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Wealth Industry Presses Case For Financial Privacy, Swiss Trusts Law

Tom Burroughes

6 March 2018

The need to fight for financial privacy, navigate new regulatory moves and seize opportunities to build a domestic Swiss trusts industry were some of the topics discussed by private client industry practitioners at the second annual Swiss & Liechtenstein STEP Federation conference, held – as was the case in 2017 – in Interlaken.

Policymakers around the world, often via groups such as the OECD and other international forums, have been looking to build a tax equivalent of the OPEC cartel of oil exporters, the meeting heard. While responding to often understandable anger about tax evasion and misuse of offshore centres, much of the policy direction has involved threats to legitimate privacy.

Switzerland’s move beyond bank secrecy, the fast-evolving world of citizenship-by-investment and how to manage one’s digital legacy were other topics at the conference, held over two days in the Swiss town. (For a full list of speakers, the agenda and other details, see here.)

The theme of why financial privacy and defence of legitimate property rights was aired in the first panel of the conference by HSH Prince Michael of Liechtenstein, chairman, Industrie- und Finanzkontor Ets. And while he discussed the changing nature of the financial privacy/legal landscape, Prince Michael argued that some European nations are “extremely concerned” about what they see as the protectionist, highly regulated momentum of the European Union.

Alluding to Brexit, he said: “The remaining countries in the EU are going towards an ever-closer union….towards a core union. It will mean a more planned economy with more centralisation and more regulation and laws. There are incentives for some EU countries to have more autonomy, as versus centralisation. We need some disruption and some creative destruction to build things again."

Following on from the political issues flagged by Prince Michael, Richard Frimston, a partner at Russell-Cooke LLP, spoke of how political uncertainty in Europe and further afield remained an issue for the industry. In the UK, specifically, it was not just Brexit that created uncertainty, but the squeezes on non-domiciled residents and the taxation of foreign-owned property, among other factors. New European rules to stop money laundering, and other changes, give the private client industry and opportunity to help people cope with all this uncertainty, he said. 

Dr Christian von Dertzen, a partner at Flick Gocke Shaumberg, noted how his firm’s work, for example, is being affected by how countries such as Germany that are engaging in widespread gathering of information – as in the case of Spanish properties owned by German citizens. There is demand from clients for wealth protection solutions that are legally robust and don’t have to be torn up every few years, Dr von Dertzen said. Increasingly, clients want “reputational security”. The industry and culture has changed: “It’s no longer about hiding assets,” he said. 

The panel moderator, Dr Ariel Sergio Goekmen, member of the executive board at Schroder & Co Bank, suggested that one issue is how, in a variety of legal systems, the presumption of innocence is under threat.

Russell-Cooke’s Frimstone said STEP is looking at the “rehabilitation of trusts” and he said that in the UK, a Common Law jurisdiction, trusts have been pressured by the present and previous government. The industry must explain to the wider population that trusts are important and not just for wealthy individuals.

One problem, Prince Michael told delegates, is that the role of explaining the importance of private property rights has been left to governments and NGOs. “We need to show why private property is essential for the growth of a healthy economy,” he said. 

In the second panel, participants talked about new laws – or legislation in the pipeline – that affect Switzerland’s trusts and asset management sector. 

David Wilson, a partner at Schellenberg Wittmer and moderator of the panel, set out issues for the trusts and wealth management sectors from the Financial Services Act and the Financial Institutions Act, which introduce new investor protections and licensing requirements for asset managers. The legislation is most likely - given the speed of Swiss political action - to become law in 2020, Wilson said.

To some extent, Switzerland is in the position of its financial institutions having a “passive” stance, where they only have the freedom to create foreign subsidiaries and often the country has imported legislation from abroad. He gave examples of how Swiss firms are affected by EU-based rules such as the recently enacted MiFID II directive, for example. Franz de Planta, president of OAR, said on the same panel. He noted certain differences between prospective Swiss rules and the MiFID II regime: MiFID II bans retrocession payments by firms, while Swiss rules don’t.

One consequence of new Swiss rules is that the trusts sector will come under a new supervisory body; a great deal of preparatory work is needed by the trusts industry and others to get ready for a new regulatory regime, he said. 

Alexander Rabian, a partner at Streichenberg & Partner and chairman of the SRO Board Swiss Association of Asset Managers, or SAAM, walked delegates through the likely new supervisory regime for trustees, noting that wrongdoers will be referred to FINMA, Switzerland’s main regulator. Running trusts will no longer be a self-regulated activity, he said. 

Meanwhile, Alexandre von Heeren, chairman of the Swiss Association of Trust Companies, and chairman of Mandaris, urged delegates to join his campaign for Switzerland to adopt its own form of trusts law, which he said will give the country an important wealth protection and structuring tool, all the more important as Switzerland moves on from the bank secrecy era.

Van Heeren said he and his fellow industry figures have been able to convince Switzerland’s government that trustees are an important part of the Alpine state’s financial sector. “Various Swiss groups have said that we must have a Swiss trusts law,” he said. If a Swiss law does come into being, it is unlikely to be a direct copy of the English one, Van Heeren said. True, the country does have a foundations law, but such structures have specific limitations, he said, adding: “If we don’t use this chance we won’t have one for a very long time.”

The third panel explored the finer details around trusts that hold Swiss residential and commercial property, noting some of long-standing restrictions on non-Swiss persons’ ability to own residential property in the country (with certain caveats, such as EU nationals living in Switzerland). Speakers in this panel were Dr Delphine Pannatier Kessler, partner, Etude Pannatier & Quinodoz; Dr Jean-Frederic Maraia, partner at Schellenberg Wittmer, and Andrew McCallum, partner at Rawlinson and Hunter, Geneva.

On the second day of the two-day event, the first panel discussed international recognition of Swiss and Liechtenstein foundations and other structures with philanthropic purposes, including the issues of why there aren’t many family foundations in Switzerland, and how to weigh up the pros and cons of trusts vs foundations. Speakers on this panel were Etienne Eichenberger, co-founder and managing partner of WISE, Philanthropy Advisors; Dr Johannes Gasser, partner, Gasser Partner Rechsanwalte, and Dr Natalie Peter, partner of Blum & Grob Attorneys.

That panel was followed by the fourth, examining the current push for transparency around financial information, automatic exchange of information agreements, and issues around data leaks, thefts and cyber-security failures. The panelists spoke, for example, about the rollout of the Common Reporting Standard global network of agreements on exchange of information, and the worries that arise about privacy. Tatiana Menshenina, partner at Withers, noted wryly that Russian tax authorities chasing after their citizens’ money hardly ever lose international tax cases. Klemens Zeller, executive director and wealth advisor at JP Morgan in Geneva, said clients are going through the acceptance of the new transparent financial world. Dr Hans-Joachim Jaeger, partner at EY, noted that there are some grounds for optimism about financial privacy, such as a French constitutional court ruling in October 2016 that said a public register of trusts was a disproportionate breach of privacy. In addition, the revelations by former US contractor Edward Snowden that the US National Security Agency spied on US citizens has revived recognition of the need for privacy, he said.

Withers’ Menshenina said some people are thinking of mounting legal challenges to some of the demands for private information. “There is a need for a judicial challenge and that needs to be initiated by someone,” she said. 

Towards the end of the conference, panelists discussed the world of citizenship-by-investment, aka “golden visas”. The panel witnessed a sharp difference of views, with some saying such programmes had a valuable role to play for those living in politically unstable places, while another viewpoint was that these schemes were open to abuse. Panelists for this segment were James Corbett QC, senior counsel, Kobre & Kim (UK); Guillaume Grisel, partner, Bonnard Lawson, and Dr Peter Krummenacher, partner of Henley & Partners Switzerland. 

The panel discussed how to separate the “good” from the “bad” in citizenship programmes. Dr Krummenacher spoke of how these schemes put more choices in front of people, such as where their children are educated. “They are a powerful tool to move around the world,” he said.

Corbett warned delegates about what he sees as unintended effects. For example, there are problems when people used criminally-obtained funds to buy citizenship, he said. In such a case, does the acquired citizenship become “null and void”? he said. He also dismissed the argument that such programmes aided a person’s physical safety, saying he could think of no cases where such schemes would make a difference. “This is a fashion accessory – a solution to a non-problem,” he added.

In Dr Krummenacher’s case, he said he sees clients increasingly looking at such programmes as a form of “insurance”.