In the normal course of events, law firms would be falling over themselves to have their headquarters name-checked by the leader of the free world. But not offshore giant Maples and Calder. Its offices at Ugland House on the Cayman Islands were singled out by Barack Obama on his campaign trial, when he noted that it was home to some 18,857 shell companies. ‘That’s either the biggest building or the biggest tax scam on record,’ quipped Obama.

‘Ugland House’ has been jumped upon by the world’s media and now serves as political shorthand for the perceived excesses of offshore practice and tax havens. But some of the press coverage that the Cayman Islands has received ‘has tended to be a little bit one-sided and without the benefit of a balanced approach’, claims Maples partner Henry Smith with practised diplomacy.

The firm has gone into PR overdrive, patiently explaining that its practices are all above board. ‘Over the last decade, Cayman has established itself as one of the leading international finance centres and has grown as a centre of excellence, particularly in sophisticated investment fund products like hedge funds, private equity funds, and structured finance products such as commercial aircraft financing and ship financing, along with big-ticket project financing,’ Smith says. ‘We don’t think that always gets fairly reported in the press.’

Lawyers on the islands appear united in defending Maples in particular and the offshore legal community in general from the charges concerning the apparent lack of transparency and lax approach to regulation. ‘The debate is more about politics and pandering to the man on the street,’ says Richard Finlay, a partner at Conyers Dill & Pearman, about the Ugland House furore. ‘Our clients are sophisticated onshore lawyers who fully understand how offshore works.’ As for Obama’s criticism, he says: ‘There’s no substance to it and it shows a lack of understanding as to how offshore works. Whether that’s a real misunderstanding or not, I care not to comment.’ Has such hostile press exposure done the Caymans any harm? ‘It certainly hasn’t done any good to view us in a John Grisham kind of way,’ says another Cayman lawyer.

The notion of an offshore magic circle is accepted with varying degrees of seriousness (see [2008] Gazette, 5 June, 20), but the exponential growth of its putative members has followed that of their onshore peers. Certainly, a presence in the Cayman Islands (and the Channel Islands – see box) is a prerequisite for membership of an increasingly globalised club which might include Appleby, Bedell Cristin, Carey Olsen, Conyers Dill & Pearman, Maples and Calder, Mourant du Feu & Jeune, Ogier, Ozannes and Walkers.

Huw Moses, a managing partner of the Cayman office of Appleby, describes his firm’s ‘mission’ as being ‘the most significant offshore firm and fiduciary administration business’. ‘We think that we have arrived at that goal with our most recent combination with Dickinson Cruickshank in the Isle of Man,’ he says. That merger ‘goes live’ in October this year. Appleby merged with Jersey-based firm Bailhache Labesse in June 2006.

‘We believe that we’re probably the only truly global offshore law firm,’ says Moses. He draws a distinction with competitors such as Maples and Conyers – ‘a Cayman Islands firm and a Bermudan firm respectively’. ‘What we are selling is the ability to provide independent and impartial advice – as to where a client should be undertaking its offshore business, plus the ability to provide a multi-jurisdictional solution that sophisticated clients want.’

Maples has 211 lawyers in offices in Cayman, British Virgin Islands, London, Hong Kong, Dubai and Dublin. ‘It should not be thought that all offshore firms are alike,’ reflects the Cayman-based managing partner Charles Jennings. ‘Every offshore firm, like every onshore firm, has its own culture. Some firms prefer expansion worldwide into every offshore jurisdiction that comes their way. Some prefer to concentrate on the jurisdictions they’re in already and not to dilute their product.’

So is Maples a global offshore firm? ‘We may have offices all around the globe but those offices practise the law of a limited number of jurisdictions – Cayman Islands and British Virgin Islands for the offshore work,’ Jennings says. He points out that in the Channel Islands the firm doesn’t offer local law – instead it has a ‘best-friend’ relationship with Carey Olsen. ‘It’s probably fair to say that we’re one of the less diversified offshore law firms in terms of the number of laws that we advise on. Or to put it another way, we’re one of the more specialised.’

Walkers Global began in 1964 when William Walker set up shop in Cayman. Jonathan Tonge, Walkers’ managing partner, says: ‘We decided that our strategy should be developing offices beyond the Islands to accommodate the clients’ needs to provide a better service and in a timezone in which they operate.’ The firm has expanded through a mixed strategy. First, it has opened greenfield sites in ‘neutral territory’ (that is, onshore) such as London (2001), Hong Kong (2003) and Dubai (2005). However, in offshore locations it moved into the British Virgin Islands in 2002 – ‘then a slight departure, it meant that we were offering the services of more than one jurisdiction’ – and in Jersey, where the firm merged with Crills Advocates in July 2006. ‘Cayman is still very important and the majority of our work is still serviced from the Cayman office, albeit a small majority,’ Tonge adds.

There was recent talk of the firm merging with fellow Cayman firm Mourant, which would have shaken up the established offshore hierarchy considerably. ‘We talked about it and we went some way down that track, but there were too many difficulties. We decided to call it a day,’ says Tonge, before adding: ‘That’s not to say that we would never talk to them again.’ Since then the firm has opened up in Singapore, becoming, as he puts it, ‘the first top-level Cayman firm there’.

Banking crisisConyers has been looking towards new territories as well. The Cayman firm, which has offices in Bermuda and the British Virgin Islands, has been making a bid for the BRIC (Brazil, Russia, India and China) countries. It has been suggested in the press that this is a response to being squeezed by both the consolidating offshore market and the clampdown on tax havens. Not so, says Finlay. ‘The firm and the Cayman Islands have been reliant on the American economy and market for our work,’ he says. ‘It makes sense for any firm to diversify and we have identified the emerging markets. Learning from our experience in pioneering multi-jurisdictional offshore law, the best way to access those markets is to be on the ground. So we’ve opened in Dubai to access the Middle East, Moscow to access Russia, Mauritius to access the African and Indian market and now São Paulo to access the Brazilian market.’

Finlay points out that it is ‘a continuation of the strategy we have had for a number of years’ and that Conyers was ‘the first offshore firm to open offices outside our main jurisdiction when we went into Guernsey in the 1980s’ – that office was later replaced by a London base.

The fate of the offshore community is inextricably linked to the major financial centres, and so has inevitably been affected by the banking crisis. But things aren’t that bad, says Mike Wind, who heads the legal team of local recruitment agency Personnel 2000. ‘We aren’t seeing massive redundancies,’ he says. ‘It’s nothing like the carnage that there was in New York and in London but, yes, recruitment is slow and they aren’t hiring in the numbers they were 18 months ago.’ There have been some casualties. For example, Walkers has axed two Cayman-based practice areas, criminal litigation and real estate, because – in their words – ‘we wanted to concentrate our efforts on our core business areas in which we are the market leader, such as hedge funds, private equity, finance work, insolvency and restructuring and trusts’.

‘We are seeing a fall-off in volume of work in some of our practice areas, notably structured finance,’ notes one Cayman partner. ‘But we’ve seen growth in other areas – litigation, restructuring and insolvency and second, relating to the liquidity problems of the investment fund industry, the restructuring of investment vehicles. Those two areas have kept our litigation lawyers and our fund lawyers busy.’ He does not see any redundancies on the horizon but his firm has a policy of filling internal vacancies by ‘moving people between offices’ as opposed to recruiting.

To practise in Cayman you have to be three years qualified from a Commonwealth, common law jurisdiction – and Mike Wind points out that Caymanians are required by immigration laws to be given preference over similarly qualified non-locals. On salaries, Wind says: ‘The offshore magic circle is competing fairly and squarely with the guys in the magic circle and silver circle back in the UK. Obviously, we have the advantage of being a tax-free jurisdiction as well. So there is no "gross" and "net" across your pay slips.’

The attractions of working on a sun-soaked Caribbean island, as opposed to in the City, don’t need to be spelled out. But lawyers attest to the quality of work as being the major appeal. As Jonathan Tonge, previously with Freshfields, puts it: ‘The real benefit is you are engaging in top-quality international legal work with the finest clients you would wish to work for – they are all institutions and household names. You are doing real high-quality work but you are doing it in a tropical location.’

Giorgio Subiotto, a partner at Ogiers, was a trainee at Linklaters and worked at Wall Street firm Sullivan & Cromwell before coming to Cayman in 2002. He reports that the days are no shorter ‘but the stress levels are much lower’ than at his old firms. ‘Even though New York is the largest market, the clients tend to be much nicer. Our work is in partnership with our clients and in a place like New York you lose some of that.’ The Jersey-based Ogiers merged with Boxalls in February 2004, giving it a presence in Guernsey, Cayman and London.

Of course, the big story for Cayman and the offshore world remains the tax haven clampdown. In June, the UK government signed an exchange of information agreement with William McKeeva Bush, the head of government business for Cayman. The Organisation for Economic Co-operation and Development (OECD) has produced a three-tier information-sharing list, featuring a ‘white list’ for those offshore locations that have ‘substantially implemented’ information-sharing agreements, a ‘grey list’, and a ‘black list’ for beyond-the-pale locations – unhappily for the Caymans they are in the ‘grey’, alongside Bermuda and the British Virgin Islands. The OECD requires territories to sign tax information exchange agreements with at least 12 other countries to secure a ‘white-listing’. The Channel Islands and Isle of Man are white-listed.

Campaigners against tax havens don’t have law firms in their sights, but they do target firms of accountants. Richard Murphy, an accountant with the Tax Justice Network and a critic of the offshore business world, says the network’s campaign has focused more heavily on the firms of accountants: ‘We can show that they are everywhere and, without their presence in tax havens, we don’t think that those places could function.’

Whereas, Murphy notes, the offshore magic circle ‘aren’t everywhere’, there have been ‘rapid changes in structure to spread them pretty far and wide in the last few years’. He adds: ‘They, together with the accountants and bankers, work in harmony – their role is fundamentally to move into microstates, take over and populate these places and use the law. They do it very deliberately to undermine the legislation of another state. So the lawyers, with the accountants and bankers, set out to create law with the purpose of undermining the law of another location.’

So how do the lawyers plead to accusations of a lack of transparency and insufficient regulatory rigour? ‘One of the issues that we have is the press tends to treat all offshore jurisdictions the same,’ replies Charles Jennings. ‘What we do in the Cayman Islands – in terms of the law and the level of transparency – is very different to the other offshore jurisdictions. For example, in Cayman we have submitted to the OECD tax information exchange agreement programme and we’ve had a tax information exchange agreement with the US since 2001, plus we have signed up to the EU savings directive regime (to counter cross-border tax evasion) and that is something that does not get enough press recognition.’

Jennings continues: ‘There is also an awful lot of information-sharing that goes on that doesn’t get reported. I don’t think it is very well understood by those who report on these issues.’

Ogiers’ Giorgio Subiotto takes issue with the idea of Cayman being depicted as existing to provide nothing more than an address for companies. ‘There are a lot of people on the island that provide substance to all these companies,’ he says. ‘They aren’t just names on a brass plate. I have lived here seven years. I have three children who are going through school, we have 150 people working here and we’re not the largest by far.’

The critics ‘start from a Hollywood fictional idea of where the Cayman Islands might have been a few decades ago’, complains Charles Jennings. ‘They don’t connect the dots and realise they are dealing with a jurisdiction in the forefront of the global investment industry.’

, was less diplomatic. It suggested that the PM was ‘nakedly hostile’ to the island.

According to Shepherd it is ‘philosophically and conceptually unsound’ to call on the Channel Islands to meet the prime minister’s demand. ‘What we have to do is be with them,’ he says. ‘If we are doing what they’re doing, we really cannot do any more. Anything else smacks of bullying.’

‘There is a world of difference between what we do in the Channel Islands and what’s done in Liechtenstein or the Cook Islands,’ notes Russell Clark, deputy managing partner at Carey Olsen in Guernsey (pictured). ‘We welcome people coming in.’ He mentions the recent review by Michael Foot, a former inspector of banks for the Central Bank of the Bahamas, of UK-linked tax havens. ‘We welcome people learning how well-regulated we are and we hope that ignorance is dispelled,’ he adds.

There will always be a need for international finance centres, Clark asserts. ‘The task for global leaders is to make sure that those international finance centres are well-regulated and compliant in terms of anti-money laundering. The white-listing that the Channel Islands received recognised the fact that we are compliant.’

In recent years, there has been a fair amount of island hopping as Jersey firms have moved to Guernsey and vice-versa. How do lawyers characterise the differences between the two islands? ‘They are separate legal jurisdictions and so obviously, from a litigation point of view, parties have to choose one or the other,’ explains Clark. Carey Olsen, now 130 lawyers strong, was created through a merger of Guernsey firm Carey Langlois and the Jersey practice Olsen in 2003.

As for private client work, Clark says the islands and the offerings ‘are very similar’. But, he adds: ‘Jersey tends to have done more securitisation-type work than Guernsey – not that you cannot do it in Guernsey. Similarly, insurance work is predominantly done out of Guernsey – not that you can’t do it in Jersey, but the expertise was built up here.’

‘It is a tighter market and there are some key differences in product types,’ says Richard Gerwat, managing partner of the Bedell Group, which includes the law firm Bedell Cristin. That firm is headquartered in Jersey, with offices in Guernsey, London and Geneva. It has 265 fee-earners in Jersey and 10 in its Guernsey office, which opened in 2006. ‘Jersey has a very developed market in securitisation and structured finance that Guernsey doesn’t,’ says Gerwat. ‘However, Guernsey has a very developed market in insurance, which Jersey does not.’

Guernsey has a ‘very good regulatory and legal infrastructure, but the firms are much less developed in terms of the depth of resource and capacity’, says Gerwat. ‘That’s why firms like ours saw an opportunity to put a foot into Guernsey some time ago.’ Although, he adds: ‘Many clients do not understand that they are separate jurisdictions. There are different laws in Jersey and Guernsey that will apply to the same set of facts.’

Ozannes was the first Guernsey firm to go to Jersey, where it has 25 staff now compared with the 150 in Jersey in 2006. ‘Guernsey has been much stronger in terms of insurance-related work,’ notes Shepherd. ‘That’s quite a good thing for us in these times because it is a stable work source. As you can imagine, securitisations have fallen off the end of the pier.’ There are many similarities, he says. ‘That is why we took the view six years ago that we should be on both islands. Our clients are in both islands and we need to be there too.’

The big news on the local offshore scene is the Appleby, Dickinson Cruickshank merger in the Isle of Man. The firm will have 73 partners and 200 lawyers. Appleby claims to be the first global offshore firm on the island. ‘I think it is a very brave move, especially at this time,’ says Shepherd. ‘The Isle of Man has been hit very hard by the recession.’

Does the international offshore model make much sense? ‘I am not sure that it does,’ says Gerwat. ‘There is a group of larger offshore firms that are becoming more multi-jurisdictional. Most clients talk in terms of the depth of resource you have in a particular location and you can only get so far through mergers. It is about more than hanging your name above the door and that’s why we have strongly adhered to our organic growth model.’

Isle of Man firm Cains opened in Singapore last year, and the firm is pursuing a strategy of growing its Brazil, Russia, India and China economy client base. Andrew Corlett, Cains’ managing director, apparently welcomes his rival’s move. ‘We don’t see ourselves in competition with other Isle of Man law firms,’ he says. ‘We are in competition with firms from other jurisdictions. Our hope is that by Appleby coming in, they can enrich the Isle of Man offering rather than seeing it as cut-throat competition. It is a wide world and the Isle of Man is a small place.’ Any plans to merge? ‘Our own feeling at the moment is that in such an uncertain world we’d rather be masters of our own destiny,’ he replies.

So, in sum, what’s the attraction of the Channel Islands? ‘High-quality people,’ says Shepherd, ‘plus it’s the best and most sensibly regulated area. Yes, we have more regulation than Vanuatu, but people want to pay for that because it has a real badge of security, quality and comfort. Law firms are critical to that.’
Jon Robins is a freelance journalist