October 2011 - Banque et Finance looks at the offshore market and interview SFM

October 2011 – Banque et Finance looks at the offshore market and interview SFM

With 3000 private clients, SFM Corporate Services is a leader in the European offshore structure market. There is strong demand for reasons of confidentiality, particularly for transfers via SWIFT, but also for tax and commercial reasons

Offshore structures accessible to almost all

With several thousand private customers, SFM Corporate Services is a leader in the offshore structures market. Demand is strong for reasons of confidentiality, in particular for SWIFT transfers, but also for reasons of fiscal and commercial optimisation.

The idea which is key to the success of SFM was not to utilise the trust with all its conceivable constraints, particularly as regards due diligence, but to widen the concept of offshore companies to include other instruments. For the need for confidentiality far exceeds the possibilities of the trust structure, even if that can always represent a sort of ideal structure in this field. At the present time, to have an offshore structure available is a must for those who wish to make international transfers of funds without their name appearing as the one giving the instructions. From this point onwards it is the main reason for creating on offshore structure, but not the only one. There is also a demand on the part of those company subscribers who are not in a position to provide (or who do not wish to block their capital) the 100 000 francs necessary to set up a limited liability company. An offshore company created in one of the approximately fifteen jurisdictions offered by SFM allows a reduction in the commitment of funds, still achieving a comparable result. The new company is not a Swiss limited liability company, but a branch of an offshore company based in the Seychelles. The example is appropriate, for this jurisdiction is the least onerous, as it is possible to create a structure there for 1000 francs. Other usages of an offshore structure are also topical, in particular in real estate. The numerous British clients of SFM particularly appreciate the advantage offered by an offshore structure, insofar as it enables the avoidance of inheritance taxes which are likely to hit heirs heavily in the United Kingdom. The founder of SFM, who does not lack a certain sense of duration, picked up on "a company does not die". The list of uses of offshore structures, without claiming to be exhaustive, involves of course companies used in the context of international trade as well as companies holding rights to intellectual property.

But the principal motivation, as SFM acknowledges, remains the desire to maintain confidentiality, as the international SWIFT platform requires the disclosure of the client; and this seems to go far enough. The confidentiality argument appears to be particularly important to Europeans, who represent around one half of SFM’s clients. For obvious reasons of geographical proximity, they are also numerous amongst those who prefer to come to the Geneva offices of SFM rather than to make use of the opportunities offered by the company to create legal structures over the internet. "About 30% of our clients travel physically", SFM points out, adding that this concerns those “who do not wish to leave any traces". Other customers, and they are more and more numerous, rely on the information technology opportunities. “We offer company creation services from virtual offices” explains SFM, and the company has clearly become European leader in this market. "Everything is feasible on-line" and it is specified that SFM is directly regulated by Finma, who have approved its business model. What more can you ask for? In another significant development of closer ties with the banking world, SFM’s website is secured by the same protocol as the one applicable to the banks.

Jurisdictions to choose:

The existence of a secure platform like this allows SFM to create a hundred companies per month, a figure which is neither reached nor even approached by SFM’s competitors; of whom the most active do not reach half that number. The first five years were particularly high growth for SFM. “Five years ago, we were still on our own. Now there are around twenty, with offices in the Seychelles and Hong Kong”. Contrary to what you might have thought, the mission of offshore structures is not a one stop shop. Such structures require a follow-up, which means period transmission of funds by clients. The advantages, but also the constraints, are real, and exercising them requires certain explanations. "We spend 100 000 francs a month on marketing expenses,” SFM reveals. They won’t say any more, because their competitors will not give any figures. Neither is the list of jurisdictions exhaustive. At one extreme is the best market, the Seychelles, and at the other is the most expensive, which is Cyprus. Between the two there is a wide choice. But if the context is flourishing, ever more so since the financial crisis of 2008-2009, it is also very changeable, as the pressures in favour of total transparency increase.

An unstable model:

The SFM business model is particularly interesting, but unstable. For the tolerance for offshore structures is not only variable from one country to another, but it is also threatened by the fight against tax evasion directed above all by the EU. Admittedly, not all of the companies of this type have been created for tax reasons; in particular the structures intended to facilitate international trade can be considered. But at the very least it remains true that in the current context most clients are looking above all to avoid a nominal identification in the course of international money transfers. Such a preoccupation makes implicit sense for holders of undeclared accounts. Generally, such clients will look for solutions ever more distant, and some will transfer their account to Singapore, even if it then means needing to ask for an amount to be «made available» in an account accessible in Switzerland. The idea clearly appears to be to flee Europe, at least virtually. However, this is no accident if 70% of SFM’s clients are Europeans. Many of them must be secretly delighted by the difficulties of the EU.