Finance Luxembourg 7 - November-December 2011

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

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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

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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

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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


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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.

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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


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


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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,


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


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


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


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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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.”


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


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


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.


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.


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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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


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.


funDS

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Hans-Juergen Schmitz, managing director of Mangrove Capital Partners, Paul Junck, managing director of the LPEA


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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


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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.”

SAS, et les noms de produits ou services SAS® sont les marques déposées de SAS Institute Inc., Cary NC, USA. Les autres noms de produits ou concepts sont des marques déposées des sociétés respectives. Copyright © 2011. Tous droits réservés.

Un drive générateur de valeur.

Generated by BeQRious.com

Distinguez-vous des autres. Avec les solutions analytiques de SAS, découvrez des moyens innovants pour augmenter vos revenus, réduire vos risques, prédire les tendances et transformer vos gisements de données en atout compétitif. Décidez en toute confiance.

Scannez le QR code* avec votre smartphone pour voir une vidéo, ou rendez-vous sur sas.com/golf pour consulter un rapport de l’Harvard Business Review en accès libre.

*Nécessite un lecteur spécifique à installer sur votre smartphone.

ANALYTIQUE


AmL

SAS, et les noms de produits ou services SAS® sont les marques déposées de SAS Institute Inc., Cary NC, USA. Les autres noms de produits ou concepts sont des marques déposées des sociétés respectives. Copyright © 2011. Tous droits réservés.

Un drive générateur de valeur.

Generated by BeQRious.com

Distinguez-vous des autres. Avec les solutions analytiques de SAS, découvrez des moyens innovants pour augmenter vos revenus, réduire vos risques, prédire les tendances et transformer vos gisements de données en atout compétitif. Décidez en toute confiance.

Scannez le QR code* avec votre smartphone pour voir une vidéo, ou rendez-vous sur sas.com/golf pour consulter un rapport de l’Harvard Business Review en accès libre.

*Nécessite un lecteur spécifique à installer sur votre smartphone.

ANALYTIQUE

Kenneth Rijock, anti-money laundering consultant

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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


AmL

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.

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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”


AmL

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”


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


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


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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.


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


Strategy

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Stéphane Hadet, Partner at OPF Partners


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;


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


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


accounting

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We’re doing...

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.


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


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


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.


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


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: [email protected]

References

1. Building the Business Case for COBIT and Val IT- Executive Briefing (ISACA 2009)


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.


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.


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


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


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


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: [email protected]


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.”


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.”


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


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com

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