Beneficial Ownership – Looking To The Future

Over the years, they have committed to working with the international standard setters in raising standards to tackle money laundering, tax evasion, illicit finance and corruption, leading by example given the importance of our financial centres to the international system. They also accept that it is important that law enforcement and tax authorities have timely access to beneficial ownership information of companies incorporated in our jurisdictions.

COTs including the BVI have met and, in many respects, surpassed the requirements for beneficial ownership information through their long-standing compliance with standards established by organisations such as the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes and the Financial Action Task Force (FATF).

Indeed, our state-of-the-art Beneficial Ownership Secure Search system (BOSSs) is a good example of how the BVI has adapted and innovated, introducing world leading technology to help record beneficial ownership information.

Like the United Kingdom, the United States, and other onshore jurisdictions, the BVI has been deemed largely compliant by the OECD Global Forum. Further, the BVI has met 40 of the 49 recommendations of the FATF recommendations which is far more than many of its peers – the next review  is due in 2021. These levels of compliance provide the comfort and confidence that an investor needs and finds in doing business with the BVI. 

However, despite the BVI’s and other Caribbean Overseas Territories’ adherence to the Anti Money Laundering/Counter-Financing of Terrorism AML/CFT rules set by the FATF amongst others, more recently there have been insistent demands, including from the European Union, for increased public access to company beneficial ownership information.   

The Urgency Of Now

Beneficial ownership has ‘percolated’ to the top of regulatory requirements today due to a confluence of events, starting with the 2008 financial crisis together with pressure from NGOs with access to influential politicians. A number of data leaks over the last four years or so, the most recent being the FinCEN material, continue to fuel the debate.

To deal with the financial crisis, many Governments sought a scapegoat for their national loss of revenues. Territories with low or tax neutral bases were an easy target. New life was breathed into organisations like the OECD Global Forum and the battle for greater transparency and exchange of information between nations around the globe was joined.  A slew of initiatives followed including accelerating negotiations of Tax Information Exchange Agreements (TIEAs), the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (MAAC), the Foreign Accounts Tax Compliance Act (FATCA), the Common Reporting Standards (CRS), and most recently the EU Economic Substance Act (ESA). Without exception, each initiative’s fundamental objective was greater transparency and access to beneficial ownership information.

BVI’s International Engagement

The BVI has always engaged with global standard setters actively helping to shape the standards that are set. The jurisdiction’s philosophy is that it is better to be seated at the table than to be on the menu! As a result, since the establishment of the FATF, the organisation responsible for global regulation in the area of beneficial ownership, in 1989 the BVI developed and implemented a strong legislative and operational framework to meet its requirements. The BVI is also a signatory to the several initiatives mentioned in the previous paragraph and more.

COT’s Commitment To Beneficial Ownership

In 2015, Caribbean Overseas territories including the BVI committed to implement the G20’s high level beneficial ownership and transparency principles.

The following year, through the 2016 Exchange of Notes protocol between the UK and the Overseas Territories, the latter agreed to hold adequate, accurate and current beneficial ownership information for corporate and legal entities on a secure central database or similarly effective system. In the case of the BVI, the UK’s competent authorities would have access to the information which would be provided within 24 hours of the submission of a request unless it was notified that the request for information was urgent, in which case the information would be provided within one hour.

The commitment by COTs was made against a backdrop of a number of initiatives including the 4^th EU Money Laundering Directive, the FATF’s Recommendations and Guidance on Transparency Beneficial Ownership, the G20 High Level Principles on Beneficial Ownership and Transparency, and the UK Government’s decision to establish its own publicly accessible central register of company beneficial ownership.

BVI Response: BOSSs

In some respects, the BVI leapfrogged over the original 2014 guidance for the secure keeping of information and used technology, creating an efficient and effective system which holds both the information and its verification, incidentally a core requirement of the FATF. The BVI’s Beneficial Ownership Secure Search system (BOSSs) was enacted to implement the terms of the Exchange of Notes which the governments of the BVI and the United Kingdom signed on 8 April 2016

The Act that created BOSSs provides the legal framework for recording accurate company beneficial ownership information and the disclosure of that information to law enforcement authorities in jurisdictions with which the BVI has entered into bilateral agreements.

BOSSs itself is an innovative digital platform with a searchable portal that provides BVI Competent Authorities with direct access to verified beneficial ownership information on any active business company. Indeed, the verification element which BOSSs provides puts the jurisdiction ahead of countries like the United Kingdom. To be clear, the Act facilitates the effective storage and retrieval of beneficial ownership for all BVI companies without the possibility of ‘tipping off’ during searching for and retrieving information.

The beauty of BOSSs is its flexibility in being able to adapt to new requirements.  For example, it was technically and legislatively straightforward to fulfil the EU’s economic substance requirements by adjusting the system to its satisfaction. It is therefore safe to say that BOSSs helped to pave the way for the compliant rating that this jurisdiction received from the EU earlier this year.

Effectiveness Of The Exchange Of Notes Regime

The most recent Home Office review of the effectiveness of the Exchange of Notes in 2019 gives the UK Crown Dependencies and Overseas Territories (CDOTs) high marks in all areas: the BVI, for one, has provided information in a case of unexplained wealth (UWO) in 2018 leading to prosecution.  Information from the jurisdictions also led to strengthening ongoing fraud investigations, a time critical account freezing order on a Politically Exposed Person (PEP) for hundreds of thousands of pounds as well as supporting international bribery and corruption investigations.

The evidence found in the review confirms that Caribbean OTs will not tolerate the use of their structures for illegitimate activities of any kind and that they will cooperate with all international organisations in the fight against crime.

Direction Of Travel

There are several issues for consideration including the most topical – publicly accessible registers of beneficial ownership.  With regard to the OECD, the availability of beneficial ownership information, i.e. the natural person behind a legal entity or arrangement, is now a key requirement of international tax transparency and the fight against tax evasion and other financial crimes.  In the case of the EU, the 5^th Anti Money Laundering Directive requires company beneficial ownership information to be made public. 

However, it is probably the EU Directive which has driven the major changes required, not just of the CDOTs, but all EU countries by stating that for beneficial owners of companies, the EU Member States must establish publicly accessible registers. Compliance with the Directive will be reviewed in January 2022. It is noteworthy, however that to date, of the 27 EU Member states only five have fulfilled the requirements for Public Registers, so the review period could be interesting.

Given this obvious direction of travel, all Caribbean OTs have now committed to publicly accessible registers of company beneficial ownership by 2023:

Cayman Premier, Alden McLaughlin in his commitment statement made this point in late last year when he said: “Since 2013 my government has committed to introducing a public register of company beneficial ownership when it becomes an international standard.... the introduction of the UK's public beneficial ownership register, the EU 5th Anti Money Laundering Directive and similar actions by other jurisdictions represent a shift in the global standard and the practices used to combat illicit activity”.

In July this year, Bermuda stated that it was taking the same approach: “…the Government of Bermuda intends to make the companies central register of beneficial ownership information accessible to the public”. 

The BVI has made the same commitment with Premier Andrew Fahie declaring in September of this year that “… within 12 months of that publication (of the EU’s review), we will … bring forward to the Legislature proposals to establish public access to beneficial ownership data of companies held on a central register”.

While the EU is leading the charge on public accessibility, it is clear that the issue of company beneficial ownership has been included in reviews conducted by global standard setters such as the FATF and the OECD Global Forum. There are signs that the lack of such public accessibility may lead to a downgrading of existing ratings, something the BVI is determined to avoid during its forthcoming 2021 review.

Whatever the standard setting direction we receive, the BVI and other Caribbean Overseas Territories will continue to effectively respond to those requirements as we all continue to make our contribution to legitimate cross-border trade which is so vital to the world’s economy.

I end this article with a quote from our Chief Regulator Dr. Robert Mathavious speaking to colleagues in Barbados in 2017: “compliance with international regulatory standards is a sine qua non for reputable financial centres. With compliance comes international respectability, and with respectability come opportunities for the financial sector to trade, source and do good, legal, profitable and sincere business with persons outside the jurisdiction”.