Indeed, these questions are highly relevant to market participants, OFFSHORELICENSE‘s CEO Julian Kramer shares his experience.
Imagine this scenario: you, standing in the compliance office of a major Swiss Forex company as the country’s regulators are forcing the industry to its knees. On the phone, you have an American client demanding to know whether their assets are safe whilst in front of you an obdurate compliance officer is trying to interpret the new laws regarding your trading license.
You know you must keep the client but you cannot ride roughshod over the new regulations; what do you do? This is the unique position that Julian Kramer found himself in 2008 and through those tumultuous times he played a key role in securing his company’s banking license whilst also managing his clients’ affairs.
That experience started a journey, which would take him to frontier markets in Asia and eventually the founding of offshorelicense.com. With its uniquely specialized CEO at the helm, OFFSHORELICENSE is growing fast with twenty staff in Riga, Prague and Cyprus.
Switzerland was a real hotbed for the FX community, there seemed to be a brokerage on nearly every street
Providing services from the obtaining of business licenses and bank accounts to the registration of virtual offices – the company is driven by Kramer’s knowledge of the ever-evolving regulatory landscape.
He is not here to give you hugs, he is driven by a desire to keep his clients one step ahead of the game. In a kindhearted, poignant interview he charts his journey from selling Jägermeister in the Baltics to oversee global operations and shares what he learned, where the EU is going and how much money do you need to open up the Malaysian market.
Can you give us a background and how you got to become the CEO for OFFSHORELICENSE, what is your background? Who have you dealt with? Why did you make the transition to running your own firm?
I am a firm believer that there is no single country or sets of values that can claim hegemony when doing business, so when I was shaping my career I deliberately tried to work in varied locations.
After picking up bachelor’s degree at the University of British Columbia in Canada, I decided to do my Major at the European University in Switzerland. I maybe did not know it at that point, but Switzerland would play a major role in my life and teach me an incredible amount about the inside workings of business and the way money moves around the globe. I arrived back in my home city of Riga, Latvia in 2002 with a great education and, as a young ambitious man, in need of a work.
My first “real” job was for a holding company that supplied the majority of spirits to the Baltics. I have been described, probably fairly, as a natural salesmen on more than one occasion and, at that time especially, I was not adverse to spending time in a bar or two – which is why I quickly found myself in charge of Jaegermeister sales across the region.
The job was a lot of fun and gave me great insight into the mechanics of what it like for small and medium sized business on the ground but I wanted something bigger, something to challenge me further.
I needed a job, which was more international in its outlook and I got this opportunity in 2005 when I joined the FX company Dukascopy in 2005. After only two years at the Riga office, I was promoted to the headquarters in Geneva and this turned out to be my second period of great personal development in Switzerland.
I dealt primarily with a number of large US asset managers but also worked with many Russian-speaking clients which, by the way, taught me that although they like to think they are very different, they are actually almost identically when it comes to managing their affairs efficiently.
Switzerland was a real hotbed for the FX community, there seemed to be a brokerage on nearly every street, and this was not good for traders because there were a lot of sharks. At the same time the politics in Switzerland started to shift and there was pressure on the government to become more transparent and, basically, to stop helping foreigners dodging tax.
Sometimes you have to stretch the boundaries, but if you have the knowledge you have the power
This was tremendously bad news for that murky pool of FX brokers, the majority of whom were crooks, and FINMA cracked down on them and in 2008 there number of FX brokers went from more than two-hundred to just a handful. For Dukascopy, to continue to exist it needed to become a bank.
My job at this point became incredibly complicated. I had clients who were getting jumpy, worried about their assets. On the other hand, the company was going through a complex transformation into a bank. This exact moment is when I gained a unique insight into the nuances of regulation and licensing.
I would literally get off the phone with a money manager and walk to the compliance department to discuss if what the client wanted was possible and if the answer was “no” I would get back on the phone and find a way to navigate the system.
This is when I learned that there is always a way to work within the system. Sometimes you have to stretch the boundaries but if you have the knowledge then you have the power. They managed to get their Swiss banking license and then another fantastic opportunity presented itself to me.
In 2010 I became the Head of Sales at FX Open for three years, where I became responsible for both sales and business development. The company has a strong emphasis on Asia that again brought me into contact with a whole new way of doing business. Importantly, this was at the time when Malaysia began presenting itself as a viable place to do business for many of the companies, which had been squeezed by European and American regulation.
By 2014 I felt I had acquired enough experience and knowledge to start my own venture and that is what led me to set up offshorelicense.com.
There has been a radical shift in the relationships between new brokerages and banking. How do you see this going in the future, and how would you remedy this?
I remember when I did my MBA in Switzerland, no one could even imagine the country being anything but a place where money was siphoned in and then moved around in its opaque system. Transparency and regulation were not even on the agenda. And look at the place now.
The country built on secrecy and discretion has been leant on by the US and EU to become more mainstream. This strong regulatory trend is continuing and any soft spots in Europe are coming under more and more pressure from Brussels.
The FX and betting industries are particularly in danger because, let’s face it, it is a risky business. Too many traders enter with just half an idea of how to play the game and the majority end up losing their money. The regulators in Europe and the US can see that and their instinct is to ban or limit practices, which they deem too risky.
Even the big London-listed spread betters like IG and CMC Markets are coming under huge strain, seeing their stock price hammered, because the markets can see the regulators have their sights trained on them. This tendency, by the way, to want to control everything centrally is exactly the reason why I think we will see the European Union crumble in the next decade or so.
So, if we have to steer clear of Europe, where do you go? Well, there are plenty of options but I think the most exciting destination is Malaysia and we have successfully helped many clients set up there.
One message I want to stress is that things change really quickly
One message I want to stress is that things change really quickly. As an example, Belize was for a long time a favored offshore location but new laws meant it was suddenly no longer a viable destination. We, therefore, worked quickly to find alternatives for our clients.
If you were a start-up, what direction would you give to a client in obtaining a license? Is there a specific jurisdiction that you would advise clients to use?
The first question we always ask is the same as if you would walk into the local branch of your bank – how much money do you have? If you want to get fully licensed in Europe then you are going to need at least €1.5 million. If your budget is lower then things start to get trickier but there are still plenty of options.
For getting fully licensed in Europe you need at least €1.5 million
As I have said before, Malaysia offers fantastic opportunities. You will need less than a hundred thousand dollars of starting capital and that money remains liquid at all times. The turnaround time is quick, around three to five months.
That then gives you access to some really high-class financial institutions. For example, you can open bank accounts with Maybank which has something like 150 billion dollars in assets and if you don’t believe me, go to Singapore and look at the giant sky-scraper they occupy there. It is a serious bank.
We do expect some more stringent regulations there in September this year but we think it to remain an attractive destination and do you know what, if it is not Malaysia then it will be somewhere else. As I keep saying, I have seen it all before and we at offshorelicense.com always find a way.
How would you assist a client in protecting themselves in the future? What steps can they take?
Here is a scenario, which we encounter all too often. A client calls up in hysterics because their ac-count has just been frozen. We then ask whether their other accounts have suffered the same fate and the answer is all too often, “what other accounts?”
That is the problem right there. You always need multiple accounts and multiple licenses. We do not run a kindergarten. I am pretty sure every culture and language have a version of; don’t put all your eggs in one basket.
Look at Alpari. Google “Alpari Swiss Franc”, and you will see articles by the BBC, Daily Telegraph – all the big British news outlets about how it has gone bust because they were caught out by the SNB. But Google will also tell you that it continues to trade. How? Because it is run by smart people with multiple licenses, so if things go wrong in one territory they can carry on with another.
You also need to remember to move your funds sensibly. The one way to draw the attention of regulators and annoy the bank is to receive a massive sum of cash into your account in the morning and move it on by lunchtime. Be smart.
Also, do not be scared to run your business affairs as efficiently as possible. No matter the size or type of company you have the right to optimize your tax situation. Does anyone think that Facebook and Google register companies in Ireland because they like the creamy texture of Guinness?
No, it is because they know that by running profits through Ireland, which has a low corporate tax compared to other countries in Europe, they can pay less tax. Companies of all sizes can do this and we offer exactly these services for our clients, it is not just for the big boys.
Cost can play a huge part in selecting a service provider. With many low-cost providers on the market, how do you differ?
We thrive by being exactly what our competitors are not. It makes no sense to entrust the future of your business or your assets to low-cost cowboys. You can maybe tolerate a budget airline for 90 minutes, with your knees squashed into the seat in front of you.
But you would not use that same carrier to fly you on your honeymoon for 14 hours across the globe. And to be honest, if you would, then you are probably a perfect match for one of these low-cost providers.
A lot of this is about making the right decisions. Many of our competitors started because someone saw an opportunity to make a quick buck but when I started offshorelicense.com it was because I realized I had experience that nearly nobody else has. My starting point is to try and commoditize these unique experiences and skills not just set up a hollow website and make it up as we go along.
I never know how much credence to give to corporate slogans but I really believe in ours “Knowledge in Experience.” My experience is clear but that expertise runs through the whole company. Nearly all our staff are qualified to masters level and have worked all over the world. As an example, the head of our legal department gained his legal papers in the Netherlands and previously worked for a large Swiss financial firm.
Retail FX is especially vulnerable but there are still options
I should also say that I am extremely lucky that Riga is my home city; it is full of intelligent, well qualified and multilingual people and we really benefit from that. The same goes for our offices in Cyprus and Prague, two places where we have found staff that really know how to meet the needs of the clients we serve.
Having worked directly with clients before I have instilled a culture where we deal with our customers efficiently and discretely. We get all the information we need upfront and then we get on with it – to me that is the definition of a “turnkey” policy. We know that people and companies who use us are busy running their affairs and do not need to be bothered.
I think we also standout by the range of services we provide. We can assist with compliance ahead of audits and our accountants can prepare various reports. Gaining residency or trademarks is also vital in this globalized world and we provide those relevant services.
What should we look out for in 2017?
I said earlier that I thought the EU is on the brink. That may or may not be true but the reality right now is that stricter regulation is on the march and you need to adapt. Retail FX is especially vulnerable but there are still options and we know exactly how to work within this system. If I had to distil this down into one message, it would be; the more bank accounts and licenses you have, the better.