Contributing To Operational Efficiencies in The Offshore Industry

Supply chain rationalisation is integral to the e-commerce model. A myriad of middlemen between suppliers and clients become superfluous. In the past a trust company in, for example, Jersey would use a company formation agent in the Bahamas, which in turn, may in fact have outsourced some of their work to another local company. The same data was processed three times by three different people, increasing staff costs and contributing to an operational inefficiency, with the increased costs either reducing the profitability of the Jersey Trust Company, or alternatively filtering their way to a disgruntled client. An e-commerce structure, on the other hand, supports a three-layer interface between the client, the trust company and the formation agent. Information, which may be shared (access depending on user rights), may be retrieved in a required format by those requiring it to request and/or complete a task. The use of web-based security technology means that the user of the information can be authenticated and verified, and the data can be encrypted to a level which exceeds that which is normally used in banking transactions, and tamper-proofed while in transit. Privacy and security, as discussed below, thus no longer pose a problem or an excuse for non-application. A Readymade Solution To High Labour Costs, Unavailability Or Immobility Of Labour In many offshore centres trust companies face a problem of finding skilled and qualified staff. In some jurisdictions this is due to immigration policy, whilst in others it is simply difficult to attract qualified staff, for an economically viable salary, to a remote jurisdiction. The implementation of a virtual presence means that a trust company based, for example, in the Isle of Man, will be able to outsource a lot of its work to an easy accessible, but less expensive workforce in, for example, the North East of England, enhancing service levels and productivity, reducing costs, and thereby increasing profitability and shareholder value. No longer is outsourcing to a subsidiary, or even an independent party merely economically viable (if not necessary), but also may enhance services provided, as well satisfying security requirements which are paramount for the offshore industry.

Will Client Offshore Needs Increase In The Future?

Many companies operating internationally, including some of the more prolific Internet companies have learned a lesson the hard way, namely that it is vital to carefully prepare corporate tax affairs for the long run. Traditionally less taxing countries such as the US no longer support the entrepreneurial tax regimes with which they once enticed inventors and corporations to come and add value. Clients are seeking alternatives, and one of the simplest solutions is a holding company. Basic tax planning dictates that if a company has shareholders from more than one country, and expects to earn profits from more than one country, that it is often prudent to create a holding company in a country with a low or nil corporate tax rate and neutral tax treatment to shareholders. This ensures that gross dividends will be passed on to shareholders. Microsoft, one of those “having learned the hard way” corporations, in avoiding a repeated mistake, has just created Teledisc in Bermuda to offer broadband Internet access by Satellite. With the Internet trade increasing exponentially and the tax authorities around the globe not adapting rapidly enough to deal with the taxation consequences of this medium, the use of such organisational structures are rapidly increasing.

How Secure Is The Client Of An On-Line Offshore Service Provider?

In an industry where confidentiality is paramount, of 50 websites, which we surveyed, that were offering offshore services, 64% did not have any measures in place to protect clients data while in transit. Of the 36% that offered some methods of secure communication, only one, www.e-offshore.net, offered the latest 128bit encryption, the same security standard used by banks. Of those using "only some methods of secure communications", security can be easily breached. This means a Cyberspace pirate, for whatever reasons, can easily swipe data, such as client details, or credit card information. Close attention to the security aspects of the offshore service providers web and e-based operations needs to be a principal consideration of its management, in order to operate to the satisfaction of the companys clients. Naturally, some clients will not concern themselves with the security aspects leaving it in the "safe" hands of the service provider. The responsibility for all available security measures taken, however, even if not specifically requested, remains the obligation for due care of the service provider and its officers.

Information, or traffic, is carried across the Internet in such a fashion, as it is open to analysis by third parties. The information itself can be encrypted, but its origin and destination is easily established. Internet Service Providers increasingly use Caller ID to identify the user, ostensibly to protect themselves from net abusers, and collect (but may not yet process and sell) information on the users browsing habits. This is very valuable marketing information, most particularly as usage continues in its exponential growth. The traditional market research sector can tell a lot from a postcode, we all receive targeted junk mail in consequence. Should the user rest assured in the fact that reverse telephone number lookup is not supposed to be available?

Encryption of data as it travels across the Internet is becoming, especially in the offshore industry, a prerequisite. Such encryption is achieved through use of public key encryption systems. The concept is that everybody has two keys, a public key and a private key. These keys can be used to lock (encrypt) or unlock (decrypt) data. Although related to one another, both keys are different. Your public key can be published on a key server on the Internet, or sent to another party during a transaction. It is public knowledge. Third parties can use it to lock data that is intended for you. However, the information required to unlock the data is contained only in the private key. You alone hold your private key, and it is unique. Once a message has been locked using your public key, you and only you can unlock it.

The first large scale, public key encryption system, PGP, which stands for pretty good privacy was developed by Phil Zimmerman. He recognised the political nature of cryptographic technology, and its place in an increasingly digital society. His crusade to make this technology available to the public, in the face of government opposition (because government law enforcement and intelligence agencies want access to all of our communications, to catch people who break the law, and detect threats to National Security), led to criminal proceedings being brought against him. It is still the best and safest method of securing e-mail while in transit, and can also be used to secure files on a computer. It is free for personal use, and there have been some spin-off products such as PGPFoneTM, which allows encrypted voice communication across the Internet. For more information visit www.pgpi.com

SSL stands for secure socket layer, a technology developed by Netscape, for securing connections made between a browser and a web server. It is a hybrid public key encryption system. Keys and data are exchanged at the beginning of the transaction, and the browser and the web server agree on a key to use for encryption/decryption for that session. The latest SSL technology supports 128bit encryption, which is 300,000,000,000,000,000,000,000 times stronger than its 40bit predecessor. It has been calculated that it would take 1,000,000,000 years to break the encryption using current technology. The technology also facilitates authentication, through a hierarchical structure of verification. At the root of this verification structure are the CAs (certificate authorities) such as Thawte (www.thawte.com) and Verisign (www.verisign.com).

Probably the greatest security risk for offshore service providers lies in the security of the web server itself. It is all very well ensuring that the clients details are secure during transit from their browser to the web server, but if the security on the web server is not adequate, then the potential information thief can extract this information directly. Unfortunately this is often the case, particularly when the site is hosted with a third party. The intruder usually can obtain a lot more information besides credit card numbers.

The nature of e-commerce is such that the business is largely paperless, with much of the information residing in a database, and the implications of it falling into the wrong hands may well be disastrous for the on-line offshore service provider. It is therefore indispensable for the user of such on-line offshore services to ensure the chosen company has top security measures in place. Summarising such requirements are as follows: A minimum of SSL/128 bit encryption, no third party hosting, communication by encrypted email and the use of carefully geographically located proxy servers.

Summary

Analysing the attempts made by professional offshore service providers of international tax planning, it is surprising how little commitment there is to this added business dimension that the Internet provides to the offshore industry. The lack of commitment by many offshore service providers is demonstrated by misjudging the contribution of the Internet to onshore as well as offshore commerce and the resulting potential benefits for themselves. There is also a lack of competent management of the demanding security aspects of this medium. It is high time to embrace the potential presented by the Internet as a medium to service clients and associates alike (i.e. for fast and efficient incorporation requirements, as well as using it as secure administration tool). There already is a tremendous end user demand for the myriad of application possibilities with every indication that the trend is rising at an exponential rate.