President's Message

In this issue, you will find information about important OI events that have taken place this year as well as those that are to take place in the coming months.

We are pleased to report the Offshore Institutes conference that will be held in Labuan October 22 to the 23. This is an important timely event held at a strategic financial center, which promises to be important for the region and the professionals that participate. The Second Caribbean Practical Due Diligence Symposium is a follow up to the successful Symposium held in 1998. The program has once again been designed to meet the needs of private sector professional providers who must comply with anti-money laundering legislation and regulation.

Preparations for the Offshore Institute's 7th Annual Meeting are in full swing. This year content focus on critical developments in the international financial service sector. Therefore, on day one, important developments from all five regions of the globe will be presented systematically; including Asia, the Caribbean, Europe, North and South America.

On day two of the conference distinguished speakers will address topics of general significance to the international financial service industry. This will include the limits of anti-money laundering and financial crime legislation, the US Qualified Intermediary and overall international financial regulatory impact from both private and public perspectives.

In preparing the Annual Conference this issue of the Offshore Financial Intermediary is covering a number of topics mentioned above. It is important to notice that a number of small and developing economies (SDEs) have grouped together in order to respond more effectively to global tax and investment challenges. The International Tax and Investment Organization (see below) explicitly considers the development implications of these challenges. The ongoing debate around the US regarding the EU's 'savings tax directive' has moved into a further phase. New prospects have been published for the development of the Caribbean, etc. etc.

It is a pleasure to invite you to visit the upcoming Annual Conference. You will be able to participate actively in the different discussions and share your vision with the other participants. If you want to share your visions at forehand please do not hesitate to send us your thoughts directly by Email.

Samuel M. Lohman
President, Offshore Institute
lohman@lsfa-law.com

OFI News: September 2002 Sector Developments

The OECD Matters: Different Perspectives

OECD Can’t Afford to Overlook Own Members in Tackling Abuse

August 2002 A new study states that, by focusing on finance centers in smaller and developing countries, the OECD is ignoring potential problems in much larger OECD finance centers and corporate domiciles. OECD countries control most of the global trade in financial services for non-residents. According to the ITIO (a group of small and developing economies set up in order to help them respond to global tax and investment challenges) the OECD's report suffers from two major failings:

It was prepared without involving countries outside the OECD and it focuses on corporate vehicles in non-OECD countries while largely ignoring those in its own member states which are vulnerable to misuse.

Towards a level playing field

The International Tax and Investment Organisation (ITIO) comprise Anguilla, Antigua and Barbuda, Bahamas, Barbados, Belize, British Virgin Islands, Cayman Islands, Cook Islands, Malaysia, St Kitts & Nevis, St Lucia, Turks & Caicos and Vanuatu. Their report Towards a Level Playing Field, can be downloaded at www.itio.org. Comments are invited prior to publication of the final review later this year. Comments should be sent to comments@itio.org.

Transparency International has published its annual Corruption Perceptions Index (CPI) 2001. The Index ranks 91 countries; the CPI Score relates to perceptions of the degree of corruption as seen by business people, academics and risk analysts, and ranges between 10 (highly clean) and 0 (highly corrupt). Finland, Denmark, Singapore, Sweden, the Netherlands, Luxembourg can be found in the top positions. Indonesia, Russia, India, Philippines are amongst those at the bottom of the list. Surprisingly the UK, USA, Switzerland are not placed in the top ten positions. (read)

European News

US does not support the EU's 'savings tax directive'

August 26 2002 The Bush Administration has decided not to support the European Unions 'savings tax directive.' The European Union savings tax directive would have required financial institutions in low-tax nations to report private financial information about nonresident investors so high-tax nations could tax income earned in other jurisdictions. The Center for Freedom and Prosperity states that this development is good news for low-tax jurisdictions, particularly those - such as the United States, Luxembourg, and Switzerland - that were expected to participate in the EU's tax schemes.

The EU Code of Conduct and Directive on Tax Treatment

August 2002 At the same time as the OECD was developing its harmful tax competition initiative, a debate was starting within the EU on what needed to be done to prevent ‘harmful’ tax competition within the EU from distorting the single market. The debate centered upon business taxation and on the taxation of savings income. This led to the development of a proposed tax package consisting of:

The Code of Conduct on Business Taxation (the 'Code of Conduct')

A draft Directive on the Tax Treatment of Savings Income (the 'Directive').

Whilst the Code of Conduct is not an EU directive, but rather an agreement between EU member states, it is expected that member states will seek to work within its terms. The EU Directive on tax treatment of Savings Income, put forward in 1997, contemplated that EU member states would be permitted to choose either to apply a withholding tax to such income, or to organize an exchange of information on such income. Switzerland Tightens Anti-Laundering Laws

27 July 2002 The Swiss Federal Banking Commission (SFBC) released to the public a draft money laundering ordinance, drawn up by a mixed working group. The draft calls for stricter clarification obligations in order to prevent money laundering and the financing of terrorism as well as more detailed due diligence regulations in dealing with assets held by politically exposed persons. It takes due consideration of the current state of play with regard to the international debate on these issues.

Pressure Eases On Swiss Banking Secrecy As EU Tax Plan Unravels

25 July 2002 European Union attempts to force Switzerland to give up banking secrecy look likely to fail. Switzerland has been standing firm in the face of EU pressure, but now it seems to have received a boost from an unexpected quarter - namely the United States.

UK Treasury Proposes Major Corporation Tax Changes

August 2000 The UK government is continuing with major reforms to the country's over-complex corporation tax system. A consultation document has been launched which addresses three key areas of tax policy: capital gains, the grouping of revenue types into 'schedules' and the distinction between trading and investment companies.

Announcing the consultation the Government set out to reform and modernize the corporate tax system and boost the UK's competitiveness in the global business environment.

Gibraltar Officially Announces New Tax Package

August 2000 The Government of Gibraltar has now issued a press release giving further details of the package of reforms it intends to make to the tax system as from 1st July 2003. The announcement of the tax package follows months of internal consultation and discussions to take account of the impact of various international initiatives. The Government of Gibraltar also had a domestic electoral commitment to introduce fiscal reforms and is committed to a policy of achieving lower levels of personal taxation.

Gibraltar’s anti-money laundering controls are stricter than Spain’s August 2000 A study reports that Gibraltar fiscal controls are much stricter and more accurate than the ones registered along the 200 km of Spanish coast stretching from Nerja to Manilva, admitting for the first time that the nearness of the British colony cannot be seen as an incentive for suspicious activities.

Jersey: Company Law - Amendment No 6

The 1st September 2002 is the pointed date for the coming into force of this important amendment to Jersey Company Law. There are a great number of technical amendments to the law but perhaps the ones of greatest interest are:

Re-domiciliation in and out of Jersey

Provision for complex hybrid companies

Merger continuance provisions

Nil par value shares

Copies of the full amendment can be obtained from the Financial Services Commission website at www.jerseyfsc.org. (read)

US and Carabbean News

Coalition rejects 'Clinton-Lite' IRS regulation

August 26 The Internal Revenue Service received approval to issue a weakened version of a Clinton-era information-sharing regulation. If the proposed regulation is implemented, American banks will be forced to report the deposit interest they pay to nonresident aliens from selected nations. The IRS regulation will enable other nations to tax income earned in the United States. The EU might argue that the Savings Tax Directive is still viable because the proposed IRS regulation is an 'equivalent measure.' (see above). The IRS is accepting public comments until November and taking testimony in early December. The Center for Freedom and Prosperity already has announced it will be opposing the initiative and other organizations also will be registering their opposition as well. (read)

US Treasury pursues credit cards on offshore accounts (from the UK Chapter)

The US Internal Revenue Service announced in March a number of actions that have been taken to combat tax-evasion schemes involving credit cards issued by offshore banks. It is finishing court-ordered negotiations with American Express and MasterCard International to learn identifying information such as passport and driver's license numbers of customers with accounts in the Bahamas, Cayman Islands, Antigua and Barbuda.

The IRS says up to two million US citizens may use credit and debit cards to spend their money in offshore bank accounts without leaving a paper trail in the US. At issue is how American Express and MasterCard can honor privacy they guarantee their customers while complying with a judge's order.

US signs tax information exchange agreements with BVI, Bahamas and Antigua (from the UK Chapter)

August 2002 The US signed a new agreement with the UK that will allow for exchange of information on tax matters between the US and the British Virgin Islands in April. It followed similar agreements with the Bahamas and Antigua & Barbuda in January and December respectively. The agreements are to come into effect on 1 January 2004 with respect to requests for information made in connection with a criminal matter; and on 1 January 2006 with respect to requests for information made in connection with a civil matter. (read)

US States Target Tax-Avoiding Corporations

August 2002 Many US states are increasingly turning to the courts to try to rein in corporations which minimize their state income tax and sales tax costs with complex tax avoidance structures. While Congress has been focusing on punishing companies that 'expatriate' to Bermuda or Barbados for tax reasons almost all large US multi-state retailers use domestic low-tax districts such as Delaware or Nevada to shelter large tranches of their income. Typically, corporations locate intellectual property assets, real estate, and financing subsidiaries in the low-tax area. These structures is probably quite robust. The Wall Street Journal reports however that the states are now launching a major compaign to try to clamp down on tax avoidance. It's ironic that some US states can get away with strategies denied to offshore tax havens. (read)

The economic future of the Caribbean does not look bright

August 2002 The Economic Commission for Latin America and the Caribbean (ECLAC), has projected a 2002 performance of -0.8 per cent for the Caribbean economy. Last year proved to be a challenging year for the region and the report put out by ECLAC indicated adverse external conditions were the key cause. 'The recession that occurred in the US economy for 2001, the decline in demand for services, and the events of September 11 are the major conditions that led to the mixed reviews for the year.' (read)

The Bahamas: drop in financial services

August 13, 2002 The 'fresh wind' of the new government in the Bahamas, the PLP, provided a brief gust before parliament broke for summer. Financial service providers had a relatively quiet time. Many companies have been forced to alter their product line somewhat to remain competitive. The new legislation and in particular the new KYC (Know Your Client) regulations have had an impact on many businesses. A recent statistic showed IBC incorporations for 2001 were down 72% from 2000 numbers. (read)

Cayman Media Warns On EU Savings Tax Directive

11 July 2002 Following the recent discussions between the Cayman Islands and the United Kingdom over the European Union Savings Tax Directive, the Cayman media has come out in opposition to any concessions, arguing that if the government agrees to exchange information with EU member states, the jurisdiction's economy and reputation could be irreparably damaged.

Organization of Eastern Caribbean States (OECS): Improvement of regulatory framework for the offshore sector

July 2002 At the meeting of Heads of Government of the OECS (Organization of Eastern Caribbean States) it was agreed that particular attention needed to be paid to the difficulties of the financial sector, with special reference to the offshore component, which had been pursued as a major area to achieve diversification of the economies of the OECS member states.

BVI Gears Up For Expansion

31 July 2002 The UK's Constitutional Adviser for the Overseas Territories, Foreign Office official Michael Bradley, visited the British Virgin Islands to hold initial talks on a constitutional review. Recent changes in the BVI have included the establishment of a autonomous Financial Services Commission, in response to international pressure for greater transparency in offshore financial centers.

BVI To Scrap Personal Income Tax By 2004

23 July 2002 The British Virgin Islands Government announced that the government plans to abolish personal income tax on the Islands by 2004. Further tax relief will be implemented for BVI residents in the intervening period.

Pacific Leaders Call For More Flexibility Over OECD Tax Initiative

21 August 2002 The 33rd Pacific Islands Forum, held last week, was successful and productive, according to the report released by the Forum leaders at its conclusion. The summit meeting was was attended by heads of state from all 16 member nations: Australia, the Cook Islands, the Federated States of Micronesia, the Fiji Islands, Kiribati, Nauru, New Zealand, Niue, Palau, Papua New Guinea, the Republic of Marshall Islands, Samoa, the Solomon Islands, Tonga, Tuvalu, and Vanuatu. During the forum, the heads of state and government endorsed the report put together by the Forum Economic Ministers, and agreed that there was 'pressing need to address the internal economic weaknesses in island economies to better withstand international economic downturns and take advantage of global growth'. They also agreed the need to focus on improving the business environment in the Pacific region, but noted that 'there were concerns regarding the process involved in the FATF listing of non-cooperative countries and territories'. The Pacific leaders also 'called on the OECD to take a much more participatory and flexible approach to the Harmful Tax Initiative, noting the need for assistance to build the compliance capacity of the Pacific Islands States with regards to the OECD and Financial Action Task Force requirements'. (read)

ASIA and PACIFIC News

Hong Kong considers Companies Amendment Bill (from the UK Chapter)

August 2002 The Companies (Amendment) Bill 2002, which is intended to strengthen shareholders rights and increase corporate disclosure and transparency was introduced into the Legislative Council. The proposals will give every shareholder the right to enforce the terms of the memorandum and articles of association of a company and reduce the threshold for circulating shareholders' proposals to 2.5% of the voting rights or fifty shareholders. They will also provide for the removal of directors by ordinary resolution instead of special resolution, make directors liable for acts and omissions of their alternates, except in relation to an offence, and provide a statutory definition of 'shadow director' in the Companies Ordinance to include someone who can influence a majority of the directors.

Dubai launches new International Finance Center (from the UK Chapter)

August 2002 The Dubai authorities have announced plans to set up a Dubai International Finance Center (DIFC) that will focus on asset management, Islamic finance, regional financial exchange, reinsurance and back-office operations. The government hopes that the project would make the jurisdiction a global location of choice for international financial institutions, and would become a regional hub for the Gulf, Central Asia, and North and East Africa.

Seychelles to update offshore legislation (from the UK Chapter)

August 2002 The Seychelle' government announced a series of measures to modernize the offshore center. The program includes five major items of legislation, incentives to attract financial services providers and the establishment of a unified regulatory body.

Mauritius to review operation of Indian tax treaty (from the UK Chapter)

August 2002 The Mauritius government announced that it will take stringent action against money laundering and has decided to review the operational aspects of the double taxation avoidance treaty with India.

June 2002 Articles

Matters of Interest to the International Offshore Financial Intermediary

Legal and tax aspects when executing projects in the Netherlands
By: Hans J. Hoegen Dijkhof

August 2002 The more international business is becoming, the more we see foreign companies carrying out various activities in different countries. In the Netherlands there are permit, income tax, social security, corporate tax, contractual and other issues to consider if one wants to execute projects as a foreign company. The position of workers from an EU country is very different from a non-EU worker.

Under Dutch law, Dutch taxation will largely depend on a person's actual residence. In practice, an expatriate is considered to be a Dutch resident if his family accompanies him to the Netherlands. Married or single, persons are considered to be Dutch residents on the basis of the factual circumstances, particularly personal and economical ties.

Europe's quest for tax harmonization
By: John BLUNDELL

August 2002 Europe's remorseless quest for tax harmonization shows no sign of abating. Its latest tax-harmonization initiative - the Savings Tax Directive - seeks to obtain wide international agreement on the need for collecting and exchanging confidential financial data on nonresidents. This would enable high-tax nations such as France and Germany to tax outside their borders and would go a long way toward creating a global tax cartel - or what one U.S. commentator has described as 'a kind of OPEC for politicians.'

The EU, of course, lacks direct means to influence tax rates outside its borders. But the Savings Tax Directive will give participating states the means to impose home-country taxes on citizens regardless of where they save or invest.

Combine Safety and Profitability with UK Profits Bonds By: Selwyn Gerber

August 2002 Classical portfolio theory is based upon diversification of asset allocation among non-correlated asset classes. Almost by definition, a fully diversified portfolio includes a portion that will perform extremely well, some portion which will perform poorly and the central core which will deliver a return somewhere in the middle-resulting in what most of what the investment community experiences: mediocrity.

The article discusses UK Profits Bonds in their un-leveraged form, that can constitute an ideal bond equivalent portfolio providing safety and stability.

OI Membership Matters & Activity Reports

Second Caribbean Practical Due Diligence Symposium

Dates: 9 & 10 October 2002, BVI

Conference Chairman: Samuel M. Lohman

Speakers:

Hon. Ralph T. O'Neal, Chief Minister and Minister of Finance

Dr. Charles Wheatley, President, HLSCC

Michael Riegels, Q.C., Chairman, Financial Services Commission

Everett O'Neal, Coordinator Financial Services Project, H. Lavity Stoutt Community College / Financial Service Institute

Lisa Penn-Lettsome, Deputy Director, Financial Services Commission, BVIFSC

Kenneth Baker, Director, Banking & Fiduciaries, BVIFSC

Ruth Chadwick, Director, Investment Business, BVIFSC

Stuart Carson, Associate Regulatory & Compliance, Harney Westwood & Riegels

Hélène Anne Lewis, Director Barrister, Morgan & Morgan Trust Corp. Ltd., President, B.V.I. Bar Association

Richard Peters, Managing Partner, Harney Westwood & Riegels

Terry Bell, Managing Director, Scotia Bank (British Virgin Islands) Limited, President, B.V.I. Banking Association

Kenneth Morgan, Executive Director, Rawlinson & Hunter, Limited, Chairman, Association of Registered Agents

Rita Merkies-Groothuizen, Group Compliance Officer, Citco Group, Ltd.

Hon. Cherno S. Gallow, Attorney General, BVI

Errol George, Detective Inspector, Financial Investigation Unit, BVI

Robert Mathavious, Managing Director & CEO, Financial Services Commission

Samuel M.Lohman, President, Offshore Institute, Symposium Chairman

Contact the Offshore Institute for further information

Second Caribbean Practical Due Diligence Symposium

Dates: October 9 October 10

Session titles:

The Fundamentals:

Overview of Relevant Legislation, Regulation, Treaties and Case Law

Creating Your Relevant Personal and In- House Anti-Money Laundering Compliance Library of

Materials

Domestic laws and regulations

Regional Agreements

Treaties

Website links Regulatory/Anti-Money Laundering

Compliance:

Private Sector Perspective

Compliance Officer's Perspective

Mutual Funds Perspective

Lawyer's Perspective

Banker's Perspective

Company Administrator, Trustee & Registered Agent's Perspective

Legislative Developments Overview of Components of a "Model"

Inhouse Compliance Program

Regulatory/Anti-Money Laundering Compliance: Public Sector Perspective

Anti-money Laundering and Countering the Financing of Terrorism

Symposium Coordinator: Russell Harrigan Tel: 284-494-8022 Fax: 284-494-8023 E-mail: oyster@surfbvi.com

The Offshore Institute Asia Pacific Conference in Labuan

Dates: 22 & 23 October 2002, Labuan

Venue: Sheraton Labuan Hotel

Conference Chairman: David Chong, Asia Pacific Branch of The Offshore Institute

Speakers:

Ayesha Macpherson: Hong Kong business community, member of the Institute of Chartered Accountants in England and Wales and Hong Kong Society of Accountants. Tax partner in KPMG Hong Kong. KPMG's spokesperson in relation to the Hong Kong Government's initiative associated with introduction of a value added tax system in Hong Kong.

Colin Sharp: Worldwide Chairman of STEP, Member of the Management and Finance Committee. Founding Secretary of the Birmingham Branch and its third Chairman. Consultant to Baker Tilly, Chartered Accountants.

David Chong: Lecturer in the National University of Singapore. Senior Partner of David Chong & Co, Director of the Portcullis group of trust companies. First President of Society of Trust & Estate Practitioners (STEP) (Singapore Chapter), President of STEP (Malaysia Chapter). Chairman of the Asia Pacific branch of the Offshore Institute.

Denis A. Kleinfeld: Principal of The Kleinfeld Law Firm, Associate Professor of Law, St Thomas University Masters of Law Program. Contributing Editor and columnist to Offshore Investment Magazine (England), Member Editorial Board of Estate Planning Magazine and the Estate Tax Planning Advisor. Program Chairman for the Annual Florida Bar Association Tax Section Seminar on 'Wealth Protection Planning'.

Edmund Bendelow: Chairman and Group Chief Executive of the Basel Trust Corporation Group, President Emeritus and a member of the Executive Committee of The Offshore Institute, Honorary Consul for the Republic of Iceland in Jersey.

Iqbal Ahmad Khan: Managing Director and Head of Global Finance of Amanah Finance (HSBC) United Arab Emirates. Managing Director of Citi-Islamic Investment Bank E.C (January 1998 to June 1998) and Global Head for Islamic Finance for Citicorp. General Manager and Chief Operating Officer of the Islamic Investment Company of the Gulf (Bahrain). Secretary of the profit committee of the DMI Group. Director for the Islamic Development Bank's Islamic Banks Portfolio. Member of the Operating Board for the Harvard Islamic Finance Information Program (HIFIP), Director of the International Association of Islamic Banks.

Paul J. Rust: Asia Pacific Head of Financial Planning of UBS AG, Hong Kong. Associate of the Chartered Institute of Bankers (Trustee), Executive Committee member of the Hong Kong and Singapore branches of STEP, Executive of the International Fiscal Association (Singapore chapter). Member of the Institute of Financial Planners of Hong Kong and the UK Institute of Financial Planning.

Richard Dukes: Partner of Blake Dawson Waldron, Australia. Board member of the Australian branch of the International Fiscal Association and serves on the Taxation Liaison Group on Foreign Source Income. National Practice Leader of the BDW Tax Group.

S. Loganathan: General Manager of Labuan International Financial Exchange (LFX), General Manager of the Kuala Lumpur Options & Financial Futures Exchange (KLOFFE), Senior Vice President Market Development of KLSE

Samuel M. Lohman : Member Editorial Board of Advisors of Money Laundering Alert, Chief Editor The Offshore Financial Intermediary. President of the Offshore Institute

Special Airfare Rates from Malaysian Airlines System (MAS) for Delegates. The main sponsor of the conference is LOFSA (Labuan Offshore Financial Services Authority). Other sponsors are:

the Association of Offshore Banks (AOB)

the Association of Labuan Trust Companies (ALTC)

the Labuan International Insurance Association (LIIA)

the Labuan International Financial Exchange (LFX) and etc.

The Conference is organized by the Institute of Malaysian Banks (IBBM) and will be part of the Labuan Week (from 21 to 27 October 2002).

Enquiries:

Yong Suet Cheng: Tel: 603-2093 8803 ; E-mail: suetcheng@ibbm.org.my

Wendy Chong: Tel: 6087-451102 ; E-mail: ibbm_lbn@tm.net.my

The Offshore Institute Annual Conference

Dates: 18 & 19 November, Miami

Venue: The Renaissance Miami Biscayne Bay Hotel, Miami

Conference Chairman: Samuel M. Lohman

Speakers: Prof. Walter Diamond and Mrs. Dorothy Diamond, David Chong, Edmond Bendelow, Barry Engel, G. Pierre Boissé, Dr. Agatha Jeffers-Gooden , Michel G. Laporte, Dr. Michael Levi, Mr. David Klein, Bruce Zagaris, Dan Mitchell, Robert Mathavious, Marshall Langer

Session titles:

Global Perspective of the International Financial Service Industry

Asia Pacific Perspective: Planning trends and opportunities: OECD, FATF, UN and other NGO pressure on the region. Local legal and regulatory developments in respect to Asia Pacific, Europe, North America, Caribbean and South America

European Perspective: Planning trends and opportunities, OECD, FATF, UN and other NGO pressure on the region, legal and regulatory developments>

North American Perspective: Trust Developments, United States Tax Considerations

Caribbean Perspective: Planning trends and opportunities, OECD, FATF, UN and other NGO pressure on the region, legal and regulatory developments

South American Perspective: Planning trends and opportunities, OECD, FATF, UN and other NGO pressure on the region, legal and regulatory developments

The limits of anti-money laundering and financial crime legislation and practice

US Qualified Intermediary Agreement

International Financial Regulatory Pressures on Offshore Financial Centers

Offshore Industry Response to Global NGO, Regional and Domestic Pressure on the International Financial Service Sector

Government Perspective: Response to pressure on the International Financial Service Sector – Suggested financial service industry short and long term strategic plan

The outrageous history of Caribbean Tax Treaty relationships of the US and other OECD countries

The OI has put together a faculty of participants from Europe, Asia, North and South America and the Caribbean. There will be a number of sponsorship opportunities during these two days.

Contact the Offshore Institute for further information.