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Palladium Newsletter - January 2019
Sale of Palladium Group

I’m delighted to report that after ten years of development,  I have sold the trust and corporate service business of the Palladium Group to APQ Global Limited, a Guernsey-domiciled AIM listed investment fund.
This will help Palladium reach the next level in terms of client support, technical infrastructure and expansion, funding and global reach, in part via  APQ’s extremely strong professional and personal network. We look forward to growing the fiduciary and corporate services business to the next level with many of you in the coming years in what will always be a vital industry. We hope we will soon connect with many of you on that journey.

EU Anti Money Laundering Directive 5

Barely has the ink dried on the the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (AML Regulations) than the European Union has introduced its newest Directive on money laundering regulations, known as AMLD5.

The changes it seeks to introduce from its previous directive in 2015 is the recognition of modern technological advancements which are gaining ground as alternative financial systems and the requirement to register the beneficial ownership of trusts and similar legal arrangements, comparable with corporate entity beneficial ownership registers. The EU seeks to increase transparency of financial transactions undertaken by corporate and other  legal entities, trusts and other legal arrangements having a structure or functions similar to trusts. By recognising and implementing the measures laid down in the Directive, it is attempting to improve the existing preventive framework and to more effectively counter terrorist financing.

In its introduction, it cites recent terrorist attacks which brought to light emerging new trends, in particular regarding the way terrorist groups finance and conduct their operations, as a reason for these new regulations. Interestingly, it also goes on to state that It is important to note the measures taken should be proportionate to the risks.

The introduction of the regulations is timely and indeed required to enable the laws of nation states to deal with emerging trends in alternative financial systems such as the gains in popularity in the use of cryptocurrencies, and also to align transparency laws relating to trusts with those currently applicable to corporate entities and their beneficial ownership.

However, in this context it is also imperative to look at the practical applications and effects of these AML Regulations and the ultimate impact they have in the wider world in practice. 

To have an idea as to the manner in which the collective AML regulations impact businesses and their transactions on a day to day basis, one must look at the applications and effect of the current AML Regulations on small and medium sized businesses and start-up entrepreneurs in carrying on their trading activities, and even in the actual commencement of business or trading by such entities.

The principle scenario is the opening of a bank account that an entrepreneur or small sized business must do immediately after setting up business. 

In a cosmopolitan city with such diversity as in London, and indeed elsewhere in Western Europe, the very consequence of modernity and globalisation is that entrepreneurs and investors in small size businesses are not always citizens of that country. Taking London as a case in point, investors can be from varied backgrounds and countries wishing to invest in London due to the obvious attractions and benefits the city has on offer.
Admittedly, the UK also having the unfortunate reputation of being  rather a haven for the  “Black economy”,  it  is  up  to  the collective entities by whom the law is to be adhered to, implemented or enforced, to ensure that it is so implemented and enforced. But how many of those entities and their employees who are tasked with carrying out due diligence checks really understand, implement correctly and practically, these AML Regulations? Can it really be said that the practical application of these regulations is effectively carried out and are commensurate with the test of proportionality in relation to the risks, and more often than not, the lack of it? Apart from the Panama and Paradise papers has one ever heard of a situation where the “real” criminals and terrorists carrying out money laundering activities being arrested, tried and jailed for their atrocities? Yes, there have been revelations of criminal and money laundering activities by certain Russian individuals and mafia like bosses here in the UK, but for each one of the bigger sharks, how many more “ordinary” entrepreneurs and small sized business investors have been subjected to intense financial interrogation and scrutiny even in the very basic, and what used to be simple, process of opening a bank account in order to commence trading? It begs the question if such scrutiny is proportionate, fair and just.

The fundamental principal the judiciary and lawyers adhere to in a criminal trial, which is also guaranteed by the Universal Declaration of Human Rights, is the presumption of innocence until proven guilty. This is such a basic principal that it is fair to say it was borne of moral principals and are probably subconsciously applied by pretty much every human being in their day to day lives. But can this be said of the application of the AML Regulations as well? Is not the approach of the persons applying these laws actually based on the converse principal?  

 
Base Erosion Profit Shifting initiatives
You may have read about BEPS in the press. In essence the OECD and EU in particular are pushing for – or forcing – international financial centres into implementing legislation to ensure that businesses located there have economic  substance and clout there. Please see the link below for further details from  the  OECD’s ‘mouth’. The aim is to prevent rubber-stamping of management by offshore companies’ directors and is an initiative which is welcomed by professionals in the industry.
This should provide evidence to the outside world that IFCs are genuinely performing an integral role in international finance and thereby preserve IFCs' own existence which have been in doubt.

Moreover it will also help create and secure jobs lost in the  offshore industry  to the  attacks levied on IFCs. Ultimately this flight to quality is a win-win for everyone in civilised society and a few of the articles below echo that sentiment in various IFCs.


Wishing you all an enjoyable, healthy and successful 2019 and beyond,

Stephen

More articles:

All about BEPS:
http://www.oecd.org/ctp/beps/

BEPS response to the EU from the BVI:
http://bvifinance.vg/language/en-GB/News-Resources/ArticleID/3001/BVI-Government-Plans-Legislation-to-Address-EU-Concerns-on-Economic-Substance

Barbados’ answer to BEPS – slash national corporation tax to 0-5.5%!:
http://www.caribbean360.com/business/barbados-overhauls-corporate-tax-regime-slashes-tax-rate-on-local-companies-more-than-20-per-cent 

US digital tax vs OECD plans:
https://news.bloombergtax.com/transfer-pricing/oecd-looking-to-new-us-tax-law-for-digital-tax-solutions 

Isle of Man sees the positives in BEPS:
https://www.pwc.com/im/en/media-room/articles/BEPS-Offshore-Impact.html 

Cayman joins the bandwagon in implementing BEPS - expect a continual flight to quality:
https://www.caymancompass.com/2018/12/09/government-proposes-substance-tests-for-offshore-businesses/

The UAE also sees the positives in BEPS:
https://www.offshorenewsflash.com/2018/12/09/tax-reforms-will-improve-uaes-investment-status/ 

 

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