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FCPA Blog - BVI Confidentiality but not secrecy

Wednesday, 14th February 2018

Martin Kenney: In the BVI, there's confidentiality but not secrecy

My adopted home of the British Virgin Islands (BVI) has implemented what is known as the BOSS Act (or to give it its full title, the Beneficial Ownership Secure Search System Act), that received its assent in June last year.

While flicking through various blogs and articles touching on the comparatively new Act, I came across a familiar name, that of one of my former summer interns, Tom Ewing (Harvard Law ’18). I enjoyed Tom’s piece on BOSS published on the Global Anticorruption Blog. Indeed, I enjoyed it so much that it has prompted me to offer up some of my own perspectives on the subject.

In the first instance, the BVI is one of the world’s premier tax neutral jurisdictions. It deserves to be highly ranked. It provides a safe home for cross-border investment vehicles for the global economy, providing an impartial English rule-of-law based system for added peace of mind to investors seeking to form international business partnerships.

Tom made the point that the BVI has seen some of its offshore companies and trusts abused by criminals seeking to hide their illicit assets. Crooks will tell lies and mislead wherever they can. No manner of regulation or public registers will change that. All we can do as a global economy is make it as difficult as possible for those who would abuse the system, and this issue is not limited to the BVI.

As for cleaning up the BVI’s image, it is shameful that this small group of islands has seen itself pilloried by those who are ignorant of how well-regulated the offshore system is. There is no such thing as "secrecy" in the context of BVI offshore structures. Yes, there is confidentiality, but there is no secrecy in the way some would have us believe. The BVI already has in place a strict regulatory system, and tax information exchange agreements with many of the world’s leading economies, including the UK and the USA.

This process of bringing regulatory standards up to speed has been going on for some time. The BVI government should be congratulated on a series of new protocols designed to frustrate the dishonest few. The BVI registered agents must now "onshore" (or bring into the BVI) Ultimate Beneficial Ownership (UBO) identification documentation. Agents must have ready access to such information should the BVI government (including foreign law enforcement/tax authorities), or the courts, request it.

In the 1980s and 1990s, the offshore industry both here and across the globe was akin to something out of the Wild West. But those days have long since gone. There are still offshore service providers in other locations who can assist the unscrupulous with their dubious intentions. If I was a criminal or hell-bent on committing tax evasion, then I would no longer pick the BVI for these purposes.

Among the regulatory improvements the BVI are the signing of an agreement with the United States on Foreign Account Tax Compliance. In addition, the BVI has also become a signatory to the OECD’s Common Reporting Standard for the automatic exchange of tax and financial information.

These agreements combined and the BVI’s improved regulatory standards stand in marked contrast to the USA. The Paradise Papers and the Panama Papers preceding them saw few American nationals implicated. Why? Because they have much easier access to genuine secrecy in Delaware, Nevada et al. But who is going to pick on the United States when they can snipe at a small group of islands in the Caribbean? It is media-led bullying at its most base.

In his piece Tom Ewing says that it’s unclear whether all this has impacted negatively on the BVI economy. I can state that it has. Company registrations have dropped; nobody likes to lose business, but a proportion of this will be down to the new regulations in place.

It is slightly disappointing that Tom advances the notion that the BVI regulatory improvements are half-measures. He suggests that this governmental reluctance is down to a desire to maintain ‘secrecy’, as this is fundamental to the islands’ economic success (humorously likening this perceived reticence to change to a turkey voting for Thanksgiving). The BVI does compare favorably to its rival UK offshore territories. There is no clandestine secrecy, no attempted concealment - relevant information is readily available to the competent authorities. Transparency prevails.

The BOSS Act’s intentions include seeing that the registered agents’ responsibilities to gather information of UBOs increases. In doing so, it also increases the penalties for breaches. The Act adds further layers of regulation and, in doing so, guarantees long-term transparency when a competent authority comes calling. 

All this additional information will form the foundation of a new searchable database. If I was ever to criticize the regulatory system in the BVI, it was the lack of a means for those in charge to electronically search such indices. Above all else this will ensure speedier and more meaningful responses to competent authorities, and for professionals who have obtained a court order to access the information. Under the new legislation, this information needs to be updated regularly, thereby guaranteeing the data’s relevance.

It is also right that such searches are kept confidential from the entity and its registered agent. It prevents any inadvertent tipping-off, but also ensures that competent authorities and those in my line of business are not frustrated by assets and information being switched elsewhere.

I concur with Tom that the UK having access to the new database is a significant development. I am sure that some connected to the BVI will have some reticence concerning this modification. That said, if we are to maintain our position as the premier offshore company service provider, then this is a move in the right direction.

To my mind it stops dead in their tracks the islands’ detractors; their ammunition dwindles if the UK has access to the data. If the information is to be shared elsewhere, then the mud-slinging collectivists will have to go looking elsewhere for a target.

Tom makes a good point about being apprehensive over the potential for the bad guys to utilize a ‘layering’ process to evade the good intentions of the Act. But what is the answer? As I have stated above, if you are a criminal and intent on deceit, you will tell lies. Criminals will use ‘men-of-straw' to front their entities. How do you stop that? They produce their front men, who in turn have all the required KYC documentation and information. You can apply enhanced due diligence to their application, but to what end if they are free of criminal convictions and otherwise ‘squeaky clean’?

I hate using the phrase "loophole" unless it is appropriate. Tom uses it to describe the "third-party-introducer" process. In this instance there can be little doubt that this system has been abused and thereby it can be accurately described as a loophole. The Act addresses this aspect of the registration process too.

Operating and conducting your business in privacy is a fundamental human right. Why should the 99.99 percent of honest people have their right to privacy impinged due to the actions of a dishonest few?

There is not, and never will be, the means to prevent a determined braggart from circumventing the system. This is not a failing on the part of the BVI or any other offshore service provider -- it is simply a fact of life. We would be naïve to believe that any existing or contemplated process will be 100 percent accurate. Criminals don’t play by the rules.

As the BOSS Act only came into being in June 2017, it is a little early to start calling it into question, particularly at a time the BVI is struggling to get back onto its feet following hurricane Irma last September. Time will tell how successful the Act will be.


This article first appeared on the FCPA Blog and the full article can be accessed here: http://www.fcpablog.com/blog/2018/2/14/martin-kenney-in-the-bvi-theres-confidentiality-but-not-secr.html