Pieter Steyn is a Director of South African law firm Werksmans and Chairperson of the LEX Africa Alliance of African law firms. He has been practising South African competition law since 1999 and has also advised and assisted clients regarding competition matters in other African countries, as well as with regard to the COMESA Competition Commission. Alongside other major achievements in his career, Pieter and his team advised Funai Electric in obtaining the first ever merger approval from the COMESA Competition Commission in 2013. He speaks with Lawyer Monthly about Africa’s competition law and common misconceptions on Africa’s economy and legislation.

 

How has the M&A sphere changed in Africa over the years? What are your hopes for the sector in the near future?

In 2000, the cover page of the Economist called Africa the Hopeless Continent. In 2010, the cover page referred to Africa Rising and M&A activity has become increasingly important. One must however remember that Africa comprises 54 countries and a huge diversity of cultures, languages, religions, ethnic groups and political, economic, business and investment environments.  Such diversity inevitably affects M&A activity.  Since 2014, the decrease in commodity and oil prices has affected several countries including Nigeria, Angola and Ghana and the South African growth rate in 2016 was about 0.3%. These recent developments have affected M&A activity in those countries although in some regions like East Africa, M&A remains active.  Private equity investments also remain important.

 

What are the main challenges behind maintaining merger control in South Africa and how do you overcome said challenge?

One of the main challenges for merger control in South Africa relates to the public interest test in our Act, whereby a merger is not only assessed with regard to its effect on competition, but also with regard to its effect on certain public interest issues, including employment and the ability of small businesses or firms controlled by non‑white South Africans to become competitive.  Although the Commission is an independent body, the Minister of Economic Development may participate in merger proceedings with regard to public interest issues.  A non‑confidential copy of the merger filing must be served on local trade unions and trade unions may also participate in the merger proceedings.  In practice no merger has ever been prohibited purely on the basis that it had a negative effect on public interest, but in certain recent high profile cases (like the recent SABMiller/AB Inbev and Massmart/Walmart mergers), the public interest issue caused significant delays in obtaining merger approval and led to the imposition of quite complex conditions to the approvals. Such cases are, however, more the exception than the rule and in practice job loss concerns are resolved by a condition relating to a moratorium on job losses for a certain period after closing.  The Commission has issued guidelines on its approach to public interest as well as service standards for the time to decide mergers.  This is very helpful for advisers. The key issue is to identify and deal with these issues upfront and openly with the Commission to facilitate an early resolution.  The Commission is also currently working on guidelines for penalties for "gun jumping" or implementing a merger before approval.

 

How have cartel investigations changed over the years as competition grew in Africa?

An important recent development is a shift of focus by African competition authorities from merger control to cartel enforcement. An increase in dawn raids (for example in Kenya, Botswana, South Africa, Zambia and Malawi) indicates increasing confidence and experience of African competition authorities. In South Africa cartels have been criminalised since 1 May 2016 and this is likely to occur in other African countries. There is also an increased focus on regional cooperation (10 Southern African countries signed a cooperation agreement in 2016 and the South African Commission has signed bilateral cooperation agreements with the Kenyan, Russian, Mauritian and European authorities) and regional authorities (for example COMESA and in East Africa).

 

What is the first course of action in South Africa after proceedings have shown anti-competitive behaviour? Could this be improved in any way?

One must immediately assess the evidence and risk of a penalty and third party damages claims. The Commission has recently issued penalty guidelines which assist in assessing possible penalties. One must check if the conduct is ongoing as a complaint may not be initiated if the conduct ceased more than three years previously. For cartel conduct, immunity from penalties is available for the firm which is "first to the door". For other firms, the Commission considers penalty discounts of 10% to 50% if a settlement is reached. The criminalisation of cartel conduct is another complicating factor. Prevention is however better than cure and in house compliance programmes and clear guidelines for staff are important.

 

What are common misconceptions that (international) clients have in regards to complying with the local competition laws?

Although there are some basic principles which are common to most competition laws worldwide, one must always check local law and practices and policies of the authorities. South Africa's public interest test for mergers is a good example of a peculiarly South African approach to merger control. Another is that in South Africa dominance is defined by reference to market share with a rule of thumb 35% market share being presumed to be dominant.

 

Billions of dollars are spent on futile efforts, like employing the proverbial Chinese Army of compliance officers, most of whom may know a bit about AML, but next to nothing about the actual business and transactions. The same, unfortunately, holds true for many regulators, who can only thrive by regulating big banks. Gert Demmink’s idea is to allocate more resources to intelligence, police and CPS, and have them work closer together with FIU’s and internal bank AML units or MLRO’s

His suggestion: do away with current practices and the fixation on auditable processes, focus on outcomes and results instead. We speak with Gert on the notion of giving banks specific classes of licences for specific transactions and levying a transaction tax on banks.

 

 

What would you say is the main concern in reforming the processes behind the fight against money-laundering?

There is good effort being made to fight money-laundering but I still believe banks and financial institutions ought to work together with law enforcement to get the best results. I would say law enforcement and CPS (Crown Prosecution Service) would have to sit with banks and discuss their top priorities and keep a watchful eye on particular transactions.

 

You say ‘good effort is being made’ to fight such issues, can you outline what is currently helping?

The coordination and interactive nature of those reporting and receiving transactions, particularly in the Netherlands and other countries. However, there is no meaningful feedback from the FIU to the bank about transactions that they reported and their general policies. Banks, under the eyes of the regulators, will set up compliance rules and will have customer diligence, monitoring and reporting but the bank and regulators work in silos. It does not in any sort of way involve the enforcement agenda and I think that is needed.

 

Which jurisdiction is most vulnerable to financing terrorism and why do you think this is?

Many are vulnerable; this is difficult to pinpoint as terrorism finance laundering may only require € 5.000 to fund a bombing, for example. This can be perpetrated and financed via savings, Ebay or cash transactions, for example, and this can take place anywhere; however, larger schemes, such as the moving and proliferation of strategic goods or setting up training camps, food, water, training and weaponry, require a sophisticated financial set up.

 

What are the clues that might indicate there is terrorism funding?

Now that is the difficult bit; there is a list of suspected terrorism markers but the majority of them are not yet known [financially]. This is where the intelligence forces come in and we must know what they are looking for. It is a good thing to screen against a sanctions list, but this is only a small part of what we can do.

 

Would you say sharing that info is quite restricted in that aspect?

Yes – I would say there should be a department in banks that work closer with the FIU (etc.) as it would help with customer and transaction  due diligence; also, working closely with law enforcement and intelligence as it will help map out where the money comes from and where it is going to.

 

What would entail as a failure of observing AML/CMT standards? How do you ensure that revoking licences is done at the right stage and won’t be too late/too early?

With many violations, such as those leading to HSBC and BNP Paribas being fined, the cases are embroiled in never-ending legal resolutions and what happens is that their customers (especially with regard to HSBC) end up picking up the fine.

 

What do you think could be done to solve this?

I particularly like the Yates memo (from the former assistant attorney general in Washington); it is a firm memo that states we should get to those responsible: the well-established directors, managers and individuals who were responsible, rather than leave huge fines for the institutions; instead of ‘HSBC failed’ it would and should be ‘the board/management of HSBC failed’. When institutions fail so many times, you beg the question of why does someone not revoke their licence?

 

What do you expect the outcome of revoking their licence to be?

We would expect other banks to take over the client base. It would also send a very strong message to the sectors. Financial movement could be funding the proliferation of goods involving weapons of mass destruction and so banks should follow a process similar to that of strategic goods. Marshall Aerospace in Cambridge can only process specific goods under specific licences and other companies selling missiles (etc.) can only sell them when approved by the UK government. Therefore, my idea would be that if strategic goods need specific licences for certain transactions, we should adopt the same standard for banks.

For example, retail is a low risk for money-laundering so it could have an open-general export licence and mimic that on a financial basis.

 

Is this a realistic expectation to have?

Yes, as we can give open licences, general licences to the banks; it is open to discussion and some regulations may have to change, but I think it could work.

 

In the report (The Clearing House, A New Paradigm: Redesigining the U.S. AML/CFT FRamweork, February 2017) , it is claimed that the Treasury / Terrorism Financial Institute and The Financial Crimes Enforcement Network (FinCEN) should establish a robust and inclusive annual process to establish AML/CFT priorities; what do you think this process should entail in order to ensure it effectively tackles AML/CFT?

All it needs is better communication; management from banks and the Serious Fraud Office (SFO) or FIU (etc.), intelligence, the police can get together and discuss priorities based on the national security agenda. From this, they could look at certain transactions and the persons and countries procuring them.

 

What are the main barriers for this not happening?

As usual, ‘privacy’ is an issue. Data protection has always allowed that that if security is at stake, banks and regulators  can share information, of course mandated by the law. Of course, financial institutions must inform their customers of the notion that data may be shared in order to fight money laundering and fraud, but regardless, it is a matter of ambition, not a matter of laws. The three arguments/barriers are usually: data protection issues, difficulty in implementing it internationally and difficulty in ‘convincing the judge to undergo this movement’.

 

It is advised that Treasury TFI should strongly encourage innovation – in what sense is innovation not fully embraced and what are the effects of this?

This is a good question and I think it all comes down to data mining; I was in a meeting with HSBC and others, and we all agreed that data mining is a good idea. Via data we can find out if buyer and seller transactions are occurring through the same person, simply by looking at IP addresses, telephone numbers, work addresses or even information on Facebook and other internet activities; this can really help tackle money laundering.

 

Do you think there is a way around to ensure that customer’s privacy is respected whilst data mining?

If banks were to disclose the information beforehand, it is a good way of allowing the customers to make the decision themselves; they can either agree to it or move to another bank.

 

What would be an ideal way of determining whether customer accounts from a particular industry or country are appropriately examined to ensure they are not being inappropriately discriminated/ given little voice?

I think if you look at different sectors and the risk involved, you can better distribute attention; for example, for argument’s sake, we can determine retail to be a very black and white sector, thus allocating it less attention in comparison to the defence industry, because of the enormous budgets involved..

 

How has ineffective communication and barriers for sharing information between financial institutions enabled money-laundering to occur at ease? What barriers should be broken down to prevent this?

Money laundering thrives on the inabilities of law enforcement to share important information internationally and on the fact that jurisdictions are limited when it comes to communication. The competency of one law enforcement agency stops outside its jurisdiction, but only where another  [enforcement agency] begins and if there is no communication between the agencies, nothing will happen. There are so many reasons why communication is weak: the psychology and power of police and intelligence forces is certainly one. It is difficult to overcome communication problems and I think that we can only win the battle if there were one supra-national police force. One already exists in Europe - Force OLAF and does it work? No, as they are being consumed mainly by themselves.

There is a fine line to balance, and I think that the law helps manage this. If there were no barriers, they would be little restriction to what was shared and so I always say it is better to have one crook go free  than two innocents going to prison.

 

Out of all the matters which need to be resolved to ensure compliance is met, which do you think is the most pressing and why?

The most pressing would be shifting budgets; there are tens and hundreds of millions being spent by banks to no end. I do think there should be tax on  transactions to help fund intelligence and police; currently these people are bought out with higher salaries by banks, draining law enforcement and benefiting the banks. There will be negative reactions but it is doable.

 

The authors of this piece are Catherine Robinson and Matthew Ware, both of whom are solicitors for Byrne and Partners - a dedicated civil and criminal litigation practice specialising in financial crime.

Another day, another bank scandal. Another poster boy for city excess and the greed is good philosophy of wealth. His career, perhaps his reputation in tatters, regulators and tenacious financial journalists search for answers but some fashion the tale, and wonder ultimately, will it be Leo or Ewan McGregor that absorbs the character and makes it their own?

They are flippant words to be sure, but the notion of the rogue trader has played heavily on the media’s penchant for storytelling. And who can blame them? A narrative with characters drawn from the imagination simplifies and often enhances the story telling and livens up what otherwise might be a fairly dull account of financial analysis, complex trading strategies and the mystery of quants.

 

Recurrent themes 

There are the metaphors – the bad apples spoiling the bunch. Then there are the monikers.  Personalities can be big in the market and nicknames are common whether earned over time and often playing off physical characteristics, reflecting identification with the trading community or bestowed (often cruelly) by a single episode and forever inked.

But what about the notion of the rogue trader? Is it true? And is it fair?

The answer of course, is that that it is not simple, each case must be evaluated on its own merits to determine whether the latest financial scandal was a systemic failure within a financial institution or the devious ways of a master manipulator or indeed as is most often the case, an uncertain mix of both with the heady addition of big juicy bonuses thrown in.

 

Who puts the rogue in rogue trader?

A rogue trader is understood generally to be an employed trader in the banking industry who makes unauthorised trades. Typically, consequent behaviour might be false accounting or falsification of records to hide the fact of the rules being broken and often, the result is a huge loss for the institution to announce to the market. Nick Leeson was probably the most famous such individual.

 

A Brief History of Roguish Trading

 

Nick Leeson 1992-1995

Nick Leeson was a Watford raised son of a plasterer who quickly rose to become the chief trader in the Singapore office of Barings Bank- then the world’s second oldest bank. In the early nineties he engaged in unauthorised trading which while initially profitable, soon ran into spectacular losses. While hiding his trading in an error account, Leeson attempted to take riskier positions to recoup losses but ultimately could not salvage the £800 million loss position. Leeson fled Singapore while Barings was declared insolvent. Upon extradition to Singapore, Leeson was charged and pleaded to two counts of deceiving the bank’s authorities and cheating the Singapore exchange. The action brought down Barings Bank while Leeson was sentenced to 6.5 years in Changi Prison where he wrote a book about his trading exploits.

 

Toshihide Iguchi 1983-1995

Iguchi wrote the book on rogue trading, penning “My Billion Dollar Education: Inside the Mind of a Rogue Trader” in 2014. Iguchi was a Japanese national and he served in several senior trading roles at the New York branch of Daiwa Bank. Iguchi’s clandestine trading, which was motivated by a need to recoup and hide earlier losses, carried on for almost 12 years and appeared, at least at times, to be partly sanctioned by the bank before they filed a criminal referral letter on Iguchi and provided his confession letter to the FBI. Iguchi was sentenced to four years in prison and was released in 1999.

 

Jerome Kerviel 2008

Jerome Kerviel was a junior trader in the Delta One products team in Societe Generale’s Paris office engaging in program trading, exchange traded funds, swaps, index and quantitative trading. Kerviel had apparently been trading beyond his authority by approximately €49.9 billion in European stock index futures and, it was alleged, had concealed the activity by creating losing trades intentionally to offset the early gains. The bank closed out the massive positions during January 2008 while the market was down and losses totalled approximately €4.9 billion. In October 2010, Kerviel was sentenced to 5 years in prison after being convicted of abuse of confidence and illegal access to computers, though he denies wrongdoing.

 

Kweku Adoboli 2008-2011

Kweku Adoboli was a director of UBS’s Global Synthetic Equities Trading team in London. Adoboli also engaged in unauthorised trading on exchange traded index future positions. The subsequent losses (which eventually hit £2 billion) were hidden with fictitious offsetting strategies, including the booking of unmatched trades to internal accounts and using forward settling ETC cash positions. Adoboli was convicted in London of Fraud by Abuse of Position and was sentenced to 7 years in prison.

 

First as Tragedy...  

In varying degrees, these stories sound warning bells on institutional complacency and in some alarming cases, complicity.

By way of example, in fining UBS £27 million for the Adoboli episode, the Financial Conduct Authority (FCA) detailed UBS failures in supervision, systems and controls and escalation of identified risk management issues. The conclusions were underpinned by an independent investigation (the terms of reference of which are not detailed).

The FCA’s findings however said nothing of the culture of UBS and Adoboli has been an outspoken critic of that culture since his release from prison. He claims that one of his bosses took him aside and said “Push the boundaries until you get a slap on the back of the wrist”.

 

Then as Farce...

In this context, we should not forget one of the most pervasive, if difficult to elucidate, scandals of recent times, London Interbank Offered Rate (LIBOR), for which Tom Hayes and various ex-Barclays employees currently reside at Her Majesty’s pleasure. While not strictly just trading and certainly, if the breadth of the scandal is anything to go by, not all rogue, LIBOR is a striking example of pervasive and prevalent bank misbehaviour for which the ultimate punishment of loss of liberty fell to be served by the unlucky few. To be clear, everyone else was doing it has never been a particularly good legal (nor palate-able) defence and “my boss told me it was okay” has uncomfortable shades of Nuremburg, but consider the lightning fast acquittals of Read and others, brokers whose lack of seniority and significance in the context of the alleged manipulation may have contributed to their acquittal.

LIBOR, in many ways, seems akin to a sports match where players routinely bent the rules to breaking point, most clubs condoned or encouraged it and the umpires turned a blind eye for years only to reprimand the clubs and pursue some of the wrongdoers (generally the younger traders and submitters for whom Bloomberg Messenger recorded all) for example-making.

 

Stacking the deck?

LIBOR has also highlighted a very real trend of the bank or firm as policeman of its own bad behaviour. External law firms are hired to conduct an investigation and then to negotiate with the regulator over a suitable penalty and narrative to be formalised.

In regulatory settings, these are by way of a Final Notice as agreed between the FCA and the bank. However, several of these notices are now in issue with traders and submitters challenging their identification (usually by way of a description of their position within the bank) as the instruments of bank wrongdoing without the benefit of disclosure or representation.

Since the ground-breaking Upper Tribunal and Court of Appeal decisions in FCA v Macris, a number of traders and submitters implicated in allegations of LIBOR and other misconduct have done exactly this and we await the final determination by the Supreme Court with respect to Macris, but the noticeable change of approach by the FCA in this respect has given individuals a real chance to challenge findings against their employer which relates to their own conduct.

On the criminal front, there has also been change. In the last reporting year, the Serious Fraud Office (SFO) - a body tasked with investigating and prosecuting the most serious fraud and corruption cases - could only post a 31.6% conviction rate. A figure dwarfed in comparison to the Crown Prosecution Service’s (CPS’) 83.1% success rate in more general crime, suggested perhaps that juries appear reluctant to convict their corporate peers.

Coupled with this, there has been a shift in approach from the SFO, with an increasing focus being placed on Deferred Prosecution Agreements (DPA). For example, this month saw the Rolls-Royce DPA finalised for a record £671 million. The SFO incurred over £15 million on the case, through their investigation, charges, and then finalising the agreement, an amount they have now fully recovered.

A similar sum was invested by Rolls-Royce on their compliance programme. This spending, changes to the Board of Directors, and their complete co-operation was inter alia presented to Lord Leveson for his consideration when overseeing the DPA. Moreover, in the SFO’s second last DPA the company itself was awarded indefinite anonymity, preventing current headlines from finding its name.

It will be interesting to see how individuals identified as primary wrongdoers within a corporation during DPA negotiations fare in any proceedings subsequently brought forward.

 

Equality of Arms

The clear mismatch in terms of clout between firms and individuals when dealing with the regulator is stark and while the system does have various safeguards (including the aforementioned identification rights), it will often be in a firm’s best interests to highlight the wrongdoing of an individual and to minimise the effect of the rather more nebulous concept, culture. The rogue trader thus becomes a highly convenient narrative and given the firm generally gets the first bite of the cherry in dealing with the regulator, it can be difficult for the individual to overcome the settled agreed facts.

Such challenges to the regulator agreed narrative can unwind matters previously considered determined. Consider the dismissal of action against Bruno Iksil by the RDC after a comprehensive series of findings against JPMorgan Chase Bank. On the continent, consider Kerviel, who won an unfair dismissal case against his employer Societe Generale last year and was awarded €450,000 in damages by a French Tribunal. A court in Versailles then slashed the damages owed by Kerviel to his employer from €4.9 billion to €1 million in recognition of the deficiencies in the bank’s management control.

Does the ‘rogue trader’ have an avenue for redress against an employer if they feel they’ve been thrown under the bus? Employment partner at Browne Jacobson LLP Raymond Silverstein, one of Iksil’s lawyers says, “Formal address can be challenging but a variety of steps may assist the trader”.

Indeed, such examples have been seen. Following an internal LIBOR-rigging investigation, Deutsche Bank dismissed a number of employees as part of a US regulatory settlement.

Employment action ensued, with the bank settling a UK unfair dismissal case and losing a case in Germany. This resulted in the bank paying out, and also reinstating dismissed traders; the case demonstrates the difficulty of singling out individual wrongdoing, even at a civil level.

And what of the regulators? The FCA decried the Macris decision for its likely effect on its probes, positing that the need to offer third party rights will delay settlements but when it comes down to it, the regulator must keep an open mind and determine matters upon a review of all of the relevant evidence, including the account of the relevant individuals. A few high profile collapses in cases before the RDC suggest that Enforcement is not always immune to these traps.

There also exists a mechanism through the Complaints Commissioner to challenge the exercise of the regulator’s powers. In a recent case involving subsidiaries of HSBC and the whistle blower Nicholas Wilson, the FCA’s actions in dismissing Wilson’s concerns about systemic unreasonable debt collection were criticised.

 

Going Rogue: A Culture on The Wane

The evolution of the rogue trader narrative and other high profile scandals such as LIBOR has been a fascinating study in human behaviour and regulatory response. As time has passed, standards have become stricter and the elements of control and supervision have increased in significance.

With stronger regulation, comes scepticism of the rogue trader narrative. A strong compliance culture within a firm is not conducive to misfeasance but one that does not foster this breeds bad behaviour. It may not be simply the condoning of bad behaviour, but a culture which encourages its employees to push the envelope and rewards them handsomely for such behaviour while also often harnessing a trench mentality among sub-divisions within an institution. It evokes an atmosphere of impatience and disregard for the minutiae of rules. Take the profiled cases. Leeson took advantage of lax controls (and arguably very much embraced the rogue trader label), Adoboli says that his managers were frequent cheerleaders to similar risks he took and won big, and Kerviel still maintains his superiors were fully aware of his activity.

In other words, what of a bank’s culture? The FCA shelved its inquiry into the concept and was criticised roundly for doing so. But with the LIBOR scandal came Parliament’s response by way of the Financial Services (Banking Reform) Act 2013 in order to address “the profound loss of trust born of profound lapses in banking standards”.

This introduced a comprehensive regime for Senior Managers and strict detailed reporting lines. It places much of the onus back on management by holding specific individual responsibility if someone in their division engages in misconduct. It will be a brilliant and brave (and perhaps diabolically clever) rogue trader that is able to subvert this structure alone. That the SMR has been introduced is strong evidence that culture is defining of an individual’s bad behaviour whether the FCA think so or not. And perhaps it will signal the death knell of the rogue trader myth.

 

Progressing from an assistant lawyer to Judge, Senior Partner Dao Rina has a vast amount of experience with dispute resolution regarding corporate matters. He has acted for influential companies, and settled cases involving millions of yuan. He speaks with us about the most effective method of solving disputes and how this has progressed in China for corporations.

 

What method of dispute resolution is most effective when dealing with cases involving international corporations?

Cases involving international companies involved in the conflict of laws between different legal sectors, choosing the principle rule of law, and a good legal strategy in the dispute resolution, are the major difficulties and challenges involved when facing international commercial trade.

Compared with other dispute resolution methods, arbitration is much more flexible than the often rigid procedures and timetables of national courts. Although parties bound to commercial contracts have a number of options to resolve their disputes, only litigation and arbitration can provide a binding and enforceable decision. Unlike the judgments made in litigation of first instance, arbitral awards become final and binding on the parties as soon as it is rendered. Arbitration proceedings are not open to the public. Thus, business secrets and the reputation of the parties can be effectively protected. Pursuant to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (The New York Convention of 1958), which has been acceded to by 156 countries so far, arbitral awards may be recognised and enforced in these contracting states. So, we tend to suggest that multinational clients choose arbitration dispute solution.

 

When acting as a Judge, what were the challenges you were initially faced with and how did you overcome them?

The main challenges are judge’s mindset and the ability of controlling trial rhythm. I should finalise large number of cases within the time limit prescribed by law, and ensure that each completed case is high quality and embodies fairness and justice.

I often watch senior judges’ hearings, and learn from them all the time; being continuously updated in the judicial idea, business knowledge, documents and other professional knowledge ensures that the trial results conform to the law of intention and make impartial final judgments.

 

As a Judge, from an impartial stance and outside view, where can disputes go wrong? How would you advise barristers accordingly?

When handling a case, I should not only focus on contentious issues on the legal relationship itself, but also pay attention to the position and the litigant’s fundamental purpose. Dispute resolution is to satisfy certain interests and comfort of the parties. I would suggest young lawyers to apply “reverse thinking”; starting from the purpose can often result into finding the method which solves the problem.

 

How has dispute resolution changed over the years in China?

Litigation is the most standard and most authoritative dispute resolution mechanism. The lawsuit system is the largest, containing the most people of highest authority, resulting in a tightly led programme. However, China is developing an alternative to non-litigation dispute resolution mechanisms, in order to make up for the part of litigation. At present, China's Supreme People's Court is exploring neutral evaluation, with fewer disputes, alongside no objection recognition in civil and commercial disputes.

 

What has been your most challenging case so far, and how did it shape the way in which you practiced law in the future?

Each case has its uniqueness; every case for lawyers is a new attempt and challenge. The lawyer's experience has accumulated hundreds of thousands of cases, by rapidly achieving an accurate grasp of the focus of dispute cases, finding a breakthrough in the complicated legal relationship, and safeguarding the legitimate rights and interests of the parties within the legal framework.

When dealing with high profile cases, what must you bear in mind?

A Chinese old saying said: “A small victory [is done] with intelligence, great victory relies on moral.” If you give top priority to the interests of the parties, you can really win trust and respect, and only in this way, a career path will be more expandable.

 

Is there anything else you would like to add?

I have continuously been devoting my time to the dispute resolution domain, and understanding relevant laws, rules and regulations that apply to practice, for almost 20 years. Together with my judge's experience, I have witnessed the procession of China's legal system of contract law, from scattered to unity, and so I have deep understanding and rich practical experience in contract dispute resolution.

Some key cases last year saw me undergo the judicial proceedings and win cases which amounted to more than a billion [Chinese] RMB. I am always stripping out the contentious issue from the complicated legal relationship, and choose the best way to settle disputes for the customers, via litigation or arbitration and finally resolve their dispute.

With an array of legal experience and varied sector backgrounds, from being an M&A lawyer in private practice, to a senior officer at the US Securities and Exchange Commission (SEC), our guest talks to Lawyer Monthly about the personal and professional rewards of being an Investment Funds lawyer and teaching this subject at Harvard Law School.

In the interview, Norman Champ, a Partner in the Investment Funds Group at Kirkland & Ellis LLP in New York, details his legal life, the experiences that brought him to be a leader in his specialist area, and the impact each encounter has had on his professional development and job satisfaction in the world of law.

 

What led you to embark on a career in the legal profession? What draws you to your specialist areas of corporate & investment funds?

I wanted to be a lawyer since I was a kid. I’m not sure exactly what motivated me, but I think it may have had to do with books I read about lawyers. In my book, ‘Going Public’, I describe my decision to pursue a law degree instead of a Ph.D. in History.

After clerking in the Southern District of New York, I worked at Davis Polk & Wardwell, where I practiced in several groups, including litigation. I ultimately became a mergers and acquisitions lawyer and represented several investment funds in transactions. Later, I formed a family of funds for a client and then ended up leaving Davis Polk to be the General Counsel and a partner in Chilton Investment Company, an adviser to long/short equity hedge funds.

 

Within these segments, is there a particular legal sub-category you are more passionate about? Please explain.

Currently, I focus on advice to investment funds concerning the regulatory environment. With the SEC conducting exams and bringing enforcement actions against private funds, I am passionate about helping these funds comply with the law.

 

If you never chose to be a lawyer, what other profession might you have pursued and why?

If I hadn’t been a lawyer, I think I would have pursued a career as a professor of history. After college, I obtained a master’s degree in military history at King’s College London, and I think I would have gone on to get a doctorate. The nice thing is that I get to fulfill my desire by teaching my investment management law class at Harvard Law School.

 

What is the most rewarding part of your job, both professionally and personally?

With my prior experiences at a law firm, as a partner in a private fund and as a senior officer at the SEC, I am well prepared to advise clients on regulatory issues. I find it quite rewarding to be able to provide timely and helpful advice to clients.

Personally, it is rewarding to have added tremendous talent at Kirkland to continue to grow the firm’s regulatory practice. Aaron Schlaphoff and Jamie Walter have joined as partners after we worked together at the SEC. Ammani Nagesh also joined from the SEC to help with client relations. It is a pleasure to practice with such great colleagues.

 

What would you say have been the most valuable legal experiences or cases that have brought you to where you are today?

When I was at Davis Polk, I stayed a generalist for as long as possible. I worked on financings, securities offerings and litigations before becoming an M&A lawyer. That broad foundation of my legal career has been invaluable in later roles as a private fund general counsel and a senior officer at the SEC.

 

How did being the Director of the Division of Investment Management at the SEC impact your legal career?

Being Director of the Division of Investment Management will always be a highlight of my career. I enjoyed the opportunity to influence policy in the investment management area. The position also gave me a much wider perspective on the financial services industry, as I interacted with the Federal Reserve and other agencies and many entities regulated by the SEC such as broker-dealers, credit ratings agencies and national securities exchanges.

 

You also teach Investment Management at Harvard Law School; how does it feel to be paving the way for the future investment management lawyers? What key advice do you have for them?

I enjoy teaching my class and have been doing so since 2008. It is one of the few investment management courses at a US law school, so it is a privilege. I try to urge the students to get as broad an experience in law as possible. That being said, I also urge them to take lots of tax courses because so much of business ultimately is driven by tax. I stay in touch with many former students and enjoy advising them on career decisions.

 

To what extent have you had a hand in developing or implementing new or amended investment legislation in the US?

In my book, I describe my role in money market mutual fund reform in 2014 and the Volcker Rule in 2013. While I was at the SEC, the US Financial Stability Oversight Council focused on the systemic risk of the asset management industry, so it was an eventful time.

 

Do you have further future goals? Are there avenues you still wish to explore in the global legal sphere?

I’m enjoying building the investment funds regulatory group at Kirkland. We have the largest group of investment funds lawyers in the world, and I value my relationships with my clients and my team. I look forward to continuing to help build the best group of investment lawyers in the world.

 

Your book titled ‘Going Public’, about your experiences at the SEC is out from McGraw-Hill Education this month; what do you hope will be the overall response?

I hope readers will appreciate the progress that the SEC has made since the financial crisis at being a better and more data-driven regulator. I discuss some of the issues the agency faces, but also the improvements that have occurred. At the end of the book, I have the chance to present my ideas for reforms to make the government less harmful to markets.

 

Is there anything else you would like to add?

The SEC is conducting examinations of private funds at an accelerated pace and we are fortunate to have a deep regulatory group of more than 20 lawyers to help clients structure their operations to comply with SEC rules. We spend time with clients preparing for and responding to SEC exams. We also spend time helping clients in the registered fund space resolve complicated legal issues.

To learn more about ‘Going Public: My Adventures Inside the SEC and How to Prevent the Next Devastating Crisis’, and to order a copy, visit www.goingpublicbynormchamp.com.

 

 

Dr Christos Clerides is the head of Phoebus, Christos Clerides & Associates LLC which was originally established by his late father Phoebus Clerides, Barister-at-Law in 1950. The firm has handled very important cases in its 67-year history of litigations and Dr Clerides has seen through many influential cases that have allowed the legal sector to substantially progress in Cyprus. He has an extensive list of achievements: he has served before the Supreme Court of Cyrpus; he is an Honorary President of the International Association for the Protection of Human Rights in Cyprus; he has completed a substantial amount of research into Criminal Law, Security Law, Human Rights and Family Law, alongside contributing to reports, journals and books in his speciality areas, and has been involved in a number of game changing cases. We are honoured to speak with Dr Clerides about his many accomplishments and all he has done for the legal sphere in Cyprus.

 

Throughout your years of practice, what has been your favourite and proudest case and why?

The Supreme Court of Cyprus upheld our practise. In a difficult case I handled, our Appeal successfully reversed the District Court of Nicosia judgement that a “Common Law Wife” had no rights to the property of the deceased cohabiter. In the case in hand, the unmarried couple lived together for years. The deceased, a well-known Architect, had promised his cohabitee the flat in which they were living together until his death. The Appellate Court upheld our argument, taking into account the circumstances of the case, that a constructive trust protected her rights and ordered the Administrators of the deceased to transfer the property (flat) to our client, the “Common Law Wife”. It was the first time in the legal history of Cyprus that a Court acknowledged the rights of an unmarried couple. (Case of Clerides v. Stavrides (1998) 1ΑΔΔ 521).

 

What has been your most challenging case and how did you overcome these challenges?

The most challenging case I handled involved important constitutional issues. I acted for the Petitioner in the Electoral Court (Supreme Court of Cyprus) who contested the election of the substitute candidate in Nicosia. According to relevant Elections Law, in case of vacancy, if for example, one of the elected Members of the Parliament were appointed as Attorney General of the Republic, the next in line was of the same party in the electoral district and is automatically “elected” as a Member of the House of Representatives. I challenged the constitutionality of the law successfully and convincingly argued that previous case law to the contrary was wrong and should not be followed. Subsequently, as a result the Constitution had to be amended. The challenge was tremendous and was successfully met by our persuasive argument that when previous case law is wrong, it should not be observed anymore even if the precedent is of the Highest Authority i.e. the Supreme Court of Cyprus.
As Head of the Law Department at Frederick University, what do you think has been the biggest change to the teaching of law from when you were at university? What would be the main piece of advice you would offer students aspiring to commence in the legal sector?

The biggest change in teaching law since the 70’s when I was studying, has been the introduction of technology. The internet in particular, but not only that; the methodology of teaching has also changed. More emphasis is now placed in practical aspects of the law and less in theory. The emphasis is now placed in making “advocates” rather than just lawyers. As a result, practical issues are placed before every student to solve and less emphasis is placed on ethics and legal analysis.

 

As cofounder of International Association for the Protection of Human Rights, what were your aims when founding the organisation and have these been achieved?

Human Rights play an increasingly important role in our daily lives. In the 80’s when the International Association for the protection of Human Rights was set up, the aim was to educate and spread the Human Rights culture in a country which was a victim itself due to the 1974 military invasion of Cyprus by Turkey.  At that time, Cyprus Courts were not so apt or equipped to apply the European Convention for the Protection of Human Rights. We contributed towards creating the necessary culture. Nowadays the Courts are increasingly more aware of the Human Rights and apply the Law in their Judgements.

 

How do you prepare yourself for when you must represent the House of Parliament in cases? How does your extensive experience allow you to gain positive outcomes?

Representing the House of Representatives in the Supreme Court presupposes an increased level of responsibility. This means effort and in-depth research of the law applicable in the case in hand, very frequently involving individual rights, EU Law and important constitutional issues. Experience plays an important role in the presentation of such cases before the Supreme Court, normally before 13 judges of the highest level. Being alert and quick in response in argument before the Court usually requires in-depth knowledge of the subject and great experience.
Out of all the human rights cases you have dealt with, which has had the most positive impact? What do you foresee for your human rights work over the next few years?

The first case to be brought before the European Commission for the Protection of Human Rights against Cyprus was the case of Mavronichis v Cyprus (App. No. 28054/95). I had the honour and the privilege of filing this case alleging violation of Article 6 of the Convention relating to trial within a reasonable time. It was the first time that Cyprus was found to have violated Article 6 of the Convention ever since remedial legislation has been introduced, although the problem of delays in the administration of justice remains to a great extent. I presented numerous Human Rights cases before the European Court of Human Rights and the Supreme Court of Cyprus but also other Courts.  Perseverance in the field brings, albeit slowly, positive results in amending legislation and enhancing the protection through positive Court judgements.

 

 

What reforms are you looking out for which will make history in Cyprus?

The introduction of a permanent Law Commission for study, review and improvements to the law will be a blessing and make history in Cyprus. In many respects, unfortunately, legislation in Cyprus remains in the 50’s when Cyprus was a British colony. Since Cyprus’ independence in 1960, improvements have been introduced but not substantial enough to bring Cyprus Law to where it should be in a modern society. Accession to the EU has helped but has not touched core subjects such as Criminal Law, Contract Law, Torts, etc.

 

What is your main motivation behind all your success in the legal sector?

Hard work, perfectionism, perseverance and a sense of justice and commitment to the Rule of a Law in a democratic society are the most essential elements in my view for every successful and properly motivated advocate; but above all, a sense of honour as a member of an Honourable Society.

Clive Grossman Q.C, emigrated with his parents from London, to what was then Southern Rhodesia, in 1947, where he spent his school years growing up. After a few years as an articled clerk in a solicitor’s office, Clive went to the University of Cape Town and completed his BA and LLB in 1966. After joining the Attorney-General’s Office (in what was then called Salisbury) as a prosecutor, starting in the Magistrate’s Court, he ended up eventually prosecuting murder and terrorism offences in the High Court until he left to go into private practice at the Bar at the beginning of 1971. In this anecdotal interview, Clive speaks about white collar crime, revealing insights into major cases that showcase how widespread the sector is and the effect of money laundering on Hong Kong’s banks.

 

The concept of white collar crime was unknown in Rhodesia and thereafter in Zimbabwe by the time I left in 1983, although, from what I read, corruption is now rife in Zimbabwe. The only financial based crime that I can recall was based on the expatriation of foreign currency, as a result of tight financial controls; most serious criminal cases concerned crimes of violence and occasionally drugs.

I was fortunate enough to be recruited into what was then called the Attorney-General’s Office (now the Department of Justice) in Hong Kong in 1983. I emigrated with my wife and children, never to look back.

Before dealing with my entry into the world of white collar crime, I should perhaps explain what it encompasses; the term “white collar crime” includes a multitude of illicit behaviour, in relation to money.

It includes, of course, money laundering, but also fraud in its various guises: corruption, forgery, tax evasion, theft, and it spills over into financial regulatory areas involving market misconduct, such as insider dealing. Of course, many civil cases also fall under the generic rubric of white collar crime.

My entry into this field commenced more or less on my first day in Hong Kong. There was previously a company called Carrian, headed by a charismatic figure named George Tan. This company had caught the imagination of the Hong Kong public in the late 1970s and early 1980s, and people were falling over each other to invest in it. But not long before I arrived, the company had collapsed and George Tan and others had been arrested on a multitude of charges involving fraudulent activities connected with the company. On my arrival, the A.G.’s office was putting together a team to prosecute Tan and the others involved; I was to be part of the team and I was assigned to what we called the Commercial Crime Unit. I was led eventually in the trial by the late Lionel Swift QC. The various court stages lasted for several years.

I state frankly now, as I did then, that much of the terminology concerning accounting practice was foreign to me and I had a great learning curve to overcome.

There were many other aspects of the Carrian case which were investigated, including the practices of some of the local banks, the Stock Exchange, aspects of extradition, money laundering, etc., and I was involved in most of those areas. Eventually (my boss having been sentenced to 7 years’ imprisonment for corruption) I was promoted to head of the Commercial Crime Unit which was also the post of Deputy Director of Public Prosecutions.

At least two books have been written about this saga: Profits of Deceit, and The Joker’s Downfall.

One of the advantages, I have found in defending and prosecuting white collar crime (and indeed this relates to most aspects of being a lawyer) is that the field, of necessity, includes the requirement to delve into areas of expertise to which one would not normally regard. For instance, in many money laundering and fraud cases, forensic accountants give evidence and it is usually necessary to cross-examine them. To this end, one has to absorb the arcane mathematical mysteries of accounting. Other aspects of scientific involvement which may be involved, for example, handwriting examination in forgery cases.

The one case that stands out in my memory in this regard is usually referred to as “The Nina Wang” case. Nina Wang was regarded as the wealthiest woman in Asia. She married her husband, Teddy Wang, in the 1950/60s and by way of shrewd investment, they both built up a huge business empire. In the 1960s Mr Wang, for reasons I no longer recall, made a will leaving all his estate to his father, and although he and his wife were very close, Teddy Wang did not alter his will. In 1990, Mr Wang was kidnapped and had disappeared; his body was never found but he was assumed to have been murdered after his wife had paid a huge ransom. Nina Wang refused to believe that he was dead and after an ongoing feud with his father, maintained that her husband was being held captive on his instructions in Taiwan. Seven years after his son’s disappearance in 1997, Teddy Wang’s father brought an application to have his son declared dead as no one had heard from him. Nina Wang opposed this application but was unsuccessful. Once the Judge formally declared Teddy Wang to be deceased, Nina Wang produced an envelope and told the Judge that her husband had given it to her not long before he disappeared in 1990 and told her only to open it upon his death. She told the Judge that as her husband had been declared dead, the time had come to open the envelope. Inside were a number of documents, the important one being a will signed by Teddy Wang now leaving everything to his wife.

The father challenged this will on the grounds that it was forgery and one of the issues in the case was the age of the ink on the paper. I was briefed to deal with this aspect. The Plaintiff produced an American expert who said that from his expertise and experience he could tell that the ink was less than 3 years old (which meant of course that if Teddy Wang had died in 1990 and the will was produced in 1997, it must be forged). We, acting for Nina Wang, produced an expert who maintained that it was not possible to tell the age of ink after about 2 years; our expert was believed and so Nina Wang inherited the whole estate. So, although this was in fact a white collar crime case, the central issue concerned the chemical properties of ink.

The point of this anecdote is to simply show that because one is engaged in what is generically called ‘white collar crime’, one may very well not be limited to the simple movement of funds, but have to immerse oneself in abstruse scientific issues.

The movement of funds which generates money laundering is these days under intense scrutiny, largely because the laundering of money has been used for the funding of terrorism, illegal arms, drugs, etc. I think in Hong Kong at least, where we come across money laundering, it intends to be a consequence of corruption in Mainland China. Although this is only a generality, it is usually accepted that it is so.

Large organizations in Hong Kong, particularly the banks are now flooded with compliance departments to ensure that all transactions are carefully scrutinized to ensure their legality. So much so, tradespeople are starting to complain about the hoops that they have to go through in order to do normal business. This applies in particular to perfectly legitimate dealers, such as jewellers, who deal in cash. Transfer of funds from one country to another, especially to and from the United States is fraught with difficulties these days.

Solicitors in Hong Kong, who handle client’s funds also have a number of hurdles to overcome before they can accept funds and this sometimes makes it difficult for clients, or potential clients, to obtain legal advice. Nevertheless, it is generally recognised in Hong Kong that these barriers are necessary, as by all accounts there is a great deal of illegal money flowing from Mainland China, much of which has been seen going through the gambling establishments in Macau and to an extent, which cannot be quantified in Hong Kong too. The Hong Kong Government and the corporations do their best to counter this movement, but it is certainly known in Hong Kong that some law firms have been in trouble because they have not taken the right steps to ensure the legitimacy of funds.

Still, this is an ongoing operation and no doubt procedures will be more effective as time goes on.

 

Legal services contributed £20.3 billion to the UK economy last year. The biggest consumers of legal services are the financial, insurance and pensions sector (17%) followed by construction, IT services, and trade. Of the small business sector, 38% of services consumed relate to trading, compromising of tax, employment and intellectual property. With the rising number of female lawyers, together with cloud based technology and a growing realisation that the rainmakers in a law firm should be properly rewarded for their contributions, the traditional model of a law firm is looking more and more archaic in a more commercial age. We speak with Bhavini Kalaria, who founded a unique law practice; she believes there is little doubt that unless firms change, succession will become increasingly difficult.

 

The London Law Practice is a virtual firm working with consultant solicitors – how does this work and how is it different from other similar models out there?

The firm is regulated by the SRA and so the issues that most firms concern themselves with, remain the same for virtual practices; the key difference is how we work.

We have to be far more communicative, and find better ways of keeping in touch and making information available. This is much easier to do nowadays because there are so many cloud-based case management systems, and what I call “low tech” solutions that any firm can use and operate virtually should they want to.

The advantage for fee earners is clear – the work can be done from anywhere, so they are better able to work around other commitments.

What sets the firm apart from other virtual models is our incentive scheme which rewards fee earning and business development. The firm is founded on the principal of collaborative working, and so the scheme is an important value statement for us.

 

As your practice is a unique one, what other reforms do you think the legal industry need – for their clients and the professionals working in the legal sector?

Of all the changing nature of delivery, the one key and most significant issue facing law firms is only now being addressed – that of a traditional practices’ legal structure. That said, many firms now operate as LLP’s, but do so based on a “hourly rate” model which premises any business development on fixed overheads and time based billing.

Unless law firms and lawyers now start to adapt to a very new commercial environment, the people they are there to serve will simply go elsewhere. It’s of note that 95% of clients want fixed fee billing, but only 14% offer this.

A further consideration for law firms is the recruitment and training of new solicitors. The cost of recruiting and training a new Solicitor can be up to £71,000, together with an average salary of £50,000, which is a significant investment by a law firm. Firms are also finding that formal training is unsuited to business needs.

In addition, with the rise of flexible working, law firms with talented rainmakers are at the risk of losing good lawyers because of an unwieldy partnership structure and sometimes the inability of the decision-making process to allow an individual to innovate internally. Having a flexible working model tied to incentives and remuneration as The London Law Practice does, goes some way to allowing creative talent to adopt new legal products. A firm that can manage to train and retain good talent in a competitive environment will be well rewarded.

In summary, the industry does need to re-think the commercial model to be able to better serve all the stakeholders – clients and professionals.

 

Have you seen any trends which have worried business owners in London?

Many of our clients operate from serviced offices or are somewhat immune from changes to business rates (though eventually these rents will rise); however, retail clients are often impacted much more quickly.

This, and the impact of the cost of housing is causing businesses concern (I understand that the FSB did a study recently which found just that). For example, if you run a café and you can’t afford to pay staff over the minimum wage, it is difficult to recruit. Not many people can afford to either live/rent close to or travel to a place of work in London on that salary.

I’m also acutely aware that London will need to ensure that it can access global tech talent post-Brexit on easy terms if it wants to maintain a leading position.

 

With over 30 years’ experience as a member of KPMG’s Tax network, Angelos Gregoriades has participated in numerous merger, acquisition and corporate structuring and restructuring operations at both national and international level and has written many articles and presented seminars of the role of Cyprus as a regional financial and commercial centre. We have the pleasure of speaking with Mr. Gregoriades, who reveals why Cyprus is the country to invest, their plans to improve their international financial stance, and the opportunities Brexit will present.

 

When was the Cyprus Investment Funds Association (CIFA) established and what were its main objectives?

The Cyprus Investment Funds Association (CIFA) was established in 2013 to promote Cyprus as an investment funds jurisdiction. Its primary goal is to promote the Cyprus funds industry together with the rendering of Cyprus as a competitive investment fund and asset management jurisdiction of choice. In this regard, CIFA’s mission includes at local level to assist its members by utilising related international trends and developments, as well as the encouragement of professionalism and best-in-class standards in the services offered by industry professionals.

In addition, CIFA has been and will continue to work closely with the government and regulatory authorities in shaping the related legal and regulatory framework, by contributing to and promoting the enactment of relevant legislation when necessary in light of developments in the EU, as well as for improving the competitiveness of Cyprus. CIFA has made it a priority to create and maintain a strong legal, tax and regulatory framework in order to offer an attractive product competitive to that of other established jurisdictions and, to this end, it works closely with the government and regulatory authorities in shaping regulations.

 

Can you please outline the current status of the Cyprus economy and more specifically of the professional services sector?

The Cypriot economy has moved into a macroeconomic stability, thus confidence has been restored and we are once again on a path of recovery and growth. Cyprus is operating with an essentially balanced budget and with a good primary surplus; our budgetary planning for the period 2017-2019 remains safely within the margins of a balanced budget, ensuring that the public debt as a % of GDP will start decreasing.

Our banking sector is completely reformed and restructured. Capital adequacy and solvency have been enhanced significantly. Cyprus systemic banks now operate under the supervision of the European Central Bank, and there is a strong presence of new foreign investors.

Cyprus financial services sector continued to expand in terms of size, reputation and attractiveness, backed by a resilient regulatory framework, prudential supervision, consumer protection, and strong money laundering prevention mechanisms. The robustness of the sector is reflected in healthy capital and liquidity levels held by banks and continued registration of new companies and of funds and investment vehicles providing employment opportunities both within the direct financial intermediation segment and other related professional services activities.

 

Can you please provide us with a general description of the legal framework of funds in Cyprus?

An investment fund may be set up in Cyprus as either an Alternative Investment Fund (AIF) or an Undertaking for Collective Investment in Transferable Securities (UCITS).

Cyprus’ legal framework is all-encompassing and, at the same time, attractive enough to establish investment funds, which can meet diverse investor requirements and can accommodate a number of investment objectives including: Private Equity, Infrastructure, Real Estate, Venture Capital, Funds of Funds, Debt and/or Equity Securities. Loan origination funds are also permitted when targeting well informed/professional investors.  Cyprus AIFs may be set up using a corporate or contractual structure (i.e. limited partnerships or investment companies with fixed or variable capital or common funds).

The enactment of the Alternative Investment Funds Law (AIF Law) in July 2014 revealed the need for significant modernisation of the related legal framework and offers a comprehensive tool box and new structuring options competitive to those of other established jurisdictions.

 

What are the benefits for Fund Managers when using Cyprus? Are there any incentives?

We offer one of the most attractive fund tax regimes in Europe; both at the level of the Fund Manager and the investors, as well as at the level of the Fund. Worth highlighting is the already introduced provisions that exempt non-domiciled fund managers from taxation of their investment income and the 15% tax exception of their earned income, if their remunerated more than hundred thousand euros per year.  We do not impose withholding taxes on investors and no VAT law ensures that no VAT is charged on services in respects to investment management, administration and marketing services supplied to Funds carrying on business in Cyprus.

Expanding on the advantages of the Funds, the buying-selling securities are tax exempt and interest income is reduced by a deem deduction on funds invested within the Fund, reducing the effective tax on interest to 2.5% taxation.  Furthermore, a new provision is to be introduced for carried interest taxation not to exceed 7%, and the categorisation of Islamic Fund instruments as securities and exempted from tax on any gains realised.

The main components to transform Cyprus into a regional fund centre of excellence are its strategic location, its stable and transparent political infrastructure, its modern legal system based on common law, its full compliance with EU and OECD standards for anti-money laundering and insider dealing, and its expert professional and financial services offered at a competitive cost.

 

CIFA has recently announced the implementation of an action plan for the promotion of Cyprus as a financial services and investment funds centre. Can you please provide us with some more information on this matter and the forthcoming changes in the legislation?

Cyprus is currently taking further measures to optimise the regulatory, legal and tax framework and become an attractive jurisdiction in particular for private equity funds and a true competitor to other popular jurisdictions for funds and asset management.

In brief the changes expected to be passed into law mid 2017 relate to the following:

 

Enhancement of the Limited Partnership Vehicle

Cyprus aims, similar to the limited partnerships of Guernsey and Jersey, to allow the general partner to elect upon establishment for a limited partnership to have separate legal personality, while maintaining tax transparency status.  This is a key consideration for structuring funds and also establishing internally managed Limited Partnerships.

Moreover, Cyprus is proposing to introduce a list of non-management safe harbours for limited partners, which should help give confidence and legal certainty to investors being admitted to a Cyprus limited partnership for the first time.  This measure has already arguably assisted the Luxembourg Special Limited Partnership (SCSp) and, prior to this, the Guernsey, Jersey and Cayman limited partnerships, in gaining traction as common investment vehicles.

 

A New Product: The Registered AIF

Aside from focusing on the limited partnership vehicle, of particular note is Cyprus’ introduction of a regime for “registered”, but not authorised, Alternative Investment Funds, to facilitate quick and cost efficient fund launch.  Similar to the Luxembourg [Reserved] RAIF, the Cyprus Registered AIF will be able to market to professional investors and/or well-informed investors and will be managed by a full scope Cyprus or EU Alternative Investment Fund Manager (AIFM).  The regulated external AIFM will be entrusted by the Cyprus Securities and Exchange Commission (CySEC) to provide indirect supervision and ensure compliance.

The Registered AIF may be organised in any legal form available under Cyprus Law (investment company with fixed or variable capital, limited partnership or common fund), it can be open or closed-ended and it can follow any strategy and invest in any type of assets (except it cannot be established as a Money Market and Loan origination fund).

 

Introducing A Licensing Regime for Sub AIFMD Thresholds Asset Managers

As it relates to the asset management legal framework, Cyprus has aligned its national regime by closely mirroring the regimes established under the UCITS, AIFM and MiFID Directives.  It has been decided to introduce a licensing requirement and supervision regime for the Cyprus sub threshold AIFM (a so called “Mini-Manager”) the aim being to provide a reasonable and proportionate sub threshold Manager.

 

What are the opportunities that Brexit creates for Cyprus?

CIFA is closely monitoring the developments in the European Union and especially the discussions with Brexit which presents a huge challenge for UK based UCITS or AIFMs in accessing EU investors post-Brexit. Cyprus is a reliable member of the EU and Eurozone, but also a country with a broader outlook and thus be a strategic partner for the UK. UK asset managers, when considering how to structure their business going forward may, in order to maintain access to EU clients, work with a third-party EU based management company which will delegate the portfolio management back to the UK manager.

The platform solution provides investment managers with a fully compliant UCITS/AIFM entity and thus a European passport to market their funds within the EU, without the need to establish their own fund and/or management company substance in an EU Member State. The managers benefit from the efficiencies provided by the pre-existing structure of the platform in terms of sharing of costs, existing middle and back office operating models, tried and tested systems and quick time to market. In this respect, Cyprus offers a growing number of platform providers.

 

Rafael Morales has been in the legal game for over 30 years and has witnessed many changes in the Philippines’ legal sector and has partaken in several impacting cases; among his several qualifications and his important role as a university lecturer, Rafael has also had much recognition for his legal work, including citations in Euromoney Legal Media Group’s “Guide to the World’s Leading Banking Lawyers” and Asian Legal Business’ “List of 100 pre-eminent Asia-Pacific Lawyers.” He has been cited as a leading lawyer on several accounts and Chambers Asia Pacific considers him as an Eminent Practitioner in Banking and Finance. This month we discuss with Rafael his path to success; he reveals what aspiring lawyers should do in order to be an inspiring professional and how he wishes to see Asia and the Philippines progress in upcoming years.

 

What difficulties did you face along the path to a successful career in law? How did you overcome these?

It was not actually difficult as I was very much focused and determined to succeed in my legal career. What is more, I joined a law firm which placed a premium to excellence and integrity - the same guiding principles I have subscribed. I was, therefore, in a legal environment that I cherished and that made work less a chore, but more of a joy.

 

What has been the most challenging yet rewarding case you have worked on in your career so far, and why?

What comes to mind was my involvement in the restructuring of the external debt of Philippine borrowers, following the declaration of a debt moratorium by the Philippine government. My firm then acted as counsel to the Bank Advisory Committee that represented more than 450 commercial banks and financial institutions, and I was one of the partners in charge of the project. It took around ten years to restructure the debts and for the Philippines to exit from the moratorium. It was quite satisfying to have assisted our clients and at the same time helped the country get accepted once more by the international banking and financial community.

 

Out of all the areas in commercial and corporate law, what is your favourite area to work on and why?

That would be project financing because it is multifaceted. Not only am I involved there in the construction phase of the project but also its financing aspect, sometimes dealing with more than one syndicate of lenders especially in huge infrastructure projects. Structuring transactions or products is also quite interesting, as my forte is financial regulations. Derivative transactions also appeal to me as, in fact, I originally wrote the industry opinions for the Philippines to the International Swaps and Derivatives Association.

 

Which area of corporate law have you seen make the most changes and advancements since you began practising law?

Good corporate governance has been one of the thrusts of regulation. Minority stockholders’ rights are being increasingly protected. New regulations affecting corporates have emerged, notably in personal data protection as well as in the prevention of money laundering. In the recent past, Congress enacted a competition law that regulates, among others, M&A.

 

How are you hoping the Philippines and Asia itself, to progress globally, in relation to its M&A sphere?

Harmonisation of laws and regulations in the region should be fostered to progress, not solely in the M&A sphere. This is an initiative that the Association of Southeast Asian Nations must continue to pursue, although the process will be difficult because of the differing legal systems of the member states. For instance, Brunei, Singapore and Malaysia have common law systems in contrast to the civil law system of Indonesia. The Philippines and Thailand, on the other hand, have hybrids of both systems.

 

Are there any changes in banking and financial law you wish to see for the better of your clients?

I would like to see the passage of a general legislative framework for Islamic banking and finance but, in the meantime, the Bangko Sentral ng Pilipinas should already authorise the opening of Islamic windows within conventional banks. It is also timely to streamline the regulations, particularly the reportorial requirements that are becoming cumbersome and overlapping.

 

As a lecturer at the University of Philippines, what is most important for students to know about their future in law to ensure they become the best in their sector?

Law students must study their lessons seriously and diligently and keep abreast of legal developments when they become full-fledged members of the bar. Exposure to the different areas of law and practice is a must, for while specialisation is unavoidable, one must be a generalist to see the big picture. It is inevitable for the Philippine legal profession to open itself to foreign lawyers, partly in view of the General Agreement on Trade in Services. This means more opportunities for lawyers, and students should be inspired to excel in law school to be among the best and the brightest members of the legal profession.

 

Finally, what do you think is key in order to become one of the world’s leading lawyers?

The key is devoting the same level of skill and attention to all legal matters, big and small alike. It is producing excellent legal work with promptitude. It is about primus lex in operation, that is striving to be first in legal practice but without forsaking integrity.

 

Is there anything else you would like to add?

The legal market has changed and the transformation is ongoing. Legal futurists are trying to divine what the legal profession will be in the years to come. Law firms face competition not only within their own circle but from other professionals like accountants. In-house legal teams can now confidently dispense with external counsel’s advice on many matters. Global and regional law firms have been expanding beyond their respective home fronts. All these developments make career in law exciting. The challenge is in coping with the changing face of legal practice.