The International Financial Center of the Americas (IFCA) was conceived just as the Dominican Republic’s banking crisis was gathering momentum but, according to Gaetan Bucher, the man who claims it was his brainchild, the timing was not an issue.
The Bucher family is part of the establishment in the Dominican Republic. Of Swiss descent, Mr Bucher’s grandfather became a prosperous sugar merchant in the plantation town of San Pedro along the coast from Santo Domingo. Mr Bucher’s father also made his name in sugar – restructuring the industry during the 1960s and going on to become a major influence in the country’s political establishment. Mr Bucher chose a departure from the sugar industry and studied at the Schiller University in Lausanne, Switzerland, before starting a career in private banking.
“In early 2003, it was clear that the banking crisis was on its way. There was a tidal wave of pessimism throughout the country but I knew that it would be short-lived. There are three pillars of our economy: tourism, remittances and free-trade zones. All are hard currency earning and would see the country through,” he says.
In the same year, Mr Bucher says he was asked why an offshore banking centre could not be established in the Dominican Republic. “We are a sovereign nation, there is nothing stopping us. Why not?” he says was the guiding logic.
Crisis management
“One of the reasons behind the crisis was that neither the government nor the regulatory environment could keep up with the speed of economic growth. The crisis was very bad, costing the country a major proportion of its GDP but, compared with Argentina, for example, we got out of the mess fast and the effect on our currency was smaller. It showed that we were a strong, hard currency-based, stable country.”
Mr Bucher’s idea was to build a financial centre that could become the first electronic clearing and settlement centre in the region, a banking hub that would strip the time factor out of traditional transactions, and that would be accompanied by the highest standards of compliance.
“I asked myself: how do I make international banking better? Should it be done privately or with the government? And while I knew I would need government consent and cooperation, I realised that it had to be a private venture.”
Positive attitude
Taking a lead from the garment industry, the project was conceived as a “free trade zone for banks”, putting the Dominican Republic on the banking map in a positive way after the negative publicity attracted by the crisis. From the start, Mr Bucher says, he was aware that without winning the support of the “800-pound gorilla in the backyard” (referring to the US), little would be possible. Conversations with Charles Manatt, a former US ambassador to the Dominican Republic, proved to him that reassuring the US about his intentions would be a wise long-term investment.
Mr Manatt opened doors in Washington and Mr Bucher spent a long time in the US capital. “I wanted to pressure test and get feedback from the right people, so I spent time speaking to the state department and to the Senate banking committee,” he says, adding that the feedback he received was positive.
Critical components
There are three critical components to the model, says Mr Bucher. The information technology (IT) infrastructure provides the resources by which the IFCA functions; an almost unique regulatory structure provides the reassurance that international scrutinisers, such as the Organisation for Economic Co-operation and Development financial action task force, require in the way of compliance standards; and state-of-the-art design specifications are intended to attract bankers, dealers and other finance professionals.
Access all areas
At the core of the IFCA is what Mr Bucher describes as “a sophisticated electronic platform that can be used for whatever the market requires or demands”. Currently being developed by US systems developer Cybrinth, the intention is that the IT also allows the regulator access to all transactions at any time.
In effect, the function of the centre will be twofold. Laifex, a state-of-the-art settlement and clearing centre, will principally be used for facilitating primary and secondary debt trading between Latin American countries, between the Americas, and globally. The centre will also house a private exchange that will be overseen by a regulatory authority that will grant licences for other regulated financial services business, such as investment banking, commercial and private banking, wealth management, insurance and re-insurance and the registration of shipping and aircraft.
Revenue for the IFCA will be generated by commission on Laifex transactions, selling seats on the exchange and licences to international trading institutions, and rental incomes from participants and users of facilities such as conference amenities and IT support. The business plan holds that the IFCA can generate substantial revenue even while significantly reducing costs for those using the exchange.
Regulatory role
Critical to the success of the venture is its regulatory structure. Mr Bucher says he came away from Washington realising that to gain the full backing of the US, the centre would have to be ring-fenced from the political risk associated with the Dominican Republic, and that the regulatory body should be largely separate from that of the rest of the country. It will, however, include a seat on the board for the republic’s central bank governor and for the chief superintendent of banks.
Although the model is not entirely unique – it bears similarities to the Dubai and Qatar exchanges – it required the design and creation of a regulator from scratch. Mr Bucher hired Vincent Colvin of the London office of Deloitte & Touche to structure a regulatory body from the outset of the project (Mr Colvin was instrumental in designing the structure of Qatar’s financial centre). Washington law firm Patton Boggs has also been heavily involved in the design and structure.
The working model has the independent regulator overseen by an independent board, setting the tone and direction of the centre’s institutions. The regulatory body will implement the objectives set by the independent oversight board, processing and managing authorisations, keeping records, monitoring transactions, investigating rule breaches and enforcing actions, as well as developing policy and new business lines. A commercial board will be responsible for marketing, human resources, training and IT, as well as regulating conduct within Laifex.
There is still a lot of work to be done and further down the line, when the structure is well established, Mr Bucher’s consortium will look for a big name in banking regulation to front the body. “Someone like Phillip Thorpe” (the former regulator of the Dubai exchange, now in Qatar), says Mr Bucher.
Legislative work
Before it is completed, the creation of the supervisory body will require the passing of new legislation. A bill has already been sponsored and submitted to the Dominican congress and Mr Bucher hopes that by the third quarter of 2006, congress will have passed an enabling law that allows for the creation of a new jurisdiction permitting the establishment of the independent regulatory authority. Although it is not yet secured, he is assured that the project has full cross-party support of both the upper and lower houses of the Dominican government, as well as the personal backing of president Leonel Fernández.
From the regulatory perspective, the IFCA’s selling point is its independence, but the plan is also reliant on the Dominican Republic’s natural charms. Almost midway between North and South America, the country is easily accessible from New York, Miami and all of central America. As one of the smaller countries in the Americas, Mr Bucher says it offers a more “neutral” location than countries such as Brazil or Venezuela but is large enough to offer the cultural, natural and recreational amenities that prospective long-term residents could require.
The IFCA’s marketing literature describes the centre as “housed in a $600m purpose-built complex designed by the architect Bernard Tschumi on a 17 km sq greenfield site bordering the Caribbean ocean at Los Guayacanes… midpoint between the capital Santo Domingo and the internationally acclaimed Casa De Campo resort”. It adds that the centre will include “prime office space, conference centre, private runway, beach club and independent amenities, including power, water and security”.
Mr Bucher says: “On the private banking side, a typical arrival might be a finance professional from Frankfurt or London looking for a lifestyle change, a challenge or a change of pace.” The Casa De Campo resort is a significant part of the plan. Considered a flagship tourist development project by the Dominican government, it offers golf courses, secluded villas and private beach access.
Raising the profile
The visual and branding aspects of the project are important to Mr Bucher. Tyler Bruhe, founder of the Wallpaper magazine, has been brought in as brand consultant and Mr Bucher acknowledges that the project involves raising the profile of not only the IFCA, but also the Dominican Republic. Award-winning architect Bernard Tschumi is responsible for the centre’s design.
Construction is not due for completion until 2009. In the next three years, the consortium will need to sell seats at the exchange and persuade a big name bank to anchor the project. The consortium has not mentioned names but Mr Bucher says that he is in discussions with three international rated banks and that others are showing an interest.
Redefining perceptions
Mr Bucher hopes that the IFCA will redefine perceptions of offshore banking. “If you are looking at the history of the 20th century and the development of major financial centres, during the Cold War everyone had to follow the Anglo Saxon model. After the fall of the Berlin Wall, standards became harder to keep up with, and that trend continued after September 11,” he says.
Designing a regulatory regime from scratch means not having to make do with an outdated and “continuously rubber-patched system” of banking regulation, he argues. It will take a couple of years before the system is perfected but he insists: “We have thought of everything to ensure compliance, transparency and speed of transactions. There is a fine balance between meeting compliance needs and keeping business happy but we think we have managed it.”
