Who belongs to the offshore magic circle - assuming of course that such an elite exists? Grania Langdon-Down investigates


Is there a magic circle of offshore law firms? Wikipedia certainly seems to have one, and helpfully lists the firms its anonymous contributors think inhabit it.



The online encyclopaedia’s entry identifies ten firms as members of a putative offshore magic circle, including five with Jersey or Guernsey as their home jurisdictions – Mourant du Feu & Jeune, Ogier, Carey Olsen, Bedell Cristin and Ozannes. Two others – Appleby and Walkers, whose home jurisdictions are in Bermuda and Cayman respectively – have significant presences in Jersey after Appleby merged with Bailhache Labesse and Crills became part of Walkers.



The idea of an offshore magic circle divides opinion – ranging from the view that it offers an important cachet to downright queasiness. The principle criterion for inclusion appears to be firms operating in more than one offshore jurisdiction – which is ‘slightly ironic’, reads the online entry, given that Slaughter and May, with its single jurisdiction, is a leading member of the ‘real’ magic circle.



Comparisons between offshore law firms in terms of numbers and offices is complicated because they generally have administrative and fiduciary arms as part of their brand.



However, Mourant is one of the acknowledged leaders with a legal presence in Jersey, Guernsey, Cayman Islands – after merging with Cayman-based law firm and administration business Quin & Hampson last July – London and New York.



Mourant chairman Ian James says a firm should not be ruled out for not being multi- jurisdictional – it is the capability to handle the largest transactions that should be the criterion. Mourant values being considered part of a magic circle of firms. ‘Without that cachet and that belief in the firm among clients you could miss out on a lot of good work.’



Jonathan White is group chairman of Ogier which, ten years ago, was the first offshore firm to have a presence in both Jersey and Guernsey. It then merged with Boxalls in Cayman in 2003, and last year merged with WSmiths in the British Virgin Islands. He is less enthusiastic about the idea of an offshore magic circle.



‘It is not an expression I am keen on,’ he says, ‘because it can appear to be self-aggrandisement. But if by offshore magic circle you are saying there is a group of firms that are beginning to pull away from the others and create a dominant position in the international market, that is probably right.’



However, of the Channel Islands firms, he would only put Mourant and Ogier in the bracket: ‘When people talk about magic circle they mean those firms with a truly global offshore offering.’



But Richard Gerwat, managing partner of the Bedell Group, says: ‘It is important for people to understand why we are regarded as part of the magic circle, even though we may be half the size in numbers of Mourant and, so in that sense, we punch above our weight. But is it really important to clients? We are not great believers in “puff” but it helps show the depth of the perception of your brand when you move into other jurisdictions.



‘We know our place in the food chain,’ he adds, ‘but if offshore magic circle is a phrase that sticks, we want people to know we provide services alongside those other firms and are not in some secondary position.’



If the criterion is being multi-jurisdictional, Isle of Man firm Cains would not make the list, despite its reputation as a leading offshore player. But managing director Andrew Corlett says: ‘I feel a little bit queasy about the term. Even though the bigger offshore firms provide a good level of service and have international breadth, comparing an offshore firm with a Slaughter and May or a Clifford Chance doesn’t bear too much scrutiny.’



The last few years have seen a period of expansion and consolidation in the Jersey and Guernsey legal markets. News last year that Mourant and Walkers were in talks resulted in much speculation about the impact such an imposing firm could have on the legal market. But by February the talks were off.



Mourant’s James says: ‘It would have changed the face of the offshore world and presented a real threat to everyone else, but it just wasn’t the right time to do it.’



They are now focusing on consolidating existing offices for the next few months rather than looking at expanding on to greenfield sites.



White at Ogier says, strategically the Mourant and Walker plan was a good idea, because together they would have been a very powerful group. He never thought it was achievable, he says, ‘though had it happened, we would have been looking very closely at where we were going’.



He says Ogier’s current strategy is not expansionist in terms of their underlying offering. ‘But we do think that, geographically, we are weak in our coverage of the Middle East and we are actively looking at setting up in that region.’



Carey Olsen, which grew out of the merger of Guernsey firm Carey Langlois and Jersey firm Olsen in 2003, also wanted a presence in the Caribbean but chose not to achieve this by acquisition and merger. John Greenfield, managing partner of the Guernsey office, says: ‘We have achieved what we wanted through a “best friend” relationship with Cayman firm Maple and Calder, which sees us take over their Jersey office and their Jersey clients while we refer clients to them.’



It is not just the bigger firms that are looking outwards. Guernsey firm Collas Day is also out to make its first move off-island by opening a City of London office next month. Chris Bound, managing partner, says: ‘We have been steadily increasing the volume of work that we attract from City firms and recognise that it is desirable on practical and promotional grounds to have a presence in London.



‘We don’t consider that the current market for services makes this a bad time to open – quite the contrary. We have set ourselves some ambitious goals for the year ahead and this is just one step forward. Expect more.’



He says some offshore firms have become ‘supersized’ over the last five years. ‘But the benefits from having a presence in multiple jurisdictions have to be offset against the costs of consolidation and the strains of rapid expansion. There is clearly potential benefit from having a presence in emerging markets, but that is not the only way to benefit from the robust growth in those markets.’



Cains, which is focusing on the BRIC economies of Brazil, Russia, India and China, is opening an office in Singapore in July, while Bedells is also in expansionist mode.



However, Gerwat at Bedell Group says that firm’s business model is one of organic growth. ‘We buy services from the best of the breed in the relevant location. It is about critical mass. If we went to the Caymans and put one man on the ground, it wouldn’t enable us to roll out the depth of resources that clients expect from our brand.’



A constant theme for offshore jurisdictions is to make themselves as attractive as possible without upsetting the governments in onshore jurisdictions. European hostility to Jersey’s practice of offering non-resident companies a tax-free deal while island-based companies had to pay 20% tax has prompted the gradual introduction from this month of a ‘zero-10 regime’. This means all non-financial companies will be zero-rated, while financial services companies will be subject to a 10% corporate tax, down from 20%. ‘This will make Jersey even more attractive to new companies,’ says Alex Ohlsson, managing partner of Carey Olsen’s Jersey office.



Last month, Jersey introduced for the first time a 3% goods and services tax, the local equivalent of VAT. But it does not apply to financial services and, while law firms will have to charge it to their local clients, the tax will not apply to their work for non-Jersey clients.



Attention now is on the credit crunch and how the offshore firms will weather any economic downturn. White says he is ‘confident’ for the offshore centres. However, he does not think they will be recruiting as hard as last year. ‘When we were budgeting last year we set very aggressive growth terms, but I think those will be materially cut back. We will grow, but not at the same rate. I would be surprised if we achieved the double-digit growth we have been achieving annually for the last five years.’



James says there was a ‘quietening’ as far as new transactions were concerned in January and February, which was ‘troubling’. However, he adds: ‘There was always work going on in relation to existing transactions and restructuring. Being smaller than the onshore firms, we are better able to weather economic storms. But when London sneezes we all catch colds.’



Gerwat says there is no area for any firm that has not been affected in some way. But, he says: ‘So far it has been to create more work. On the one hand people are organising new transactions against a new background of more stringent credit underwriting conditions. On the other we are getting involved in dispute resolution work. We are small enough that we are nimble in directing people into other aspects of work. There is less out there than there was, but we are broadly diversified, so we believe we are in a good position to weather the storm, if there is one.’



It would be ludicrous to say there hasn’t been a change, says Ohlsson. ‘We have seen a different emphasis in the type of work we are receiving. There is substantially less securitisation coming in at the moment. But equally I have seen an increase in the structured finance work that I do. There are fewer real estate transactions, but in private equity, M&A and investment funds we are busier than we have ever been.’



Offshore centres do not have immunity from the effects of a downturn in the major economies, says Bound. ‘But we anticipate that there will be potential to provide services helping to deal with the consequences. The obvious beneficiary might seem to be litigation and dispute resolution, but we are still seeing interest in other commercial advisory services.’



One sign of the jittery nature of the onshore market is the increasing number of CVs coming across the desks of the top offshore firms.



Greenfield says: ‘It has been difficult to recruit from City firms for some time. You have to catch people at the right moment in their personal lives. But since Christmas, when we advertised, we have had a very healthy number of CVs from City and national firms, including those based in Leeds, Newcastle and Birmingham, where I suspect there are also concerns about what is going to happen in the market.’



All the big offshore firms say having a London office is important both in terms of being on the doorstep of the City firms and in attracting top quality lawyers.



James says: ‘People who choose to go to the Cayman Islands are making a statement that they will go anywhere in the world, whereas those who come to Jersey or Guernsey tend to see it as a significant lifestyle change and want to stay for significant periods.



‘Having the ability to work for a while in London before making that decision or giving our home-grown lawyers the opportunity of furthering their career with us in London is very attractive.’



He says the firm sells itself on the basis of excellent work, very high standards and a collegiate atmosphere. ‘There are some long hours but there is also the opportunity to be home in ten minutes and be on the beach ten minutes after that,’ he says.



But for those relocating to the Channel Islands there are some hurdles. The underlying law is materially different, so there are exams to take to re-qualify as a Jersey solicitor or advocate. Guernsey is a fused profession, so solicitors have to re-qualify as advocates. There are also strict controls on the housing stock, although Jersey has recently relaxed the rules slightly.



Ohlsson, a Jersey native, is one of the island’s examiners. ‘I am setting the company law paper at the moment. We changed the system to a modular format recently. Previously, you had to sit six exams and pass five to avoid retaking the whole lot. There are about 50 people working for the exams, six from our Jersey office. If you are an assistant or associate there are no requirements to qualify, but you would have to if you wanted to become a partner.’



New blood is welcomed in the islands where, inevitably, conflicts arise given they are small jurisdictions with large pieces of litigation coming through them. However, Gerwat says: ‘Nothing is insuperable. One result is that smaller satellite, one- or two-man bands, particularly on the litigation side, are spinning out of the larger firms.’



In such a vibrant market, offshore firms are always on the look-out for new opportunities. One potential opening is the UK government’s plans to tax non-domiciles, but this is viewed with mixed feelings. James says: ‘It may open up new opportunities for us, but what would worry me is if it damages London because good people leave.’



White agrees. ‘The government has handled the non-doms issue so badly from a public relations perspective that it has done huge harm to the UK. I think people will go, but they will go to places that have a bigger workforce than Jersey. We have attracted a number of hedge funds over the last few years, but we are always constrained by our size.’



So what does the future hold for the Channel Islands firms? White says the distinction between offshore and onshore is, in many ways, artificial: ‘The UK is one of the leading tax havens for non-UK residents while Delaware in the US is an extraordinary, innovative offshore-type centre.’



The correct test, he says, should be: are there centres that provide legitimate international arbitrage opportunities? ‘Those that are well regulated will flourish, and those that get a reputation for money laundering and other unacceptable activities won’t.



‘Jersey has worked hard to position itself as a well-run, very well-regulated centre. It is entering into a number of tax information exchange agreements, which are a good thing. But there is concern that, if the island continues to do that, it won’t be as competitive as those offshore centres that choose not to, because they want to maintain a higher level of confidentiality. But while confidentiality is good, secrecy is not – how you achieve a balance between the two is tricky.’



Grania Langdon-Down is a freelance journalist