Offshore firms: in the zone
London is an increasingly important hub for offshore law firms, which are winning business from City-based financial institutions, and clients in Russia, western Europe and sub-Saharan Africa.
Offshore law firms are constantly evolving, it seems. Traditionally, they operated in one offshore territory: whether the British Crown dependencies of Jersey, Guernsey and the Isle of Man, or the overseas territories of the British Virgin Islands (BVI), Cayman Islands and Bermuda. But in the past decade they have been encroaching upon each other’s home turf, and expanding further afield to remote corners of the globe.
Take, for example, offshore firm Maples and Calder, which started in Cayman in the early 1960s and today has seven offices, including in Hong Kong, Singapore and Dubai. Or Mourant Ozannes, the product of a merger in 2010 between Jersey’s Mourant du Feu & Jeune and Guernsey’s Ozannes, and now with an expanding presence in Cayman and BVI. Appleby, another of offshore’s ‘magic circle’, that hails from Bermuda, today has 12 offices around the globe, including in Mauritius, the Seychelles and Shanghai.
Offshore firms’ quest to serve a global market closely mirrors that of their UK onshore counterparts, and today nearly all have rapidly expanding London offices. There are also new entrants in the UK capital. Forbes Hare set up a London branch at the end of 2012 and now has seven lawyers. The BVI firm was followed last year by Channel Islands’ Collas Crill and O’Neal Webster, also from the BVI.
So, what is the rationale for being in London? Maples and Calder has been in the capital for longer than many, since 1997, and now has a staff of 23 fee-earners, including eight partners. London managing partner Paul Govier says there are two principal reasons for being in the City: to achieve ‘time-zone and physical proximity’ to clients.
In common with other offshore firms, Maples and Calder does not advise on English law, but the London office is not ‘a rep office’. Govier explains: ‘We don’t think that you win clients with a slap-up dinner and a handshake. To be credible, when we are trying to sell Cayman and BVI law we need to be real partners doing a real job. This means this is a full-service office.’
This is the approach of other firms such as Walkers, which launched in London in 1999 and, like its offshore peers, focuses mainly on BVI and Cayman law to bridge the five- to six-hour time lag. London managing partner Jack Boldarin says: ‘The intention has always been to have a team here that can deal with anything the clients want done in their time zone.’ Like Maples, Walkers’ London teams practise in such areas as finance, funds, M&A, capital markets, private equity and trusts.
Mourant Ozannes’ London office was established by legacy firm Mourant du Feu & Jeune in 2000. Although it provides Channel Islands law advice, the focus is shifting to Cayman and BVI, owing to the ‘time zone imperative’ of supporting and building closer connections with clients. The firm is ‘actively seeking’ Cayman lawyers to add to its seven-lawyer team in the capital. ‘London is a critically important market for our firm globally,’ says London managing partner Robert Duggan. Each of the firm’s six offices, including Hong Kong, serves London clients and London-based intermediaries.
Forbes Hare launched in 2005 in the BVI (where it now ranks second by headcount after Harneys) as a niche litigation boutique. London is part of the firm’s strategy of bulking up into a full service practice. Partner Catherine Ross, who launched the City base in December 2012, says: ‘Part of the push for opening the London office was to grow the corporate practice.’
By this she means the whole gamut of non-contentious areas such as investment funds, finance, regulatory and private client. This approach is already paying off: ‘We have seen a big increase in instructions and that is all new business that we are winning out of the London market. We are building a really solid client base here.’
So what is driving growth among offshore firms in London?
Duggan explains that many of Mourant’s mandates are ‘intermediated by onshore law firms’ which the firm supports as an offshore specialist. ‘We see quite a lot of investors from eastern Europe, the Middle East, Asia and the US investing in Europe, where the deal is undertaken through London as the financial centre.’
The London office is also a conduit for work linked to infrastructure development and financing in Africa by global investors who prefer to ‘aggregate’ their investment in the traditional offshore domiciles rather than the Seychelles or Mauritius. ‘A lot of foreign direct investment in Africa is structured through the more sophisticated and established territories such as the BVI, Cayman and Channel Islands,’ he says.
‘London dominates the European financial market, and is very much our principal source of work geographically,’ says Maples and Calder’s Govier, referring to City-based financial institutions, including asset managers, hedge funds and private equity funds, which the firm serves from London. But the London BVI team also derives significant business from Moscow, while the trusts and private client practice is kept busy by Swiss as well as London-based clients. Continental Europe is also a fast-expanding source of work for Maples’ finance team in London.
‘We have grown substantially over the last couple of years and we continue to grow,’ Govier says of the London office.
Among the fast-expanding areas are structured finance, hedge funds and regulatory work. The latter is linked to the Alternative Investment Fund Managers Directive (AIFMD), and the US Foreign Account Tax Compliance Act (FATCA), which came into force in July to detect tax evasion by US citizens who use overseas accounts.
This new US legislation – and a similar UK regime – has generated business for Appleby too. London-based partner Deborah Poole says the funds team has been working with fund and asset management clients ‘to identify their registration and reporting obligations under US and UK FATCA’, to update their offering documents, and amend their service provider agreements to ensure that their FATCA obligations are compliant.
In London since 2001, Appleby employs seven fee-earners in the capital. Funds are an area where Appleby has made good progress in winning market share following two senior lateral hires, including Poole from Walkers. The London office in particular is seeing growth in mandates for European funds work, especially off the back of the AIFMD. The EU directive, which came into force in July 2013, requires all alternative funds marketed in Europe, including hedge funds, private equity and real estate funds, to meet stringent rules on disclosure and governance.
Poole points out that the London office offers advice and services on a range of multi-jurisdictional M&A and financing transactions coming out of the London market. The M&A work in particular is growing as the deal market recovers, she says, adding: ‘We are experiencing an uptick in our London office, based on previous years.’
Poole adds: ‘Increasingly, we are providing BVI, Bermuda and Cayman legal advice on the same deal, and when we work with our other European and Indian Ocean offices we can cover all of the laws we practise in the European time zone.’
As for Walkers, the firm’s London office has seen a significant lift in acquisition finance transactions, and in particular margin lending work (this includes financing backed by a portfolio of cash or shares). Boldarin says: ‘This is really where there are advantages in having a base in London. Our panel relationship with leading financial institutions has become very critical to our business.’
The revenue of the office in the UK capital has doubled in the past 12 months, according to Boldarin: ‘We are currently running at 11 lawyers, including five partners, and we are actively looking to recruit more.’
Like other firms Walkers is front-loading the office with very senior staff, marking the rising importance of London. In May, senior counsel, John O’Driscoll (previously in the Cayman Islands and BVI offices), moved to the firm’s London office to drive the ongoing expansion of Walkers’ global insolvency and corporate recovery practice.
This follows the relocation of finance partner David Collins from the firm’s Singapore office; the move of senior associate in finance Neil MacDonald from Jersey; and the promotion to partner of investment funds specialists Jasmine Amaria and Hughie Wong. Boldarin himself, a specialist in cross-border multi-jurisdictional financing work, moved to London as managing partner in 2013.
Mourant, meanwhile, recently hired Farrer & Co’s former senior partner Jim Edmondson to lead, from London, the firm’s international trusts and private client practice.
Forbes Hare’s Ross is a senior lateral hire from Walkers and now leads the global investment funds practice from London. Her clients include start-up fund managers investing in BVI funds, and institutional investors for funds in the Cayman Islands, the world’s premier domicile for hedge funds. Ross says that while funds remain below the heights reached before the 2008 crisis, property is an area that remains ‘consistently strong’ for the firm’s London’s office: ‘You see a lot of commercial and residential property transactions using BVI companies.’
Going public on who owns what
Offshore lawyers have voiced serious concerns about business secretary Vince Cable’s intention to pass primary legislation introducing a public register of company ownership. Prime Minister David Cameron pledged to make publicly available details of who really owns and controls UK companies at the G8 Conference in June last year.
To be adopted by the UK, its overseas territories and Crown dependencies, the register to be held at Companies House will contain information on individuals who ultimately own or control more than 25% of a company’s shares or voting rights, or who otherwise exercise control over the way it is run.
David Lamb, partner and co-chair of Conyers Dill & Pearman, echoes the views of many: ‘The UK proposals do not provide for the effective verification of data and the UK does not (unlike Bermuda, BVI or the Cayman Islands, for example) regulate corporate service providers.’
He adds: ‘There are also concerns about maintaining a public register of beneficial interests which will be available to the unscrupulous and the infringement of the right to privacy, especially in an age where identity theft is on the increase.’
He argues for the status quo: information on beneficial ownership is obtained and verified in Bermuda, BVI and the Cayman Islands through regulated corporate service providers (for example, Harneys Services or MapleFS). This information is made available by the Bermuda Monetary Authority, the BVI Financial Services Commission or the Cayman Islands Monetary Authority to the appropriate overseas regulatory authorities (including tax authorities) if officially requested.
‘In this way the legitimate right of privacy to personal information is balanced with the duty of regulatory and tax authorities to assist in law enforcement or counter money laundering and tax evasion. This is the better approach.’
For Govier, ‘the idea that any member of the public can simply search the identity of who owns what is not that different from the idea that you can search who owns which bank account in the world.’
‘I can’t understand what purpose a public central register serves when set against the cost and risk of implementing it,’ he adds. ‘We don’t see these standards in other financial centres such as Delaware, Hong Kong and Singapore, or in any other EU or OECD country. I think [the government’s proposal] needs to be thought through more carefully, otherwise the UK and its various dependent territories are going to be put at a commercial disadvantage. People who are going to use companies for nefarious purposes will just go somewhere else. It won’t even achieve its purpose.’
To get closer to clients, offshore law firms are establishing contentious advisory teams in their new or expanding London offices. Pointing out that this is a trend that started in Hong Kong, Edward Strickland of London-based Glass Consultancy explains that: ‘In this day and age even litigators need to get on the road and market [their services] and it is much easier to do so if you are in that time zone. If court work is required, they either get on a plane and do it themselves, or they get their colleagues in the BVI or Cayman offices to do the sharp end for them.’
Forbes Hare was the first offshore firm to establish a litigation practice in London, in April 2013, when Alistair Abbott joined as a partner from Dentons. The firm’s litigation team has grown rapidly and now comprises four lawyers who work principally on BVI matters. Abbott regularly travels to the BVI to attend hearings.
‘The litigation practice continues to go from strength to strength,’ Ross says. ‘It makes sense for us to have litigators on the ground.’ Not least because barristers are based in London. Litigants tend to be from Russia or eastern Europe, but Ross adds: ‘Quite a lot of our instructions come from onshore counsel based in the UK.’
The London team has been busy advising on cross-border insolvency and litigation, including distressed or insolvent investment funds, a by-product of the 2008 financial crisis. Forbes Hare acts for the liquidators of the Fairfield Sentry and Mount Capital funds, two of the largest feeder funds of the collapsed Bernard L. Madoff Investment Securities LLC.
Harneys was the second offshore firm to launch a litigation practice in London when it relocated its global head of litigation and insolvency, Phillip Kite, from the BVI to the City office in July last year. The team has since been beefed up to four lawyers, including partner Marc Kish. The aim is to replicate the experience in Hong Kong where Harneys’ litigation desk, which launched in 2011, now numbers 17 lawyers.
The London practice is involved in all aspects of litigation, including commercial litigation, insolvency proceedings, corporate restructuring and contentious trust disputes. Harneys often acts for Russian clients in disputes involving joint ventures incorporated in the BVI or Cayman Islands. There is an eight- to nine-hour lag with the BVI/Cayman but the Russian capital is only three hours ahead of London. Kite says this is about convenience: ‘Clients in Moscow seem to like it. They can pick up the phone early in their day and speak to experienced Cayman or BVI litigators in London.’
London is also a popular venue for international arbitration proceedings that often involve the tracing and enforcement of assets held in offshore jurisdictions. ‘English arbitration lawyers will want to talk to BVI lawyers who know how to freeze the assets held by the BVI companies, pending the arbitration,’ Kite says.
Recent highlights of Harneys’ work include acting for the largest group of defendants in the ongoing claims brought by the liquidators of Fairfield Sentry Limited (a decision is currently under appeal to the Privy Council); and acting in a $1.5bn fraud allegedly perpetrated against BTA JSC Bank of Kazakhstan.
Other offshore firms are also adding litigators to their London teams. Walkers now has a litigator to provide ‘advisory support in the time zone’, Boldarin says. ‘It’s part of our strategy of ensuring that we can do everything everywhere in the world.’
Appleby has also joined the trend, adding one fee-earner, Poole says.
Others are more cautious. Duggan explains: ‘Our litigators are advocates and actively litigate, and as a result the teams are based around the island offices.’ But Mourant does not rule out adding litigation advisory capability to its London office although ‘it is not currently contemplated’.
Maples’s Govier adds: ‘We don’t have litigators [in London] because the courts aren’t here. It comes back to our philosophy. If you are going to be marketing Maples and Calder, you need to be doing the work. We think it is difficult, not impossible, for a litigator to be absolutely on top of all the issues if they are not in Cayman in and out of court fighting their corners like the other litigation partners are.’
Instead, Maples brought to its London office two full-time representatives of MaplesFS, formerly known as Maples Finance Ltd, the arm of the business that provides administration, fiduciary, and accounting services for clients of the firm. MaplesFS, owned by the firm’s partners, has a wider footprint than Maples the law firm with 10 offices worldwide including in Dublin, Delaware, Luxembourg and Boston.
‘We believe that an offshore law firm needs to be able to offer more than just offshore law to its clients,’ says Govier. MaplesFS was set up in response to client demand for a ‘package offering’. Clients not only expect offshore lawyers to advise on incorporating companies, setting up trusts or investment funds in offshore domiciles, but also to offer a turnkey solution for the deal. ‘When a client phones at 4pm on Friday and says, can you please incorporate these companies and put directors on, they just need the answer “yes”,’ Govier says.
Asked how much MaplesFS contributes to the overall group, Govier says that revenues are ‘at a sufficient level that we consider them to be strategically critical to our business’. He adds: ‘We are able to pay well above top-of-the-market rates to our staff because of the synergies between these businesses.’
Strickland says offshore law firms tend to be ‘very profitable’ because of these additional services: ‘Most of the offshore law firms have these structures. Money is fed back into profitability of the law firm because the partners own these businesses.’
Harneys Services, the arm that provides corporate, trust and fiduciary services, accounts for about a third of Harneys’ overall business. Kite says: ‘They are doing very well selling the offshore trust and company structures and then that feeds into transactional work,’ he says, pointing to Sub-Saharan African countries such as Nigeria, South Africa and Zimbabwe as increasingly important markets for Harneys Services, and in particular for its BVI products and services.
Forbes Hare has two affiliated businesses: a corporate services provider in BVI, FH Corporate Services Ltd; and a fiduciary business in Cayman, Forbes Hare Trust Company, which provides private wealth trusts for families, among a range of trust services. Ross says that the fiduciary arm is ‘very closely linked’ to the strong performance of the private client practice over the past year, particularly high-net-worth individuals from Latin America.
The private client team was bolstered last year with international private client partner Marcus Parker joining the Cayman Islands office.
Appleby, too, has been expanding its fiduciary and administration businesses with the recent acquisitions of Caledonian Trust and Caledonian Fund Services in the Isle of Man, and Coutts’ trust administration business in Cayman and Geneva. Coutts is the wealth division of Royal Bank of Scotland Group.
But a number of offshore firms have recently divested their fiduciary and administration arms. In February, Ogier agreed a £180m management buy-out, backed by private equity fund managers Electra Partners, of its Ogier Fiduciary Services. Walkers sold Walkers Management Services, with annual sales of more than $50 million, to Amsterdam-based Intertrust Group in 2012, while in 2009, before the merger with Ozannes, Mourant du Feu & Jeune sold Mourant International Finance Administration to US financial services group State Street.
Govier predicts that as soon as any restrictive covenants have expired, these same offshore law firms will launch similar businesses because they are ‘integral to the offshore legal market. Anyone who tells you otherwise is just spinning you a lie.’
Mourant Ozannes confirms his point. It has since launched Mourant Ozannes Corporate Services, which provides corporate administration and fiduciary services to financial institutions, corporates, investment managers and sovereign wealth funds.