The recent ‘Panama Papers’ hacking scandal and subsequent reporting appears to make little distinction between the allegations of misconduct by Mossack Fonseca and the important role that internationally regulated offshore jurisdictions like the British Virgin Islands play in international trade and finance. Much of the media coverage also fails to acknowledge basic facts about the BVI’s role in international finance.
- The British Virgin Islands has some of the highest regulatory standards in the world.
The BVI has some of the highest global regulatory standards in the world, as judged by the Organisation for Economic Co-operation and Development (OECD) and Financial Action Task Force (FATF).
- BVI was one of the first jurisdictions in the world to implement the OECD’s Common Reporting Standard for the automatic exchange of tax information.
- BVI has tax transparency agreements with over 100 developed countries including TIEAs with 27 countries and multilateral agreements providing for tax cooperation with 76 countries, under the OECD’s Convention on Mutual Administrative Assistance in Tax Matters.
- BVI is ranked by the NGO Tax Justice Network as more compliant in tracking corporate beneficial ownership than half of the G8 countries (US, UK, German and Japan), and is ranked ahead of 20 countries in total.
- The FATF ranks BVI as more compliant with international regulatory standards than the US and UK[1]
- BVI has inter-governmental agreements with the US and UK to comply with US FATCA, and UK International Tax Compliance to provide data on financial accounts held by its residents to the United Kingdom
As well as strict AML rules, due diligence policies, KYC protocols and domestic laws, the BVI’s financial regulators are recognised members of IOSCO (the International Organization of Securities Commissions, which is the global standard setter for the securities sector). Intermediaries in the BVI are bound by professional obligation to maintain adequate, accurate and current information regarding the beneficial ownership of any BVI company and to disclose to the BVI Government as required.
The fact is that international regulatory standards have become much stronger – onshore and offshore – in the past two decades. Since the regulation of the offshore industry began 20 years ago, the BVI together with the majority of offshore financial centres have adopted fully compliant regimes and ongoing compliance with international standards, and continue to play a legitimate, fundamental, role in global commerce.
- The British Virgin Islands plays an important role in global commerce, promoting economic development and cross-border trade.
Not only are offshore structures legal but they are also normal and extremely common, and used by companies around the world to aid in the efficient organisation of their businesses.
Law abiding, legitimate investors choose BVI because it offers a structural advantage that delivers management control and access to new markets while treating all investors equally or as commercially agreed. Other advantages are credible and efficient dispute resolution and effective exit strategies. The BVI is the world’s leading international finance centre for facilitating the flow of foreign direct investment[2]; it is an engine of economic growth benefiting developed and developing economies alike.
In 2013 alone, BVI companies facilitated the investment of US$82.5 billion into emerging market economies, into projects ranging from infrastructure development to technology advances and resources growth, all of which have fuelling socio-economic progress and access to services including water, power, healthcare and education[3].
FDI fuels socio-economic growth in emerging markets: through job creation, infrastructure development and access to services including water, power, healthcare and education. Through FDI, developed economies can access and serve new markets and customers, and access technological and natural resources. This means increased revenue for the home economy, which ultimately translates into economic growth, more jobs and better lifestyles for the people in ‘home’ economies.
The BVI enables businesses which would otherwise be forced to operate in jurisdictions that restrict access to international finance because of regulatory, political, legal complexity or development reasons – to access capital in the international market via equity investment, IPOs, project and acquisition debt financing. BVI’s laws and courts are based on UK Common Law. The Privy Council serves as the court of final appeal for the BVI and the local courts settle disputes efficient and effectively.
Globalisation is dependent on functioning free markets and free trade. Accessing corporate advantage is consistent with the principles of free market specialisation. The BVI’s depth of expertise in relation to cross border transactions (including the resolution of disputes) is a significant attraction factor and why BVI is and will continue to be the corporate solution of choice for cross-border trade, joint ventures, debt financing, IPOs and more.
- The BVI embraces tax transparency.
The BVI cooperates fully with foreign tax authorities and the jurisdiction has led the way in adoption of automatic exchange of tax information, the gold standard of tax transparency. BVI was one of the first jurisdictions in the world to implement the OECD’s Common Reporting Standard for the automatic exchange of tax information.
As the UK Government recognised in the communiqué of the Joint Ministerial Council in December 2015, “it is not appropriate to refer to these Overseas Territories as ‘tax havens’.”[4]Unlike Panama, BVI and most offshore jurisdictions are not blacklisted by the OECD, and operate to the highest standards of integrity.
The BVI is a tax neutral jurisdiction. Tax neutral jurisdictions do not add additional tax to whatever is imposed by onshore or home jurisdictions. Equally they do not reduce the tax burden otherwise owed in the ‘home’ jurisdiction.
- The British Virgin Islands is not a secrecy jurisdiction
The BVI has robust anti money laundering and know your customer checks, checks which are absent in Nevada, Wyoming and Delaware, for example. The BVI regularly improves its transparency regime: for example, on 1 April 2016, the BVI introduced a central private registry of directors.
The BVI actively investigates appearances of non-compliance and works with foreign competent authorities to detect, prevent and prosecute illegal activities, ensuring that its laws are enforced and action taken transparently if any wrongdoing is identified. For example, in December 2013 the FSC fined Mossack Fonseca for failing to undertake enhanced due diligence[5].
In 2014 the Global Shell Games[6] report found that BVI service providers (94%) had some of the highest standards of compliance in the world, when it comes to refusing to establish companies without proper documentation, compared to the US state of Delaware (6%) and the UK (45%).
In 2015 the BVI made commitments to enhance cooperation between UK and BVI law enforcement authorities on beneficial ownership at the Joint Ministerial Summit with the UK Government. Beneficial ownership registers are new, and they are not widespread. The UK introduced its own register of beneficial ownership just last week: on 6 April 2016.
[1]BVI is ranked by the OECD (3 August 2015) as ‘Largely Compliant’ with FATF recommendations on beneficial ownership (the Financial Action Task Force sets global standards for fighting money laundering and terrorist financing) – in the same study, the UK is ranked Partially Compliant, and the US is ranked Non-Compliant
[2]FDI is the major economic driver of globalisation and accounts for over half of all cross border investment. FDI facilitates socio-economic factors such as job creation and primary infrastructure and services (water, power, healthcare and education). Through FDI, companies can access and serve new markets and customers and access technological and natural resources.
[3]The BVI is the world’s 4th largest recipient of FDI inflows. Despite its comparatively small size, BVI is a close competitor to the US, where $159bn FDI flowed into developing countries in 2013.
[4] “Joint Ministerial Council 2015 Communiqué”, Foreign & Commonwealth Office, 3 December 2015. (https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/488498/Overseas_Territories_Joint_Ministerial_Council_2015_Communique.pdf)
[5] http://www.bvifsc.vg/Publications/EnforcementAction/tabid/378/ctl/EnforcementSummary/mid/1188/actionId/16935/language/en-US/Default.aspx
[6] Findley et al (2014): Global Shell Games. Cambridge University Press (Cambridge). Global Shell Games tested standards in practice by sending 7,500 email requests to corporate service providers in over 180 countries around the world, attempting to establish companies without the proper documentation required by the FATF Recommendations.