President's Message

News February 2003

The OECD Matters: Different Perspectives

European News

South Africa

US and Caribbean News

Asia and Pacific News

February 2003 Articles

OI Membership Matters & Activity Reports

President's Message

New World Order – International Financial Service Industry Opportunities

The President of the Offshore Institute is bullish on the future of the international financial service industry. Strong continued globalization trends and accumulation of wealth patterns create the need for a strong, compliant, added value, and dynamic international financial service industry to support the same.

Discussions held in the Caribbean, Europe, North America, the Middle East and Asia confirm that the international financial service industry is feeling the pressure of change. Worldwide legal and regulatory developments (and costs resulting there from) coupled with the war on terrorism (and uncertainty concerning Iraq) have a significant impact on the international financial service industry. The cost of compliance for Financial Intermediaries and government alike has resulted in the need for the industry as a whole to change.

Launch of the Financial Service Institute of HLSCC, British Virgin Islands

October 2002 The Financial Service Institute (FSI) at HLS Community College (HLSCC) was launched in Tortola, BVI.

The FSI shall be a center for excellence in education and training in the financial service industry. To assist it in reaching this mission, the FSI will have programs relevant to the financial services industry, distinguished local, regional an international faculty, student body, director and board, program accreditation (local, regional and international), and the ability to respond swiftly to regulatory, market and other financial service industry trends.

The FSI will offer pre-community college, community college, college, graduate and professional programs. Thus, it will offer the possibility for its students to earn academic and/or professional qualifications. It will deliver its courses by classroom lecture (both in Tortola and via its education partners), Internet, video conferencing. Discussions are underway with Central Law Training (educational providers to STEP), International Chartered Secretaries Association (Chartered Secretary and other exams) and several Universities (including St Thomas in Florida).

OFI News: February 2003 Sector Developments

Note: Special thanks to UK Chapter Deputy Chair, Simon Denton for his excellent contribution to news events from around the world.

The OECD Matters: Different Perspectives

OECD / FATF: List of non-cooperative countries and territories January 2003 The FATF has removed Russia, Dominica, Niue and the Marshall Islands from the list of non-cooperative countries and territories. The FATF has also recommended that its 29 members impose counter-measures against Nigeria. The current list of NCCTs is: Cook Islands, Egypt, Grenada, Guatemala, Indonesia, Myanmar, Nauru, Nigeria, Philippines, St Vincent and the Grenadines, and Ukraine.

In order to prevent abuse of non-profit organizations by terrorists the FATF has issued best practices guidelines to help prevent non-profit organizations from being misused by terrorists.

The FATF on Money Laundering

February 2003 The Financial Action Task Force (FATF) meets to discuss new methods of money laundering and terrorist financing and to review developments in non-cooperative countries and territories. The FATF will also report on its progress to counter the financing of terrorism. News conference on Friday, 14 February (Valentine’s Day!) to present the FATF's latest report on international money laundering methods. The FATF will issue a news release at the close of the Plenary.

European News

EU select Cyprus and Malta

February 2003 The European Commission recommended on 9 October that ten candidate countries, including Cyprus and Malta, would be ready to complete enlargement negotiations at the European Union's summit in Copenhagen in December. This was confirmed when Ireland ratified the Nice treaty at the second attempt. Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia, would be ready to join the EU in 2004. But Turkey was excluded from the group.

Cyprus enacts a new Income Tax Law

February 2003 The House of Representatives enacted a new Income Tax Law designed to comply with the OECD tax criteria and the EU Code of Conduct on business taxation. The main feature is the integration of corporation and withholding taxes with income tax on distributed profits. Companies registered in Cyprus but managed and controlled from abroad will only be taxed in Cyprus on their Cyprus-source income. They will enjoy exemption from tax of foreign dividends and interest and income from any permanent establishment abroad, as well as all foreign tax credits and offsets of losses incurred abroad. But they will not be entitled to benefits under double taxation treaties.

The Netherlands & Hong Kong sign Mutual Legal Assistance Treaty

February 2003 Hong Kong and the Netherlands signed an agreement to provide mutual legal assistance in criminal matters. It will enter into force on the first day of the second month after ratification by both governments.

Gibraltar rejects UK proposals for joint sovereignty with Spain

February 2003 A UK proposal to share sovereignty of the disputed colony with Spain was overwhelmingly rejected in a referendum on 7 November. Asked by the Gibraltar government to vote on whether they agreed in principle to joint sovereignty, almost 99% voted to reject the plan. The turnout was 88%. The UK and Spain insisted that no final deal had yet been struck and said they would not officially recognize the outcome of the referendum.

Crown Dependencies sign Tax Information Exchange Agreements with US

February 2003 Guernsey, Isle of Man and Jersey have each signed bilateral agreements with the US to provide for the exchange of information on tax matters. Based on the OECD's Model Tax Information Exchange Agreement, a request must be made on an individual case basis and the subject of the request must be under investigation in the requesting jurisdiction.

Jersey and Isle of Man move on companies legislation

February 2003 The Companies Law 2002, which provides for four new types of capital class and the re-domiciliation of companies, was brought into force on 1 September 2002. The amendment (Amendment No. 6) extends incorporation to companies with no par value share capital, guarantee companies, unlimited liability companies and single member companies.

Isle of Man directors settle breach of duty suit

February 2003 Two Isle of Man directors paid nearly £3 million to settle an action case for breach of duty brought against them in the High Court by the liquidators of Asset Management Ltd (AML). AML was put into liquidation in 1992 at the request of the regulator. It's beneficial owner, Robert Shrubb, had been offering unlicensed investment and deposit services.

Switzerland's President Underlines EU Ambition

January 2003 Pascal Couchepin, Swiss Interior Minister, has reaffirmed the country's position on the EU's Savings Tax Directive, insisting that banking secrecy was paramount: 'We proposed a very generous solution with the withholding tax on European citizens’ asset income in Switzerland. But we will not agree to suppress banking secrecy because it is part of our view of interpreting the relations between the state and private citizens.'

Ireland Continues To Resist Tax Harmonization Plans

December 2002 Ireland's Taoiseach, Bertie Ahern warned the European Union that the Republic will continue to strongly resist any moves towards tax harmonization, citing the recent Franco-German efforts. 'Legitimate competition on a transparent basis is healthy, not unfair.'

Dublin's IFSC Fears German Tax Changes

December 2002 According to a report in Ireland's Sunday Business Post, German fund promoters based in the International Financial Services Center (IFSC) in Dublin are likely to suffer as a result of planned tax changes in Germany.

EU negotiations and Madeira

December 2002 After difficult negotiations between the EU Commission, the Portuguese government and the autonomous zone of Madeira, the Commission has approved a new scheme for companies setting up in the industrial free zone of Madeira over the period 2003-2006.

South Africa brings Financial Intelligence Center Act into force

January 2003 The Financial Intelligence Center Act refers specifically to suspicious and unusual transactions that ‘may be relevant to the investigation of an evasion or attempted evasion of a duty to pay any tax, duty or levy’ imposed by the SA Revenue Service (SARS). A wide range of financial institutions and businesses will be compelled to report suspicious transactions and deposits and supply details of clients to the Financial Intelligence Center.

US and Carabbean News

The Center for Freedom and Prosperity: Analysis of 2002 and Prospects for 2003

January 13 2003 The Center for Freedom and Prosperity is looking back at a remarkably successful year. They have been able to convince the White House to reject the European Union's (EU) proposed savings tax cartel. They state that this decision – combined with Switzerland's emphatic opposition to the Directive – will ensure that fiscal competition will continue to act as a liberalizing influence in the world economy. The "harmful tax competition" scheme of the Organization for Economic Cooperation and Development (OECD) remains on the way out, largely thanks to leaders in many low-tax jurisdictions and free-market groups in the United States. Supporters of tax competition even overcame immense odds and blocked a proposed IRS regulation that would force U.S. banks to put foreign tax law above American tax law. And most impressive of all, advocates of international fiscal competition managed to prevent or neutralize all efforts either to prohibit companies from re-chartering in jurisdictions with better tax laws or to subject them to fiscal protectionism if they made the decision to 'invert.'

But all news is good. The EU, for instance, has announced that it will continue to push for the Savings Tax Directive. The OECD is still trying to bully low-tax jurisdictions. The IRS regulation could be finalized any day. Unfortunately, there will never be a permanent (or at least long-term) victory in the battle for tax competition, financial privacy, and fiscal sovereignty until there is fundamental tax reform in the United States. Simply stated, IRS and Treasury bureaucrats will continue to agitate for tax harmonization policies such as 'information-exchange' as long as America has a 'worldwide' tax system. A lot of work still lies ahead.

Bush Wants To Abolish Dividend Taxes

January 8 2003 In the long-expected economic stimulus package announced by US President George Bush proposed additional tax cuts amounting to $670 billion over ten years.

American Bankers Association Urges Withdrawal of IRS’s Interest Reporting Regulation

January 2003 The day after Christmas, the American Bankers Association (ABA) issued a letter denouncing the IRS’s proposed regulation that requires reporting of bank deposit interest paid to nonresident aliens.

US Lawmaker Warns Offshore Banks Over Likely Impact Of Patriot Act

January 8 2003 Speaking during a visit to St Kitts and Nevis US Congresswoman, Rep. Maxine Waters warned Caribbean leaders that certain of the provisions contained within the US Patriot Act are likely to have a strong impact on the region's offshore finance industry.

US issues amended regulations for disclosure of tax shelter transactions

February 2003 The Treasury Department and Internal Revenue Service released amended regulations to strengthen the rules for the disclosure by taxpayers of their participation in potentially abusive tax avoidance transactions and the maintenance of lists by promoters of taxpayers who have entered into such transactions.

BVI to impose restrictions on bearer shares

February 2003 The BVI government is to restrict the transferability of bearer shares. An International Business Companies (Amendment) Act 2002 will provide that when bearer shares are issued they must be held by an approved custodian within a licensed financial institution and be subject to anti-money laundering and customer due diligence obligations.

Bahamas to table new financial services legislation

February 2003 The National Strategy on Financial Services gives priority to new legislation on mutual funds and e-commerce. The government is also to review the existing ‘Know-Your-Customer’ legislation and, where necessary, will table relevant amendments. The legislative agenda for the first quarter of 2003 includes protected cell legislation, amendments to the Perpetuities Act, purpose trust legislation, foundations legislation and legislation to encourage capital markets transactions.

ASIA and PACIFIC News

Key Case Likely To Affect Royalty Taxation In Australia

January 2003 The Australian Taxation Office (ATO) welcomed a recent NSW Supreme Court ruling that will make it more difficult for multinational companies to reduce their tax liability in Australia. On the basis of the new ruling corporation can be ordered to pay both the royalty withholding tax for which it is liable in Australia and the ATO's costs.

Singapore moves to one-tier corporate tax system

February 2003 With effect from 1 January 2003, in Singapore a one-tier corporate taxation system has been in place of the existing full imputation system. Corporate income will be taxed at the corporate level and this will be a final tax. Singapore dividends will be tax exempt. Changes include the introduction of limited partnerships and limited liability partnerships, and simplification of procedures for incorporating private companies.

Hong Kong & Netherlands sign Mutual Legal Assistance Treaty

February 2003 Hong Kong and the Netherlands signed an agreement to provide mutual legal assistance in criminal matters. It will enter into force on the first day of the second month after ratification by both governments.

February 2003 Articles

Matters of Interest to the International Offshore Financial Intermediary

International Tax Competition Outlook

Supporters of tax competition, financial privacy, and fiscal sovereignty had a pretty good year in 2002. The hard work of many people inside and outside the Administration helped convince the White House to reject the European Union's (EU) proposed Savings Tax Directive. The 'harmful tax competition' scheme of the Organization for Economic Cooperation and Development (OECD) remains moribund, largely thanks to leaders in many low-tax jurisdictions and free-market groups in the United States.

But this does not mean that the news is all good, or that the battles have all been won. Indeed, every single victory should be viewed as a temporary respite.

The ENRON Scandal

The little-known story how it started and its consequences

During the past year news about the offshore world has progressed from a sequestered spot in the business section to sensational frontpage headlines. Scandals about extravagant spending by top executives even inspired a trendy article in a newspaper’s lifestyles section advising how to behave at a dinner party when a prominent guest is under indictment for corporate fraud. Then there’s also the New Yorker cartoon showing a headstone engraved with a list of adjectives describing the deceased tycoon’s praiseworthy qualities ending with the word ‘BUT’ in large capital letters.

Money Laundering: Know Your Banker

In the 1970's and 1980's it was fun to try to beat the system by creating the sort of schemes that was meant to circumvent the guidelines against money laundering that were created by the financial and governmental institutions. But all that changed when the Vice-Presidential Task Force arrived and they tried to put all of us out of business.

Asset Protection Trusts – Theory and Practice

Asset Protection Trusts (APTs) first came to prominence in the USA in the mid 1980s. The underlying concept behind an APT (sometimes called an Integrated Estate Planning Trust (IEPT)) is merely to bring estate planning theory, which used to focus on death or terminal planning, into line with the new reality of clients: living very much longer, and becoming richer at much earlier in their life.

Given the practical long run limitations of some of the planning techniques available, many practitioners have determined that some sort of trustee structure is the most appropriate vehicle for long term estate planning, essentially because such structures can be designed to be extremely flexible over time. Hence the birth of the so called Asset Protection Trust.

How France can become an attractive onshore jurisdiction for High Net Worth Individuals France is seldom seen as a low tax jurisdiction - which it can be, provided everything is correctly planned. When carefully structured there are several very interesting onshore solutions for high networth individuals under French tax law. Indeed, with careful structuring a marginal taxable income tax rate of around 50% can be reduced to between 0 - 10% of taxable income—a figure which is below the rate of Switzerland and the other countries of the European Union.

IRS’ Offshore Amnesty Program

In the fall of 2000 the IRS issued subpoenas to credit companies such as American Express and Master Card International to produce credit and ‘debit’ cars that were issued to ‘offshore" trusts and corporations - especially debit cards. As a result of its investigation the IRS has uncovered over a hundred thousand potential cases of tax fraud. Faced with the Herculean task of investigating and prosecuting thousands of credit/debit card cases, as well as the following up on leads from these cases, on January 14, 2003 the IRS announced an amnesty program for Americans with any type of ‘offshore financial arraignment.’ The program is called The Offshore Voluntary Compliance Initiative. This is a very generous program, and should be considered by anyone with a questionable offshore arrangement.

Switzerland: the new LBA Ordinance

In Switzerland, the Federal Law on the Prevention of Money Laundering in the Financial Sector of October 10, 1997 regulates the measures to combat money laundering within the Swiss Penal Code. All financial intermediaries have the obligation to identify all clients and to establish the beneficial owners of the assets. Furthermore, they must report any justified suspicion of money laundering to the authorities and freeze the suspicious assets.

The Federal Money Laundering Control Authority adopted a new Ordinance concerning the professional activity of financial intermediary in the non-banking sector that entered into force on September 15, 2002. This Ordinance clarifies the determinant criteria to consider that a financial intermediary acts 'on a professional basis'.

OI Membership Matters & Activity Reports

New Chapter Launch in Labuan

Mr. Louise Paul, Chairman of the Offshore Banks in Labuan and GM of Bayerische Landesbank, has been voted in as President of the newly formed OI Labuan Chapter. Mr. Paul is a leading light in the business community and will no doubt exceed all expectations. We are looking forward to working with him to ensure that the Labuan Chapter received all the support that we can offer.

At least 4 New OI Chapters Scheduled for Launch in 2003

After extensive discussions, Offshore Institute chapters are scheduled to be launched in 2003 in Miami, Nevis, Geneva, Panama, and the British Virgin Islands. Invitations to the various chapter launches will be circulated to all existing OI members. Please provide these members with all the support that you can in their efforts to further the mission of the Offshore Institute throughout the world.

In addition, if you would like to take a position of leadership in your professional community, then please contact us so that we can assist you in establishing a chapter of the OI.

British Virgin Islands Government Supports Home for OI Events and UK Chapter Meetings

In the course of discussions last year between OI President Lohman and UK Chapter, the need for an alternative venue for OI events was noted. In the past, there was generous support of the Royal Bank of Scotland; despite best efforts by the bank, the venue could no longer be used for such events. In the meantime, UK Chapter has been meeting at the lovely Chesterfield Hotel on Charles St. However, OI President has been using best efforts to secure an alternative option for the UK Chapter.

The British Virgin Islands recently purchased a prestigious building at 15 Upper Grosvenor Street in London. The multi-purpose government building will be used to house the BVI representative team, tourism and financial service departments. Mr. Lohman has outlined the need for the OI to secure a venue for its events.

When asked whether OI events might take place at the new BVI London facility, his Excellency Chief Minister responded, with enthusiasm that this is one of the intentional uses of the building. Discussions are underway to determine the administrative details as to when the offices will be furnished and whether the same might be ready for the next OI event.

UK Chapter Meeting

February 5 2003 The UK chapter held another successful chapter luncheon. Chapter Chair Geoffrey Newman introduced the President of the Offshore Institute and guest expert speaker, Cecile Villacres, French Tax Lawyer working with Anthony & Cie – International Tax Property Planning. The presentation, on French Based Tax Planning for Clients in France and/or Wishing to Become Resident of France was well received by the 25 attendees. As France is becoming an increasing important location for high net worth individuals, retirees and the like, Ms. Villacres’ topic was timely to say the least. In addition, Mr. Lohman reported on development on securing a venue for UK chapter meetings. The next UK Chapter Meeting will be on the 9th of April and venue, subject and the like will be notified shortly.

Offshore Institute Membership Directory 2003 ('OIMDA 2003')

The Offshore Institute Membership Directory 2003 is in the process of being finalized. It is scheduled for Distribution in March. The OIMDA 2003 will list member contact details. The objective is to provide members with a tangible benefit by allowing them to access each other via a desk directory.

Members and relevant providers that desire to advertise or otherwise support the OIMDA 2003, please contact Leonor Roque to discuss possibilities.

Contact: Leonor Roque: +41 22.317.8020 leonor@lohman-law.com

Labuan 2003 Asia-Pacific ('OIAP') Conference

October 2003 The Offshore Institute Asia-Pacific ('OIAP') Conference took place in Labuan on October 21 to 23 2003. Several meetings were hosted by:

The Association of Offshore Banks (AOB)

The Association of Labuan Trust Companies

The Guest-of-Honour was Dato’ Mohd Azlan Hashim, an Authority Member of LOFSA and Chairman of the Kuala Lumpur Stock Exchange (KLSE). In a relaxed atmosphere the conference continued with contributions from OI President, Samuel M. Lohman, S Loganathan, Colin Sharp, Paul Rust and Ayeeha Macpherson. One of the highlight was a video conferencing session with Lqbal Khan of Amanah Finance in Dubai.

Industry Leaders Discussions to Show Unity On Issues of Importance to the International Financial Service Industry

February 2003 President Samuel M. Lohman and Executive Committee Chairperson David Chong have agreed to work towards bringing industry associations leaders together in order to speak with one voice when dealing with regulators, super national organizations and the like. (See related story: The Process of Change within the International Financial Service Industry: are you participating?)

In furtherance of this objective, discussions began in Labuan with Messrs. Lohman and Chong together with Mr. Colin Sharp, worldwide Chairman of the Society of Trusts and Estate Practitioners (STEP). Likewise, Messrs. Lohman and Chong have met with the leadership of other organizations as well. President Lohman has noted that leaders of industry organizations use best efforts to ensure that the industry participates in the process of change and that open debate is had on significant matters that affect the direction of the industry and the manner in which business is carried out. It is to the leadership of the OI to encourage (and other industry organization leaders) to institute change, create a platform for open debate. The OI’s efforts to bring industry heads together will ensure that there is a common voice and encourage the super national, national and local bodies to see the necessity to listen.

The Offshore Institute Annual Conference

Report From Executive Committee

January 2003 The OI Annual Meeting took place in London in November of 2002. President Lohman reviewed the events of 2002 and planned events for 2003. In-person executive committee meetings, standard invoice approval procedures and presentation of accounts were some of the subjects discussed. OI Members attended the meeting and various representatives of the UK Chapter expressed thoughts, concerns and support regarding matters relating to the OI and its members. At the meeting the accounts were approved, Executive Committee Members Reg Newton, Barry Engel, Ben Bendelow, Jerry James, Arrien Schiltkamp and Samuel M. Lohman were voted into office. In addition, Mr. Lohman will continue his presidency until the end of 2003.

BVI Hosts Second Caribbean Due Diligence Symposium

October 9-11 2002 Long Bay Beach Resort, Tortola, BVI.

The BVI demonstrated its commitment to best practice by playing host to the Second Caribbean Practical Due Diligence Symposium: 'Managing Your Firm’s Risk', a three-day event for professionals subject to anti-money laundering law and regulation. The Hon. Ralph T. O’Neal, Chief Minister and Minister of Finance addressed the attendees at the opening ceremony as did the Chairman of the Financial Services Commission, Mr. Robert Mathavious. The Offshore Institute is proud to be involved and support the Annual Compliance Symposium and has been invited to participate in 2003. This is clearly an event that is related to education and has a positive impact on those that attend as well as the international financial service industry in general. Be looking for further notices of the compliance event that you will not want to miss in 2003.

OI Education Program via the Financial Services Institute

Plans are underway to offer OI Members access to educational programs of excellence relating to the international financial service sector. The program will be offered by the Financial Services Institute (FSI) at HLSCC, BVI. It will consolidate the best programs available in order to offer pre-community college, community college, bachelors, graduate and post graduate / post graduate professional and academic qualifications.

The FSI is supported by the government of the BVI and is part of an accredited educational institution. The FSI is currently entering into relationships with other accredited educational institutions and organizations that offer professional qualifications.

OI Website

The OI website is constantly being reviewed with a view towards updating the same. Deputy President Jerry James oversees and supplies the website to the OI. Any comments in regards to the same should be directed to Mr. James. It is contemplated that towards the end of 2003 early 2004 changes will be implemented to continue to ensure that the OI website is in conformance with industry standards.

Unauthorized and Misleading Use : 'Asia Pacific Offshore Institute'

Warning! Numerous individuals have been solicited to join (or have attended events) sponsored by the 'Asia Pacific Offshore Institute'. The complaints stem from the fact that the Asia Pacific Offshore Institute is not associated with the Offshore Institute nor has it been authorized to use the designation 'Offshore Institute' in any manner.

The Offshore Institute has formally informed the perpetrators of their infringement and instructed them to cease their unauthorized use. The OI will continue to review the situation. We regret that the persons involved have infringed on the OI’s property interest and persist on promoting their organization on this basis of this infringement. We ask that our readers keep us informed of any matters relating such unauthorized use.

OI Attendance at New Shore Event in Cancun