures were properly followed, and whether businesses were prepared to assist where there were clear indicators of illegal activity.

The survey was a large one - more than 7,400 email solicitations were sent to more than 3,700 Corporate Service Providers in 182 countries. As such, the authors claim that the review provides the most complete and robust test of the effectiveness of international rules banning untraceable, anonymous shell companies.

The report is detailed and merits being read in full, but one of the most striking key findings is that fact that, against the conventional policy wisdom, those selling shell companies from tax havens were significantly more likely to comply with the rules than providers in OECD countries. Providers in poorer, developing countries were also more compliant with global standards than those in rich, developed nations.

The USA – one of the leading crusaders against the offshore centres – performed particularly abysmally.  In fact, only one country in the world performed worse than it (Kenya).  Across the USA as a whole, roughly 1 in 11 Corporate Service Providers was prepared to ignore the rules (compared to 1 in 25 in tax havens), but when you take out Corporate Service Providers associated with law firms, then a shocking 1 in 3 of them will do so. That means it is easier to set up anonymous shell companies from which to conduct illegal business in the USA than it is in Liechtenstein, Columbia, China, Romania, or any of the world’s key offshore centres.  And it isn’t just the USA which has cause to hang its head in shame - the United Kingdom, Australia and Canada all also ranked near the bottom of the list.

There were 8 jurisdictions which performed markedly better than all the rest – these included Jersey, Cayman, the Bahamas and the Seychelles – a list which will doubtless come as something of a shock to many who have spent years listening to the anti-tax-haven rhetoric.

The research clearly shows that it is more than three times harder to obtain an untraceable shell company in tax havens than in developed countries. Whilst the report shows that there is room for improvement in every country they tested in the research, if the developed world is really serious about clamping down on illegal activity such as terrorism and corruption it needs to stop diverting attention to the offshore centres and start looking closer to home.  After all, there are over 900,000 companies registered in Delaware (a State with a population of 897,000), roughly ten times the number of companies incorporated in the Cayman Islands.  Extrapolating the statistics from the Griffith report, this indicates that 99,000 companies in Delaware are likely to have been taken on without meeting information standards, compared to around 3,000 in the Cayman Islands.  It is time for politicians in the developed nations to face up to the huge shortfalls in their own territories, and stop pointing the finger of blame offshore and on developing nations.

Read the full report here: http://www.griffith.edu.au/__data/assets/pdf_file/0008/454625/Oct2012-Global-Shell-Games.Media-Summary.10Oct12.pdf

Vistra acquires Belgian corporate services provider CSB

Vistra, the fast growing corporate services, trust and fund administration Group, has announced the successful purchase of Corporate Services Belgium CVBA (“CSB”), a Belgian corporate services provider with offices in Brussels and Antwerp.

Vistra has been highly acquisitive over recent years and in the last 12 months has announced successful acquisitions including FTC Trust in the Netherlands, HT Group in Luxembourg and Cynosure in China.

CSB is a corporate services provider with two offices offering clients a range of legal, corporate, financial and administrative services. They focus on supporting clients seeking to create and manage corporate structures within Belgium. 

Geneva in surprise move to introduce new corporate tax rate of 13%

In a climate where there is increasing public and political antipathy towards big companies avoiding tax by basing themselves in low tax jurisdictions, Geneva has been coming under pressure to end the practice of giving fiscal benefits to international holding companies.  At present, companies with 80% or more of their activities outside of Switzerland pay much lower tax rates than domestically focused companies. Geneva has been a particular target of EU criticism because of its success in attracting international business on this basis - there has been a substantial growth in the number of commodity trading companies and other multinational headquarters in the canton during recent years. 945 holding companies currently benefit from its reduced tax regime.

In a surprise move yesterday, it was announced that the canton intends to abolish the special tax deals for multinationals, but instead will lower all corporate taxes to a flat rate of 13% - approximately one half of the existing rate for non-holding companies and almost on a par with Ireland’s 12.5% rate on trading profits. 

It is not yet clear how the canton will fill the fiscal hole that the considerable rate reduction for local businesses will create.

Jersey, Guernsey and IOM to put IGAs in place with the US for FATCA Compliance

In a rare show of unity, Guernsey, Jersey and the Isle of Man have today simultaneously announced their intention to negotiate intergovernmental agreements with the USA to implement FATCA, in a form similar to that signed between the UK and the USA in September.

Although the signing of an IGA will not remove the burden of data gathering and reporting from the individual finance industry businesses, it will nevertheless obviate the need for them to have to deal directly with the IRS, and instead to pass their collated data to their own governments.  As such, the move will be welcomed by industry representatives, who are grappling with the practical impacts of complying with the new regulations. 

It is understood that discussions have already taken place at official level between the three Crown Dependences jointly and the USA to agree the principle of the IGAs, and that formal negotiations will now take place with the intention of concluding intergovernmental agreements as soon as possible.

Some commentators had expressed concern regarding whether the USA would permit the offshore centres to enter into IGAs, but the reality is that the US would almost certainly be overwhelmed by the burden of dealing with each FFI individually, and therefore has a powerful incentive to put IGAs in place wherever possible.  Given that a lot of FFIs have operations in two or even all 3 of the three Crown Dependencies, then it makes a great deal of sense for them to work together to agree the same form of IGAs so that FFIs are not having to gather data in different formats in each territory – a good example of where the territories can cooperate without compromising their relative competitiveness as a business location.  

FATCA for Trust Companies - Survey Reminder

This is a reminder that I am conducting a survey of trust companies to try to understand what they expect the likely impact of  FATCA to be on thefiduciary industry, and to try and ascertain how far down the track most businesses are in preparing for the new regulations.

Anyone replying to the survey will be sent a copy of the results, and I will make a donation to charity if I get 100 or more responses, so please take 2 minutes of your time to answer the very short survey:

FATCA Survey


Many thanks to those who have already responded.

FATCA Survey for Trust Companies

I am conducting a survey of trust companies to try to understand what they expect the likely impact of  FATCA to be on the trust company industry, and to try and ascertain how far down the track most businesses are in preparing for the new regulations.

Anyone replying to the survey will be sent a copy of the results, and I will make a donation to charity if I get 100 or more responses, so please take 2 minutes of your time to answer the very short survey:

FATCA Survey


Many thanks.

Equiom acquires Andium

Isle of Man head-quartered Equiom Group has acquired Jersey-based Andium Trust Company for an undisclosed sum.

Although Equiom is materially larger than Andium, there are a number of similarities between the businesses.

Equiom was established over 30 years ago in the Isle of Man as Ernst & Young's trust company arm, and subsequently formed part of the Anglo Irish Bank Group until the business was acquired by the management team in an MBO in 2006, backed by private equity house Isis.

Andium has been in the trust business for over 30 years and was previously known as ASL Management Services. In 2007 and it was taken over by its management team in an MBO and has grown steadily since then.

Stewart Walker, one of the principals at Andium, was formerly a partner with Ernst & Young Jersey, and the management teams of the two businesses believe that they have a similar professional culture and ethos.  

Stewart Walker, Anton Swemmer and Simon Voisin, the senior management team at Andium, will all be joining Equiom and taking up senior positions there.

Equiom, has been looking to establish a fiduciary presence in Jersey for some time and the acquisition of Andium enables it to do that with a reasonable immediate scale.

The deal is the latest in a number of consolidation plays amongst smaller and mid-sized trust companies, many of whom are following a strategy of multi-jurisdictional growth.