finance luxembourg 7 - november-december 2011
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Twenty years of focus on what really countsFINANCE INTERVIEW | David Steinegger,
CEO of Lombard International Assurance S.A.
HR
Focus : Harassment at work
STRATEGY
Entrepreneurshipcomes first
FUNDS
Surfing the regulatory wave
PAGE 20 PAGE 25 PAGE 27EN KIOSQUE - LUXEMBOURG Eur 4.50
5 453003 080404
novEmbEr - dEcEmbEr 2011 / 07LUXEMBOURG
Must one be waryof awarded banks
PRIVATE BANKING
BCEE – rewarded for its stability, year after year.
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For the third year running, the fi nancial magazine “Global Finance” awards BCEE with their “Best Bank Award – Luxembourg”. And for the fi fth time, the equally renowned “The Banker” magazine awards its “Bank of the Year – Luxembourg” title to BCEE. The “Spuerkeess” is, thus, perfectly suited to manage your capital and to offer you customised Private Banking services, entirely focused on your needs. Locate your nearest BCEE Financial Centre on www.bcee.lu or call (+352) 4015-4040.
BCEE Private Banking: Your fortune deserves attention
BCEE_FinanceNation_UK_A4_Visu1.indd 1 07/11/11 16:00
by
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The grapes of indignity
It started with an email, an invitation or an order slipped in the middle of the message,
sent to the employees: “Pack your things and move”. Then slowly, without their being
aware of a growing problem, isolation swept in, reducing social interaction with their
colleagues to a few polite conversations. Once the damage was done, it was frightening
to see the person they had become - tired, broken, alone.
Psychological harassment is a serious issue that is affecting more and more people in
Luxembourg in the financial sector. Not because it is the financial sector, and not neces-
sarily because it is Luxembourg. But the absence of any legal framework condemning
or even attempting to prevent harassment at work from taking roots is, in a modern
society, unthinkable.
At a time when the financial crisis has weakened company structures, when mergers and
acquisitions are accelerating, and banks are being nationalised or re-capitalised, the un-
certainty that prevails today provides a ripe soil for the grapes of harassment to grow.
For now, the problem is left to rot in a backroom - just like all those who are suffering
in silence, too afraid or confused to speak up. It is time for the Ministry of Labour, the
Ministry of Health and the Ministry of Finance to gather all interested parties around a
table and discuss a law that is clear (to define what harassment is and differ it from stress-
related diseases), just (to give lawyers and magistrates the right instruments to defend
and judge), and simply human (for victims to finally recover their dignity).
By Delphine Reuter
kosm
o.lu
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Annoncesimple_NGRstar_A4:Mise en page 2 6/03/09 9:40 Page 1
8
FInAncE InTErvIEW
david Steinegger, Lombard
International Assurances S.A.
InSUrAncE10 - david Steinegger, Lombard International Assurances S.A.
FUndS27 - State Street surfs on the regulatory wave
30 - meet Luxembourg's Private Equity & venture capital Association
42 - Why invest in clean technologies
60 - Snapshots - ALFI Global distribution conference
PrIvATE bAnKInG54 - bankers uncertainty echoed in IT choices
STrATEGY25 - How Allen&overy puts entrepreneurs in the driver's seat
45 - restructuring through Luxembourg
52 - How LFF sells Luxembourg in Asia
64 - Sparking innovation and financing it
Hr20 - Focus - Harassment at work
66 - careers
AmL34 - How a rogue lawyer became financial consultant
38 - risk management in Islamic Finance - Zakat
63 - Event - An AmL & KYc tool for SmEs
AccoUnTInG48 - more coherence needed for tax optimisation
TEcH56 - How the cobIT framework helps bring IT and business closer
58 - Future domain names: a big opportunity
61 - Event - IT-powered governance can deal with management
and regulatory challenges
november - december 2011 / 07
Luxembourg to adopt legal framework for Family Office
The Ministry of Finance is working on a law
clarifying the role and responsibilities of
family offices, entities offering asset man-
agement services to families, individuals
and foundations. The ABBL estimates that
in Luxembourg, the Family Office business
represents about EUR 10 billion of assets
under management. But there could be
many more entities that do not yet use the
term as a reference for the services they
offer and having a legal framework could
entice them to make that choice.
CSSF approves Deutsche Börse and NYSE Euronext merger
In October 2011 the CSSF approved the
merger of Deutsche Börse and NYSE
Euronext, concluding that there are no
banking supervisory reasons against the
merger in Luxembourg. The CSSF exam-
ined the admissibility of the acquisition of
important shareholdings in Clearstream
companies within Deutsche Börse Group
in Luxembourg by the parent company
of the new group, Holdco, domiciled in
the Netherlands. The shareholdings in-
clude Clearstream International S.A. and
Clearstream Services S.A., as well as Clear-
stream Banking S.A. as an international
settlement institution. The BaFin, the
German regulator, had already approved
the merger. The transaction is subject to
further closing conditions.
Chamber of Commerce criticises 2012 budget plan
According to the Chamber of Commerce
the budget presented by the Luxembourg
government for 2012 does not sufficiently
protect the country against the current finan-
cial crises and provides no safeguard if the
Déclarants 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Etablissements de crédit 113 265 375 411 470 387 375 452 636 1166 4629
Autres professionnels du secteur financier 5 15 34 27 43 33 45 50 45 54 63
Assurances 12 49 95 60 43 28 41 26 27 46 78
Notaires 0 0 0 1 3 4 4 0 1 2 4
Réviseurs d'entreprises 1 12 7 4 3 13 6 4 8 12 10
Experts-comptables 0 3 4 5 16 19 11 17 25 29 46
Casinos 1 0 0 0 0 0 1 3 7 15 21
Agents immobiliers 0 0 0 0 0 2 1 0 1 0 0
Avocats 0 0 0 0 0 3 1 0 2 6 13
Conseils économiques et fiscaux 0 0 0 0 0 1 0 0 0 1 2
Marchands de biens 0 0 0 0 0 1 1 0 0 1 0
Total des déclarations 132 344 515 508 578 491 486 552 752 1332 4866
Eurozone crisis were to last. The Chamber
declared that the crises “strongly threaten
Luxembourg’s growth potential on the mid-
and long-term with negative consequences
on its social security system.” The Chamber
calculated the deficit faced in 2012 will be of
EUR 1,143 billion as a result of more expendi-
tures (+6,1 percent) combined to insufficient,
although rising, revenues (+4,9 percent). Cur-
rent expenditures progress too quickly taking
into account mid-term economic growth and
the European average, economists said. “The
need to further be in debt when all countries
lower their lifestyle standards proves that
Luxembourg does not perceive these risks
as threats and prefers worsening its deficit
instead of reforming it,” they said.
Read the whole declaration on http://bit.ly/tNanFz
LuxCSD, access point to TARGET2
On 17 October 2011 LuxCSD started op-
erating as the national access point for
Luxembourg to TARGET2-Securities. Lux-
CSD was designated Securities Settlement
System by the Luxembourg central bank
and is required to operate under the pro-
tection of the Settlement Finality Directive.
Incorporated in July 2010, it is jointly owned
by the Banque centrale du Luxembourg
(BCL) and Clearstream International. Lux-
CSD covers securities settlement in central
bank money, general issuance services,
issuance services for funds, asset servicing,
asset and connectivity.
The CRF is responsible for detecting and
investigating cases of AML in Luxembourg,
either originated from local actors’ declara-
tions or from foreign investigators’ requests.
To face rising workload, two financial an-
alysts were added to the CRF team. The
declarations of suspicious activi-ties rose
from 2009 to 2010, mostly thanks to the
introduction of an electronic form which
accounted for 77 percent of the total dec-
larations. Published in September 2011, the
2010 annual report from the CRF noted the
registered auditors’ suspect declarations of
AML as having the “highest quality” of all.
Source : Cellule de Renseignements Financiers 2011
Auditors drive quality of 2010 AML declarations
News
6 novEmbEr - dEcEmbEr 2011
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News
SocGen Private Banking officer awarded
Eric Verleyen, Chief Investment Officer of
Private Banking activities at Société Générale
Bank & Trust, has just been nominated in
the Private Banker International Awards,
outstanding young private bankers 2011.
This prestigious award highlights up-and-
coming private bankers under the age of
40 who are leaders in the industry. "I am
delighted to receive this international award.
It is recognition of the work accomplished
by the teams at Societe Generale Private
Banking in Luxembourg and underlines the
excellent opportunities for career develop-
ment at all levels of the private bank."
PwC handbook on Lux GAAP
After a first successful handbook released
in 2005, PwC Luxembourg has made avail-
able its “Handbook for the preparation of
annual accounts under Luxembourg ac-
counting framework” for companies, PSFs
and holdings. The 2011 version (FR, EN or DE)
contains an updated presentation of the new
information that companies should provide
to the tax authorities, many examples, and
references to the legal framework. It also
explains upcoming changes such as the
e-VAT and the electronic reporting of an-
nual accounts (2012). Contrarily to the 2005
edition which was free, this version can be
bought online on Luxembourg editor Leg-
itech’s website. The aim is to reach a wider
readership than PwC’s customer base.
More info: www.pwc.lu &www.legitech.lu
New fund domiciliator born from strategic cooperation
In October 2011 Luxembourg Investment
Solutions S.A., a regulated (UCITS-licensed)
management company and Butterfield
Fulcrum, a global independent services
provider for the alternative investment
industry, signed a strategic cooperation
agreement to provide management com-
pany and fund administration services in
Luxembourg.
Private Bankers evoke the future of their business
On 27 October 2011 banking software com-
pany Avaloq organised a roundtable on
the future of Private Banking. The speakers
were Roger Hartmann (CEO of VP Bank
group), Luc Rodesch (Member of Banque
de Luxembourg's Executive Committee
and President of the ABBL Private Banking
Group), Claude Marx (former Deputy CEO
of HSBC Private Bank in Luxembourg), Paul
Chambers (Partner at ATOZ) and Francisco
Fernandez (CEO of the Avaloq Group). The
event, moderated by Frédéric Kemp, Man-
aging Director Benelux of Avaloq, gathered
more than 60 participants, most of them
members of Luxembourg banks Executive
Committees. For Luxembourg, participants
underlined the need to attract more and
more Ultra High Net Worth Individuals and
develop the right services for them. The
ability to provide tailor-made products to
customers and the speed at which these
products need to be adapted were also
highlighted. Other topics included transpar-
ency and investor protection; the expertise
of the Relationship Managers and the dif-
ferent initiatives of the ABBL and of the
government in that respect and in the pro-
motion of the financial marketplace; and
the impact of new technologies.
Who are the future owners of Dexia BIL and KBL?
On 10 October 2011 the Luxembourg
Minister of Finance announced that
Qatari investors could save cash-
strapped KBL and Dexia BIL. If the
CSSF approves the procedure, the
Qatari Prime Minister Sheikh Hamad
bin Jassim bin Jabr Al-Thani and his
sons will own part of KBL and Dexia
BIL through their Luxembourg-
based holding Precision Capital. The
Prime Minister started investing in
Luxembourg in 2006 through his
holding Balestra Properties, which
last March became Precision Capital.
Sheikh Hamad also owns UK-based
Challenger Universal, which was
specially created in 2008 to hold shares
in Barclays. The second richest man of
Qatar after the Emir, he is also the CEO
of the ubiquitous Qatar Investment
Authority (QIA), owned by members
of the al-Thani royal family. On the
board of QIA, which is in the world’s
top 10 sovereign wealth funds, sit the
representatives of Qatari institutions
like the governor of the Qatar Central
Bank and the Vice Chairman of the
Qatar Exchange. Luxembourg is not
the al-Thani family’s first coup d’essai in the European banking world. While
QIA is not directly investing in the
Luxembourg banks, it holds 100 percent
shares of Qatar-based Qatar Holding
LLC. Sheikh Hamad is a director of this
company, next to Bahrein-based Ahmad
Mohamed Ahmad Yussef Al-Sayed. Mr
al-Sayed is also one of the managers
of two Luxembourg-based holdings,
Qatar Holding Luxembourg and Qatar
Holding Luxembourg II, which are
both 100 percent subsidiaries of Qatar
Holding LLC - and therefore of QIA.
Qatar Holding LCC holds investments in
Barclays, Credit Suisse, Santander Brazil,
and the London Stock Exchange.
More info:Qatar Financial Centre Authority
http://www.qfc.co
8 novEmbEr - dEcEmbEr 2011
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2011P U B L I - N E W S
MOST INNOVATIVE
BANKING SOLUTION
2011
David Steinegger, CEO of Lombard InternationalAssurance S.A.On 25 October 2011 Lombard celebrated its 20th anniversary. With just over EUR 20 billion in assets under management, the company which has created a niche for itself in high-end wealth management solutions for HNWI and UHNWI has a bright future ahead.
© c
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10 novEmbEr - dEcEmbEr 2011
Mr Steinegger, who is Lombard today?
Lombard is the leader of the ”privatbancas-
surance” market, a niche market that we
created 20 years ago. The privatbancas-
surance concept combines private banking
and investment management services with
the sophisticated use of life assurance as
a financial planning structure to achieve
fiscal advantages and security for wealthy
investors and their families.
Lombard was founded by John Stone in
1991 and was the first company set up with
the vision to create a pan-European insur-
ance business from a Luxembourg base.
This became possible under the Third Life
Directive which was implemented in the
early nineties. The pan-European insurance
idea was very well supported by the Lux-
embourg regulator, the Commissariat aux
Assurances (CAA), and government to create
the right infrastructure so companies like
Lombard could get off the ground. In effect,
we have a passport, through the EU free-
dom of services, to market our solutions into
other European countries without needing
to establish a physical presence there.
We started in Luxembourg with five people
and no assets under management. Today, we
are celebrating our twentieth anniversary and
we’ve just reached EUR 20 billion under man-
agement. I would say it’s been a real success
story, from a small pioneering beginning, to
the leader in the market, a position we have
held for more than 10 years.
How has Lombard evolved over the years?
Lombard started with a few Independent
Financial Adviser (IFA) partners and our first
three countries were Belgium, Sweden and
Germany. In the mid-nineties we had our first
breakthrough with one of the major private
banking groups, Swiss Bank Corporation,
which became UBS. We persuaded them to
try the privatbancassurance concept for their
wealthy clients. Until then, if you had talked
to a private banker about life insurance, they
would have laughed – insurance was not
seen as a solution for wealthy, sophisticated
clients. Since then we have seen a dramatic
change in the acceptance of privatbancas-
surance and today it is widely recognised as
one of the most effective wealth planning
tools for private clients.
In the early days there was little competition
but we have seen this change significantly
in recent years. This has not been bad for us,
because competition has created a much
bigger market place, which in turn has
helped Lombard to grow and develop.
We have also seen the market evolve from
attracting affluent individuals, to HNWIs,
which we define as individuals investing
at least EUR 1 million in a life insurance
solution. More recently again, over the last
four to five years, the UHNWI end of the
market, for investments of EUR 10 million
or more, has risen sharply and now about
40 percent of Lombard’s business is with
these individuals.
Over the last ten years, we’ve seen a growth
of about 25 percent per year in terms of
our total assets under management. Back
in 2001, we were just under EUR 2.1 billion
of assets under management, and now we
have reached EUR 20 billion.
Can you describe what Lombard offers?
At the core of our business model is the
sophisticated use of life insurance as a
wealth planning tool, to convey tax and
estate planning benefits to wealthy indi-
viduals. Our focus is on generational or
succession planning, enabling individuals
or families to plan how assets get passed
on to the next generation. Depending on
where the client resides, there are tax ben-
efits in all European countries associated
with life insurance, but the precise benefits
vary significantly by country.
Innovation is at the heart of our success.
We are a relatively small company and
responding to the ever changing needs
of clients, as well as to legal and regula-
tory changes is something that we have
become very adept at. We have invested
heavily in building a specialist wealth plan-
ning solutions team, which together with
our marketing consultants who operate
in the local countries, are capable of re-
sponding to the ever changing markets in
which we operate. Luxembourg has been a
good centre to find these specialist people.
In many ways, we have a very simple model
– designing long-term wealth planning
solutions to meet the needs of HNWIs.
How do you reach your clients in the first place?
From a distribution point of view, we
never deal directly with end clients. We
work through specialist financial intermedi-
aries, and in particular private banks, HNWI
focused brokers and other independent
advisers to wealthy families such as fam-
ily offices, lawyers and accountants. As a
direct result of the financial crisis we have
seen many more clients turning to inde-
pendent advisers, who work alongside the
clients’ bankers, to advise on long-term
wealth planning solutions. We operate a
completely open architecture approach
to investment management, and Lombard
never undertakes any investment man-
agement. Today we work with over 500
reputable investment managers on behalf
of clients.
Are you seeing big changes in client requirements?
We have seen a significant shift in what cli-
ents want – there is much more talk today
about wealth protection rather than simply
investment growth. One of the clients’ fears
arising from the recent financial crisis is:
‘How do I protect my assets?‘ In the last
quarter of 2008, for example, when the
financial world seemed to be collapsing
and people were wondering if their money
was safe and how they could protect it, we
saw a flood of new money coming into
Lombard, and we had our best quarter ever.
Furthermore, this concept has advantages
beyond Europe. Take Latin America, for
example, where one of the big fears clients
have is of kidnapping or extortion. In this
context, a Luxembourg life policy offers a
safe environment for clients. That has been
DaviD Steinegger FINANCE INTERVIEW
novEmbEr - dEcEmbEr 2011 13
a big factor for us to promote our solutions
outside of the European markets.
Which are your core markets today?
As I mentioned earlier, in the early days we
started in three markets, Germany, Sweden
and Belgium. Over the years, we’ve typical-
ly added one new market every couple of
years. Today, we market our solutions across
a number of major European markets, and
we’ve also extended our presence to Asia
and Latin America.
Italy, Spain, Germany, UK and Belgium are
our five largest European countries. Sweden,
Finland and France have tended to be smaller,
but we do see strong growth prospects in
these three markets and have invested in ad-
ditional resources to further develop these.
Do you write high volumes of business?
Our target clients are those with EUR 1 million
and above, so we’re not a high volume player
in terms of policies but we are in terms of the
average policy value. If you spoke to some
of our competitors, they may write tens of
thousands of policies in a year but average
premium tends to be much smaller.
How do the products come together, does it come a bit from the client’s, partner’s side or from Lombard?
We don’t have products, but instead we work
on developing solutions that are tailor-made
to meet individual client needs. Our starting
point is to understand each client’s needs. We
don’t advise clients but instead work closely
with the client’s advisers and lawyers, our
partners and our own in-house experts.
Wealthy individuals often have complex
needs. Take for example a Swede living
in Sweden and wanting to retire in Spain,
while his children live in Paris and London.
He wants a long-term succession solution
that can work today in Sweden, and which
can be transported to Spain on retirement,
whilst also work as a succession plan-
ning tool. Our partners approach us with
many complex client situations and the
question we face is "can we design a solu-
tion that can meet that client’s needs?” Our
approach is to find ways to be innovative,
with the help of our highly skilled team of
experts, with their insurance, legal, invest-
ment and succession structuring knowledge.
When you look at your partnerships, how important have family offices in Luxembourg become?
Our experience with family offices in Lux-
embourg is limited and Luxembourg has
not been a market we have focused on.
The reason is that Luxembourg is a very
small market, so if you compare it with
Germany, France or elsewhere the oppor-
tunities are much bigger elsewhere. We’ve
worked with a number of family offices,
particularly in Germany where the concept
is an important part of UHNWIs’ wealth
management arrangements. Following the
financial crisis, clients have turned more
to trusted adviser and this can include the
creation of a family office.
How does philanthropy intersect with your business?
Privatbancassurance can be used in the
context of philanthropy. When a client
dies, for example, he may decide to leave
part of his wealth to his children and
another part to a charity. But we’re not
directly involved - it will be the choice of
the client to donate this money.
Does Luxembourg have anything special to offer?
A unique feature of the Luxembourg
insurance regulatory framework is the
unrivalled security and protection which
it offers to clients. The concept itself is
known as the Triangle of Security, reflect-
ing the fact that a tri-partite agreement
is in place between the Luxembourg
insurance regulator, the Commissariat
aux Assurances (CAA), the custodian
bank and the insurance company. This
means that all clients’ assets have to be
held in an approved custodian bank and
those assets are ring-fenced from the
insurance company’s own assets. This
feature of Luxembourg has certainly been
an enormous advantage for the Luxem-
bourg insurance industry in comparison
with what is available in other competing
centres such as Dublin.
So you see Luxembourg more as a gateway to provide solutions in other European countries than in Luxembourg itself?
Yes, for us Luxembourg is a gateway, al-
though ironically after 20 years, we have
finally, last month, launched a solution for
Luxembourg resident clients.
As a base for our business Luxembourg has
been perfect. We have a supportive regu-
latory environment, a stable government,
a strong investor protection regime and
access to highly skilled and multi-lingual
resources.
Any down side?
Well Luxembourg is not cheap, and to be
successful as a business the key is to add
value through know-how, expertise, and
sophistication, so the Ryanairs of the insur-
ance world don’t choose Luxembourg!
In order to continue to prosper, Lux-
embourg needs to address a number of
important issues from a cost and infra-
structure perspective, whilst maintaining
a business supportive regulator and gov-
ernment. If this can be achieved we see
good opportunities to continue to grow,
not only for Lombard, but also for the
wider cross-border life sector.
Do you have competitors in this market?
For the first fifteen years of Lombard’s
existence, if people asked us about com-
petition, we said that we didn’t really have
any comparable competitors. We met
competition in individual markets, but
not cross-border competitors with the
geographical diversification of Lombard.
Typically we found other players operated
FINANCE INTERVIEW DaviD Steinegger
14 novEmbEr - dEcEmbEr 2011
© c
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in one or two countries, rather than a
wide spectrum. In the last four to five
years, with our spectacular growth, com-
petition has arrived. Today there are three
or four significant players who are looking
to compete directly in our niche.
For Lombard, in some ways, it’s a good
thing because it keeps us from ever getting
complacent. The challenge is to remain
the market leader, by continuing to focus
on the things that have given us the edge
in the first place – fantastic distribution
partner relationships, innovation and ser-
vice. These building blocks are even more
important now that competition is here.
A further benefit from the arrival of
competitors is the fact that privatbancas-
surance is much better understood today
than it was ten years ago. In the past,
Lombard was a lone voice in the wealth
management. Today, because there are
many more companies in the market, the
understanding and the use of life insur-
ance is much clearer.
How are you approaching Asian clients?
Asia is an amazing place in wealth cre-
ation terms, and a great opportunity for
the wealth management businesses. Whilst
there are no real tax advantages associated
with our solutions, privatbancassurance
solutions can be used to provide clients
with security, asset protection and succes-
sion planning benefits. The right structured
solution can enable a client - a typical client
for us is a successful entrepreneur - to con-
trol these assets over his lifetime and even
beyond, whilst providing maximum investor
protection for those assets.
Our Asian business is small, typically it
has been less than 5 percent of our to-
tal business, but is growing significantly.
We intend to gear up our investment in
Asia over the coming years - we oper-
ate through a licensed broker in Hong
Kong and we’re considering a base in
Singapore. We see that as an exciting
opportunity for the longer term. We
think a lot more education and time is
needed working alongside private bankers
and other client advisers to explore and
explain the role of privatbancassurance,
16 novEmbEr - dEcEmbEr 2011
as well as the benefits of Luxembourg
within the Asian market.
Do you need to be present there in order to attract clients?
You certainly need a marketing presence.
Following our successful business model,
we would not set up an insurance com-
pany in Hong Kong or elsewhere. It’s about
operating there in a compliant way, working
through an authorised broker or a regulated
entity and marketing the Luxembourg story
into the Asian market. Our intention is to qua-
druple our Asian team in the coming years.
What about your growth in Latin America, is it comparable?
Latin America also represents less than 5
percent of our total business and we remain
committed to growing our Latin American
business too. The rate of growth is likely to
be slower however.
How do you see Lombard growing in terms of distribution partners?
If you name ten private banks, I’m sure
we have relationships with nine of them
today. Our aim therefore is to focus on
deepening our existing relationships with
key partners and extending our presence
with them in new markets. We may work
with a private bank in two markets to-
day, for example, so the challenge for us
is how we can extend this to work with
them in, say, four markets in the future.
So in essence we double our geographic
presence with that bank, but it’s still the
same relationship and at the same time
we remain focussed on our core markets.
We typically work on a very small percent-
age of a bank’s client base, we can focus
on doubling or tripling it from 0.1 to 0.2
percent. For the bank it’s still tiny but for
Lombard it can be very significant.
An area of growth in terms of the numbers
of partners is the sector described as inde-
pendent practitioners. They can be family
offices, tax advisers, legal advisers, etc.
This is an area we have certainly seen
growing since the financial crisis. Cli-
ents still have the money in three or four
different banks, and they turn to their
trusted adviser or independent practitio-
ner to decide on their wealth management
strategy.
At the same time, I believe there can be
a bright future for private banking, but it’s
about much more sophisticated products
than in the past. It’s about holistic wealth
management. The insurance industry and
private banking can complement each
other to ensure that together, we build
solutions that are useful and valuable for
clients in a context of a transparent, com-
pliant world.
So the future is bright?
The future is bright. And in many ways, it’s
even brighter than it was. As I said earlier
competition has helped to create a much
bigger market place – so the cake is much
bigger today than years ago. The erosion of
banking secrecy and the drive from clients
and partners to find compliant solutions is
also helping to create significant opportuni-
ties for our business.
Our optimism is also founded on the fact
that today’s global private clients’ wealth,
which can be estimated at more than
EUR30 trillion will be passed on to a fu-
ture generation over the next four or five
decades. Privatbancassurance’s penetration
of the generation planning market today
is still relatively small so there are strong
prospects for growth.
There’s growing pressure for compliance in the financial sector, How is this affecting Lombard?
The new world is all about compliance and
transparency and in this regard, privatban-
cassurance solutions have come of age.
I’m a great supporter of Luxembourg and
I think there are excellent opportunities for
Luxembourg in the future. But these oppor-
tunities have to be built around compliance.
We only provide solutions which are 100
percent compliant with the legal and fiscal
requirements of the client’s country of resi-
dence. For example, for a Finnish client, we
will provide a Finnish policy, in the Finnish
language, that meets the Finnish rules, but
it’s manufactured in Luxembourg.
Let’s go into the details of what you mean
by banking secrecy, what should be kept
and what should not.
The old world banking secrecy was where
clients hid their money somewhere and there
was no chance the taxman would ever find
out. That old world is largely dead in Europe
with all the recent changes we’ve seen. These
changes are irreversible and it’s moving in
one direction - the new world is about trans-
parency and disclosure, at least in Europe. The
future for Luxembourg has to be based on
fully compliant solutions for clients.
There is one part of banking secrecy which
remains important, and that is privacy. We
have a number of very wealthy clients,
and a number of famous clients. Wealthy
individuals want privacy – not to avoid
taxes – but to protect themselves and their
families from personal financial information
leaking out to the press or elsewhere. So
privacy is important. I think this is an area
where Luxembourg must remain strong in
the future. In Latin America, an important
feature for clients is this privacy, to minimise
the risk of extortion or kidnapping. As a se-
cure and stable environment Luxembourg
and the Triangle of Security can offer real
benefits to such clients.
How has the acquisition by Friends Provident and then its acquisition by Resolution affected Lombard?
Lombard was independent until 2005 when
we were acquired by Friends Provident, which
has now changed its name to Friends Life. We
have successfully maintained autonomy as
part of that deal. Our shareholder is happy to
leave us relatively autonomous, so long as we
deliver strong results and ensure that com-
pliance, risk and control is tightly managed.
We’re almost like a plug and play model;
you could unplug Lombard tomorrow
from the group and we would continue to
DaviD Steinegger FINANCE INTERVIEW
novEmbEr - dEcEmbEr 2011 17
operate as we are today. We’re ultimately
part of a bigger financial group so in terms
of support, we have it available if needed.
But in fact we haven’t had new capital since
we started in 1991.
So overall we have enjoyed a good rela-
tionship, and have delivered strong results
for our parent.
How are you affected by the volatility in the markets?
Privatbancassurance is not focused at all
on short-term investment performance.
Of course, clients will choose an invest-
ment strategy, but within the range of the
client’s investment risk appetite, privatban-
cassurance is all about a long-term wealth
planning solution, and not the short-term
market performance. It’s much more about
looking at the next ten or 20 years and
what’s going to happen even beyond that
period. The downside of volatility is that
certain clients and their advisers may prefer
to delay long term decisions.
What are the core issues the Luxembourg government should focus on in the future?
If you look at the insurance statistics, the
cross border sector is the dominant seg-
ment, and yet it’s been under-promoted
as an asset for Luxembourg. I'm on the
board of ACA, the insurance association,
and one initiative that has been kicked off
at last, is collaboration with Luxembourg-
for-Finance to improve the promotion of
this sector internationally. I’m happy that
progress is being made.
The government and the regulator have been
supportive of our business and it would not
be at the level it is at today had it not been
for their support. Over the years we have
seen some significant improvements in this
regard in terms of the regulatory flexibility,
for example of asset admissibility that we
provide to clients from Luxembourg. In this
regard, I think that an important factor for the
government is to make sure that Luxembourg
remains flexible and competitive.
The world changes very quickly and one
of Luxembourg’s advantages as a smaller
country is access to the political leaders and
decision makers. In my view, there’s a parallel
between the benefits for Luxembourg in the
phrase “small is beautiful” and for Lombard
too - using flexibility and focusing on under-
standing business and customer needs is an
advantage that some of the other economies
and bigger competitors will never have.
For the longer-term growth of Luxembourg
more investment is needed in infrastructure,
for example in relation to transportation and
schools – this is crucial to address. The au-
tomatic indexation of salaries mechanism is
also a competitive disadvantage for Luxem-
bourg. I hope this will change.
Luxembourg has a real multi-lingual capac-
ity and broad skill base in financial services.
Everything should be done to continue to sup-
port and promote this important advantage.
We’re been here 20 years now if these issues
can be addressed then I'm confident that
we, and others, will continue to thrive and
prosper for at least another years.
So what’s the key to Lombard’s future?
We’ve developed a business model that
provides innovative, tailor made solutions
and a very high level of service for partners
and their clients.
We intend to stay ahead of the com-
petition and remain the leader in the
market, by investing in innovation, ser-
vice and by continuing to build successful
partnerships.
But more important than anything are the
people we have. The real value of Lombard
is the team we have and we’re very proud
to have such a talented and committed
team. At the heart of our success is this
great team, and the entrepreneurial flame
that continues to burn brightly in Lombard.
So retaining, motivating and developing
the team is the key.
Interview by Depline Reuter
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FINANCE INTERVIEW DaviD Steinegger
18 novEmbEr - dEcEmbEr 2011
Focus
In 2007, Mrs H. took a promising new po-
sition at a bank based in Luxembourg. A
hostile situation with a colleague progres-
sively degenerated until she decided to refer
it to her hierarchy. She says that while an
expert in mediations came to hear both
her and her colleague, the situation did
not improve. Less than a year after her
arrival, she received what she considers
was a really bad work evaluation. “It was
an aggressive and degrading judgment of
the quality of my work. It made me feel
worthless.” Feeling more and more isolated
from her colleagues with whom she barely
shared daily tasks, she was transferred for
a month to another service below her pay
grade – archives. “My colleagues were ask-
ing what I was doing there. I didn’t even
know myself. I was alone, surrounded by
empty desks.” She says that at the time
she only thought about her salary and her
17-year-old son. But a doctor appointment
changed everything.
At the end of November 2008, Mrs H. start-
ed seeing a psychotherapist on her doctor’s
advice. “She had been shocked to see the
state I was in.” The doctor diagnosed a
burn-out and told her to stop working to
prevent the situation from worsening. “I
cried, I knew she had nailed it. I knew I was
experiencing violence at work, but nobody
seemed to be able to help me.” The fol-
lowing January, she finally followed her
therapist’s advice and went on sick leave.
She says the relationship with her hierar-
chy became tenser after she came back. “I
felt more isolated than ever.” In July 2009,
she left the bank for another three months,
trying to pull herself back together. The fol-
lowing October, aware of her fragility, she
contacted the Human Resources depart-
ment to find a position more suitable to her
qualifications. “I still hadn’t let go of the idea
that I could succeed in my work.” She said
there was no clear indication as to what her
objectives or deadlines were. “I didn’t even
know when I could take days off.” She said
she continued seeing her therapist while
her moves at the bank were being watched
more closely. “I had to show certificates on
the same day of my appointments.” She
said she saw a colleague of hers victim of
the same lack of privacy. “She didn’t have
Luxembourg’s silenced victims”I feel like the ground was taken from under my feet. Maybe you cannot see it from the outside, but inside I’m a broken person; I’m completely destroyed.” Mrs H.’s bright blue eyes do not betray the secret she painfully carries around with her. She has the typical, carefully-planned career of a successful employee of the financial sector in Luxembourg. At 52, she can speak seven languages and use to her advantage more than twenty years of experience in the banking industry. Self-described as “dynamic and positive”, she keeps herself busy. But she says that since she was a victim of harassment in a slow process that started four years ago, she has lost her will to achieve anything.
Luxembourg texts:
- 25 June 2009 Collective Labour Agreement
http://bit.ly/uj3ag3
- 15 December 2009 Grand-ducal rule.
http://bit.ly/uIoRZw
- 18 November 2003 Initial Projet de loi on
harassment at work.
http://bit.ly/vSVf2P
- 15 November 2005 Opinion by the
Conseil d’Etat
http://bit.ly/ur0wxV
- 10 July 2010 Opinion by the Chamber of
Commerce, the Chambre des Métiers and
Chambre des Salariés http://bit.ly/vFaS7m
- 12 July 2010 Opinion by the Chambre des
fonctionnaires et employés publics
http://bit.ly/rA2IAO European texts:
- 2007 European framework agreement on
harassment and violence at work http://
bit.ly/t47SOW
- 2010 WHO report
http://bit.ly/tPq1D2
Luxembourg points of contact:
- Association for health
at work in the financial sector
http://www.astf.lu
- Mobbing asbl
http://www.mobbing.lu
- Luxembourg mental hygiene league
http://www.llhm.lu
- Health at work division, Ministry of Health
http://bit.ly/uFaL0m
20 novEmbEr - dEcEmbEr 2011
Hr
Karim Sorel, Lawyer at Etude Tastet & Sorel
A Court decision
promotes employees protection
In an October 2010 ruling the Labour
Court sentenced a private company to
pay EUR 7,500 for harassment. In June
2011 the Luxembourg Court of Appeal
agreed with the ruling and underlined
its importance in the absence of a
national law defining harassment. The
Labour Court had stated that it is the
employer’s duty to focus on results
rather than means in order to protect
employees’ health and safety.
More information can be found in
the September 2011 legal newsletter
prepared by the Chambre des Salariés
(in French):
http://bit.ly/vrPZTo
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novEmbEr - dEcEmbEr 2011 21
the energy or the strength to fight back.
During her sick leave they accused her of
not having sent a certificate, and she was
fired on the spot.”
Mrs H. finally left the bank in 2009 and found
a lawyer. Today she wants the bank to rec-
ognise the harassment they caused partly
because of their lack of reaction. “Why did
I stay? Had I left my job, it could have taken
months before I found another position. I
wanted it to work. I contacted everyone I
could at the bank to make it work.”
No definition, no problem?
In Luxembourg there exists no law prohibiting
harassment in the private sector. The only
official record of concern from the private
sector was a collective labour agreement
signed between the trade unions and the
employers’ association (UEL) in June 2009.
In December 2009, this convention was de-
clared a general obligation via Grand-ducal
rule. But, although a special commission
investigates harassment cases in the pub-
lic sector since 2008, putting a framework
preventing harassment at work is still a vol-
untary move for Luxembourg-based financial
institutions. Only a handful seem to have
bothered with precautionary measures.
In 2010, a survey led by Astrid Martinez,
a French graduate student in psychology
on behalf of the Association pour la Santé
au travail du Secteur Financier (ASTF),
showed how little Human Resources de-
partments are prepared for the situations
involving harassment at work. Out of the
130 companies that replied to her survey,
28 percent said they had never heard of the
2009 convention. Seventy-eight percent
said they had not put in place a preventive
plan against harassment. Seventy-three
percent said they would be ready to start
to work on their internal rules in order to
prevent these issues, while about a quarter
said they would not. Only two companies
at the time said they had known a case of
psychological violence. From the answers
she gathered, Ms Martinez concluded that
“not many companies seem to be actively
looking for solutions”.
Only four companies asked the ASTF to
organise stress management workshops in
2010: European Fund Administration; the
law firm Wildgen, Partners in Law; Nordea
Bank; and State Street Luxembourg. Others
may have included such a workshop in
general employee health training. Today,
companies seem to prefer to promote their
employees’ well-being through physical
exercise and a healthy diet.
Anyone can be a victim
Ms S. was really happy during the first
month of her internship. But at the end
of August 2008, she found out that her
boss’s idea of an intern was to spend some
worktime in the bedroom. She said that
her refusal sparked a vengeful response
from her manager who quickly started
using all instruments he could to destroy
her work, and ultimately, her. He would
prevent her from eating lunch and tell her
to continue working on “files he had kept
in his drawer for months and suddenly
urgently needed to close”. She said she was
“yelled at” when her colleagues were not
around. “He would criticise the quality of
my work or the way I dressed. I was always
on the lookout for his shouts. I lost 5 kg
in one month. My family and friends did
not recognise me anymore.”
She said she smiled so her colleagues
would not ask questions. “Had they come
forward and asked how I was, I would have
collapsed into tears. Every day I went to
work crying and I came home the same.”
She said she often had to look for work
inside the bank. “Eight-hour days can be
very long when you have nothing at all to
do”, she said. “It was a good strategy he had
found there”. After five months of hostility,
she grabbed an opportunity to write to
the top manager, who agreed to transfer
her to another service within the bank.
There, her new boss gave her some time
to adapt. “She saw I was making mistakes.
I had lost confidence. I did not know how
to properly write an email, how to write
a date on a letter. I was always afraid to
do something wrong and being yelled at.
I had to learn to work again.”
All experts agree that anyone can be-
come a victim. “There is no specific type
of victim, although there are risk factors
like the general context of “fragilisation”
of the financial sector,” said Dr Bollen-
dorf, director of the ASTF and doctor. He
added that harassment is not a modern
phenomenon, contrarily to what could be
believed. “The risk of being a victim may
have risen, but not the abuse itself.” There
are no statistics on harassment cases in
Luxembourg. “It is not considered as a
disease” and therefore no data can be
compiled, explained Dr Bollendorf. The
Mobbing asbl, an association financed
by the Ministry of Labour since 2003, of-
fered 2,134 psychological consultations
between 2005 and 2010.
“We have seen a surge of demands after
mergers,” said Patrice Marchal a sociolo-
gist trained in family therapy, social work
and coaching who has worked with the
ASTF for more than ten years. “These de-
mands can be very diverse with only a
fraction harassment-related.” But some
of these cases can actually start a long
process that lasts for years. “It has a ripple
effect,” he said. During this period which
can be really stressful, people are more
prone to being victims of harassment.
“People can resist to this kind of context
but it’s like a stretched elastic band; it
cannot stretch forever. People can endure
stress until it creates a breaking point and
a loss of balance in their professional,
even personal life.”
Claude Bollendorf said that his patients
usually know about harassment, but do
not understand they are being victims
and often even believe they are respon-
sible for the situation. He said people
above 50 can be more at risk. “The finan-
cial sector has an active population with
workers’ average age being 32-34.” People
above 50 “climbed up the ladder slowly
but surely and are now in a world they
do not necessarily understand. They do
not feel as well-prepared as their younger
colleagues to use technology or to re-
adapt to new procedures. They may feel
alienated.”
22 novEmbEr - dEcEmbEr 2011
Hr
While the financial sector is not as risky
as the education sector, the financial and
economic crises have put pressure on Hu-
man Resources departments, like elsewhere,
to yield results. Whether it takes place in
small companies, where the management
and HR are very close, or big companies,
where the management is directly involved
in the recruitment and training strategy,
harassment can more easily take root when
there are no rules defining how it can be
prevented or addressed.
Christiane Deckenbrunnen, HR manager
Shared Service Centre at BGL BNP Paribas,
said a convention was signed in 2005 be-
tween BGL’s management and the trade
unions, which was extended to BNP Paribas
employees after the merger in 2010. “We did
not put it in place because we had harass-
ment cases, but because we were pioneers”,
she said, agreeing that not many companies
make that choice. “Some cases we thought
were psychological abuse were in fact not;
rather it was the management style not
being adequate.” Still, she acknowledged
that “it’s true it’s difficult to define what ha-
rassment is about”.
Knowing whom to trust
The lack of clarity in what constitutes ha-
rassment makes it hard for victims to know
whom to address and what information
they need to gather to efficiently protect
themselves. Doctor and psychotherapist
appointments are usually the first step to-
ward finding a solution as they can start
mediation processes. But even doctors
reckon their power is often limited in that
respect. “Helping patients is hard because
you always need to find a solution with their
colleagues,” explained Dr Bollendorf. The
ASTF is one of the organisations to which
harassment victims go or are referred, of-
ten by their own doctor or trade unionist.
“The company will, indirectly or directly,
have to intervene in the process”, he said.
He added that it can be even harder to work
with small companies where “colleagues
are so close” and “the abuser can be in a
high position.”
Discriminatory harassment
Labour Code Art. L.241-1 to L.244-3
Sexual harassmentLabour Code Art. L.245-1 to L.245-8
Obsessional harassmentPenal Code Art. 442-2
Psychological harassment2009 Convention / Case LawCharters
Dupont de Nemours
Bram
Ville de Luxembourg
Goodyear
Collective labour agreementsLabour Code Art. L. 162-1 to 162-15
Psychological abuse in the Public SectorSpecial commission
Grand-ducal rule of 1 December 2008
Delegate to equality
Grand-ducal rule of 5 March 2004
Legal documents
Some victims may lose patience with media-
tion processes they deem too long or with
mediators they believe they cannot trust.
Mr M., who hailed from France 11 years ago
and was a victim of harassment at a French
banking institution in Luxembourg, said he
had at first placed all his hopes in the ASTF
after he was fired for gross negligence in
February 2011. But then he said the ASTF
did not send letters to the HR department
of his former employer, nor was there any
meeting as promised. “I felt like I had been
let down by everyone,” he said. “I could not
defend myself.”
Mediators should be trained to listen and
help victims find their own path to recov-
ery, according to Patrice Marchal. “I need to
establish a relationship made of trust with a
clear framework of collaboration,” he said. If
such a collaboration already exists between
the ASTF and the company, he may reach out
to them for help, but he may also choose not
to contact them depending on the victim’s
preferences. “All personnel representatives are
not the same,” he said. “And some information
cannot be shared with the employer.”
According to Ms Martinez’s survey, confi-
dentiality is the harassment victims’ highest
concern. Claude Bollendorf explained that
it may stem from the victim’s fear of be-
ing the cause of the problem. “Harassment
victims show the same symptoms as those
of war veterans: anxiety, guilt, isolation that
can lead to agoraphobia, etc. Isolation is
a classic symptom; the victim wants to
avoid all social contact. It’s directly linked
to guilt. The person goes through doubts:
“did I not myself cause this situation?”, or
“is it my personality which is at stake?”.” He
said these symptoms are close to those of
PTSD, post-traumatric stress disorder. “The
victims of harassment go through the same
episodes over and over again. They fear they
can start the process again if they go back to
their workplace. Some may avoid work, the
building itself, or even the city where they
used to work. They are scared of re-living
the same experience.”
Mrs H. said she has severe trust issues and
can’t see herself going back to work before
some time. “I can’t be in an office by my-
self. I’m scared of being isolated again, of
being humiliated. It’s like when you break
your leg; it can heal but it will always hurt
somewhat. I feel the same way.”
Luxembourg’s minor size: a major issue
The fact that the Grand Duchy’s rather
modest size is a driver for rapid growth has
been often saluted. But it also may provide
for a disastrous environment in the case of
harassment victims looking for a second
chance. As Astrid Martinez wrote in her
novEmbEr - dEcEmbEr 2011 23
Hr
The Minister of Labour promises change
In an interview with Finance
Luxembourg, the Minister of Labour
Nicolas Schmit said he was “favourable
for a legislation defining what
psychological harassment is”. “We
need to fight against harassment and
protect victims,” he said. He announced
he would come forward with a law
proposal in 2012 and that the text
of 2003 which was rejected by the
governmental commission at the time
would be amended with information
gathered from neighbouring countries
legislation. He said “it was not normal”
that the public sector has a legislation
prohibiting harassment at work while
the private sector does not. “This
inequality should be solved”, he said.
But he said employers are against such
a law and trade unions are “divided”
over the issue. About the 25 December
2009 collective labour agreement not
being known by the majority of HR
departments, he said that trade unions
should have made more publicity. He
also said it “would probably be useful”
to get representatives from the HR
departments involved when the law
proposal is discussed next year.
survey, “What seems to compel employees
to silently suffer from these situations is
the financial sector’s specificities: a small
geographical location and a small number
of companies employing the same profiles.
In other words, everybody knows every-
body and everything ends up being known:
complaining means reducing one’s chance
of finding another job.”
Karim Sorel, a lawyer specialised in ha-
rassment cases who was instrumental in
helping the Minister of Labour approve the
2009 convention, said there is still a lot of
work left for the law to favour employees
rather than employers in Luxembourg.
“My personal opinion is that there is a
special economic and political context
in Luxembourg where the investors must
be protected and the workplace environ-
ment made attractive for them”, he said.
“Employers here enjoy a working environ-
ment where everyone knows everyone
and everything is known. In the rare cases
where harassment cases were brought to
court in Luxembourg, people have been
fined between EUR 500 and 5,000, which
is ridiculous. Magistrates are kind towards
harassment and only deliver small fines.”
According to Monique Breisch from the
Mobbing asbl, harassment issues “should be
taken much more seriously by politicians
and trade unionists. There are still suicide
attempts due to harassment at work.”
The court battle: not for everyone
Patrice Marchal said that during his work-
ing hours at the ASTF he has met different
people with very different needs. While
some of them may consider going to
court, others prefer a quiet way of solv-
ing issues. “I’m asking people to reflect
on the complaint process; it means giv-
ing their problem a public sphere, with
professionals opening an investigation,
finding witnesses, etc. It requires people
outside the situation to become in-
volved. It can create conflicts and worsen
the problem.”
But companies may sometimes use this cli-
mate of fear to their advantage. When Ms
S. left the bank for another job two weeks
before the end of her temporary contract,
she had to break her contract. That’s when
the HR department stepped in with a peculiar
condition - an agreement she would sign
never attack the bank on any ground. “If I
had not needed to leave two weeks before
the end of my temporary contract, I would
never have signed this clause”, she said.
Mr M. said that he lawyered up but it will
be hard to come forward with evidence in
court. “They will refute everything I say. It
will be hard for me to counter this gross
negligence I’m being accused of. It’s not
easy to fight a 500-people monster. It’s
kind of scary.” He said he cannot access
his emails anymore or ask his former col-
leagues to gather evidence on his behalf.
“Without proof you cannot do anything,” said
Karim Sorel. “Contrarily to what is being done
in France, in the Grand Duchy, there is no law
to lighten up the burden of proof. It needs
to be brought forward by the employee.” He
said that while the magistrates’ hesitancy to
fine employers has no dissuasive effect, a
specific law “defining harassment, facilitating
its recognition, easing the burden of proof
and making harassment a crime” would be
the solution.
Dr Carlo Steffes, Head of the Health at Work
division at the Ministry of Health, has been
closely following the legal debate around
harassment and is himself treating victims of
abuse. He said the Ministry of Labour should
come forward with a new proposal. “A law
carries a lot of weight,” he said. “Having a law
would be an advantage especially since the
jurisprudence is not really favourable.”
“The problem is that harassment needs to be
recognised as it is,” said Karim Sorel. “There
is no reason for harassment not to take place
in Luxembourg; problems like these do not
stop at countries’ borders. In the general
context of the financial crisis, a law would
find its essence in these moments when
profitability becomes the main gone. That’s
when harassment takes roots.”
For Mrs H., going to court means getting an
opportunity to make an example of her case
for other victims. While she said she is not
interested in starting a personal vendetta
against her former employer, she wants to
get her dignity back. And she relies on the
court to do just that.
By Delphine Reuter
24 novEmbEr - dEcEmbEr 2011
Hr
Entrepreneurs before anything else
Entrepreneurship. That’s the keyword Henri Wagner, the managing partner of Allen & Overy Luxembourg will put at the top of his list when he’ll draft the two-year strategy for the law firm. “World forces have become incredibly complex and we have to adapt to ongoing structural changes,” said Mr. Wagner. Opening international desks. Setting up a hotline for key clients, a top priority for clients who come first and foremost. Assisting regulators. Investing time and expertise in promising markets. Through the firm’s “global reach and local depth” approach, it has the ambition to “set the pace for other firms and be ahead of the game”.
There might be enough business gener-
ated by a global law firm like Allen & Overy
without its Luxembourg office needing in-
ternational desks in Russia, Latin America
and Asia-Pacific. But that would contradict
the spirit of entrepreneurship Henri Wagner
has been instigating in the firm since the
crises hit.
Over the past two months, Allen & Overy
Luxembourg’s busy Asia-Pacific desk in
Hong Kong, officially launched in Octo-
ber 2011, has already participated in five
important events, including two with a
delegation of ALFI and one with Luxem-
bourgforFinance. The managing partner
reckons these desks are “the most visible
element of our strategy, in terms of setting
milestones.” “People will ask us why we
need such desks, given that Allen & Overy
now has 39 offices in 27 different jurisdic-
tions. But through the international desks
we can focus on Luxembourg; it’s a perfect
representation of our country and of the
Luxembourg office of Allen & Overy.” While
jurisdictions may not consider Luxembourg
as a priority, it’s the desk’s job to make sure
it happens. “It’s a lot of investment. But if
we don’t do this, it does not echo with our
ambition to innovate,” he explained.
Since the Lehman Brothers collapse, pro-
activeness is promoted at every level of
the global firm, translated into the opening
of new offices in Australia, in Washington
D.C., in Asia and North Africa. Aligned in
this vision, Mr Wagner is planning to open
a new desk in a strategically important high
growth market in 2012. “Our brand allows us
to penetrate these fantastic markets while
continuing to stand out in developed mar-
kets,” he said. “If you stay in Luxembourg
and have a passive attitude, you stagnate.
In our profession, you’re as good as dead
if you are not proactive.”
Beyond the normal advisor: an advisor that is trusted
The firm has adopted more of a corporate
mindset and being an entrepreneur is part
of this approach. It’s also about being a
go-getter, Henri Wagner explained. “The
years when clients came in automatically
are over. Today, we go to visit our clients in
London and elsewhere. We send them all
the information we think will be relevant to
their business. We want to achieve a level of
boardroom advisor where we can closely
help the decision-makers. In the past, we
dedicated our resources to pure legal work.
These days, you have to do more for clients
who are subject to pressure themselves.
This spirit and the new focus on service
levels can make a difference.”
In Luxembourg, Allen & Overy reaches out
to a broader base of clients - meaning any
financial institution that can benefit from
their insight. For the first time, the law firm
approached key European regulators, so as
to explain how banks and the investment
funds industry would be affected by the
U.S.'s Dodd-Frank Act. They are also assisting
a number of Ministries, drawing from their
experience in other countries. "We're sitting
on a number of internal expert groups. We
know what has been done in France by
the Autorité des Marchés Financiers or in
Germany by the BaFin. We can draw on our
resources in this respect." Responding to
current concerns, the firm has just created
a cross-border "Eurozone crisis working
group" dealing with currency union issues.
novEmbEr - dEcEmbEr 2011 25
Strategy
The firm continues to focus on key industry
sectors and financial markets they think are
important, while developing expertise in
promising markets with growth potential
like bio science, new technologies, alterna-
tive investment funds and private equity.
“People generally say that the European
markets are mature and the potential for
growth here is smaller than in BRICS coun-
tries. But this does not prevent us from
investing heavily in the investment funds
segment and other strategically relevant
industries. We go on economic missions
overseas, we participate to industry profes-
sional committees, etc.” He said recruitment
has also needed to adapt. “To become a
partner at the firm, the box of having an
entrepreneur’s mind needs to be ticked. Of
course, a good lawyer can always make a
career here. It’s not a black and white world,
we need experts. But to have clients come
to us, having initiatives is central. Entrepre-
neurship is key and is at the centre of our
profession. It will go beyond me and other
people working today at the firm.”
By Delphine Reuter
Henri Wagner, Managing Partner at Allen & Overy Luxembourg
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Strategy
Henri Wagner, Managing Partner at Allen & Overy Luxembourg
Good vibrationsThis year’s ALFI conference certainly highlighted the role alternative investments solutions can play in attracting new customers and opening new markets for Luxembourg. One of the long-time believers in Luxembourg’s potential in this business is Joseph Antonellis, vice chairman and head of Europe and Asia-Pacific Global Services at State Street. Together with Martin Dobbins, senior vice president and managing director of State Street Luxembourg, they explain how one of the world’s leading providers of financial services to institutional investors will surf on the wave of regulations to create value in servicing.
What are your projects for Luxembourg?
Joseph Antonellis: Our objective is to
double our non-US revenues over the
next five years. Globally, our focus is on
offshore markets, alternative investment
services and middle office outsourcing.
We’re the largest provider of fund ac-
counting and administration for mutual
funds in the US, plus SICAV and UCITS
in Luxembourg, and in-country types of
funds into Europe and Asia and we do
both local and global servicing through
the Luxembourg UCITS brand. Within
Europe, Luxembourg is the crown jewel
for derivatives.
The UCITS brand helps us stay close to
the industry, especially from a regula-
tory perspective. State Street has built a
solid reputation in the Luxembourg mar-
ket, proven by the excellent scores and
feedback that we have received for the
services we provide here.
The feedback received from the Asian
region is that clients want to understand
how regulation governs the use of de-
rivatives and with emphasis on investor
protection. Complex products can be
challenging for clients, however, it’s es-
sential that we help to explain how it fits
within the UCITS framework.
How do you eye upcoming regulations?
First and foremost, we work closely with
regulators to ensure the rules are clear
for our clients. There’s a need to educate
regulators in Luxembourg and elsewhere,
and particularly in Asia, where investors
want to have a better grasp of these regu-
latory changes and how they impact the
funds. We have seen this in UCITS III and
it’s even more noticeable with UCITS IV.
What we find ultimately is that sharing
information with regulators helps them
to better understand industry issues.
New regulations can bring additional
costs, and unfortunately, these costs are
often paid by the end-investor. That said,
some new regulations do help to mitigate
risk and are clearly worth the additional
cost. In the case of AIFMD, it is primar-
ily addressed at managers of alternative
funds but also includes important provi-
sions for fund service providers, including
depositaries. As the AIFMD level 1 leaves
many concerns unresolved, further work
is needed to clarify the requirements and
to achieve a proportionate and workable
framework.
How does the team in Luxembourg support the group in clarifying what regulations are for?
We have a regulatory affairs group inside
State Street that leads our regulatory efforts
globally. In concert with this team, Martin
Dobbins has led two regulations task forc-
es, AIFMD and UCITS, from Luxembourg.
These regulations directly affect our asset
management clients here and abroad. In
Luxembourg, we always feel like we have an
ally in the regulatory environment because
they assist in discussions with the European
Union. State Street is seen as a neutral party
due to the nature of our business so we have
been engaged extensively in the regulatory
discussions and roundtables
FATCA is also a big issue here right now
and represents a significant administra-
tive burden. While we understand that
FATCA is about avoiding tax evasion it
could also hamper investment. In the U.S.,
we work with the Treasury and the IRS,
and we’re peeling back the onion with
them to help clarify it.
novEmbEr - dEcEmbEr 2011 27
funDS
Joseph Antonellis, vice chairman and head of Europe and Asia-Pacific Global Services at State Street, and Martin Dobbins, senior vice president and managing director of State Street Luxembourg
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28 novEmbEr - dEcEmbEr 2011
Martin Dobbins: On the one hand, State
Street is working in Washington, D.C.
on educating regulators on what is a
pragmatic approach in implementing
FATCA, and on the other hand, we need
to work with associations around Europe.
The original issue for European clients is to
have an understanding of FATCA. Initially it
looks like it is only applicable to U.S. citizens,
but its not. Having U.S. investments means
you need to be FATCA-compliant. If a Ger-
man investor has a domestic domiciled
fund that is invested in U.S. assets then he
needs to demonstrate that he is not a U.S.
citizen. The American regulators stated in
July 2011 that they now understood the
significant amount of work that is required
to get ready to be FATCA compliant and
realized that they would not be ready to
take the burden of absorbing the documen-
tation by the deadline. You will still need to
be ready for some key aspects of FATCA as
of 1 January 2013 but then there will be a
two-year transition period.
As for Basel III, if you take the approach of
educating regulators and explaining that
there are a number of parties involved
they are open to this type of dialogue. This
continues to be a significant topic for us.
At this stage no one has fully understood
the estimated the costs associated with
Basel III. State Street Luxembourg had a
great cooperation with the Central Bank
of Luxembourg on that topic.
Why do you think alternative investments have become so important today?
Joseph Antonellis: The financial crisis
was so far-reaching that all asset classes
were affected. Investors are now looking
at alternative investments as another way
to diversify and hedge their portfolios. In-
stitutional investors are investing in hedge
funds, but the importance of this trend still
remains to be seen. They are also invest-
ing in private equity and real estate funds
and in commodities and infrastructure. For
example, large pension funds are using real
estate funds for a longer-term return for
cash flows.
We have positioned ourselves for growth
in this area through organic growth and
acquisitions. The shift is global, beginning
in the US and moving into Europe. We
acquired Mourant International Finance
Corporation in 2010 and we’re now the
number one provider of alternative as-
sets globally.
Martin Dobbins: In Luxembourg, Mou-
rant represented 60 employees. After the
acquisition, the company became a State
Street Company.
We have been active in alternative invest-
ments for a while, and the acquisition
enabled us to take a huge step forward. We
have a separate product line for alternatives
at State Street where we offer compliance
and risk oversight expertise. It’s really about
building the right infrastructure and having
the right people. We’ve seen that this is also
true the KIID. In the KIID business model
we combined the expertise from Princeton
Financial Systems, a State Street company,
State Street Investment Analytics and our
team in State Street Luxembourg to provide
a full service state of the art KIID product
to our clients.
Do you see a trend from offshore to onshore?
Joseph Antonellis: State Street acquired
Intesa San Paulo’s securities servicing busi-
ness in May 2010, however even with the
tax changes in Italy we see their UCITS
business being impacted domestically.
We continue to see growth in the UCITS
brand, which is being used extensively to
distribute funds to Asian clients. We have
also seen North America and UK funds be-
ing distributed into Asia. The Asian markets
will continue to mature in the same way
as Europe did with the UCITS brand. Keep-
ing that in mind, we want to be able to
support both the pan-European and pan-
Asian funds.
Elsewhere, there is still an opportunity to
harness Latin-American growth through
the UCITS brand. The onshore trend is not
a threat, because it will be replenished into
other products. But the real threat is in pro-
tectionism, when each country wants to
bring taxes back home.
Martin Dobbins: We continue to see the
offshore funds complementing the on-
shore funds. There is a tendency within
local markets for investors to want a
domestic funds range, so Investment
firms will launch an offshore fund for
distribution outside of their local mar-
ket. State Street has local offices in key
markets throughout the globe which offer
full service capabilities and local market
experience. This approach, combined
with supporting an Investment Manager’s
offshore funds on a single platform and
consistent operating models, is a key dif-
ferentiator. Investment Managers want a
partner that can support their domestic
and offshore fund ranges, provide a cost
efficient service model and ensure consis-
tency in data management and reporting,
such as risk management and KIIDs.
Interview by Delphine Reuter
novEmbEr - dEcEmbEr 2011 29
funDS
”Since Mangrove started in 2000 we had
been looking around for people interested
in joining such an initiative,” he said. Mean-
while, many Private Equity houses had
established operations in Luxembourg. “We
decided to find out why they had elected
Luxembourg and what activities they were
focusing on. Our first conclusion was that
there is enough activity to talk about a real
sector here. It’s not only about structuring
transactions; there were functions that
PE houses decided to establish here. Sec-
ondly this industry had a certain size and it
could become a pillar to make a significant
contribution to the diversification of the
financial industry.”
Started officially in February 2010 with 25
members, the LPEA now has 75 members.
“Some of these actors have been around for
a number of years. Others have come to re-
alise that due to the volume of transactions
they need a physical presence here.” Typi-
cally the private equity business found here
falls into a couple of broad categories. First
and foremost, the activity of the majority of
PE houses in Luxembourg revolves around
managing transaction specific acquisitions
structures, a Luxembourg structure estab-
lished between an investment made by a
non-resident fund and a non-European ac-
quisition target, to leverage Luxembourg’s
extensive DTT network. Second, there are
actors that have established their princi-
ple investment vehicle(s) in Luxembourg.
“There are a lot less of them for now, but
this is an area where a lot of development
potential lies for the financial center short
and mid termr”, said Schmitz. Finally, the
investment managers and advisers, who
make decisions to invest and drive the
development of the funds, like Schmitz
himself, are a rarity in the Grand Duchy.
Most of the time these individuals are either
based at the investment firm’s head office of
in a specific geographic target market.
ATTRACTIVE FOUNDATIONS
Out of the LPEA’s 75 members, 32 are PE
operators, while the balance are service
providers like banks, lawyers, auditors, tax
advisers etc. “All of these 32 have their deal
structuring resources in place, yet very few
actually run funds from Luxembourg and
virtually none of them have deal makers in
Luxembourg”, Schmitz said. He explained
that the LPEA is working on many fronts to
overcome barriers and to further improve
the attractiveness of the environment both
for investment fund origination as well as
ultimately for managers to consider Lux-
embourg as a viable alternative. “The stated
objective for us would be to attract a larger
share of the PE value chain. Somehow we
are now in the starting blocks and there is
a real opportunity to grow the PE business
in Luxembourg. The government sees it as
an avenue for diversification of the financial
industry in Luxembourg.”
He added that attracting fund promoters is
not an easy task. “We need these promot-
ers to at least consider Luxembourg as an
option for their next fund. We’re not yet
there fully. It will be inherently a challenge
to convert someone historically selling fund
structures in the UK for example into a sup-
porter of Luxembourg funds. It’s as much
a question of technicalities as it is a mar-
keting challenge to move your investors
away from the tried and tested structures
you’ve proposed to them in the past. What
you propose to them needs to be at least
as good as what they know. We want to
make it easier for people to choose be-
tween us and other domiciles.” Paul Junck,
managing director of the LPEA, said it’s also
about the contacts and service providers
with whom you have established a trusted
relationship.
Finally, as it regards the long term oppor-
tunity to attract investment professionals
and deal makers to Luxembourg an ade-
quate tax regime for the so-called “carried
interest” (performance related remunera-
tion) is a must.
Putting Luxembourg on the mapThe LPEA, the Luxembourg Private Equity and Venture Capital Association, was nearly launched in 2003. But with only a handful of likeminded people around the table Hans-Jürgen Schmitz waited another six years for the momentum to pick up. In 2003 “venture capital and private equity was not very visible in Luxembourg, or at least it was our conclusion at the time,” said the managing director of Mangrove Capital Partners.
30 novEmbEr - dEcEmbEr 2011
funDS
© c
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Hans-Juergen Schmitz, managing director of Mangrove Capital Partners, Paul Junck, managing director of the LPEA
novEmbEr - dEcEmbEr 2011 31
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REGULATIONS CALLING
According to the LPEA, the European di-
rective on alternative investment fund
managers (AIFMD) is the biggest challenge
on PE houses’ agenda. Schmitz said investor
protection is welcome but AIFMD is going
in parts beyond its stated goal. “Apart from
the big players there are smaller, more di-
versified players, offering more specialised
funds. Diversification is a driver for growth
in terms of the number of PE houses, yet
they tend to be smaller in terms of assets
under management.” A one-size-fits-all
regulation would cost small players a lot
more than big PE houses, he said. The cost
of implementation would proportionally
be a significantly bigger burden. He added
that smaller players typically manage any-
where between EUR 50 million and EUR
500 million, while big players have a few
billions of funds under management. The
LPEA covers the whole spectrum and shall
see to it that implementing measures are
adequate across the board.
He said AIFMD has been made known but
not yet the final implementing measures for
countries to implement the directive into na-
tional law. The LPEA’s technical committees
are closely working both on the national lev-
el (in collaboration with ALFI, among others)
and on the international scale (in its capacity
as member of the European Venture Capital
Association (EVCA)) to ensure that these
implementing measures reflect the specific
characteristics of the private equity industry.
“We’re obviously not in the driving seat and
we’re not the only association dedicated
to this issue,” he said, adding that the LPEA
was eset up alongside ALFI because the as-
sociations’ constituency is very different in
nature. “Retail funds are much more about
investor protection, financial management
and administration matters, while the focus
of PE is on managing companies; we help
entrepreneurs to grow their business.” He
said the LPEA was founded on the realisation
that the industry actors required a distinct
platform.”
On AIFMD specifically, the LPEA is working
on a few key issues for the industry, like
the fact that today all regulated funds are
required to work with a bank as a custodian
in Luxembourg. But following the AIFMD,
every PE house will need to work with a
custodian and the legislator may leave the
choice for it to be a provider other than a
banking institution. Schmitz pointed out
that if banks are given the exclusivity of
the business in Luxembourg, “it might put
Luxembourg at a disadvantage compared
to competing domiciles. I’ve lived with the
system for ten years; it may not make the
difference between success and failure but
it adds to the bill.”
Another of the LPEA’s preoccupations in
respect to AIFMD concerns the demand for
regulation of certain components of remu-
neration, which he said could be adequate
for banks or hedge funds but not for venture
capital and private equity companies due
to their fundamentally different incentive
structure. “We typically only get bonuses
if and when performance was realised and
distributed to investors,” he said. In addition,
given the typically small team sizes in the PE
environment, the disclosure requirements
currently discussed would provide the pub-
lic information that could be considered a
violation of established privacy rights.
Finally, the LPEA has actively contributed
to a proposed legal regime that has for ob-
jective to establish the limited partnership
model similar to that of the UK or the US..
But AIFMD is also an opportunity, he added.
“It’s an opportunity for Luxembourg to po-
sition itself. You can be successful if you
embrace regulation quickly, efficiently and
adapted to the industry characteristics like
we did for UCITS.” While UCITS funds repre-
sent around EUR 1.3 trillion of assets under
management in Luxembourg, the private
equity business is clearly a distant second
with “only” a couple of hundred billion euros.
“Private equity would possibly not compen-
sate for UCITS if there was to be a downturn
in that sector. But it can evolve to becom-
ing another strong pillar on Luxembourg’s
financial industry map”, he said.
By Delphine Reuter
Private equity and hedge funds
Hans-Juergen Schmitz said there are
some elements that must be clearly
distinguished between hedge funds
and private equity, in particular when
it comes to adapting regulation..
“Although both are alternative
investments, they vary greatly,” he
said. The biggest differences come
from the PE houses not investing
into quoted assets. “This precludes
them from applying many, if not all,
of the instruments that create or
reinforce volatility,” he said. Private
equity also typically involves investing
in businesses with the objective to
support entrepreneurs’ vision to grow
companies over the mid to long term,
while hedge funds are also focused
on short(er)-term results“, Schmitz
explained. “Consequently, Private
Equity is also characterised by a closer
and long term relationship between
fund managers and its investors,
including elements such as balanced
incentive and governance mechanism,
regular reporting etc. which are a result
of intense contractual negotiations at
the outset. It’s definitely a long-term
relationship.”
More info about the LPEA:
http://www.lpea.lu
More info about the impact of AIFMD:
http://www.evca.eu
novEmbEr - dEcEmbEr 2011 33
funDS
From Rogue Lawyer To Financial Crime ConsultantIn 1990, after a decade spent helping criminals launder money all over the world, American attorney Kenneth Rijock had his back against the wall. He had been arrested in the United States on charges of racketeering and conspiracy to defraud the U.S. Internal Revenue Service, found guilty and sentenced to four years in jail. Rijock was released from jail after just two years as a result of agreeing to assist in the first-ever joint Swiss-American investigation into money laundering. This experience marked a turning point for him professionally. He made a decision to use everything he had learned during his life of crime to help banks and government agencies catch money launderers. Since 1992, Rijock has been a financial crime consultant with World-Check, a global risk management company.
As compliance requirements are tightening
around the world, it is critical for financial
institutions and government agencies to
gain a deeper understanding of how money
laundering gets accomplished. This insight
is invaluable in the development of com-
pliance policies and protocols. With this in
mind, Alter Domus, a Luxembourg-based
provider of outsourced administration
services, invited Rijock to speak at a con-
ference they organised this September at
the Philharmonie. It was not Rijock’s first
time in Luxembourg. He came here three
years ago at the invitation of ALCO (the
Association Luxembourgeoise des Compli-
ance Officers), and understands the local
work environment. Rijock offered some
encouraging news to conference attendees,
saying, “The days of the illegal tax havens
in Europe are gone. You can get money
laundered in Europe, but you have to be
more sophisticated. As compliance in Eu-
rope improves, it’s not endemic and out of
control anymore.”
Experience, power and budgets
Rijock warned that many compliance of-
ficers lack the experience to do their jobs
properly. “Money launderers are on a higher
level than compliance officers, who don’t
understand advanced techniques. The real
problem is that there are multi-technical
people on the other side - multilingual,
devious and very good at what they do. Too
often, compliance officers find indicators
by accident.” Rijock also said that effective
compliance can be an issue of power or
budgets inside of institutions. “The director
MORE THREATS FROM THE U.S.
Kenneth Rijock said that a combination
of the 2001 Patriot Act and the 1986
Money Laundering Control Act could
have severe impacts. “The U.S. has
extra-territorial jurisdiction. Some
really bad things can happen to you
as a compliance officer if the money
you move around is connected to the
U.S. You can be charged with anti-
AML even if you never went to the
U.S. They can seal up the file and you
don’t know you’ve been charged until
you get into the country. It happens all
the time; people can get arrested for
drug conspiracy even if they were not
involved in the business.” He said many
people and institutions are concerned
by this issue. “American regulators
can sanction banks by seizing their
U.S. branches, freezing their assets, or
closing their accounts.”
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ANALYTIQUE
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ANALYTIQUE
of the bank can decide to approve an ac-
count without asking for the compliance
officer’s opinion. But they need to scratch
under the surface and find the real source
of the money. They need to prove that it’s
only bank accounts and nothing else.”
Showing the ropes
Rijock said that when he was working for
money launderers he never laundered their
money in EU tax havens. “My advice to my
clients was not to. One of them did not
listen and ended up losing USD 6 million in
Switzerland because of transparency mea-
sures.” But certain types of businesses, such
as import-export, can easily be used for
laundering money. Trade-based money
laundering is common. “It’s the use of in-
ternational trade to move the money right
under the nose of compliance officers by
changing the product’s price. For example,
a factory of high-end technical products is
set up here in Luxembourg, and its coun-
terpart is opened in Colombia. I’d pick up
products above compliance officers’ heads,
like chips used in space shuttles. No bankers
would understand or detect what I did since
I would still pay taxes, customs, etc. Every-
one would believe I was doing legitimate
transactions when I was not.” He said some
global locations do remain corrupt. “All the
stories about the Caribbean islands hav-
ing cleaned up their act are not really true.
Money always finds its way into the system.
People don’t show up with cases full of
money like I used to, but it still happens.”
He explained that local people’s livelihoods
depend on money laundering. “It created a
financial middle class. When I was working
as a money launderer, the teller at the bank
was a former fisherman.”
Inside the Money launderer’s mind
Rijock said his criminal career started when
he met a Vietnam veteran who worked as
a broker between Colombians, who were
infiltrating Canada and the U.S., and Cubans,
who were distributing and selling drugs.
“I was in a place in my life when I had no
responsibility,” he said, referring to being
divorced and not having children. When cli-
ents began to approach him with requests
to hide their money in the Caribbean, he
helped them even as he kept practicing
law at the same time. “Money launderers
don’t become so without qualifications.
They exist in the legitimate world at the
same time. You can’t tell them apart from
other bankers in the room.” He also noted
that clients always came to him by word
of mouth. “Money launderers offer different
services. They know each other and refer
clients to one another. They use the same
banks when no questions are asked about
the provenance of the money. They work
well with each other, it’s a symbiosis.” He
said money launderers always know about
the risks they take and are aware they can
be caught at any time.
For twenty years now Rijock has been con-
sulting for financial institutions, training,
lecturing and writing on the topic of money
laundering. “It’s such a dynamic profession,
it’s always new. I write seven days a week
for an online magazine.” Luxembourg is just
a one-day stop on his busy schedule. “It’s
more fun now. I’m not wondering anymore
if I’ll be alive next year.”
By Delphine Reuter
novEmbEr - dEcEmbEr 2011 37
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JEd
GrAnT
Partner of
Sandstone s.a
For many, Islamic finance
is seen to be missionary
work. At the World Islamic
Economic Forum in March
2009, Susilo Bambang
Yudhoyono, the Indonesian
president, told the 1,550
delegates from 36 countries
that “Islamic bankers should
do some missionary work in
the western world to promote
the concept of Shariah
banking, for which many
in the west are more than
ready now.” 1 This missionary
extension of Islam through
finance is the primary
purpose of Shariah finance
and Zakat is the process by
which its funding is ensured.
After the Shariah board,
the second major source
of non-conventional risk
in Islamic Finance is the
process of Zakat. As with
the qualifications of a
scholar, the Qu’ran does
not specify exactly when,
how and to what extent
Zakat must be collected. The
interpretation of the scholars
determines these details,
with the amount generally
falling between 2 and 20
percent. Many scholars
prescribe a distribution
of the collected funds
among specific activities or
charities, often including
Jihad in the mixture 2.
When al-Qaradawi, mentioned
in Part 1 of this series, was
using the Bank al-Taqwa to
fund terrorism, much of the
funds originated from Shariah
compliant real estate in New
Jersey. He funneled the funds
to terrorist groups as zakat
payments to charities. Al-
Qaradawi also is the head of
the Union of Good, a group
of 57 charities from Saudi
Arabia that still exists and
was designated as a terrorist
entity in 2005, four years after
his bank was shut down 3. In
2009, al-Qaradawi funneled
a reported USD 21 million to
Hamas 4. Still today, in 2011,
he is the president of the
European Council for Fatwah
and Research5, a Dublin-based
organisation that promotes
martyrdom and violent
jihad. The EU has not yet
designated this organisation
as a terrorist entity.
How to research charities
In addition to the risks
of scholars with hidden
agendas, who may direct
Zakat towards charities under
their control or influence
or that are known by them
to promote extremism,
the charities may be
problematic and carry
significant risk themselves.
While Muslim charity
organisations are stigmatised
in the west by terrorist
financing, most Muslim
charities are legitimate
non-violent organisations.
The exceptions are notable.
In 2004, the U.S. Office
for Foreign Assets Control
designated the Somali
branch of the Saudi charity
the Al Haramain Islamic
Islamic Finance: A Risk Managed Path to Rewards, pt. 2In the first of this series published in the previous edition of Finance Luxembourg, risks related to the Shariah board members were identified and discussed with examples. The selection and monitoring of the Shariah board members was identified as a source of risk requiring competent background screening. This part addresses the risks of influence and Zakat.
© c
olo
rblin
d.lu
38 novEmbEr - dEcEmbEr 2011
AmL
Foundation (AHIF) as a
terrorist entity. The Saudi
government closed the
organisation down. While
there may be firm classified
intelligence behind the
designation, the listing of
AHIF Somalia appears based
on circumstantial evidence,
said to include salary
payments to individuals
linked to al-Qaeda. The
closure of the charity led
directly to the closure of
a number of orphanages
supported or run by AHIF
in Somalia 6. There was
no advance notice of this
designation; however,
sometimes the activities of a
charity may be in plain-sight
providing direct support to
terrorism. For example, there
are charitable orphanages
that make it their priority
to care for the widows and
children of the martyrs
who have died violently
in Jihad. It is possible that,
knowing such a facility
exists, potential recruits
may be encouraged to see
their death in service of
extremism or even suicide
bombing as a path to
martyrdom and a guarantee
of surviving family care.
Defenders of this practice
claim that the definition of
martyr extends to “anyone
killed under Israeli fire
… or a woman who dies
in childbirth when the
ambulance transporting her
is detained at a checkpoint 7.”
As Gulmina Bilal Ahmad
reports in the Daily Times of
Islamabad, “Pakistan is already
flooded by the presence of
trusts and charities that are
actually militant organisations
in disguise. Hizb-ut-Tahrir
presents danger of a new
kind because it does not work
on the pattern of these trusts
and charities but targets the
educated class in society. This
in a way is more dangerous
than bombs…8” Hizb-ut-Tahrir
claims to be non-violent
and is struggling for the
establishment of world-wide
Caliphate. Reportedly, this
organisation is encouraging
an Arab Spring in Pakistan.
Since 2004 it is a designated
terrorist organisation, yet
it continues to operate
openly in Islamabad and
is gaining support.
These are but two examples.
There are numerous well-
known Shariah-compliant
charities already designated
as having ties to terrorism or
organised crime, such as Al-
Salah Society9, Benevolence
International Foundation,
The Global Relief Foundation
and many others10. The
real risk lies in having ties
with one that is not yet,
but will be, on such a list.
For this reason, it is vitally
important to know the
charities to which zakat is
paid and to verify that their
activity and reputation is
worthy of an association
with the financial institution
administering the zakat.
The problem is further
compounded by the opaque
nature of the jurisdictions in
which most Islamic charities
and Shariah scholars operate.
Data aggregators, such
as Lexis-Nexis and World
Check, are scrambling to
obtain data for individuals
and organisations in these
countries. But in many
cases the data is simply
not available and therefore
consulting their data sources
is of minimal utility. This
necessitates alternative and
more customised approaches
in due diligence collection
and analysis processes in
order to manage the risks.
Toward more transparency
Muslim charities have
recognised this problem
and some have made efforts
to improve the situation,
most notably through
the encouragement of
much more transparent
accounting and activity
reporting. However, in
foreign jurisdictions that
are notably corrupt, such as
Pakistan11, this transparency
is unlikely to be forthcoming.
In 2006, the U.S. Treasury
Department issued a
directive on the subject,
“Anti-Terrorist Financing
Guidelines: Voluntary Best
Practices For U.S.-Based
Charities”12. There are
organised initiatives to help
improve the situation, such
as the ‘Montreux Initiative’,
which was launched in
January 2005 by the Swiss
Federal Department of
Foreign Affairs. This initiative
aims to remove unjustified
obstacles for Islamic charities
in order to contribute
towards confidence-
building between the Islamic
world and ‘the West’.
It is possible to play Shariah
fast and loose without
examining the risks in depth.
But the institution that does
so risks its very existence
and could be put out of
business if one or more of
the scholars or financial
products is exposed as having
funded a terrorist or criminal
activity. This is simply the
cost of doing business
the Shariah way in a well
regulated FATF jurisdiction.
Immediate steps that can
be taken to mitigate the risk
and facilitate the compliance
process can start with the
adoption of a position of total
transparency and cooperation
with the regulator having
jurisdiction over the funds.
This transparency starts with
clearly defining the role of
the Shariah board. If the
board is to have or could
possibly be deemed to be
exercising director or fund
“ After the Shariah board, the second major source of non-conventional risk in Islamic Finance is the process of Zakat”
novEmbEr - dEcEmbEr 2011 39
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References
1. Financial Times, “Islamic banks urged to show the way”, March 2, 2009
2. Note that Jihad often refers to evangelicalism and does not necessarily equate to violent or terrorist activity.
3. http://www.terrorism-info.org.il/malam_multimedia/html/final/eng/sib/2_05/funds.htm
4. Anti-Defamation League, “Qar-adawi Funding Hamas Efforts in Jerusalem”, 21 July 21 2009
5. In July 2003, at a Stockholm, Swe-den conference on jihad, ECFR President al-Qaradhawi agreed that “martyrdom operations … are not in any way included in the framework of prohibited ter-rorism, even if the victims include some civilians.”
6. Humanitarian Exchange Magazine, “Islamic charities and the ‘War on Terror’: dispelling the myths”, June 2007. The Graduate Institute Ge-neva, Program for the Study of International Organizations, “The Palestinian Zakat Committees
7. The Graduate Institute Geneva, Pro-gram for the Study of International Organizations, “The Palestinian Zakat Committees 1993–2007 and Their Contested Interpreta-tions”, 1/2008
8 The Daily Times, “View: The Real Ghost”, Friday 19 August 2011
9 http://www.treasury.gov/press-center/press-releases/Pages/hp531.aspx
10. h t tp : / /www. t reasur y.gov /resource-center/sanctions/Pro-grams/Documents/terror.pdf
11. http://www.transparency.org/policy_research/surveys_indices/cpi/2010
12. h t tp : / /www. t reasur y.gov /press-center/press-releases/Docu-ments/0929%20finalrevised.pdf
management responsibilities,
these individuals then should
meet the criteria for regulated
financial professionals in the
jurisdiction where the funds
are registered. Declarations
of fixed and consistent
residence and professional
addresses, and declaration
of beneficial ownership of
any funds upon which the
board member has influence,
should be obtained.
In the relationship between
the institution and the
Shariah board members,
there should also be a
position of total transparency
with the members being
required to disclose all of
their political and board
appointments, as well as any
executive responsibilities,
held in any official structure,
institution or charity.
As the zakat process involves
the payment of funds to
third parties, it should be
transparent, not only to
the management and the
regulator, but also to the
investors whose funds are
affected. An effort should
be made to identify Sharia
charities located in well-
regulated jurisdictions, such
as FATF countries. The charity
should adhere to accepted
international accounting
standards and have a
transparent and functional
governance structure. In
ideal cases, charities in the
same jurisdiction as the fund
could be selected in order
to keep the compliance
process simple and clear.
In all cases, the specific
charities should be vetted;
this includes a thorough
analysis of their officers, their
activities and their financial
statements. Declarations
of the charities’ positions
concerning the notion of
jihad, limiting its activity to
peaceful evangelicalism,
could be obtained; ultimately
this should be a more general
review designed to facilitate
the avoidance of charities
supporting extremist beliefs.
Finally, the institution should
publish the specifics of
the zakat disbursements
in its annual report.
When moving into Islamic
Finance, the regular
compliance terms, such as
KYC, take on new dimensions.
In risk management with new
products in new markets,
knowing your customer
means also knowing your
marketplace, knowing your
partners and knowing their
partners – all in depth.
Normally, an institution
benefits from a great deal
of implicit “knowing”, or
corporate knowledge, in
their compliance and AML/
CFT efforts. In the case of a
newcomer to Islamic Finance
much of their own implicit
knowledge is useless. The
needed knowledge is not
available and therefore must
be learned or obtained.
By Jed Grant
“ In the relationship between the institution and the Sharia board members, there should also be a position of total transparency”
novEmbEr - dEcEmbEr 2011 41
AmL
JoSé AUboUrG,
Senior Manager, Private Equity Audit, Ernst & Young Luxembourg
The Cleantech Industry: between opportunities and uncertaintiesEnvironmental issues have raised an increasing concern from public opinions and governments over the last few years. This has been driven by a growing demand for energy and accelerated by the booming of emerging economies like China, India or Brazil. With an increasing cost of raw materials and fossil fuels, coupled with a continuously growing worldwide population, the international community has become more aware of the necessity to reduce CO2 emissions. The incident of Fukushima has revealed the limits and the dangers of a nuclear model and has accelerated the exit from nuclear energy production, evidencing the urgent need to develop alternative energies and increase energy efficiency to meet demand.
In this context, the cleantech
sector is increasingly
perceived as a niche with
a high growth potential by
investors, as well as a new
attractive economic model
to follow. It managed to
raise a significant volume
of funds within the last four
years. As of today, most of
the investments are focused
on renewable energies
as well as technologies
aiming at improving energy
efficiency or reducing CO2
emissions together with
infrastructures and waste &
water management systems.
After five years of important
growth (from USD 52 billion
in 2004 to USD 180 billion
in 2008), the pace at which
capital is invested in clean
technologies has slowed
down before recovering
strongly in 2010 when it
reached a peak of USD 243
billion. During the first six
months of 2011, an important
level of investments will
probably be met but without
possibly reaching the
exceptional level of 2010…
The investors’ profiles
Investors are similar to
those involved in traditional
private equity business.
They include pension funds,
sovereign funds, industrial
investors, funds-of-funds and
governmental institutions.
In terms of geography, most
of them are located in the
USA (38 percent) and in
Europe (34 percent) but Asian
investors are more and more
dynamic on this market as
they intend to benefit from
substantial governmental
incentives’ plans. This is
especially true for China.
An attractive driver for growth
For macro economic factors
underlined in the introduction
on the demand as well as
supply side (growth of the
population, rising demand in
42 novEmbEr - dEcEmbEr 2011
FUndS
energy, scarcity of fossil fuels),
it is clear that cleantech will
have a growing importance
in the economy over mid-
to long term. Moreover,
investors, especially
institutional ones, tend to
seek to integrate a social,
ethic and/or environmental
dimension to their investment
strategy, in addition to the
financial return. In that
respect, cleantech offers a
strategy fully in line with
this new attitude and
trend. Indeed and under
the influence of various
components, investors are
increasingly integrating the
fact that they should not only
consider the return on capital
invested but also take into
account the positive social or
environmental impact of their
investment in order to meet
their investors’ needs. This
also encompasses marketing
and communication
expectations, on which
investors are keen to leverage.
With its long experience in
financial structuring and
its know-how acquired
in the investment funds’
industry, we believe that
the Luxembourg financial
center has a strong role to
play on this market. Indeed,
cleantech encapsulates two
promises that could be of
real interest to Luxembourg:
to constitute an attractive
driver for growth with high
potential of development on
the one hand, and to offer a
very positive impact in terms
of image on the other hand.
An ever-more efficient legal framework
As shown by the number
of cleantech funds already
established in and/or
structured via Luxembourg,
the current existing
framework is already very
competitive to enable
efficient fund structuring
in cleantech. However,
reaching the next level will
mean further enhancing
this framework to take
into account, for instance,
factors such as the fast-
changing environment and
the mutation impacting the
sector at an international
level. In the case of
Luxembourg, not adapting
to this new reality would
mean being rapidly overtaken
by its main competitors.
Among the recent initiatives
launched by Luxembourg in
that respect, “Impact Finance”
seems of particular interest.
It aims to attract impact
investment funds and their
manager altogether – and
cleantech ones in particular
- to Luxembourg through
a series of innovations.
An action plan with key
milestones has been drafted,
and the authorities together
with the industry are
currently actively working on
its deployment. The general
idea would be to develop in
Luxembourg a real “Impact
Finance” platform supporting
the launch and development
of this asset class, as well
as to design tailor-made
investment vehicles
which would efficiently
address the legal, tax and
potentially fundraising issues
relevant to the sector.
This initiative is fully
consistent with more general
ones which have been
taken at an international
level with a view to develop
more ethical conducts. A
good example is the Global
Reporting Initiative, which
aims to set up and promote
international reporting
standards integrating social
and environmental data.
Interestingly enough, it has
been adopted by a growing
number of listed companies.
We have also seen lobbying
groups emerge like IIGCC
(“Institutional Investors Group
on Climate Change”) which
advocate towards enhancing
the principle of socially
responsible investments and
encourage the integration
of social and environmental
considerations in investment
decision processes.
The Luxembourg financial
center is aware of the
opportunities that could be
triggered by the development
of cleantech funds in the
near future; it is currently
proactively adapting its
tax and legal framework
to remain a fully attractive
player, for cleantech funds
but also for their managers.
The key success factor going
forward will therefore lie in its
capacity to turn these actions
into tangible and pragmatic
solutions to attract investors
and to enable the financial
center to remain at the heart
of this economic mutation.
By José Aubourg, Senior Manager, Private Equity Audit, Ernst & Young
Luxembourg
novEmbEr - dEcEmbEr 2011 43
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Restructuring through LuxembourgFour years after the global economic downturn began, the U.S. and European economies continue to struggle and markets are shaken by the sovereign debt crisis, bondholders “haircuts”, defaults and double-dip recession forecasts. The impact of the global credit crisis has had a dramatic and adverse effect on traditional bank lending as banks have sought to rebuild their balance sheets, face the challenges posed by Basel III and recapitalisation issues.
2010 and the beginning of 2011 brought
forth some optimistic trends with a le-
verage buyout (LBO) activity as high
as the two previous years put together
and a bond market taking up part of the
bank lending. Since banks slowed down
in lending, companies have resorted to
the high-yield bond market for financ-
ing. Nonetheless, buyout firms still face
a mountain of debt - the so-called “ma-
turity wall” - from deals done when the
LBO industry boomed from 2005 to 2007.
When market conditions do not allow an
exit through an initial public offer (IPO)
or a secondary LBO, private equity (PE)
firms increase the refinancing or the re-
structuring of the companies they own.
Most of such LBO debt in Europe and in
the U.S. is due to mature over the next
five years.
In terms of refinancing, both high-yield
bond and loan markets - loan funds
known as collateralised loan obligations
(CLOs) - are serious alternatives but might
not be in a position to feed all the refi-
nancing deman
Favourite location for LBO structures
Luxembourg has developed a long-
standing expertise in structuring global
transactions through a sound range of
investment structures. It benefits from
being a key onshore EU jurisdiction with
an extensive network of double tax trea-
ties making it a strong hub for group
holding and international investment
vehicles.
The most important Luxembourg un-
regulated vehicle and central to the
structuring of cross border transactions
is the holding and finance company
called “SOPARFI”, which PE firms have
extensively used for LBO structures as
holding, acquisition and/or group finance
company.
The resilience of Luxembourg’s holding
structures has been assessed by a few
years of hard refinancing and restructur-
ing activity and, due to the secure and
flexible Luxembourg legal framework,
they have easily passed the stress tests.
novEmbEr - dEcEmbEr 2011 45
Strategy
Debt Restructuring
Debt restructuring is a reorganisation
process that might include a change of
ownership. Distressed companies may
avoid debt maturity concerns by enter-
ing into a so-called “amend-to-extend”
transaction, whereby they effectively re-
structure their revolving credit and term
loan facilities through loan modification
amendments which extend payments and
debt maturity. Lenders may also agree to
take control and replace part or all of their
debt in exchange for equity (Debt Equity
Swap). PE houses, in order to keep their
investment, may buy-back part of their debt
or inject their substantial cash reserves (the
so-called “dry powder”).
To prevent bankruptcy, companies in finan-
cial distress may always resort to judicial
restructuring through collective proceed-
ings, which authorise the company to
carry out its business by freezing part of
its debt. In Luxembourg, such alternative
proceedings are not used very often and
are very different from, for instance, the UK
pre-pack administration.
In most distressed situations, besides the
conflicting interests of sponsors, secured
lenders and subordinated lenders, the
“residual” value of the target group will
be a key element in determining the re-
structuring strategies. Certain restructuring
transactions envisaged by sponsors and
lenders may not be implemented. Howev-
er, the restructuring strategy that foresees
the transfer of the target group under a
safe new holding structure controlled by
the lenders, the existing re-investing spon-
sors or the new investors is often seen as
a real alternative.
The debt restructuring through the enforce-
ment of a financial collateral arrangement
governed by Luxembourg law may be
carried out without any risk of having the
transaction challenged.
Collateral Law
In 2005 the Luxembourg legislator imple-
mented the Directive 2002/47/EC of the
European Parliament and of the Council
of 6 June 2002 on financial collateral ar-
rangements (the Collateral Directive) on a
lender-friendly basis by enacting the law
on financial collateral arrangements (“loi du 5 août 2005 sur les contrats de garantie financière” – the Collateral Law).
The Luxembourg Collateral Law is consid-
ered as the most efficient legal framework
in the European Union as it perfectly reflects
the Collateral Directive’s main goal of fa-
cilitating and accelerating the enforcement
procedure of collateral arrangements to
preserve financial stability and avoid con-
tagion in case of default. In fact, one of
its main strengths consists in the broad
range of enforcement procedures offered
to lenders.
The law introduced, among traditional
enforcement procedures, the appropria-
tion of the pledged assets and the private
sale, which are the most preferred enforce-
ment procedures as considered efficient
and not time-consuming. Consequently,
the major contribution of the Collateral
Law is its protection against insolvency
procedures.
According to the Collateral Law, the pledge
and its enforcement are valid and oppos-
able at any time against all third parties,
including receivers, liquidators, supervisors
or other similar entities. The protection
covers all types of situations such as com-
position with creditors, reorganisation or
attachments affecting the pledgor and
all Luxembourg and foreign situations of
competition between creditors.
The pledge agreement can no longer be
challenged on the basis of insolvency
voidness in case it has been entered into
during the preference or “claw back” pe-
riod. The protection is extended regardless
the nationality or place of business of the
company which has granted the pledge,
and, the Collateral Law sets aside any re-
vocatory action open to a creditor or a
receiver in Luxembourg or abroad.
Recently, the Luxembourg legislator has
improved the efficiency of the Collateral
Law by filling remaining loopholes. The
Luxembourg Courts have also backed up
the principle of legal certainty supported
by the Luxembourg legislator by deciding,
for instance, that summary proceedings
could not prevent the enforcement of
financial collateral arrangements.
The strongly supported and successfully
stress-tested Collateral Law will certainly
create a favourable environment for new
acquisition structures and globally be
one of the greatest assets of the finan-
cial centre.
Stéphane Hadet, Partner at OPF Partners
46 novEmbEr - dEcEmbEr 2011
Strategy
Between encouraging and controlling business: Luxembourg’s dilemmaLuxembourg has developed into one of the world’s foremost financial centres. It is well regulated and the Luxembourg government is constantly developing innovative company and tax law to keep the industry at the forefront of Europe’s financial centres.
For individuals, in addition to the usual
trading and consulting companies, the
Luxembourg government has created
many specialised vehicles for efficient
investment strategies. These include the
tax-free Private Wealth Company (SPF), a
taxable Securitisation Vehicle (SV) that can
be set up with separate compartments for
individual shareholders or different types
of investment but that ultimately does not
pay any tax. Investors can also have their
investments grow tax-free in such lightly
supervised vehicles as the Special Invest-
ment Fund (SIF) and Risk Capital companies
(SICAR). Alternatively investors can invest
in the highly supervised and secure UCITS
investment funds which are quoted on the
Luxembourg Stock Exchange.
For corporate groups, Luxembourg offers
a taxable parent company that exempts
from tax, dividends received and capital
gains made on shares in subsidiaries in
which it owns more than 10 percent of
the share capital (SOPARFI). Another type
of financing company is meant to centralise
their financing in Luxembourg with a pre-
determined and agreed financing margin.
Finally, it can also be a royalty company that
collects their royalties and exempts from tax
80 percent of net royalties received from
registered intellectual property rights.
Luxembourg taxes on resident compa-
nies are reasonable with a corporate tax
rate of 29.63 percent and VAT at 15 per-
cent. Depending on the situation, it is
also possible for companies to come to
an agreement with the tax inspector to
ensure reasonable taxation of revenues.
Many specific tax rules related to certain
activities reduce companies’ tax burden
to almost zero.
More needs to be done
However, the government’s efforts to at-
tract investments through innovation in
tax optimisation are countered by other
measures, among which:
- wealth taxation, minimum corpo-
rate taxation of companies, and a
withholding tax on dividends;
48 novEmbEr - dEcEmbEr 2011
accounting
About the author
HT Group S.A. is a multidisciplinary,
English mentality, multilingual,
medium-sized accounting and tax
consultancy group of companies.
The group’s particular expertise is in
International Corporate Structuring
and Financial Engineering. It was
established in 1993 by Mr. Horsburgh,
after training with the Big Four
Accounting Firms and having reached
the position of Tax Partner. In 2000
Mr Fred Thomas, a British Chartered
Accountant joined him and the name
HT Group was born. Karl Horsburgh
is the Chairman of the Luxembourg
Business Angel Network in close
cooperation with the Luxembourg
Chamber of Commerce.
- very stringent rules on identify-
ing the beneficial owner and the
source of funds (which are not as
restrictive in other countries);
- the requirement for non handy-
craft and regulated professional
services to apply for a trading per-
mit (which has been completely
abandoned in other countries);
- the unnecessary minimum require-
ments of a company and the need to
have a notary to form a company;
- the lack of commercially-
minded banking facilities.
Luxembourg imposes a wealth tax of
0.5 percent of net assets on all compa-
nies. It also imposes a withholding tax
on dividends of 15 percent, and a mini-
mum taxation of EUR 1,500 per annum for
non trading or regulated companies (i.e.
SOPARFI’s, Financing and Intellectual Prop-
erty companies). Whereas Luxembourg is
often believed to be promoting tax eva-
sion, all of these measures are not found
in a number of other European countries.
For example Cyprus, Malta and the United
Kingdom do not charge withholding tax
on dividends and have no wealth tax or
minimum corporate taxation.
Pressure from the U.S. and Luxembourg’s
neighbouring countries appears to have
created a mentality in Luxembourg that
assumes everyone is guilty of some crime
until they prove themselves innocent. The
rules do not seem to be applied quite as
stringently elsewhere. Currently every
transaction above EUR 10,000 is considered
suspicious and requiring detailed proof as
to the origin of these funds. It is uncertain
that money launderers or terrorist finan-
ciers would bother with transactions of only
EUR 10,000. A limit of about EUR 500,000
would probably be more appropriate.
Too much bureaucracy kills efficiency
The process of creating a company and
doing business is very cumbersome and
time-consuming. Currently, if a lawyer
refers a client to an accountant who then
refers this client to a bank and a notary, ev-
ery professional in this chain must gather
identity and proof of funds documenta-
tion. Each professional has their own forms
and interpretation of the law. It requires
the client to gather a large number of
documents. The notaries have further
complicated this procedure by introduc-
ing their beneficial owner and source of
funds declarations.
Karl Horsburgh, Managing Director at HT Group
novEmbEr - dEcEmbEr 2011 49
Everyone agrees that the transfer of money
resulting from crime should be stamped
out. But it would be much simpler and
efficient if the first professional in contact
with the client could gather the certified
information and the others could rely on
the fact that the copies provided to them
stem from those originals. Once one pro-
fessional has done his job, why does the
bank and notary have to do it again? Surely
a signed certification by the introducing
professional should be sufficient.
Another issue is the need to always apply
for trading permits. Whether it is about run-
ning a shop, doing computer assistance or
offering clean energy consulting services,
anyone carrying out any type of activity
in or through Luxembourg must apply for
such a permit. The licence is granted if the
Ministry considers that the applicant has
the required qualifications, which are de-
termined by law. Very often the decision
to grant or not a licence is a matter of in-
terpretation. In other countries, notably the
UK, the government allows the market to
decide whether a person can provide the
service he is offering or not.
A more adapted vision of companies
The requirement for a minimum share capi-
tal of a company is not understandable. It
stems from the idea that it would protect
the creditors and prevent a company from
going bankrupt. However, the minimum
share capital can be spent the moment the
company is formed and therefore provides
no protection for creditors at all. Many ele-
ments of the administrative procedure of
forming a company, which are required
in Luxembourg, have been abandoned in
other countries. The need for a minimum
paid up share capital; having more than
one director and an unqualified auditor
in a company; using a notary to create
it, change the share capital or move the
registered office from one commune in
Luxembourg to another, all these examples
add to the cost and administrative burden
of doing business without any great benefit
to third parties.
The old system of domiciliation where
an accountant or lawyer gives their of-
fice address as the registered office of the
company is less and less effective. All com-
panies need to be managed and controlled
in Luxembourg and must have a registered
office in Luxembourg for the purposes of tax
residence, application of double tax treaties
and European Union Directive application.
In addition, the pressure of foreign tax au-
thorities and financial supervision by the
CSSF require that central management and
control is in Luxembourg and that the com-
pany has substance. The CSSF, the Ministère
des Classes Moyennes for trading permits
and the Administration de l'Enregistrement
for VAT number applications all now insist
that the companies need to have an office
large enough to carry out their envisaged
business. The administrations also require
that the person holding the trading permit
or authorisation is actually present in Lux-
embourg during the week. All the pressure
is on for companies established in Luxem-
bourg to show substance.
Currently domiciliation can be carried out
by persons regulated by the Institut des
Réviseurs d'Entreprises, the Ordre des Ex-
perts-Comptables, the Luxembourg Bar,
the CSSF and the Insurance Commissari-
ate. It will not be long before the CSSF will
take complete control. The move is already
upon us. Many accountants have created
office centres were they have offices to
rent to companies. At HT Group, the com-
pany I founded, we are also moving in
that direction and soon all the companies
we administer for clients who are not in
Luxembourg will be registered at an of-
fice centre with secretarial support and
all the equipment one would expect to
find in an office.
We also see that it is imperative for law-
yers and accountants to work more closely
together. Each profession has its own
strengths. The best example is the pressure
now being put on by the Register of Com-
merce for companies to file their accounts
within at least one year of their year end. It
is often companies that are domiciled at the
offices of non-accountants that are caught
out by this. It requires careful monitoring
and constant contact with the client to en-
sure that one has all the information to be
able to complete the financial statements,
have them approved by the shareholders
and file them on time. I think that accoun-
tants are best placed for this. The new Chart
of Accounts for Financial statements (Plan
Comptable Normalisé) and completing an
electronic pre-set form of accounts will add
to this necessity.
By Karl Horsburgh
50 novEmbEr - dEcEmbEr 2011
accounting
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Fernand Grulms, LuxembourgforFinance
”Preparation is key,” said Fernand Grulms
from Luxembourg for Finance (LFF). “We
started preparing this mission to Asia nine
months in advance. We need to choose our
targets and cover the markets that count.”
The Association of the Luxembourg Fund
Industry (ALFI) and the Luxembourg Bankers
Association (ABBL) mostly join LFF. “Ernst
Wilhelm Contzen from the ABBL and Marc
Saluzzi from the ALFI are door-openers. We
come behind to place our message,” said
Gilles Dusemon, investment funds lawyer
at Arendt & Medernach, who also joined the
mission to Asia. “We choose what we speak
about. For example we spoke about Hedge
funds in Singapore, but nowhere else. It’s
a question of interest and sophistication;
knowing what people are deemed to be
interested in and adapting our message.” In
Malaysia, the world’s biggest Islamic funds
centre, Mr Dusemon focused his work on
“how their know-how about funds can fit on
our platform know-how”. “We go out there
to advise people and help them reach their
targets in Luxembourg. But we also go there
to learn how they work, not only to promote
ourselves. We say we are but one of the ele-
ments of the same value chain.”
The mission to Asia revealed a lot of con-
cerns about Europe’s image, which Fernand
Grulms judged “catastrophic”. “When we
explained the advantages of Luxembourg
and possible business opportunities, people
would interrupt us and ask us to talk about
Greece, Italy, and the future of the Eurozone,”
he said. “If Luxembourg wants to position
itself in Asia it has to repeat over and over
that although Europe is a perturbed zone,
Luxembourg is a stable one.”
“It’s very important that Asia understands
how we work,” Gilles Dusemon said. “With
this mission, we are at the second or third
step of a lot of steps.” He said that the eco-
nomic or financial deals announced in the
press right after the mission are only the
tip of the iceberg. “There are a lot more
opportunities than the Chinese bank. A lot
of people wonder how much it gives back
immediately. But we need to see this from
a long-term investment perspective.”
Different hats, one message
Gilles Dusemon said the audience is of-
ten made of very diverse people, and the
conferences have to remain both under-
standable and interesting. “We always have
two missions within one: meeting a public
that knows us and wants to know more, and
a public who doesn’t know much at all,” he
said. “But I can tell you we filled the rooms
and needed to bring in new chairs.”
How Luxembourg is sold abroad
LuxembourgforFinance, the public-private development agency of Luxembourg’s financial sector, came back from its mission to Shanghai, Singapore and Malaysia last October with a strong will to just do more of the same thing: position Luxembourg as the ideal place to do business for emerging markets. These missions require a strong team of experts who are excellent communicators and have a knack for finding what markets are looking for.
52 novEmbEr - dEcEmbEr 2011
STrATEGY
Steve Bernat, Citi Justin Ong, PwCGast Juncker, Elvinger, Hoss & Prussen
He said the missions are “very intense”. “We
all wear three different hats and change
them all the time according to the person
we talk to. We are the LFF, the ALFI and our
own company. When we are with the heir
prince, we all carry the Luxembourg flag.”
“It’s clear that a delegation of 50-60 people
is not inactive,” Mr Dusemon said. “Lots
of contacts are made, and we will need
to go back, again and again. We will see
other results in three to six months, even
in two years.” Fernand Grulms will be back
in China in January. “You need to go back,
again and again”, he commented. “We’re
among those people who put a foot in the
door and don’t take it off,” said Mr Dusemon.
“There’s no question about waiting; we
need to be there.”
By Delphine Reuter
novEmbEr - dEcEmbEr 2011 53
STrATEGY
Delays in technology projects betray uncertaintyAs the world of private banking is changing, technology choices reveal decision-makers’ worries of an uncertain future.
Although the private banking activity has
remained quite stable since the start of the
financial and economic crises, a general
climate of uncertainty still prevails today.
Preferring to focus on what is immediately
profitable and delaying what is not, deci-
sion-makers pull the curtain on big projects
such as the makeover of their entire core
banking system.
”Replacing a core banking system is not
a project you start for pleasure’s sake,”
said Fabrizio Romano, Country Manager
for Luxembourg of the core banking soft-
ware company Finnova. If some consider
replacing the technology supporting their
business for something better adapted to
modern times, others regard big shifts as too
bold in the current economic climate.
Typically a core banking system requires a
solid investment in the first year to cover
licence costs and an important delegation
of IT resources to implement the new solu-
tion. It also represents a certain risk for the
bank, “even if it’s under control”, added Mr
Romano. He added that it may be tricky
in the current economic uncertainty for
local management teams to stand up and
make a strong business case to their mother
company headquartered elsewhere. Two
private banks have recently delayed the
implementation of a core banking solution;
both were branches of bigger groups.
"Since 2008, Luxembourg has been the par-
tisan of a wait-and-see policy," said Frédéric
Kemp, Managing Director Benelux at core
banking software company Avaloq. Today, a
lot of investments are being made in front-
office solutions to support a client-centric
strategy, he said. “Private Banks try to fo-
cus on client servicing, which shows a real
need for them to pop out from the crowd of
competitors. But that’s only one part of the
issue.Banks also need to invest in their back
office systems in order to improve business
flexibility and reduce costs. At the end of
the day, improving cost/income ratio does
not only happen on the front-office.”
New drivers
With more mergers and acquisitions
planned, companies will be re-thinking
their strategy and some may decide to
sell their private banking activity. The
landscape could change dramatically.
The private banking sector is looking at
ways to redefine itself and find new driv-
ers to boost business development. Beside
advisory for regulation and tax, services
derived from technology can also be part
of the solution.
"Globally all banks face rising costs and
thinning margins," said Frédéric Kemp.
Fabrizio Romano argues that replacing
an older core banking solution can be a
good starting point for a cost optimisa-
tion strategy since those systems generate
a lot of hidden costs. In Switzerland, out
of Finnova’s 90 clients, 80 have adopted
54 novEmbEr - dEcEmbEr 2011
Private BanKing
“Based on the results of our survey, we note
that 50 percent of respondents indicate
that they are currently investing in core
processes, technologies and applications.
However, Luxembourg banks have, on
average, a low cost income compared to
other territories (in particular compared
to Switzerland) and a third of Luxembourg
respondents have seen their operations
and IT budgets decrease over the past
two years. This suggests that a number of
Luxembourg banks have put investments on
hold – despite a growing regulatory agenda
and increasing clients’ demands. Besides
this figures, Luxembourg banks seem to be
well equipped in Customer Relationship
Management (CRM), Portfolio Management
and Investment advices tools. They overall
consider that their business processes and
IT fit to provide services to their clients.
Banks have set high priorities in improving
process automation, client reporting and
data security/protection. The ratio of IT staff
compared to operational staff is very low
compared to other countries (40 percent
of IT staff, as opposed to 70 percent for
Swiss banks). The impact of current and
future investments in technologies will
certainly impact this ratio. Investment in
technologies will have to continue to look at
the challenges of the Private Banking sector.
There are certainly opportunities to be better
synchronised and coordinated at the level
of the sector for investments in areas which
are not considered as a differentiating factor,
such as back offices and reporting. Banks will
have to find the right focus with certainly a
common objective: client servicing.”
François Génaux Advisory Markets and Financial Sector Leader at PwC
Vincent Villers, partner at Pwc
a complete mutualised model including
BPO (Business Process Outsourcing), he
said. Data confidentiality has proven not
to be an issue.
For now in Luxembourg, private banks in-
volved in BPO projects only represent a tiny
portion of the market, even with a strong
presence of PSFs. “Banking remains a tradi-
tional world,” he said. “There is a difference
between banks’ interest for the solution and
them actually taking the step. It will be an
element to count with in Luxembourg for
the years to come. In the meantime we
get ready for future developments by an-
swering their questions about functionality,
security, etc.”
Frédéric Kemp agreed that Switzerland is
more mature than Luxembourg when it
comes to using mutualised solutions for
cost optimisation. "Most of our clients in
Switzerland have implemented a mutua-
lised approach, be it internally by setting
up a hub concept within their group, or
through the use of an external standardised
service." He said that some large banks here
still prefer developing in-house solutions
rather than implementing packages.
Fabrizio Romano said that companies here
need to be pro-active to secure the future
of their hubs in Luxembourg. “If we com-
pare Luxembourg to Switzerland today in
the field of mutualisation and the results
it helps achieving, the country is lagging
behind. Switzerland may well be the ex-
ception today but the wind will turn, and
Luxembourg should not then become the
exception.”
By Delphine Reuter
PwC shines light on technology strategy
PwC recently released its Global Private Banking and Wealth Management Survey 2011.
Vincent Villers, partner and François Génaux, Advisory Markets and Financial Sector Leader
at PwC Luxembourg explain what Luxembourg banks are choosing to invest into.
novEmbEr - dEcEmbEr 2011 55
Private BanKing
Increasing business performance by governing InformationClients are more and more demanding, especially in the financial sector. The time needed to treat critical information must be decreased whereas the volume of information is ever-increasing. Innovative financial products regularly appear on the market.
Olivier LEONARD and Mathieu RINCK, ISACA Luxembourg Chapter
56 novEmbEr - dEcEmbEr 2011
The risks are also growing. Failures of IT sys-
tems may significantly impact the delivery
of quality services and as a consequence
the reputation of a company. To face these
issues, the IT community developed, over
the years, frameworks to support an ef-
ficient management of IT. COBIT, which
was created 15 years ago, continuously
evolved based on the comments of experts
in IT, audit and business executives. The
future version is scheduled for early 2012,
a good opportunity to reconsider the po-
tential benefits of governing IT.
Changing business expectations
Companies of the financial sector initially
invested in IT because business growth
and sustainability could not be achieved
without sufficient IT capability. Over the
years, IT’s role changed from purely re-
sponding to business needs (by providing
IT resources and ensuring their availabil-
ity) to enabling business innovation (by
proposing and supporting new business
approaches). As a result, new business
expectations appeared.
The Information Systems Audit and Control
Association (ISACA) has conducted a re-
search aiming at clarifying the relationship
between IT governance and business per-
formance1. For this research, IT and business
managers from 538 companies worldwide
completed a survey on the implementation
status of 56 IT-related governance process-
es and the company’s performance against
a set of IT and business goals. Without any
surprise (considering the difficult economic
context), the business goals identified as
the most critical relate to cost optimisa-
tion, efficiency of operations and capacity
to initiate and conduct changes.
Following the same trend, the IT goals most
contributing to the achievement of business
goals concern efficient cost management,
the optimisation of IT solutions in support
of business needs, and the capability of the
IT organisation to deal with a changing
environment.
Looking at the correlations in more de-
tail, it appears that the processes that deal
with strategy, direction, IT investment and
risk, and the processes that deal with ac-
quisition of application and infrastructure
environment have the highest impact on
supporting the achievement of business
goals. IT governance can facilitate the defi-
nition of relevant and efficient actions on
these IT goals and processes.
Mature tools
IT governance consists of the leadership
and organisational structures and pro-
cesses that ensure that the organisation’s
IT sustains and extends the organisation’s
strategies and objectives. Implement-
ing such practices is complex without a
set of appropriate tools. COBIT includes
implementation guidelines, the control of
objectives and practices, maturity models,
performance goals and related metrics. The
governance areas proposed by the frame-
work are strategic alignment, value delivery,
resource management, risk management
and performance measurement. Focus on
one or several of these areas can easily be
accomplished.
The framework also proposes a cascade
model consisting in linking the business
goals to IT goals which themselves are
linked to the IT processes. This structure
helps selecting the key IT processes, being
those processes that directly impact the
business goals. As an example, obtaining
a good return on investment of IT-enabled
business investments can be achieved by
improving the IT’s cost-efficiency and its
contribution to business profitability. “Man-
aging the IT investment” and “Identifying
and allocating costs” are the two IT pro-
cesses in COBIT that directly impact the
related IT goal.
On the agenda
IT governance is not an isolated discipline.
It is an integral part of overall enterprise
governance. Boards and executive man-
agement need to extend governance to
IT and provide the leadership, organisa-
tional structures and processes that ensure
that IT sustains durably business strategies
and objectives. Governance developments
have initially been driven by the need for
the transparency of risks and the protec-
tion of shareholder value. The widespread
use of technology has now created such
a critical dependency on IT that a specific
focus on IT governance is essential. COBIT
5, scheduled for early 2012, is definitely a
good opportunity for the financial sector
to generate stimulation for implementing
IT Governance.
Olivier LEONARD and Mathieu RINCK, ISACA Luxembourg Chapter
Luxembourg Forum
ISACA has established a COBIT
Forum in Luxembourg. Discussions
are organised on a regular basis to
address local concerns related to IT
Governance and COBIT.
More information: isacalux@gmail.com
References
1. Building the Business Case for COBIT and Val IT- Executive Briefing (ISACA 2009)
novEmbEr - dEcEmbEr 2011 57
TEcH
LUTZ bErnEKE
CEO eBrand Services S.A.Luxembourg
Over the past few years,
limited URL extensions have
been introduced such as .info,
.mobi and .asia. The creation
of those extensions, the so-
called Top Level Domains
(TLDs), has helped companies
to better define their internet
presence while allowing
costumers to find the right
product or service more easily.
Comforted by the success
of those TLDs, ICANN, the
global internet regulator,
took a further step by giving
access to a new generation of
extensions including generic
terms (e.g. www.rock.music 1,
geographic terms (e.g. www.
hotel.paris 2 and brand names
(e.g. www.X5.bmw 3. Any
company can access those
new Top Level Domains,
which can carry clear
advantages for their owners.
Time for redefinition
First of all, companies retain
full control over their brand
by acquiring TLD. Market
research shows that the
biggest concern for online
business is brand protection.
Today, only costly legal
actions with unavoidable
time lags can protect
companies against people
trying to register a domain
name with the sole purpose
of abusing a brand. Owners
of the new TLD will not have
to face those problems. They
will be free to assign domain
names to the partners of
their own choosing. Cyber
squatting, phishing and,
when necessary, withdrawing
of domain names won’t
be problems anymore as
the TLD owner will have
the authority to set the
rules to access domain
names of his extension.
Secondly, internet visibility is
improved. While the surge of
extensions will impact online
brand protection strategies, it
will also allow for tremendous
marketing opportunities.
Affiliate business partners
using one and the same
extension will jointly create
a strong brand, a high online
visibility and foster the
reputation of an organisation
that values teamwork. TLDs
also offer the chance to
reinvent how products and
services are known and can
be found on the internet.
Ease-of-access and simplicity
of URLs are decisive factors
for the success of any
online business. Isn’t easier
to remember “www.loans.
bank” than “http://www.bank.
lu/en/Private-customers/
Loans/Personal-loans”?
By allowing new Top Level
Domains, ICANN also
substantially reduced the
barriers to access domain
names with high marketing
value. For example, fund.com
was sold in 2008 for USD
9,999,950. But the application
for the .fund extension might
only require an investment of
about 5 percent of that price.
Top Level Domains may open new era for web presenceSince 20 June 2011, companies can choose their own brand as domain name extension. The new extensions will pave the way for improved brand protection, enhanced internet visibility and more secure online transactions. Interested companies only have until 12 January 2012 to make up their minds. Now is the time to look for the right partners and make the most of this opportunity.
58 novEmbEr - dEcEmbEr 2011
TEcH
Supporting innovation
The new TLDs will be
extremely powerful tools with
regards to customer loyalty.
For example, proposing a
personalised domain name to
each customer will create a
community around the brand.
Retail banks and Investment
banks that constantly
have to communicate
with a large number of
clients while guarantying a
selective dissemination of
information, will be able to
create a new communication
channel and deliver tailor-
made information safely
over the internet.
Another aspect that will
seduce any company present
online is the improved
security measures. Any
connection provided over a
privately owned TLD is totally
safe and legitimate as the risk
of “phishing” is outcropped,
all new extensions will
have to comply with the
DNSSEC (Domain Name
System Security Extensions)
secured protocol, and all
“dotBrand” TLD will be stored
in a central database to
avoid cross-site scripting
(XSS) and malicious codes.
Support from IP law
In Luxembourg, an
Intellectual Property law
passed in 2008 offers an
unequaled tax environment
to companies looking
to make the most out of
new-generation domain
names. Fees gathered from
domains ending in a TLD
can be exempted from up
to 80 percent of the regular
corporate tax. As a result,
expenses for a Top Level
Domain can easily be turned
into a highly profitable
investment that carries the
promise of recurring revenue.
By Lutz Berneke, CEO of eBrand Services S.A., Luxembourg
References
1, 2 and 3 Brands, company names and ge-neric names mentioned in this document are mentioned purely for illustrative purposes. It should not be considered as an indica-tion that these brands, company names and generic names have applied or are engaged in the application process for a TLD, or that eBrand Services or its partners have been involved in any professional relationship in this respect.
Timeline
20 June 2011: ICANN
approves Applicant
Guidebook
12 January 2012: Applicant
window for NgTLDs open
April 2012: Applications
made public
November 2012: Addition of
NgTLDs to root-zone
2013: Start of domain
registrations
Time2dot, the TLD
Competence Center
Any public or private sector
organisation can apply
to create a new gTLD.
However, the process is
not as easy as registering
or buying a simple domain
name. The owner will have
to become the “registry”
managing the extension,
like VeriSign is doing for
.COM, or Nominet for .UK.
To do so, he will have to
submit a full application to
ICANN before 12 April 2012.
Deloitte Luxembourg and
the domain name experts
of eBrand Services and
OpenRegistry have created
a comprehensive service
package called “Time2Dot”.
Via a single point of contact,
Time2Dot is helping
interested companies to:
draft a state-of-the-art
application, develop a clear
strategic and operational
vision, implement the
best technical solution
for the management of
their TLD, and achieve
tax optimisation and IP
structuring.
novEmbEr - dEcEmbEr 2011 59
TEcH
1.
2. 3.
4. 5.
6.
7.
8. 9.
Snapshots:
ALFI Global Distribution Conference, 27 and 28 September 2011
1. Michael Saunders, Brown Brothers Harriman, Chris Dawe, Schroeders Investment Management Paul Roberts, Goldman Sachs Asset Management
2. Luc De Vet, Citco Fund Services3. Leah Cox, Deutsche Bank AG4. Georg Patrick, LuxCSD5. Steve Kiely, Citibank6. Antoine Kremer, ALFI, Theresa Hamacher, NICSA, Marc Saluzzi, ALFI7. Ugo Sansone, Eurizon Capital, Steve Bernat, Citibank8. Eric Desambre, Capital Markets Company, Antonio Irene, SocGen, Andrea Brevi, Profidata9. Joao Carlos Da Costa, Kredietbank Luxembourg
60 novEmbEr - dEcEmbEr 2011
FUndS
Article XXXX
La ligne de la gouvernance
Goverline est une plateforme de gestion de la gouvernance des entreprises, développée à Luxembourg par Vectis PSF et ses partenaires. Grâce à cette solution, EP Group, société de services d'ingénierie financière, a mis en place une chaîne de processus de pilotage intégrée qui permet une gouvernance efficace des sociétés sous gestion chez le domiciliataire. C'est ce que Vectis a démontré lors d'un lunch organisé avec Finance Luxembourg.
Le spécialiste de la gouvernance d'entre-
prise, Vectis, a construit récemment une
solution informatique qui rassemble tous
les événements de la vie légale d'une en-
treprise. Cette solution en ligne s'appuie
sur plusieurs piliers de bonne conduite
d'une entreprise : le KYC, la veille régle-
mentaire et la gestion des comités de
direction. Ainsi, toutes les décisions en-
térinées par les autorités dans l'entreprise
sont suivies, surveillées, par processus,
dans leur bonne exécution et auditables
pour démontrer, au besoin, le caractère
légal du débat qui s'est tenu.
« Nous avons construit un modèle organisa-
tionnel et un enchaînement de procédures
pour la gestion des entreprises, de toute
taille » explique Jean-Philippe Wagnon, fon-
dateur de Vectis PSF. « Nous avons mutualisé
la connaissance dans une plateforme qui
se présente comme un catalogue de pro-
cessus et montre le calendrier des tâches
associées. » Sont couvertes, toutes les com-
munications et échanges au regard des AG,
des audits internes ou externes, de reporting,
de la comptabilité, etc. «Il y a dans ces de-
voirs réglementaires tout un enchaînement
de tâches qui reste invariable et qui associe
des personnes dans l'exécution du business.
Grâce à la solution, on dispose toujours d'un
œil sur qui fait quoi ! »
Vectis et un écosystème de partenaires
La solution existe en version profes-
sionnelle à l'usage principalement des
domiciliataires, des avocats, des holdings
ou toute autre structure qui détient un
pool de société à gérer. Elle est disponible
en tant que service, sans installation,
avec le support et l'accompagnement
novEmbEr - dEcEmbEr 2011 61
TEcH
© C
har
ly W
agn
on
/ V
ecti
s P
SF
1. Jean-Philippe Wagnon, Vectis PSF2. Bernard Hermant, Learch3. Laurent Putzeys, EP Group4. Bernard Antoine, Luxtrust S.A.
1. 2.
3. 4.
de Vectis. Elle est garantie 100 pourcent
secure, grâce à la technologie de Luxtrust,
la société de service semi-publique semi-
privée, qui est le champion national en
identification, en authentification et en
signature des échanges d'informations
par voie électronique. « Une signature
Luxtrust a la valeur d'une signature
manuscrite et est pleinement conforme
à la directive européenne 1999/93/EC »,
explique Bernard Antoine, directeur com-
mercial de Luxtrust SA.
Avec Learch, le spécialiste de l'archivage
électronique, les documents conservés
dans Goverline sont aussi garantis sur le
long terme. « L'entreprise Learch, pour
Luxembourg e-Archiving, est prête pour
le statut de tiers archiveur de la prochaine
loi sur l'archivage électronique », a con-
firmé Bernard Hermant, directeur agréé
de la société.
Vectis compte faire progresser la solution
prochainement : dès 2012, les modules KYC
et AML seront opérationnels, en collabora-
tion avec la firme de compliance CDDS.
Plus tard, en juin 2012, un module Risk-
as-a-Service sera également proposé. Des
réflexions sont même en cours pour rendre
la solution mobile sur iPhone et iPad.
EP Group à la carte
EP Services, la filiale PSF et domiciliataire au
sein de l'ensemble EP Group, s'est intéres-
sée au concept de gouvernance partagée
proposé par Goverline. L'outil a été construit
en pleine collaboration entre Vectis et le
groupe de fiducie. « La solution reste très "à
la carte" et elle nous a permis de sélection-
ner un nombre de services en fonction de
notre métier spécifique de domiciliataire »
dit Laurent Putzeys, sales manager chez
EP Group. "Nous avons travaillé avec Vec-
tis dans la construction de la plateforme
parce que nous avions repéré les bénéfices
multiples d'une telle solution."
« D'abord, il est essentiel pour nous que les
intervenants dans les dossiers de nos clients
soient assurés du respect des processus et
cadres légaux en place. Ensuite, en gérant
une centaine de sociétés, nous avons be-
soin d'une solution robuste et fiable. En
tant que domiciliataire, nous proposons à
notre clientèle de chefs d'entreprise une
solution de bout en bout, depuis la con-
stitution d'une société jusqu'à sa gestion
coordonnée. Nous disposons d'une ex-
pertise spécifique en matière de propriété
intellectuelle. Nous avons repéré dans Gov-
erline les qualités qui permettent d'offrir un
service supplémentaire à nos clients. La
solution a pu être labellisée à notre image
et est restée très conviviale.»
Par Raphaël Henry
62 novEmbEr - dEcEmbEr 2011
TEcH
La solution trouvée par Vectis PSF et ses
sociétés partenaires CDDS et Learch est de
mutualiser ces procédures au sein d’une
même plateforme et en proposer l’accès
aux sociétés sous plusieurs formats, notam-
ment “pay-as-you-go”. ”Nous ne pouvons
pas vendre un outil conventionnel comme
World-Check donc nous l’avons mutualisé
et adapté au marché”, plaisante M. Wagnon,
faisant référence à la société américaine
spécialisée dans l’intelligence de risques.
Vectis PSF présentera cette solution en
janvier 2012 lors d’un lunch organisé avec
Finance Luxembourg.
La “due diligence”, le processus d’identifica-
tion des clients et de leur fiabilité, n’est pas
une approche statique, fixée une fois pour
toutes sur papier et déclarée aux autorités
compétentes en accord avec les régula-
tions en vigueur. “Cette vérification doit se
faire en parallèle de l’évolution de la relation
entre l’organisation financière et le client”,
explique Jean-Philippe Wagnon, fondateur
de Vectis PSF.
Avec “DueDil”, trois sociétés partenaires ont
mis en place une offre mutualisée dans
la platefome ePSF.lu et qui repose sur des
modules construits à partir de l’expertise
de chaque société. CDDS, spécialiste de
solutions technologiques pour la lutte anti-
blanchiment et le KYC, propose un module
qui permet aux sociétés clientes d’être en
constante vigilance. Le module est tailorisé
pour répondre aux besoins différents des
sociétés en fonction de leurs activités et
de celles de leurs clients. Vérifications uni-
ques, focalisation sur certaines personnes
à intervalles réguliers, voire accès en real-
time, l’AML et le KYC, proposés en Saas,
sont à la portée de toute entreprise. “Dans
certains cadres, il faut pouvoir proposer
une surveillance renforcée en fonction de
l’appréciation du risque de la relation d’af-
faires”, ajoute Jean-Philippe Wagnon.
Les produits de CDDS sont juxtaposés à
un environnement de stockage dans ePSF.
lu en premier lieu et une fonctionnalité
d’archivage en second lieu, assurée par un
partenariat avec la société Learch (Luxem-
bourg e-Archiving s.a.). Learch garantit la
sécurité et la validité légale des rapports
générés par la plateforme. “La traçabilité
de ces contrôles doit être assurée”, ajoute
M. Wagnon. Une approche technologique
transversale “permet non seulement de
consulter les listes, manuellement ou
automatiquement, mais aussi d’archiver
ces informations.”
Le rôle central des PSF
L’AML, le KYC et la lutte contre le finan-
cement du terrorisme sont devenus des
priorités au sein des organisations financiè-
res, des plus larges banques internationales
jusqu’aux réviseurs d’entreprises indépen-
dants. La CSSF les replace dans le contexte
plus large des mesures prises par les socié-
tés financières qui permettent d’assurer la
pérennité de la place financière. Le prési-
dent de l’association luxembourgeoise des
compliances officers a récemment souli-
gné le rôle que peuvent jouer les PSF en
sous-traitant des services sur-mesure
axés sur la compliance des entreprises.
L’augmentation du nombre de circulaires
décrivant les déclarations et le reporting
légal nécessaires à l’AML et au KYC est en
effet devenu conséquent. “Tout ce travail
est source de frais et n’est pas nécessaire-
ment prioritaire par rapport à la mission
de rentabilité de l’entreprise”, précise le
fondateur de Vectis PSF. “On se rapproche
d’une problématique où trop gérer le ris-
que devient un risque en lui-même”. Le
premier client de “DueDil”; live en janvier
2012, sera présent au lunch pour partager
son expérience.
Par Delphine Reuter
L’AML, un “done dil”Tout comme les grandes entreprises, les PME actives dans le secteur financier doivent procéder à des vérifications régulières sur la provenance de l’argent que leurs clients leur confient - ainsi que sur les clients aux-mêmes. Mais la tendance globale des vendeurs de solutions d’AML et de KYC est de proposer des outils souvent onéreux.
Lunch AML-KYCMardi 24 janvier 2012 Quand ? Mardi 24 janvier 2012
11h00-15h00Où ? Novotel Centre
35 Rue du Laboratoire L-1911 Luxembourg
Contact: caroline.simpson@financeluxembourg.lu
novEmbEr - dEcEmbEr 2011 63
AmL
Experts’ take on financing innovation and innovating in financeOn 22-23 September 2011 the Public Research Centre Henri Tudor gathered experts in innovation and finance to propose practical ways to innovate in the financial sector. Participants also took a look at the financial instruments that could be the most successful at supporting innovation.
Cyril Demaria, Professor at HEIG-VD and Chief Investment Officer at Tiaré Investment Management AG
Talked about European venture capital models and how financial innovation can help in this sector.
“Since 2000, the American venture capital
model has been criticised and even de-
scribed as “broken”. In Europe, venture capital
funds are only part of the solution to finance
innovation. Business angels and other par-
ticipants, such as family offices, have also to
be counted in. Unfortunately, legal and tax
regulations are often inappropriate. These
regulations are a burden, while they should
be flexible and robust. In the case of sales of
portfolio companies, initial public offerings
remain exceptional.”
“As for venture capital, even if I cannot gen-
eralise, the current legal structures mostly
prevailed in the past. We historically came
from an integrated model of financing,
Dr. Chris Storey, Reader in Marketing at Cass Business School
Presented his paper on a study of project portfolio management (PPM) practices in financial service firms
“As organisational activities - products,
processes, change and business-as-usual
- are increasingly managed as projects,
the importance of managing the projects
as a portfolio has become a strategic pri-
ority of organisations. There are two clear
differentiators between leading firms and
those that can be considered the followers
or laggards in developing projects.
The first is to try and do too much - develop-
ing too many projects. As a result they are
spreading their limited resources too thinly.
There is a strong relationship between the
volume of the project portfolio, the develop-
ment performance and ultimately the success
rate of the projects being developed.
The second is being too conservative in
their choice of projects. There is often a
fear of failure in organisations which leads
to managers choosing the soft option. Most
projects are considered to be relatively small
low-risk/low-payoff projects. It is hardly
surprising that these companies are not
performing very well in the marketplace.
We found a few firms that were taking too
many risks but a large proportion would
rather err on the side of caution. Few firms
seem to have found an “optimal” level of
risk. In trying to move from an unformed
approach to PPM to a mature PPM capabil-
ity firms fall into one of two traps - being
ill-prepared or ill-equipped.
The ill-prepared put systems in place
without changing the alignment of the
organisation. Just adopting PPM tools or
software packages will be unsuccessful.
In such circumstances tools are often
misused and quickly get discarded. The
ill-equipped change the focus of the or-
ganisation without putting in place the
systems that enable people to effectively
carry this out. They make suboptimal
decisions due to the lack of available
information.”
64 novEmbEr - dEcEmbEr 2011
Strategy
Dr Karl-Erik Sveiby, Professor of Knowledge Management at the Hanken Business School in Helsinki, Finland
Presented a paper about a financial innovation -securitization- and a product -the Collateralised Debt Obligation- and tracks its effects over 30 years.
“Fast-paced financial innovation can
change the context for everybody in
the financial industry to such a degree
that even the highest regarded experts
repeatedly make prediction errors. Ac-
celerating innovation does not necessarily
mean improving. Speeding up can become
dumbing down. The systemic negative ef-
fects of prediction errors have since 1980
gradually become more important. To-
day a portfolio manager’s single decision
can cause global financial mayhem. The
problem is that economic theory has not
yet taken this into account. Finance needs
to consider also systemic effects and the
negative consequences of innovation. The
solution to a problem caused by innova-
tion is not necessarily more innovation.
It could merely multiply the effects of an
inherently flawed design.”
An Oxford MBA graduate, she independently launched “The Open Book of Financial Innovation” project and sent a call for interested parties to contribute
Emanuela Vartolomei, Founder of “The Open Book of Financial Innovation”
“The Open Book is not going to be a con-
ventional book but rather a continuously
updated online wiki resource that will
capture the scale and the speed at which
the financial innovation field is changing.
The mission is to bring thought leader-
ship and clarity to a fast-developing and
increasingly complex financial innova-
tion space with the aim of developing a
community of practice and a bottom-up
governance body.”
“History demonstrates that financial
innovation is extremely important for
sustained economic growth and pros-
perity. Long-term economic performance
depends on our ability to generate knowl-
edge and inventions, and the supply of
appropriate forms of financing tools plays
a critical role in this process. The last fi-
nancial crisis proved the importance of
having a governance body for this field. I
believe that The Open Book will support
the development of the financial innova-
tion ecosystem that we need to forge for
a sustainable economic development.”
Corentin Vermeulen, R&D Engineer at Public Research Centre Henri Tudor
Focused on socially responsible investing (SRI)
"Broadly speaking, this type of funds aims
at reaching both a financial and extra-fi-
nancial performance. For a few years, the
SRI market has grown sustainably. At the
beginning of 2010, about EUR 5 trillion had
been investing in this market in Europe. But
there remain obstacles. The SRI concept
remains quite vague, which means there
exists too many different ways to approach
assets selection. Transparency and report-
ing issues can likewise be found.”
“Our research concerns the development
of an evaluation framework of SRI funds’
socially responsible approach. We would
like to integrate different stakeholders’
opinions. During the summit organised
by the CRP Tudor we presented our project
and its future perspectives. We proposed a
common definition of SRI and a preliminary
evaluation framework with performance
indicators. The relevance of the model was
supported by stakeholders. We now aim at
validating it through a statistical survey.”
combining management, investment and
control; to a model where these three func-
tions are today separate. In the same way,
we switched from a project-by-project ap-
proach to a portfolio construction approach,
thanks to the rising importance of funds.
Today, the post-WWII legal conditions are
less and less adapted: management fees are
too high and funds structures (such as lim-
ited partnerships) are incresingly ill-adapted.
There is an increasing need for managing
venture capital investments through an
active and innovative secondary market.”
novEmbEr - dEcEmbEr 2011 65
STrATEGY
New CEO at UBS Luxembourg
René Mottas
On 21 October 2011, UBS announced
that René Mottas, currently COO Wealth
Management Europe and Business Sec-
tor Head Western Europe, will become
CEO UBS Luxembourg, effective 1 January
2012. Mr Mottas will also act as Business
Sector Head Benelux & Austria with re-
sponsibility for overseeing UBS's onshore
wealth management businesses in Austria,
Belgium and the Netherlands. Andreas
Przewloka, who formerly acted as CEO
UBS Luxembourg and Head of Business
Sector Benelux/Austria will be pursuing
new challenges inside the bank. Robert
Lang will take over from René Mottas as
COO Wealth Management Europe.
New managing director at HSB
Katie Danby
Katie Danby was appointed Managing
Director and Head of HSBC Private Bank
(Luxembourg) S.A. on 1 October 2011. She
replaces Charles P S Hall who is retiring after
over 29 years with HSBC Group. Mrs Danby
has worked for HSBC for more than 15 years
and has had an international career in
Retail, Commercial and Private banking
with roles in the UK, Germany, Israel, the
United States, Qatar and Switzerland.
Charles Muller leaves ALFI for KPMG
Charles Muller
Charles Muller joins KPMG on 1 December
2011 to play an active role in the com-
pany’s European Regulatory Centre of
Excellence focusing on investment man-
agement. Mr Muller used to be Deputy
Director General of ALFI, the Association
of the Luxembourg Fund Industry, which
he joined in 2003. He was also a member
of the Management Committee and was
in charge of the egal and fiscal depart-
ment, communications and promotion,
ALFI spokesman and press contact, as well
as training. He was also in regular contact
with the ALFI’s Brussels office.
Giuliano Bidoli joins Experta Luxembourg
On 17 October 2011 Mr Bidoli became Head
of Tax and Corporate Engineering at Experta
Luxembourg. He has more than 11 years
of experience in the sector and was previ-
ously International Tax Director at ATOZ
since 2010.
Thomas Nummer becomes Managing Director with Carne Luxembourg
Thomas Nummer
Mr Nummer joined Carne Luxembourg as
as an independent director on Luxembourg
funds and management companies as well
as advising clients on product structuring,
fund launches, compliance, risk and gov-
ernance issues. Previously he was Director
and Chief Risk Officer for Allianz Global In-
vestors Luxembourg S.A., where he worked
for eight years on a wide range of Risk and
Fund Compliance issues. Mr Nummer is
also co-chairman of the ALFI’s Risk Man-
agement Committee and a Member of the
Board of PRiM, the Luxembourgish Risk
Manager association.
Careers
66 novEmbEr - dEcEmbEr 2011
Hr
ww
w.p
iper
-hei
dsi
eck.
com
REMY COINTREAU LUXEMBOURG S.A . - 7 rue de la Dépor ta t ion - L -1415 LUXEMBOURG - TEL : 485767
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