The topic of publicly available beneficial ownership registers is hot. A lot of pressure has come on smaller International Financial Centres (IFCs) to give in and dish up.
The reasons IFCs have resisted are manifold and not always suspect as portrayed by journalists who peddle in sensationalist news, or as the President of the United States might call it, ‘fake news’. The BVI has received an inordinate amount of bad press lately, largely due to the Panama Papers revelations. What tends to be overlooked, however, is just how much useful material there is to seek disclosure of, and how available it is, in the BVI. In an interview with one of our partners, Dan Wise, last year, the BBC Business Daily’s Ed Butler spoke about the perception that there was little to no judicial oversight in the BVI. That couldn’t be further from the truth as I hope to highlight below.
In April 2009, the BVI Commercial Court opened with the appointment of Mr Justice Edward Bannister QC. Since then there has been a substantial increase in the volume and value of commercial and insolvency litigation. Earlier this year three new judicial appointments were made to the Court, bringing further depth and expertise to a Court that has raised the reputation of the BVI as a financial centre with a robust and cutting edge legal and regulatory framework.
Since its inception, the Commercial Court has dealt with numerous complex cases involving multi-jurisdictional disputes; it has been at the forefront of the development of new judicial precedents, not least amongst them precedents concerning the extent of the right to disclosure. It is ironic that the courts of the BVI have done more, relatively speaking, to develop the law of disclosure, than their counterparts in many of the less ‘secretive’ jurisdictions, a factor that in my view must be taken into consideration before criticizing the BVI on account of any alleged lack of transparency.
‘Secrecy jurisdictions’ is without doubt one of the favoured buzz terms used by the media when speaking or writing about offshore financial centres, such as the BVI. The term is used interchangeably with ‘tax haven,’ another term bandied about without any real thought for definition. The Financial Secrecy Index of the Tax Justice Network at least points out that there is ‘no generally agreed definition of what tax havens or secrecy jurisdictions are’, but ‘loosely speaking’ defines a secrecy jurisdiction as one that ‘provides facilities that enable people or entities escape (and frequently undermine) the laws, rules and regulations of other jurisdictions elsewhere, using secrecy as a prime tool’. The Financial Secrecy Index focuses on secrecy in terms of what it calls ‘escape from disclosure’. Interestingly, the BVI shares a secrecy score with the United States, a jurisdiction that likes to tout itself as open (with the exception of its borders). So let’s focus on ‘escape from disclosure’ where the BVI is concerned and in particular in the context of the jurisprudence of its Commercial Court.
First, a little background. Commonwealth Courts have jurisdiction to grant disclosure orders known as ‘Norwich Pharmacal’ orders based on common law and equitable principles. In the English case that gave this tool its name – Norwich Pharmacal v Customs & Excise Commissioners  AC 133 – it was held that, although as a general rule no independent action for discovery can be launched against a person against whom no reasonable cause of action can be alleged or who is a ‘mere witness’, such rule does not apply where the person against whom discovery is sought has become entangled in the apparently wrongful acts of another so as to facilitate the wrongdoing and without the discovery of the information in question, no action can be brought against the wrongdoer. There are two original sources of the jurisdiction to order discovery against third parties. First, there is the ancient equitable jurisdiction to preserve and protect a trust fund. Second, there is the Norwich Pharmacal jurisdiction (where third parties have become ‘mixed up’ in the wrongdoing of others). The jurisdiction has been developed extensively over the years. The categories of case in which the order may be granted are certainly not closed. They are not even confined to the litigation context.
One of the criticisms levelled at the BVI is that its refusal to make public certain corporate information, such as the identities of beneficial ownership of shares, simply reinforces its reputation as a secrecy jurisdiction. There are many good reasons why the BVI has refused to do so, and indeed many serious questions about whether a public beneficial ownership registry would succeed in addressing the concerns raised by those who demand one. (For instance, a public UBO Registry is liable to send the identities of true UBO's further underground through an explosion in the use of nominee or dummy UBOs). However, these are matters best left for another discussion.
Those that avow the need for a public register of beneficial ownership rarely address the reality that there are means of obtaining such information where a legitimate need is shown. Indeed the BVI has agreed with the United Kingdom (UK) Government to share beneficial ownership information with a view to preventing and detecting illegal activity in both jurisdictions. The BVI has further committed to ensuring that the information is adequate, accurate and current, that it will be held securely, and that in appropriate cases such information can be provided electronically within one hour of request.
For private parties who have suffered loss and believe that a BVI corporate structure acts as a facade for a beneficial owner who has caused or contributed to that loss, the BVI Courts are willing and able to order disclosure designed to unearth the identity of that party. Such relief is often far more effective at unveiling the identities of the real parties in interest than a trawl through a public registry that may (and more often than not does) only disclose a nominee or ‘man of straw’. Certainly, for those that have something to hide, a public register is the least of their worries.
In the BVI the courts are willing to order disclosure of information ‘to enable the person wronged to identify a mole within the organization, to trace assets which have been taken without the alleged fraudsters being alerted, to locate assets upon which a judgment could be enforced, to enable third parties to be identified who had themselves done nothing wrong but who had received letters containing allegedly false statements, and to obtain information which is central to a contemplated claim, and which will show whether the applicant does have a good cause of action against a named person.’
In JSC BTA Bank v Fidelity Corporate Services Limited and others, the Eastern Caribbean Court of Appeal reaffirmed the parameters under which a BVI registered agent is obliged to disclose information under Norwich Pharmacal principles. The Court held that registered agents performing their professional services cannot be considered ‘mere onlookers’. Where companies that they formed and maintained facilitate the commission of an apparent fraud, then the agent is sufficiently involved in the wrong to come under a duty to disclose.
The Court further found that registered agents, by virtue of the services they render, coupled with the AML-KYC due diligence duties they are obliged to perform, are expected to have information as to instructing or controlling minds behind the companies implicated in a wrongdoing, and in all probability information pertaining to banking mandates and resolutions passed for the operation of bank accounts in their possession.
This was a landmark decision in that it represented the first reported occasion upon which a Court decided that registered agents, simply by doing their job, (taking for granted that they were doing it correctly), would have access to information concerning the real parties in interest and would be obliged to disclose it where the companies they managed were involved in wrongdoing.
Norwich Pharmacal disclosure is generally ordered where the information is required to enable a wronged party to identify who or what to sue. The jurisdiction has been extended over the years, as noted above. It may encompass more than just the identity of apparent wrongdoer information. It may encompass ‘full information’ regarding the apparent wrongdoing. The jurisdiction also enables the court to order discovery to preserve a trust fund and to enable tracing of misappropriated funds.
However, until relatively recently, it was perhaps, surprisingly, doubted whether it was available to assist a judgment creditor in the context of post judgment enforcement. Indeed, in the case of NML Capital Ltd v Chapman Freeborn Holdings Ltd & Ors  EWCA Civ 589, the English Court of Appeal left open the question of whether Norwich Pharmacal orders can in fact be made post-judgment.
The judgment suggests that a third party would have to be involved in the wilful evasion of execution before an order could be made. In the BVI, any uncertainty surrounding this question was cleared up by the relatively recent decision of the BVI Commercial Court in UVW v XYZ (a registered agent).
In that case Judge Wallbank held that Norwich Pharmacal relief was available against a BVI registered agent post-judgment, in aid of enforcement, where there was a reasonable suspicion that the registered agent was ‘mixed up’ in the wilful evasion of another’s judgment debt. Judge Wallbank thus confirmed that the relief was available to assist in securing compliance with freezing orders, including such orders made by foreign courts. Going a step further than other decisions regarding the use of corporate vehicles, Judge Wallbank also confirmed that it need not be shown that the corporate vehicle was created by the registered agent for the wrongful purpose.
Rather, it is sufficient that the company had been used for that purpose. This decision sends out a strong signal that the BVI, despite its reputation as a secrecy jurisdiction, will not stand idly by and allow judgment debtors, or indeed any other parties who seek to use the jurisdiction to evade lawful obligations, to hide behind corporate facades.
For those who want to escape from the stresses of daily life, the BVI is really one of nature’s best kept little secrets – as the BVI Tourist Board correctly touts. It is not, however, contrary to popular belief, a place to escape from the law.
Martin is Managing Partner of Martin Kenney & Co (MKS), a specialist investigative and asset recovery practice based in the BVI, focused on multi-jurisdictional fraud and grand corruption cases. In 2014 Martin was the recipient of the Association of Certified Fraud Examiners (ACFE) highest honour: the Cressey Award for life-time achievement in the detection and deterrence of fraud. Ranked by both Chambers and Partners and Legal500, for the past several years he has been chosen as a global elite “Thought Leader” of the legal profession by Who’s Who Legal. http://martinkenney.com/