I regularly act for residential and commercial property investors and those who lend to them and I also have a (probably) slightly unhealthy interest in Rightmove's sold property prices. What better credentials do I need?
With a real estate property magnate in the White House and the increase in property investment generally, the real estate sector is ripe for international private equity fund managers to tap into.
According to The Lawyer's Global 200: Real Estate 2017 Report and data provided by Private Equity Real Estate magazine, the world's top 50 private equity real estate funds raised a combined US$271 billion between 2011 and 2016. Fundraising for global funds declined in 2016 after 5 years of year-on-year growth. PERE reports that this was due in part to a lack of funds closing - 25 per cent fewer funds closed in 2016 than in 2015.
Those who attended MIPIM in early March will have been aware of the positive view of the property sector. Investment in the London commercial property market continues to be popular for High Net Worth Individuals and Family offices, as well as for larger global private equity funds. Asian and Middle Eastern investors still look to London for their property investment and particularly in some of the more distinctive buildings which now pepper London's skyline - from the City to Canary Wharf (the Cheese Grater, the Shard et al). All good signs for onshore and offshore lawyers servicing this market.
Pan European real estate funds are becoming increasingly popular, with London and Germany proving preferred markets for commercial property investment. According to The Lawyer's Real Estate Report, portfolio deals involving particular asset classes (logistics, student accommodation, build to rent and private rented and hotels) are standing out further than single asset investments. In our experience of acting for investors in these sectors, offshore fund vehicles are just the ticket for investment in real estate portfolios - and for good reason.
Whether the investor is looking for a simple offshore company to hold the property assets in his own name or that of a nominee, or a more complex structure involving holding companies and an onshore, midshore or offshore funds vehicle, the legislative regimes in both the British Virgin Islands and in the Cayman Islands provide solid, predicable yet flexible frameworks for private equity investors.
In both jurisdictions, depending on the proposed exit strategy, the investment vehicle may be established as a regulated entity or as a more straightforward unregulated, closed ended funds vehicle or in conjunction with an onshore or midshore fund. Exit strategies will and do vary, depending on the appetite in the market. Private sales of whole property funds or some of their assets, redemptions of holdings or IPOs are all options, although the first two are probably more common of late. Other drivers such as tax and the domicile of the key investing parties will also be relevant.
If you act for investors or lenders who like to finance commercial property investments, and an offshore structure is under consideration, do let us know, we would be delighted to talk through the options.
Sales pitch over, I leave you with a couple of quotes about property investment which I quite like.
"Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world." -- Franklin D. Roosevelt, US President
"Buy land, they're not making it anymore." -- Mark Twain, writer and humorist

Primarily, it means that BVI and Cayman companies are not subject to corporate taxation on income, capital gains or share transfers. Instead, the BVI and Cayman governments raise revenue through other means such as income taxes on resident individuals (in the BVI), real estate taxes, sales and import duties and, in relation to corporate vehicles, through incorporation and licence fees. In Cayman the government goes one step further and will issue a tax exemption certificate to a typical Cayman fund (in return for a fee) confirming that for a period of 20 years (where the fund is a company) the fund will not be subject to certain Cayman taxes irrespective of any change in law.
The fact that BVI and Cayman companies have no corporate taxes can make them particularly useful in fund structures, as one or more corporate vehicles can be used to pool investor funds without adding additional layers of taxation. Investors are still taxed in the jurisdictions in which they are tax resident on any income and gains generated from investment into the fund, but there is no corporate taxation at the fund level. This is subject to certain exceptions where the BVI or Cayman fund may be subject to taxation in another jurisdiction as a consequence of the location of its investments and/or its investors (for example, under US FATCA).
The attraction of tax neutral jurisdictions is not quite as simple as it may sound and it is not always favourable from a tax perspective for all investors for funds to be domiciled in tax neutral jurisdictions. As I set out in more detail in my previous post on fund structures, while some groups of investors would prefer to invest in an offshore, tax-neutral, fund, for others it is advantageous to invest in a domestic onshore fund. For example, U.S taxable investors prefer to invest into domestic U.S. funds structured as partnerships which are "pass through" entities for U.S. tax purposes.
And, it's not all about tax. There are numerous reasons to use BVI and Cayman funds apart from being tax-neutral. Phil has touched on this before in his previous post but, as a recap, both jurisdictions have a modern corporate law, which is supported by hundreds of years of English common law, and a sophisticated court system with ultimate recourse to the Privy Counsel of the United Kingdom. They both offer a range of fund products, suited to different uses and with appropriate regulation and competent and experienced regulators (the British Virgin Islands Financial Services Commission and the Cayman Islands Monetary Authority). In addition, both jurisdictions are home to world-class service providers and Cayman is the fifth-largest banking center worldwide. This makes the BVI and Cayman extremely attractive jurisdictions in which to establish a fund.
If you think that you would benefit from using a BVI or Cayman fund and you would like to discuss the options in more detail, please get in touch.
The original author of this post is no longer with Harneys. For more information on this topic, please reach out to the contact listed above.

But will the OFC and proposed tax changes really entice Hong Kong based hedge fund managers to set up funds in Hong Kong?
Much of the talk of the "advantage" for a Hong Kong manager in setting up an OFC over a Cayman domiciled fund relates solely to a requirement for dealing only with the Securities and Futures Commission (SFC) and not also the Cayman Islands Monetary Authority (CIMA).
This seems to me a little simplistic.
As a starting point, with a Hong Kong manager directly managing a Hong Kong fund, and without any offshore manager, there will be no opportunity for any management or performance fees to be earned at the Cayman level and tax-deferred.
Moreover, hedge funds are cross-border by their very nature. Most hedge funds have investors from a lot of different countries and have investments in a lot of different countries. Accordingly, managers will already need to be considering the securities laws of various countries.
All the investors in a hedge fund will have their own local tax obligations, so as a very base condition a manager is seeking to domicile their fund somewhere with no additional taxes. However, this is not enough.
A manager also needs to domicile their fund somewhere that provides investors from a lot of different countries the relevant level of comfort to place their investments in such a vehicle. There are some very important factors that are considered by the type of sophisticated investors that invest into hedge funds in determining this comfort level. Such factors that a jurisdiction must exhibit include the absolute rule of law, respect for property rights and access to a sophisticated judiciary free from political interference.
The Cayman Islands is a jurisdiction that fulfils these requirements and has reliably proven itself to do so over decades. As a result, over 85 per cent of the world's hedge funds are domiciled in the Cayman Islands.
Hong Kong is a jurisdiction that some might consider is rapidly being subsumed into the People's Republic of China.
Even when you drill down into more of the minutiae of the OFC regime it appears that the Cayman Islands remains a clear leader. The level of prescription and oversight which is contemplated by the OFC regime, whilst it may be familiar to operators of Hong Kong retail funds, is far more than would be familiar to hedge fund managers, or than applies to private Cayman funds.
The OFC's governing document is required to contain certain prescribed provisions, including the kinds of property in which the OFC can invest. Any change to this governing document will require the SFC's approval. There are no restrictions imposed by the Cayman regime on investment strategies of Cayman funds or their use of leverage. A Cayman fund does not have prescribed provisions in, and CIMA's approval is not required for any changes to, its memorandum and articles of association.
The appointments of the directors of an OFC are subject to the SFC's approval, and the SFC will require the directors to be appropriately qualified and experienced. By contrast, CIMA requires directors to register via a web portal but does not impose an approval process nor any requirements as to qualifications, experience or independence.
An OFC must appoint a custodian approved by the SFC which meets the eligibility requirements set out. In practice, many hedge funds appoint one or more prime brokers, and many prime brokers may not, and may not wish to, meet these eligibility requirements. A Cayman fund sold in Hong Kong by private placement is not required to appoint a custodian.
The OFC regime requires that the valuation and pricing of the OFC's property is the investment manager's responsibility. This is inconsistent with the typical hedge fund model, where valuation and pricing is typically delegated to the fund's administrator.
Any change of name of an OFC is subject to the SFC's approval. No approval is required to a change of name of a Cayman fund.
Transfers of OFC shares will be subj...

This guide provides an overview of the powers, duties and obligations of a director of an exempted company incorporated under the Companies Act of the Cayman Islands (Companies Act) which is registered with the Cayman Islands Monetary Authority (CIMA) as a fund (Fund).
This guide is limited to those Funds registered with CIMA under section 4(3) or 4(4)(a) of the Mutual Funds Act (a Mutual Fund) and those Funds registered with CIMA under the Private Funds Act (a Private Fund) as well as the law and practice of the Cayman Islands. Other duties, obligations and potential liabilities may also arise under the laws of other jurisdictions.
Who are the directors of a Fund?
There is no precise definition of a 'director' under Cayman Islands law. The directors of a Fund may be individuals or corporate bodies and they are the persons with ultimate responsibility for the management and conduct of the Fund's affairs.
The first directors of a Fund (whether described as 'executive' or 'non-executive') are typically appointed by the initial subscribers to the Fund or otherwise in accordance with the articles of association of the Fund (Articles). The register of directors maintained by the Fund will be prima facie evidence of the identity of the directors from time to time.
A person undertaking the activities of a director without being formally appointed may be found to be acting as a 'de facto director'. Also, if the duly appointed directors of a Fund are found to be acting in accordance with the directions or instructions of another person then that person may be found to be acting as a 'shadow director'. A person is not deemed to be a shadow director however by reason only that the directors act on advice given by such person in a professional capacity, so that an investment adviser of a Fund making recommendations to the directors as to the purchase or sale of investments should not usually constitute a shadow director.
Executive directors, non-executive directors, shadow directors and de facto directors are all subject to the duties and obligations set out in this guide.
Should I agree to act as a director of a Fund?
When deciding whether or not to act as a director of a Fund, the following points should be considered:
Who will be the other directors of the Fund? Will your fellow directors have the ability to work with you to properly coordinate the proper oversight and management of the Fund?
Any other interests you may have in the overall structure of the Fund and its advisers or service providers. If you are a connected person (for example, a principal of the Fund's investment manager) you may want to consider either not sitting on the board of the Fund or making sure that you are in a minority position. These measures will reduce the potential for conflicts of interest to arise which could increase the risk of your actions later being challenged by the investors of the Fund as not being in accordance with your duties to the Fund.
The expectations of the Fund's key investors. They may be comfortable with a board of directors comprised of connected persons or they may require the Fund to have one or more directors independent of the Fund's investment manager. This is something that you may wish to discuss further with the Fund's representatives and the Fund's current or proposed key investors before agreeing to accept any appointment as a director.
You need to have sufficient and relevant knowledge and experience to discharge your duties as a director. It is up to you to acquire and maintain sufficient knowledge to enable you to carry out your role. You should use the Fund's professional advisers to provide advice on any areas or transactions of which you are unsure. In particular, you should ensure that you are able to properly read and understand the financial information relating to the Fund, including its financial statements. If there is anything that you do not understand, then you should promptly obtain professional advice.
...

The fund must designate as AMLCO a natural person at managerial level with the requisite skills and experience, to manage the compliance programme and report to the board / general partner. The fund must also appoint suitable natural persons at managerial level as MLRO and DMLRO, to whom suspicious activity reports are made.
Generally the fund will then delegate performance of customer due diligence on its investors to an administrator. The AMLCO should be provided with periodic AML reports from the administrator and also reports on the fund's downstream investment activities, from its investment manager.
The administrator, fund or other service provider will need to comply with the Cayman AML Regulations.
Cayman AML procedures require:
assess and apply a risk-based approach to money laundering and terrorist financing risks and compliance
establish shareholder / limited partner / LLC member / unitholder identification procedures, including for beneficial owners, and conduct ongoing customer due diligence
implement suspicious transaction reporting procedures
maintain know-your-client information and suspicious transaction records
develop internal controls, policies, reporting procedures and record keeping that are appropriate to prevent money laundering and
implement an anti-money laundering training programme for staff members
Immediately from launch and ongoing obligation.
Existing funds should have designated natural persons as AMLCO, MLRO and DMLRO and have notified their details to CIMA via its REEFS portal.
Penalties under AML Regulations
Penalties under AML Regulations of up to CI$500,000 (US$609,750) and/or imprisonment for 2 years apply for breach of AML obligations.
Where an offence under the AML Regulations is proved to have been committed with the consent or connivance of, or to be attributable to any neglect on the part of, a director, manager, partner, secretary or other similar officer of the entity or a person who was purporting to act in any such capacity the person, as well as the entity, commits that offence and is liable to be proceeded against and punished accordingly.
Penalties under the Monetary Authority Act and the Monetary Authority (Administrative Fines) Regulations
Breaches of certain provisions of the AML Regulations may also attract penalties under the MA Act and regulations.
Penalties for each breach classified as minor are up to CI$20,000. For each breach classified as serious the penalty is up to CI$50,000 for an individual or CI$100,000 for a body corporate and for each breach classified as very serious the penalty is up to CI$100,000 for an individual or CI$1,000,000 for a body corporate.

One of the most common scenarios we encounter is a US-based manager who initially establishes a domestic fund to attract US taxable investors. With the performance going in the right direction, the manager begins to think about US tax-exempt investors, such as charities, pension funds and university endowments, as well as investors based outside of the US, who like the track record and want to invest.
They have probably then been made aware that they will need an offshore vehicle and now have the task of working out why, where, and how much they need to spend.
Why do I need one of these?
US tax-exempt and non-US investors will want to avoid potential US tax exposure that could result from direct investment into your US vehicle and so they will want to come into an offshore "blocker" vehicle. To ensure you can take in their capital, you will need to add at least one offshore structure to form either the traditional "master-feeder" or the "mini-master".
What is a master-feeder?
Here, we will create two new offshore vehicles. Your existing US fund will then contribute its assets into the offshore master fund upon the launch of the new structure. The offshore feeder vehicle will then be available to take in US non-taxable investors and the non-US investors and "feed" into the offshore master fund as well, allowing for a co-mingling of all of the invested capital in the most tax efficient manner.
Sounds good, so what about the minimaster?
In a mini-master structure, a single offshore fund is established which is taxed as a corporation to benefit US tax-exempt investors and block UBTI for non-US investors.
Adding a single offshore vehicle saves cost and therefore has proven popular with startup and emerging managers. The offshore fund invests directly into the existing US fund, which will then act as the master fund (whilst remaining the fund into which the US taxable investors will continue to invest).
This provides an additional benefit of not requiring the ownership of the assets of the domestic fund to be transferred. This reduces the administration around the restructuring and subsequently the cost as well. While there are some tax consequences to be discussed (and some investors may not want to invest even indirectly into a US vehicle), it has proved to be appealing to those looking to keep it as simple as possible to begin with.
Okay, so I need one of these structures. Where do I choose to set it up?
The British Virgin Islands and the Cayman Islands are both highly suitable and well-regarded offshore fund jurisdictions that have been used for many decades and always strive to meet the requisite international standards. We have long-standing clients who elected to use one or the other for different and highly sensible reasons at the time of their first launch. But there are differences, and a number of our clients have fund vehicles in both jurisdictions to maximise the advantages that they each offer.
Understood. But how do I choose the best one for my fund?
Cayman is the world's most popular offshore funds jurisdiction. We estimate that Cayman has over 70 per cent of the world's offshore funds and so is the well-trodden path. Although the BVI has around 15 per cent, managers who opt to establish their funds in the BVI sometimes encounter the additional question from institutional investors of "Why BVI?". Whilst there are very reasonable and logical answers, the selection of Cayman removes this additional query in the DDQ.
But I am also looking to minimise cost…
In terms of corporate and regulatory costs, Cayman is a significantly more expensive jurisdiction than the BVI, both upon formation and for the annual maintenance of the vehicle(s). This is then compounded by the greater regulatory requirements in Cayman, which result in the cost differential for the jurisdictions being substantial.
For this reason, many fund managers who are operating with a relatively low level of AUM prefer to establish their offshore fund in th...

Here is a way to start an article like no other; what a fantastic year 2020 has been. The obituary of the hedge fund industry has been written many times, but for some, it was written in indelible ink in 2008 following the financial crisis. Commentators blamed the industry for its part in the global collapse, notwithstanding the fact that a huge majority of fund vehicles during that time were actually victims themselves. Ignoring the huge layer of red tape that subsequently encased the industry, this wasn't actually the largest cause for concern.
The bigger problem was that once the S&P settled down, its solid and consistent performance led to a benchmark that the industry simply couldn't match. Many funds struggled to provide the exceptional returns they were once capable of and with new products like exchange-traded funds combining performance with a lower risk profile and lower fees, the glitz and glamour of AW Jones' product had truly been eroded. However, the inflow of investment remained, and while the lack of true performance caused general resentment, a shock to the global financial system might cause the passive investment models to fail and suddenly the two and 20 would look like money well spent. So the script for 2020 couldn't have been better written by Hollywood, although probably would have had a little more Dwayne Johnson. The flash crash in March could have lead to the industry flourishing from that point forward.
Dog funds
Sadly, a record 150 funds were classed as poor performers in the "Spot the Dog" list compiled by wealth manager Tilney Bestinvest, which names and shames the worst-performing investment funds and reported a 65 per cent increase in the number of "dog" funds, up from 91 in February. Interestingly, this is consistent with the tough time value investors have generally had over the last decade. Buying shares in companies which appear cheap given their fundamentals became a true art form, but the markets simply haven't played to the same rule book and one obvious explanation for this is the rise of tech firms, which are simply impossible to analyse using standard valuation tools. Brand strength and user adoption models seemingly become far more important than the profit line, for example. With a pandemic forcing the entire planet to go online simultaneously, the arguably overvalued tech stocks somehow continued to grow exponentially.
Those companies that remained well placed to increase in value consistently if the world had continued on its "normal" course, suddenly found that the very solid foundations they were sensibly built on were destroyed from under them. Hugely dependable industries were decimated in a matter of months which even the very best minds in the hedge fund industry couldn't readjust to quickly enough. Where you have such a fundamental and novel shock to the system, the largest funds will always have the biggest problem with turning their tanker around. Just looking at the Top 20 Dogs, all but one of them is over a billion and you can see some truly institutional names. On a wider basis, the ten largest hedge funds reporting to eVestment remain some 4.61 per cent in the red year-to-date, despite posting a 1.31 per cent gain in July. In contrast, hedge funds overall are now flat for the year, having registered a 3.43 per cent rise in July to successfully claw back losses suffered in H1.
Market neutrality achieved? Being nimble and able to pivot in this type of market was always going to be advantageous.
Digital rise
From our own anecdotal evidence, given we have the pleasure of working with a large number of emerging managers, we certainly have clients who are putting some very significant numbers up on the board this year. It has been especially noticeable in the digital asset slice of this market. Whether you believe in the digital gold theory of bitcoin or not, there is no doubt that with so much uncertainty out there, investors are looking for interesting alternatives to ...

One of the most common scenarios we encounter is a US-based manager who initially establishes a domestic fund to attract US taxable investors. With the performance going in the right direction, the manager begins to think about US tax-exempt investors, such as charities, pension funds and university endowments, as well as investors based outside of the US, who like the track record and want to invest.
They have probably then been made aware that they will need an offshore vehicle and now have the task of working out why, where, and how much they need to spend.
Why do I need one of these?
US tax-exempt and non-US investors will want to avoid potential US tax exposure that could result from direct investment into your US vehicle and so they will want to come into an offshore "blocker" vehicle. To ensure you can take in their capital, you will need to add at least one offshore structure to form either the traditional "master-feeder" or the "mini-master".
What is a master-feeder?
Here, we will create two new offshore vehicles. Your existing US fund will then contribute its assets into the offshore master fund upon the launch of the new structure. The offshore feeder vehicle will then be available to take in US non-taxable investors and the non-US investors and "feed" into the offshore master fund as well, allowing for a co-mingling of all of the invested capital in the most tax efficient manner.
Sounds good, so what about the minimaster?
In a mini-master structure, a single offshore fund is established which is taxed as a corporation to benefit US tax-exempt investors and block UBTI for non-US investors.
Adding a single offshore vehicle saves cost and therefore has proven popular with startup and emerging managers. The offshore fund invests directly into the existing US fund, which will then act as the master fund (whilst remaining the fund into which the US taxable investors will continue to invest).
This provides an additional benefit of not requiring the ownership of the assets of the domestic fund to be transferred. This reduces the administration around the restructuring and subsequently the cost as well. While there are some tax consequences to be discussed (and some investors may not want to invest even indirectly into a US vehicle), it has proved to be appealing to those looking to keep it as simple as possible to begin with.
Okay, so I need one of these structures. Where do I choose to set it up?
The British Virgin Islands and the Cayman Islands are both highly suitable and well-regarded offshore fund jurisdictions that have been used for many decades and always strive to meet the requisite international standards. We have long-standing clients who elected to use one or the other for different and highly sensible reasons at the time of their first launch. But there are differences, and a number of our clients have fund vehicles in both jurisdictions to maximise the advantages that they each offer.
Understood. But how do I choose the best one for my fund?
Cayman is the world's most popular offshore funds jurisdiction. We estimate that Cayman has over 70 per cent of the world's offshore funds and so is the well-trodden path. Although the BVI has around 15 per cent, managers who opt to establish their funds in the BVI sometimes encounter the additional question from institutional investors of "Why BVI?". Whilst there are very reasonable and logical answers, the selection of Cayman removes this additional query in the DDQ.
But I am also looking to minimise cost…
In terms of corporate and regulatory costs, Cayman is a significantly more expensive jurisdiction than the BVI, both upon formation and for the annual maintenance of the vehicle(s). This is then compounded by the greater regulatory requirements in Cayman, which result in the cost differential for the jurisdictions being substantial.
For this reason, many fund managers who are operating with a relatively low level of AUM prefer to establish their offshore fund in th...

The market for US dollar (USD)-denominated funds in Greater China has undergone rapid transformation. Professional services providers have been grappling with the impact of a flurry of new laws and regulations, while fund managers have suddenly found themselves overwhelmed by choice. This has led some to question whether market convergence has finally led to the creation of a level playing field for all jurisdictions, or whether in fact this is the beginning of widespread divergence in the fund market industry.
This article explains how and why the market has blossomed in recent years, and considers how it may develop in future.
USD fund market outside mainland China
The USD fund market outside mainland China has flourished due to the emergence of free markets such as Hong Kong, in tandem with the tight capital controls maintained by China. These controls have laid the foundation for China's economic evolution in the past 40 years, which have seen the confluence of international asset allocation, pensions and endowments on the one hand, and the emergence of ultra-high-net-worth individuals, domestic insurance funds and a burgeoning asset management industry on the other.
This dichotomy of two markets - domestic and international - created a real need for offshore vehicles so that USD capital could be pooled and invested, and investment returns distributed in a tax-efficient way. This in turn smoothed the way for the widespread recognition of the Cayman Islands and its investment-holding and fund products, such as exempted limited partnerships for private equity funds, exempted companies as mutual funds and certain non-fund arrangement vehicles.
International standards and rule books
The coordination of international standards and rule books for the fund management market was led by the Organisation for Economic Cooperation and Development (OECD), the Financial Action Task Force (FATF) and, to a certain extent, the UK government. The financial services industry has been beset by "regulatory fatigue" since 2015, as it has got to grips with heightened scrutiny of anti-money laundering and counter-terrorist financing and proliferation measures, and with new requirements governing the exchange of tax information (automatic, spontaneous or on request). At the same time, it has had to deal with new requirements governing economic substance, data collection and transparency in beneficial ownership, as well as measures to safeguard fund assets and heightened oversight of virtual asset issuers and service providers.
The sheer volume of regulatory changes in recent years has certainly felt overwhelming, but it is also necessary to consider how the market has responded to the resurgence of neo-liberalism, and the free flow of capital and free movement of people across borders. The answer may be moot, but governments and regulators have made substantial progress toward establishing a mutual framework for information-gathering and exchange, as well as behavioral standards to which fund managers must adhere.
While this convergence has been taking place, many individual jurisdictions have quietly been re-designing their tax regimes to make them clearer, friendlier and more flexible. As just a few examples:
Hong Kong has established the Unified Fund Exemption Regime and introduced a much-anticipated tax concession for carried interest.
Singapore's new variable capital companies and Hong Kong's partnership funds have garnered considerable interest.
Investors have begun to revisit and "rediscover" alternative structures, notably those offered by the British Virgin Islands, which are more versatile for small to medium-sized funds and for those renminbi fund managers just dipping their toes in the water of the USD fund market for the first time.
Amid all the hype, fund managers have tended to focus on how comparable, or otherwise, these new products are to conventional offshore products, rather than exploring the nuances in terms of what they a...

It seems to have fallen upon me to talk about all the things that can go wrong with your fund! As it happens, suspending NAV calculations, subscriptions and redemptions is not the end of the world that it was once considered. If you keep in mind a few key considerations, chances are you will survive this challenge.
Suspensions: The post-2008 context
Prior to September 2008, suspensions were pretty much never invoked. The general view was that to invoke a suspension would cause irreparable reputational damage to a manager. However, in the midst of the 2008 financial crisis, it was those managers that did suspend redemptions, waited for the storm to pass, limited the damage and then eventually lifted suspensions that survived. Those who failed to operate suspensions and gates were left with redeemed (but unpaid) investors whose claims as creditors for their redemption proceeds ranked above the remaining investors. It is because of this that, whilst liquidity is still absolutely key for investors, there is now an expectation that a responsible and well-advised manager would invoke a suspension or gate when reasonably necessary in order to protect the investors' interests.
Navigating a suspension scenario
So, the dreaded situation arises; your fund suffers a financial blow so severe that your investors start to withdraw their funds. What should you do? Firstly, call your lawyer! They will need to carefully review your fund documents to determine what you can and cannot do, and what the correct process is. Getting the right strategy from the start is crucial. Your lawyer should know their way around your fund documents, particularly if they drafted them, and they will know where to look for any potential pitfalls. Secondly, act quickly. You will need to suspend redemptions before the next redemption date. Otherwise, investors that have submitted redemption requests will become creditors of the fund and their redemption proceeds will become payable. So you called your lawyer straight away. What do you need to do next? Below are six key considerations or actions you will want to take.
1. Consult your board
You will need to call a board meeting, as there are various things to discuss. What has your lawyer advised and are you able to suspend redemptions? If not, are there other mechanisms that you can use such as imposing investor or fund level gates or transferring certain assets into side pockets or restructuring the fund in another way? Do you need to work out a liquidation plan or do you think you can ride this storm? Minutes will need to be taken at each meeting, as they may be required in future proceedings to prove that reasonable steps were agreed upon and followed by the board. Make sure to document everything. Whilst not pleasant, the investment manager and the board of directors will need to consider whether there are any conflicts of interest that would, for example, prevent a director who is affiliated with the investment manager from attending and voting at any meetings.
If there is a likely chance of a conflict of interest arising, you will need to consider whether the investment manager and board of directors need to instruct separate legal counsel.
2. Don't forget about redemptions and subscriptions
You need to make sure that as well as suspending the calculation of NAV, you also suspend redemptions and subscriptions. In some circumstances, it may be possible to continue to calculate NAV and you may want to suspend redemptions and subscriptions without suspending the calculation of NAV. If there are investors who have submitted redemption requests and the redemption date has passed, you may also want to suspend the payment of redemption proceeds, if your fund documents permit this. You could also consider payments of redemption proceeds in kind (often referred to as "in specie"), ie by transferring assets worth the same amount as the redemption proceeds to the redeeming investor if your fund documents allow this.
3....

Whilst there is clearly a cacophony of different issues for him to tackle, it did remind me of this excellent article in Reuters back in October which was already tracking the moves being made in the investment funds industry to continue the meteoric rise of ESG investment strategies.
For those that are very late to the party, ESG stands for environmental, social and governance and the story of ESG investing actually began back in January 2004 when former UN Secretary General Kofi Annan wrote to over 50 CEOs of major financial institutions, inviting them to participate in a joint initiative under the auspices of the UN Global Compact and with the support of the International Finance Corporation (IFC) and the Swiss Government. The goal of the initiative was to find ways to integrate ESG into capital markets.
Whilst the concept has become an undoubted success, getting it to this position has not been without challenges. Ignoring those that thought ESG might just be something of a fad, one of the more interesting issues came from institutional investors who argued that making investment decisions on the basis of these principles was actually a breach of their fiduciary duties to their shareholder base.
This has caused extensive debate, but a strong argument was being made in many circles that the pursuit of financial gains should always be the sole focus. It became litigious in a number of jurisdictions, where investment managers were challenged on both their principles and ethics, although in almost every case, it was where the financial gains had not matched the expectations of the investors.
But both the UK and the EU decided to take this out of the hands of the courts and the new disclosure requirements for investment managers and advisers with respect to their ESG policies will apply in the European Union from 10 March 2021 and new climate-related disclosures will apply to investment managers under a UK disclosures regime that is expected to be phased in from 2022.
We will ignore the impact of Brexit for the purposes of this short article, but it does appear that all of Europe is united on this front. What is interesting to watch is that the regulatory landscape in this area is undoubtedly evolving and when you add these new initiatives to the Shareholder Rights Directive, the UK Stewardship Code, the Principles for Responsible Investing and the UK Corporate Governance Code, it is now the case that European managers will be operating within these parameters indefinitely.
Figures show that assets in sustainable investment products in Europe are forecast to reach €7.6 trillion over the next five years, which will then outnumber conventional funds. Part of this drives comes from a critical mass of pension funds and insurers deploying capital exclusively to asset managers with ESG capabilities.
Whilst this level of market dominance has not yet been reached in the US, largely due to some of the scepticism highlighted above, the clearer path that the Democratic party now have in the US may well see their domestic capital providers follow a very similar path, especially in a market with greater maturity that really is looking for a transformation for the better.
This article was originally published by funds europe.

Are you thinking of setting up a closed-ended investment fund in the BVI? This document provides an overview of the closed-ended funds industry in the BVI and why the BVI is such an attractive jurisdiction for private equity, venture capital and other closed-ended fund managers. We explain the regulatory regime in the BVI, the fund structures available and how we can support you from the initial structuring and planning conversations, all the way through to the launch and ongoing support.
Closed-ended funds in the BVI are regulated by the Financial Services Commission (the Commission). The primary legislation which governs the industry is the Securities and Investment Business Act 2010, as amended (SIBA), and the Private Investment Funds Regulations 2019 (the PIF Regulations).
This guide focuses on the closed-ended fund industry, but it should be highlighted that the BVI does have a separate regulatory regime for hedge funds and other open-ended funds - these are discussed in a separate legal guide. Do let us know if you would like further details.
What factors determine whether a closed-ended fund must be regulated in the BVI?
Generally, an entity will be considered to be a closed-ended fund and will be subject to regulation as a Private Investment Fund (or PIF) if it falls within the following definition of a "private investment fund":
It collects and pools investor funds for the purpose of collective investment and diversification of portfolio risk, and
The equity interests that it issues entitle the holder to receive an amount calculated by reference to the value of a proportionate interest in the whole or a part of the net assets of the fund
The BVI Private Investment Fund Regime
BVI closed-ended funds falling within the definition of a "private investment fund" are generally required to be regulated by the Commission as a PIF. However certain entities, including but not limited to single investor funds, single asset funds, joint venture companies and special purpose acquisition companies do not require regulation as a PIF. The PIF is a flexible, cost-effective and lightly-regulated fund product which is suited for everyone from the start-up manager to established institutional private equity houses with billions under management. The characteristics of the PIF are set out below.
Private investment fund
Interests in a PIF may be distributed on either a 'private' or a 'professional' basis. There is no minimum investment amount for a PIF distributed on a private basis. If distributing on a 'private' basis the PIF is restricted to either:
Having no more than 50 investors, or
Making an invitation to subscribe for or purchase fund interests on a private basis only
If the PIF interests are being distributed on a 'professional' basis, they may only be made available to "professional investors" and the minimum initial investment by each professional investor must not be less than US$100,000 (or other currency equivalent), unless the investor is an "exempted investor" in which case there is no minimum initial investment.
A "professional investor" is a person:
Whose ordinary business involves, whether for that person's own account or the account of others, the acquisition or disposal of property of the same kind as the property, or a substantial part of the property, of the fund; or
Who, whether individually or jointly with their spouse, has a net worth in excess of US$1,000,000 (or other currency equivalent) which does include the primary residence
An "exempted investor" means:
The manager, administrator, promoter or underwriter of the fund, or
Any employee of the manager of the fund
A PIF is required to issue an offering document or term sheet (although in certain circumstances the Commission can provide an exemption from this requirement).
A PIF is required to maintain a clear and comprehensive policy for the valuation of its assets (Fund Property) with procedures that are sufficient to ensure that the valuation policy is eff...

On 9 February 2022, the Luxembourg Chamber of Deputies (Chambre des Députés), adopted the law modernising the Luxembourg law of 2 March 2004 on securitisation, as amended (the New Securitisation Law). The New Securitisation Law enhances legal certainty and flexibility of the Luxembourg securitisation regime, while ensuring and increasing effective protection for investors.
The New Securitisation Law has modernised the following main aspects.
New sources of funding
The financing of a securitisation transaction is no longer limited to the issuance of securities but is open to the issuance of any type of financial instrument.
Furthermore, in addition to the issuance of any financial instruments, securitisation undertakings can have recourse, in whole or in part, to the conclusion of any type of loans, whose yield or repayable principal depends on the risks acquired (eg profit participating loans, asset-backed loans).
New legal forms
The legal forms that can be used for securitisation companies are now broadened by:
The unlimited company (société en nom collectif)
The common limited partnership (société en commandite simple)
The special limited partnership (société en commandite spéciale)
The simplified limited company (société par actions simplifiée)
New authorisation and supervision requirements
A securitisation vehicle must be subject to the authorisation and supervision of the CSSF, when it issues to the public on a continuous basis.
Only securitisation vehicles issuing more than three times per year (on an all compartments basis) non-private placements with a denomination below €100,000 per each unit issued to non-professional investors need to be authorised and supervised by the CSSF.
New rules governing the accounting treatment of equity-financed compartments
The accounting treatment and distribution of profits and losses of equity financed compartments shall now be done on a compartment basis unless the articles of the securitisation entity provide otherwise.
Where compartments are equity-financed:
The balance sheet and the profit and loss account prepared for each compartment shall be approved only by the shareholders of that compartment, unless the articles of the securitisation entity provide otherwise
Limitations to the distribution of profits and other distributable reserves may be determined by reference to each compartment, without regard to the global situation of the securitisation entity, unless the articles of the securitisation entity provide otherwise
The legally required reserve according to the Luxembourg law of 10 August 1915 on commercial companies, as amended, shall be determined on a compartment basis without regard to the global situation of the securitisation entity, if this is provided for by the articles of the securitisation entity
Holding of securitised assets
A securitisation entity can now:
Directly own the assets generating the cash flows that are securitised
Acquire such assets or risks to be securitised indirectly, either through a subsidiary or via the acquisition of an entity holding these assets or risks
Security interests
A securitisation vehicle can now grant security interests over its assets to parties that are involved in a securitisation transaction but are not direct creditors of the securitisation vehicle.
Active management
Active management of securitised assets is now allowed for Luxembourg securitisation vehicles but only where the following conditions are met:
The pool of securitised risks is made up of debt securities, claims or debt financial instruments
The securitisation entity is not financed by issues to the public
Ranking/legal subordination
The following default waterfall of payments/order of priority in respect of debt and equity instruments issued by a securitisation vehicle is now applicable to securitisation entities unless otherwise agreed:
The units of a securitisation fund are subordinated to the other financial instruments issued by, and loans contracted by, s...

Reporting and financial statements
An incubator fund is required to prepare and submit the following to the FSC:
Financial statements, which do not need to be audited but are required to be approved or signed by a director or the general partner of the fund, within six months of the end of the financial year to which they relate
A semi-annual return, no later than 31 January and 31 July containing the following information as at 31 December of and 30 June of the preceding semi-annual period:
the number of investors in the fund
the total investments in the fund
the aggregate subscriptions to the fund
the aggregate redemptions paid to investors
the net asset value of the fund
any significant investor complaint received by the fund and how the complaint was dealt with
A statement that the fund is not in breach of the requirements of the Regulations that allow it to continue as an incubator fund, no later than 31 January (such statement is included in the semi-annual return).
Anti-money laundering obligations
The BVI anti-money laundering (AML) regime applies to all funds as they are classified as "relevant persons" under the Anti-money Laundering Regulations 2008. In addition to appointing an officer to the fund or another individual as MLRO (as mentioned above), a fund will be required to:
Put in place investor on-boarding procedures which address typical "know your client" requirements
Put in place and maintain a written and effective system of internal controls which provides appropriate policies, processes and procedures for forestalling and preventing money laundering and countering the financing of terrorism (the Manual). The Manual should be reviewed annually to ensure compliance with AML regime in the British Virgin Islands
Report suspicious transactions to the Financial Investigation Agency (FIA) in the BVI
Report the identity of its appointed MLRO to the FIA Agency
The BVI rules do provide for funds to outsource all and any of these obligations to functionaries based outside of the BVI. If the incubator fund has an administrator and/or investment manager, it may consider doing this. Any outsourcing must, however, be documented in writing.
Fund policies and arrangements
The Fund is required to maintain a valuation policy setting out the applicable procedures for the valuation of fund property, the preparation of reports on the valuation and setting out the mechanisms for sharing valuation information with investors (Valuation Policy). The Fund is also required to have a safekeeping policy and have adequate arrangements in place for the safekeeping of fund property (Safekeeping Policy).
On an annual basis, the Fund should review its Valuation Policy and Safekeeping Policy to ensure compliance with BVI legislation.
Obligations under FATCA and CRS
Incubator funds are required to register for a Global Intermediary Identification Number (GIIN) with the US Internal Revenue Service. Funds are also required to enrol with the ITA. Enrolment for FATCA reporting is made through the ITA's online portal, called BVI Financial Account Reporting System, and for CRS is made by email to bvifars@gov.vg.
Incubator funds will need to identify reportable accounts and start to report the necessary information to the ITA. The reporting deadline for US FATCA, UK FATCA and CRS is 31 May.
The information that must be reported under US and UK FATCA and CRS is broadly similar and includes: the name, date of birth, tax identification number (TIN) (for Specified US Persons where available); National Insurance Number (for Specified UK Persons, where available); jurisdiction of residence (for reportable persons under CRS only); the account number; name and GIIN of the reporting financial institution; and the account balance (some minimums apply under FATCA).

Whilst there is clearly a cacophony of different issues for him to tackle, it did remind me of this excellent article in Reuters back in October which was already tracking the moves being made in the investment funds industry to continue the meteoric rise of ESG investment strategies.
For those that are very late to the party, ESG stands for environmental, social and governance and the story of ESG investing actually began back in January 2004 when former UN Secretary General Kofi Annan wrote to over 50 CEOs of major financial institutions, inviting them to participate in a joint initiative under the auspices of the UN Global Compact and with the support of the International Finance Corporation (IFC) and the Swiss Government. The goal of the initiative was to find ways to integrate ESG into capital markets.
Whilst the concept has become an undoubted success, getting it to this position has not been without challenges. Ignoring those that thought ESG might just be something of a fad, one of the more interesting issues came from institutional investors who argued that making investment decisions on the basis of these principles was actually a breach of their fiduciary duties to their shareholder base.
This has caused extensive debate, but a strong argument was being made in many circles that the pursuit of financial gains should always be the sole focus. It became litigious in a number of jurisdictions, where investment managers were challenged on both their principles and ethics, although in almost every case, it was where the financial gains had not matched the expectations of the investors.
But both the UK and the EU decided to take this out of the hands of the courts and the new disclosure requirements for investment managers and advisers with respect to their ESG policies will apply in the European Union from 10 March 2021 and new climate-related disclosures will apply to investment managers under a UK disclosures regime that is expected to be phased in from 2022.
We will ignore the impact of Brexit for the purposes of this short article, but it does appear that all of Europe is united on this front. What is interesting to watch is that the regulatory landscape in this area is undoubtedly evolving and when you add these new initiatives to the Shareholder Rights Directive, the UK Stewardship Code, the Principles for Responsible Investing and the UK Corporate Governance Code, it is now the case that European managers will be operating within these parameters indefinitely.
Figures show that assets in sustainable investment products in Europe are forecast to reach €7.6 trillion over the next five years, which will then outnumber conventional funds. Part of this drives comes from a critical mass of pension funds and insurers deploying capital exclusively to asset managers with ESG capabilities.
Whilst this level of market dominance has not yet been reached in the US, largely due to some of the scepticism highlighted above, the clearer path that the Democratic party now have in the US may well see their domestic capital providers follow a very similar path, especially in a market with greater maturity that really is looking for a transformation for the better.
This article was originally published by funds europe.

The fund must designate as AMLCO a natural person at managerial level with the requisite skills and experience, to manage the compliance programme and report to the board / general partner. The fund must also appoint suitable natural persons at managerial level as MLRO and DMLRO, to whom suspicious activity reports are made.
Generally the fund will then delegate performance of customer due diligence on its investors to an administrator. The AMLCO should be provided with periodic AML reports from the administrator and also reports on the fund's downstream investment activities, from its investment manager.
The administrator, fund or other service provider will need to comply with Cayman AML regulations.
Cayman AML procedures require:
assess and apply a risk-based approach to money laundering and terrorist financing risks and compliance
establish shareholder / limited partner / LLC member / unitholder identification procedures, including for beneficial owners and conduct ongoing customer due diligence
implement suspicious transaction reporting procedures
maintain know-your-client information and suspicious transaction records
develop internal controls, policies, reporting, procedures and record keeping that are appropriate to prevent money laundering and
implement an anti-money laundering training programme for staff members
Immediately from launch and ongoing obligation.
Existing funds should have designated natural persons as AMLCO, MLRO and DMLRO and have notified their details to CIMA via its REEFS portal.
Penalties under AML Regulations
Penalties under AML Regulations of up to CI$500,000 (US$609,750) and/or imprisonment for 2 years apply for breach of AML obligations.
Where an offence under the AML Regulations is proved to have been committed with the consent or connivance of, or to be attributable to any neglect on the part of, a director, manager, partner, secretary or other similar officer of the entity or a person who was purporting to act in any such capacity the person, as well as the entity, commits that offence and is liable to be proceeded against and punished accordingly.
Penalties under the Monetary Authority Act and the Monetary Authority (Administrative Fines) Regulations
Breaches of certain provisions of the AML Regulations may also attract penalties under the MA Act and regulations.
Penalties for each breach classified as minor are up to CI$20,000. For each breach classified as serious the penalty is up to CI$50,000 for an individual or CI$100,000 for a body corporate and for each breach classified as very serious the penalty is up to CI$100,000 for an individual or CI$1,000,000 for a body corporate.

The Virgin Islands Data Protection Act 2021 (the Act) is now in force. The Act imposes a number of obligations upon investment funds in relation to the processing of personal data that they will inevitably collect as part of the investor onboarding procedure.
In order to ensure compliance with the Act, investment funds should:
Provide investors with a privacy notice
Update their offering and subscription documentation
Revisit service agreements with third parties, most importantly, the fund administrator
Overview
The Act governs how a data controller may process, use and retain personal data. Anyone who falls within the definition of a "data controller" (of which an investment fund domiciled in the BVI clearly does) must now comply with the seven principles in the Act in relation to any personal data processed by the fund. Where a data controller engages a third party (such as an administrator or investment manager) to process personal data on its behalf (defined in the Act as a "data processor"), the data controller must ensure the data processor has appropriate safeguards in place in respect of the personal data.
In addition to governing how a data controller processes, uses and retains personal data, the Act also sets out the rights of individuals to control their personal data and implements a series of offences and enforcement measures designed to ensure compliance. The Act is broadly designed to reflect the General Data Protection Regulation (GDPR) and the Cayman Islands Data Protection Act (both of with which many clients will already be familiar), however there are a number of differences that you should be aware of.
Application of the Act to investment funds
Any investment fund structured as a BVI company or partnership, or any foreign company registered in the BVI that acts as a general partner of an investment fund will be subject to the Act and will be a data controller.
Investors in a BVI investment fund will routinely provide certain personal identifying information to the investment fund such as their name, address, date of birth, bank details etc and this is to be regarded as "personal data".
Although the persons whose data is gathered under the Act ("data subjects") have to be natural individuals, the Act will still apply in connection with corporate investors who provide personal data for their beneficial owners, directors, employees and members.
The individual to which the personal data relates does not need to be in the BVI or a citizen of the BVI in order for the Act to apply.
What must an investment fund do to comply with the Act?
As a data controller, an investment fund must ensure that it complies with the seven data protection principles contained in the Act. See our guide BVI introduces data protection regime for further information.
In practical terms, an investment fund can demonstrate compliance with the data protection principles by taking the following actions:
Send a privacy notice to existing investors, whether as a separate document or part of an update to the offering document
Update subscription documents to include a privacy notice for new investors as well as obtain certain acknowledgements, representations and warranties
Update offering documents
Update agreements with any third parties that would be regarded as a data processor on the basis that they process personal data on behalf of the data controller
Privacy notices
If the investment fund is already subject to GDPR then it may have already adopted a GDPR compliant privacy notice. If that is the case, then a few amendments to the privacy notice to reflect the Act are all that are needed.
If the investment fund has not yet adopted a privacy notice, then it should prepare one in order to communicate the required information to its investors and we would be happy to assist with this drafting where required.
In either case, the privacy notice should be sent to existing investors and/or made available on an investor or fund administrati...

This guide looks at the roles and responsibilities of the nominated officers of financial service providers whose job it is to look out for and report suspicious activity and who oversee the compliance function and ensure that adequate systems and controls are in place to comply with the Anti-Money Laundering Regulations (Revised).
Money laundering is the process by which the proceeds of crime are channelled through the economy/financial system in a way which is intended to conceal the true origin and ownership of the proceeds of criminal activity. The Proceeds of Crime Act (the PC Act), the Terrorism Act and the supporting Anti-Money Laundering Regulations (Revised) (the Regulations) are the main pieces of legislation in the Cayman Islands aimed at combating money laundering, proliferation financing and terrorist financing. Under these laws, those persons carrying out "relevant financial business" (referred to as financial service providers or FSPs) must apply a risk based approach to anti-money laundering, proliferation financing and terrorist financing (together, AML) compliance.
Nominated officers - money laundering reporting officer and deputy
The PC Act requires that FSPs have a "nominated officer" in place for the purpose of receiving reports relating to criminal conduct, with the Regulations creating the roles of the Money Laundering Reporting Officer (MLRO), Deputy Money Laundering Officer (DMLRO) and AML Compliance Officer (AMLCO). Accordingly, natural persons must be appointed as the MLRO, DMLRO and AMLCO for all FSPs, including investment funds.
The Regulations and Guidance Notes on the Prevention and Detection of Money Laundering and Terrorist Financing in the Cayman Islands (and amendments) (Guidance Notes) published by the Cayman Islands Monetary Authority (CIMA) set out more details on each of these roles and functions.
Who can be appointed as MLRO?
Under the Regulations each person carrying out relevant financial business must designate a person at management level as their MLRO, to whom suspicious activity reports (SARs) must be made. The MLRO should be someone who is well versed in the business of the FSP which may give rise to opportunities for money laundering, proliferation financing or terrorist financing. A DMLRO must also be appointed to perform the MLRO's functions in their absence. The DMLRO should be a staff member of similar status and experience as the MLRO.
The Guidance Notes provide that the MLRO should:
Be a natural person
Be autonomous, meaning the MLRO is the final decision maker as to whether to file a SAR
Be independent, meaning no vested interest in the underlying activity
Have access to all relevant material in order to make an assessment as to whether an activity is or is not suspicious
What is the role of the MLRO?
The primary duties of the MRLO (or the DMLRO in their absence) are to:
Receive reports of any information or other matter which comes to the attention of a person carrying out relevant financial business, which gives rise to an actual knowledge or suspicion of money laundering, proliferation financing or terrorist financing
Consider and investigate such reports in light of all other relevant information to determine if the information or other matter gives rise to such knowledge or suspicion
Have access to other information which may assist in considering such report
Make prompt disclosures to the Financial Reporting Authority (FRA) in the standard SAR form if after considering a report there is knowledge or a suspicion of money laundering, proliferation financing or terrorist financing
Establish and maintain a register of money laundering, proliferation financing or terrorist financing reports made by staff
Maintain a register of reports to the FRA
How do we identify unusual or suspicious transactions?
As the types of transactions which may be used by money launderers are unlimited it is difficult to define a suspicious transaction. The Guidance Notes are instructive in t...

After a highly educational trip down to Buenos Aires at the end of last year, I couldn't help but be encapsulated by everything that was going on in Argentina. It absolutely felt like a country that was finally moving in the right direction and the Tax Amnesty was a large part of that. On that basis, I took the time out to interview the head of our Montevideo Office, Horacio Woycik to gauge his views on how 2017 is playing out:
Thanks for taking the time to speak to me Horacio. I noted that on 31 March 2017, Argentina concluded one of the world's most successful tax amnesties, something of which you must be very proud of as a native Argentinian. Could you tell our blog readers a little more?
Thanks Phil. Although the Argentina Government was cautiously optimistic when announcing the Tax Amnesty on various assets[i] a year ago, the results exceeded all expectations, with $116.8 billion assets declared in total. This is impressive, particularly compared to the $1.7 billion declared under the former government's Tax Amnesty programme between 2013-2015.
That's a truly incredible result. What do you put it down to?
Some may attribute this success to investor confidence in Argentina's new Government, led by Mauricio Macri, but in my opinion, this only partially explains the results. Another deciding factor in the Amnesty's success was the unanimous consensus from local legal, tax and financial advisors that sooner rather than later, there would no longer be a safe place for undeclared assets and they actively encouraged all of their clients to participate. The Amnesty was seen as a "last chance" opportunity for taxpayers to regularise assets before the unprecedented flow of financial information amongst Tax Authorities following the implementation of the OECD's Common Reporting Standard (CRS) in September 2017.
That's interesting as clearly the CRS has been a huge topic of conversation down there for a while. Has it made that much of an impact?
Absolutely. CRS, FATCA and FATCA's bilateral Intergovernmental Agreements (IGAs) are reshaping the international financial system, and compliance with local tax obligations will soon be monitored by financial institutions more closely than ever before. In this context, tax amnesties are just another preliminary step in a coordinated global effort.
As a matter of fact, Argentina's Amnesty programme is only one of many Tax Amnesty programmes taking place simultaneously worldwide. Chile successfully closed its Tax Amnesty programme in December 2015 with $18.7 billion in assets declared. Meanwhile, Brazil recently extended its Amnesty programme until 31 July 2017, with $54 billion in assets declared to date. Additionally, countries like Colombia, Peru and Mexico have ongoing Tax Amnesty programmes.
So this is absolutely going to be become the norm. What can we expect after these various tax amnesties take place?
The high adherence to the different tax amnesties will likely trigger a wave of asset restructurings by high net worth individuals, with tax efficiency as the main driver. It's likely that there won't be a "one size fits all" solution for the structuring needs of clients from different countries, as structuring will be very dependent on local tax legislation, and solutions will vary from country to country.
Accordingly, private clients' increased use of fund structures for tax and estate planning purposes is likely to drive growth in Latam's fund industry.
That's very interesting and I'm our funds blog readers would like to know a little more about why that is.
I can see three obvious reasons why:
Funds are a natural vehicle for asset repatriation. Tax residents in Latam are disclosing billions of dollars through the ongoing tax amnesty programmes, most of which are held abroad. Some of those assets are likely to return to their investors' countries of residence once the "invisible barrier" of being undeclared is lifted. It could be expected that investment funds will channel a signifi...

After a highly educational trip down to Buenos Aires at the end of last year, I couldn't help but be encapsulated by everything that was going on in Argentina. It absolutely felt like a country that was finally moving in the right direction and the Tax Amnesty was a large part of that. On that basis, I took the time out to interview the head of our Montevideo Office, Horacio Woycik to gauge his views on how 2017 is playing out:
Thanks for taking the time to speak to me Horacio. I noted that on 31 March 2017, Argentina concluded one of the world's most successful tax amnesties, something of which you must be very proud of as a native Argentinian. Could you tell our blog readers a little more?
Thanks Phil. Although the Argentina Government was cautiously optimistic when announcing the Tax Amnesty on various assets[i] a year ago, the results exceeded all expectations, with $116.8 billion assets declared in total. This is impressive, particularly compared to the $1.7 billion declared under the former government's Tax Amnesty programme between 2013-2015.
That's a truly incredible result. What do you put it down to?
Some may attribute this success to investor confidence in Argentina's new Government, led by Mauricio Macri, but in my opinion, this only partially explains the results. Another deciding factor in the Amnesty's success was the unanimous consensus from local legal, tax and financial advisors that sooner rather than later, there would no longer be a safe place for undeclared assets and they actively encouraged all of their clients to participate. The Amnesty was seen as a "last chance" opportunity for taxpayers to regularise assets before the unprecedented flow of financial information amongst Tax Authorities following the implementation of the OECD's Common Reporting Standard (CRS) in September 2017.
That's interesting as clearly the CRS has been a huge topic of conversation down there for a while. Has it made that much of an impact?
Absolutely. CRS, FATCA and FATCA's bilateral Intergovernmental Agreements (IGAs) are reshaping the international financial system, and compliance with local tax obligations will soon be monitored by financial institutions more closely than ever before. In this context, tax amnesties are just another preliminary step in a coordinated global effort.
As a matter of fact, Argentina's Amnesty programme is only one of many Tax Amnesty programmes taking place simultaneously worldwide. Chile successfully closed its Tax Amnesty programme in December 2015 with $18.7 billion in assets declared. Meanwhile, Brazil recently extended its Amnesty programme until 31 July 2017, with $54 billion in assets declared to date. Additionally, countries like Colombia, Peru and Mexico have ongoing Tax Amnesty programmes.
So this is absolutely going to be become the norm. What can we expect after these various tax amnesties take place?
The high adherence to the different tax amnesties will likely trigger a wave of asset restructurings by high net worth individuals, with tax efficiency as the main driver. It's likely that there won't be a "one size fits all" solution for the structuring needs of clients from different countries, as structuring will be very dependent on local tax legislation, and solutions will vary from country to country.
Accordingly, private clients' increased use of fund structures for tax and estate planning purposes is likely to drive growth in Latam's fund industry.
That's very interesting and I'm our funds blog readers would like to know a little more about why that is.
I can see three obvious reasons why:
Funds are a natural vehicle for asset repatriation. Tax residents in Latam are disclosing billions of dollars through the ongoing tax amnesty programmes, most of which are held abroad. Some of those assets are likely to return to their investors' countries of residence once the "invisible barrier" of being undeclared is lifted. It could be expected that investment funds will channel a signifi...