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January/February 2000 issue:
You've probably heard about the Richard Hape case (the joint RCMP-TCI
police investigation of British West Indies Trust Company and the seizure
of documents in the TCI office) and the John Mathewson case (the former
Cayman Islands banker who turned over client files to the FBI in a plea
bargain after being charged with tax evasion and facing criminal
sanctions). In light of these events, our cover story in this issue
focuses on trust and confidence in professional relationships. How much
background information is available from offshore regulatory authorities?
Who should you contact to carry out due diligence? What can they do for
you and what can they not do for you? All of these questions and more are
answered in our cover story.
This issue reports on over 40 news items in our offshore reports, industry
news, investment news and offshore financial planning columns.
Our caveat emptor column focuses on the advance fee fraud with an in-depth
look at Operation Risky Business and the 419 fraud.
St Vincent is the subject of our special focus section. One of the first
Caribbean centres to have offshore financial legislation, St. Vincent has
emerged as a premier jurisdiction for privacy and confidentiality.
And don't miss Part I of our Due Diligence Directory, which contains six
new warning notices, and Part II, which lists eight new individuals
charged with financial fraud - an indispensable due diligence resource.
The issue is available on the newsstands until approximately February
25th. It can also be purchased directly from our website, while supplies
last.
You can order a copy of the January/February 2000 issue at a price of
CDN$15 (US$12) through our web site at:
offshorefinancecanada.com
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Vol.1. No. 22
Dec. 12 to Dec. 18, 1999
OFFSHORE ROUND-UP: An OFC publication
Copyright 1999 O.F.C. Publications Inc. ISSN Pending
Edited by Paul Zaleski
Table of Contents
1. Hedge fund imitators provide superior returns
2. Privacy legislation could curb spammers
3. Cryptologic sells electronic gambling magazine
4. BCSC exposes prime bank instrument scheme
5. Swiss freeze accounts of late Nigerian dictator
6. Study claims foreign content rules are too costly
7. Martin may ease RRSP foreign content rules
8. High-tech and clone funds popular with investors
9. OSC granted sweeping new powers
10. Providing anonymity on the Internet
11. Saskatchewan pioneers Canada's first e-commerce bill
HEDGE FUND IMITATORS PROVIDE SUPERIOR RETURNS
Date: December 12, 1999
Source: Financial Times
Investing in hedge funds is no longer the sole domain of the very wealthy.
An expanding number of 'enhanced' mutual funds are using strategies
pioneered by hedge funds to offer investors the best of both worlds;
superior returns in both bull and bear markets typical of hedge funds
combined with the stricter regulatory characteristics of regular mutual
funds.
The catalyst for the creation of these funds was a 1997 decision by the
IRS to allow mutual funds to generate more of their gross income from
short sales or from stock held for less than three months. As a result,
mutual funds can now use many of the specialized hedge fund investing
techniques such as leverage, the purchase of options and warrants and
short selling.
Such methods, although risky, provide the potential for higher returns.
Research by Professor Matthias Becker of St. Gallen University in
Switzerland suggests that hedge funds produce long term returns of 17-20
percent, compared to nominal equity returns of 10 percent for most mutual
funds. They also allow astute managers to build portfolios that have a
low correlation with the wider stock market. This is an excellent method
of diversification that can help protect a portfolio in a bear market.
PRIVACY LEGISLATION COULD CURB SPAMMERS
Date: December 13, 1999
Source: National Post
Spammers who send bulk, unsolicited e-mail to Canadians could be out of
business under the federal government's proposed privacy legislation.
Bill C-6, now before the House of Commons, will make spamming illegal
because the law "will prohibit the collection of personal information that
can identify an individual," according to John Gustafson, president of the
Canadian Marketing Association.
This won't stop spammers located outside the country, unless the law in
their own jurisdiction makes spamming illegal also. Some spammers,
especially Internet pornography companies, are using new technologies such
as HTML-based e-mails to send intrusive graphical images which can appear
on a computer screen just by highlighting the message in the queue.
Although Internet providers and users can try to block unwanted e-mails,
spammers often find a way to get through.
The bill requires organizations to identify the purposes for which they
plan to use personal information and to limit the use of that information
for those purposes only.
Online marketers are worried that sweeping government legislation could
inadvertently restrain e-commerce.
CRYPTOLOGIC SELLS ELECTRONIC GAMBLING MAGAZINE
Date: December 14, 1999
Source: National Post
Cryptologic Inc. of Toronto, a developer of Internet gambling software,
has sold its Gamesmania electronic magazine to Hip Interactive Corp. for
$1.7 million in cash and stocks.
Harvey Solursh, Cryptologic's chief financial officer, said the
divestiture will allow the company to focus more on software applications
for both electronic commerce and Internet gaming. The deal gives
Cryptologic a 3.5% stake in Hip Interactive. Hip Interactive has applied
for permission to trade its shares on Canada's OTC market. Cryptologic's
shares soared to over $20 last September on news it will file for a Nasdaq
stock listing.
BCSC EXPOSES PRIME BANK INSTRUMENT SCHEME
Date: December 14, 1999
Source: National Post
The British Columbia Securities Commission has uncovered a fraudulent
investment scheme whereby investors were promised returns of up to 10,000
percent. As a result, the BCSC has issued cease trade orders against
Corporate Express Inc., a Bahamas-registered company with headquarters in
Surrey, B.C.
According to the commission, Corporate Express, along with affiliates
Corporate Express Club, Fortress International Ltd., Great American Gold
ltd. and Offshore Knowledge Network, were involved in a "prime bank
instrument scheme."
This type of scheme lures gullible investors by promising them their money
will be placed in hidden offshore accounts where large, established banks
secretly trade bank documents. No such market exists, but investors often
believe the promises of incredible returns that are kept secret from tax
collectors. The Paris-based commercial crime bureau of the International
Chamber of Commerce estimates $10 million (US) is dropped into similar
schemes in North America every day.
SWISS FREEZE ACCOUNTS OF LATE NIGERIAN DICTATOR
Date: December 15, 1999
Source: National Post
The Swiss Government has frozen $550 million in bank accounts belonging to
the late Nigerian dictator Sani Abacha, his family members and entourage
as part of a money-laundering investigation.
The discovery of the money indicates that Swiss banks are having
compliance problems with a new money-laundering law that took effect in
April, 1998.
The investigation could result in the return of the money to Nigeria,
whose current elected government has accused Abacha and his associates of
systematically plundering $2.2 billion from the Nigerian central bank
during his four years in power.
Although Swiss officials insist that the banks always take vigorous steps
to weed out money laundering, a series of high profile cases indicates
possible problems. Famous cases of Swiss bank clients probed for money
laundering include the brother of former Mexican president Carlos Salinas,
Pakistan's former prime minister Benazir Bhutto, Ukraine's former prime
minister Pavlo Lazarenko and Zaire's late dictator Mobutu Sese Seko.
STUDY CLAIMS FOREIGN CONTENT RULES TOO COSTLY
Date: December 15, 1999
Source: National Post
Foreign content rules for RRSPs are costing Canadians dearly and should be
abolished, says a study by the C.D.Howe Institute. Canadians are losing
between $2 billion and $4 billion annually in lost investment income,
according to the study. "For the average Canadian, it lowers retirement
income by six to 13 percent a year," says the study.
Current rules limit foreign content to 20 percent of the book value of an
RRSP, registered pension plan or registered retirement income fund. To
get around the rule, more and more Canadians are buying clone funds that
use derivatives to mimic the performance of foreign funds. Others are
investing in segregated funds from insurance companies that are fully RRSP
eligible even if they contain all foreign content. The study takes these
factors into account, saying the loss to investors would be much greater
if the rules were fully effective.
The rule was supposed to help create a large pool of domestic capital to
spur business investment and job creation. However, the study says there
is little evidence these benefits have actually been achieved.
A Commons finance committee has also recommended raising the foreign limit
to 30 percent.
MARTIN MAY EASE RRSP FOREIGN CONTENT RULES
Date: December 15, 1999
Source: Globe & Mail
Finance Minister Paul Martin said he would gradually raise the 20 percent
foreign content limit for tax-sheltered retirement savings. Martin said
the move will come "in the not-too-distant future," indicating an
announcement could come in the February budget.
A recent study by the C.D. Howe Institute, a conservative think tank,
called for abolition of the limit, claiming it lowers Canadians'
retirement income by six to 13% a year.
Canadian investors have watched US and global stock markets provide rich
returns over many years while Canadian stocks languished. Over the last 10
years, the Toronto Stock Exchange Index returned an annual compound return
of 9.1 percent, compared to 14.2 percent for the Morgan Stanley Capital
International World index.
However, Martin said some curbs on foreign RRSP content will remain in
place. Martin said the government has an obligation to ensure that
tax-sheltered dollars benefit the Canadian economy as much as possible.
HIGH-TECH AND CLONE FUNDS POPULAR WITH INVESTORS
Date: December 15, 1999
Source: National Post
Investors are flocking to high-tech funds in record numbers. Top mutual
fund firms such as Investors Group Inc. and C.I. Mutual Funds Inc.
reported that high-tech funds were their most popular sellers in November.
Impressive returns of better than 80% for the first 11 months of 1999 for
funds such as the Investors Global Science and Technology and C.I. Global
Telecom Sector have spurred investments in the traditionally volatile
high-tech fund sector.
The Investors high-tech fund took in $189 million in new assets in
November, making it the second most popular fund in Canada for attracting
new money.
Clone funds, fully RRSP-eligible funds that mimic the performance of
foreign content funds, are also drawing a lot of attention. November's
overall best seller was Mackenzie Financial Corp.'s Universal RSP Select
Managers, with $320 million in new money.
Other top clone funds include Fidelity RSP International portfolio with
inflows of $134 million and Scotia CanAm Stock Index with $86 million. By
comparison, the most popular Canadian equity funds in November were
Investors Summa and Fidelity Disciplined Equity with inflows of $68
million and $66 million respectively.
OSC GRANTED SWEEPING NEW POWERS
Date: December 16, 1999
Source: Globe & Mail
The Ontario Securities Commission has been armed with sweeping new powers
to ban individuals from acting as directors or officers of publicly traded
companies. The commission can also order those under investigation to pay
the costs of a regulatory hearing.
In addition, new insider trading rules require company insiders to report
all their stock trades within 10 days of a transaction. Previously,
insiders did not have to report a trade until 10 days after the end of the
month in which it took place; this was considered too long by industry
critics. The new rules are meant to harmonize Ontario's legislation with
other provinces.
The OSC has been criticized in the past for not clamping down on insider
trading. In addition, the OSC still has no power to fine wrongdoers or
force individuals to repay ill-gotten profits.
Other changes will allow individuals who buy securities that are not sold
through a prospectus to take legal action if the document contains a
misrepresentation.
PROVIDING ANONYMITY ON THE INTERNET
Date: December 16, 1999
Source: New York Times
Zero Knowledge, a Canadian company, has developed software that helps
people avoid on-line scrutiny and allows them to live anonymously on the
Internet. The software, called Freedom, allows a user to set up multiple
pseudonyms that become their on-line identity. The pseudonyms function
for all Internet activities including e-mail, Web browsing, chat sessions
and newsgroups.
The company uses a network of servers to encode data in a series of
envelopes. Each link in the server chain opens another envelope and
delivers it to the next server address. The servers do not keep records,
and Zero Knowledge says it does not know the true identity of the people
using its software.
The company says it will control unwanted activities such as fraud, libel,
hate speech, spam or verbal abuse by shutting down troublesome pseudonyms.
In addition, only a limited amount of mail can be sent under each
pseudonym each day.
The software costs $49.95 for up to five pseudonyms a year.
SASKATCHEWAN PIONEERS CANADA'S FIRST E-COMMERCE BILL
Date: December 17, 1999
Source: Globe & Mail
Saskatchewan has become the first Canadian province to table legislation
making an electronic signature the equivalent of a handwritten one. The
new law, called the Electronic Information and Documents Act 2000, spells
out the rules for e-commerce and gives courts directions on how to
interpret contracts that are negotiated and signed electronically.
The law says an electronic signature is reliable for identifying the
signatory and is deemed to have been received by another party when it
enters that company's designated information system.
The legislation should facilitate business transactions over the Internet
by providing an additional level of certainty and security. The new law
is based on United Nations model guidelines. Other provinces, including
Quebec and Ontario, are believed to be working on similar legislation.
The federal government's proposed privacy legislation, Bill C-6, also
recognizes electronic signatures as valid.
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