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A Chat with the International Financial Center President, Part 1

Part 1

Steve: We have just heard Robert Fairweather, president of International Financial Center, British Columbia, explain the background of setting up this center and what it means for British Columbia, and what he hopes to be able to achieve. We now have an opportunity to chat a little bit with Mr. Fairweather. My first question, Bob-if I can call you Bob-how successful have you been in attracting people to the new IFC?

Bob: Well, Steve, the legislation only became effective September 1 of 2004, so we're only five months into the program, but since that time, we have had eight new companies register for inclusion in the IFC. Steve: And these companies are from where? Are they Canadian, U.S., international?

Bob: Some are international, some are Canadian who want to take advantage of the new legislation. For instance, we have one of the world's largest foreign exchange currency dealers, has just opened two separate companies under the IFC legislation; one to deal with physical foreign exchange, and the other dealing with it over the Internet. Steve: Now, what are some of the kinds of business transactions that will take place, and what does it mean in terms of employment for British Columbians?

Bob: Well, let me give you one example. A major United States bank has set up a back office operation here, to market and deal with mortgage financing to their clients in the United States. They selected this area simply because not only were there some tax advantages under the IFC, but their costs of employment were much lower, their housing costs and rental costs were much lower, and some of their other operational costs were much lower than it would be in either New York City or Chicago or a place like that. As well, they were able to get people who are multilingual, speak Chinese, Japanese, Punjabi, languages of the vernacular, to deal with some of their clients in the United States, and this was a very big attraction for them. They estimate that they are now saving about forty percent of their costs that they would normally pay in the United States, and they're employing-at the peak, when they fully ramp up-there'll be over a thousand people working at this call center. Steve: So this is a call center. So it's more of an administrative backup to the sales of these mortgages and other loans in their main marketplace. So we're talking here about mortgage loans. You mentioned the example in your talk of, let's say, a Korean company, that could have a whole range of financial activity based, run out of here with employees that are hired here, where this would be a profit center, and that profit then would attract less tax than in, say, other jurisdictions. What kinds of companies do you see coming here, and what kinds of activities do you see them undertaking here?

Bob: Well, the legislation is so new that the first companies who are approaching are those based in Canada that have large international operations, so that they would either take advantage of the legislation by funding some of their operations overseas on a cost-plus basis, providing backup treasury operations, cash management, those kinds of things. Then we'll be going after firms that are international, like a Samsung, or a Honda, or a Phillips, that have operations in North America, whereby they would set up some sort of financial support organization within the province to provide services to the U.S. and South American operations.

Steve: How do they keep separate-I mean, any Canadian financial transactions would not qualify, so does this create sort of a bookkeeping conundrum or issue, in terms of keeping these transactions separate? Is the government very vigilant in inspecting to see that this isn't used as sort of a back door to reducing taxes in Canada? Bob: Yeah, they're very concerned about that, and so the company, in fact, has to set up a separate subsidiary that deals exclusively on the international scene, and that can be audited and very easily verified. Steve: So in terms of the range of companies, I mean, you could have insurance companies, you could have banking, like banks-there's no limit. Bob: Yeah, there's a whole host of companies, from international banks, investment managers, insurance companies, foreign exchange dealers, trade finance companies, anybody that's doing major treasury operations, like Brascan, or a mining company, you know, that has mining operations around the world. They could, in fact, take advantage of this legislation. A lot of companies have set up in other tax havens. They've established presence in Barbados, or Bermuda, or Bahamas. The problem with that is that people are becoming more and more concerned these days with money laundering to ensure transparency. You know, they have to set up offices in those jurisdictions, and it's not always convenient to do so. It's easier if you can walk down the street to meet your lawyer and your accountant than having to fly three, four hours across the continent to get to the place where you've got a tax haven. Steve: So, in effect the IFC here does compete with Barbados or the Isle of Man, or whatever it is.

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Part 1

Steve: We have just heard Robert Fairweather, president of International Financial Center, British Columbia, explain the background of setting up this center and what it means for British Columbia, and what he hopes to be able to achieve. We now have an opportunity to chat a little bit with Mr. Fairweather. My first question, Bob-if I can call you Bob-how successful have you been in attracting people to the new IFC?

Bob: Well, Steve, the legislation only became effective September 1 of 2004, so we're only five months into the program, but since that time, we have had eight new companies register for inclusion in the IFC. Steve: And these companies are from where? Are they Canadian, U.S., international?

Bob: Some are international, some are Canadian who want to take advantage of the new legislation. For instance, we have one of the world's largest foreign exchange currency dealers, has just opened two separate companies under the IFC legislation; one to deal with physical foreign exchange, and the other dealing with it over the Internet. Steve: Now, what are some of the kinds of business transactions that will take place, and what does it mean in terms of employment for British Columbians?

Bob: Well, let me give you one example. A major United States bank has set up a back office operation here, to market and deal with mortgage financing to their clients in the United States. They selected this area simply because not only were there some tax advantages under the IFC, but their costs of employment were much lower, their housing costs and rental costs were much lower, and some of their other operational costs were much lower than it would be in either New York City or Chicago or a place like that. As well, they were able to get people who are multilingual, speak Chinese, Japanese, Punjabi, languages of the vernacular, to deal with some of their clients in the United States, and this was a very big attraction for them. They estimate that they are now saving about forty percent of their costs that they would normally pay in the United States, and they're employing-at the peak, when they fully ramp up-there'll be over a thousand people working at this call center. Steve: So this is a call center. So it's more of an administrative backup to the sales of these mortgages and other loans in their main marketplace. So we're talking here about mortgage loans. You mentioned the example in your talk of, let's say, a Korean company, that could have a whole range of financial activity based, run out of here with employees that are hired here, where this would be a profit center, and that profit then would attract less tax than in, say, other jurisdictions. What kinds of companies do you see coming here, and what kinds of activities do you see them undertaking here?

Bob: Well, the legislation is so new that the first companies who are approaching are those based in Canada that have large international operations, so that they would either take advantage of the legislation by funding some of their operations overseas on a cost-plus basis, providing backup treasury operations, cash management, those kinds of things. Then we'll be going after firms that are international, like a Samsung, or a Honda, or a Phillips, that have operations in North America, whereby they would set up some sort of financial support organization within the province to provide services to the U.S. and South American operations.

Steve: How do they keep separate-I mean, any Canadian financial transactions would not qualify, so does this create sort of a bookkeeping conundrum or issue, in terms of keeping these transactions separate? Is the government very vigilant in inspecting to see that this isn't used as sort of a back door to reducing taxes in Canada? Bob: Yeah, they're very concerned about that, and so the company, in fact, has to set up a separate subsidiary that deals exclusively on the international scene, and that can be audited and very easily verified. Steve: So in terms of the range of companies, I mean, you could have insurance companies, you could have banking, like banks-there's no limit. Bob: Yeah, there's a whole host of companies, from international banks, investment managers, insurance companies, foreign exchange dealers, trade finance companies, anybody that's doing major treasury operations, like Brascan, or a mining company, you know, that has mining operations around the world. They could, in fact, take advantage of this legislation. A lot of companies have set up in other tax havens. They've established presence in Barbados, or Bermuda, or Bahamas. The problem with that is that people are becoming more and more concerned these days with money laundering to ensure transparency. You know, they have to set up offices in those jurisdictions, and it's not always convenient to do so. It's easier if you can walk down the street to meet your lawyer and your accountant than having to fly three, four hours across the continent to get to the place where you've got a tax haven. Steve: So, in effect the IFC here does compete with Barbados or the Isle of Man, or whatever it is.