UK Anti-Corruption Summit sparks welcome debate but crucial questions remain unanswered

Ruth Green

The invitation-only event aimed at tackling global corruption took place in London on 12 May and was attended by around 300 people, including the Nigerian, Colombian and Afghan presidents among other dignitaries.The UK Anti-Corruption Summit was always going to attract global interest, taking place just weeks after 11.5 million leaked documents exposed the extent to which companies and individuals worldwide are concealing their wealth via offshore tax havens.

IBA President David W Rivkin, who was in attendance, says he welcomed the discussions and outcomes of the summit, including moves by the UK and other nations to improve tax and ownership transparency.

‘It was clear from the summit that steps are being taken and it’s a good thing that governments are focusing on these issues at the highest levels,’ he says. ‘It was recognised by leaders of developed countries that corruption has a massive impact on society and that some of our biggest challenges, including terrorism, can’t be resolved without resolving the issue of corruption itself.’

During the summit 29 countries, including the Cayman Islands, Jersey, Bermuda and the United Arab Emirates, agreed to share information about beneficial owners between governments.

However, Maria Knapp, director of compliance, forensics and investigations for Africa at Control Risks and a former lawyer at Clifford Chance, believes the absence of certain offshore jurisdictions such as Panama and the British Virgin Islands raises questions as to how such a scheme will work in practice.

‘I don’t see how the beneficial ownership register can work without the cooperation of Panama and the BVI – it’s not very clear whether they were invited to the summit or not,’ she says.

‘The beneficial ownership register could be a great initiative, but I’m not sure if it could work without full subscription by all offshore jurisdictions. Of course, somewhere like the BVI would have to consider the business impact of doing that given a considerable amount of its revenue is based on tourism and being an offshore tax jurisdiction… but it would have been a more interesting debate if they had been there.’

Afghanistan, Kenya, France, the Netherlands and Nigeria confirmed they would follow the UK’s lead in establishing a public register of beneficial ownership, which includes the ownership details of any foreign company that owns assets in their country or bids for central government contracts.

However, Knapp suggests the UK’s intention to only include details of those with 25 per cent or more shares or voting rights in a company may limit the register’s impact.

‘The 25 per cent threshold is going to be pretty easy to circumvent, taken on its own,’ she says. ‘The crucial part of the beneficial ownership register will be the other criteria which are about exercising full control in a company, including through a trust. Fraudsters will find a way around it but it may make it more complicated for them to get around. The onus rests on companies and business themselves to act properly, but this is not really dealt with in these laws. It’s going to have to come from elsewhere.’

Call for change

Robert Wyld, Chair of the IBA Anti-Corruption Committee and partner at Johnson, Winter & Slattery in Sydney, says stronger political will is required to implement these and other initiatives to eradicate corruption altogether.

‘Where I think the focus needs to be is not on the individual role of certain private entities – lawyers being just one example – but on governments that need the political will to not only promote the changes set out in the Communiqué [issued by the UK Prime Minister’s Office] and the Country Statements, but the ongoing political leadership to see the changes implemented,’ he says.

Mia Wellfare, director of compliance, forensics and investigations at Control Risks agrees the summit must bring about real change.

‘It’s not a knee-jerk reaction and I wouldn’t say these aren’t valid tools, but the summit was very crowd-pleasing because the focus was on tax havens, the recovery of stolen assets and the UK property beneficial ownership register,’ she says. ‘This is looking at combatting the concealment of the fruits of those crimes, which goes some way towards preventing corruption of course, but it does little to deter the initial illegal behaviour.’

Both Knapp and Wellfare believe the lack of businesses attending the summit was a missed opportunity.

‘Business wasn’t very well-represented in either the panel discussions or the audience, but the accountability and responsibility for defending corruption flows down to business,’ says Knapp.

Pointing to Control Risks’ most recent annual business attitudes to corruption survey, which revealed that 30 per cent of respondents from 800 companies worldwide reported losing contracts to corrupt competitors, Knapp says it is incumbent on business to put an end to corruption.

Rivkin took the opportunity to address assertions by UK Prime Minister David Cameron and others during the summit that lawyers ‘enable’ corruption.

‘It is important to remember that lawyers play a vital role in investigating, prosecuting and bringing to justice those who are engaged in corruption,’ he told the audience at Lancaster House, and pointed to the IBA Judicial Integrity Initiative, which is specifically aimed at eliminating judicial corruption.

Speaking after the Summit, Rivkin told Global Insight: ‘Lawyers are crucial to the global fight against corruption and unless you have a corruption-free judiciary corruption will continue.’

The IBA Legal Policy and Research Unit’s work on projects addressing some of the issues highlighted by the Panama Papers can be viewed at tinyurl.com/LPRU-Panama.

---

The IBA at Climate Action 2016

The IBA participated in the world’s first major summit on climate change to take place in the wake of December’s landmark Paris Agreement. Held in Washington, DC on 5–6 May, Climate Action 2016 brought together leaders from governments, NGOs and the private sector to discuss the difficult work ahead: reducing carbon emissions while achieving sustainable development.

UN Secretary-General Ban Ki-moon opened the proceedings, imploring attendees to maintain the momentum generated in Paris. A succession of international leaders echoed the Secretary General’s call to action. The day also featured stirring remarks by Al Gore, the former Vice President of the US and among the most prominent leaders in the climate change movement.

IBA President David W Rivkin delivered an address calling for international lawyers to play a more visible role in the global effort to curtail the effects of climate change. He explained why lawyers can and must play a key role at every turn, including through the drafting and interpretation of international and domestic laws, or finding creative solutions to complex problems faced by governments and companies as they seek to implement the laws and regulations needed to keep climate change in check.

The IBA’s North America Office, co-organised its own side event at the Climate Action 2016, entitled Companies and Climate Change: Legal Liability and Human Rights Challenges After COP21. It was the sole session at the summit to focus on the effects of climate change on human rights, as well as the rapidly evolving legal landscape that commercial enterprises can expect to face as the international community begins to take concrete steps to limit global warming.

View the IBA report Achieving Justice and Human Rights in an Era of Climate Change Disruption at tinyurl.com/IBAClimateChange.

---

LPRU publishes report on disruptive innovation

Competition in legal services has rapidly increased in the past few years. A key change has been increasing commoditisation. In response to such developments the IBA Legal Policy & Research Unit has produced its
Disruptive innovation report. The report includes analysis of the various changes taking place within the legal services sector, their potential consequences for both buyers and sellers of legal services, and the drivers and barriers to innovation.

The Disruptive innovation report can viewed on the IBA website at http://tinyurl.com/j4fma6n

---

Carol Xueref receives IBA Outstanding Woman Lawyer Award 2016

The Secretary-General at Essilor International SA, Carol Xueref, was presented with the 2016 Outstanding Woman Lawyer Award at the conclusion of the recent 7th IBA World Women Lawyers’ Conference in Berlin, Germany. Given biennially, the award recognises professional excellence, women who have influenced other women to pursue careers in law, and women who have advanced opportunities for other women within the legal profession.

Responding to the news, Xueref commented: ‘I am honoured to be recognised by the IBA Women Lawyers’ Interest Group as Outstanding International Woman Lawyer 2016… I take this award to be the recognition of a team, my professional peers and colleagues. I have attempted throughout my career to open doors, remain accessible and attentive, give equal opportunities and show that a lawyer’s strategic contribution to corporate bodies is a major advantage; as a result, I believe this has made key positions more accessible to other women.’

Prior to being appointed Secretary-General of Essilor International SA, Xueref held the position of Director for Legal Affairs and Group Development at the ophthalmic lens manufacturer. She has been with Essilor for 20 years. Over this period she has expanded the legal department from 15 employees to a 90-strong multinational high-performance team providing legal advice and infrastructure to Essilor’s businesses around the world. In 2002 she was appointed to the Essilor group’s Executive Committee. Her international career is expansive, encompassing industry, banking, international relations and diplomacy at organisations including Essilor, Crédit Lyonnais, the International Chamber of Commerce and the British Embassy. Xueref has conducted international business and trade relation negotiations, supported and led several hundred company acquisitions, and transformed and accelerated business development and commercial projects during her 30-year career.

---

US Treasury tax reforms force Pfizer to rethink mega merger

Jonathan Watson

In April, US pharmaceutical giant Pfizer announced it was abandoning its planned merger with drug developer Allergan. Had the deal gone through, it would have been the biggest acquisition ever in the global pharmaceutical sector. According to the company, new rules unveiled two days previously by the US Treasury amounted to an ‘adverse tax law change’ under the terms of the merger agreement. Allergan is to be paid $150m for ‘reimbursement of expenses associated with the transaction’.

The Treasury reforms are the latest attempt by US authorities to crack down on so-called ‘tax inversions’. These are deals where one company buys another based in a different country with a less onerous corporate tax regime. It then ‘reincorporates’ by shifting the address of its headquarters to the country with the lighter tax burden. Under its planned deal, Pfizer was expected to move its head office from New York to Ireland, where Allergan is based.

Ireland is a popular destination for US firms seeking to pay less tax. ‘If you look at the top ten Irish companies in terms of revenue, for those over €750m, eight of them are inversions,’ says James Henry, a senior fellow at the Columbia Center on Sustainable Investment and member of the New York Bar.

Frank Clemente, executive director of Americans for Tax Fairness, says preventing the deal is ‘great news for all American taxpayers: individuals, small businesses and large domestic corporations’. If the acquisition had been completed, Pfizer could have avoided ‘as much as $35bn it already owes in US taxes on its offshore profits’, he suggests.

The new rules are intended to target ‘serial inverters’ by imposing a three-year limit on foreign companies adding US assets to avoid ownership requirements for a later inversion deal. They also invoke Section 385 of the US tax code to strengthen the Treasury’s ability to reclassify debt transactions as equity investments. The aim here is to put a stop to earnings stripping after inversions, whereby US subsidiaries of multinational companies reduce their tax bills by issuing debt to their foreign parents.

‘You can’t help thinking [the US lawmakers] have gone for something where there is an immediate public impact,’ comments Alex Cobham, director of research at the Tax Justice Network. ‘Pfizer happened to be the one in the firing line. It wasn’t doing anything its competitors hadn’t already done.’

According to David Shapiro, an international tax attorney based in the Philadelphia office of Saul Ewing, and Young Lawyers Programme Officer on the IBA Taxes Committee, acquiring US companies was also key to Allergan’s growth strategy. ‘It inverted originally and then set about growing by acquiring US companies by reason of their strategic position as a foreign company.’

Some have questioned the US Treasury’s authority to introduce the reforms. Shapiro says it is ‘relying on very broad anti-abuse authority under the regulations – which it does have’. The question is how broad. ‘This is purported to be to avoid possible abuse of the public offering rule, but in the view of many people, that rule has already been stretched to breaking point.’

An analysis previously prepared by Professor Reuven Avi-Yonah, director of the international tax LLM program at the University of Michigan Law School, argued that the Treasury could modify a rule it issued in 2014 (Notice 2014-52) to block the Pfizer/Allergan deal. ‘The Treasury has the authority to apply the 2014 Notice to transactions like Pfizer/Allergan… by executive action,’ wrote Avi-Yonah. ‘It does not need Congress to act... that would probably stop these inversions in their tracks.’

Avi-Yonah welcomes the Treasury’s new move ‘because it highlights that the Pfizer/Allergan inversion, like quite a few others, was really a merger of two US companies with no real connection to Ireland’. He says this is also the case for another pending inversion transaction, Johnson Controls’ $14bn merger with Tyco International – although that deal is still considered likely to go ahead.

However, Avi-Yonah is less sure about the debt equity rules. ‘These go way beyond inversions,’ he says, ‘[although] I do think the Treasury has ample authority for them under Section 385’.

Shapiro is similarly concerned that the debt equity rules ‘include some real traps that could cause problems for companies that aren’t even involved in an inversion. The standard used is so broad that most debt instruments could be subject to challenge’.

Ultimately, the best answer in the long term is for the US to be looking at an overall system that is more in keeping with the rest of the world. The US has no national value added tax, for example, which reduces its ability to drive down its corporate tax base in the way that other jurisdictions have.

‘While the Treasury actions will make it more difficult, and less lucrative, for companies to exploit this particular corporate inversions loophole, only the Congress can close it for good,’ stated US President Barack Obama. ‘The best way to end this kind of irresponsible behaviour is with tax reform that lowers the corporate tax rate, closes wasteful loopholes and simplifies the tax code for everybody.’

Until then, companies will still be able to carry out planned inversions but, says Shapiro, ‘it’s much more likely that if they are not paying attention, or are unaware of the rules, they will stumble into a really bad tax situation’.

‘Rules that are easy to stumble into should not exist without a truly compelling reason,’ he adds. ‘My worry is that, with the frequency of cross-border transactions today, this is going to become a much larger issue.’

---

Seven nominees shortlisted for the IBA Pro Bono Award 2016

Following receipt a large number of entries for this year’s IBA Pro Bono Award, the judging panel has selected a shortlist of seven from whom this year’s winner will be selected. The next stage of deliberation is now underway and the winner will be announced at the Annual Conference in Washington, DC in September. Sponsored by LexisNexis, the award reflects the huge amount of pro bono work carried out worldwide. The shortlisted candidates are:

Alan Wright, Senior Associate at Bowman Gilfillan Africa Group; Cristina Puigdengolas, Business and Human Rights Officer at the Fernando Pombo Foundation;Katrina Crossley, Trustee of the International Law Book Facility (ILBF); Mandy Manda, the Executive Director of the National Legal Aid Clinic for Women; Odette Geldenhuys of Webber Wentzel, founder of ProBono.Org, the first Pro Bono Clearing House in South Africa; Pooja Dela, of Webber Wentzel in Johannesburghas dedicated her work to the protection and enhancement of the rule of law and independence of critical state institutions; and Robert Reed, Special Counsel at Minter Ellison, who has contributed the past 15 years to access to justice and the delivery of free legal services to disadvantaged citizens.

For further information about all seven nominees, see tinyurl.com/ProBono2016.

Pictured are the 2015 and 2014 Award winners.

2015 – Marcos Fuchs, Founder of Instituto Pro Bono in Brazil. For ten years, Fuchs has been monitoring prison conditions and advocating for those who lack access to justice.

2014 – Nicholas Paul of Doughty Street Chambers. Paul’s long career has been dedicated to helping others achieve their rights or increasing capacity by educating others internationally about human rights.

---

LPRU presents at UNCITRAL Colloquium in Vienna

The IBA Legal Policy & Research Unit (LPRU) recently gave a presentation at the UN Commission on International Trade Laws (UNCITRAL) Colloquium. The presentation on Legal Issues Related to Identity Management and Trust Services, focussed on the draft report of the Legal Practice Division Working Group on Digital Identity Rights and other related LPRU projects. The colloquium discussed the scope and methodology of future UNCITRAL work in the field of digital identity management and invited interested stakeholders to express their views and various experiences on this topic.

For more details see tinyurl.com/UNCITRAL-21-22April2016.

---

IBA Fellowship for Innovation articles

The IBA Fellowship for Innovation launched last year, identified three talented individuals to bring fresh insight on key issues. During their one-year term, each fellow will contribute three articles to be published online or in Global Insight. Kelly Askin’s article ‘Ending impunity for crimes committed by UN peacemakers and staff’ can be found on the comment and analysis pages of this edition. It focuses on crimes against vulnerable victims who deserve full accountability for the offices committed by people entrusted to protect them. The other two articles are ‘Stones, bones and  culture: international efforts to recover looted antiquities’ by Mark V Vlasic; and Swithin Munyantwali’s article ‘Do the African lions’ appreciate the importance of medical products regulation’ and can be read online at ibanet.org.

---

Early bird deadline for IBA Annual Conference, Washington, DC, 2016

This year’s Annual Conference looks set to be another outstanding week with a record number of attenders. The opening ceremony takes place on Sunday 18 September, marking the beginning of a concentrated five-day period bringing together delegates representing over 100 countries to debate a wide spectrum of topics in more than 200 working sessions covering all aspects of international law.

The deadline for Annual Conference early bird registration is Friday 1 July.