The fabulous Baker boys
Baker & McKenzie is a world renowned legal firm with a substantial private client group headed up in the UK by the colourful yet endearing Paul Stibbard. Paul’s brainpower alone leaves many in awe. Paul says humbly of the work “we simply try to add value and solve client problems. Ninety percent or more of our work has cross border expertise which I think makes us more diverse and international than our competitors. We also involve other key individuals from our offices around the world.” Paul confirms Baker & McKenzie’s headcount “We’ve tripled our size in three years. In London we have three partners, seven assistants and two trainees. Globally we have the biggest private client legal team with seventy lawyers in total.”
Continuing the interview, the three tip off France, America, Russia and the Middle East (FARM) as global hotspots. Paul comments “The US is still an overwhelming economic power and a dominant place for wealth. And often as not we get wealthy individuals marrying a US person.” Paul adds “Britain has favourable immigration rules. The US/ UK double tax treaty is often critical to any tax analysis.” They agree that philanthropy is a big issue for the US and say they are asked about tax related issues. Surprisingly Ashley says quite a few people in the Middle East have married into US families. Ashley adds a comment that would undoubtedly leave a few worried “many people don’t realise that if your parents are American you may automatically become a US citizen.” I mention that Goldman Sachs in Los Angeles were staggered by the wealth
being created for their clients in private equity deals and ask if they’ve seen the same trend. Ashley comments “Private equity is a very large growth market, the bubble may burst but structuring, taking deals to market and selling is still very active in Europe.”
We move onto the interesting topic of the Middle East. Paul takes a moment to highlight the Baker & McKenzie offices in Cairo and Saudi Arabia, which are ‘long standing’. He also says he’s lectured extensively on Shari’a law structuring with a recent podium-appearance at the Swiss Business School. Undoubtedly a market leading authority Paul has another jewel in the Baker & McKenzie Middle Eastern crown. The relatively recent hire of Ashley Crossley in 2005. Wooed from Clifford Chance, Ashley has spent significant time in his career working with ultra high net worth families in the region.
A dashing figure, Ashley picks up from Paul “Nearly all Middle Eastern countries with the exception of Turkey have Islamic law. We have a strong practice which ranks joint first in the region with a native Arabic speaker from the area in our team.” He tells us about the clients “There are powerful men in the Middle East with large families which in itself creates a high level of technical work. It needs careful handling.” He illustrates his point “Consider for example a non-Muslim wife with no inheritance rights under forced heirship rules and adopted children also with no inheritance rights. Paul warns “Because of the high level of complexity involved, it’s
important that Middle Eastern clients take care of their affairs whilst still in reasonable health as gifts made too late in the day may be disputed.”
Middle Eastern business is also intricate approached differently legally from elsewhere.” Adding “Trust and codes of honour are deeply ingrained in the Middle East with business deals often sealed with a handshake. This can when difficult if parties die and no formal structures are in place. “Dealing with knowledgeable advisers is key.” Ashley smiles and says “Paul takes big Shari’a text books on holiday.” We all chuckle but I don’t doubt the comment is true.
Ashley continues “Nearly eighty percent of businesses in the Middle East are family owned. When different generations take over you have to be much more careful about how assets are transferred because of shareholders.” He explains “If you are trying to split four hundred million dollars before a client dies, it becomes more about working on fractional ownership for the family involved.”
Intrigued by the tens of billions reportedly swilling around the Middle East, I ask where they think the wealth has suddenly appeared from. Echoing a past view from Ansbacher, Ashley confirms “There’s been a spectacular property boom and increase in oil prices.” He highlights Dubai particularly. “Dubai has transformed itself. It’s always been a trading nation but it now wants international family offices and capital markets too.
Their stock market has had sharp increases, if they bring some state owned business to market and more skilled labour then it will balance oil and property and bolster wealth in the region.” Finishing off his point Ashley reflects “Although, Dubai will have to work hard, it’s up against tough, competitive jurisdictions like Malaysia and Singapore who want family offices as well.”
The natural pause allows Paul to take the baton. “We’ve seen an increasing demand for Shari’a compliant trusts and are writing documentation for many of the banks in the Middle East.” Then points out “A recurring issue is always political tension and the possibility of regime change locally.” Paul offers some advice “offshore structures can protect against political instability. Also as an aside, political risk may also be a consideration for investment out of the Gulf into less stable third world countries, perhaps mitigated by using treaties.”
Ashley continues on the Middle Eastern theme “many Middle Eastern clients are cashing in their American treasury bonds and bringing money back home.” He pauses then says “There is a huge amount of repatriated investment.” But adds a warning “People think political risk is low but when you consider Chavez, the President of Venezuela it isn’t. He renationalised energy without consulting private shareholders. It just shows that unexpected change can happen.”
Russian wealth is another intriguing topic. Ashley takes the lead. “Early in my career, I dealt with Middle Eastern and Russian clients. Back then the Middle Eastern client was far more prevalent. In the last year this has changed and Russian wealth has completely mushroomed.” He says one reason is because banks have set up specific Russian desks which are outstripping virtually every other desk. “If they didn’t have them then they’ve set them up quickly.” Ashley continues “Since Russia changed its capital laws, clients are keen to bring Russian companies to market using the Russian and London stock exchanges. Ashley continues “The deals I’ve worked on are top end and between ¬£980 million to ¬£4 billion but we have smaller clients with ¬£30-40 million.” He says another reason for the Russian surge is Russians wanting to come to the UK for tax haven status. Ashley enthuses “There is tremendous entrepreneurial energy in Russia and clients have built up large, successful companies. They are determined to succeed and use their capital in more interesting ways. It’s a very exciting time.” He adds “Russia has an entrepreneurial culture and its all new found wealth.” He adds “The opportunities are there for growth in tax planning which don’t exist in Europe because of EU regulation and established markets.”
I ask about the property market in London which is reportedly awash with Russian money. Ashley guesses that thirty percent of London real estate above ¬£1million currently being sold and purchased by Russians. He explains “The British tax system favours the foreign client.” Ashley tips off Cyprus, Luxembourg and the Netherlands as good jurisdictions to use for Russian companies because of the double taxation treaty agreements. He warns “business should be structured before it comes to the stock exchange.””
Moving the interview closer to Britain, Jonathan Burt reveals that France is on his agenda. France has been a whisper that has been growing to a shout for about a year with a large influx of wealth professionals visiting but no real information behind the upswing of interest. Jonathan Burt, a brilliant and well respected member of the Baker & McKenzie London team, opens the door on France. “The French are generally worried about the upcoming elections and what may happen. Combining this with high publicity events like French rock star Johnny Halliday moving to Switzerland, it has created a groundswell of interest in people wanting to leave France. Jonathan says “French clients are looking at moving to Switzerland, Belgium or the UK. Clients generally want to know how to structure their assets if they aren’t resident in France.” He backs this up saying a recent new client instruction was a French individual wanting to know if they should move to the UK or Switzerland. Jonathan adds “We can advise a French client on any jurisdiction they are thinking about. We also work with clients on resident and non resident French income tax and offer advice on the UK /French double taxation treaty.” (How not to pay tax twice on the same assets). Jonathan adds “Baker & McKenzie are doing a seminar in Paris in the coming months.” They also have a dual French-UK qualified lawyer hire in the pipeline.
Continuing Jonathan believes that insurance structures may start to replace trusts in the UK. He says “Insurance is important internationally because you can write virtually anything into a policy and it complies with financial regulations.” He explains the key benefits: “Products sold in the UK are compliant for personal portfolio bond rules and you can send people into the US with annuities with structured payments and tax deferral. For families migrating you also get favourable tax treatment because the insurance company holds the assets.” Jonathan explains further “insurers are becoming more
expert. You can even write the policy so with trust like features, especially for UK domiciled clients.” Then adds “A non dom (domiciled) client wouldn’t be investing in an insurance policy, it’s not as effective.” Then provides an example of what would be “If you move to France, and you’ve used an insurance policy to protect your assets there is no inheritance tax. So we advise clients to plan ahead. They can get good rates even it they withdraw from insurance policies later on.” Jonathan warns “the revenue is laying mines in areas like personal portfolio bonds where the outcome can be catastrophic. There are unpleasant traps littered about for non dom’s generally.”
I ask Jonathan for some names of specialised insurers offering this type of policy but he says this will remain a well kept secret. “Some insurance companies can do bespoke tailoring to do things like pass down assets but when you look at tax regimes it’s more complex. It’s an obscure area and not many people can provide this expertise. It is something we are concentrating on.”
With insurance nailed down I ask all three for any information they have on any further trends or changes in the industry. Paul pipes up “The big trend to our advantage is the internationalisation of families. Not only are the rich marrying different nationalities, they have many homes; send their children abroad for education and may adopt or have illegitimate children.” Paul adds “Divorce and fracturing of families is also more common. Essentially wealthy families may end up with beneficiaries in multiple jurisdictions.” Paul says also that banks are advising wealthy families to spread assets across a far wider field than in the past, to mitigate risk and comments “People and institutions are subjecting themselves to many different laws.”
Ashley continues “one of the things we’ve seen in terms of trends is increasing concern about the EU saving directive and also the growth of information gathering in the US. It’s affecting offshore structures and how tax is dealt with. The main effects are that European clients are moving money outside the EU and US clients are moving money to European offshore jurisdictions. Singapore is also being considered and Dubai is beefing up to take its slice of the flight capital pie.” Ashley says “its all a short term fix. The major revenue authorities have monthly meetings to exchange information and this will happen in Singapore five or six years down the line.”
I ask what he thinks about Liechtenstein. “In my view we are in a compliant world. That is the main trend. Yes there is still movement for the next five years to jurisdictions like this but clients need to realise laws may change. The days where you could put money out of sight just aren’t possible any more.”
The topic switches to London. Ashley says “the government has done a really good job of keeping London at the forefront of finance which has allowed British entrepreneurship to flourish. Sarbanes Oxley in the USA particularly New York has made things much more difficult there and made London more attractive. Although he adds “Curiously the government is becoming more draconian and toughening up in many areas that have helped this flow.”
Having recently bumped into Paul and Jonathan at the Euromoney awards where notable industry heavy weights Close Trustees Switzerland as well as Baker & McKenzie scooped awards, I ask about the wins. Paul comments “We were enormously gratified when Euromoney flagged us up as number one for global trust service and also for global inheritance and succession.” He points out rather proudly that their major competition internationally were the big four accounting firms rather than rival law firms. Paul offers an insight into their success “We work closely with our foreign offices and have built innovative services like our ‘law in context’ web based information portal. Law In Context has partnered with other overseas lawyers to get a thorough offering. We now have thirty one jurisdictions covered on it with a private banking bias and have extended it into Portugal, India, South Africa and Israel.
The Baker & McKenzie private client team are also becoming more deeply entrenched in the financial world, dealing with many complex financial products. Paul says “The range of product and investments that trustees are using has increased. We are doing more on taxation of hedge funds, limited liability partnerships and advising banks on structuring in different markets.”
Ashley makes a final comment about how law firm practices are changing: “If you just tell people the law, you could have got by ten years ago but now you have to be a businessman first. You cannot approach it with just a law book mentality because intelligent wealthy people think ‘I can read too.’ We have to put law into a business context. They need us to be entrepreneurial.”
Baker & McKenzie were recently praised by the FT for innovation.
Biogs
Paul is the Head of the Private Client Tax Department of Baker & McKenzie’s London office, having joined the firm in 1988. Paul specialises in cross border tax, trust and succession issues. He lectures extensively on these topics and on legal issues arising for Shari’a compliant families. Paul is on the International Committee of STEP. He is also a graduate of INSEAD International Business School, Fontainebleau.
Ashley is a Partner in the Private Client Department of Baker & McKenzie in London. He qualified as a Barrister and Solicitor, having worked at Pump Court Tax Chambers and Clifford Chance LLP. Ashley specializes in advising high net worth individuals, families and International Banks on cross-border tax and trust structuring, multijurisdictional dynasty succession and contentious and non-contentious trust work. Ashley has experience in establishing structures for the tax efficient holding of assets in multiple jurisdictions, providing advice on and establishing tax efficient investment structures for business ventures both in the UK and offshore (with emphasis on Venture Capital and Limited Partnership investments) and establishing Private Trust Companies and onshore/offshore structures for family governance. Ashley has particular experience in planning for Middle-Eastern families and the application of Shari’a law and has built up a considerable practice of Russian clients.
