The ICSA Isle of Man Corporate Governance Conference 2014 Presentations

The ICSA Isle of Man Corporate Governance Conference 2014

Upholding ethical values in a competitive

environment

#icsaisleofman14

Conference chair

David Venus FCIS,

President, ICSA

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Opening address

The Hon W E Teare MHK,

Minister of the Isle of Man Treasury

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Governance versus commerciality

Simon Osborne FCIS,

Chief Executive, ICSA

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• Until 1980s prevailing view was that company’s role was to

make money for its owners, and nothing else; more

complicated now:

• Companies must also conform to:

olaws/regulations of society in which they operate

oethical norms of that society – they need a licence to

operate

• Otherwise they will be liable to legal and moral sanctions

• Why?

The role of the company in society

• Shareholders & those controlling environment in which the

company operates – politicians, press & public – have

differing priorities.

• Not tenable to assume that they will all want the same.

• Hence ethical funds /high or low risk investments, etc.

• Therefore traditional corporate measures will suit some

stakeholders, some of the time: they will never suit all of the

stakeholders all of the time!


• Company managers must balance conflicting interests of owners,

regulators, press & public.

• As we all become increasingly technically aware, these

considerations become increasingly important e.g.


All these companies were the target of significant public

campaigns in the UK


http://www.google.co.uk/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&docid=QZOvdusnVB5Q3M&tbnid=Msn0538yTdr1xM:&ved=0CAUQjRw&url=http://grayee.blogspot.com/2012/10/boycott-starbucks-boycott-tax-evasion.html&ei=xqPiUpSZBoab1AX1yYDoCQ&bvm=bv.59930103,d.ZG4&psig=AFQjCNG4_qDPyIJy1TFuPcm1yjonrWkYsg&ust=1390670600125752

http://www.google.co.uk/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&docid=QZOvdusnVB5Q3M&tbnid=Msn0538yTdr1xM:&ved=0CAUQjRw&url=http://grayee.blogspot.com/2012/10/boycott-starbucks-boycott-tax-evasion.html&ei=xqPiUpSZBoab1AX1yYDoCQ&bvm=bv.59930103,d.ZG4&psig=AFQjCNG4_qDPyIJy1TFuPcm1yjonrWkYsg&ust=1390670600125752

• Companies’ tax affairs were targeted by protesters.

• Loud cries of “It’s not *fair!”

• “The idea of a strictly ‘fiduciary’ duty to avoid tax is wholly

misconceived....[and] unknown to English law”: Farrer & Co.

• Have companies learned? Yes and No.

*The new four letter F-word!


• “Amazon shields £11bn haul from taxman..and even receives a

£4m rebate”: Sunday Times, 25-5-2014.

• Day after Barclays was fined £290m for rigging Libor, precious

metals trader Daniel Plunkett decides to fix the gold market!

• “Long hot summer of revolt over top pay”: The Times, 26-5-2014

(RemCo’s “just don’t get it. They don’t listen to their shareholders”:

Martin Gilbert, Aberdeen Asset Management).

• “SFO launches [bribery] probe into GSK”: FT, 28-5-2014.

• Rising fines & litigation costs are penalties for poor governance.

• Reputational cost of litigation may be even greater.


• “The [financial sector] still prizes short-term profit over long-

term prudence, today’s bonus over tomorrow’s relationship”:

Christine Lagarde (FT Conference on Inclusive Capitalism,

May 2014).

• Sports Direct exec share scheme vote – threat of votes

against directors’ re-election.

• Fidelity has voted against remuneration proposals in majority

of its FTSE350 investee companies.


“Fifth of suppliers ignore ministers’ tax queries”: FT,

26 May 2014 (ergo 80% of leading public sector

suppliers are replying and being more transparent).


• Similar issues have affected companies with poor records for

working conditions; use of child labour, etc.

• Other companies affected by Government decisions taken for

political reasons or by social campaigns related to climate

change, pollution or environmental damage.

• So, companies are responsible not just to their owners, but

also to myriad other stakeholders – creeping pluralism.

Q.1: Is it possible for well-governed companies to fulfil all

these responsibilities; and to do so profitably?

Q.2: What do we mean by corporate governance?


“The purpose of corporate governance is to facilitate effective,

entrepreneurial and prudent management that can deliver the

long-term success of the company. ”

• Leadership

• Effectiveness

• Accountability

• Remuneration

• Relations with shareholders

Corporate Governance Code

First version of the UK Corporate Governance Code produced

in 1992 by the Cadbury Committee. Para. 2.5 is still the classic

definition of the context of the Code:

“Corporate governance is the system by which companies are directed and

controlled. Boards of directors are responsible for the governance of their

companies. The shareholders’ role in governance is to appoint the directors

and the auditors and to satisfy themselves that an appropriate governance

structure is in place. The responsibilities of the board include setting the

company’s strategic aims, providing the leadership to put them into effect,

supervising the management of the business and reporting to

shareholders on their stewardship. The board’s actions are subject

to laws, regulations and the shareholders in general meeting.”

Corporate Governance

Corporate governance is therefore about what the board of a

company does and how it sets the values of the company,

and is to be distinguished from the day to day operational

management of the company by full-time executives.

Not much there that is not commercial……


Every company should be headed by an effective board which is

collectively responsible for the long-term success of the company.

There should be a clear division of responsibilities at the head of

the company between the running of the board and the executive

responsibility for the running of the company’s business. No one

individual should have unfettered powers of decision.

The chairman is responsible for leadership of the board and

ensuring its effectiveness on all aspects of its role.

As part of their role as members of a unitary board, NEDs

should constructively challenge and help develop

proposals on strategy.

Corporate Governance – Leadership

The board and its committees should have the appropriate balance

of skills, experience, independence and knowledge of the company

to enable them to discharge their respective duties and

responsibilities effectively.

There should be a formal, rigorous and transparent procedure for

the appointment of new directors to the board.

All directors should be able to allocate sufficient time to the

company to discharge their responsibilities effectively.

All directors should receive induction on joining the board

and should regularly update and refresh their skills and

knowledge.

Corporate Governance – Effectiveness

The board should be supplied in a timely manner with information

in a form and of a quality appropriate to enable it to discharge its

duties.

The board should undertake a formal and rigorous annual

evaluation of its own performance and that of its committees and

individual directors.

All directors should be submitted for re-election at regular

intervals, subject to continued satisfactory performance.

Corporate Governance – Effectiveness

The board should present a fair, balanced and understandable

assessment of the company’s position and prospects.

The board is responsible for determining the nature and extent of

the significant risks it is willing to take in achieving its strategic

objectives. The board should maintain sound risk management

and internal control systems.

The board should establish formal and transparent arrangements

for considering how they should apply the corporate reporting,

risk management and internal control principles and for

maintaining an appropriate relationship with the

company’s auditors.

Corporate Governance – Accountability

Levels of remuneration should be sufficient to attract, retain and

motivate directors of the quality required to run the company

successfully, but a company should avoid paying more than is

necessary for this purpose.

A significant proportion of executive directors’ remuneration

should be structured so as to link rewards to corporate and

individual performance.

There should be a formal and transparent procedure for

developing policy on executive remuneration and for fixing

the remuneration packages of individual directors. No

director should be involved in deciding his or her own

remuneration.

Corporate Governance – Remuneration

• There should be a dialogue with shareholders based on the

mutual understanding of objectives. The board as a whole has

responsibility for ensuring that a satisfactory dialogue with

shareholders takes place.

• The board should use the AGM to communicate with investors

and to encourage their participation.

Corporate Governance – Relations with

Shareholders

• But is good governance an end in itself ?

• Enron won various awards for governance, notably from Fortune

magazine which dubbed it ‘most innovative company’ (!); on

paper it had a model board of directors - as did RBS (!):

oWere these governance tools effectively applied?

oWere the issues that arose simply completely unexpected?


• Enron was, largely, a victim of internal malfeasance, but :

oCompensation and performance management systems

encouraged a culture obsessed with short-term earnings to

maximize bonuses.

oCosts were largely disregarded.

oRisk, whilst subject to sophisticated risk management tools, was

ultimately self-hedged.

oAggressive accounting practices were approved by the board;

in many cases were too complex for board members to

understand.

oAudit and audit oversight lacked rigour.

• Similar considerations plagued some of the UK banks


The purpose of corporate governance is to facilitate effective,

entrepreneurial and prudent management that can deliver the long-

term success of the company.

“Corporate governance is the system by which companies are

directed and controlled. Boards of directors are responsible for the

governance of their companies. The shareholders’ role in governance

is to appoint the directors and the auditors and to satisfy themselves

that an appropriate governance structure is in place. The

responsibilities of the board include setting the company’s strategic

aims, providing the leadership to put them into effect, supervising

the management of the business and reporting to shareholders

on their stewardship. The board’s actions are subject to laws,

regulations and the shareholders in general meeting.”


So it is about:

• establishing & promulgating core values of each organisation.

• cascading those values and instilling them at all levels of the organisation.

• putting in place a set of processes which:

oenable management to run the business effectively and in a commercial

manner

o follow the constitution of the company - the agreement between owners

and managers as to how managers will exercise their authorities

oensure that the business will comply with relevant laws and

regulation

owill give due weight to appropriate societal norms


•UK Corporate Governance Code is based on “Comply or

Explain” principle - not a rigid set of rules (easy to circumvent)

but principles with supporting provisions outlining standards

that overwhelming majority of major companies and their

investors deem appropriate.

•Only requirement is either to say that you comply with the

Code or, if you don’t, to explain – clearly, carefully and for

good (commercial !) business reasons - why the Code is not

appropriate in your case.

•Thus governance is not the enemy of commerciality.

Comply or Explain

57% of FTSE 350 companies now comply with the UK Corporate

Governance Code, up from circa 51% over the past three years:

oThat is, fully compliant; other 43% are mostly compliant.

o85% of those companies that were not fully compliant complied

with all but (literally) one or two provisions.

o61% provided informative explanations (and it is on failures here

on which attention will fall in 2014.

oThe most common area of non-compliance was in a lack of

independent directors on the board.

So do all those companies believe governance is

uncommercial?

Source : Grant Thornton Corporate Governance Review 2013

Comply or Explain

• No – they understand that governance is an increasingly high-profile

requirement of investors.

• Part of the ‘price’ to be paid to secure/retain their investment.

• Increasing number of academic studies demonstrate that well-

governed companies have been affected less badly by economic

headwinds.

• Hermes: “It is not good governance that leads to outperformance, but

poor governance that leads to underperformance” (May 2014).

• So “good governance is good for your wallet” (FT, 11-5-14).

• Thus, in a sense, good governance is an insurance policy:

oproving to those around you that you operate in an

appropriate manner; and

oensuring that you don’t go off the rails.

Comply or Explain

Corporate Governance – stopping companies

going off the rails

http://www.google.co.uk/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&docid=BDtIfwddB7hNoM&tbnid=xXZbt6zhvZCOsM:&ved=0CAUQjRw&url=http://en.wikipedia.org/wiki/Gare_Montparnasse&ei=dBvdUuGWN8rB0QWR04HwAg&bvm=bv.59568121,d.ZGU&psig=AFQjCNF61VxskaXaLFroBzWdG3B_rhi59A&ust=1390308581839587




http://www.google.co.uk/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&docid=yiRawep4yuyxcM&tbnid=xXZbt6zhvZCOsM:&ved=0CAUQjRw&url=http://en.wikipedia.org/wiki/Montparnasse_derailment&ei=sRvdUtShOoKG0AXQ4YCIDQ&bvm=bv.59568121,d.ZG4&psig=AFQjCNH3ITgXmZ2ncU2I2_LPSs0IBfskIA&ust=1390308649501404

http://www.google.co.uk/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&docid=yiRawep4yuyxcM&tbnid=xXZbt6zhvZCOsM:&ved=0CAUQjRw&url=http://en.wikipedia.org/wiki/Montparnasse_derailment&ei=sRvdUtShOoKG0AXQ4YCIDQ&bvm=bv.59568121,d.ZG4&psig=AFQjCNH3ITgXmZ2ncU2I2_LPSs0IBfskIA&ust=1390308649501404

http://en.wikipedia.org/wiki/File:Train_wreck_at_Montparnasse_1895.jpg

http://en.wikipedia.org/wiki/File:Train_wreck_at_Montparnasse_1895.jpg

Corporate Governance – giving confidence to

operate in society

Corporate Governance – the seat-belt, not the brake

• Has regulatory compliance dulled sensibilities? You can’t be

blamed if you can put a “tick in the box”.

• Has box ticking compliance impaired ethical judgment?

Arguable that it has; people may not think about rights &

wrongs of their actions or decisions.

• SO good insightful governance is not the enemy of

commerciality but regulation may be:

o Inherent rigidity of rules;

o Rules try to address yesterday’s problems rather

than tomorrow’s or even today’s.

So what has gone wrong?

It comes back to:

• Organisations need to set clear, well articulated values

• Cascade and instill those values

• Back up with an ethics programme

• Tone set at the top – the power of good examples

• Culture, Culture, Culture

• People, People, People

• A good company secretary

What conclusions may one draw?

The governance role of the company secretary

• Balancing the interests of different groups –

oChairman v SID or other directors

oChairman v CEO or CEO v Board

oExecutive directors v NEDs

o Investors v management; or private v institutional investors

• Being a ‘wise friend’ to them all

• The bearer of unwelcome advice (aka ‘The Shot Messenger’) –

oTelling Chairman or CEO that he/she lacks the requisite authority

oReminding executive directors of undertakings to provide board

with data which they are not keen to disclose!

• A “jack of all trades” –

oExpected to know what is going on in all key areas of

the business

The governance role of the company secretary

1. Governance and commerciality are not & should never be

at odds.

2. Regulation needs to be more insightful.

3. Ultimately complexity & issues arise because of us –

people!

4. Good governance has real value.

Conclusions

Doing Business Ethically...

Philippa Foster Back CBE, Director

Institute of Business Ethics

© IBE

...doing business ethically...

...makes for better business

ICSA Isle of Man ConferenceJuly 2014

© IBE

About the IBE

The IBE was established in 1986 to encourage

high standards of business behaviour based on

ethical values.

Advice

Publications

Training

Forums

Research

Education www.ibe.org.uk

© IBE

What do we mean by doing

business ethically?

approach to Corporate Responsibility

Ethics Policy & Code

Ethical Values underpin….

CSR Programme

doing things ethically doing ethical things

Where does the law fit in?

Legal position of a business

- what it must or must not do i.e. it is mandatory, obliged to obey

Ethical responsibility of a business

- how it does it is discretionary – you have choice – determined by values

© IBE

Topics

What is business ethics?

What are companies doing?

Why it matters?

Summary

© IBE

1. What is business ethics?

© IBE

© IBE

‘the application of ethical values to

business behaviour’

What is business ethics?

© IBE

Where Ethical Dilemmas Arise

Societal Values

Corporate ValuesPersonal Values

Professional Values

Identifying values

Historical

Top down

Bottom up

Hybrid

Reviewing

Words – business values &

ethical values

First stage of embedding

Importance of DRAFT

Language

Tone

Cross cultural recognition

Meaning and

understanding

© IBE

Some ethical values

Honesty

Transparency

Integrity

Openness

Courage

© IBE

Trust/trustworthiness

Respect

Fairness

Responsibility

Diversity

How are values used?

Ethical values are expressed and

given meaning through:

Commitments

Responsibilities

Obligations

© IBE

The way we do things around

here, i.e. our culture

Culture is discerned through such questions as:

What are the common issues facing our sector and company?

What are the common understandings about the way this company does

business? Would our colleagues agree?

What are the norms of how do we do our work?

What core values drive us?

What is the leadership style?

Do we have effective policies and procedures?

Can individuals challenge the norm? Is our culture open or closed?

Do we live up to our values? Would our stakeholders agree?

© IBE

Corporate Culture

2. What are companies doing?

© IBE

Practical solutions

doing business ethically &

building culture

It is a day to day activity....

© IBE

The Aim of an Ethics Programme

… ethical values expressed in a code offer a

framework for the logical analysis of dilemmas

which emerge in the course of day to day

business …

© IBE

Risk areas

© IBE

• Advertising and sales practices

• Use of company computers

• Data protection

• Money collection practices

• Gifts & hospitality

• Bribery, corruption

•Harassment, discrimination & bullying

• Environmental responsibility

• Human rights

• Money laundering

• Employee Security• Exec Pay

• Whistleblowing

• Conflicts of interest

• Governance•Procurement/ Supply chain

• Ethical Investment

• Work/home balance

• Lobbying and political donations

• Facilitation payments

• Social media

• Tax

© IBE

Code of Ethics•The Way We Work

• Business Principles

•Our Commitments &

Standards …

Elements of an effective ethics programme

Ethical Values -> Ethics PolicyReflected in the business model, purpose, strategy, and

decision making process in the organisation

Guidance for staff on

expected behaviours,

how to deal with day

to day ethical

dilemmas, how to raise

issues

embed, implement, make operational with feedback loops

to build in learning and improvement

Embed values -> behaviour

Governance Structure

Reviews of codes of ethics

show that:

Few are written with the user in mind

Some are collections of polices on different

issues

Some are couched in ‘do this or else….’

language

Some are large & glossy while others are

memoranda

They are necessary but not sufficient

© IBE

© IBE

Code of Ethics•The Way We Work

• Business Principles

•Our Commitments &

Standards …

Communication&

Awareness

Campaigns

Training

&

Reinforcement

Elements of an effective ethics programme

Supporting

context and

Culture

Monitoring

& Accountability

Ethical Values -> Ethics PolicyReflected in the business model, purpose, strategy, and

decision making process in the organisation

recruitment practice,

induction; on-line or

face to face training,

dilemmas, appraisals;

incentives, Speak Up…

leadership, example,

strategy; polices;

resources, business

goals; compliance;

CR, CSR, Speak Up

…

what, why, how;

understanding as

well as information,

how to ask for help,

seek guidance etc

surveys, internal

audit, stakeholder

engagement;

business review,

external audit,

Speak Up…

Guidance for staff on

expected behaviours,

how to deal with day

to day ethical

dilemmas, how to raise

issues

embed, implement, make operational with feedback loops

to build in learning and improvement

Embed values -> behaviour

Governance Structure

How do values have an impact?

© IBE57

Core ethical

values

Expressed in an

Ethics Policy and

Code

Influences

conduct

&

decision

making

Reinforces a

culture of

trust &

integrity

Supported by an

effective ethics

programme

individuals

company/organisation

Ethics in Decision-making

What to do when

the pressure is on

you here someone say ‘but everyone else does it’

or ‘no-one will ever know’

Apply a decision making tool

gives consistency

reduces risk

© IBE

Set of decision making principles to

help employees make decisions

Is it legal? Ask if unsure

Would you be embarrassed if anyone found out

about your decision?

How would you feel if you read about it in the

paper?

Does it influence you in any way?

© IBE

© IBE

Supporting employees who “speak

up”

IBE research has found that one in fouremployees are aware of misconduct in their organisation, but only about half of those report it

© IBE

© IBE

The IBE Framework for Ethical Assurance

Using staff surveys

To assess aspects of ethical culture, such as:

Company values

Internal policies

External relationships

Awareness

Experience

Sensitivity

Confidence

© IBE

www.investinginintegrity.org.uk

http://www.investinginintegrity.org.uk/

© IBESource: 2011 National Business Ethics Survey, Ethics Resource Centre (2012)

Why boards need to know that their

organisation is living up to its values

Good Leadership – tone at the top, competency

Business survival – internal controls, reputation, strengths

and weaknesses, scrutiny of investors, market opportunities

Good Governance – guidelines require boards to meet

their obligations

Disclosure trends – CR reporting, SEE risks in to Annual

Reports

Legislation - UK Companies Act, UK Bribery Act.

© IBE

3. Why it matters?

© IBE

The growing business....

The public view

Trust me....

Show me....

Involve me....

Prove to me....

Obey me.....

© IBE68

© IBE

Organisation

employees

shareholders

NGOs media

suppliers

communities customers

stakeholders

interested parties

competitors

Who is interested?

regulators

© IBE

London Whale scandal to cost JP Morgan

$920m in penalties

Bring more women on board or we’ll vote you off

ICAP fined £55m over

Libor rigging scandal

Bangladesh clothing workers still

exploited

www.ibe.org.uk/businessethicsnews.asp

Banks Should Tie

Compensation To Compliance

Summary

© IBE

....doing business ethically

makes for better business….

Business Ethics

Values

Ethics Culture

Conduct

Risk

© IBE

Trust &

reputation

&

Financial

performance

Any questions?

www.ibe.org.uk

[email protected]

© IBE

http://www.ibe.org.uk/

mailto:[email protected]



environment

#icsaisleofman14

© Anna Bateson @ Cutting Through The Grey

Developing your Board to

deliver good governance

Anna Bateson

Cutting Through The Grey

July 2014

© 2014 Grant Thornton Ltd. All rights reserved.

Matthew ParkerSenior Manager

Cyber Crime – Managing the threat


Why is Cyber Crime Successful?

Sometimes the simplest thing can let you down

The human element is usually the weakest link

You can make something idiot proof – but they will come along and make a better idiot!


What’s the connection?


Security goes down the pan…


eHarmony

Online dating website

Members in more than 150 countries

Adobe Systems

Software Company

More than 2.9 million customers

Target

2nd largest discount retailer in US

Experienced 46% drop in profits following breach

So many security incidents


Hacktivism


* Source Krebs Online

Why would anyone want to hack me?


We are doing it to ourselves!*

* Source www.theregister.co.uk


The regulators are taking notice as well!*

* Source www.theregister.co.uk


What do we share online?People frequently reveal:

Email addressesPhone numbersHome addressesBirth dates and other pieces of private data including when they will be away on holiday!

Some of this information is often used as passwords or as answers to secret security questions.

Criminals know this!


Social Engineering

Hack the Human

Much easier than trying to hack a computer

Use persuasion and pressure

Can facilitate other attacks e.g. obtaining names and phone

numbers etc


Phishing


Convinced?


Is it any wonder Cyber Crime is on the rise?

Black Market prices *

Credit card details $2-$90

Bank credentials from $80 to

$700 (with guaranteed balance)

* panda security report -

the cyber-crime black market: uncovered


40 million credit cards stolen

Spear-Phishing Email

Hacked PC

Install Software on Target Store PCs

3rd Party Service Provider

Putting it all together - Target


Password Cracking


eHarmony

Over 1.5m

encrypted

passwords leaked

Password cracking – why pay?


Password cracking demonstration


We are creatures of habitStudy of leaked passwords*Over 17,000 passwords in a matter

of seconds!

I could crack over 255k passwords in about 8 minutes

How many passwords do I actually need?

1. 1234562. password

3. 12345678

4. qwerty

5. abc123

6. 123456789

7. 111111

8. 1234567

9. iloveyou

10. adobe123

*Source: SplashData


Question what you see


Cryptolocker


Mobile Devices

Phones/Tablets

- Password/PIN

- Secure Erase

- Sandboxing corporate data

Memory Sticks

- Encryption

Wifi Networks – can you trust them?


Simple steps can go a long way…

Consider a framework of controls e.g. ISO27001

Encrypt and prevent removable devices

Restrict access to systems – segregation of duties?

Use good passwords and don’t share them across systems

Be aware of what you share and with whom – 3rd parties

Security awareness across the organisation – tone at the top


For further information

contact:

[email protected]




environment

#icsaisleofman14

© Boardelta 2014 101

15 July 2014

ICSA Isle Of Man Conference:

The cost of poor governance

Patrick Dunne

[email protected]

@patrickedunne

© Boardelta 2014


Welcome

Tax: is it a governance issue?

HMRC approach to compliance & enquiries

ICSA Isle of Man Corporate Governance Conference 2014

Tuesday 15 July 2014

Andrew Walker & Roy Baldwin, Partners, Manchester office

Disclaimer

This seminar is of a general nature and is not a substitute for

professional advice. No responsibility can be accepted for the

consequences of any action taken or refrained from as a result of

what is said

.

Who we are …

Andrew Walker, Partner, Manchester office

Tel: 0161 871 6614

Mob: 07730 733801

Email: [email protected]

Roy Baldwin, Partner, Manchester office

Tel: 0161 871 6615

Mob: 07500 972 807


The Aim

• To update and inform on the latest HMRC compliance approach

• Specifically looking at HMRC’s approach to enquiries and penalties

• Consider the changing environment in relation to the offshore arena and information exchange

• Understand the Connect system

Update on HMRC

• Shrinking department / higher compliance targets

• Economic and budgetary challenges

• Public perception

• Tax Gap

• Avoidance/Evasion - “morally repugnant”

• Focus on “Behavioural change”

Update on HMRC

Business reorganisation

(HNWI, SI, International,

Insolvency)

New Compliance

Regime

Sch. 36 FA 2008

New Penalty Regime

Sch 24 FA 2007

Alternative Dispute

Resolution

Managing deliberate tax

defaulters

Campaigns & Disclosure

Facilities

ATED

&

(CGT on non residents)

Contractual Disclosure

Facility (CDF)

Complex

Avoidance

Directorate

Increased Criminal

Investigations

Offshore and Exchange

of Information

CONNECT

Naming and Shaming

(Offshore related

criminal offence)

(Accelerated payments

& follower notices)

A new approach to compliance?

• Encourage disclosure

• Reward voluntary disclosure

• Simplified disclosure opportunities/campaigns

• Hit non compliant hard

• Via managing deliberate defaulters – enforce new behaviour

• Alternative Dispute Resolution

A new approach to Avoidance?

• Complex Avoidance Directorate (CAD)

– 600 plus staff

– All marketed avoidance

– Central, coordination unit for tax schemes

• Accelerated payments & follower notices

• Avoidance settlement opportunities

• Litigation (head also chairs anti avoidance board)

A new approach to Criminal?

Criminal Investigations

• Increased Numbers

• Types of cases

– Evasion

– Avoidance cases

• Proposed new criminal offence related to offshore bank accounts –some background

A new approach to penalties?

Penalties (not one, not two, but three regimes)

Old rules - 2007/08

Mitigation Disclosure 20/30%Cooperation 40%Seriousness 40%

New rules 2008-09 onwards for UK

Behavioural based

ErrorFailure to take reasonable careDeliberate Deliberate with concealment

0%0,15, 30%20, 35, 70%30, 50, 100%

Reminder – new assessing time limits Issues2011/12 onwards – offshore penalties• Inaccuracies and failures• Income/corporation tax• Dependent on offshore centre involved

• Error• Failure to take reasonable care• Deliberate

4 yrs6 yrs20 yrs

Category 123

100%150%200%

GuernseyThe restPanama

And more to come, an update

Engaging with clients directly

• Schedule 36 – write direct to client

• Simplified disclosure programs

• Direct mailings

– Swiss bank account campaign

– Tax avoidance strategy

– Tax rate letters

• SA digitalisation

• HMRC wants to engage more directly with taxpayers

A new approach to Offshore?

Why is dealing with offshore now so important?

• Criminal offence plans

• Beneficial terms of facilities

• From 2016 onwards HMRC will have access to:

– Details of offshore bank account holders via extensive exchange agreements

– Facilities expire

– 3 years preparing teams, information processing and plans

– No sympathy if disclosure opportunity not taken

HMRC 2013 Offshore evasion strategy

International action Effective data use Operational excellence

Increase offshore analytical resource

and data mining capabilities

Behaviour change campaigns using offshore data sources

Take action to address gaps and weaknesses in offshore powers and penalties

Offshore evasion managed through Managing Deliberate Defaulters programme and Sustaining Offshore Voluntary Compliance programme

Review of offshore powers and

sanctions

HMRC access to new data, including Merchant Acquirers data and five new categories of direct tax data under the EU Administrative

Cooperation Directive

HMRC investigations to follow up Crown Dependencies disclosure

facility

Development of offshore evidence base, including refinement of estimates and research into high risk jurisdictions and behaviours Building initial offshore

evidence base

Swiss agreement in force - upfront payment of £342 million in 2013 and withholding tax on UK taxable income and gains in Swiss accounts

Review of offshore information

UK seeks to negotiate further automatic information exchange agreements with those jurisdictions identified as high risk

Automatic exchange of information with the USA and Crown Dependencies leading to more offshore data

Identify international best practice and explore opportunities for more multilateral operational partnerships

UK G8 Presidency lead

on tax evasion

Liechtenstein Disclosure Facility - opportunity to clean up past tax affairs

UK and CDs

AgreementCrown Dependencies (CD) disclosure facilities - opportunity to clean up tax affairs

2013 2015 2016 2017 2017 and beyond2014

Exchange agreements

Background

Intergovernmental Agreements

‘Son of FATCA’

Foreign Account Tax Compliance Act

Exchange agreements

Reciprocal agreements

Jersey

Guernsey

Isle of Man

Gibraltar

Exchange agreements

Key dates

Due diligence required

Points of interest

A large amount of information will be provided so how will HMRC sort and risk assess it?

Impact on UK residents – how does it fit together

Offshore

Coordination

Unit

Connect IT

system

Tax

investigations

cases – offshore

evasion

Offshore

centre of

excellence

Data sources

• ESD

• Offshore trusts

• Company ownership

property

• Tax paid/unpaid

• Crown dependency

• FATCA

• Stolen bank info

• Foreign info exchange

• Property (UK and

offshore) etc

• Improve legal powers

• Improve international

cooperation

• Improve specialist

knowledge

• External experts

Internet data

• Analytical tools

• Web robot spider

1. Criminal tax

investigations

• Publicity

• Behavioural change

2. Suspected tax fraud

enquiry (CDF)

3. Nudge letters

4. Local compliance

enquiries

Disclosure facilities

and campaigns

• Lower penalties

• Avoid criminal

prosecution

• Low cost - HMRC

1, 2, 3

• Inc penalty

• Name & shame

• Managing deliberate

defaulters

• High cost to HMRC

Output

OR

‘Connect’

Military grade software

Proven in trials

No expense spared!

Sources of information

Risk assessments

Can suggest compliance focus

Any Questions?

Andrew Walker, Partner, Manchester office

Tel: 0161 871 6614

Mob: 07730 733801


Roy Baldwin, Partner, Manchester office

Tel: 0161 871 6615

Mob: 07500 972 807


These notes have been produced for the guidance of delegates at the conference for which they were prepared and are not a substitute for detailed professional advice. No responsibility can be accepted for the

consequences of any action taken or refrained from as a result of these notes or the talk for which they were prepared.

© Copyright Smith & Williamson Holdings Ltd 2014

Smith & Williamson LLP

Regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business

activities. A member of Nexia International

The word partner is used to refer to a member of Smith & Williamson LLP

Vantage Point, Hardman Street,Spinningfields

Manchester, M3 3HF

Tel: 0161 871 6600 Fax: 0161 871 6601

www.smith.williamson.co.uk/manchester



environment

#icsaisleofman14

Is the IoM top of the governance league?

Simon Osborne FCIS,

Chief Executive, ICSA

Phillip Dearden,

Director, Equiom Solutions Ltd

Paul de Weerd ACIS,

Deputy Director, Financial Supervision Commission

Sinead O'Connor,

Head of Regulatory & Compliance Services,

Dougherty Quinn #icsaisleofman14

Governance in the Boardroom

An Inside View

Sharon ConstanҫonCEO

07773 777 [email protected]


• So what does corporate governance look like

from the perspective of the board?

• What appetite is there to take on the

challenges it poses?

• What changes in behaviour are being seen

• Where are further changes needed?

Summary

126

Governance - Perceived Perfection

127

Governance – witnessed behaviour

128

Challenges

129

People

130

Personal Agendas

131

Noses in – fingers out

132

Lack of independent thought

133

Everyone knows – no-one discusses

134

Teamwork

135

Leadership

136

Risk and Reputation

137

Role of the Company Secretary

138

• So what does corporate governance look like

from the perspective of the board?

• What appetite is there to take on the

challenges it poses?

• What changes in behaviour are being seen

• Where are further changes needed?

Summary

139

Engage rational thinking

Better articulation of the business case for best practice corporate governance,

and more

focus on directors’ responsibilities and potential liabilities,

should incentivise directorsto exhibit appropriate boardroom behaviours.

ICSA: 2009Boardroom Behaviours

140



environment

#icsaisleofman14

Leadership & Management

The ICSA Isle of Man Corporate Governance Conference 2014 Presentations