UK law firm Speechly Bircham opened a Zürich office in June 2011, marking the firm’s first venture overseas. Private client partner Mark Summers was relocated to Switzerland to head the new operation alongside two associates, with fellow partner William Hancock joining him at the start of 2012.
Speechly’s Zürich offering is further bolstered by international private client head Charles Gothard, who spends one week each month in the city, and financial services partners Jonathan Bayliss and Kate Troup, who are both in Zürich for two or three days each month.
Farrer & Co, another UK law firm, also chose to open a Zürich branch in June 2011. Private client partner Nick Dunnell and tax head Robert Field are spearheading the initiative, which involves regular visits to the firm’s serviced office.
These arrivals are further proof that private client work remains vital for lawyers in Switzerland, buoyed by the continuing flow of well-qualified and well-paid foreigners to the country to work for corporations. Although Geneva is traditionally seen as the Swiss centre for private client work – Charles Russell has been in Geneva since 2006 – Speechly and Farrer establishing themselves on Switzerland’s German-speaking side is evidence of Zürich’s growing profile for private client and wealth management matters.
Ground presence
Speechly had already been working extensively in Switzerland for several years, both on the private client side for wealthy international families and on wealth management matters for Swiss banks and bankers. This was stepped up heavily about five years ago.
‘We got to the point where we needed to show our commitment to the market,’ says Summers.
’Zurich has begun to catch up with Geneva’s dominance of the wealth management sector.’ Michael Walther, GHR Rechtsanwälte
When Speechly got the green light from its private banking and other contacts in Zürich that its presence would be very much welcome – and that it would be more likely to win significant work – the firm jumped.
But the decision was not taken lightly. Finding lawyers with the right experience and seniority who want to relocate to Switzerland can be difficult. ‘We’re financially a conservatively managed firm, so we thought very hard about this before making the leap,’ says Summers. ‘It’s a big cost, and it needed a partner to relocate on a permanent basis in order to make it work.’
Furthermore, the expense of both premises and people have been made worse by the exchange rate, according to Henry Fea, head of Charles Russell’s Geneva office, with costs increasing by around 70% over the last four years.
Speechly was not interested in flying partners in and out to a temporary office. Summers believes that it would have sent the wrong message to the market, based on what bankers and others on the ground told the firm. Fea also believes greatly in the importance of a local presence, particularly because tax work currently makes up a significant part of the firm’s practice in Geneva. ‘Clients instruct us because we are in Switzerland, we can attend meetings with them and their bankers here at short notice,’ he says.
The timing of Speechly’s launch in Zürich coincided not only with the opening of its Luxembourg office in the same month, but also with the announcement of the UK/Swiss tax agreement (see box, ‘Carrot and stick’, page 112), which has fed the firm with regular instructions from UK citizens opting to disclose their Swiss accounts to the UK tax authorities. Because the agreement smoked out so many tax evaders, disclosure is the number one issue for several Swiss private bankers with UK clients right now.
Disclosure work was not the reason Speechly’s office opened, but the timing was helpful. Summers has seen a significant increase in disclosure request work from Swiss private bankers with UK clients. He believes such work is likely to tail off towards the middle of 2013, but the firm is making efforts to retain several of those clients. Because many of them are often used to dealing with their personal tax matters clandestinely, Speechly can help them understand that they can save tax and pass wealth safely down the generations through appropriate structures without evading tax.
Inroads into bank secrecy are also presenting new opportunities for trust management services companies such as Investec Trust Switzerland, whose business model is built on the administration of tax-compliant wealth. It is speaking to an increasing number of families and their advisers about creating structures to hold wealth in a compliant way, while retaining high levels of financial privacy. Geneva-based managing director Paul Douglas says: ‘Historically, we would not have pursued discussions with a non-compliant settlor or beneficiary, whereas we could consider doing so now provided that the individual adheres to the agreement.’
What initially drove Farrer’s decision to focus on Zürich was the strength of the firm’s existing client relationships and the need to service them, while strengthening ties with local lawyers, banks and trust companies. ‘We perceive Zürich as the main centre for business and finance in Switzerland and it is also becoming more prominent in the private client arena,’ says Dunnell. ‘We considered that this played to one of our strengths, namely the breadth of the Farrer offering.’ But Farrer is not solely focused on Zürich. Dunnell sees significant opportunities in Geneva and partners spend time in both centres.
The firm took the deliberate decision not to open a permanent office in Switzerland but, instead, to have a serviced office from which it can work when in Zürich. Since opening, it has advised across areas that reflect the breadth of the London practice, including private client, notably property structuring, international succession planning and the Liechtenstein Disclosure Facility (LDF), trust disputes and investment funds.
International firms launching in Zürich are not necessarily opening their first and only Swiss outpost. Withers has been in Geneva since 2005, but in April 2011 it opened a Zürich office with lawyers providing US, UK, Russian and cross-border international tax and trust services. With Withers’ Russian and CIS clients placing more importance on structuring their personal wealth and making their corporate structures compliant internationally, Zürich-based partner Judith Ingham says that the arrival of Russian specialist Olga Boltenko in the summer of 2011 from Withers’ London office to Zürich means business is booming.
Some believe that the new entrants’ decision to choose Zürich over Geneva is testament not only to Zürich retaining its position as an important financial hub, but also shows that Zürich has been able to attract new wealth management providers. This is because today’s high-net-worth individuals require full banking services, believes Michael Walther, a partner at GHR Rechtsanwälte, which includes a combination of asset management, investment banking and wealth management. ‘Zürich has begun to catch up with Geneva’s dominance of the wealth management sector,’ he says.
’Domestic legal practices welcoming new entrants can only mean good news for Swiss law firms as it further exposes the country globally.’ Alexander Troller, Lalive
That said, Withers’ Geneva office is also growing. Jeff Morse joined Geneva in early February 2012 from Las Vegas firm Solomon Dwiggins & Freer, and the London office has beefed up the firm’s wider Swiss team with tax investigations expert Maurice Martin joining from Irwin Mitchell in December 2011. ‘Having Maurice based in London, but very much part of our Switzerland-focused team, will be extremely useful to clients in the UK that are coming forward voluntarily to the UK tax authorities,’ says Ingham.
Still dominant
Geneva has also attracted new entrants. Holman Fenwick Willan (HFW)’s Geneva office opened in October 2010, enhancing the capability of HFW’s trade and energy group to serve the needs of trading clients based in Geneva and elsewhere in Switzerland. The office is led by Jeremy Davies, who joined from Davies Johnson & Co – which had been in Geneva since January 2006 – together with associate Sarah Hunt and a trainee. London partners Chris Swart, Rory Gogarty, Brian Perrott and Damian Honey rotate through the office as they each have clients and significant amounts of Geneva work.
Explaining his decision to move his original Plymouth practice to Geneva, Davies says: ‘Geneva is the largest oil and commodities trading centre in the world; the largest grain and cotton market in the world; and the second largest for sugar after London. Friends and clients had been urging me to move my practice here for years, as no other international firm was practising trade and energy law in Geneva.’ It was good timing when, nearly five years later, Davies was looking to sell his business and HFW was determined to establish a Geneva presence.
Having integrated his practice with HFW’s, Davies appreciates being able to tap into the London office for expertise in areas such as soft commodities, where London is a better source for expertise. This has enabled the firm to expand the influence of the office hugely.
To date, HFW’s Geneva office has actively advised on piracy and sanctions issues, but opening during a global recession means it has also been busy with trading price fluctuations and the freight market downturn. ‘We’re essentially a litigation practice and litigators always do well from downturns,’ says Davies. The Geneva team has also enlarged its offering, with former Akin Gump Strauss Hauer & Feld international arbitration lawyer Matthew Parish recruited in late 2011 as a partner. ‘Matthew is a perfect fit as he also has a background in international trade law,’ says Davies.
Although Davies has met his initial expectations for the office, there is still work to be done. The Geneva branch is looking to expand further, on both the commodities side and international arbitration, and Davies believes that the Geneva office could still do better in harnessing the skills and experience of the London office in marketing Geneva.
Old guard
The international law firms already present in Switzerland are pleased to have company. ‘The more competition, the more likely we shall all improve our service levels and quality of advice,’ says Withers’ Ingham.
Commenting on Farrer’s arrival, Ingham does not think that the firm has yet affected the local legal services environment, but believes that it takes time. ‘We worked with Swiss contacts on the basis of regular visits for years before opening our offices here,’ she says.
As for Speechly’s Zürich office, Ingham says that it houses experienced practitioners and that, of the UK firms in Zürich, its skill sets most closely match Withers’ Zürich expertise on the UK side, despite Speechly’s team being small and without Withers’ US and Russian expertise. In response, Summers says that although Speechly’s Zürich office does not have US-qualified lawyers, both the Zürich and London offices carry out a great deal of cross-border work involving the US, on behalf of US family offices and wealthy individuals.
According to Dunnell, the local market has been very positive about Farrer’s increased presence in Zürich. Farrer does not see itself as competing with the local firms, as it
practises English law and UK tax services rather than Swiss law. The local Bar also welcomed HFW’s Geneva office, as it presents no direct challenge. Most traders tend to elect English law in their agreements and that is what HFW advises on. ‘However, in time it may become necessary to invest in Swiss law expertise,’ says Davies.
The domestic legal practices confirm their welcoming of the new entrants. ‘It can only mean good news for Swiss law firms as it further exposes the country globally,’ says Geneva-based Alexander Troller, a partner at Lalive. Meanwhile BCCC partner Dominique Christin, tells LB that his firm will happily collaborate with the UK practices when it needs UK law assistance.
Once the tax regularisation work is largely over in the next few years, the challenge for private client firms will be to fill that gap with remunerative work in other areas. For the moment, as far as the UK legal practices are concerned, Switzerland’s private client market is buoyant. ‘There seems to be work for all good law firms,’ says Dunnell. LB
Carrot and stick
The UK government plans to recoup millions of pounds of unpaid tax from UK residents with Swiss bank accounts. To encourage those who have until now been outside the UK tax net, the government needs to offer a genuinely attractive carrot, believes Henry Fea, Charles Russell’s Geneva head.
The Liechtenstein Disclosure Facility (LDF), introduced in 2009, was such a carrot. The LDF offers favourable terms to taxpayers with an offshore tax problem, or offshore disclosure to make. But in August 2011, the UK-Switzerland withholding tax agreement was announced. Geneva-based Paul Douglas, managing director of trust management services company, Investec Trust, believes that the agreement is a welcome addition to UK/Switzerland relations in that it enables affected individuals to maintain financial privacy while complying with their home state tax obligations.
From 2013, Swiss banks will be obliged to impose withholding taxes on past and future interest payments, as well as on capital payments to anonymous UK clients. UK resident clients will also have to make a one-off tax payment to HM Revenue & Customs to address their previous non-compliance. UK-resident clients can also opt to disclose their Swiss accounts to the UK tax authorities, therefore paying back taxes but avoiding the withholding levy.
Instead of waiting to see if a better deal is around the corner, many UK clients are relieved to have the Swiss/UK agreement to compare with the LDF. The question now is whether UK residents will wait for the agreement to become law or move their assets into Liechtenstein under the LDF.
The Swiss/UK agreement’s publication confirmed that in many cases the LDF would be a cheaper option. The LDF only requires payment to HMRC of the taxes due from 1999/2000 onwards and penalties are limited to 10% of unpaid taxes. ‘Most clients will prefer the LDF option because they can regularise their affairs immediately,’ says Zürich-based Judith Ingham, a partner at Withers.
Furthermore, the new agreement is not yet law. ‘Whether the EU will allow it in its present form is another matter,’ says Douglas. The EU Commission has declared itself against it, but the UK government appears intent upon pushing ahead with it anyway. It may form part of the UK’s 2012 Finance Bill.
Nonetheless, it will still be at least another year before taxpayers can practically put their affairs in order and achieve favourable settlements. Meanwhile, they may find themselves targeted by the UK tax office.