Wednesday, December 13, 2006

Biometrics - The next 'Big Thing'

The use of a person’s physiological or behavioral features to authenticate identity is called “BIOMETRICS”. In today’s world of high tech communication and internet connectivity, it becomes increasingly important to rely upon human qualities to verify identity and create a secure relationship among individuals and businesses.

Secure travel documents, e-Passports, visas, driver’s licenses, national ID cards, and government logical and physical access badges have been deployed to date in small numbers. Currently there are over 30 e-Passports and approximately 30 National ID card initiatives underway worldwide.

The US Enhanced Border Security and Visa Entry Act of 2002 required that all machine readable e-Passports accepted for entry into the US issued after October 26, 2006 require encrypted smart card chips, or encrypted high resolution 2D barcode containing data from the front page of the passport and a digital image of the passport holder. The 188 countries belonging to the International Civil Aviation Organization (ICAO), a UN agency, agreed in July 2005 that all member countries must start issuing machine readable biometrically enabled e-Passports. The ICAO standard specifies Common Biometric Exchange File Format (CBEFF) as the globally interoperable biometric for identity verification in travel documents. Thus e-passports will contain digitally signed photographic images of the faces of their bearers. The ICAO standard additionally specifies fingerprints and iris data as optional biometrics.

The industry is on the cusp of a huge expansion in revenues for the right firms. Raj Nanavati, Partner, the International Biometric Group, gave a keynote speech at the Biometrics for Access Security conference. He made a number of interesting points among those he estimated the revenues in the Biometric Industry to be up from $1.85Bn in 2005 to $4.64Bn in 2008.

This growth is becuase governments today are under increased pressure to implement new security systems not only because of external security threats but also because of increased democratic pressure to improve and optimize communication and citizens’ access to its services.

So where should we be searching for these investment opportunities?

We have taken a great interest in the area and have concluded that all may not be as it seems. What I mean by that is the recieved wisdom is to look at the large companies that already operate in the market place and look to them to consolidate what we have found to be a fragmented industry. However here is the problem we have found with that strategy;

The main advantages of the big boys is, of course, financial strength of, strong government lobby support, strong marketing, representative enterprises all over the world and established customer base. This may be your benchmark for investing in these companies. The weaknesses we see, however, outway this usual assumption.

Weaknesses are:

- small departments for R&D and low innovation due to their politics of little investment and risk taking in the R&D process,

- utilizing only already established technologies that are often not up to par with new and innovative solutions.

- their expert teams are focused and specialized in separate fields and they are not capable of maintaining R&D with the long term commercialization process.

- they are acting more as system integrators and financing suppliers then innovators.

As a company we have concentrated on smaller operations that have innovative R&D departments, high levels of management skill and expertise in their field and a track record of implementation of high level projects for goeverments or organisations.

We are in the position now of backing two companies in the sector CoreBIoID Inc and 123ID Inc for which we will be seeking funding partners as we move forward with the project.

CoreBioID Inc (

CoreBioID Inc. is a leading provider of trusted identity enrollment, issuing, manufacturing and management systems, with demonstrable expertise in government document projects, eGovernment solutions, Enterprise solutions and Financial industry.

The Company develops sophisticated software and hardware solutions to address all phases of secure data acquisition, authentication, verification, personalization, production, issuance, integration, communication and data process management for electronic identification (“e-ID”) based on a Smart Cards and RFID Smart Cards. Its target markets revolve principally around government-issued identification documents and banking products (ePassports, driver’s licenses, health cards, bank debit/credit cards, etc.) with significant growth potential in both areas, as evidenced by its successful implementation of two of the world’s foremost sophisticated e-Passport initiatives, it ranks among an elite group of companies capable of meeting the latest compliance standards with respect to document security. CoreBioID has developed and implemented technology exceeding the most rigorous identity protection standards as set forth by the 188 countries belonging to the International Civil Aviation Organization (“ICAO”). Management is confident in its ability to build a leading market share in forthcoming years. With a presence in Europe and North America, one of the most advanced integrated solutions in the world and a world-class R&D organization, the Company is strategically positioned to compete on a global basis.

The Company’s revenue is earned as prime contractor on smaller projects and as subcontractor on larger ones, alongside leading prime contractors such as G&D GmbH (, Unisys ( and Muhlbauer ( ). Management believes that additional funding could enable CBID to become prime contractor on significant contracts and in so doing, achieve substantially higher top line and margin growth. Also, through additional funding, the company believes that it can expand its relationship with prime US and Canadian contractors such as Bell, Telus, Bearing Point, Lockheed Martin and Accenture.
The company has completed high level government projects and has increased revenue and profits an average of 14% over the last 3 years, year on year, with exponential growth projected on the back of pipeline projects over the coming years.

123ID INc (

Over the last five years the Company has invested all its resources into research and development. From technological design and implementation to patent applications, this period is considered to be a preparation phase in anticipation of the official sales and marketing stage of the technology and the Company itself. Incredibly, even though not intended, the relationship process with future clients began early in the R & D phase as the technology and the Company was slowly being introduced into the marketplace.

Although overall a new entity in the marketplace, 123ID has a long list of references and impeccable reputation developed from historical projects, along with established relationships. Combined with its recent partnerships with corporations such as Novel, Fujitsu, SigTec, Triad and many more, the Company has a head start in its introduction in the marketplace.

123ID has worked with and secured customers through its partners in each of the following vertical markets:
IT Security·
Access Control·
Smart Cards·
Financial & Banking·
Government– both local and federal·

This has been achieved by slowly capturing market share based on pure technological advantages and customer and technical service.

123ID is recognized in the biometric industry as a market leader in the verification of a person’s identity using primarily captured finger print images, complimented by other biometric verification technologies and overall interoperable integration.

Some of the achievements include compliance with the United States government’s National Institute of Standards and Testing [“NIST”], in live finger print recognition. The testing addresses the capability of reading millions of finger prints in a short period of time without erroneously accepting a single false print. - Zero tolerance for error. 123ID ranked near the top of the testing chart for this measurement.

123ID provides two layers of inter-operability. First with finger scanners [readers], 123ID can unify biometric data coming from a multitude of readers providing different source data, thus standardizing the hardware much like printers in a Microsoft Windows environment. Secondly different readers can be connected to a database from different locations whereby a person’s identification can be verified. Enrollment of a person for identification purposes can be minimized to a single enrollment point for access control, PC log on, and security simultaneously.
With banks like Pictet & Cie creating funds for security based buisnesses it is only a matter of time before the hedge funds start to sniff around this area and set off an exploaion of consolidation and,most probably, innovation. After all, a lot of technological developements have been motivated by the vast amounts of money avialable for solving a problem, the internet and its various billion dollar spawn can attest to that. We believe that the biometris and security wagon will roll on with developements being backed right left.
This is one boom sector that the hedge funds will want to get in on early, we have raised our flag, how about you?

Monday, December 11, 2006

Swiss banks hold on to their offshore clients

James Nason remembers years of debate and negotiation over tax evasion in Europe, but one moment that stands out for him was when Swiss officials drew a line on how far they could be pushed around.

"Swiss bank-client confidentiality is not up for discussion," Nason, a spokesman for the Swiss Bankers Association in Basel, said he remembered Finance Minister Kaspar Villiger of Switzerland telling a conference of financial professionals in Frankfurt in September 1999.

Villiger's defiance was a warning to European Union finance officials, then squaring off for yet another round of talks in Brussels about whether, and how, to try to claw back lost revenue from EU citizens investing their savings in foreign tax havens.

For decades, EU officials have been trying to plug holes that let tax dollars leak out of Europe through investments channeled into so-called offshore banking centers. Switzerland, as the biggest offshore center in the world, often has been a focus of their efforts.

During the latest EU tax haven negotiations, which began in the late 1980s, Swiss officials, reluctant to weaken their strict privacy laws, did give in to EU pressure and agree to implement a groundbreaking savings tax regime.

The tax, which took effect in July 2005, was hailed as a breakthrough in the hunt for lost revenue, but there were fears that it could trigger massive client defections from Switzerland and other European financial centers to rival centers farther afield, like Singapore or Hong Kong.

An analysis by the Boston Consulting Group last year predicted that the tax could cause at least €1 trillion, or $1.3 trillion, to leave Switzerland and Luxembourg, another country popular with offshore investors.

In the hush-hush world of offshore banking, hard numbers can be hard to uncover, but so far, analysts said, most investors in Switzerland have decided to stay put.

"A year ago, people were quite worried about it," said Florian Frey, who specializes in financial services at Boston Consulting in Zurich. "But actually, when I look now, no one is talking about it. It is business as usual. It doesn't seem to be a problem."

Nason agreed that concerns have subsided.

"Let's put it this way: If there had been a panic and clients shifted assets, Swiss banks would have contacted us, and that hasn't happened," Nason said. "Everything has gone very quiet."

Assets under management in Switzerland have been rising significantly over the last few years, even after the tax took effect, reaching a high of 4.4 trillion Swiss francs, or $3.5 trillion, in 2005, compared with 3.5 trillion francs in 2004, according to the Swiss National Bank and the Swiss Bankers Association.

That includes assets managed for foreign clients in Switzerland, which rose to 2.6 trillion Swiss francs in 2005, from 2 trillion francs in 2004.

The tax also has not knocked the Swiss bank UBS from its perch as the biggest wealth manager in the world. And a Swiss rival to UBS, Credit Suisse, is in fourth place in wealthy investing, behind Citigroup and Merrill Lynch, according to a survey by the Scorpio Partnership consultancy in London.

UBS's assets under management rose in 2005 to $1.31 trillion, compared with $1.21 trillion in 2004, Scorpio reported.

A UBS spokeswoman in Zurich, Sabine Wössner, said bank officials would not comment on the effects of the savings tax.

The aim of the European Union's directive was to ensure that EU residents did not avoid taxes by depositing money in havens with strong secrecy laws like Switzerland, Monaco, or the British islands of Jersey or Guernsey. Under the agreement, Switzerland and other non-EU financial centers involved in the discussions implemented a flat-rate withholding tax on interest earned by EU-resident depositors.

This tax, which now stands at 15 percent of interest earned, is passed on in a lump sum, without identifying individual investors, to the EU member states in which the depositors are residents. The tax rate will rise to 20 percent in 2008 and to 35 percent in 2011.

The European Union designed the tax to target a narrow range of savings interest, leading some critics to argue that the directive was too selective. The tax is levied only on individuals and applies only to certain savings like bank account interest and bond interest. Dividend income from investment in stock market assets is exempt, which means that EU citizens who design their portfolios to be tax-efficient can stay invested offshore without exposure to the tax.

Some Swiss banks have complained about the administrative burden imposed on them by the new requirement.

"It is correct that the banks were complaining about the huge amount of regulation," said Tanja Kocher, head of communications for the Swiss Federal Banking Commission in Bern.

The Swiss banks responded positively to regulations, like those against money laundering, that were useful and necessary, analysts said, but some banks were not convinced that the crackdown on tax evasion, which in Swiss law is not considered to be a serious offense, fitted into that category.

Still, despite the concerns, investors have not packed up and fled Switzerland, and analysts cite many reasons for their decision to stay put. One is the experience of Swiss bankers. Another could be that clients have simply adapted their portfolios to avoid tax liability. But most investors also remain confident that, despite pressure from the European Union, Swiss bank secrecy will stay intact.

"Switzerland's attractions for international banking clients include its stability, security, professional banking know-how acquired over generations, respect for privacy," said Nason of the Swiss Bankers Association.

Frey of Boston Consulting said: "We have here a long tradition of banking and a large number of banks and a high level of competence. Also, we have a lot of skilled, well-educated people and products that investors need. Products make the difference more and more."

Frey said that even as the savings tax rises over the next few years, Swiss banks should not suffer much from client departures.

"Clients still are happy with the confidentially and that is very important," he said. "And that confidentiality continues to be like that, for me, this shows that as the tax increases, I would say the picture will not change dramatically."