Hello and welcome to the Fides Weekly Update. Take a look at this week’s key trends, moves and developments in legal and compliance.
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1. A marriage of convenience: Arnold & Porter and Kaye Scholer combine stateside
In the latest example of consolidation in the legal market, Thursday saw the announcement that east coast firms Arnold & Porter LLP and Kaye Scholer LLP are set to combine in 2017. The merger will propel the new 1,000 lawyer firm – with a combined revenue of $1bn – into the top 40 largest firms in the world, with a significant presence in Washington DC, New York and London.
To many commentators the tie up did not come as a surprise, with each firm brining complementary expertise and footprint. With the 700 lawyer Arnold & Porter is known for its litigation and regulatory expertise, headquartered in Washington D.C., whilst at half the size, Kaye Scholer is best known for its financial services and life sciences work and will give Arnold & Porter a long-desired critical mass in New York.
The firms combining might well position the merged firm to improve their financial performance. Last year, Arnold & Porter’s revenue fell 6.4 percent, to $650 million, whilst profit per equity partner (PEP) fell 12.6 percent, to $1.21 million. Kaye Scholer’s revenue also dipped last year, by 1.3 percent, to $370 million, and its profit per partner fell 2.1 percent, to $1.38 million, according to figures from the American Lawyer.
The deal is rumoured to be the largest law firm combination so far this year in the US. While the numbers and scale of the deal has been widely reported, Richard Alexander the current Chairman of Arnold & Porter who is also set to lead the new firm was quoted as saying “We don’t think this is a transaction about size, but instead about partnering with clients” and identifying the synergies of the respective platforms as being vital to the combined firms future.
The combination is the latest in a string of tie-ups involving Global 100 firms in a market that is ripe for consolidation with increasing commoditisation. Earlier this month, Legal Business revealed Morgan Lewis & Bockius is in talks with King & Wood Mallesons, while Addleshaw Goddard and Hunton & Williams have held talks in recent months as well as the well-publicised CMS Nabarro Olswang tie up in the UK. It seems that on both sides of the Atlantic that merger activity, particularly in the mid-market is a constant theme with firms looking to compete on an international footing with the big established players.
2. 22 HNW individuals under investigation from Panama Paper task force
A government taskforce created to analyse the Panama Papers data leak has identified a number of leads that are relevant to a major insider-trading operation, led by the Financial Conduct Authority (FCA) and supported by the National Crime Agency.
The task force has opened civil and criminal investigations into 22 individuals for suspected tax evasion and is investigating the links of 43 “high net worth individuals” with Panama.
It has also identified 26 “potentially suspicious” offshore companies whose beneficial ownership of UK property was previously concealed, established links to eight active Serious Fraud Office investigations and identified nine potential professional “enablers” of economic crime, “all of whom had links with known criminals”.
In the first update to the House of Commons on the progress of the task force on Tuesday, Chancellor Phillip Hammond said that the cross-agency task force set up to analyse the information in the data leak had “added greatly” to the understanding of the ever more complex and contrived structures used to mask offshore tax evasion and economic crime.
The UK’s task force, set up in April with funding of up to £10m, is jointly led by HM Revenue & Customs and the NCA and draws on investigators, compliance specialists and analysts from those two bodies plus the SFO and FCA.
The cross-agency task force was established to analyse all the information available from the Panama Papers, leaked data from leading Panamrian law firm Mossack Fonseca published by the International Consortium of Investigative Journalists.
Over the past few years, the government has increased penalties and introduced new measures to tackle offshore and onshore tax evasion. In the summer 2015 Budget, the Government gave HM Revenue & Customs an additional £800 million to invest in compliance and tax evasion work. This is expected to recover £7.2 billion in tax by the end of 2020/21.
However, despite this, the UK government continues to campaign against the EU to prevent Guernsey, Jersey and British overseas territories from going on an EU blacklist of tax havens, set up by the European Commission to add greater tax transparency in wake of the papers release.
Some financial experts remain sceptical about the number of prosecutions likely to result from the Panama Papers with the investigations still in their infancy. With the average length between opening similar enquiries and passing them onto the Crown Prosecution Service being 44 months, “This is a marathon not a sprint,” a government source told the City A.M.
3. Movers & Shakers
The World Bank Group has recruited HSBC Global Asset Management general counsel Sandie Okoro as its new general counsel (GC)
Jonathan Brenner, the co-founder of Berwin Leighton Paisner’s contract lawyer spin-off LOD, is set to join virtual law firm Keystone Law at the end of the month.
Kirkland finance partner John Markland and White & Case private equity partner Ross have joined Dechert’s City base this week
MERGERS AND ALLIANCES
US firms set to combine as Arnold & Porter Kaye Scholer on 1 January 2017
Fieldfisher has merged with Hill Hofstetter, a 19-partner UK firm with revenue of around £6m that spun off from Reed Smith in 2008.