David Cameron in surprise controversial move to publish register of beneficial owners of companies

This summer at a G8 meeting the British Prime Minister stated his intention to introduce a register of beneficial ownership of companies, in order to crack down on tax evasion.  This was a big step towards transparency and it was clear from the outset that the British offshore Islands would be expected to follow suit.  In fact, many of the offshore Islands were already well ahead of the UK in this regard - Jersey, for example, has had a central register of beneficial owners for many years - and so the impact of the initiative was not expected to be significant.

However, in a surprise move David Cameron announced that Britain would make the UK's register of beneficial ownership public.  This is a wholly more controversial move.

It is difficult to argue against a central register of beneficial owners per se - there is a clear benefit to governments and tax authorities being able to identify who owns and controls companies in order to minimise the risks of crime and tax evasion.  There is also a need for information to be shared between jurisdictions in an increasingly globalised world, and we have seen a plethora of Tax Information Exchange Agreements signed and commitments made to automatic exchange of information.

What is less clear, is what the benefit is of making the information available to the general public, and how these outweigh the inherent right of an individual to privacy.

Prime Minister Cameron did touch on this issue during his announcement:

"Some people will question whether it’s right to make this register public.

Surely we could get the same effect just by compiling the information and using it within government?

Now, of course we in government will use this data to pursue those who break the rules. And we’re going to do it relentlessly. But there are so many wider benefits to making this information available to everyone.

It’s better for businesses here – who will be able to better identify who really owns the companies they’re trading with.

It’s better for developing countries – who will have easy access to all this data, without submitting endless requests for each line of enquiry.

And it’s better for us all to have an open system which everyone has access to – the more eyes that look at this information, the more accurate it will be."

But just saying that it is better does not make it so.  Companies who have a commercial need to know who they are trading with are free not to trade with an entity that refuses freely to give them the information.  And are there really that many examples of companies doing business with entities that they would not have traded with had they known who was behind the company? Are there a sufficient number to outweigh the rights of the huge number of entirely innocent individuals (because of course the crooks will simply give false information) who will will have their privacy invaded by such a register?  

Of course some wealthy people flaunt their wealth and so for them the impact of publication of a register of beneficial ownership is likely to be minimal.  But many don't.  Some simply are not flashy people and don't want complete strangers to know that they are rich.  If I am a young man who has just inherited a business from my father, am I not entitled to keep this confidential from anyone other than those who have a legitimate need to know, for fear of being targeted by gold diggers, or inundated with begging letters from charities? What possible public good does it serve to give that information to any Tom, Dick or Harry who wants to know?

And why is there a public interest in knowing who owns companies (by and large the preserve of the wealthy, or those who aspire to be so), but not, for example, in knowing who gets welfare benefits?   Would publishing the details of welfare recipients not do a great public service in helping to stamp out claims abuse?  If I can see my next door neighbour is claiming disability allowance but I know he is regularly running half marathons, I could shop him to the police and save the tax payer money. But we wouldn't really contemplate making that type of information public.  There would rightly be an outcry.  We would be invading the privacy of the benefits recipients, and even if the aim is to prevent fraud it wouldn't outweigh their right to privacy. So why are the well off not entitled to the same privacy - not from the government, not from the tax authorities, but from the general public? Perhaps it is because in these straitened times it has become something of a social stigma to be wealthy.

In my view, the decision to make the register public is not one founded in a genuine desire to reduce tax evasion (that was already achieved by having the register available to the government and HMRC) but a political gesture designed to play well in the newspapers. Because of course in practice it is the press who will be one of the big beneficiaries of this move.  Once the information  is made public it will doubtless be trawled through by the gutter press in order to write inflammatory stories about wealthy individuals.  You only have to read the newspaper coverage of the strike at Grangemouth last week to see how wealthy people have become hate figures in the popular press. The Mirror's headline, for example, was "Grangemouth billionaire boss relaxes on his £130m super-yacht after freezing pay" not "Grangemouth boss pleads with Union to take the steps necessary to secure the future of the Company".   I would be prepared to place a large wager that publication of a register of beneficial ownership will lead to a flood of stories "exposing" the wealth of individuals who had previously avoided drawing attention to themselves.  

There may well be a public interest, in the sense of curiosity, in the information, but not in the sense of a real public good. 

Despite the lack of an obvious and real benefit to the publication of the information, it is likely that the British overseas territories will come under enormous pressure to follow suit.  Any such move is bound to be considerably more controversial than the original proposal, which was simply to set up a register accessible to governments and tax authorities.  I hope that we will see a mature and considered dialogue around the issue rather than simply bully-boy tactics that we have seen in the past, given the many legitimate concerns that are bound to be expressed. But whether or not David Cameron manages to brow-beat the offshore Islands into following his initiative, he is likely to find it an impossible task on a global basis. In a world where in many countries there  is a real threat of kidnapping or extortion against wealthy individuals, or where jurisdictions simply prize their citizen's privacy more highly than in the UK, he is likely to run into a brick wall.  

Brevan Howard shifting operations to Jersey from the UK

Over the past few years many people have speculated on what the impact of AIFMD will be on the fund administration world.  Some firmly believe that it will result in an upsurge in business for EU based fund-friendly jurisdictions such as Luxembourg and Ireland, and will be a nail in the coffin of the offshore funds business.  Others argue that funds will increasingly use the offshore locations whenever possible, to avoid what is seen by some as unnecessarily onerous obligations associated with operating within the EU framework.  The truth is that no-one really knows for sure yet which way this will play out, but everyone in the industry is watching with interest.  It is therefore very interesting to note that Brevan Howard, the world’s third-largest hedge fund with some $41 billion under management, has now moved the bulk of its operations out of the UK in favour of the Channel Islands, Switzerland, Asia and the USA.

This has not happened overnight.  Alan Howard, who is a critic of the interventionist policies of the EU, moved together with a number of his firm’s key traders, to Geneva in 2010. This was followed by an initiative to internationalize the business and make it less UK centric – a decision which has led to a situation where fewer than 200 of Brevan Howard’s 450+ employees, and only a handful of traders, are now based in London, whereas only a few years ago they were all based in the capital.

Many of London’s hedge funds were critics of the AIFMD rules, but few have moved location in response, particularly after the Financial Conduct Authority made some changes to the regime in order to appease them  and to avoid an exodus.  It seems, though, that this was not enough to lure Brevan Howard back to the UK.

By 2014, it is expected that around employees will be based in Jersey, which has long been its official head-quarters but which until now had only a skeleton staff.  The Jersey team will be headed up by James Vernon, one of the co-founders of Brevan Howard, and most of the firm’s asset allocation, risk management, compliance and HR functions will be carried out in the Island. 

The other key beneficiary of Brevan Howard’s move to a less UK-centric focus has been the USA, where the firm now has 60 employees in New York and Washington.

It would certainly be rash to speculate that this is the start of a trend, but nevertheless it will come as a  welcome boost for the Jersey financial services industry, which has been seeking for some time to promote itself as a location for hedge fund business.

Salamanca to acquire Investec Trust

Investec Trust, the private wealth fiduciary business with offices in Jersey, South Africa Geneva and Mauritius is to be sold to Salamanca and the current Investec Trust management team.

Salamanca is a merchant banking and operational risk management group. 

Investec Trust currently has around 600 trust structures holding over £4.5 billion in assets under administration. The business will be re-branded as Salamanca Group Trust Services following completion.

Fenchurch Advisory Partners acted for Investec Bank Plc and Salamanca Advisory acted for Salamanca Group and the management team.

The transaction is subject to regulatory approval.

LDC supports MBO of Equiom

In the first of the post-summer deal announcements in the fiduciary space, LDC has announced that it is to support a second MBO of Equiom Limited, a Manx-headquartered trust company.

In addition to its core trustee and company services, which account for 70 per cent of its business, Equiom operates niche business lines including Yachting, Aviation & e-Gaming.

Equiom traces its roots back over 30 years, having started as the fiduciary business of Ernst & Young, before being acquired by Anglo Irish Bank in 2002. In 2006, the company was subject to an MBO, led by existing Group Managing Director Sheila Dean, in a transaction backed by Isis Equity Partners.

Since then Equiom has completed a number of successful acquisitions including Intertrust’s Isle of Man Yachting and Aviation business in January 2011, Jersey-based Andium Trust in October 2012 and City Trust, an Isle of Man independent corporate and trust service provider, in April 2013.

Equiom currently employs over 100 people across three offices in the Isle of Man, Jersey and Malta, and is planning to use the investment from LDC to fund both organic growth and acquisitions in what remains a fragmented market.

G8 proposals on beneficial ownership - how the wheels came off for David Cameron

After all the hype, what really was agreed by the G8 regarding tax and transparency?

David Cameron went to the summit all fired up to crack down on tax cheats, and made the creation of public registers of beneficial ownership one of his cornerstone aims.  The rhetoric in the British press on the subject of tax avoidance has become so toxic (not to mention inaccurate - of which more later) that only a few brave souls dare mutter anything in opposition to the ever more strident calls for "something to be done" - no matter how bonkers the proposals or how inaccurate the information on which they are based.  

So it might have come as something of a surprise to the PM to find that not all of the G8 members were on the same page as him at all.

Russia, Canada and the US all opposed the idea of public registries of beneficial ownership.  And quite right too.  Having a register which is available to tax authorities or government agencies is one thing, but what on earth is the justification for giving every Tom, Dick and Harry who is nosey enough to look, details of people's private affairs?  What business is it of my next door neighbour what assets I own?  Since when did the UK become a country which decided that a legitimate right to privacy was not something we cared about?  This surely is a step too far and one which I am pleased did not get rail-roaded through the G8.

You might think that Obama stood up to David Cameron on the issue in order to safeguard the right to privacy for his citizens.  But then of course he isn't exactly a champion of an individual's right to confidentiality - he has his own tricky situation to deal with back at home regarding the huge scale covert tracking of private communications which has recently come to light courtesy of a whistle-blower.  No, the reality is that the US is one of the worst offenders when it comes to facilitating tax avoidance and lack of transparency - Delaware has a tax avoidance business the size of which would make most people's eyes boggle, something with Obama often seems to forget when in finger-wagging mode talking about such dens of iniquity as Cayman and the BVI.  I suspect that protecting Delaware's competitive position had much more to do with Obama's stance at the G8 than the idea of standing up against a huge erosion of the rights on individuals to legitimate privacy.  But whatever his reasoning, at least it has helped prevent the David Cameron juggernaut from making such ill-thought-out changes.

So what did the G8 actually agree then? The final communique offered little more than support for an existing review being carried out by the Financial Action Task Force (FATF), which is certainly not wedded to the idea of a central register of beneficial ownership, and a statement that each G8 nation would  commit to their own "action plans" on this issue. The UK is leading the charge and has said it will  set up a central registry of beneficial owners, and will consult on whether this should be made publicly accessible.  The US, on the other hand, is to leave the decision on how to proceed to individual states - so don't expect  Delaware to be making changes any time soon. 

So the reality is that, despite the less than rapturous reception from the G8 members to the proposals, the UK is going to plough ahead and has brow-beaten the  British overseas territories into publicly supporting it.  Surely that therefore means that big changes are afoot for them and that their businesses?  Far from it.  Because in fact what the press tend not to report is that many of the offshore centres are far more proactive in this area than the onshore countries which like to preach on the subject. For example, Jersey already holds a central register of beneficial ownership of companies. The UK does not. In addition Jersey regulates those who form and administer companies and trusts, and requires them by statute to maintain up-to-date and accurate information on the ownership of those for whom they act.  The UK does not.  In fact, all the information held in the Island is available to tax authorities and law enforcement agencies on request - something which the UK cannot claim. The truth is that the move towards central records of beneficial ownership will be much more burdensome for the UK than for the majority of the British overseas territories. 

There is a legitimate and mature debate to be had about tax avoidance and transparency but at the moment it is not being had.  Instead we are getting knee jerk reactions and government policy being formed in response to tabloid headlines.  The quality of reporting is woeful - for a great example see http://www.jerseyfinance.je/ceo-blog/yes--we-have-no-bananas#.UcG_rue1x8E and the main protagonists are on the one hand moralising about tax avoidance and on the other hand promoting their own versions of it.  These are complex issues which need a much more informed and thoughtful debate than is currently being permitted.

EC Trust has licence revoked by regulator

EC Trust (Labuan) Bhd, a trust company which was more than 20 years old, has had its licence revoked by the Labuan Financial Services Authority, apparently for failures in the way the businesses was conducted.  Specific details of the failures have not been given.

The firm, which had 5 lawyers on its staff (3 Malaysian and 2 Australian) has had it's licence revoked with effect from 11th June and Peter Kent Searle has personally been disqualified from acting as a director.

KPMG has been appointed to take control of the business and all clients are being asked to make contact with KPMG as soon as possible.

Jersey's finance industry on the up

In what come as a surprise to many given the levels of anti-offshore rhetoric at the present time, it seems that Jersey’s finance industry is buoyant.

Data released yesterday showed that the value of funds under administration have reached a four year high, with the total NAV of funds under administration in Jersey showing a quarterly increase of 6.5%, to stand at £205.3bn. 

Bank deposits also grew for the second consecutive quarter – by £3bn, or 2% – to £155.1bn, although they still remain significantly below the 2007 peak.  It is thought that the Island may have benefited to some extent from the Cypriot banking crisis, with deposit-holders fearing that if they hold deposits in EU member states they could lose their cash in the event of a bank collapse.