The International Financial Centres Forum, formed in 2009, was established by the major offshore law firms in the British offshore centres with the objective of providing balanced information about the role of international financial centres in the global economy. Cayman Financial Review spoke with Richard Hay of Stikeman Elliott, counsel to IFC Forum, about the work of the Forum in taking its points of view to policy makers.
CFR: Why the need for the IFC Forum?
Finance is a lucrative and strategically crucial business. The large countries are examining financial services regulation in response to the recent crisis. Small financial centres are largely unrepresented in these debates. We try to ensure the private sector perspective from these jurisdictions is articulated.
The April 2009 G20 meeting in London was a disconcerting experience for small IFCs, with the UK and France threatening to disrupt their access to the world financial system. Leading regulatory standards are no longer enough. Small IFCs need to win hearts and minds of G20 policymakers.
A collective effort across the IFC jurisdictions is required to show the crucial part small IFCs play in supporting global economic growth. The private sector – particularly law firms with offices across small IFCs – are the logical nucleus for the group taking on the task.
CFR: As an organisation of private sector firms, how does the IFC Forum work?
The inspiration for the IFC Forum was [Walkers Global Chairman] Grant Stein. Grant perceived the need after the April 2009 G20 meeting, for the private sector to get together.
The IFC Forum was formed with the senior partners of Appleby, Conyers Dill & Pearman, Mourant Ozannes, Ogier and Walkers. We now have 11 members, also including Attride-Stirling & Woloniecki, Bedell Group, Lombard Odier Darier Hentsch, Maples & Calder, Old Mutual and Rawlinson & Hunter.
The Forum has retained two firms to support its activity: Cicero Consulting as public affairs advisers and the London office of Canadian law firm Stikeman Elliott as legal counsel.
CFR: As legal counsel are you the spokesperson for the IFC Forum?
No, although I do speak regularly to put across IFC Forum views. All of the principals are good speakers in their own right and they understand the issues. Our job also includes liaison with policymakers in G20 governments to ensure that they are aware of the important contribution of international financial centres to the promotion of trade, jobs and economic growth in those countries.
The members of the Forum (principals) have busy day jobs. The purpose of IFC Forum is to act as a pooled resource to monitor national and multilateral initiatives as they arise and progress. We are also highly proactive in advancing our own agenda.
Our structure is not particularly formal. We have an objective, which is to make sure that the interest of the small financial centres is understood in the global conversation about redrawing the rules for financial services. We decided at an early stage to concentrate our limited resources in private dialogues with the key policy makers. Despite daily temptations we try to avoid stepping into the media fray.
CFR: How difficult is it to establish contact with government officials on offshore issues?
I was astonished to find that hardly anyone in the private sector goes to the big governments and talks to them about these things. We fit in with the process of the governments and more particularly that of their multilateral agencies. We review the constitution and governing process for the organisation and we consider what they articulate as their goals and objectives.
Typically, they have a mandate to consult. We remind them of their remit and say that we would like to comment.
We also talk to government embassies in London. That has worked well, because it means you don’t have to travel around the world to eg, São Paulo, Moscow, Russia or Beijing. No diplomat gets to London without being reasonably well connected at the top back home so London is a good access point.
I think we get more direct access in London than one would if one were trying to trawl through the government’s domestic bureaucracy on their home ground. We follow up with written material and briefings which are passed on to the key person in the government’s home country.
CFR: How open are policy makers to your points of view?
Invariably they start with some scepticism; they see us as private sector representatives from “tax havens”. But we do a lot of home work before we go and see them. We know what their balance of payments is with the various financial centres they are dealing with. We review their domestic media. We familiarise ourselves with their tax treatment of IFCs and their regulatory environment. When we meet we have a good feel for their interface with the offshore world.
We want policymakers to understand how and why IFCs matter given their overall and long-term macro-economic priorities.
I am not saying the governments have an epiphany and all of a sudden say ‘wow we have turned around on this issue’. But, bit by bit, IFC Forum’s efforts are having an effect.
The other point is we don’t really need the G20 to do anything. It is instead important that they do not to do certain things that would restrict our current access to the world financial system. As G20 is a consensus-based organisation we don’t have to persuade the whole group; we just have to show a few key members that matters are not as simple as they may have assumed.
The governments are interested, once they realise that we are serious, because they don’t get much exposure to the pro-IFC private sector perspective from others. Our task is not easy, but it is a lot more manageable and achievable than one might think.
BRIC countries are, and should be sceptical about whether the larger industrialised countries are looking out for the best interests of the emerging states. The BRICs stand to benefit from a multi-polar world for financial services. They are coming back saying: ‘Could you elaborate a bit more on this point? Our policy makers are interested.’
CFR: You mentioned that the IFC Forum is solely a private sector collaboration. Should it not be governments joining forces rather than the private sector?
The truth of it is the governments of the small IFCs have stretched resources yet they are in the front line all the time. They need help from the private sector to understand our needs. We assist with that.
Governments are necessarily focussed on local needs. This makes it challenging for them to see how they can benefit from collaboration with other jurisdictions.
In the negotiation between the Crown Dependencies and Europe over CD tax systems we provided input for IFC governments in thinking through the implications of various options for changing their tax systems. Governments value this input.
If you are a law firm like Appleby with offices across the offshore world, your Bermuda office cares if Cayman sinks. The great thing about the private sector on this effort is that they join hands across jurisdictions in a way that government struggles to do.
CFR: Offshore financial centres are also the target of some non-governmental organisations. Are you trying to get your message across with NGOs too?
That is a tough task. NGOs make a lot of noise in the press. They have traction with the politicians but generally less influence with the policy makers.
We are engaged with them, because one of the problems is this culture of meeting in hermetically sealed forums, where everybody has aligned views. Private sector talks to private sector at, eg a STEP conference, while NGO’s similarly meet in fora which do not generally invite contrary views from private sector.
We lob bombs across the fence between the two forums. We publish a report that says they do not understand; they publish a report saying we promote immoral behaviour. That does not really advance the argument at all. What is the point in speaking, on either side of the debate, to a room full of people who all agree with you?
We expend our energy on the more moderate NGOs. If we can show that their comments are wrong or unfair they feel uncomfortable about that.
Sometimes they rethink things, and sometimes they make us rethink. For example, an NGO suggested that IFCs should calibrate their transparency to reflect their tax rate. They say to us ‘If you have a zero tax rate you are more likely to attract tax evaders than if you have a 30 per cent rate. So if you have a zero per cent tax rate, you have a higher obligation to exchange information to protect other countries’ tax systems.’ I never thought about that, but I can see why they would say it.
Another example is corruption in Africa. They think we benefit from hiding funds for kleptocrats, so we promote corruption. But we have Old Mutual, a major Africa-based financial organisation, in our grouping. We say “how do you think their operations are impacted by corruption in possible investment countries? They don’t want corruption. So we have a common goal here to diminish corruption in Africa. So let us talk about how, given that goal, we can work together to achieve it”.
CFR: As you represent small players, do you have to align yourself with the interests of bigger states, as in this case China perhaps?
We can either change the world or accept what we find. We are not going to change the world. Small IFCs make their living from integrating. We need a harmonious relationship with the economies we navigate through in order to make our livelihood.
This means that the only sensible course is to accept the world as G20 sees it and then try and show them why, within their frame of reference, we are useful to them.
Globalisation, supported by financial intermediation, has doubled global GDP in a generation. Finance can be conducted in big countries or small countries but it is not necessarily better for BRICs to have their financial intermediation activities restricted to London or New York. They might prefer a wider and more competitive environment for financial services.
CFR: What is your take on France’s leadership of the G20 and the attitude of the G20 towards international financial centres?
France is reflexively hostile to competition which puts pressure on the French social welfare model. Small jurisdictions which promote tax competition and facilitate capital flows into states with faster growing economies are naturally problematic within this frame of reference. France is constrained by the fact that there is not a big appetite within the G20 for another crowd pleasing challenge to IFCs.
As the global economy remains fragile and the eurozone public finances could lead to collapse of the Euro, France is under pressure from the G20 group to focus on economic growth, stabilisation of public finances and job creation.
At the moment I don’t expect IFCs to be a central agenda item at the G20 meeting in Cannes. However, a major incident linked to a small IFC in the run up to the G20 meeting in early November could propel IFCs back into the spotlight. It is good to be prepared.
Richard is head of the Private Capital Group in the London office of
Stikeman Elliott, Canadian and International lawyers. The Group advises
on international estate planning structures for high net worth families,
particularly those in Canada, Latin America and Europe. The Group also
advises on information exchange and financial regulation matters,
including the initiatives pursued by the OECD, the EU, the FATF and the
IMF. Richard is co-chairman of the STEP International Committee.