Citco Fund Services, one of the world's largest hedge fund administrators, has announced plans to open an office in Halifax, Canada with plans to eventually employ about 350 people.

Citco Fund Services has offices in Bermuda, most other offshore centres, London, the US and Asia. Citco has operated in Canada since 1992, and now employs about 350 people in Toronto, primarily as a back-office for its offshore centres.

"We see Halifax as a strategic centre to develop our Canadian operations," said William Keunen, global director of Citco Fund Services. "With Nova Scotia's education infrastructure and competitive advantages, we know it is the right place for our new office and training centre."

Citco is just the latest company with Bermuda connections to announce it is opening an office in Halifax, taking advantage of the ample university-educated work force and costs lower than those found in Bermuda.

Recently, Bermuda-based Bank of N.T. Butterfield & Sons Ltd. said its fund services unit would hire about 400 people in Halifax within the next seven years. Last year, Bermuda based fixed-income fund manager West End Capital Management agreed to create 75 positions in Halifax.

The Globe and Mail reports that their sources have indicated that the Bermuda based hedge fund administrator Olympia Capital International Inc. also plans to open an office that will hire about 150 people in Halifax, and that hiring commitments by Bermudian financial companies will soon reach almost 1,000 jobs.

 

HedgeFund.net has released its Q3 2006 Hedge Fund Asset Flow / Performance Report.

The report estimates single manager hedge fund asset levels increased from $1.725 to $1.786 trillion during the third quarter of 2006. Net new assets allocated to single manager hedge funds increased an estimated $51.5 billion. The increase is less than the two prior quarters, but still represents the third highest inflow since the beginning of 2005. Performance gains added an additional $9.3 billion to total assets. Fund-of-fund assets increased 4.40%, $34 billion in new assets, to an estimated $901 billion.

HedgeFund.net  reports that hedge fund industry assets have grown over 20% in the last 12 months.

John Deuss has been remanded in jail for a further 90 days in Holland.

From the Times of London:

"Sir Andrew Large attacked London’s ban on listed hedge funds as "anachronistic" yesterday as he was named chairman of a record-breaking new $1 billion (£675 million) hedge fund floating in Amsterdam.

The former Bank of England Deputy Governor and chairman of the Securities and Investments Board, forerunner to the Financial Services Authority, is to chair the new investment vehicle operated by the London hedge fund manager Marshall Wace. If it succeeds in raising its target of $1 billion it will be the world’s biggest listed hedge fund.

Sir Andrew said that London’s restrictions on the listing of single-strategy hedge funds was one reason for the choice of Amsterdam. Single-strategy hedge funds are usually banned from full listings in London because they are not sufficiently diversified and because of restrictions on short-selling. "It’s a historic thing," Sir Andrew said. "I think it’s a bit of an anachronism."

Marshall Wace is the second hedge fund manager this month to choose Amsterdam to raise money in a permanent capital vehicle. Two weeks ago the Anglo-French hedge fund manager Boussard & Gavaudan chose it to raise $562 million.

Investment bankers say more hedge funds are queueing up to float permanent capital vehicles, which are attracting investors precluded from investing in traditional hedge funds.

The FSA said in March that it was considering relaxing restrictions on investment companies. But the earliest the new regime could come in would be the third quarter of next year.

There was confusion last night about whether the new vehicle could have been listed in London, with the FSA claiming that foreign-based investment companies - the new fund, MW Tops, is registered in Guernsey - were already able to list in London.

Sir Andrew’s appointment is a coup for Marshall Wace, whose highly successful investment style has come under scrutiny from regulators amid concern that it might inadvertently encourage market abuse.

Marshall Wace, which has $5.9 billion under management, solicits investment ideas from investment bankers and brokers and rewards the best with generous commissions. That might tempt bankers to exploit inside information, it has been claimed.

However, last month the FSA gave a nod of approval to so-called alpha capture systems, arguing that cheats were more likely to use other methods. Marshall Wace also expects to be formally cleared next month of any wrongdoing in a case involving Alcatel shares in 2002 being investigated by French regulators.

Sir Andrew is being paid a one-off £250,000 by Marshall Wace and will receive £70,000 a year in director’s fees."

Max Re Capital Ltd. has announced that Chairman and Chief Executive Robert Cooney resigned after an internal investigation into a controversial type of coverage known as finite reinsurance uncovered potential wrongdoing.

The company also said it has contacted the Securities and Exchange Commission about the matter.

Max Re said it has decided to restate quarterly and annual results from 2001 through 2005 to reflect concerns that oral side agreements had negated the supposed risk transfer in two finite insurance deals. Regulators such as New York Attorney General Eliot Spitzer and the SEC launched investigations in late 2004 and early 2005 into whether companies used finite reinsurance to manipulate their financial statements.

Ewart Brown has defeated former Premier Alex Scott to take the leadership of the Progressive Labour Party by a vote of 107-76 at the PLP delegates conference. Dr. Brown, who was Deputy Premier and Tourism and Transport Minister until his resignation from Cabinet two weeks ago, has now been sworn in as the Island's Premier (and the third PLP Premier).

UPDATE:  After being arrested without charge in Bermuda and then released on $10 million bail, John Deuss flew voluntarily to Holland (under a police escort). He was arrested on arrival and is now being questioned about the role of his Caribbean bank FCIB in a systematic EU tax evasion scheme called "carousel fraud".  A Dutch judge ordered that he be detained for 2 weeks. Deuss, a resident of Bermuda, denies any wrongdoing and has not been charged with any offence, but he is suspected by EU tax authorities of being in charge of a "criminal organisation".  The warrant for his arrest listed allegations of habitual or deliberate money laundering, handling of stolen property, and being in charge of a criminal organisation.

For an unsentimental profile of the man by David Marchant (as published in Bermuda's Royal Gazette) see here.

The Jersey government has published a summary of the responses received in connection with its consultation on the introduction of a goods and services tax (GST). The report is available here.

The document summarises the views expressed in the public consultations held between 28 March and 31 August this year concerning the implementation and operation of the levy, which is due to be introduced in 2008. The following is an excerpt from the pdf:

"BACKGROUND

In 2004, the States agreed two major changes to Jersey’s tax structure - a reduction in the general rate of tax on corporate profits, from the current 20% to a rate of 0% for most companies but with a higher (and yet internationally competitive) rate of 10% for financial services providers.

These changes, known as “zero/ten” were considered to be vital to secure a sustainable economic future for Jersey since they would enable European Union demands for nondiscriminatory taxes to be met, whilst combating competition from other business centres seeking to attract the highly mobile and economically important financial services industry away from the Island.

However, an effect of “zero ten” will be to reduce the States’ future annual tax revenue by an estimated £80-100 million. The main impact of this is expected to be felt in 2008 and the full effect by 2010.

In order to fill this anticipated ‘revenue gap’ the States agreed a package of measures that included restrictions on its spending, an economic growth plan, an Income Tax instalment system, legislation to ensure that shareholders in zero per cent companies would ultimately pay personal Income Tax on their share of profits and a phasing out of certain Income Tax allowances for higher income groups.

Nevertheless, even after these provisions, there remained a £40-45 million annual revenue shortfall and some form of new tax, or taxes, became inevitable to ensure the continued provision of high quality public services.

However, in addition to producing the required £40-45 million of annual revenue, the aim was to design a tax, or taxes, which would be as simple as possible for all concerned, while maintaining Jersey’s economic competitiveness and having the minimum possible impact on the cost of living and on business activities.

After detailed consideration, and following comprehensive public consultation, the States decided in 2005 to adopt a GST as the best of the alternative tax-raising measures - with a proviso that an income support scheme would be introduced to mitigate the effect of the tax on lower income groups.

It was agreed that Jersey’s GST should be broad-based but levied at the lowest possible rate and with the highest possible registration threshold (below which businesses would not be required to register for GST). It was therefore decided that a single standard rate of three per cent (the lowest in the world) should be applied to most goods and services supplied in or imported to Jersey and that the registration threshold should be set at £300,000 of taxable turnover (one of the highest in the world). By comparison, the United Kingdom standard rate is 17½ per cent and its registration threshold is currently only £60,000. It was calculated that the combination of the broad tax base and single low tax rate (capped for at least three years), would minimise the cost of administration and result in a one-off cost of living impact of only one to one-and-a-half per cent, while the high threshold would mean that only the biggest businesses would be required to register for and collect GST from their customers. (In fact, it is estimated that three quarters of Jersey businesses, about 4,500, will be relieved from the responsibilities of GST - thereby reducing the burden on smaller business and further reducing the cost of administration).

However, having decided to adopt GST, the States agreed that there should be full public
consultation on the manner of its implementation and operation and that the views expressed would be taken fully into account by the States when final decisions were made on the scope of GST and the enabling legislation.

...............With the exception of detailed submissions from the Financial Services Industry and businessassociations, Crown Agents was surprised at the relatively low level of responses to the consultations - especially in the light of the importance of GST to Jersey and the widespread publicity that it has received.

CONCLUSIONS AND WAY FORWARD

.....The views expressed by this correspondent are, in fact, included under various subject headings in this report and are currently under consideration by the GST Consultation Team.

It is the view of Crown Agents that the consultations, under the management of the GST
Consultation Team, were properly conducted within States’ guidelines. They were well
publicised and adequate supporting public information was made widely available. All
reasonable opportunities were afforded for all who wished to make submissions. Crown Agents notes that the GST Consultation Team will continue to accept and consider comments and suggestions even beyond the closing deadlines for submissions.

The issue of exclusions generated the greatest response, particularly in terms of numbers. The submissions from private individuals concentrated almost exclusively on the treatment of school fees.

There were presentations from some providers of childcare about the adverse impact of GST on that sector.

One submission called for exclusion of medical services and several charitable organisations made representations about the detrimental effects of taxing their caring activities and pointing out the knock-on effects on the States. Towards the end of the consultation period there were a significant number of submissions from charities, mostly via the Corporate Services Scrutiny Panel. To allay any unnecessary concerns the GST consultation team prepared an explanatory leaflet on the possible implications of GST for charities and supported the Minister for Treasury and Resources at a public meeting called by the Scrutiny Panel.

With one exception, there was an absence of requests for exclusion for the following:
Food;
Children’s clothing;
Books and newspapers;
Fuel and energy.

The majority of responses from businesses and business organisations supported the concept of a broad-based, low rate, simple to operate tax with minimal exclusions. One organisation pointed out that this was the foundation of its support for the original proposal to introduce GST.

A number of submissions were directed at ensuring the ‘business friendly’ approach referred to in the main consultation paper and a range of suggestions for amendments to the draft Primary Law were made. Some of these have already been taken on board and others are under consideration.

The consultation exercise has proved very useful in reviewing and re-formulating policy and, more specifically, in finalising the enabling legislation. The GST team should be in a position to provide further drafting instructions to the Law Draftsman to enable a revised version of the draft Law to be lodged in time for States debate by early January 2007."

The Credit Suisse/Tremont Hedge Fund Index was up 0.13% in September, according to Oliver Schupp, President of the Credit Suisse Tremont, LLC.

“The Fed's decision to keep interest rates stable, due to an expected slow down in US economic growth and successive easing of inflation pressures gave most investors confidence that further interest rate hikes remain unlikely. With this sentiment, hedge funds ended September on a mixed note”, said Oliver Schupp “As the markets essentially overlooked concerns regarding the US housing sector and negative geopolitical developments, Event Driven managers profited from the positive equity market trend in developed economies ending the month up 0.60%. Dedicated Short Bias managers were inversely affected by positive global equity trends and ended the month down, 3.11% for the month of September.

“As global financial markets were particularly sensitive to growth and inflation news in September, volatility in the global equity markets remained muted for the month and yet strong technical factors led to the richening of overall convertible valuations against a stable credit backdrop for Convertible Arbitrage Managers who ended the month up, 1.15%”, said Robert I. Schulman, Chief Executive Officer of Tremont Group Holdings, Inc. “Managed Futures managers generally experienced a loss on the back of exposure to declining energy prices and ended the month down 1.15%.”

Germany is putting hedge fund transparency on the agenda of next year’s meeting of the group of eight leading industrial nations in the wake of the Amaranth debacle.

Peer Steinbrück, the German finance minister, is reported as saying that Germany saw “the new sensitivity” in the US about the systemic risks of hedge funds as an opportunity to discuss the issue.

G7 finance ministers will tackle ways to improve transparency of hedge funds when Berlin takes up the presidency of the G8 next year, according to a draft programme for Wednesday’s German cabinet meeting.

“The discussion in the US is qualitatively very different from what it was four or five years ago,” Mr Steinbrück said in Berlin. “The case of Amaranth seems to have played a role in this.”

Efforts in the US to boost oversight of the lightly regulated $1,500bn industry hit a wall in June when a court struck down a rule by the Securities and Exchange Commission requiring hedge fund managers to register with the financial market watchdog. But the investigation of Amaranth by US federal regulators and the Connecticut banking department has given fresh momentum to the debate.

Meanwhile, Sir John Gieve, Deputy Governor of the Bank of England, has delivered a blunt warning over “aggressive risk-taking” by hedge funds.  Sir John questioned whether some funds would survive the stress of severe market turbulence. He noted that the huge growth in hedge fund activity had taken place in a largely “benign environment”, and that firms risk management had yet to be “tested by a severe shock”.

Sir John said that “some comfort” could be taken from the lack of wider market disruption after the collapse of Amaranth Advisors. But in a stark message, he argued that future failures could have graver repercussions. “We should not conclude that it will be as smooth and easy next time — and of course there will be a next time. If we face a financial crisis in the next few years, we are almost bound to find some hedge funds at or near the centre of it.” Sir John tempered his remarks by praising the role of hedge funds as means to boost markets.
However, it is also understood that the UK Treasury remains sceptical over the case for a tougher regime of oversight of hedge funds. It is likely to set out its views in more detail within a few months.

In addition, Jean-Claude Trichet, the European Central Bank President, said recently that regulators worldwide are edging closer to a concerted approach on a new regime.

KPMG has raised the alarm that new draft guidelines have been published under which UK based investment managers of offshore funds could see their funds’ profits losing their tax free status in certain circumstances.
 
HM Revenue and Customs (HMRC) has published new draft guidelines on the tests which investment managers need to satisfy to qualify for the “Investment Manager Exemption” (IME) enabling profits from offshore funds to remain outside the UK tax net.
 
KPMG tax partner, John Neighbour, formerly of the OECD and HMRC where he was in charge of the review of the tests for the IME, said: “These new draft guidelines are of huge significance to investment managers, particularly in ‘alternatives’ such as hedge funds. Assuming these new draft guidelines are adopted, they will all need to review their arrangements as a matter of extreme urgency in order to ensure that the funds for which they act maintain their tax free status. We expect most fund managers to adapt their arrangements as necessary in order to remain in the UK and keep the funds’ tax free status.”
 
The key changes in the new draft guidelines affect the following two tests:
 
1. The “customary remuneration” test
2. The “independence” test
 
The customary remuneration test
 
Under the current test, an investment manager of an offshore fund needs to demonstrate that the remuneration received for this management service is not less than “customary” for that class of business. There has been little guidance as to what is meant by customary but under the new draft guidance, HMRC confirms that it will determine whether this remuneration is “customary” by applying the transfer pricing concept of arm’s length pricing.
 
John Neighbour commented: “An element of certainty of what HMRC actually means by the term ‘customary’ is welcomed as is the reference to internationally accepted transfer pricing principles as found in the OECD Transfer Pricing Guidelines. However, it does make satisfying this test more onerous. Applying transfer pricing methodology means that UK fund managers will need to ensure that they can demonstrate all amounts paid to parties related to their funds are at arm’s length rates and, in this sense, the burden of proof that the arrangements are satisfactory shifts from HMRC to the UK fund managers.”
 
The independence test
 
In contrast to the changes to the remuneration test, the new draft guidance on the independence test introduces further uncertainty. The previous guidance set out a list of circumstances under which HMRC will regard the independence test to be satisfied. The new draft guidance now states that no one factor will be treated as decisive in determining whether the manager and the fund are independent; the list merely illustrates what may be significant.
 
John Neighbour concluded: “These moves are the latest steps in the increasing level of scrutiny HMRC is applying to the fund management industry. There is a perception that some fund managers have played a little ‘fast and loose’ and HMRC is tightening up the rules in response. Everyone in the industry will need to pay attention to these proposed changes and, at the very least, review their procedures. We would expect that most will satisfy the new guidelines but some will have to make some changes to their arrangements very quickly.”
 
Affected UK based investment managers have until 12 January 2007 to comment on the draft proposals.
 
Ironically, this alarm comes at a time when the UK is celebrating the 20th anniversary of “Big Bang” and the huge success of London as an international financial centre since then. As the Economist notes, as a result of Big Bang -  “London has kept its long-standing dominance of foreign-exchange trading; its share of the market for over-the-counter derivatives has increased from 27% in 1995 to 43% in 2004. A fifth of the world's hedge-fund assets (including 80% of Europe's) are managed out of London, compared with a tenth in 2002. Though London's insurance market has suffered from tax competition, the City has powered ahead in services such as the law and ship-broking. In equities, the business Big Bang was designed to secure, London has hosted 172 international listings so far this year, compared with 134 in regulation-bound New York.”
 
Sometimes you have to wonder if the UK Tax man has even the vaguest clue as to how the wealth is generated that pays for their salaries!

The Dubai International Financial Exchange (DIFX) recently listed a $150 million Sukuk created by The Investment Dar Company K.S.C. (TID), making the exchange the global leader in Sukuk by listed value.

The value of Sukuk (Islamic-compliant bonds) on the DIFX totals $4.11 billion with the TID issue, a higher figure than on any other exchange.

Per E. Larsson, Chief Executive of the DIFX, said: “As the international exchange of the Middle East and surrounding countries, the DIFX is a natural home for Sukuk and other Islamic products. We will intensify our focus on this rapidly growing sector.”

Gulf-based non-sovereign borrowers issued $4.6 billion worth of  Sukuk between January and June 2006, a 117% rise on the figure for the same period in 2005.

TID is a prominent Islamic financial institution based in Kuwait and is active in areas including consumer financing, real estate and investing. The Sukuk has been issued by TID Global Sukuk I Ltd, a company set up specifically to carry out the issuance. 

Amr Abou El Seoud, Executive Vice President of TID, said: “We are delighted to become the first financial institution to bring a Sukuk to the DIFX. The exchange is known for its international standards and this listing raises awareness of our company and its development.” 

 Nasser Alshaali, Chief Operating Officer of the DIFX, said: “The DIFX has attracted listings from many countries since it opened in September 2005, including companies with roots in Jordan, Saudi Arabia, Switzerland, India and now Kuwait. In our second year of operation we will reinforce our status as the region’s international exchange.”

WestLB AG, London Branch is book runner and joint lead manager of the TID Sukuk. Unicorn Investment Bank is Sharia advisor and joint lead manager.

The Securities and Exchange Commission (SEC) has brought securities fraud charges against James N. Stanard and Martin J. Merritt, the former CEO and former controller, respectively, of RenaissanceRe Holdings Ltd. (RenRe) and also against Michael W. Cash, a former senior executive of RenRe’s wholly-owned subsidiary, Renaissance Reinsurance Ltd. The complaint, filed today in federal court in Manhattan, alleges that Stanard, Merritt, and Cash structured and executed a sham transaction that had no economic substance and no purpose other than to smooth and defer over $26 million of RenRe’s earnings from 2001 to 2002 and 2003. The SEC also announced a partial settlement of its charges against Merritt, who has consented to the entry of an antifraud injunction and other relief.

Mark K. Schonfeld, Director of the SEC’s Northeast Regional Office, said, "This is another case arising from our ongoing investigation of the misuse of finite reinsurance to commit securities fraud. The defendants enabled RenRe to take excess revenue from one good year and, in effect, “park” it with a counterparty so it would be available to bring back in a future year when the company’s financial picture was not as bright."

Stanard, age 57 and a resident of Maryland and Bermuda, was Ren Re's chairman and chief executive officer from 1993 until he resigned in November 2005.
 
Merritt, age 43 and a Bermuda resident, held various positions, including that of controller, at both the holding company and the subsidiary.
 
Cash, age 38 and a Bermuda resident, was a senior vice president of the subsidiary until he resigned in July 2005.

It will soon be illegal for banks and credit card companies in the US to conduct transactions with online gambling companies due to the unexpected passage of the Unlawful Internet Gambling Enforcement Act.

The Act was passed in Congress when Republicans added the provisions to a port security bill, and President Bush has already indicated that he will sign it. The Act will effectively cut off the traffic of money to large offshore gambling companies. Offshore gambling companies have seen explosive growth until now. News of the ban sent publicly traded gambling stocks such as SportsBetting, and PartyGaming plummeting. About 78 percent of PartyGaming’s revenue and 62 percent of SportsBetting’s revenue currently comes from the US. While the extent of the impact that the bill will have on the global online gambling market is yet to be measured, many online gambling firms which are heavily reliant on American traffic are scrambling to make alternative plans to bring in new clients.

Congressional representatives argue that they passed the bill in order to protect Americans from gambling losses.

Charles Schmitt, 61, has pleaded guilty to 19 charges of false accounting involving the CSA Absolute Return Fund and was sentenced to 4.5 years in prison and banned from being company director for 10 years in Hong Kong.

The Judge described it as a "well planned and sophisticated" fraud. There is still a short fall of US$32.5 million in the fund after it was liquidated, and some of that was apparently used by Schmitt to buy real estate assets for himself. Schmitt declared personal bankcuptcy in December last year.

The liquidator is still suing HSBC Institutional Trust Services (Asia) and E&Y for their alledged role in the fund's failure.

The Royal Gazette reports that John Deuss has been arrested in Bermuda and likely spent the weekend in custody at Hamilton Police Station.

A court hearing is expected to be held next week – possibly as early as Monday – to determine whether he should be bailed and/or released.

Mr. Deuss resigned from the board of BCB last week, along with his sister Tineke and president Timothy Ulrich, after FCIB was effectively shut down by authorities in Europe. Authorities in the Netherlands want Deuss extradited there for questioning and a Bermudian magistrate has granted a provisional warrant for his arrest. Deuss' lawyers made a second attempt, on Wednesday, in Supreme Court to overthrow that decison, arguing in open court, that it was unlawful for the warrant to have been granted in Bermuda because no extradition treaty exists between the two countries.

Meanwhile, the Royal Gazette reports that "The whereabouts of the oil tycoon himself, who denies any wrongdoing on the part of any of his companies, are not known and Police on the Island have asked the public to help trace him". Anyone with information about Mr. Deuss’ whereabouts should call Bermuda Police on 295-0011

The Guardian reports that UK tax authorities have "dealt a devastating blow to criminals defrauding the British taxpayer of billions of pounds every year after discovering that they all channelled their funds through the same small Caribbean bank" - John Duess' First Curaçao International Bank (FCIB), which holds 40% of Bermuda Commercial Bank (BCB). FCIB's volume of business apparently jumped from $60m two years ago to $6.5bn, before the bank was effectively closed last week.

The criminals engage in a tax scam called "carousel fraud", which apparently involves the repeated import and export of items, such as mobile phones and computer chips, from one EU state to another. No VAT is paid on the import but is "charged" on the sale. This VAT is then being retained. Tax losses through carousel fraud have shot up over the past year, to at least £100m a week, as traders have used sophisticated computer programmes to create "virtual" trades without actually moving goods.

In a joint Anglo-Dutch operation that included raids in London, the Netherlands and South Wales, FCIB has been effectivley shut down after it was found that every individual arrested and charged with carousel fraud in the last two years had an account there. John Deuss and others have resigned from the board of BCB whilst the investigations proceed.

Now a warrant has been issued in Bermuda for the arrest of John Deuss, on the back of a warrant issued in the Netherlands, as the authorities want to question Deuss - a frequent resident in Bermuda.

The problem has developed in Deuss' Transworld Payment Solutions (TPS), which is a very powerful, online, global payments mechanism that he developed for his own use (ie, Transworld Oil). TPS aparently was responsible for vetting FCIB clients in Europe. TPS enables account holders to move money between accounts in real-time, 24 hours a day, and in multiple currencies. The transfers all occur in the book-entry records of TPS.  To enable EU customers to get their money out of the system, without travelling to Curaçao or Bermuda, FCIB had correspondent banking arrangements with EU banks. These were Barclays Bank in the UK and Rabobank in Holland, and more recently, Union Bank of Switzerland. Each bank in turn has shut the door on FCIB because they became anxious about the transactions. This prompted FCIB to warn many of its clients that it was being forced to shut their accounts, as without a correspondent bank in Britain, it would no longer be able to move funds for them.

Like the Internet itself, which is an amazingly powerful tool that can be used for good, or for bad purposes, a fully electronic, book-entry payments mechanism is a very powerful application that can facilitate legitimate trade, and apparently, assist criminals.

Although Duess' bank may have earned millions of dollars in fees from FCIB's customers, there is no suggestion that he has been involved in carousel fraud trades. Deuss told the Guardian that all of his companies have always complied with all applicable laws, regulations and rules. "Accordingly, the companies deny any wrongdoing in connection with this matter and will vigorously defend their interests," he reportedly said. However, the question will no doubt be asked, "Did Deuss know, or should he have realised from the extraordinarly rapid growth in TPS's business, that something was amiss?"

In a statement, BCB said its operations should not be affected by the investigations of FCIB as their business is "entirely unconnected" and added: "However, the fact that FCIB is BCB’s largest shareholder has resulted in scrutiny by the rating agencies and the downgrading by Moody’s. If nothing else, this does affect the reputation of BCB. We will be contacting our clients to assure them of the bank’s unimpaired financial strength."

UPDATE II: Amaranth now reports that, after closing out positions to meet margin calls, it has lost around $6 billion.

UPDATE: Latest news reports suggest that Amaranth lost $4.5 billion (approx 50% of the $9 billion under management) in September, after being up 20% at the end of August.   Given the absolute size of the loss, the speed with which it was incurred (based on massive leverage - as with LTCM), and the volatility in this fund throughout 2006, there have been the usual, renewed cries for greater supervision of hedge funds.  In fact the energy markets have absorbed the losses without much turmoil. Amaranth is now under investigation in Connecticut and I suspect that the state authorities and the SEC have more than enough existing powers to deal with any fraud or wrongful disclosure (if any occured).  As with LTCM, the lenders will have to look again at their risk management controls and it seems likely that redemptions will lead to the fund's closure. In other words, the market is dealing with this without the need for new regulations. 

The FT reports that Amaranth Advisors has told investors that its main funds are down 35 per cent or more this year in the wake of a big losing bet on natural gas prices.

Natural gas prices fell nearly 15 per cent over the last two weeks on strong winter storage levels and predictions of a mild winter.

Amaranth’s funds were up about 20 per cent for the year as recently as mid-August and that means that the firm’s losses over the past few weeks could be as high as US$4bn. Amaranth, a hedge fund with US$7.5bn under management, was founded in 2000 and bills itself as a multi-strategy fund specialising in energy trading, merger arbitrage, convertible bond and long-short strategies.

The FT reports that in a speech in Hong Kong, Timothy Geithner, President of the New York Fed, said supervision of core banks and investment banks had encouraged the transfer of risk to unregulated institutions such as hedge funds. Their growth was now increasing the risk that if large hedge funds run into problems, it could damage the regulated core of the financial system.

Mr Geithner said that, for the moment, regulators should continue to focus on encouraging the banks and brokers that lend to hedge funds to improve their "counterparty discipline" of the funds.  But, over time, the growth in hedge funds "will force us to consider how to adapt the design and scope of the supervisory framework to achieve the protection against systemic risk that is so important to economic growth and stability."

John Deuss, Tineke Deuss and Timothy Ulrich have been obliged to step down from the board of Bermuda Commercial Bank (BCB), which is listed on the Bermuda Stock Exchange. Legal authorities in Holland and Curacao are conducting an investigation at the offices of First Curacao International Bank (FCIB), and at the offices of its Dutch administrative services provider in Holland, into FCIB's involvement in alleged money laundering activities by some of its clients and whether the activities of its Dutch service provider require a banking license. The investigation by legal authorities in Holland and Curacao has impacted BCB because FCIB is a significant shareholder in BCB.

John Deuss, Tineke Deuss and Mr. Ulrich who serve as directors of FCIB have advised the board of directors of BCB that they will temporarily step aside from their responsibilities as directors and officers of BCB until this matter is resolved.

John Deuss is a maverick businessman with major intrests in oil and gas (Transworld Oil) who is now trying to build a global electronic payments processing service called Transworld Payments. Formerly resident in Bermuda he is now rumoured to be resident in the US.

The Barclay Group, an independent provider of alternative investment research data, announced today that it has purchased the Alternative Asset Center (AAC) database, creating the world’s largest database of hedge fund performance.

"Integration of AAC and Barclay data will enable us to provide up-to-date monthly performance figures on nearly 7,000 hedge funds," said Sol Waksman, founder and president of The Barclay Group. "Our internal database now maintains information on over 12,000 alternative investment vehicles."

According to current industry estimates, there are 10,500 active hedge funds with more than USD 1.4 trillion in combined assets. Analysts expect hedge fund assets to triple during the next decade.

The Barclay Group, founded in 1985, currently tracks more than 6,000 hedge funds and managed futures programs. Barclay has created and regularly updates 18 proprietary hedge fund indexes and eight managed futures indexes. Institutional investors, brokerage firms and private banks worldwide utilize Barclay’s indexes as performance benchmarks for the hedge fund and managed futures industries.

"Given the dramatic growth of hedge funds in recent years, sophisticated investors need up-to-date and reliable tools to properly evaluate this sector," says Waksman. "Barclay will now be able to deliver accurate and timely performance data on more hedge funds than any other provider in the industry."

The combined resources of Barclay and AAC will be utilized to produce the 6th annual Directory of Fund of Hedge Funds scheduled for release in November and to maintain an exhaustive product line that includes analysis software, proprietary indexes, publications, reports, and electronic data feeds.

AAC was established in 1999, and quickly constructed the largest proprietary fund of hedge fund database in the industry. Three well-known AAC products will be added to Barclay’s product line: the annual Directory of Fund of Hedge Funds, the Fund of Hedge Funds DataFeeder, and the Alternative Investment Manager DataFeeder.

Financial News reports that the Dubai International Financial Centre, the financial services hub being built in the United Arab Emirates, has gained the first hedge fund licensed to operate in the country.

The Constans Crescent investment fund, launched by US hedge fund group Argent Financial, will be an equity long/short fund investing in the "crescent belt" of Islamic countries stretching from Morocco to Pakistan.

Several of the world’s largest ratings agencies are developing wide-ranging credit and risk ratings on hedge funds and their managers, as the $1.5 trillion hedge fund business becomes even more mainstream.

As hedge funds attract more investment from institutional investors such as pension funds they have to convince investors that the perception of hedge funds as a risky investment is no longer valid. S&P is developing a comprehensive set of ratings criteria that are expected to be launched before the end of this year. S&P already assigns counter-party credit ratings to some hedge funds. Its funds group assigns ratings to the managers of funds of funds that reflect the quality of management and operations. They do not directly reflect performance.

Moody’s and Morningstar are reportedly working on similar products.

US regulators have been campaigning for more information about hedge funds to be made available to investors. The Securities and Exchange Commission is reconsidering the best way to police hedge funds after a US federal court threw out an SEC rule requiring funds to register with it.

S&P’s ratings criteria are being developed to assess the creditworthiness of hedge funds and hedge fund managers. The ratings will reflect the likelihood of a fund defaulting on an obligation, such as a bank loan or other debt, or in the form of a derivative contract.

S&P said its ratings would incorporate all aspects of operational risk, and performance to the extent that it impacts liquidity.

The Financial Times reports that tens of thousands of investors with money tied up in offshore financial centres have been successfully exploiting loopholes in the new EU savings directive, allowing them to escape the scrutiny of tax authorities or bypass withholding taxes introduced last year under the new law.

Figures released by the Swiss Finance Ministry reveal only $100m (£69m) was raised by Switzerland - the world's largest offshore financial centre - in the second half of 2005, the first six months of the new law's operation.

Over the same period,Jersey raised just £9m and Guernsey just over £3m, a tiny fraction of the £70bn of assets held in these offshore financial centres.

Tax accountants said the surprisingly low figures were the latest signs that many offshore savers had channelled their money to centres such as Singapore which are not covered by the EU savings directive or had re-organised their offshore savings so they escaped the scrutiny of tax authorities.

Under the directive, which came into force in July last year, all EU member states and more than a dozen offshore financial centres from the Cayman Islands to Liechtenstein must share account holder information with relevant local tax authorities or levy withholding taxes of up to 35 per cent. The rules apply to money held in offshore savings accounts.

Tax experts said there was evidence that as well as moving money to offshore jurisdictions not covered by the directive, many savers had taken less dramatic steps to escape the directive - including moving money into deferred interest accounts where interest is paid only when the account is finally closed. Offshore insurance "wrappers" have also become more popular as these also escape the directive.

Offshore insurance bonds are exempt from the directive because all the assets in the bonds are technically held by the life company running it rather than by individuals.

Many savers also appear to have set up corporate accounts as companies are exempt from the directive.

In light of the recent publicity, speculation and queries about the desire by Cable and Wireless to buy KeyTech Limited, KeyTech issued a statement to confirm that KeyTech has not received new or revised terms from C&W to purchase KeyTech Limited since a suggested value of $205 million was discussed at KeyTech’s Annual General Meeting on July 21st. C&W (formerly the sole provider of long distance telephony services in Bermuda) now competes with TeleBermuda for long distance. KeyTech is Bermuda's main domestic/fixed line telephone services provider.

At the AGM, the Chairman, Dr. James King, told shareholders that "having considered the inherent value for the KeyTech group’s operations, its various assets and its current strategic position your Board is not recommending this price as being in the shareholders’ best interests".  This statement was part of a letter to shareholders which outlined the Board’s reasons for considering that the proposal significantly under valued KeyTech.

The statement says that the Board of Directors will give careful consideration to any matter of significance that affects KeyTech and its shareholders.

The Jersey Financial Services Commission (the "Commission")has commenced a public consultation exercise on a number of proposed amendments to the Banking Business (Jersey) Law 1991. The Law establishes provisions for the regulation of banks operating in Jersey and the amendments relate to:

The appointment of a manager in prescribed circumstances;
The issue of Codes of Practice and measures that address the failure of registered persons to adhere to them;
Changes to the right of appeal and appeal procedures;
Improved specificity on the way in which conditions imposed on the registration of a person may be amended;
The power of the Commission to issue directions; and
Provisions to effect the transfer of deposit-taking business from one Jersey deposit taker to another.

The Consultation Paper can be viewed on the Commission’s website at www.jerseyfsc.org and paper copies are available at the Commission’s reception area and the Jersey Library.

The Commission welcomes input from any interested parties. Responses must be submitted by 3 November 2006.

The Jersey Financial Services Commission (the "Commission") has announced the appointment of John Harris as the next Director General to replace David Carse on the latter’s retirement on completion of his promised three year term of office from which the Commission, the finance industry and the Island has benefited greatly.

John Harris is currently Director - International Finance in the Chief Minister’s Department of the States of Jersey. In this role he has advised the Chief Minister, the Minister for Economic Development and the Treasury Minister on a wide range of matters including legislation and policy impacting on the regulation and the development of the finance industry where the approval of Ministers and/or the States is required. Prior to his appointment to that position in 2002 he was Chief Executive Officer for NatWest Offshore.

Commission Chairman, Colin Powell CBE, said, "we are delighted to be able to make this appointment. We are facing a period of consolidation of regulatory legislation and practice with particular emphasis on the most effective management of the Commission’s resources while continuing to deliver effective supervision of the finance industry to international standards. John comes to us with considerable management experience combined with extensive industry and public policy experience relevant to the role of the Commission.  Working with the existing strong team of executives in the Commission we are confident that John brings to the Commission skills and experience ideally suited to the key tasks before us in the years ahead. We are also confident that he will build on the legacy to be left by his predecessor and maintain the existing good relationship the Commission has with the Island authorities, the finance industry and the international community. We welcome John very warmly to the Commission."

John Harris Biography

As the first Director - International Finance in the Chief Minister’s Department John Harris has been responsible for all aspects of the Island’s approach to the development and maintenance of Jersey’s successful financial services industry. The principal features of this ground breaking role are:

Government development strategy for financial services in Jersey including fiscal strategy, education and training needs;
International relations including OECD and EU tax initiatives;
new legislation in support of finance industry needs;
close liaison with senior figures in Government, the Commission and the finance industry; and
regular representative for the Jersey Government on finance industry matters – in both domestic and international arenas.
From 1998 to 2002 he was Chief Executive Officer for NatWest Offshore with responsibility for offices in Jersey, Guernsey, Isle of Man, Gibraltar, Cayman, Bermuda and the Bahamas. He spent 22 years working for NatWest Bank during which time he held management positions in France, Switzerland and Singapore.

The Jersey Financial Services Commission (the "Commission") has commenced a public consultation exercise on proposed changes to the Codes of Practice for registered trust company business service providers in the Island.

Codes of Practice set out the fundamental principles and requirements by which registered trust companies must organise and conduct their business.

The revision will update Codes of Practice first introduced by the Commission in November 2000 and takes account of recommendations made by the International Monetary Fund during their last assessment of Jersey’s regulatory regime as well as findings from the Commission’s ongoing supervision of the trust company business sector.

The Consultation Paper can be viewed on the Commission’s website www.jerseyfsc.org and paper copies obtained from the Commission’s reception area or the Jersey Library.

The Commission welcomes input from interested parties. Responses must be submitted by 15 November 2006.

In some good news for offshore centres with insurance industries, Bloomberg reports that the worldwide reinsurance industry will expand faster than the global economy as demand for insurance grows in emerging markets such as China, India and Brazil, said Inga Beale, chief executive of Converium Holding AG.

These countries show "the classical pattern of insurance demand expanding significantly faster than the overall economy," Beale said in Zurich. A new middle class "and their increasing purchasing power" is fuelling demand for assets including cars, homes and durable goods that need insurance. Converium, a Swiss reinsurer that’s been working to restore its credit rating since a reserve shortfall two years ago, competes with companies including Swiss Reinsurance Co. and Germany’s Munich Re by selling coverage to primary insurers. The insurance industry had its costliest year on record after the 2005 hurricane season caused $83 billion in insured damage, Munich Re said. Beale said demand for reinsurance also will increase as more assets are "concentrated in regions which are exposed to natural catastrophes."

A Memorandum of Understanding (MoU) was signed today between Bahrain Stock Exchange (BSE) and Dubai International Financial Exchange (DIFX) to develop and strengthen capital markets activity in the region.

The MoU was signed by Fouad Rashid, BSE's Director, and Nasser Alshaali, Chief Operating Officer of the DIFX

The MoU aims at strengthening and increasing cooperation between both parties in areas relating to exchange of expertise and information by both parties. The MoU will work on increasing awareness among both parties’ market participants regarding the legal framework and investment opportunities available in both bourses. It also encourages listed companies in both stock markets to cross list their securities.

The MoU encourages both parties to jointly organize training programs and enhances relations and cooperation between market participants operating on both stock exchanges

Mr. Rashid, BSE’s Director, said: "This landmark agreement promotes the interests of issuers, brokers and investors as well as of both exchanges. We are committed to working towards substantial ties that will promote enhance and develop the Investment environment in both countries and make it more attractive and profitable."

Mr. Alshaali, Chief Operating Officer of the DIFX, said: "As the region’s international exchange, the DIFX welcomes cooperation with other exchanges to the benefit of all.

"Closer ties will facilitate international and regional investment, spurring capital markets activity and economic development."

The DIFX and BSE will seek additional avenues of mutual interest in discussions in coming months.

Bahrain Stock Exchange

Bahrain Stock Exchange was established in 1987 and started operation in 1989.  The existence of the stock exchange has enhanced the investment environment of the capital market in the Kingdom and increased the quantity and quality of instruments listed on BSE.

BSE is managed by a Board of Directors chaired by the Governor of Bahrain Monetary Agency (BMA). The board consists of 8 members representing both government and private sectors.

Ownership regulation in the kingdom of Bahrain allow GCC citizens to own up to 100% and non-GCC up to 49% of the Bahraini Shareholding Companies unless other stated in the companies article of associations.

To encourage long-term development of the region's capital markets, the BSE has signed several cross-listing agreements and memorandums of understanding with other exchanges in the region.

Non- Bahraini companies listed on BSE include three Kuwaiti, 2 Omani, one from Qatar and one Sudan.

Bahrain Stock Exchange is considered one of the most GCC Bourses in terms of listed instruments that include Ordinary Shares, Preference Shares, Conventional Bonds, Islamic Bonds (Sukuk) and Mutual Funds.

The number of Bahraini listed companies listed on BSE is 42 having market capitalization BD 6.53 billion. Bonds & Sukuk listed are 19 with total value of $ 2.83 billion and the number of mutual funds is 36.

In addition non- Bahraini companies on BSE include 3 Kuwaiti, 2 Omani, one from Qatar and one from Sudan

The Dubai International Financial Exchange (DIFX) has announced that Jefferies International Ltd has been admitted as a member firm able to trade securities.

Jefferies International Ltd, a UK-based investment bank and institutional securities firm, is a subsidiary of Jefferies Group, Inc (NYSE: JEF).

Jefferies becomes the 14th Member firm to join the DIFX since the exchange opened in September 2005.

Per Larsson, Chief Executive of the DIFX, said: "The arrival of Jefferies further strengthens the role of the DIFX as the only international exchange serving the vast region between Western Europe and East Asia. The DIFX has a unique membership mix of leading international and regional banks, reflecting its position as a gateway for capital to enter the region."

Cliff Siegel, CEO of Jefferies International, said:"We are committed to identifying new opportunities to enhance our footprint in the global capital markets to better serve the needs of our clients. As Jefferies expands into key regions around the world, our DIFX membership and the access that it provides to this strategic financial centre will help position our firm for continued growth."

Membership of DIFX is the latest in a series of actions taken by Jefferies to provide clients with access to the global capital markets. In 2006, Jefferies’ NOMAD status was approved on the London AIM, and the firm joined the Tokyo Stock Exchange, Euronext and the Deutsche Börse electronic trading platform, Xetra. In addition, Jefferies began working with transportation & oil service group, Ness, Risan & Partners, in Scandinavia to expand the investment bank’s strong shipping and oil service practice. Jefferies also opened an office in Singapore this past April.

A.M. Best Co. has assigned a financial strength rating of A- (Excellent) and an issuer credit rating of "a-" to Greenlight Reinsurance Ltd. (Greenlight Re) (Cayman Islands). The rating outlook is stable.

Extract from a PRESENTATION BY LANGSTON SIBBLIES GENERAL COUNSEL CAYMAN ISLANDS MONETARY AUTHORITY
AT THE EIGHTH ANNUAL CARIBBEAN COMMERCIAL LAW WORKSHOP 20-22 AUGUST 2006

".....I will at this stage return to a theme that I referred to earlier, that is, the level playing field. You may very well ask, if the picture of the Cayman Islands financial industry is as rosy as painted by myself and other speakers why do we keep going on about the lack of a level playing field?
 
The fact is that the Cayman Islands, like many other offshore jurisdictions, have undergone more reviews of our financial regulatory regime in the last 8 or so years than most onshore jurisdictions.
We have been reviewed by the Organisation for Economic Development and Cooperation (the OECD), the Financial Action Task Force (the FATF), the Caribbean Financial Action Task Force (CFATF) with another review to come next year, the IMF (with another review due next year), the Financial Stability Forum (the FSF), the Basel Committee on Banking Supervision in addition to a major review commissioned jointly by the UK Government and the British Caribbean Overseas Territories which was carried out by KPMG in 2000.

We at CIMA (I am sure this is the case with Government and some extent the private sector), have expended substantial resources in personnel and time simply trying to explain or respond to questionnaires by the various international standard setters and other international bodies like the IMF, tasked with the review of Offshore jurisdictions. The upshot of all this is that some offshore jurisdictions like Cayman have implemented significant enhancements to our regulatory regime.
In some cases we have gone beyond what other Governments and regulators in leading financial centres of the G7 countries are prepared to do.
 
A case in point was the retrospective due diligence exercise, which was mandated in Cayman in 2001 at the urging of the FATF. While the Cayman Islands financial industry was required by law to carry out a retrospective identification of all of its then existing clients at great effort and expense, we later discovered that Governments and regulators in leading G7 jurisdictions that make up the FATF, were reluctant to impose similar measures in their jurisdictions, on the basis that such measures would not be cost effective.

Similarly, the Cayman Islands was also one of the a few jurisdictions to immobilize bearer shares in response to concerns expressed by the FATF while leading FATF members have declined to follow suit.
The new frontier in the review of offshore jurisdictions is in the area of cross border exchange of information. While international cooperation and the exchange of regulatory information has always been an accepted and necessary aspect of cross border financial regulation, more recent trends seek to blur the traditional distinctions between information for use for regulatory and supervisory purposes and information for use in criminal investigations and proceedings as well as the channels for providing such information.
 
This trend, manifested primarily in the securities area, requires that the regulator acts as a "one stop shop" in relation to the provision of information and assistance for both regulatory and supervisory as well as for criminal investigations and proceedings.
This of course presents significant challenge to regulators to find the right balance between the necessary cooperation on the one hand and the protection of the basic rights of individuals in the context of criminal investigations and proceedings.

More recently we have seen the International Organisation of Securities Commission (IOSCO), leading this particular charge. The IOSCO multilateral MOU is now being promoted as the new international "benchmark". To highlight the challenges it should be noted that to date only 34 of the 183 IOSCO members have signed this MMOU. A similar multilateral MOU is being developed by the International Association of Insurance Supervisors (IAIS). We are cautiously optimistic that the IAIS will not follow the same aggressive pattern as some of the other standard setters and will adopt a more collaborative approach in addressing these issues.
 
One of the fundamental challenges facing offshore regulators like CIMA is to ensure that we are at the table when these new benchmarks or standards are being developed so that we can have some influence on the rules of the game. It is not an easy task where you are not a part of the standard setting body as in the case of the FATF and IOSCO.
CIMA’s approach is to be a participant where possible from the earliest stages of the development of international standards.

It is for this reason why we are participants (through the CFATF) in the FATF’s Typologies Working Group on the Misuse of Corporate Vehicles, and have positively contributed to moving the discussion away from it being an offshore problem to one of a cross border international problem affecting offshore and onshore jurisdictions alike. We have similarly participated through the Offshore Group of Banking Supervisors ("OGBS") in the drafting of the Statement of Best Practice in relation to Trust and Company Services Providers, the only existing international benchmark in this area.
Representatives of CIMA have attended and presented at the various IMF Round Table discussions dealing with offshore and onshore regulatory issues that have been held since 2003.
 
In December this year Cayman will be hosting the Fourth Annual IMF Roundtable for Offshore and Onshore Supervisors and Standard Setters. CIMA will endeavour to be an active participant in the discussions as in the past.

While there continue to be challenges some positive things have come from our involvement in these various reviews and international discussions. It has allowed us to identify more clearly the area of vulnerabilities in our financial system and to make enhancements in most cases before the reviewers arrive.

CIMA does not, however, make recommendations for regulatory enhancements solely on he basis of the recommendations of international standard setters or other international bodies. We do our own assessment of the costs and benefits involved in any recommendation, consult with our industry and on that basis make recommendations to Government for any legislative changes required.
The international engagement and participation in standard setting discussions by CIMA will of course continue.
 
It is however quite time consuming and resource intensive to be constantly engaged in discussions with representatives of some G7 jurisdictions when they chose to blatantly ignore factual information and continue to rely on negative stereotypical perceptions about the Cayman Islands."

The Cayman Islands Monetary Authority (CIMA) is implementing a new electronic reporting initiative which is due to come on stream in early 2007. For CIMA-regulated funds with a December 2006 year-end, fund managers will have to submit, in a prescribed manner, their annual reporting requirements using a paperless system.

CIMA cliams it will then have accurate, electronic data, extracted mostly from audited accounts, for use in reporting aggregate information on the fund industry. CIMA believes the change in how fund information is filed - not the information itself - will represent a marked improvement to the submission process.

"The system we are seeking to develop will eliminate redundant data requirements, align reporting to make use of more of the data that regulated entities use for their own purposes, and minimise ad hoc requests from us to those entities, thereby making CIMA more effective in its regulatory oversight," said Mr. Gary Linford, Head of Investment and Securities for CIMA.

He added: "CIMA-regulated funds will not need to file "information on transactions" as recently reported in an online media, nor is CIMA seeking to increase its prudential regulation of hedge funds beyond the existing regulatory framework. The initiative will allow us to significantly improve our compilation of aggregate statistics on the 8,000 funds regulated in our jurisdiction. This will better enable CIMA to meet the needs of our stakeholders for reliable, representative industry statistics, such as size, growth, change, market share, and investments by and in funds."

Mr. Linford stressed that the information submitted has always been and will continue to be managed in an extremely confidential manner. "In no way will fund- or manager-specific information be made available to the public, only aggregate industry statistics."

Demand for such data from industry and others is high, but as CIMA currently does not have the mechanisms in place to collect the relevant data from manual reports, aggregate statistics on Cayman's fund industry are not available. For example, to report total assets under management by CIMA-regulated funds would currently require manually reviewing each set of audited accounts held in paper form - e-filing will change all of that.

"The industry has been supportive of this move," said Mr. Linford, who added that CIMA undertook a consultation exercise with the private sector to seek input. "Many of the investment managers and service providers with whom we have had dialogue are relieved to hear that meaningful statistics on the industry will soon be available from a credible source."

With the growth rate in CIMA-regulated funds, electronic reporting will also enable the Authority to maintain the appropriate supervisory capacity without a proportionate increase in staff.

South Korea's finance ministry has declared Labuan a tax haven, allowing Seoul to apply domestic tax laws to capital gains on foreign investments made through the Malaysian island, despite the existence of double taxation treaties.

From July 01, companies or funds investing in South Korea through Labuan have to pay a 25 per cent withholding tax on interest and dividends collected on investments made in Korea. They will also have to pay 10 per cent of the total selling price or 25 per cent of the capital gains, whichever is less, on stock transfer income.

Labuan was established as a tax haven in 1990, years after Malaysia and South Korea signed their double taxation agreement, and Seoul has become increasingly agitated as foreign funds registered there reap large profits without paying Korean tax. The finance ministry has repeatedly tried to convince Malaysian authorities to renegotiate the treaty but has been rebuffed on every attempt.

The ministry said on June 29 it might designate other regions as "tax havens". However, Belgium was not designated a haven, as initially feared by European countries and companies, because it would be too problematic, ministry officials said. Belgium, Ireland and the Netherlands were initially on the list of countries under scrutiny. Korean officials are now conducting talks with Belgium, Ireland and the Netherlands to try to renegotiate their treaties but the European countries are understood to be reluctant to change the rules.

The announcement came in the middle of new crackdown on alleged tax avoidance by foreign investors, including another raid on Korea Exchange Bank, as authorities look for evidence to help them levy taxes on Lone Star, the US private equity fund that invested in KEB through Belgium.

Lone Star is set to make $3.85bn in profits on its three-year investment in KEB once it sells its stake to Kookmin Bank, the country's largest lender, later this year.

Senior finance ministry officials have conceded that they cannot apply the new laws to the Lone Star investment, but the tax office has apparently not given up hope, saying taxation issues related to Lone Star's gains will be handled separately.

Financial regulators said major regulatory hurdles for the listing of Chinese firms on the Seoul bourse have gone, and that they will now allow overseas holding companies to go public in Korea.

The Financial Supervisory Committee lifted the ban on holding companies established by foreign firms in tax havens like Malaysia's Labuan last week, raising expectations that one or two Chinese firms will shortly be listed in Seoul.

Many Chinese companies set up offshore holding companies prior to listing outside of China as many international investors prefer not to invest directly into an entity in mainland China (which is still a communist state).

But despite the deregulatory efforts, skepticism still remains over the recent globalization drive of the Korean stock market in luring foreign firms.

Critics and some officials pointed out the Seoul bourse still lags far behind Asian rivals such as Hong Kong and Singapore.  Hong Kong has been playing a pivotal role in raising capital for many state-run manufacturers and banks in China over the past decade.

Finance Asia reports that the New York-based hedge fund Eton Park has expanded its operations into Asia and has opened offices in Hong Kong’s Cheung Kong Centre.

The article reveals that concurrently, Eton Park has hired Barbara Yu to work in its Hong Kong office. She was formerly an executive director at Goldman Sachs in Hong Kong working on the proprietary trading desk, and left that firm earlier this year. Yu is traveling and unavailable for comment. Eton Park was established in 2004 by Eric Mindich, pulling together start-up assets in excess of $3 billion. He holds the honour of being Goldman Sachs’ youngest-ever partner, reaching those giddy heights at the age of 27, having built his reputation in the risk arbitrage department. He later became co-head of equities at Goldman, quitting at the age of 36 to start his own hedge fund, says the article.

Financial News reports that more than half of hedge funds are undecided whether to deregister from the Securities and Exchange Commission (SEC) following the regulators' short-lived attempt at imposing stricter rules on the industry as remaining registered sends positive signals to the market, according to a survey from consultancy Greenwich Associates.

Greenwich questioned 47 hedge funds in the US, Canada and Europe in mid-July and early-August, before the SEC decided not to appeal a June Appeals Court decision to strike down the SEC's registration rules, which mandated that hedge funds with more than 14 investors and $25m ($19.5m) or more in assets were required to register with the regulator as investment advisors and undergo inspections. Nearly all registered hedge funds surveyed plan to retain the staff they hired and continue following the practices and procedures they adopted to comply with the SEC’s short-lived attempt to regulate the industry, according to a new study from Greenwich Associates.

A.M. Best, a rating agency has issued a report which states that fourteen of the world's 35 largest reinsurance companies in 2005 - two in five, or 40 percent - are Bermuda companies. Several more of the top companies had Bermuda operations, but are not headquartered on the Island.

The report, which provides an overview of the 2005 financial year and a preview of 2006, points to the growth in securitisations and cat bonds, the formation of sidecars (more than two-thirds of which are Bermudian-owned), and changes in methodology as the key developments in the market in 2005, along with the change of direction of the European market to a broader base.

The criterion for inclusion on the list was gross premiums written in 2005, which ruled out all of the "Class of 2005" start-up companies formed in Bermuda in the wake of Hurricanes Katrina, Rita and Wilma. Bermuda's representation in the 2006 list will, therefore, almost certainly be even more significant.

In its "2006 Annual Global Reinsurance Study", sub-titled "Reinsurers Humbled, But Most Not Broken, by Hurricane Losses", Best also reported that Bermuda carried a greater share of cost of 2005's insured losses than did the US or European markets.  "The adverse effects of the 2005 hurricanes were distributed unevenly across the globe, with US and Bermudian property reinsurers carrying more of the losses than their more diversified European counterparts," Best said. "Bermudian companies shouldered approximately $11 billion of the insured property losses, while US reinsurers' losses came in at an estimated $7.1 billion."

Best confirmed that the Bermuda market more than replenished its losses from last year's storms: "In response to the lost capital and the expectation of high returns from a hardening market, approximately $18 billion in new capital flowed into the Bermuda market, mostly in common and preferred equity," the report said. "Approximately $8 billion was invested in nine start-up companies and sidecars to form the "class of 2005". The rest went into existing reinsurers."

The report also contained a warning: "The market remains susceptible to competition as investor expectations run high," Best said. "Should the currently perceived market opportunity not hold for property catastrophe reinsurance, the new capital that flowed into the market may seek alternative investment strategies."

Commenting on Bermuda's strong showing in the list of the top 35 global reinsurers, Best said that changes should be expected in 2006. AXA Re is to transfer its book of business to Paris Re, a Bermuda company, further strengthening the Island's power in next year's Top 35, as well as the 2005 start-ups coming on line this year, several of whom should make a showing in next year's rankings.

The drop in aggregate gross premium for the 35 companies to $158 billion in the 2006 ranking, from $172 billion in the 2005 ranking, was primarily a currency translation issue, Best said, following changes in the power of the US dollar. Net of last year's dollar gains, the previous ranking's aggregate gross premiums would have been $160 billion on a comparable basis.

The US Securities and Exchange Commission has dug itself into a big hole trying to directly regulate hedge funds. The best strategy at this stage is probably to "stop digging". However, Christopher Cox, the head of the US financial watchdog has vowed to continue pushing for tougher regulation of the multi-billion dollar hedge fund industry. He wants the SEC to tighten anti-fraud rules and take "emergency" action to restore some of its rules that were reversed in a surprise federal appeals court decision last month.

A controversial new rule requiring hedge funds to register with the SEC and to submit to examinations was passed in 2004 only on a a split vote of the the commissioners. And it was then tossed out in June in a surprise ruling by the US Court of Appeals for the District of Columbia Circuit, which said the regulator interpreted the statute too broadly to achieve its objective of getting funds with more than 15 clients and $25 million of assets to register.

The SEC has until Aug. 7 to decide whether to appeal that ruling to the Supreme Court, but it is considering other options, including asking Congress to rewrite the regulations to bring hedge funds under more formal scrutiny. Cox told the Senate Banking Committee that he would leave it up to Congress to decide whether to enact new laws to regulate hedge funds, and if so, by how much.

Cox said the SEC will take steps to restrict the ``marketing and availability of hedge funds to unsophisticated retail investors.''  He is recommending that the definition of an accredited investor in hedge funds be revised to include only people with a net worth of at least $1.5 million, up from $1 million now. The change would apply to any funds that charge investors a performance fee. "I am concerned that the current definition, which is decades old, is not only out of date, but wholly inadequate to protect unsophisticated investors from the complex risks of investment in most hedge funds," Cox said.

I, among many others, have argued that the SEC's registration rules overreached and put costly burdens on fund managers to comply. There are over 9,000 hedge funds with about $1.5 trillion of assets. However, only 2,500 hedge funds had registered with the SEC as of the end of June. Most hedge funds chose to use the exemption granted to any fund that imposed a"lock-up" period of at least 2 years.

About 2,000 new funds opened for business just last year. More than $42 billion of new investments flowed into hedge funds in the three months ended June 30, the most in one quarter since at least 2003, according to Hedge Fund Research Inc. In the first half of 2006, hedge funds returned 6.2 percent, compared with 2.7 percent for the S&P 500 Index.

The Treasury Department this month started an inquiry into hedge funds and their impact on financial markets but Federal Bank chief Ben Bernanke has said he believes free market discipline, rather than constricting rules, are the best way to regulate hedge funds.

Canadians often ask me why I moved from Bermuda to Canada..........who can I sue, I wonder?

This story from the National Post, June 16th:

"They dreamed of Bermuda's pink sand beaches and snorkelling in sunny lagoons. They got "antiquing" and "beer tasting" in Saint John, N.B., "historical tours" and "pub hops" in Halifax, and "faced rainy, cloudy and foggy weather" in Atlantic Canada.

A group of American tourists were imagining a five-day trip to paradise when they booked a mid-summer cruise to Bermuda last year aboard a luxury liner owned by one of the leading ocean-tour companies in the United States. But when they prepared to climb aboard Royal Caribbean's Voyager of the Seas at a New Jersey port on July 24, they were told the plans had changed.

With a storm brewing in the south, they would be heading north instead, to Canada. And the flabbergasted passengers were warned that if they turned down the opportunity to see New Brunswick and Nova Scotia rather than King's Wharf, Bermuda, they'd forfeit the ticket price -- more than US$1,000 for some.

The bizarre saga of Canada's accidental tourists emerged yesterday after the State of New Jersey, on behalf of the Maritimes' most unwilling visitors of 2005, sued the Florida-based cruise line for its "unconscionable" actions.

The lawsuit, filed by New Jersey Attorney-General Zulima Farber and the state's Consumer Affairs director, Kimberly Ricketts, slammed Royal Caribbean for subjecting the plaintiffs to a "significantly cooler" Canada rather than the coral islands of Bermuda.

"It is unconscionable that consumers showed up for a cruise they paid for with their hard-earned money only to be sent somewhere they didn't want to go, without access to the amenities they paid for and activities they looked forward to, and were told there was nothing they could do about it," Ms. Ricketts said.

The lawsuit alleges Royal Caribbean overreacted to reports tropical storm Franklin could endanger Voyager of the Seas, which can carry more than 3,000 passengers, and states "other cruise ships scheduled to cruise to Bermuda at or around the same time did not change their itineraries."

Meanwhile, the lawsuit argues, "as a result of the itinerary change to Canada, passengers were forced to incur the additional expense of purchasing warmer clothing.""

The Credit Suisse/Tremont Hedge Fund Index, which mimics the returns of 421 funds, recorded a negative 1.30% in May, the first time this year that the index has posted a negative monthly return. For the year, though, performance remains positive at 6.40%.

The Barclay Group, a Fairfield, Iowa-based hedge fund index provider, estimates that more than 70% of hedge funds lost money last month. It reports that the average loss was 3.09%. Overall, the Barclay Hedge Fund Index that tracks the performance of more than 4,700 hedge funds posted a negative 1.78% return last month.

Not surprisingly, the hedge fund strategy that performed the worst last month was emerging markets, which posted a negative performance of 5.02%, according to the Credit Suisse/Tremont Index. The second poorest strategy was long/short equity (-2.84%), as many hedge fund managers have significant positions in emerging markets, as well as long exposure to equities.

BluMont Capital Inc. ("BluMont") (TSX VENTURE:BCC) has announced the launch of the BluMont Core Hedge Fund (the "Fund") - a single manager long/short equity fund with a North American focus.

The investment advisor of the BluMont Core Hedge Fund is Burlington Capital Ltd ("Burlington Capital"). Founded in 2004 by CEO Allan Brown, CFA and President, Geoffrey Barth, CFA, Burlington Capital is also one of the investment advisors for the multi-manager BluMont Canadian Opportunities Fund.

Burlington Capital's success comes from its fundamental stock research that has enabled them to unearth significant investment opportunities. Allan Brown and Geoffrey Barth have worked together for more than ten years and have 27 years of combined investment experience, including 20 years of portfolio management experience across a number of market sectors, asset classes and fund portfolios.

"We are extremely excited to be working with BluMont Capital," says Allan Brown. "We feel the BluMont Core Hedge Fund is a unique fund in Canada with our emphasis on paired positions." Geoffrey Barth continues, "Our competitive advantage is in picking stocks and our goal is to generate annual returns of 10% to 20% with less volatility than the benchmark indices." Stephen J. Kangas, President of BluMont Capital adds, "We anticipate great interest in this new fund and we believe this should be a core fund for qualified investors."

About BluMont Capital

BluMont Capital is a leading provider of alternative investment products to Canadian investors. Specializing in hedge funds, the firm offers innovative investment solutions that provide enhanced diversification and robust return potential. BluMont employs 35 people nationwide and has approximately C$870 million in assets under management and administration. BluMont is 46.1% indirectly owned by Toronto-based Integrated Asset Management Corp. (TSXV:IAM), a leading alternative asset manager with approximately C$3 billion in assets under management and commitments. Further information on BluMont Capital can be found at www.blumontcapital.com.

The Guernsey Financial Services Commission (GFSC) has issued a revised guidance note on Qualifying Investor Funds. Under the new rules, the definition of "Professional Investor" has been widened to include an individual investor who invests a minimum of US$100,000 in such a fund.

The revised guidance note also re-emphasises the due diligence obligations which Guernsey Licensees undertake when submitting applications for Guernsey Qualifying Investor Funds.

The Guernsey Qualifying Investor Fund regime was introduced in February of last year, and provides an expedited approval process for funds targeted only at professional and knowledgeable investors (the so called "wealthy, wise or well advised").

Under the regime, the GFSC undertakes to provide necessary fund consents within 3 working days of submission, provided that the application is complete in all respects. In the first year of the regime's operation, a total of 36 Qualifying Investor Funds were approved.

Tejoori, the world's first independent, Sharia-compliant investment company to be admitted to the AIM market on the London Stock Exchange, has announced the appointment of Steffen Schubert as its new Managing Director effective July 1. Schubert had formerly held a non-executive director role with Tejoori while acting as the Chief Executive Officer of the Dubai International Financial Exchange.

The Jersey Financial Services Commission has published a consultation paper on a proposed new Money Laundering (Jersey) Order and accompanying Handbook for the Prevention and Detection of Money Laundering and Terrorist Financing, to replace the existing Guidance Notes for the Finance Sector.

The FSC says the proposals are consistent with Jersey’s commitment to the implementation of international standards to combat money laundering and terrorist financing and that the purpose of the consultation paper is to convey proposals to update Jersey’s measures to combat money laundering and terrorist financing so that these are consistent with certain key elements of the revised Financial Action Task Force (FATF) Recommendations on Money Laundering and Terrorist Financing.

The draft Money Laundering Order and Handbook propose a number of important changes. In particular:

A risk-based approach to customer due diligence is set out, that permits reduced or simplified measures in the case of lower risk relationships, and requires enhanced customer due diligence in the case of higher risk relationships.
Much more emphasis is placed on customer due diligence measures other than identification and verification of identity, and, in particular, on ongoing monitoring of unusual, complex, and higher risk activity and transactions.
More customer friendly ways of verifying the identity of applicants for business or customers, including scope for greater reliance on a single document to verify identity in lower risk circumstances, for example, a passport.
Measures to guard against the financial exclusion of Jersey residents have been clarified. In particular, in the case of a lower risk minor, whose parent or guardian is unable to provide standard documentation to verify the minor’s identity, identity may be verified through use of the minor’s birth certificate.
The responsibilities of senior management in preventing and detecting money laundering are also emphasised as part of a section addressing corporate governance.

In addition, the consultation paper highlights that the FATF Recommendations require the extension of measures to combat money laundering and terrorist financing to non-financial businesses and professions, and to include certain activities conducted by lawyers, accountants and estate agents, and the sale of high value goods for cash. The paper considers how Jersey might address this requirement.

David Carse, Director General of the Commission, said "These proposals are intended to enable Jersey to meet its international obligations, in line with the standards established by the Financial Action Task Force, to combat money laundering and terrorist financing. The proposals highlight the importance of a risk based approach to combating money laundering and terrorist financing, which is intended to focus resources on higher risk customers, whilst at the same time easing the burden on other customers."

"Tax Co-operation: Towards a Level Playing Field. 2006 Assessment by the Global Forum on Taxation", the latest 300 page report by the OECD’s Global Forum on Taxation, has concluded that international co-operation is helping governments around the world to combat tax cheating through improved transparency and exchange of information in tax matters but there are still gaps that need to be plugged.

According to the OECD report, the survey shows that countries continue to improve their international cooperation to combat tax abuse by putting in place mechanisms which enhance transparency and exchange of information for tax purposes.

Many of the economies reviewed have enhanced transparency by introducing rules on customer due diligence, information gathering powers and the immobilisation of bearer shares. Most have entered into double taxation conventions and/or tax information exchange agreements, and many are engaged in negotiations for such agreements.

However, the OECD continues to argue that more progress can be made to improve global tax transparency, and complains that some countries still place constraints on international co-operation to counter criminal tax matters and a number continue to impose strict limits on access to bank information in civil tax matters (eg, Switzerland).

Offshore law firms Appleby Spurling Hunter and Bailhache Labesse have announced that they will unite business operations on 1st September 2006.

The announcement claims that this merger will create the only offshore provider of legal, fiduciary and administrative services with a major foothold in four of the world’s leading offshore business centres - Bermuda, the British Virgin Islands, the Cayman Islands and Jersey - as well as a presence in the major financial centres of London and Hong Kong.

The combined group will be known as Appleby Hunter Bailhache and will have a projected staff worldwide of nearly 600 employees, including 44 partners.

The Center for Freedom and Prosperity Foundation (CF&P) has published research showing that tax competition between nations benefits the global economy, leading to better economic performance.

The CF&P yesterday released a research paper, entitled "Tax Havens, Tax Competition and Economic Performance," which finds, through a review of the recent scholarly literature, that low-tax jurisdictions promote global economic growth. Written by Dr. Yesim Yilmaz, a research fellow with CF&P Foundation, the study presents evidence that so-called tax havens provide a tax-efficient platform for cross-border investment, help boost capital formation, and also encourage pro-growth tax policies in non-tax haven countries - all of which boost economic performance. The paper also points out that the United States is the world's largest beneficiary of tax havens and tax competition, both because the US is a tax haven for foreigners and because tax havens facilitate the flow of capital to the American economy.

Andrew Quinlan of the CF&P Foundation said: "This thoroughly researched study demonstrates that low-tax jurisdictions play a vital role in boosting capital formation and thus promoting global economic growth. The US is a disproportionate beneficiary of this process, since America is the world's largest tax haven."

Dan Mitchell, of the Heritage Foundation said: "So-called tax havens have played an important role in the global shift to lower tax rates. But equally important, they provide a refuge for investors and thus minimize the destructive economic impact of anti-savings, anti-investment tax policy in high-tax nations."

Veronique de Rugy, American Enterprise Institute said: "Dr. Yilmaz reviews the academic literature and confirms that low-tax jurisdictions promote world economic growth, both directly - by pressuring high-tax nations to adopt better tax policy - and indirectly - by providing avenues for tax-efficient investment."

The survey shows that low-tax jurisdictions play a valuable role in the global economy. Economic research indicates that so-called tax havens provide a tax-efficient platform for cross-border investments, help boost saving and investment, and thus increase global economic growth. Tax havens also encourage good policy in non-haven countries. In part because of jurisdictional competition, maximum tax rates on personal income have fallen by about 23 percentage points since 1980 and top tax rates on corporate income have fallen by almost 20 percentage points. These policies have boosted growth and job creation.

The United States is the world's largest beneficiary of tax havens and tax competition, both because the US is a tax haven for foreigners and because tax havens facilitate the flow of capital to the American economy. Foreigners have more than $11 trillion invested in the U.S. economy, including more than $7 trillion invested in America's financial markets. Nearly $1.3 trillion is placed in the US financial system by Caribbean institutions. This money helps finance America's economic growth.

Jersey's Comptroller of Income Tax has reported that GBP13 million has been collected in withholding tax revenues from bank deposits in the first six months since implementation of the European Savings Tax Directive (EUSD).

Under the terms of the agreements with individual EU member states, which went into effect on July 1, 2005, 25% of the amount collected is retained by the collecting authority. Accordingly, the EU Member States will receive some GBP10 million and the Jersey Exchequer will receive GBP3 million.

Individuals who reside in an EU Member State with relevant savings income arising in Jersey can opt for information on the savings income received to be exchanged with their domestic tax authority rather than be liable to the retention tax. It is estimated that approximately 30% have chosen this option, but the Jersey authorities expect this pecentage to increase with time. (The withholding tax will eventually increase to 35% under the terms of agreements).

A statement by the States of Jersey revealed that both the Comptroller of Income Tax and the President of the Jersey Bankers’ Association are satisfied that the process of exchanging information and the retention of tax has worked smoothly.

"Both information and tax have been transferred efficiently to the Income Tax Department for onward transmission to the relevant competent authorities in the EU Member States before the 30 June 2006 as required under the Agreements," the statement explained.

Senator Walker, Chief Minister, noted that "this first payment of retention tax to the EU Member States is ample evidence, if it is needed, of the good neighbour policy we follow in our relations with the EU, a policy that we expect to see reciprocated."

Taxand (www.taxand.com), a global network of independent tax firms born from the ashes of Andersen Legal, has signed up eight new firms. Taxand says it now has 1,500 tax professionals with 259 international tax partners in 30 countries, only 15 months after its launch in March 2005. This rapid expansion reflects the increasing demand from global companies for independent tax advice from professionals who have no audit-based conflicts of interests.

"Taxand’s remarkable growth has exceeded our highest expectations," said Frederic Donnedieu de Vabres who coordinates Taxand globally. "Taxand is becoming a key provider of global tax services that cannot be ignored. Today, Taxand member firms work together to provide global companies with international tax services, including tax planning for cross-border transactions and tax litigation support. Our success is a testament to the quality of our professionals and our strategic model."

Taxand’s newest member firms and their respective countries include: Gowling Lafleur Henderson, LLP, Canada; Hendersen Consulting, China; Eurofast, Cyprus; Selmer, Norway; TaxHouse, Romania; Garrigues, Leonidas, Matos, Portugal; Gómez-Pinzón Linares Samper Suárez Villamil, Colombia, and Miranda & Amado, Peru.

Other Taxand firms include: Bruchou, Fernandez Madero, Lombardi & Mitrani, Argentina; AB Partners Bvba, Belgium; Barbosa, Müssnich & Aragao, Advogados, Brazil; Arsene, France; Goutier & Partners, Germany; BMR & Associates, India; PB & Co, Indonesia, Fantozzi & Associati, Italy; Atoz, Luxembourg; Avanzia Tax Advisors, Malta; VS on Tax, Malaysia; Multiconsult Limited, Mauritius; Mijares, Angoitia, Cortés y Fuentes, S.C. (MACF), Mexico; Salvador Guevara & Associates, Philippines; Accreo, Poland; Zaragoza & Alvarado LLP, Puerto Rico; Garrigues Tax Advisors, Spain; Skeppsbron Skatt AB, Sweden; Tax Partner AG, Switzerland; Erdikler, Turkey; Chiltern PLC, United Kingdom; Alvarez & Marsal Tax Advisory Services, LLC, United States.

The HK Monetary Authority and the banking industry, has formed a new industry working group on the prevention of money laundering and terrorist financing to help Hong Kong's banking sector meet new challenges in stopping such activities. The Deputy Chief Executive of the Monetary Authority, William Ryback is chairman of the working group. The industry associations involved have nominated 19 authorised institutions as group members.

The group aims to perform the following functions:

To encourage the sharing of anti-money laundering and counter-terrorist financing experiences and techniques among authorised institutions;
To provide industry feedback to the authority on the implementation of supervisory standards;
To promote industry standards and best practices on specific areas in which the industry may need more guidance; and
To raise the industry's and general public's anti-money laundering and counter-terrorist financing awareness.

The group will also serve as a forum for discussing international developments and exchanging views on issues affecting the implementation of international standards and other related matters.

The Securities Exchange Commission (SEC) has filed a status report with the US Court of Appeals for the District of Columbia Circuit regarding its rules requiring the board of directors of most mutual funds to have an independent chair and 75% independent membership.

In April this year, the court concluded that the SEC had violated the Administrative Procedure Act by not affording an opportunity for public comment on data it used to estimate the costs of complying with the proposed rules At that time, the court determined it would be appropriate to vacate the rules, but delayed issuing its mandate and ordered the SEC to file a status report with the court within 90 days. In its status report the SEC said it is soliciting comment on costs as well as "any issue related to the underlying purpose of the independence requirements, which is the protection of funds and fund shareholders." The solicitation is contained in a formal Request for Additional Comment approved unanimously by the five commissioners to be published in the Federal Register. "The commission takes seriously our obligation in rulemaking to solicit and fully consider the public's views," said SEC chairman Christopher Cox. "I have every confidence that the process we are announcing today will result in mutual fund governance that both protects investors and promotes their interests." The SEC is also specifically is seeking comment on whether the rules will promote efficiency, competition, and capital formation. In an earlier ruling, the court found that the SEC had failed to comply with this provision, and that the failure violated the Administrative Procedure Act. Separately, Cox has asked the SEC's general counsel to conduct a top-to-bottom review of its process for complying with laws that require an economic analysis of rule proposals. The purpose of the review is to ensure that the SEC takes full advantage of the significant expertise of its staff when preparing the legally mandated analysis of economic impact that must accompany proposed regulations. The comment period is open for 60 days.

Julius Baer, the Swiss private bank, is planning to build an Asian hub from Singapore.  Last year Baer acquired three private banks from UBS - Ehinger & Armand von Ernst, Ferrier Lullin and Banco di Lugano - as well as asset manager GAM. The group now manages some US$250 billion in assets.

Banco di Lugano has a merchant banking licence in Singapore, and its service, until recently, focused on Italian clients. Julius Baer has applied to upgrade the licence. The bank has set US$1 million as its minimum threshold for an account, but adds that it is flexible.

The South China Morning Post (SCMP) reports that the annual volume of initial public offerings in Hong Kong is unlikely to slow and could increase over the next two to three years, even though there are no more mega-sized deals by China's financial institutions in the offing.

"Will we see two US$10 billion-plus deals in a single year again? Probably not, but we will see more and more US$500 million to US$2 billion deals" the SCMP quotes Mark Williams, executive director, equity capital markets at UBS.

Mainland firms have been selling shares in Hong Kong for more than a decade, but the pace picked up last year, culminating in  two huge offerings from two of China's largest banks.

In May, second-ranked Bank of China made a successful US$11 billion offering, the world's fourth-largest ever. That is is expected to be topped this year when Industrial and Commercial Bank of China, the mainland's largest lender, sells shares worth as much as US$15 billion.

Last year saw third-ranked China Construction Bank raise US$9.2 billion in October while Bank of Communications, the fifth-largest, raised US$2.2 billion. The action was not limited to financial institutions. Various state-owned enterprises, including China Shenhua Energy, the nation's largest coal miner which raised US$3.3 billion last year, have also tapped Hong Kong.

The SCMP reports that other jumbo deals headed to market this year include a US$2 billion offering by China Merchants Bank and one at US$1 billion from China National Coal, the mainland's second-largest coal miner. Number 2 carmaker, SAIC Motor, will try to raise US$2 billion.

If all the deals are successful this year it will push the total amount raised by mainland companies in Hong Kong above last year's record US$23 billion. By mid-June, mainland companies have raised US$14.9 billion compared with US$6 billion at this point last year.

Boosting volumes even further in coming years will be follow-on share sales by both listed companies and those set to sell shares in the near future. CNOOC, the mainland's largest offshore oil producer, raised US$2 billion earlier this year with just such an offering.

Meanwhile, the Shenzhen Composite Index is up 44.5 per cent this year while the Shanghai Composite Index has risen 35 per cent, making the two exchanges the fourth and fifth best-performing stock markets in the world so far this year.

The Jersey funds' sector continues to grow rapidly. A recent report states that the net asset value of funds under administration on the Island reached a new high of £156 billion at the end of March, up 13.5% on the previous quarter and up by almost 50% over the preceding 12 months. The total number of funds has climbed by 16% to 1,010, comprising 2,507 separate investment pools.

The number of expert funds established in the Island is up from 134 to 169 and the total value of funds under investment management grew by £9.1 billion to £58.3 billion.

Equity and mixed equity/bonds funds have continued to show strong signs of growth, says the report, and the private equity sector in particular has been 'very active', with new investments across a range of funds, primarily existing funds.

The Dubai International Financial Centre’s Islamic Finance Advisory Council has been to been expanded to promote the Islamic market in OIC and OECD countries. The DIFC Islamic Finance Advisory Council was formed in December 2005 with the specific remit of providing strategic advice on Islamic Finance and helping in the development of the industry. The seven-member council includes executives and decision makers who provide expertise and insights into the Islamic Finance industry and marketplace. The members also forecast future trends, highlight the impact of the legal and regulatory initiatives locally and internationally on the Islamic Finance market within the DIFC.

The newest member of this council is A. Rushdi Siddiqui, Global Director of Dow Jones Islamic Market Index Group. His appointment to the council reflects the growing demand for innovations in Islamic Finance, one of the key sectors of focus for Dubai International Financial Centre. Rushdi Siddiqui has been with Dow Jones Indexes, NY, since 1998 and has assisted in creating over 65 Islamic indexes. He works closely with six international Shari’ah scholars, promotes Islamic finance by presenting at conferences globally, and has won numerous awards for contribution to development of Islamic finance.

Per E. Larsson, the former head of the OM Group (OMX), will be the next Chief Executive of the The Dubai International Financial Exchange (DIFX). He will take up his post in early July 2006.

Mr Larsson will succeed Steffen Schubert, who will step down in June 2006 as scheduled at the end of his contract after becoming the DIFX's first Chief Executive in February 2004.  

As President and Chief Executive of The OM Group from 1996 to 2003, Larsson led the OM Group through a period of rapid expansion and technological development which culminated in a highly audacious bid for the London Stock Exchange in 2000. He also built strong links with other European exchanges and presided over the supply of OM exchange technology to no fewer than 20 other exchanges worldwide.

The FTSE Group (FTSE), a global index provider and the Dubai International Financial Exchange (DIFX) have created the first Gulf Cooperation Council (GCC) country tradable indices for domestic, GCC, and international investors. The GCC countries initially included in the series are the UAE, Kuwait and Qatar.

These indices are intended to facilitate the creation of investment products like tracker funds, index certificates, warrants, ETFs and also pave the way for the introduction of exchange traded index derivatives including futures and options, providing a new paradigm in the growth of capital markets in the region.

The FTSE/DIFX indices will be the first set of real-time indices for the GCC region. The three new indices, which will begin calculation on 12th June will be:

FTSE DIFX UAE 15 Index (UAE Residents)

Based on the top 15 eligible companies when ranked by full market capitalisation from the United Arab Emirates. 

FTSE DIFX Kuwait 15 Index  (GCC residents and International Investors)

Based on the top 15 eligible companies from Kuwait, when ranked by full market capitalisation.

FTSE DIFX Qatar 10 Index (GCC residents and International Investors)

Based on the top 10 eligible companies from Qatar when ranked by full market capitalisation. 

Shariah-compliant editions of these indices will also be available later in the year. Shariah screening will be undertaken by Yasaar Research.

The Financial Services Commission in the BVI has made a consolidation of the BVI Business Companies Act, 2004, which incorporates the amendment passed in December, 2005, available for download on its website at www.bvifsc.vg.

Additionally, the Segregated Portfolio Companies Regulations, 2005, which is a subsidiary legislation of the BVI Business Companies Act, 2004, is also available from the Commission’s legislation library at www.bvifsc.vg.

The Financial Services Commission (FSC) in the BVI has published an expanded list of countries and jurisdictions recognised for the purposes of the BVI’s Mutual Funds Act, 1996.

The new countries are Australia, The Federal Government and all the provices of Canada, Germany, Italy, Japan, Sweden, the Bahamas and the Cayman Islands. The existing list includes: Bermuda, Gibraltar, Hong Kong, France, Luxembourg, the Isle of Man, Belgium, Spain, Ireland, Malta, Singapore, Guernsey, Jersey, Switzerland, the UK and the US.

In evaluating countries and jurisdictions for inclusion, the FSC considers whether the country’s regulatory environment is regarded as reputable, and whether recognition of the jurisdiction for the purposes of the Act would enhance the development of the BVI’s mutual fund industry. Aditors, investment managers and fund administrators obtain certain benefits (e.g. exemption from additonal licensing in the BVI) if they are already licensed in a recognised jurisdiction.

EXTENDED RANGE FORECAST OF ATLANTIC SEASONAL HURRICANE ACTIVITY AND U.S. LANDFALL STRIKE PROBABILITY FOR 2006

By Philip J. Klotzbach and William M. Gray

"Information obtained through May 2006 continues to indicate that the 2006 Atlantic hurricane season will be much more active than the average 1950-2000 season.  We estimate that 2006 will have about 9 hurricanes (average is 5.9), 17 named storms (average is 9.6), 85 named storm days (average is 49.1), 45 hurricane days (average is 24.5), 5 intense (Category 3-4-5) hurricanes (average is 2.3) and 13 intense hurricane days (average is 5.0).  The probability of U.S. major hurricane landfall is estimated to be about 60 percent above the long-period average."

The order of the authorship of this year's forecast has been reversed from Gray and Klotzbach to Klotzbach and Gray. After 22 years of making these forecasts, Dr Gray is stepping back and letting Phil Klotzbach assume the primary responsibility for the seasonal, monthly and landfall probability forecasts.  According to this year's report, Klotzbach is now devoting more time to the improvement of the forecasts than Dr. Gray, who is now devoting more of his time to the global warming issue.

"They've been brainwashing us for 20 years," Gray says. "Starting with the nuclear winter and now with the global warming. This scare will also run its course. In 15-20 years, we'll look back and see what a hoax this was."

Dr. Gray is perhaps the world's foremost hurricane expert. His Tropical Storm Forecast sets the standard. Yet, his criticism of the global warming "hoax" makes him an outcast.

Gray acknowledges that we've had some warming the past 30 years. "I don't question that," he explains. "And humans might have caused a very slight amount of this warming. Very slight. But this warming trend is not going to keep on going. My belief is that three, four years from now, the globe will start to cool again, as it did from the middle '40s to the middle '70s."

Of course one of the metrics that proponents of the meme "global warming is a big man made catastrophe" keep citing is the increase in the number and intensity of Atlantic hurricanes in the last fews years. According to Al Gore, storms like last year's Katrina are the direct result of human activity and are indicative of a long term trend that will destroy the earth as we know it. Cooler heads, and more scientifically sound minds, like Dr Gray's, believe that the recent increase in Atlantic storm activity is part of a much shorter term and quite natural cycle (and a cycle that has occurred many times before).

What seems most important right now is that we enter into a proper, well informed debate about what is really going on - free from the politically motivated scaremongering of the left and the environmentalist lobby. Actually debating the issue before we set public policy may be inconvenient for Al Gore and his private jet chaterer, but it is crucial for the rest of the world.

The Institutional Investor’s Alpha magazine list of the Top 25 highest paid hedge fund managers has just been reissued.

James Simons of Renaissance Technologies and T. Boone Pickens Jr of BP Capital Management raked in $1.5bn and $1.4bn in 2005, putting them at the top of this year’s list, the first time two fund managers have earned more than $1bn.

The 26 hedge fund managers on the list (one extra due to a tie for 25th place) earned $363m on average - up 45 per cent from the $251m average in 2004. Rounding out the top five were hedge fund legend George Soros of Soros Fund Management with $840m, SAC Capital’s Steven Cohen with $550m and Paul Tudor Jones of Tudor Investment at $500m.

While many of the funds on the list had spectacular returns in 2005, the top 25 is often a reflection of which are the biggest funds - not simply the best performers. As funds increase their asset base, the management fees alone generate huge sums. In Mr Simons' case, his huge payout is partly due to the hefty fee structure of a 5 per cent management fee and 44 per cent performance fee (compared with the standard 2 per cent and 20 per cent) on his Renaissance flagship fund. But with a gross increase of nearly 60 per cent, it was also a banner year.

Mr Pickens, recorded stellar returns in the energy and commodities boom, with his firm’s energy fund up 89 per cent and the commodities fund up 650 per cent.

Hedgefund.net reports that hedge funds were up an average of 2.34% in April, according to the HedgeFund.net-PerTrac Universes. The top 25% of hedge funds gained an average of 3.04%, while the bottom 25% of hedge funds was up an average of 0.54% for the month. Macro sector funds, the month’s top performing strategy, were up an average of 5.13% in April. By comparison, the S&P 500 was up 1.22% during the month.

Through April, the year-to-date average gain for hedge funds was 8.21%. The top 25% of hedge funds gained 10.72% for the year-to-date, while the bottom 25% was up 3.25% over the same period. The S&P 500 is up 4.99% since the beginning of 2006.

The Alternative Investment Management Association (AIMA), has launched a Cayman Islands Chapter. The new Chapter has been formed both at the request of the industry and with the strong backing of the Cayman Island regulator, the Cayman Islands Monetary Authority and the Government’s Portfolio of Finance & Economics.

Christopher Fawcett, Chairman of AIMA said: "This is a notable and natural milestone, and a signal of AIMA’s growing influence worldwide. Cayman is an integral part of the hedge fund industry, with the majority of hedge funds globally domiciled there".

The Cayman Islands becomes AIMA’s seventh Chapter worldwide after Australia, Canada, Hong Kong, Japan, Singapore and South Africa. AIMA now has over 1,000 corporate members in 46 countries.

Gary Linford, Head of Investment & Securities Division for the Cayman Islands Monetary Authority commented: "With the wealth of knowledge that sits in the Cayman Islands, this new AIMA Chapter will provide the ideal platform for the Cayman hedge fund industry to make a more public contribution to the global hedge fund debate".

The Chairman and executive that will lead the new AIMA Cayman Chapter for the next two years are:
Chairman - Andy Stepaniuk, KPMG
Deputy Chairman  - Mark Lewis, Walkers
Legal Counsel/Regulation & Tax - Henry Harford, Maples and Calder
Education & Research - Valia Theodoraki, CSX
Media & Communications - Alun Davies, GLG

While Cayman is now the domicile of choice for offshore hedge funds, Bermuda remains the OFC with more hedge fund administrators, and AIMA may well also seek to establish a Chapter in Bermuda.

The FT reports that, in testimony to the Senate banking committee on Tuesday, Christopher Cox, SEC chairman, said the regulator was using registration data to determine the scope of its jurisdiction to regulate the funds. "We’re also training our inspectors specifically for the purpose of understanding how to inspect hedge funds," he said. "This is a new emphasis for the commission. We’re devoting significant resources to it."

Mr Cox said 2,400 investment advisers had registered with the SEC by the February deadline, covering more than 11,500 hedge funds with assets of almost $2,000bn. About half of those registered had done so before the requirement took effect.

As many hedge fund managers feared, the SEC are using their inspections of hedge funds as the training ground for their inspectors. Some managers are already reporting long arduous inspections and a raft of hedge fund 101 questions from inexperienced SEC staff.

The smart play seems to have been to hold off on registration for now (using the 2 year lock-up exemption), while the SEC gets itself up to speed.

Update: The Financial News reports that Citadel, Soros Fund Management, Tudor Investment Corporation, Cerberus, Atticus, Moore Capital Management and SAC Capital Partners - that run a total of $68bn of assets between them - are among the many hedge funds that have chosen not to register with the SEC. GLG, the $13bn London hedge fund manager fined by the UK Financial Services Authority in March, also failed to register. A total of 26 of the largest 100 firms have chosen not to sign up with the SEC - representing $168bn of assets or at least 11% of the hedge fund industry, estimated at between $1.2 trillion and $1.5 trillion of assets.

Bloomberg reports that Man Group Plc's US brokerage and seven of its employees are being sued for fraud and racketeering by a court-appointed receiver seeking to recoup investor assets lost in the collapse of a Philadelphia Alternative Asset Management.

Man Financial was a broker for the Philadelphia hedge fund, which imploded last year after the Commodity Futures Trading Commission claimed it concealed more than $140 million in trading losses. Man Financial is accused of violating the Commodity Exchange Act and the Racketeer Influenced and Corrupt Organizations Act, or RICO, by letting the fund hide its losses in a brokerage account. The court-appointed receiver alledges that Man let Philadelphia fund's manager, Paul Eustace, shift losing trades to an account that wasn't shown to investors.

Paul Eustace used to trade with Trout Trading in Bermuda but is now based in Oakville, Ontario, Canada.

Update: The Scotsman reports that Man Financial Inc., the US arm of the investment firm Man Group Plc , said it will "vigorously defend itself". The article reports that Man Financial said in a statement that it (MFI) "regards the allegations to be outrageous and spurious."

A survey of senior tax executives in 50 large UK-based companies, including representatives from the FTSE 100, FTSE 250 and large subsidiaries of foreign parent companies, carried out by KPMG, the professional services firms in January and February this year, found that 54% placed Ireland in the top three countries for tax competitiveness, with 50% choosing the Netherlands.

Luxembourg attracted the vote of 32% of the respondents, while the UK polled 14%. Belgium and Spain both scored 4% while France and Germany received no votes.
The majority (two-thirds) of the respondents expressed the view that taxation was a consideration when deciding where to locate operations, and over 70% said that tax issues have become more important for international business planning over the past two years.

However, the report states that it is the clarity and simplicity of a country's tax system, rather than its tax rates, which appears to be the deciding factor for multinational firms. Only 68% of companies looked for low tax rates, compared with 88% which looked for clarity of interpretation of tax legislation and 84% which looked for consistency in tax-related judgements.

This is evidenced by the fact that corporate tax rates in both the Netherlands and in Luxembourg are (marginally) higher than in the UK, at 31.5% and 30.4% respectively. However, both countries are considered to benefit from a more stable and predictable tax regime than companies experience in the UK.

Meanwhile, Ireland combines a tax system famed for its simplicity with a corporate tax rate of only 12.5%.

Lipper Fitzrovia’s latest analysis of the Luxembourg funds industry shows the third year of double digit growth in total net assets (both Euro and US$) for all domiciled collective investment funds, rising by 20% to US$1,797.2 billion (E1,527.6 billion) at year end 2005, up from US$1,500.3 billion (E1,103.8 billion) in 2004.

The 12th annual Luxembourg Fund Encyclopaedia highlights that the total number of funds and subfunds rose from 7,777 to 8,434. The number of equity funds increased to 2,997 from 2,909 - reversing the trend of the previous two years when numbers declined. Assets invested in equity funds rose for the third year running, increasing 36% to US$ 683.2 billion.

There was a small increase in fund numbers across the other main asset classes, along with a similar growth in assets, apart from cash funds which experienced a slight reduction in assets. Alternative investment funds (primarily hedge funds) continue to thrive with assets of US$ 27.8 billion, up from US$18.7 billion last year (excluding funds of hedge funds).

221 global funds of funds were launched in 2005, making these the most popular type of fund to be launched - as per the previous two years. They also attracted the largest share of investment into newly-launched funds, taking US$ 23.1 billion over the year.

Hong Kong’s banking sector performed strongly last year, with retail banks’ aggregate pre-tax operating profits surging 8.2% on 2004. But continued competition and cost pressure will likely make the operating environment challenging this year, according to Monetary Authority Chief Executive Joseph Yam.

In the Authority’s 2005 annual report, Mr Yam explained that the exchange and money markets were largely stable during the year, despite massive fund flows arising from speculation about revaluation of the renminbi and initial public offerings in the stock market.

Ireland’s Business Regulation Forum, established by Minister for Enterprise, Trade and Employment, Micheál Martin in November 2005 to examine regulatory issues as they impact on business and competitiveness, is now inviting views, comments or submissions from individual consumers, companies, organisations and interest groups concerning which regulations they feel could be improved upon.

Comments and evidence on what areas of regulation impose the largest avoidable and unnecessary burden on business, including the extent of regulation, the burden it imposes on business, and the effects of that burden, are being sought.

"The impact of regulation on business can be significant. Hundreds of regulations impact on all our business lives every day, from health and safety legislation to tax obligations", Minister Martin explained, continuing:

"Most of these are necessary to allow society to run smoothly and to sustain the high standards we now expect. However, it may be that some of them have evolved in such a way as to have become difficult to comply with or hard to understand, I would therefore encourage everyone including members of the public to become actively involved in the submission process."

"The forum is not seeking to reduce regulation per se. It is very clear that regulations, for the most part, exist for good reasons. The benefits of regulation can include: protecting consumers, preventing the abuse of monopoly power; encouraging optimal resource allocation by improving the functioning of markets; and maintaining standards, such as Health and Safety. The Business Regulation Forum will examine if the same benefits could be achieved in a more efficient and effective manner."

United Overseas Bank's (UOB) head of treasury research, Jimmy Koh is reported in the Singapore Business Times as stating that "the global environment is stable and resilient" and the outlook for Asia is also positive.

He says Asia will receive fund flows from the Middle East as investors there are "looking to park money and not for major gains". He says: "The surge in gold, commodity and crude oil prices is reflection of an economy flush with liquidity".

UOB’s take on the Singapore economy is that employment creation is finally happening, economic restructuring is bearing fruit in the service sector and the economy could surprise on the upside over the next few years. Mr Koh sees Singapore becoming a major event organisation centre, enjoying growth in tourism because of budget airlines. He also sees Singapore growing as a wealth management centre.

UOB is looking at real GDP growth of 6.1 per cent for 2006. Its projection is at the top end of official forecast of 4-6 per cent growth this year, down from last year's growth rate of 6.4 per cent.  UOB's projection is the same as the latest projection from the Monetary Authority of Singapore, which is seen as a more sustainable pace after nine straight quarters of expansion.

Bank of China (BOC), the mainland’s second-largest bank, has been forced by Hong Kong Exchanges & Clearing to boost the size of its initial public offering (IPO) to 20 per cent of its share capital in a deal that is likely to raise US$7 billion.

BOC originally planned a float of 16 per cent of its enlarged share capital with a 10 per cent stake being taken up by a block of investors, including UBS, Temasek Holdings and the mainland's National Social Security Fund. The original share sale structure would have left less than half the number of shares to be sold to institutional and retail investors, which was rejected by the Hong Kong regulator.

To comply with the requirements of the HK Exchange’s listing committee, BOC will sell more H shares and reduce the number of shares made available in a potential listing in the mainland at a later date.

Hong Kong Exchanges and Clearing chairman Charles Lee Yeh-kwong will retire in April after almost 20 years at the exchange. Mr Lee joined the exchange as a council member in 1988.

There will be then be elections for the Board to replace several members. The 13-member HKEx board is formed by six shareholder-elected directors, six government-appointed directors and the chief executive officer, Paul Chow Man-yiu. Three of the government-appointed members are stepping down, having reached the end of their six-year terms, namely: chairman Charles Lee Yeh-kwong; Great Eagle Holdings deputy chairman and managing director Lo Ka-shui, and Goldman Sachs (Asia) vice-chairman Tim Freshwater.

The SCMP reports that sources say Executive Councillor and Hong Kong Jockey Club chairman Ronald Arculli is the government's choice to succeed Mr Lee, while fellow Exco member Laura Cha Shih May-lung and listing committee chairman Moses Cheng Mo-chi are tipped to take the other two seats.

Before the establishment of the HKEx in March 2000, the former stock exchange was dominated by stockbrokers, with 18 of the 31 council members elected from within the brokerage ranks. But government instituted reform turned the brokers’ seats into shares in the HKEx and removed their control.

The South China Morning Post reports that the Hong Kong government is expected to get the approval from legislators in June for the legal changes required to split the role of the Securities and Futures Commission (SFC) chairmanship into a non-executive chairman and a chief executive. Current SFC chairman Martin Wheatley is expected to become the chief executive handling daily operations, keeping his annual pay package of about $6 million, while the government has to find a non-executive chairman who will receive $702,000 a year. The SCMP reports that the government is still searching for a suitable candidate.

Portus Alternative Asset Management Inc. co-founders Boaz Manor and Michael Mendelson have now been accused by Canadian regulators of lying to investors as the hedge fund collapsed last year. The Ontario Securities Commission (OSC) charged both men on April 20 with failing to act in good faith with clients. Mendelson also was charged with unregistered trading and issuing securities without filing a prospectus.

The charges were the first for Mendelson, whose lawyer Joyce Harris said in November that he was close to settling the good-faith claim with the OSC. Manor was charged in October with misleading OSC staff and unregistered trading. Portus, founded in 2002, attracted about C$800 million ($707 million) from around 26,000 investors before it went under.

Mendelson and Manor face maximum penalties of C$5 million and five years in jail. A court hearing hasn’t been scheduled yet.

Manor left for Israel before the OSC seized Portus’s assets in March 2005. KPMG LLP, the fund’s trustee, is trying to find as much as $18 million that was missing from the accounts, including $8.8 million of diamonds Manor arranged to buy last year in Hong Kong.

Although the Cayman Islands are often classified as a “tax haven”, they do raise government revenue through a number of mechanisms, including direct taxes in the form of “fees” in both the offshore and domestic sectors.

In the latest Budget statement the Financial Secretary, Kenneth Jefferson, has announced that a number of these fees will be increased with effect from 1st July.

The fee for issuing Tax Undertaking Certificates to Exempted Companies, Exempted Limited Partnerships and Exempted Trusts, which guarantee that offshore entities will be exempt from any future taxation introduced in the Cayman Islands for a period of 30 or 50 years, will be increased from $150 to $500. This increase is expected to raise $2.1 million in additional revenue during the 2006/7 financial year.

The new revenue measures also incorporate increases to: Captive Insurance Licences; external Insurer Licences; Restricted and Unrestricted Trust licence application fees and the Annual Licence Fee for Restricted Trusts. These fee increases are expected to generate additional revenue of $0.4 million during the 2006/7 financial year.

Annual fees for Exempted Trusts will be increased from $100 to $500 and this is expected to yield a further $0.3 million during the 2006/7 financial year.

There will also be an increase in the fees charged by the General Registry. The most significant change pertains to the issuance of Certificates in respect of companies listed on the Companies Registry. The fee for obtaining a Certificate of Good Standing will increase from $41 to $82. This is expected to produce extra revenue of $2.6 million in 2006/7.

Various Certification and Document fees in respect of partnerships will be increased from $50 to $82. This proposed change is expected to produce $0.3 million of additional revenue in 2006/7.

Canada's securities regulators have decided not to introduce specific regulations governing hedge funds. Hedge funds have become a $30-billion industry in Canada, and there have been some high-profile scandals recently, including the collapse of Portus Alternative Asset Management Inc. and Norshield Financial Group.

However, David Wilson, the new chairman of the Ontario Securities Commission, told reporters recently "We have a full group of rules that apply to all those sorts of vehicles. So we think the existing rules, by and large, if they are properly used and properly implemented and complied with, will do the job."

Mr. Wilson made the comments after a speech at a Toronto securities conference. In his speech he said the Canadian Securities Administrators, the umbrella organization for Canada's provincial securities commissions, has "pretty much decided that hedge funds per se do not require their own separate regulatory regime."

It is important to note that domestic hedge fund managers are already required to be registered in Canada - and do not have the exemptions from registration that exist in the US. The US is now requiring some hedge fund managers to be registered there.

On the other hand, Wilson said Canadian regulators are reviewing how some hedge fund-related products are sold to retail investors. In particular, he said the CSA is considering new rules governing "principal protected notes." These notes typically come with a guarantee on the principal amount invested and they are often tied to the performance of a group of hedge funds. Some sell for as little as $500 apiece and they are generally sold without a prospectus.

"We need to take a hard look at whether this [prospectus] exemption is suitable for highly complex structured products targeted at the mass market of retail investors," he said during his speech.

The Daily Telegraph reports that the Isle of Man is to abolish company tax and cap personal income tax at £100,000 from April 5 in a bid to attract the super-rich and budding entrepreneurs. Tax experts said the 33-mile long Crown dependency would become "one of the most favourable tax regimes in the world".

Allan Bell, the Treasury minister, told the island's parliament yesterday he was "inviting the enterprising and the ambitious to come to our island".

According to the Telegraph, many offshore tax havens are planning similar initiatives as a result of a series European Union directives designed to crack down on cross-border tax evasion.

Yet again, the Eurocrats tax harmonisation efforts back fire as tax rates keep on coming down!

The Dubai International Financial Exchange (DIFX) has listed the world’s largest Sukuk, worth US $3.5 billion, from Dubai Ports, Customs and Free Zone Corporation (PCFC) on January 26th, 2006. 

Steffen Schubert, Chief Executive Officer of the DIFX commented: "This is a very significant development for the DIFX as it demonstrates the growth of confidence in the exchange. This is the first primary sukuk listing on the DIFX and we expect to see more debt and equity securities of similar importance being listed in the coming months."

The issue is part of a large financing package being arranged for PCFC's general corporate activities, ongoing business development needs and expansion plans. Part of the proceeds will be used to complete the purchase of the British company P&O - currently the world’s fourth-largest ports group. The acquisition of P&O will give the state-owned Dubai company the operating rights to several US ports - from New York to New Orleans - an issue that is raising political opposition in the US based on concerns regarding the safety and security of the US homeland.

The Sukuk's unique convertible structure allows partial redemption of up to 30% in the form of equity shares of the subsidiaries of PCFC as and when they go for a Public Equity Offering within the next two years. If no Public Equity Offering takes place prior to the final redemption date, investors will be compensated with a higher yield.

The Sukuk offer a return of 7.125 per cent per annum if a Public Equity Offering happens during the next two years and a higher return of 10.125 per cent per annum on any amount of the Sukuk outstanding at maturity which have not been redeemed from the said equity offerings. The Sukuk will trade over the counter rather than on the exchange.

In addition, Mashreqbank has listed its US$750 million Euro Medium Term Note Programme as well as two series of Floating Rate Notes issued under it, on the DIFX on February 6th.
 
Series 1 of the Floating Rate Notes (FRNs) with a principal amount of US$300 million was issued in February 2004 and is due in 2009, while Series 2 with a principal amount of US$325 million was issued in March 2005 and  is due in 2010.

On the membership front, the DIFX has admitted Morgan Stanley as a member firm. Morgan Stanley is the seventh firm to become a member of the DIFX since the exchange opened for business on September 26, 2005.

Poor performance hurt hedge funds last year, with reduced inflows of fresh assets. MSCI Barra, a provider of index data and risk management analysis, reports that inflows slowed substantially last year to $11.99bn (€10bn), from $50.34bn in 2004 and $49.69bn in 2003.

However, performance has been better in january 2006, with the Credit Suisse/Tremont Hedge Fund Index rising by 3.23%

The Investment Executive magazine in Canada reports that the provincial government in Nova Scotia is giving tax breaks to a Bermuda company to encourage more outsourcing of jobs to Halifax!

West End Capital, a Bermuda based hedge fund/insurance group, apparently has legal, accounting and software staff in Halifax - because qualified people are paid less there and it is difficult to get work permits on the Islands of Bermuda (and then difficult to retain good staff on the Islands).

Paragon Bermuda - a Bermudian application development company which has investors in common with West End Capital - has long had software developers in Nova Scotia for similar reasons.

Appelby Spurling Hunter has a released a client note that states, inter alia:

"Effective on 25 November 2005, the Companies Act 1981 (Ninth Schedule) Amendment Order 2005 designated the "business of collective investment schemes", commonly known as mutual funds, as an unrestricted business activity. The effect of removing the requirement that Bermuda’s Minister of Finance consent to mutual fund incorporations is that the time to incorporate a mutual fund is substantially decreased because the Bermuda Monetary Authority has the sole responsibility for approving mutual fund incorporations."

See the full article here.

The European Savings Tax Directive (EUSD) has now been in force for more than six months, so we are starting to see the effects of the new rules on peoples’ behaviour. As with many regulations designed to increase tax collection revenues there have been some unintended consequences.

Under the EUSD, which was introduced with effect from 1 July 2005, financial organisations (“Paying Agents”) in countries subject to the directive that make a cross border interest payment to an EU resident individual have to report information on the payment to the revenue authority in the EU state where the individual is resident or to withhold tax on the payment. The EUSD applies throughout the EU and in some non EU territories, in particular some of the offshore financial centres (Channel Islands, Cayman, Switzerland), which agreed – or where forced to- implement it.

Bermuda is currently not subject to the EUSD, apparently due to an oversight by the UK authorities. Neither Singapore nor Hong Kong is included. In addition, because the UK and Gibraltar are not separate member states within the EU, the EUSD does not apply between them. This effectively means that the “level-playing field” that was promised to all the other participants has not been delivered.

The Wall Street Journal now says that Singapore is now attracting huge amounts of capital from Europe as a direct result of the implementation of the EUSD. It seems that many EU investors prefer to move their money out of Europe rather than face withholding taxes or disclosure of their investments under the EUSD.

Ironically, another unintended consequence has had the opposite effect, boosting the hedge fund industry in the offshore centres that adopted the EUSD (like the Cayman Islands) rather than in the ones that have not adopted the EUSD (which many people assumed would benefit from not being included). This has occurred because the EUSD only applies to payments made to EU residents by Paying Agents on behalf of investment funds which are recognized as Undertakings for Collective Investments in Transferable Securities funds (or “UCITS funds” for short) or funds recognized as their equivalent. This means that payments made to EU residents by Paying Agents on behalf of investment funds which are considered as non-UCITS equivalent funds fall outside the scope of the EUSD Directive altogether. Under the rules, each jurisdiction is free to determine for itself which domestic funds are UCITS equivalent. The Cayman Islands have determined that the vast majority of its hedge funds are non-UCITS equivalent funds and therefore fall outside the scope of the EUSD Directive altogether. Investment funds established in countries or territories which are not party to the EUSD Directive and which have a Paying Agent in an EU member state or applicable third country and which makes payments to EU residents are caught by the EUSD Directive as they are located in jurisdictions which currently do not have any corresponding legislation determining what a non-UCITS equivalent fund is from their home country point of view. Thus, instead of boosting business in jurisdictions, like Bermuda, that are not subject to the EUSD, the rules have made the Cayman Islands more attractive as a jurisdiction.

The directive is so riddled with loopholes that it resembles a Swiss cheese – for example, it only applies to individuals (not trusts or companies). So many individuals are able to get around the legislation by simply setting up a company, trust or other legal entity, where the individual is the beneficial owner.

Of course, the Eurocrats response to this mess is not to abolish the directive, but rather to call for it to be extended to everyone and every payment!

The South China Morning Post (SCMP) reports that the big institutional investors in Hong Kong, such as pension and endowment funds, are being slow ot invest in hedge funds. This is despite the fact that Hong Kong is attracting some of the biggest names in the business as it becomes Asia's hedge fund headquarters. Institutional investors have been hampered by a lack of resources and understanding of hedge funds and regulations have prevented Mandatory Provident Fund Schemes Authority (MPFA) funds - which have combined assets of HK$145 billion - from putting money into the funds.

The SCMP reports that Desmond Ng, head of Asian institutional business at JF Asset Management, said that there was a gradual warming among institutional investors to the idea of hedge funds, led by trusts and endowments such as those of the Hong Kong Jockey Club and City University of Hong Kong. He also said he hoped that MPFA funds would eventually follow.

"We're seeing progress in terms of changes that regulators at the [Securities and Futures Commission] and MPFA have put in to ensure that investors can include more investment classes, more investment vehicles. It's just going to be a matter of time until hedge funds get on the radar screen and are considered," Mr Ng said.

The Financial Times reports that Switzerland has received complaints from the European Commission that the advantageous corporate tax rates available in some Swiss cantons violate the terms of the free trade agreement between Switzerland and the EU.

Apparently both the British and French governments have been angered by Procter & Gamble, and its rival Colgate, relocating their European headquarters to Geneva, and Biogen Idec, the US biotech group, moving from Paris to Zug. Google recently decided to establish a European research centre in Zurich.

The FT reports that experts estimate that foreign companies establishing holding company structures can lower their tax rates in Switzerland to as low as 7 per cent, compared with 12.5 per cent in Ireland and an EU average of about 20 per cent.

The Swiss see the issue as an unjustified attack on their tax sovereignty as well as an indirect way for Brussels to attempt to harmonise the European corporate tax base, a goal that has also met stiff resistance in many of the 25 EU member states. Switzerland is not a member of the EU, but its crucial economic and political relationship with the surrounding EU block has been regulated by a series of bilateral agreements, including a free trade agreement signed in 1972. However, the free trade agreement does not apply to the services sector.

Switzerland has always argued that tax competition between its 26 cantons has been one of the pillars of its economic success and attractiveness to foreign investors.

At a high powered breakfast meeting in early February the Gibraltar Government expressed its support for a proposed new stock exchange in Gibraltar under the name GibEx.

The project is being led by the Bank Medici of Austria and Hassans, a leading law firm in Gibraltar. In attendance were: the Chief Minister - Peter Caruana, Marcus Killick the Financial Services Commissioner, Jimmy Tipping - the Finance Centre director, James Levy QC and Peter Montegriffo of Hassans and Sonja Kohn - the chairman of Bank Medici.

GibEx is proposed as an opportunity for Gibraltar to form a bridge between the offshore and EU onshore markets. Speakers included Dr Alexander Ganez, a former Austrian Stock Exchange Commissioner. Mrs Kohn reportedly said that Gibraltar is a "sleeping beauty" with "a lot of potential. A lot has been done and a lot will be done."

The owner and Managing Director of Dominion Investments (Nassau) Ltd, Martin Tremblay, was indicted in US federal court in January 06, accused of laundering $1 billion for others. Tremblay apparently transferred the cash to bank accounts in the Bahamas, the US, Canada and elsewhere, according to US federal prosecutors

The Securities Commission of the Bahamas (the "Commission") has issued a statement regarding Dominion, which states in part, as follows:

"[Dominion] was registered as a Broker Dealer II by the Securities Commission on December 11, 2001. Mr. Martin Tremblay, Managing Director and 100 % beneficial owner of Dominion, was licensed as a principal at the same time. Mr. Tremblay resigned as Managing Director and surrendered his Principal license on March 4, 2005, but remains the sole beneficial owner of the company. Mrs. Esther Weir was appointed Managing Director on March 15, 2005 replacing Mr. Tremblay. An on–site inspection of Dominion by the Commission was conducted from February 7-10, 2005. While the Commission’s inspection revealed various operational deficiencies these matters were being addressed by Dominion.

Immediately after the US authorities acted against Mr Tremblay, the FIU moved swiftly to freeze a large number of bank and securities accounts in The Bahamas associated with Mr. Tremblay and Dominion.

The Securities Commission, with the assistance of the Royal Bahamas Police Force, acted quickly to ensure that the books and records of the company were secured and to prevent any further business being transacted. The Commission, and the Police, further acted quickly in conducting a search of the premises of Dominion and obtained search warrants for other locations. A team of inspectors from the Commission was dispatched to Dominion to conduct an on-site inspection on the same day the information appeared in the local press. Further, Dominion’s office is being continuously monitored by the Commission. The Commission is also very concerned to ensure that the assets of legitimate investors of Dominion are secured and protected, and that the competing interests of parties related either to Dominion or Mr. Tremblay are addressed in an appropriate manner. To this end, the Commission is presently dealing with this matter through its statutory disciplinary process.

The Commission has and will continue to liaise closely with other domestic and overseas regulators and take every available action to protect the assets of investors."

The Jersey Financial Services Commission (JFSC), Jersey's financial services regulator, announced that  last year it generated more than £1 million extra income from fees than expected. Mainly form the thriving funds business. Total income from regulatory and registry fees was just over £13 million, compared to £11.9 million in 2004, according to the JFSC.

The number of new funds doubled, with more than 400 authorised in 2005. Many of these were due to the setting-up of property unit trusts, which benefit from UK stamp duty rules.

Appleby Spurling Hunter has been recognised as a leading offshore law firm in a number of recently released international publications.

Chambers and Partners Global Directory awarded Appleby Spurling Hunter a number one ranking in Bermuda. Appleby was the only firm to receive rankings in all three of the key offshore jurisdictions of Bermuda, the Cayman Islands and the British Virgin Islands.

The Malta Stock Exchange (MSE) has been boosted by an article in the Economist. Malta's equity index surged by more than 60% last year, after a 40% rise in 2004. However, The MSE lists only 13 stocks and a population of just 392,000.

The MSE recently received recognised exchange status form the Inland revenue in the UK which has sparked interest in listings from foreign and local companies, because of the tax relief that such status offers investors. There are 53 hedge funds listed already.

As for the future? The Economist says "In an era of consolidation, the independence of the MSE (owned by the government) is far from guaranteed. A partial sale or a link with another exchange is an option. OMX, the Nordic exchange operator that provides the all-electronic MSE's technology, is one potential partner."

Barbados saw an increase in the number of licences issued to companies in both the international business and financial services sector last year, according to a report by the country's central bank.

The central bank's economic review noted that 428 new business licences were issued last year, 67 more than were granted in 2004. Some 372 licences were granted to international business companies, an increase of 11 over the previous year.

Forty-two licences were approved for societies with restricted liability, 22 fewer than the number permitted in 2004. Additionally, approval was granted for 14 new Exempt companies – 11 for exempt insurance and 3 for exempt management firms. No new licences were offered to offshore banks.

The European Commission has launched a formal investigation into Luxembourg’s 1929 legislation exempting holdings and financial companies from corporate taxation, under EC Treaty state aid rules.

Many companies have holdings in Luxembourg that benefit from the tax rules by carrying out financing, licensing and coordination for the entire group.

The Commission stated: "Luxembourg’s 1929 legislation on exempt holdings establishes a special corporate vehicle to attract multinational groups’ financing, licensing and coordination activities to Luxembourg. The 1929 exempt holdings are companies established in Luxembourg, which solely exercise certain activities such as financing, licensing, management and coordination services within the multinational groups to which they belong. The 1929 holdings are exempt from Luxembourg’s business taxes on earnings, including dividends, interest and royalties as well as on payments, including dividends and royalty fees.

While the original objective of the scheme was to favour the distribution of profits within a multinational group without incurring multiple taxation, the globalisation of financial markets and the modern regulatory framework for financial services have rendered the 1929 legislation obsolete."

The Commission asked Luxembourg to review the tax regulations in October 2005, but Luxembourg refused to adopt the measures that the EU suggested so the Commission has now launched an in-depth investigation to verify whether the tax exemptions granted to the 1929 holdings constitute state aid and are compatible with the Single Market.

The Commission has expressed concern that the 1929 legislation creates significant distortions to competition and market efficiency particularly in the financial sector, without contributing to any significant extent to economic development.

"It is time to review this old-established regime favouring multinational groups setting up their financial activities in Luxembourg, as it appears it may unduly affect the functioning and competitiveness of the EU’s financial industry" observed Competition Commissioner Neelie Kroes.

the Bermudian owners of a home rumoured to be worth around $45 million have launched a legal battle against a government ban preventing them selling it to a foreigner. GoldenEye, a ten-bedroom home on the so-called "billionaire’s row" in Tuckers Town had reportedly attracted interest from high profile international names (like Oprah Winfrey) before the new policy came in. The house is owned by Alan and Vera Marshall. The rule change was made in February 2005 and prevents Bermudians from selling houses to non-Bermudians.

Non-Bermudian property owners are still permitted to sell their homes to other non-Bermudians. Right now the palatial dwelling stands empty with $1 million annual maintenance costs. The case is being heard by the Supreme Court and Vera Marshall apparently told the court that she once turned down an offer of $33 million for the house before the ban was introduced but could not now sell it to a Bermudian for more than a "ridiculously low" price like $1 million.

Tourism is so weak in Bermuda at the moment that the Bermuda government and hotel owners are now paying tourists to come to the Islands!

From now until April 27, North American visitors can fly to Bermuda on a charter flight that costs just $49 one-way, from New York and Boston. The initiative has been subsidised by the Department of Tourism as well as hoteliers who have been asked to contribute $165 per booking.

Only passengers boarding in North America can take advantage of the cheap flights from TNT Vacations, which is chartering a plane from Xtra Airways to make the twice weekly flights between now and April 27. The inaugural flight had just 52 passengers on board, but the Tourism Minister believes the next two months of the $49 promotion will see higher uptake by visitors from Boston and New York.

The Financial Times reports a Greenwich-Van Associates study which says that hedge funds have become a key force to be reckoned with in Asian equity markets, accounting for 30% of all commissions generated by brokers in the region during the last year.

The survey shows that commissions from hedge funds in Asian stock trading have climbed 20 per cent a year in the past two years because:

1. with four-fifths of global hedge fund assets in Europe and the US, the ability for funds to maintain a competitive edge has diminished - resulting in geographical diversification; and
2. Asian markets have been robust performers - both emerging markets and Japan - and hedge funds remain bullish on Asia.

Meanwhile, Investors Offshore reports that hedge funds have started 2006 well, propelled by gains in global equity markets, particularly in emerging markets. A preliminary report by Greenwich-Van Advisors, LLC, a hedge fund index provider states that the Greenwich-Van Global Hedge Fund Index gained 3.5% in January compared with a 2.7% return on the S&P 500 during the month. The Morgan Stanley Capital International World Equity Index returned 4.4% and the Lehman Brothers Aggregate Bond Index was flat, over the same period.

The Wall Street Journal reports that Singapore is attracting huge amounts of capital from Europe as a direct result of the implementation of the European savings tax directive (EUSD). It seems that many EU many investors prefer to move their money out of Europe rather than face withholding taxes or disclosure of their investments under the EUSD.

According to the WSJ: "..In 2001, Singapore stiffened laws against breaching the confidentiality of bank customers, making penalties for violators even tougher than in Switzerland. It imposed fines of $78,000, imprisonment for as long as three years, or both. In Switzerland, a similar breach could result in a prison term of six months or a fine of about $38,600. ...Swiss bankers say the withholding tax and the continuing push to further restrict client confidentiality are discouraging wealthy Europeans from keeping money in Switzerland. Singapore isn't a member of either the EU or the OECD, so it hasn't faced the same pressure. By keeping money in Singapore, Europeans can avoid the new tax, some bankers say...."

The WSJ also reports that the US economy has been growing much faster than major European economies - partly as a result of lower taxes and more flexible labour laws. GDP per capita in Germany, France and Italy is falling, relative to the US, to levels below those recorded in the 1970s. ..."At current trends, with demographics the way they are, the average US citizen will be twice as rich as a Frenchman or a German in 20 years," Jean-Philippe Cotis, chief economist at the OECD, told the WSJ.

Hong Kong's Secretary for Financial Services & the Treasury, Frederick Ma has said that he hopes that new legislation exempting offshore funds from profits tax, which is expected to be approved in the first quarter of 2006, will help attract more overseas investors to Hong Kong.

Mr Ma said that the proposal to exempt offshore funds from the 17.5% tax in respect of trading profits derived from qualifying securities transactions carried out in the territory, known as the Revenue (Profits Tax Exemption for Offshore Funds) Bill, will boost Hong Kong's status as an international financial centre.

Imposition of the tax on offshore funds led to an exodus of funds to other centres, such as Singapore. Hong Kong's main competitors, such as New York, London and Singapore, all exempt offshore funds from domestic taxes.

The Securities and Exchange Commission (SEC) announced that it has filed an enforcement action against five former senior executives of General Re Corporation (Gen Re) and American International Group, Inc. (AIG) for helping AIG mislead investors through the use of fraudulent reinsurance transactions. Four of the former executives, Ronald Ferguson, Elizabeth Monrad, Robert Graham and Christopher Garand, were with Gen Re, while the fifth, Christian Milton, was with AIG. The complaint, filed today in federal court in Manhattan, alleges that the defendants and others aided and abetted AIG's violations of the antifraud and other provisions of the federal securities laws by helping AIG structure two sham reinsurance transactions that falsely increased AIG's loss reserves in the fourth quarter of 2000 and first quarter of 2001 by a total of $500 million. The transactions were initiated by AIG to quell criticism by analysts concerning a reduction in the company's loss reserves in the third quarter of 2000.

Hong Kong Exchanges and Clearing will expand its listing committee to at least 28 members, including eight investor representatives to address long-running market concerns over its issuer-dominated composition. The new rules will come into effect in May 2006.

"This will give the committee an appropriate mix of market representatives," HKEx chief executive Paul Chow Man-yiu said.

The Exchange has also revised its controversial plan to impose a six-year term limit on members of the listing committee. The term limit was proposed to avoid conflicts of interest and was made on the advice of the Independent Commission Against Corruption. Under the original proposal, retiring members were not allowed to return to the committee for at least two years.

Now the committee will be given discretionary reappointment powers, after listing committee members expressed deep concerns that the term limit would make it more difficult to find capable replacements and affect the swift operation of the committee.

Can Dubai become the Hong Kong of the Middle East? asks Lucia Dore in the Khaleej Times.

The most obvious similarity is that they are both City States and regional hubs - Hong Kong for China and South East Asia and Dubai for the Middle East, Africa and the Indian sub-continent. Both are seaports, with world class container terminals, and both have superior international airlines and airport facilities. Another similarity is the low tax status of both economies. Dubai, in particular, is putting considerable effort into creating free zones, of which there are now thirteen.

Dubai is also an aspiring international financial services centre. In its quest to become the Hong Kong of the Middle East it has set up The Dubai International Financial Centre (DIFC) and has built on this by launching the Dubai International Financial Exchange (DIFX) last year.

The Dubai International Financial Centre Authority (DIFCA) has submitted for public consultation and comment amendments to its Companies Law, DIFC Law No. 2 of 2004.

The amendments seek to simplify dividend distribution requirements for companies, thus providing greater incentives for companies to list on the Dubai International Financial Exchange (DIFX).

The amendments will also create a Limited Liability Company (LLC) structure for non-regulated companies by the Dubai Financial Services Authority, which simplifies corporate administration formalities for the principals of LLCs whose activities are not regulated by the DFSA.

The DIFC Authority seeks comments from the international financial and legal community prior to the recommendation of the proposed amendments by the DIFC Authority Board of Directors to the Ruler of Dubai for approval and enactment. The consultation closes on 15 February 2006.

The DIFC Authority is also consulting with the DFSA on the proposed legislation.

Following the completion of the public comment and DFSA consultation periods, the final draft laws will be referred to His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, for approval and enactment in accordance with Dubai Law No. 9 of 2004.

The Central Bank of the Bahamas has announced the relaxation of exchange controls relating to real estate investments, foreign currency transfers, mortgages, and debt and equity instruments all of which have taken place with immediate effect.

The Bank states that this latest action is in line with its commitment to achieving a gradual yet meaningful liberalization of exchange controls, and the measures follow earlier adjustments introduced in May 1995 and September 2002, both of which provided for an increased delegation of authority to commercial banks over a broad range of current account transactions such as payments for imports, travel and services.

By way of an appointed day act 2006, the Companies (Amendment No.8) (Jersey) Law 2005 has been brought into force on the 1st February 2006 (except for Articles 24 and 35).

The amendment provides for the incorporation of cell companies. As with other jurisdictions, it is anticipated that these vehicles will be attractive to mutual funds (collective investment schemes).

Two types of cell company are permitted under the new Law: protected cell companies (PCC) and incorporated cell companies (ICCs).

A PCC is a single legal entity that attributes its assets and liabilities either to the protected cell company itself or to the individual cells it creates. The assets and liabilities of the PCC and those attributed to its cells are 'ring-fenced' from each other. By comparison, each cell of an ICC is itself an individual incorporated company which can hold assets and incur liabilities in its own name without contamination of or by the assets and liabilities of another cell.

ICCs are unique to Jersey. They reflect the best aspects of PCCs but are designed to give particular clarity to the ring-fencing of assets and liabilities of each cell in jurisdictions which are unfamiliar with cell companies.

Update: Just two days after the introduction of the protected cell company legislation, Bedell Cristin has announced the formation of the first such company for a collective investment fund.

The new protected cell company has been formed by Bedell Trust Company on behalf of MARS Capital Management Limited for a new collective investment fund, investors in which will participate in a variety of investment strategies through a number of separate cells.

Julie Coward has been elected the new president of the Jersey Association of Trust Companies (JATCo).   Mrs Coward is managing director of Basel Trust Corporation in the Channel Islands and also MD of BasTrust Corporation in Geneva.

The Channel Islands Stock Exchange (CISX) expects to attract an increasing amount of securitisation and specialist debt securities business in the coming year, according to the chief executive Tamara Menteshvili.

Last year the CISX celebrated their thousandth listing and quadrupled the average number of new listings. The exchange also introduced trading facilities for open-ended investment companies (OEICs) and 160 such funds have now been listed.

The CISX seems to be attracing business away from other EU exchanges, such as Dublin, by providing an alternative exchange in the same time zone, but outside of the European Union in relation to the EU Savings Tax Directive. 'That's one reason why we saw such tremendous growth last year,' Miss Menteshvili is reported as saying.

Lines Overseas Management (LOM) is challenging evidence presented by the US Securities and Exchange Commission in a US court.

In December 2005, The SEC produced a Status Report to update a US Judge on "significant developments" related to his review of a lower court's enforcement order of four subpoenas for information that were served on LOM and its managing director Scott Lines almost two years ago.

LOM has moved to strike the Status reort on the grounds that its allegations were "baseless", "defamatory" and "scandalous". The SEC said in a response last week that LOM's motion should be denied since each statement in the Status Report was "well founded" and "accurately reflected information that the Commission had obtained from credible and relevant sources". If the court does not strike the report, LOM has asked it to conduct an evidentiary hearing to resolve all the issues of fact disputed by LOM.

One of LOM's assertions is that the SEC has never properly served a subpoena on Donald Lines, the President of the LOM Group. The new SEC filing includes a sworn affidavit by a professional process server stating the details of his service of three subpoenas on Donald Lines while he was visiting Boston for medical treatment last year. Mr. Lines denies that he was actually served and has taken out a full page advertisement in local newspapers stating his version of the facts. The SEC said in its latest filing however there was "ample evidence to conclude that Lines was properly served with the SEC's subpoenas and was untruthful in his declaration to the contrary". In a declaration run in full in the Royal Gazette this week, professional process server Gerson Marciel from the Massachusetts firm of Stokes and Levin said that he personally served Mr. Lines at the Copley Hotel in Boston on November 10, 2005.

To learn more about these duelling full page ads, read this amusing article in the Royal Gazette and see whether you think Donald Lines was served or not - it all boils down to whether the man described by the process server was 185 lbs or 215 lbs (ie was it Donald Lines or not!).

Another of LOM's challenges relates to an SEC assertion that LOM "demanded" that the terms of a settlement with the Bermuda Monetary Authority (BMA) be kept confidential.

The settlement pertained to the BMA's investigation of LOM's role in the trading of Sedona Securities. That security is at the heart of an SEC probe into alleged market manipulation. For the past two years the SEC has been attempting to secure a court order to enforce subpoenas it served on LOM in order to obtain information relating to Sedona trades including materials from the BMA's investigations and settlement. According to the Royal Gazette, the Bermuda Supreme Court recently placed an injunction on some of the information requested by the SEC.

After the BMA completed its investigation in December last year, LOM reportedly told the Royal Gazette that the BMA had "certain regulatory issues with the regulated LOM companies arising out of Sedona and related matters. Those issues have been resolved to the satisfaction of the BMA by LOM companies having made changes to their management and control arrangements and having given undertakings to the BMA to further enhance their compliance regime and their management structure,"

LOM is listed and traded on the Bermuda Stock Exchange.

Jamaica, Barbados, Belize, Guyana, Suriname and Trinidad and Tobago, the six CARICOM member states, signed a declaration on 30 January signaling the formal launch of the CARICOM Single Market (CSM).

Member countries of the Organization of Eastern Caribbean States, namely: Antigua and Barbuda, Dominica, Grenada, St. Kitts and Nevis, St. Lucia and St. Vincent and the Grenadines also signed declarations signaling their intent to join the CSM by the end of June 2006.

The launch of the CSM is intended to lead to the implementation of a CARICOM Single Market and Economy (CSME), by 2008. The CSME seeks to go further than simply establishing a Free Trade Area. The CSME will involve a single currency and the harmonisation of economic policy. It seeks to establish a Single Market and Economy, which will ultimately mean not only the removal of tariffs and special treatment amongst members, but also the harmonization of tax and social regimes. To achieve this goal, CARICOM has earmarked US$70 million to be spent over a 10-year period.

With the gradual removal of traditional preferential trading arrangements with the UK and the EU under the current World Trade Organisation regime, the CSME is seen as vital to the survival of the Caribbean market.

Richard Teather, a Senior Lecturer in Tax Law at Bournemouth University (UK) and author of "The Benefits of Tax Competition", has published a new article entitled "Praise Be to Tax Competition!"

Teather argues that tax competition plays a vital role in keeping governments efficient. He points out that international bureaucracies like the Paris based Organization for Economic Cooperation and Development (OECD) want to create an international cartel to protect high-tax welfare states.

"The best known attempt by the European governments to shore up their crumbling tax systems was the Organization for Economic Co-operation and Development's campaign against low-tax jurisdictions. The OECD accepted (in theory) the benefits of tax competition in keeping taxes low and governments efficient, but sought to emasculate it by preventing "harmful" tax competition (which seemed to be defined as any tax competition that might actually be effective), forcing non-members to change their tax systems by imposing sanctions on non-compliant countries."

Teather argues that sweeping reform to reduce the burden of government is the only way to save Europe from economic ruin and that true tax competition is the only thing that can bring about those reforms.

"Tax competition does not prevent citizens, through electing their governments, from setting whatever tax systems they prefer. However it does mean that countries will face the consequences of their choices, and it gives an exit mechanism for minorities to protect themselves from victimization. It also helps to counter the democratic deficit caused by the political class offering a very limited choice of policies that does not reflect the range of the electorate.....

Tax competition is still thriving as investors, and increasingly workers, vote with their feet and move in response to high taxes. If Europe's economy is not going to suffer even more damage, its governments will have to stop their failed attempts to impose a tax cartel and recognize the realities of a global economy. This means lower, simpler taxes, which in turn means that restricted State spending will have to be more responsive to the wishes of their electorates, and tax competition is the force that has the best chance of bringing this about."

As a Brit who chose to move to North America rather than settle in the EU, I am a living breathing example of a worker who voted with his feet!