Dispatch (Asia version)
| by Nazatul Izma Abdullah and Peta Tomlinson 20 Jul 2006 Topic: News |
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accountants count the cost of AML reforms Australia is cracking down on global money laundering and terrorist financing, planning tough new legislation. The proposed reforms, aimed at strengthening the existing regulatory framework, will ensure Australia’s system reflects international best practice. At the same time, they will impose much greater compliance burdens on a wide range of companies. “The single most important feature of the proposed reforms is the dramatic increase in the number of persons who will be required to comply with the enhanced monitoring and reporting regime,” said Peter Jones, a partner at Allens Arthur Robinson in Sydney. The relatively narrow operation of the current anti-money laundering (AML) and counter-terrorism financing (CTF) legislation, the Financial Transactions Reports Act (FTRA), has meant that only sophisticated financial institutions have been required to comply so far. The Government has flagged its intention to extend the reach of AML regulation to a much wider range of large organisations, and to all small and medium-sized enterprises involved in the provision of financial services. Eventually, it is expected that accountants, lawyers, real estate agents and jewellers will also be regulated. For those already regulated by the FTRA, the key features of the proposals are the much more onerous customer identification requirements, and the need for a comprehensive AML/CTF compliance programme. Jones said Australia “is generally moving in the right direction” with the proposals, which are expected to be watered down following concerns from industry about the costs of compliance and additional liability on regulated entities. A key issue for accountants and financial advisers, Jones said, is the extent to which such professionals may rely on customer identification procedures carried out by unrelated third parties (such as banks), and whether the Federal Government would support verification of identity through access to government databases. “Currently it would be necessary for accountants/financial advisers to specifically appoint other regulated entities as their ‘external agents’ in order to be able to rely upon identity verification carried out by those entities. It is also unlikely that reliance will be able to be placed on a centralised database maintained by the Government.” The obvious consequence of the expected, more onerous, customer identification procedures is that loyal customers become more valuable, Jones said. “In that way the significant costs of establishing the necessary customer identification systems and procedures can be defrayed over a period of time.” liberalising cross-border listings The Securities Commission (SC) announced new measures, effective 22 June, to facilitate cross-border listings and liberalise the Malaysian capital market. Accordingly, large foreign-owned corporations with operations outside Malaysia can now seek primary or secondary listings on the Main Board of Bursa Malaysia, the local bourse. “The liberalisation would enhance diversity of offerings and would promote cross-border linkages with other markets through dual-listings,” said SC chairman, Dato’ Zarinah Anwar. The invitation is open to large and profitable foreign-owned corporations from jurisdictions with comparable laws with Malaysia. The rules have also been relaxed for eligible Malaysian-owned corporations with foreign-based operations, which now enjoy the flexibility to seek listing without having to comply with a minimum ownership period as stipulated previously. “Not only would this relaxation encourage more Malaysian-owned corporations which are successful overseas to seek listing back home, it would also support cross-border mergers and acquisitions by domestic companies and investors,” explained Dato’ Zarinah. In addition, healthy Malaysian companies listed on the Main Board of Bursa Malaysia can seek secondary listings on foreign stock exchanges which are members of the World Federation of Exchanges with a view to attaining international recognition. Ultimately, the SC envisages that the liberalisation would heighten the integration of the Malaysian capital market internationally and expand the pool of high quality stocks on Bursa Malaysia and the range of investment opportunities for investors. Analysts anticipate that Bursa might become a first choice for resource-based companies, especially those operating in plantations and oil and gas, key sectors in resource-rich Malaysia. lifestyle the “next big thing” for China Rice bowls were replaced by Cuban cigars, private-collection cognacs and French cuisine at Shanghai Extravaganza 2006, held in early June and billed as the ultimate luxury lifestyle show. And posh nosh was merely the lower end of the scale. If you happened to be in the market for a private jet, super-yacht, palatial property or special-order limousine, you were in the right place. Indicative of an insatiable appetite for all things expensive among China’s nouveau riche, the event showcased a decadence that would have been unthinkable just a generation ago. Anticipating the trend, all of the world’s top luxury brands have rushed to go east and establish a presence in China. Yet, according to Goldman Sachs Global Investment Research, the hype is, if anything, underestimated. It says China is now the third-biggest consumer of luxury goods, accounting for 12% of sales worldwide - up from 1% just five years ago. If the high living continues, Goldman Sachs says, China will surpass Japan to become the world’s second largest purchaser of luxury goods by 2015, when it could account for 29% of the world’s luxury sales. The international market research company Ipsos Group agrees with these bullish predictions. Paris-based Ipsos, which has set up a luxury division in Hong Kong, says high-end clothes and jewellery are just part of the emerging China story. While wearing a logo is de rigueur right now, the problem is that so many others are wearing them too. In new-money China, the era of conspicuous consumption demands more. “The problem is that luxury is becoming more and more accessible,” said Steven Altman, Ipsos’ Asia Pacific head of luxury. “A lot more people have Gucci, a lot more have Chanel. In the cash-rich Chinese society, I think the new market will be very much geared towards elitism - hiring private jets, or taking a chauffeured Bentley to the airport. There is a strong demand for super-luxury, which is inaccessible to most.” Altman sees lifestyle as the next big thing in China, with luxury extending to glitzy homes, expensive vacations and flash cars. But this conspicuous show of materialism will be finite, he predicts. As Chinese society evolves to become more comfortable with its own success, people’s desire to flaunt their wealth will be as stale as last season’s handbag. US-Malaysia FTA - fate unclear? Opaque government procurement processes could stalemate ongoing US-Malaysia FTA (USMFTA) negotiations, which began its first round of talks on 12 June. Although the US is eager to conclude the FTA by its 1 July 2007 deadline, Malaysia has signaled that it will not sign an FTA if it had to compromise its sovereign rights and interests. Minister of International Trade and Industry, Datuk Seri Rafidah Aziz, reportedly said the decision to sign or not to sign the FTA depended on whether the benefits outweighed the costs. “If we can’t reach an agreement, then goodbye,” quoted local media. Government procurement is anticipated to be a sensitive area, along with competition policy and transparency. Malaysia practices affirmative action, whereby policies are designed to upgrade Bumiputera equity; Bumiputeras, especially ethnic Malays, form the majority of the population. Government contracts are usually awarded to Bumiputera-owned companies as a means of distributing wealth more equitably to Bumiputeras. As an advocate of US interests, the American Malaysian Chamber of Commerce (AMCHAM) is calling for greater transparency in procurement. It recommends that the Malaysian Government “[establishes] clear guidelines in the government tendering process, and… [allows] foreign and local companies to bid directly for government projects”. Ultimately, AMCHAM believes that the USMFTA will help ensure that both Malaysian and American companies can compete fairly for the procurement of government contracts. An FTA would presumably be a win-win situation, since there should be reciprocal freedom to penetrate the lucrative US Government procurement market. “The US Federal Government is one of the world’s largest single procurement entities, purchasing more than RM720bn (US$200bn) in goods and services every year. Opening up government procurement would not only benefit American companies seeking to supply world-class products and services to the Malaysian Government, but also Malaysian firms wanting to sell into the US Government’s procurement channels,” said Vince Leusner, AMCHAM’s President. After banning casinos for four decades, Singapore is gambling that two integrated resorts (IR) incorporating casinos will reinvent the staid city-state as a top destination for business, entertainment and leisure. Targeted for completion by 2009, the IRs will take shape at downtown Marina Bay and Sentosa. In May, Las Vegas Sands Corp (LVSC) outbid CapitaLand Ltd and MGM Mirage, Keppel Land and Harrah’s Entertainment, and Malaysia’s Genting International and Star Cruises for the right to develop the first IR at Marina Bay. LVSC proposed the highest investment spend of S$3.85bn, which, coupled with the land cost of S$1.2bn, will push the IR’s total costs beyond S$5bn. Although the casino is the cynosure, total gambling space is capped at 15,000 square metres. Instead, Marina Bay Sands is positioned as a leading meetings destination with a total meetings, incentives, conventions and exhibitions (MICE) gross floor area of 110,390 square metres, including a massive convention centre and over 300 meeting rooms capable of accommodating 52,000 people. Other highlights include hotels, theatres, an arts science museum and an ice-skating rink. Building IRs featuring casinos make economic sense: Marina Bay Sands is expected to stimulate Singapore’s annual GDP by an additional S$1.7bn, or about 0.8%, and generate 30,000 jobs by 2015. Understandably, the casinos face strident opposition from religious councils and other quarters that fear a rise in gambling addicts, especially after a 2005 government survey revealed that 55,000 people are potential gambling addicts. To minimise the criminal and social impact of gambling, the Singapore Government has created a national framework to manage gambling, which includes a Casino Control Bill and the appointment of a National Council on Problem Gambling in August 2005. Comprehensive measures will be implemented to deter locals from the casinos, such as charging them high entrance fees, banning gamblers in financial distress or on welfare, and disallowing credit for Singaporeans. “Shared service centres (SSCs) are here to stay,” Deloitte announced in 2003, following a global survey. Today’s figures point to an even stronger conclusion, the firm says. Given the demands of Sarbanes-Oxley compliance, shared services will become “a crucial value driver far beyond the original purpose of reducing administrative costs”. Particularly in Asia, the key growth market of the world, shared treasury is increasingly attractive. SSCs provide companies with not only economies of scale, but a controllable environment in which to analyse and revamp business processes. They offer greater control and transparency in a complex marketplace with which the company itself may not be familiar. And they bring added confidence to an environment where multiple systems, processes and procedures, legal structures and/or mergers and acquisitions - sometimes within the one country - add to the complexity of doing business. Traditionally in Asia, Singapore and Hong Kong have been the countries of choice for companies looking to standardise their processes in the region. However, Anthony Lloyd and David Cox of MinterEllison have identified a trend towards setting up SSCs in China. In some cases, they say, back-office or help desk functions have been transferred from Hong Kong to the mainland. In other cases, companies seeking to streamline their China operations have set up an SSC there. Indian outsourcing companies are also showing an interest in combining their operational expertise with the Asian language skills available in China. However, the partners point out that due to government restrictions, where companies may only operate within the defined scope of their licence, setting up an SSC in China is not as straightforward as in other countries. “Chinese authorities can shut down a company’s operations with little or no warning if they discover that it is acting beyond its scope of business,” the partners say. “This is a critical factor to consider in the context of shared service centre continuity planning.” It is often easier to establish a new company to be the SSC rather than try to convert an existing company, they say. Converting a manufacturing enterprise into a consulting and service company may also lead to the loss of valuable tax benefits. MinterEllison’s advice is to set up the SSC as a new company, ensuring that the business licence covers all of the areas that the SSC is intended to provide. “You should ensure that the scope of business covers the whole range of proposed services, even if you intend to start with only a few of them. It is also a good idea to review the company’s scope of business as part of the change management process when relocating further services to the shared service centre. This will help avoid the company accidentally acting outside its business scope as its business changes over time.” in brief...
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