The Irish Minister for Enterprise, Trade and Employment (Micheál Martin TD) has announced that Citco, a leading provider of hedge fund administration services, is to open a second hedge fund administration centre in Cork, Ireland and is to expand its existing data processing operation in Cork, with the support of IDA Ireland.  The two initiatives will reportedly create a total of over 250 new jobs and will offer new careers in hedge fund, custody and support activities.

Citco currently employs 600 people in Ireland and has been servicing clients for over six years from three separate operations at its offices in Dublin’s International Financial Services Centre (IFSC) and at the Cork Airport Business Park.  The two new functions will be located in a new fully operational office at Tellengana House, Blackrock, Cork, and are being implemented to meet the continued growth in demand for Citco’s fund administration and custody services.

Citco Fund Services has over 35 years experience in hedge fund administration and services more than 2,000 funds representing net assets exceeding $300 billion. According to HFN proprietary research, Citco has approximately 27% of the offshore hedge fund administration business worldwide.

The deadline for hedge fund managers to register with the SEC is tomorrow, 1st February. In reality you had to have your application in by 11 December 2005 to be sure you would be registered by the deadline! The FT reports that by the end of 30 January, 714 hedge fund managers based in the US and overseas had registered.

The SEC's new registration rule for hedge fund managers was drawn up in 2004 to counter fraud in the industry and to enable the regulator to get a better understanding of hedge fund activities.

Greenwich Associates, a consulting firm, reports that some managers think their costs will increase in 2006 because "there is a large camp of hedge fund managers and other industry observers who believe that registration is merely the first step in what the SEC envisions as a broader regulatory framework for hedge funds."

The Greenwich survey reports that 49 per cent of hedge fund managers think that their compliance costs will rise in 2006, partly because of concerns that the Securities and Exchange Commission’s registration rule will be followed by further supervisory measures.

The rule does not require managers to register if their clients are barred from withdrawing their investments for more than two years and many funds have simply introduced extended "lock-up" periods to avoid the registration requirement.

Bloomberg reports that American International Group Inc. (AIG), the world’s largest insurer, escalated its battle with ousted Chairman Maurice (Hank) Greenberg, accusing one of his private firms of using secret agreements to hijack AIG's business. Starr Technical Risks Agency, a unit of Greenberg’s C.V. Starr & Co. that has sold insurance in AIG’s name since 1992, entered into unauthorised reinsurance arrangements with Warren Buffett’s Berkshire Hathaway Inc., AIG said in a motion filed on Friday in New York State Supreme Court. The arrangements siphon premiums from AIG and hurt the company’s credibility with the reinsurers it has approved, the motion said.

Reinsurers share the premiums and claims of insurers, and the secret arrangement with Berkshire diverts premiums away from AIG’s reinsurers, the petition said. AIG said Starr Tech has also plotted to take direct business away from AIG by selling policies that Berkshire’s National Indemnity Co. unit "will share on the front end". The company asked a judge to stop Starr Tech’s business with Berkshire pending arbitration.

Update: AIG won court permission to temporarily block C.V Starr & Co. from luring insurance clients from AIG.Greenberg’s firm, C.V. Starr & Co., also claimed victory after New York State Supreme Court Justice Herman Cahn extended a Sunday order preventing AIG from denying access to client documents and office space. Both sides are also barred from removing documents. Cahn’s rulings apply through Thursday, 2 February, when another hearing is scheduled in his Manhattan courtroom.

The BVI has announced that 57,000 new International Business Companies (IBCs) registered in the British Virgin Islands in 2005. That is more than in any other OFC and the third highest number of new incorporations in the BVI in the last 20 years.

In addition the new Companies Act 2006 is due to come into effect shortly.

Wayne Furbert has replaced Grant Gibbons as the leader of the UBP parliamentary group in mid-January. The UBP lost to the PLP in the 2003 national elections.

Hat tip to Susan Stirling for alerting me to this:

Minister of Finance the Hon. Paula A. Cox, JP, MP announced in December that the Ministry of Finance had successfully concluded discussions with Swiss tax authorities concerning the application of Swiss home country rules for purposes of the EU Savings Directive (EUSD) on Bermuda domiciled non-retail funds.

During the course of the discussions the Swiss tax authorities confirmed to the Ministry of Finance that funds exempted from Bermuda’s Collective Investment Scheme Regulations 1998 would be out of scope for purposes of the EUSD in Switzerland.

Consequently, the CIS Regulations have been modified to clarify that non-retail funds offered exclusively to sophisticated investors could seek exemption from classification. Such funds would be registered by the Bermuda Monetary Authority and would have to meet minimum criteria including appointing an auditor, appointing a recognised fund administrator and retaining a local representative in Bermuda.

This puts Bermuda on a par with other OFCs and should stem the previous outflow of funds moving from Bermuda to Cayman to avoid the EUSD.

The Federal Election currently under way in Canada has suddenly turned interesting, with the Conservative Party now polling at least 10 points ahead of the incumbent Liberal Party.  The Conservatives are widely credited with running a superior campaign while the Liberals are mirred in various ethics scandals and are running negative attacks ads that are either misleading or pedal outright lies.

However, the Conservatives keep repeating one issue on which they are wrongheaded and inadvertantly arguing against their own prinicples. They repeatedly criticize Prime Minister Paul Martin for legitimately using offshore centres, claiming that he cannot love Canada and avoid paying Canadian taxes.

Paul Martin bought Canada Steamship Lines Inc. (CSL) in 1981 and is credited with transforming it from a purely domestic company, plying the Great Lakes, into a multinational shipping powerhouse with assets of nearly CDN$700 million. The CSL ships that ply the St Lawrence Seaway are registered in Canada but CSL International Inc. is registered in Barbados (having moved there from Liberia to benefit from a tax treaty between Canada and Barbados) and its international ships are registered in the Bahamas (and other offshore centres) - all of which is standard operating procedure for internationally competive shipping companies.

Today, one Conservative attack ad states about Martin..."He says he loves Canada, But he reflagged his ships to avoid paying Canadian taxes..." And in the recent TV debates, the leader of the Conservative Party repeatedly questioned Martin's patriotism because his company uses offshore centres.

These smears on Martin are no different from the frequent attempts to smear offshore financial centres in general - usually coming from the left wing, socialist, high tax parties rather than a supposedly right wing party - but they are all based on an insidious blurring of the massive distinction between "tax evasion" - which is a crime - and "tax avoidance", which is totally legitimate and every tax payers right.

"Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one’s taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands."
Judge Learned Hand in Helvering v. Gregory.

The structures used by CSL are perfectly legal and, repeating what Judge Learned Hand said, it is NOT unpatriotic for a company or individual to lower the tax they are required to pay within the bounds of the law.

The Canadian Conservatives' attacks on Martin's legitimate business operations run counter to their stated believe in the freedom of the individual and the specific policies they espouse, as follows:

"Let's Cut Taxes:....A new government must create more opportunity for individuals, families, and small businesses to get ahead.  Under the Liberals, high taxes and red tape have held back growth and prosperity.  A new government must reduce taxes on middle-class families starting with the GST, lower taxes on small business, and help our farmers and resource industries to compete in the world." (www.conservatives.ca)

Let me point out just three ways in which this criticism of Martin runs counter to conservative values:

1. If you believe in the freedom of the individual then you must surely accept that each individual is free, within the constraints of the law, to arrange his/her affairs so that his/her taxes are as low as possible;
2. If you believe that Canada's existing high taxes "have held back growth and prosperity" how can you criticise a company for seeking to avoid paying those ruinously high rates? Indeed, Canada's top corporate tax rate is about the 5th highest in the OECD and nearly 50% higher than the average coporate tax rate in the OECD today!
3. If you believe that the government in Canada should help Canadian companies to compete in the world, how can you criticise CSL for adopting the same tax efficient structure that all its international competitors have adopted?  Asking Martin to pay Canada's ruinously high tax rates and still compete effectively against other global shipping companies is like asking him to fight Mike Tyson with both hands tied behind his back!

To conclude my rant - there is nothing sinister about CSL's tax minimisation arrangements and the technical term for such a strategy is "tax avoidance". Tax avoidance is legal and smart. By assisting international companies to minimise their global effective tax rates offshore financial centres benefit each and every employee of those companies, and each and every shareholder of those companies. Of course CSL is privately owned (100% by Martin's family) - but Canadian public companies are owned by individuals (either directly or through mutual funds or pension plans) and those individuals vote, and each and every one of them benefits from the legitimate tax minimisation strategies adopted by the international companies they are invested in. Are the Canadian Conservatives saying that every Canadian company is wrong if it seeks to, legitimately, minimise the tax it has to pay in Canada? Is a Canadian individual being unpatriotic if they accept a legal deduction against their taxable income (e.g. for a charitable donation made), rather than paying the largest amount of tax that they could possibly have paid?

I'll let Judge Learned Hand have the last word, "...nobody owes any public duty to pay more than the law demands."

As of the 16 January Maples and Calder will merge with Dublin based corporate finance law firm Binchys.

The merger will add Irish law to Maples and Calder's capability to advise institutional clients on Cayman Islands, BVI and Jersey law from offices in London, Hong Kong, the British Virgin Islands, Dubai, the Cayman Islands, Jersey and now Dublin. This will bring the firm which will open in Dublin with at least 6 partners to a total headcount of over 140 lawyers worldwide.

Maples and Calder partner Julian Reddyhough will move to Dublin to manage the new firm together with Binchys’ senior partner Jennifer Caldwell.

The move comes as Maples and Calder continues to expand. The firm's London and Hong Kong offices have doubled in size in the last two years whilst in September 2005 the firm opened a fully staffed transactional and execution office in Dubai. The firm's corporate and fiduciary services division, Maples Finance, will also be establishing a presence in Dublin.

Over 130 representatives of 55 governments, the Commonwealth Secretariat and the European Commission met on 15-16 November 2005 in Melbourne, Australia to review progress towards the OECD’s stated objective of transparency and effective exchange of information for tax purposes (the so called “level playing field based on high standards”). And what an extraordinary gathering it was, with tiny islands like Vanuatu and Niue sitting down at the same table as the US, the EU member states, and Canada!

The two day discussions, which were based upon the review of the legal and administrative frameworks on transparency and exchange of information in tax matters currently in place in over 80 countries, showed that a global level playing field in the areas of transparency and effective exchange of information in tax matters is gradually developing. However, the Forum’s discussions identified a number of areas where further progress needs to be made. The Forum’s review will be published as a formal report in 2006.

For a fuller article on the Forum and its outcome click here