Multinational governance

Luxembourg second best jurisdiction for ‘entity management’

Kariem Abdellatif, head of Mercator, a unit of Citco, said that Luxembourg was the fastest jurisdiction for completing regulatory activities out of roughly 175 tracked in Mercator’s annual study. RPhoto: Mercator

Kariem Abdellatif, head of Mercator, a unit of Citco, said that Luxembourg was the fastest jurisdiction for completing regulatory activities out of roughly 175 tracked in Mercator’s annual study. RPhoto: Mercator

Luxembourg scored second place in the Mercator Entity Management Report 2022, a measure of the time and cost required for multinational outfits to complete key corporate activities across their “global portfolio of entities”. Kariem Abdellatif, head at Mercator, explained how the ranking was created and why such systems are “crucial”.

Mercator recently published its annual comparison of the time and cost required for multinational companies and investment funds to meet governance requirements in some 170 jurisdictions.

“Luxembourg is the fastest jurisdiction--jumping up 15 places from last year due to the rapidity with which local legislation allowed for decision-making via remote measures during the covid pandemic--which is now having a clear effect--combined with a greater reliance on local directors and other local representatives for corporate secretarial support”, according to the Mercator Entity Management Report 2022.

When both time and cost are taken into account, Luxembourg dropped into second place, behind Bermuda and ahead of third-placed Germany. Mainland China, South Korea and Taiwan were the lowest ranked, the report said.

Mercator is the governance services unit of Citco, a large fund and corporate services provider. Out of Citco’s 12,000 global staff, the Mercator unit employs roughly 300 people, “the vast majority” based in Lithuania, Mauritius and the Philippines, with headquarters staff in Luxembourg, said Abdellatif.

For the past 15 years, Mercator has provided “entity portfolio management” services, built around its Entica platform. The system tracks the administrative requirements for each type of corporate and fund entity in each jurisdiction, which can vary widely, and provides a workflow tool to ensure staff submit the correct information and complete each step on time.

Real activity, not a survey

Because the start and completion dates and the cost “for every single activity” are tracked in the system, its database provides a unique window, Abdellatif told Paperjam+Delano Finance during an interview. The study is an analysis of the real data in the firm’s database, which logs thousands of corporate governance activities. “It’s not a survey,” he stated. Activities include everything from filing annual reports and annual general meeting resolutions to appointing directors and submitting powers of attorney.

Based on actual activities performed for clients, Luxembourg was on average the quickest across the board, Abdellatif said. While Bermuda is not a cheap jurisdiction, it was just a bit cheaper than the grand duchy.

The study is published to highlight the entity portfolio management concept. Abdellatif called it “quite crucial” for multinational organisations. Firstly, executives can simply have trouble keeping track of each entity in each market they operate in, much less what paperwork is required for each one.

Secondly, as the report stated, “if actions are not complete properly, corporations may suffer regulatory fines and reputational risk.” The consequences could become more severe. Abdellatif said that a multinational executive, who later became a client, was once stopped for questioning at an immigration checkpoint while on vacation because an entity in the country had not submitted required reports.

Abdellatif said his firm does not advise clients on where to establish operations, as “clients will know why they set up here or there.” Rather, the report serves as a guide and a reminder that “legal work is not necessarily the same across the globe” and that executives “need to be informed about that globally, and not just in 1 or 2 countries.”

This article was published for the Paperjam+Delano Finance newsletter, the weekly source for financial news in Luxembourg. Subscribe using this link.