Changes at a global regulatory level affecting offshore jurisdictions have been matched by the growth in new types of work for the firms that operate there, as Anthony Harrington reports

The offshore world has been going through an extraordinary period. Serious initiatives on the part of major governments to combat tax evasion by wealthy individuals have come alongside major pan-national initiatives from the European Union and the OECD to crack down on multinationals shifting profits from high-tax to low-tax regimes.

But offshore law firms have been maturing in recent years, developing new and more complex types of work and reaching out to offshore companies to demonstrate that they are up to the job of handling major cross-border transactions and litigation.

Peter Tarn, London managing partner and chairman of the executive committee at Harney Westwood & Riegels, which also has offices in the British Virgin Islands (BVI), Cayman Islands and Cyprus, does not see the current anti-tax dodging legislation from the US and elsewhere affecting his firm's work.

"These changes, in many ways, are old news and have been ongoing for the last 10 to 15 years," he says. "There is an enduring misconception in the media that there are vast sums of money stashed away in these offshore jurisdictions. In fact, if you look at the sums on deposit, while there is some overnight lending from US institutions
in the Caymans, there is nothing to speak of in the BVI. What is there is all corporate
money and there really are no hiding places for personal money.

"The automatic exchange of information is a reality and has been such for the last two to three years. We probably see as much opportunity as threat in the implementation of transparency because, once the G20 governments are comfortable that they have real visibility of what goes on in these jurisdictions, a lot of the negativity will fall away."

The one big change over the last five years in offshore jurisdictions, he explains, has been a huge increase in contentious work. If you take the BVI, five or six years ago most court proceedings were interlocutory skirmishes. Now there is much more substance to these trials, which are mostly corporate-to-corporate or individual-to-individual disputes over trusts or joint ventures, where assets are held in offshore structures. The root of this change, according to Tarn, is that offshore legal teams are now increasingly viewed by clients and onshore firms as having the expertise to manage serious litigation.

Marcus Leese, a partner with Ogier's Guernsey practice, agrees that for the leading offshore centres, such as the BVI, Cayman, Guernsey, Jersey and Luxembourg, the issues of information disclosure and tax compliance are not new challenges.
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Getting the right message across
The two notable changes that the Guernsey office has seen in 2014 are significant increases in enquiries and instructions, most notably to do with M&A work and the banking and finance sectors. Leese puts this down to the continued recovery of the global economy, and greater interest in and use of some of the newer structures available offshore, such as Guernsey and Jersey foundations.

Looking ahead, he says: "An important and difficult ongoing issue is the need to balance two different messages to our clients, especially those in emerging markets.

"On the one hand, doing business offshore is attractive because it has fewer legal and regulatory complications than onshore. On the other, people need to understand that offshore is not a regulation-free zone. There still are legal and regulatory issues offshore to consider and on which clients will need advice. Moreover, the required offshore legal advice is not simply a commoditised product for which price is the only yardstick – there are real differences between good and bad practitioners offshore the same as everywhere else."

Ogier partner Simon Schilder adds: "On the non-contentious side in the BVI we see a significant amount of transactional work, namely M&A, equity capital markets, multi-jurisdictional joint ventures and finance, mostly coming from referrals from law firms based in New York and London, but also from law firms based in the other financial centres in North America, Latin America, Europe and the Middle East.

"Our Hong Kong office typically picks up the Asian deals, where 'same timezone' convenience is key. These transactions are therefore all being led out of these centres that utilise BVI companies within their structures." 

Hot sectors for the BVI include natural resources, commercial real estate, and hotels and leisure, Schilder says. "With emerging markets, the range of sectors is even wider," he explains. "For instance, earlier this year we advised Russian hypermarket chain Lenta on its IPO in London. Like Cayman, we also see a significant amount of investment fund work coming across our desk, principally hedge funds, where we advise North America and Europe-based investment managers that have opted to domicile their fund structures in the BVI. 

"Contentious work coming across our dispute resolution lawyers' desks in the BVI typically involves some form of shareholder or trust dispute, or has an insolvency angle to it. Again, this dispute resolution work originates with law firms based in all the key financial centres."

Networking
Offshore firms get a significant proportion of their business via referrals from onshore law firms. Schilder points out that, as a result, the firm focuses much of its business development activity on developing and expanding its network of contacts among law firms and lawmakers in all of the major financial centres.

"Offshore firms like ours spend a considerable amount of time visiting and speaking with lawyers within onshore firms to ensure that theirs is or becomes the referral firm of choice for whichever [onshore] firm they are visiting," he says.

Recruiting onshore lawyers interested in transitioning to an offshore career is a key part of this process. "Onshore law firms take a great deal of comfort from this process since it means that our team has previously sat where they sit in the deal, and therefore are fully conversant with the bigger picture deal drivers," comments Schilder.

Nick Rogers, a partner at Ogier in the Cayman Islands, notes that offshore legal offices require much the same skills as onshore law firms: "Successful offshore lawyers need subject matter expertise, plus sufficient intelligence to absorb complex fact patterns and to articulate clear solutions. We look for outstanding client service skills, a strong work ethic and business acumen.

"People have to be able to work on their own as transactions will often be staffed with only one attorney and a partner, so they need drive. Fortunately the candidate pool tends to be self-selecting on this last requirement, as those who want to follow a conventional path don't tend to seek offshore roles."