Confidence, not confidentiality, is the key to a healthy future for IFCs

Whether or not it could fairly be said anymore that a career offshore, rather than simply a career-building stint offshore, is to take the road “less traveled” is an interesting issue. But that is very much secondary to whether doing either amounts to career suicide in these days of increased, and increasing, economic, political and social turbulence. Not in the least, I say, and in fact entirely the opposite, as explained below.

That my view is non-partisan in terms of favoring a specific jurisdiction simply reflects the extent to which I have been – and am still – fortunate to work across multiple international financial center (IFC) jurisdictions. It also explains why I do not discuss specific statutory initiatives around implementation of transparency and information exchange. We all know they exist and are only to grow.

Harsh reality: IFCs on the back foot

The “new normal” of transparency and international cooperation continue to change the face of, and challenge traditional economic drivers for, IFCs. Those jurisdictions risk losing out as they expend precious energy – private and governmental – on defensive strategies in doomed “David and Goliath” fights with onshore governments and the organizations they fund, such as the OECD and FATF.

Much ink has been spilt on the so-called Panama Papers debacle (really, truly, the Mossack Fonseca Papers, if anything at all) and their fallout. If the onshore world was suspicious of IFCs before – we all know they were – then this data theft was the perfect storm of information around high-profile onshore customers and salacious details of pseudonyms being used for scheduled meetings. Just read the self-congratulatory language on the OCED website about its part in the groundswell of populist feeling against IFCs.

Data breaches are just plain bad for business – the examples are legion and include Target in 2013 and Ashley Madison in 2015. Post-hack, the latter perhaps unsurprisingly changed its strapline from “life is short, have an affair” to “find your moment.” Oddly, it did not add, in parenthesis, “and just hope that details of that moment are not hacked and sent to your spouse /significant other.”

Perversely, though, as confidentiality erodes within the IFC world, the overwhelming pressure to maintain it actually decreases. Put another way, if you are no longer selling confidentiality as your lead brand, you can therefore afford to worry somewhat less about confidentiality being compromised. Hold-out jurisdictions with inflexible confidentiality regimes have a broken business model and should rethink quickly before such a system gets the type of damaging publicity that the onshore world would love to give it.

There is no denying the existence of major challenges: there is plenty of empirical evidence that incorporations are down in the IFC best known for that market, and elsewhere new hedge fund business is losing ground to U.S. fund formation.

Positive futures for IFCs

Enough, already, as I said before the attendees of the Caribbean STEP Conference in May in Cayman where I pointed out that an industry survey put 77 percent of those polled expecting a functioning network of tax information exchange agreements by 2020.

Far from ignoring the challenges IFCs and those who work in them face, I am simply urging others proactively to chase opportunities. The world owes none of us a living. There is a tremendous pool of professional talent ready to service the many aspects of this increasingly turbulent, uncertain (and taxed) world and for which IFCs and those who work in them are ideally situated. Whether on the wealth management and fiduciary management side, or M&A closings on deals of eye-popping value involving smaller amounts of red tape, IFCs have plenty to be upbeat about.

As a disputes lawyer, I am well aware that successful businessmen and women from Russia, other parts of Eastern Europe and elsewhere often fill the lists in the Commercial Courts of the “Big 3” jurisdictions in the region. The major threat there is the high standard (and it is getting higher all the time) of one’s opposition. Is that really something to be downbeat about? Hardly. Instead, it simply reinforces the marketing message that there is a robust infrastructure around dispute resolution.

The arbitrage in skills outside of the main IFCs is reducing but the simple fact is that not all IFC jurisdiction can realistically expect to become an international arbitration center. Those jurisdictions with proportionately more tourism-related construction and development have realized the need for modern and cooperative insolvency regimes and are doing something about it as harsh lessons have been learned. Inability, under local law, to recognize a U.S. Chapter 11 filing aimed at debtor-in-possession refinancing may be a short-term vote winner, but has had immediate adverse effect in terms of credit agency sovereign debt ratings and likely contributed towards the high cost paid by the same political leader in the medium term.

Who better than those with experience of both “worlds” to take wholesome advantage of the increasing overlap between the IFCs and onshore as international business see more blurring of those lines. To an increasing extent, offshore litigation can be around issues such as an IFC response to an onshore requesting authority for offshore tax information. Would that work area have developed absent the increasing onshore pressure for transparency? Clearly (no pun intended) not.

The point is a simple one: the myriad issues and problems for clients, as thrown up by the ever-changing global economy, are as much of an opportunity as a threat for supporting professionals so long as we are ready to grapple with the unknown.

A siege mentality does none of us any good, whilst also squandering opportunity. Globally, change is the new constant and it is no different onshore. For the last more than seven years, I have worked within a predominantly U.S. organization with an office presence on both coasts of the U.S., as well as in other major onshore financial centers. We are also in two of the “Big 3” (the third being one in which I lived and worked for several years). Major U.S. government initiatives such as those in respect of the Swiss banks and voluntary disclosure of non-compliant account holders placed a spotlight on the need to explain in the onshore context the legitimate business model of IFCs at the same time as turning the world upside down for countless onshore providers.

In that scenario, my organization was ideally placed to help. Obviously, I am not suggesting that every firm is capable of, or even aspires to, a cross-border litigating offering. Also, and tempting as it is, schadenfreude should come second to commercial opportunity being pursued: across all disciplines the professionals spread across the IFCs either have already, or at least should aim to acquire, the type of pan-jurisdictional skillsets and knowledge to leave them well placed to assist clients and potential future clients in scenarios impacting or impacted by onshore issues.

Need for a nurturing domestic IFC environment

Expat 101: the golden rule of harmonious non-Islander existence, or a least one of them, is to stay off the topic of politics. In many, if not all, of these jurisdictions the imbalance of overall population and electorate continues to grow.

The vast majority of expatriates and expatriate-owned businesses are sensitive to that and understand the need to earn the trust of local government. But that social contract has a counterparty. All of the population deserve the opportunity (not the right) to feel valued. For those jurisdictions looking to put behind them public corruption trials for members of former governments, the watchword is transparency. Get that right and in every good sense of the word, the IFCs will continue to be a “target” for the well-trained professional. The IFCs only stand to benefit from continuing to provide a warm welcome.