The Vanuatu Finance CentreFuture of OFC Consultation, RBV 6 June 2008By George Andrews, Commissioner, Vanuatu Financial Services Commission

Overview

• The Finance Centre Today• Our Strengths• Our Weaknesses• Our Competitors• A Way Forward• Examples of Cooperation

VFSC/FCA/VG

The Finance Centre Today

• 7 International Banks• 10 Insurance – International &

Captives• 4 Insurance – Captive Managers• 1 Mutual Fund• 24 Company and Trust Services

Providers• 2,700 International Companies• 85 Exempted Companies

Employment in Finance Centre

Total Offshore (estimate)

Banks 324 108

Trust & Insurance 123 62

Accounting 90 18

Legal 37 8

Source of (total) data: Reserve Bank of Vanuatu Quarterly review June 2007, Table 28. Estimates of offshore activity by VFSC

Contribution to Government Revenue

Total Offshore (estimate)

Admin fees and charges 634.8m Vatu

64.5m Vatu

Total Revenue 10,008.6m Vatu 193.5m VatuSource: Reserve Bank Quarterly review June 2007 Table 19Estimate VFSC

Selected Offshore Centres

Source: Latest IMF report(Vanuatu: Quarterly Review)

Selected Offshore Centres

Source: Latest IMF report(Vanuatu, VFSC)

Selected Offshore Centres

Our Strengths• Skills to add value through services– IMF Report on BVI

“This has led to ... an even greater interest in moving beyond what has largely been the “commodity” production of registering companies, toward the provision of more sophisticated (and higher value added) financial services. However, this effort has been hampered by a number of causes, the most important being a lack of sophisticated international banking services and of qualified personnel.” (IMF Report Vol 1 Paragraph 10)

• Products – the international company• Stable Political Environment• Independent Judiciary• Stable and Growing Economy• Time Zone

Our Weaknesses in the Past• No appeal to the Privy Council• Remote location (now becoming an advantage)• Focus on Australian market• Limited numbers of skilled staff (now improving)• Weak trustee legislation (now being addressed)• Insufficient regulation and AML (again being

addressed)• Reputation – Secrecy, Bearer Shares, Limited Co-

operation powers

US State Department Report

“Vanuatu has historically maintained strict banking secrecy provisions that have the effect of preventing law enforcement agencies from identifying the beneficial owners of offshore entities registered in the sector. Due to allegations of money laundering, and in response to pressure from the Financial Action Task Force (FATF), a few United States-based banks announced in December 1999 that they would no longer process U.S. dollar transactions to or from Vanuatu”“The secrecy provisions [in the International Companies Act], along with the ease and low cost of incorporation, made IBCs ideal mechanisms for money laundering and other financial crimes.”

Extracts from Vanuatu Report US State Department International Narcotics Control Strategy report 2008

Secrecy in Vanuatu

ICA Section 125125. Secrecy(1)Any person who, except when required by a court of competent

jurisdiction, with respect to any company otherwise than for the purposes of the administration of this Act or for the carrying on of the business of the company in Vanuatu or elsewhere, divulges, attempts, offers or threatens to divulge or induces or attempts to induce other persons to divulge any information concerning or respecting: 

(a) the shareholding in, or beneficial ownership of any share or shares in a company; 

(b) the management of such company; or (c) any of the business, financial or other affairs or

transactions of the company; shall be guilty of an offence

Secrecy in Vanuatu

CAP 191 Section 381

381 (1) – (6) Exempted Companies - Preservation of Secrecy

Advertising secrecy

“The Financial Centre Association encompasses the extensive business and financial facilities available in Vanuatu resulting from its "pure" tax free status; pure, because for both residents and non-residents there are no personal or corporate income taxes, no estate or gift duties, no capital gains taxes, no exchange controls, and extensive secrecy provisions.

Extract from local web site

How Trusts are Promoted“A Trust is a way of controlling assets

without legally owning them.”“A trust is a well established concept in

common law originating in England during the Middle Ages and is a way of indirectly controlling assets without legally owning them

Extracts from two local web sites

An invitation to form a trust

“Name of Settlor (leave blank if you would like to follow our normal practice and have a nominee settlor whose name will be on the registered trust deed).”

(Extract from trust account opening form on a local web site)

Misrepresenting trusts

“Advantages of a TrustAbsolute secrecy.  The identity of the settlor is confidential. The ownership is vested upon the settlor* who acts as the legal owner (the trust is administered by the settlor* under the instructions of the settlor).” 

*The second and third references to settlor are in fact errors and should refer to the trustee.

Extract from a local web site

Crown Dependencies• No secrecy legislation, • Customer’s affairs confidential unless

disclosure is:Agreed by the customer:Required by law;In the public interestIn the bank’s interest.

• No bearer shares

British Virgin Islands

• Business Companies Act 2004– No secrecy provisions– Bearer shares immobilised

• Financial Services Commission Act– FSC can disclose confidential information at the

request of a high ranking official of a foreign authority for the investigation of criminal activity

Tax Information Exchange Agreements

The following countries have now signed tax information agreements with the USA:

BermudaThe BahamasThe Cayman IslandsJerseyGuernsey

The Isle of ManArubaAntiguaBritish Virgin IslandsNetherlands Antilles

The USA

Senate Bill Proposes Tougher Company Disclosure Laws Tax-News.com, New York May 27 2008

“Senators Carl Levin (D-Mich.), Norm Coleman (R-Minn.), and Barack Obama (D-Ill.), Chairman, Ranking Minority Member, and Member of the US Senate Permanent Subcommittee on Investigations respectively, have introduced new legislation which aims to help law enforcement stop the misuse of US corporations. The Incorporation Transparency and Law Enforcement Assistance Act would require the States to obtain beneficial ownership information for the corporations formed under their laws, and to provide access to this information to law enforcement upon receipt of a subpoena or summons.”

Financial Times

21 February 2008

The Way Ahead

Regulatory Reform Under Way

• International Banking Act• Financial Transactions Reporting Acts• Insurance Acts• Corporate and Trust Service Providers Bill• Trustee Bill in draft• International Companies Act Amendment –

Voluntary immobilisation of bearer shares

Piercing the Secrecy Veil

The Financial Transactions Reporting Act 2000

5. (1) If: ...(b) the financial institution has reasonable grounds to suspect

that the transaction or proposed transaction is or may be relevant to:(i) the investigation or prosecution of any person for a

moneylaundering offence; or(ii) the enforcement of the Serious Offences (Confiscation

ofProceeds) Act No. 50 of 1989;

the financial institution must prepare a report of the transaction or proposed transaction and give the report to the Financial Intelligence Unit as soon as possible, but no later than 2 working days after forming the suspicion.

FIU Access to Information

FTRA Section 5 (continued)

(4) A financial institution that has given a suspicious transaction report to the Unit must give the Unit any further information that it has about the transaction or proposed transaction if requested to do so by the Unit.

VFSC Access to InformationThe CTSP Bill Section 4.6(1) The Commission may, by notice in writing given to a

licensee, require the licensee:(a)to provide to it, at the time and place set out in the notice, the

information and documents specified in the notice; and(b) to answer questions that the Commission reasonably requires

the person to answer.

 (2) Subsection (1) only applies to information,

documents or questions relating to:the licensee’s regulated activities; orthe licensee’s integrity, competence, financial standing or organization; or

the licensee’s compliance with this Act or the Regulations, or with a

licence condition imposed on the licensee’s licence.

Amend the ICA

• Remove Section 125 on secrecy• Public disclosure of directors and shareholders

– On appointment– Annual return

• Compulsory immobilisation of bearer shares• Directors’ duties

– Avoidance of conflicts of interest– Ensure company acting within the law, wherever it is

operating

• Remove insolvency provisions• A single Act for domestic and international

companies?

Enhance Access to Information

• Any supervisory authority should have access to all confidential information of regulated businesses, including their clients, where this is necessary for regulatory purposes;

• Any law enforcement (including fiscal) authority should have access to the affairs of financial institutions and their customers where there are reasonable grounds (not proof to a criminal standard) for suspecting that an offence or other wrongdoing may have been committed;

Disclosure Restriction

• Any law enforcement or regulatory authority should be prohibited by law from disclosing confidential data, unless they are disclosing it to another domestic or foreign authority that requires it to fulfil their duty.

International Co-operation

• Regulatory, law enforcement and prosecution authorities should be able to accede to requests for confidential information from foreign counterparts.

• When considering requests for confidential information concerning customers of financial institutions, which are received from foreign law enforcement authorities, the Vanuatu authorities are entitled to insist that the authorities demonstrate reasonable grounds (but, again, not proof to a criminal standard) for believing that an offence or some other form of civil or criminal wrong-doing has taken place in their jurisdiction and that the information requested is relevant to the investigation.

New Marketing Campaign

• New markets in South East Asia• Open and transparent approach• Working with, not against the authorities• Enhance our offering:– Business advice;– Wealth and tax planning– Investment advice– Security, stability and value added

Exploit The Time Zone Advantage

Target Asia Pacific Wealth • 2.4 million Asia-Pacific HNWIs hold more than US$1 million

in financial assets — an increase of 7.3% over 2004 and greater than the global 6.5% increase in 2005

• ■ Asia-Pacific HNWI wealth totals US$7.6 trillion, with China and Japan accounting for more than 65% of regional HNWI wealth

• ■ Asia-Pacific contains 27.1% of the global HNWI population and 22.9% of global HNWI wealth

• ■ South Korea and India, the two fastest growing markets in the region and in the world, saw their HNWI populations surge 21.3% and 19.3%, respectively

• ■ Merrill Lynch forecast HNWI financial wealth in the region to reach US$10.6 trillion by 2010, growing at an annual rate of 6.7% and outpacing the global rate of 6.0%

Other OFCs Move East

“GUERNSEY Finance has appointed a Chinese national to be their official representative based in Shanghai.Jersey Finance say they have been considering a similar move and will be including it in their business plan for next year, although it may be too early to establish a permanent base as yet.”(Source: Jersey Evening Post Nov 16 2007

Conclusion

• Present business model is not working• Business is small and reputation is hurting all of

Vanuatu• Key handicap is secrecy dependent approach• Prospect is strangulation or decline unless we find

a new way forward.• That way forward is:

– Openness and transparency– New markets– Joint campaign to enhance reputation and develop

business

Examples of Cooperation

• VFSC/FCA Quarterly Meetings• Legislative Working Groups• Apostilles• Captive Insurance

What is an Apostille?

• An apostille (French word meaning notation) is a standard certification provided under The Hague Conference on Private International Law: 1961 Convention Abolishing the Requirement of Legislation for Foreign Public Documents for the purpose of authenticating documents for use in foreign countries.

What is an Apostille? (cont’d)

An apostille is a form of authentication accepted in countries which have signed the 1961 Hague Convention. This Convention abolished the requirement of diplomatic and consular legalization for public documents originating in one Convention country and intended for use in another. An apostille is often needed in adoptions, extraditions, and certain business transactions.

Captive Insurance

The VFSC/CIAV multi-discipline captive insurance marketing program.

(a) Identification of potential markets and insurance niche areas;

(b) Setting of realistic targets for new captives in Vanuatu;

(c) Establishment of the Vanuatu Captive Insurance Association;

(d) Establishment of a captive website www.insurance.vu that is integrated with www.vfsc.vu;

Captive Insurance (cont’d)

(e) Production of a comprehensive new booklet “ADVANTAGE VANUATU Captive

Insurance and other Financial Services”, a veritable “How to” guide for the potential international investor;

(f) Creation of a display stand for conferences and trade exhibitions;

(g) Attendance at selected conferences in the Asia Pacific region;

(h) Publication of captive insurance articles and general finance centre editorials.

END

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