The third annual conference of the Swiss and Liechtenstein STEP Federation tackled issues ranging from assaults on financial privacy to whether crypto-currencies could or should be held in trusts.

Financial privacy remains threatened even while the pendulum might have swung back in favour of more respect for clients’ affairs, a Swiss conference held by the trusts and estate planning sector recently heard.

Practitioners must be alert to how clients’ financial lives are in the spotlight even when genuine public interest does not require it. Demand for publicly available data on beneficial ownership has been at odds in some ways with the recent introduction of European data protection rules, reinforced by worries linked to massive cyber-security breaches, the event, held in Interlaken earlier in January, heard.

Privacy, regulation, the state of the “golden visa” market, crypto-currencies and the impact of Brexit were among the topics aired at the Swiss & Liechtenstein STEP Federation Alpine conference. More than 240 delegates – a record – gathered at the Congress Centre Kursaal Interlaken for the two-day conference. The event kicked off with a moving address on issues concerning poverty, civil conflict and aid work from Elhadj As Sy, Secretary General of the International Federation of Red Cross and Red Crescent Societies.

Financial privacy is a human right, as enshrined in declarations and treaties, but everywhere it is under assault, David Russell, QC, deputy chair, STEP worldwide, and senior barrister, said in opening comments. He repeated those comments in the first panel discussion. “One should ask the question – who’s watching the watchers?”

Fellow panelists in the first session were Count Francis von Seilern-Aspang, managing director of Industrie- und Finanzkontor Ets, a privately owned trust company with a specific tradition and expertise in the long-term and trans-generational preservation of wealth, and Filippo Noseda, partner at Mishcon de Reya. Noseda reiterated his sharp critique of the Common Reporting Standard system under which governments exchange client data, warning about the lack of protection for legitimate information in certain jurisdictions. He said that millions of account transfers under some transfers were like the cyber-security breaches of recent times. Von Seilern-Aspang said the trust industry must argue strongly for the legitimacy of privacy and a prudent approach to dealing with client data. He added that regulation is necessary to a certain degree, but regulation must address real problems. The cost of regulation for companies has increased enormously in the past ten years and has gone far beyond reasonable levels. This has hugely inflated costs. “I do wonder if the benefits to the client have been as big as the cost,” Count von Seilern-Aspang said. 

Second panel
The following panel probed issues around data exchange and the Common Reporting Standard. Speakers were David Walbank QC, of Red Lion Chambers, Dr Christian Zamfir, co-founder of Cyberhaven, and Tessa Lorimer, consultant at law firm Withers.

Lorimer – who used to work at the UK’s HM Revenue & Customs – explained how new UK rules meant that authorities no longer had to show “reasonable grounds” to suspect tax fraud in a foreign location. CRS has been a “game changer” allowing authorities to take a zero-tolerance approach. A raft of European Union and other rules have tightened controls on suspected tax offenders. One issue is that privileged information arising in tax cases can end up in the in hands of third parties – a big concern, she said.

Walbank, who has exprience of handling big tax cases, said that CRS raises risks to people – given how information can end up in certain hands – “considerably”. “I have become a little cynical about the kind of blinkers worn by tax investigators,” he said.

Third panel
A panel discussed regulatory developments in Switzerland, such as various financial services legislation and their impact on single family offices, small trust companies and private trust companies. Speakers were Fabianne de Vos Burchart, attorney at law in Geneva; Richard Grasby, member of the STEP Hong Kong executive committee, and David Wilson, partner of Schellenberg Wittmer.

There was discussion on the self-regulation by Swiss trustees. As part of that procedure, each financial intermediary who operates on a commercial basis, shall in the future need to register with a supervisory organisation that is recognised by FINMA. Panellists debated on to what extent, for example, single family offices would be exempt from the new regulatory net, and how “family” entities would or would not be exempt from any rules.

“We still believe that private trust companies should benefit from some kind of `family’ exemption but we also wanted to put some limitation on it,” de Vos Burchart said.

Grasby, reflecting on the regulatory landscape, compared and contrasted the current position in Switzerland with what happens in Hong Kong, where five regulators exist.

The final panel of the first day considered how trustees think about crypto-currencies such as Bitcoin. Speakers were Philipp Buchel, founder, Blockchain Buro, Liechtenstein; Dr Luka Muller-Studer, legal partner, MME Legal, and David Cooney, partner, Charles Russell Speechlys.

There was concern over whether trustees would put volatile crypto-currencies into a trust and whether the market needs to significantly mature before that can happen. Definitions of ownership of Bitcoin and other cryptos are still difficult, delegates heard. An audience member asked about the KYC challenge of knowing how a crypto-currency owner acquired the money to buy the digital currency in the first place. 

Next-gen
The following day panellists discussed inter-generational wealth transfer, such as the need to engage young adults early on in conversations about money. Speakers were HSH Princess Therese of Liechtenstein, representing the second generation of ownership of Industrie- und Finanzkontor Ets; Joshua Seth Rubenstein, partner, Katten Muchin Rosenman; Dr Marina Walter, medical doctor, University Center of Legal Medicine, Geneva, and Nicholas Jacob, partner at Forsters.

Rubenstein enjoined the audience to remember when they were children, and understand how strange and new financial affairs could be. “It’s important to get the next gen up the learning curve while you are still there before it’s too late,” he said. “Leading by example is definitely key. You may have a lot of wealth, but you may never know what might happen.”  Jacob noted that younger family members can be frustrated at being left out of discussions. 

Princess Therese agreed that parental example is vital: “We see our parents always working.” She said she was introduced into the family “constitution” in her early 20s when she was old enough to grasp what it meant. “That’s an age when you begin to understand  the essence of responsibility.”

The second panel of the day examined matters concerning elderly clients and cases of cognitive decline, such as Alzheimer’s disease. Speakers were Edward Reed, partner at Macfarlanes; Craig Swart, partner at Dickinson Gleeson, and Andrea Vicari, managing partner at Vicari & Associati (Milan). 

The panel drew out different approaches towards this issue in Common Law and Civil Law jurisdictions. For example, some countries such as Germany do not have a status of “legal incapacity”. Recent years have seen a proliferation of tools to deal with incapacity cases, such as “curatorship”, for example. A general trend has been increased with respect for will-writers’ stated intentions before any incapacity takes hold. A number of jurisdictions also now recognise trusts under Hague conventions, as in the case with Italy, the conference heard. A challenge for practitioners is dealing with cross-border cases where rules may not be recognised in foreign locations.

A following panel addressed citizenship/residency-by-investment programmes, also known sometimes as “golden visas”, and how these vary. There are now scores of schemes around the world, such as in Malta, Cyprus and Portugal. (Canada and the UK have suspended their programmes.) Panellists were Maurizio Di Salvo, of counsel, Anderson Tax Legal; Justine Markovitz, head of Swiss operations, Withers, and Inbal Faibish Wassmer, partner at Rosenberg Abramovich Schneller.

Markovitz addressed the UK’s frostier attitude to foreign-born high net worth clients, noting how the UK has squeezed the non-domiciled regime. Brexit has created a “hostile environment” about immigration, although the government has sought to allay fears with its settlement status system for EU citizens. Di Salvo talked about Italy’s own version of a non-dom system, running through its technical features, while Markovitz explained the golden visa schemes of nations such as Cyprus and Malta. In Malta, she noted that the Mediterranean island is requiring more onerous tests of “substance” for people seeking to live there.

Relations between Switzerland and the UK – given the fraught Brexit issue – were aired in a following panel. Speakers were Duncan Macintyre, chief executive UK for Lombard Odier; Jane Owen, British Ambassador to Switzerland and Liechtenstein, and Michael Mckay, founder of The McKay Interview. Owen stated that Prime Minister Theresa May wanted the UK to leave Brexit with a deal but was preparing for a possible departure without an agreement. She pointed out how the UK has already reached a range of bilateral treaties with Switzerland and Liechtenstein. Macintyre said the financial industry wants certainty. 

A following panel on international developments noted the use of trusts in certain Gulf Co-operation Council jurisdictions, such as Qatar and United Arab Emirates. Separately, in the US, the Trump tax cuts of late 2017 had encouraged the greater use of C-corporation status in tax treatment terms, because corporate rates were below income tax rates in certain cases. Speakers were Patrick Brunhart, deputy director, Liechtenstein Office for International Financial Affairs; Joshua Seth Rubenstein, partner, Katten Muchin Rosenman, Stephanie Jarrett, partner at Baker McKenzie, and David Russell (as previously mentioned above). 

Sponsors for the event were Industrie- und Finanzkontor, Wealth Preservation Experts – (Gold/Headline); Peritus Investment Consultancy – (Silver); Stonehage Fleming (UK) Limited – (Bronze).  

Other sponsors: Swisspartners Marcuard Heritage AG – Bronze and drinks reception; Cadell + Co; Butterfield Trust (Switzerland); Schroder & Co Bank AG; Schellenberg Wittmer Ltd; LGT Private Banking; Accuro Trust (Switzerland) AG; Swiss Life Global Solutions; Dohle Corporate and Trust Services Limited; Alliance Trust; LANCE Platform; Microgen; ThatcherMackenzie; WealthBriefing was media sponsor for this conference; the conference was organised by The Beehive Partnership.