Philip Graham discusses the wave of negative publicity generated by the media that hit the BVI this year and considers the jurisdiction’s approach to re-establishing the Islands’ reputation as a leading and secure financial services centre.
Whilst the British Virgin Islands (BVI) have always been regarded as an exceptionally safe, secure and stable environment from which companies and individuals can manage their worldwide financial concerns, the BVI found itself at the centre of a ‘perfect storm’ in the first half of 2013. But this wasn’t the usual tropical weather system making its menacing way across the Atlantic Ocean. Instead, the Overseas Territories and Crown Dependencies of the United Kingdom (and the BVI in particular) were swept into a wave of negative publicity generated by media, major governments and non-governmental organisations (NGOs) because of their ‘offshore’ status and the financial sector behind it. With this as a backdrop, British Prime Minister David Cameron announced the agenda earlier this year for a June G8 Summit titled “Tax, Transparency and Trade”.
Cameron set out his case for radical global action to tackle tax evasion and aggressive tax avoidance. He called for action in four key areas: a new global standard for multilateral information exchange; action plans to increase transparency in beneficial ownership; a reform of global tax rules through the G20 and OECD; and improving the ability of developing countries to collect tax.
He wrote to the BVI along with Bermuda, Cayman, Gibraltar, Anguilla, Montserrat, Turks and Caicos, Jersey, Guernsey and the Isle of Man asking them to, amongst other things, become bound to the terms of the multilateral Convention on Mutual Administrative Assistance in Tax Matters, look towards properly managed central registries and to produce action plans on beneficial ownership.
Now whilst the BVI government recognised some of the potential challenges ahead, given that the BVI has a history of steadfastly implementing commendable regulatory standards, the BVI government was hopeful that they could meet any reasonable measures imposed. This was recently documented by the BVI Premier, Dr the Honourable D Orlando Smith, OBE:
“We are committed to continuing to playing a leading role in delivering a responsible and effectively regulated global business environment and to tackling the global problem of tax evasion as part of a coordinated, balanced and meaningful process.”
Nevertheless, in a global climate of negative publicity culminating in directives from the UK Prime Minister, the BVI government needed to mount a public response to the G8 agenda. There were three main areas coming out of the G8 meeting that affected the BVI:
(a) The G8 committed to “establish the automatic exchange of information between tax authorities as the new global standard” and “to developing a truly global model for multilateral and bilateral automatic exchange building on existing systems.” The BVI has pledged its full compliance with the FATF recommendations on this point;
(b) The G8 agreed to publish action plans to make information on who owns and profits from companies and trusts available to tax collection and law enforcement authorities. The UK plan commits to a central registry of beneficial ownership information and to consult on whether it will be made available to the public. The BVI Government’s plan rejects the creation of a central registry on the grounds that implementation of standards that are not of universal application may result in arbitrage and loss of business. However, it says that “if at any time in the future this requirement is elevated to a need to maintain such information in a central registry accessible to law enforcement and tax authorities and applied universally, the BVI will review its regime accordingly.” The important thing to note in defence of this position is that the BVI already meets the criteria laid down by the G8, which is that beneficial ownership should be accessible to law enforcement and tax authorities and that it should be adequate, accurate and current; and
(c) The G8 called on all jurisdictions to join the Global Forum and the Multilateral Convention. The BVI government, in turn, expressed its commitment to enter into the Convention.
So, while the BVI has quietly cultivated high regulatory standards over many years, it is now working with other governments in a more public spirit of cooperation and is adapting in the ways that it deems appropriate to the latest directives. We are certainly happy to say that in the spring and summer of 2013, the jurisdiction as a whole (both the private and public sector, working in unison) did a good job of navigating in a challenging environment, rallying its industry allies and putting forth the facts about its high regulatory standards to the global media and public.
This was ratified in September when the G20 Summit was held in Russia. As expected, it was agreed for there to be an aim for automatic exchange of information to be the only form of exchange by 2015. This is certainly something the BVI government have contemplated and have committed to work with the various regulatory bodies to assist with a mechanism to make it possible. A further positive development came forth shortly after the G20 Summit, when David Cameron commended the Overseas Territories and Crown Dependencies for their recent actions taken to ensure tax transparency. He said that it is no longer “fair” to refer to the BVI, and its peers, as ‘tax havens.’
Despite these remarks, the intense global scrutiny and negative publicity surrounding the offshore centres is not likely to die down in the near future. Therefore, the BVI government has remained firmly and stoutly committed to addressing any concerns going forward, fully recognising that the margin for error in the future will be thin and the global situation is dynamic and unpredictable. The BVI government and its business community are fully focused on remaining smart and agile to maintain its competitive advantage as time moves on.
Happily, the jurisdiction’s attributes are many, which include modern, effective legislation which continues to pragmatically evolve as the conditions dictate to ensure it remains ahead of the curve whilst continuing to provide flexible and user-friendly products, an English common law system which is widely understood and practised in the major global centres, a dedicated commercial court based in the BVI with appeals court process which eventually can be progressed to the United Kingdom’s Privy Council and the fact that BVI resources (including lawyers) are available in multiple time zones and have considerable and valuable expertise.
The BVI brand is synonymous with offshore companies, meaning that the jurisdiction is top of mind with professional intermediaries who recognise and support the cost-effective but well regarded and long-established jurisdiction.
With a long-standing history of high-quality regulation and an established and engaged business community, the BVI really can continue to thrive in a more challenging future. It won’t always be easy, but there are a multitude of reasons why the BVI can realistically expect to emerge from 2013’s turbulent season with growing strength.
Philip Graham is partner in charge of Harneys’ British Virgin Islands investment funds and regulatory practice and has over a decade of experience advising clients in relation to corporate and funds law in both an onshore and offshore context. Philip has also developed significant experience advising on and analysing emerging regulatory issues affecting offshore jurisdictions.