Bermuda’s efforts to establish itself as a global leader in Islamic finance is now an economic priority for the island.
And on the eve of this month’s 18th Annual World Islamic Banking Conference in Bahrain, international Bermuda law firm Conyers, Dill & Pearman has been reminding potential clients in the Muslim world why the island’s infratstructure and regulatory regimes are conducive to Shariah-compliant financial practices.
Currently, global Islamic finance assets are estimated at $1 trillion and are expected to rise to $4 trillion in the near future.
In recent months Bermuda has been actively promoting itself as an off-shore centre for Islamic finance. Leading re/insurance trade journal “Reactions” said the island’s special focus on takafal and re/takafal was a “clever play” on the island’s part.
This week Conyers — a Bermuda pioneer in Shariah-compliant business — has been recirculating its lawyer Fawaz Elmaki’s briefing paper on the island’s potential as an off-shore Islamic finance hub, originally published earlier this year.
The law firm’s Islamic finance specialists, including Arabic speakers, are considered leaders in the offshore legal profession. They have a detailed understanding of the Shariah and issues governing Islamic finance as applied to international structures, providing advice on the laws of Bermuda, the Cayman Islands, British Virgin Islands and Mauritius.
Conyers has experts in all corporate and commercial practice areas, providing Shariah-compliant advice in asset finance, aviation, banking, corporate, investment funds, real estate, regulatory, and structured finance.
Mr. Elmaki’s paper on Bermuda and Islamic finance appears in full below:
Islamic finance has significantly surpassed its niche industry status to become a growing component of the international financial system.
As is the case for conventional finance transactions, investors, businesses and bankers involved in Islamic finance transactions seek jurisdictions which offer modern and effective legal regimes, tax neutrality, an independent location for international investors, accessible and pragmatic regulators and sophisticated service providers that are
responsive, timely and thorough.
As Islamic finance has grown over recent years and new structures have developed, offshore service providers have developed useful and efficient tools to facilitate Islamic finance transactions. In particular, companies, partnerships and trusts established in Bermuda have become commonplace in Islamic finance. Bermuda’s strength and its growing popularity in Islamic finance may be attributed to a number of factors.
Sound Legal Framework
Bermuda is an internally self‐governing British Territory and offers all the security and stability traditionally associated with the British flag.
It enjoys an independent legal and judicial system based on English common law, with a right of final appeal to the Privy Council of the House of Lords in England.
While Bermudaʹs corporate law is largely based upon the corporate law of the United Kingdom, it also includes provisions that are derived from other commonwealth jurisdictions or that are unique to Bermuda. The key corporate legislation, the Companies Act 1981, is amended regularly to keep pace with international commercial developments.
Established under the Bermuda Monetary Authority Act 1969, the Bermuda Monetary Authority (the “BMA”) supervises, regulates and inspects financial institutions operating in or from within the jurisdiction.
It also issues Bermuda’s national currency, manages exchange control transactions, assists other authorities in
Bermuda with the detection and prevention of financial crime and advises the Bermuda Government and public bodies on banking and other financial and monetary matters.
The BMA must approve the incorporation of all Bermuda exempted companies, and ensures that persons proposing to hold interests in Bermuda entities are persons of sound business integrity, thereby maintaining Bermuda’s reputation within the international financial community.
The BMA is a full member of IOSCO, and refers to the core principles issued by IOSCO (deemed to be universal standards of conduct within the investment business industry) as a guideline for the development, review and monitoring of the BMA’s investment business policies.
Along with IOSCO, the BMA works closely with the Ministry of Finance for the continuous evolution of regulations adopted to meet the ever‐changing nature of today’s business world. In order to ensure the highest standards
are upheld, the BMA liaises closely with other regulators, both domestically and internationally, to provide the most effective consolidated supervision, in relation to entities for which the BMA acts as the consolidated group wide supervisor. Bermuda’s effective regulatory framework has allowed Bermuda to become a trusted jurisdiction for Islamic finance including structured finance transactions (such as sukuk and wakala) and Shariah compliant funds (including musharaka).
Centre of Excellence
One of the principal attractions of Bermuda is its established reputation. It has long been an established financial centre, having sanctioned its first “exempted company” in the 1930s, and now boasts a client base that includes a majority of Fortune 500 companies.
Bermuda is an open, free‐market, tax neutral economy which caters to a global client base, serviced by highly qualified, sophisticated professionals. It is a centre of excellence for insurance and reinsurance business, investment fund formation and aircraft and shipping registration and financing with a large infrastructure of professional legal, accounting, audit, administration and fiduciary expertise.
In addition, debt and equity securities issued by Bermuda companies are listed on leading stock exchanges around the world, including the London Stock Exchange, the New York Stock Exchange, NASDAQ and the Hong Kong Stock Exchange. Bermuda’s expertise and experience in these conventional spheres of international business is an added value for Islamic finance transactions. For example, Bermuda has become one of the primary jurisdictions for sukuk issuances backed by aircraft due to its leading position as the offshore domicile of choice for aircraft registration and finance, as well as stock exchange listings and public offerings.
Generally, Bermuda’s popularity as a domicile for sukuk issuers is increasing, and this was highlighted in Q4 2009 by the GE sukuk, the first ever sukuk to be issued by a Fortune 500 company. The GE sukuk was acclaimed as the “Sukuk Deal of the Year” for 2009 by Islamic Finance News as Bermuda is also positioned to play a key role in the rapidly growing Islamic insurance, or takaful, industry.
Bermuda authorities welcome, and indeed encourage, the development of takaful. By tapping into Bermuda’s resources and insurance structures, takaful and retakaful operators should be able to leverage access to capital as well as systems,
products and expertise.
Bermuda’s reputation as one of the more regulated offshore fund domiciles is also attracting managers looking to domicile their Shariah compliant funds in jurisdictions which offer greater oversight.
Internationally Recognised Standards of Transparency
Bermuda is on the OECD’s “White List” and has signed tax information exchange agreements with all G7 countries and with more than a dozen other countries including India and China, and has recently entered into a double taxation
agreement with Bahrain.
Bermuda is proud to have been chosen to host the 2011 Annual Meeting of the OECD “Global Forum on Transparency and Exchange of Information for Tax Purposes” and is the only non‐OECD and non‐G20 country that is vice chair at the Steering Group level of the Global Forum.
In the OECD’s report issued in Q4 2010, Bermuda was one of just two countries of the first eight to be
assessed by the OECD adjudged to have ʺall elements in placeʺ in its legal and regulatory infrastructure to achieve international tax transparency standards.
Bermuda is also a member of the Caribbean Financial Action Task Force [CFATF], an associate member of the Financial Action Task Force [FATF]. The Bermuda government supports the work of the FATF and has demonstrated a strong
commitment, via its membership in CFATF, to helping the organization carry out its mandate.
Indeed, Bermuda’s anti‐money laundering and anti‐terrorism financing framework ensures a continued high level of compliance with international standards, and in particular with certain important requirements contained in the
FATF “40+9 Recommendations”. It also should be noted that Bermuda was placed in the “lowest risk” category of jurisdictions in the 2010 report on Money Laundering and Financial Crimes issued by the United States State Department.
Bermuda is committed to attracting international business by offering political and economic stability, a legal system based on common law, an abundance of professional service providers and an efficient regulatory framework of the
investment and banking industry that provides transparency and disclosure.
Coupled with Bermuda’s interest in opening up to Islamic capital markets, these factors allow Bermuda to provide a unique opportunity for the Islamic finance industry and vice versa.
Conyers Dill & Pearman advises on the laws of Bermuda, British Virgin Islands, Cayman Islands, Cyprus and Mauritius. Conyers’ lawyers specialise in company and commercial law, commercial litigation and private client matters. Conyers’ structure, culture and expertise enable responsive, timely and thorough service. Conyers provides clients with the highest quality legal advice from strategic global locations including offices in the world’s leading financial centres in Europe, Asia, the Middle East and South America.
Founded in Bermuda in 1928, Conyers comprises 600 staff including more than 150 lawyers.