OUR GLOBAL MOVEMENT
Steve is Transparency International UK’s Head of Research and Investigations. He is responsible for managing TI-UK’s research unit and is our specialist on lobbying accountability, party funding and open governance. Before joining TI-UK in May 2015, Steve worked as a Senior Policy Adviser at the Electoral Commission. He has over five years’ experience working on political finance regulation, legislation and data.
This week the UK Government plays host to Britain’s Overseas Territories for their annual joint ministerial council (JMC). Stephen Doughty, the Minister responsible for the Overseas Territories, confirmed earlier this month that company beneficial ownership registers – key measures in tackling the flow of dirty money – will be on the agenda. Who has access to these registers, containing the details of those ultimately controls companies incorporated in these jurisdictions, has become a point of tension between the UK and those Overseas Territories hosting opaque offshore financial centres. Big players, like the British Virgin Islands (BVI), have been dragging their feet on previous commitments to follow the UK’s lead and make their registers public.
Below we provide a quick run-down of what the BVI – the largest corporate register in the Overseas Territories – has committed to do and its progress to date (or lack thereof). But first, a quick reminder of why this matters.
The BVI’s large and secretive company formation industry has led to it become a destination of choice for organised criminals, politicians accused of corruption and sanctioned oligarchs seeking to hide their wealth.
In 2018, our research found that more than 1,100 companies from the BVI had been used in 213 corruption and money laundering cases globally, amounting to many billions of pounds worth of economic damage. And this is likely the tip of the iceberg. Since then, media reports and court cases continue to document the misuse of BVI companies in financial crime. Only this week, an OCCRP deep-dive into UK court documents found BVI companies at the centre of a scheme that saw stolen funds from Azerbaijan invested in the UK.
Not only does the BVI’s shell company industry contribute to kleptocracy and undermine global security, but it also risks hurting BVI citizens, too. Because of the BVI’s failure to get to grips with its dirty money problem, it faces being ‘grey listed’ by international standards bodies, which would likely impact its major industry – the company formation sector. In an Island where 60 per cent of its state revenue comes from this one sector alone, the spectre of being sanctioned like this presents an existential threat to its public services.
Ahead of the JMC minister Doughty made a visit to the BVI, seeking a progress update on their steps towards ending financial secrecy. Before we get into our own assessment of how far the BVI has come (or not), here’s a quick recap of negotiations to date:
May 2018: the UK Parliament makes clear it expects the Overseas Territories to introduce public beneficial ownership registers by the end of December 2020.
December 2020: the UK Government announces that all inhabited Overseas Territories have agreed to introduce publicly accessible registers by December 2023.
November 2022: the Court of Justice of the European Union (CJEU) finds the EU requirement to have publicly accessible registers is contrary to the EU privacy laws. Despite not being part of the EU, the Overseas Territories (including the BVI) express concerns about the legal implications of introducing publicly accessible company registers.
December 2023: the UK Government and Overseas Territories agreed that those jurisdictions without public registers could first introduce ‘legitimate interest’ access as an interim step towards full, unfettered disclosure.
October 2024: Minister Doughty makes clear that fully public registers remain the UK’s goal, with access restricted to those with a ‘legitimate interest’ only as an interim measure.
November 2024: Minister Doughty further states legitimate interest access should be ‘delivered with the maximum degree of access and transparency.’
Back in 2017, the BVI introduced a secure centralised database of beneficial ownership of companies based there, accessible to law enforcement agencies only. Prior to then, all of this information was held locally by registered agents providing trust and company services i.e. incorporating companies, submitting statutory filings to the regulator etc.
While UK law enforcement agencies can request data on individual companies from this central system thanks to an exchange of notes between the UK and BVI governments back in 2016, they do not have open and unfettered access to the data. Instead they must request information on a case-by-case basis, inhibiting any macro analysis that could significantly aid investigations. What’s more, the overall quality of the BVI’s register has recently been called into question.
A review by the anti-money laundering standards body, the Financial Action Taskforce (FATF), found several major concerns with the quality and accuracy of the BVI’s company register, as well as its overall approach to tackling dirty money. Information on company ownership is collected by registered agents, who are also required to carry out due diligence on the owners of these firms. FATF’s review found that:
BVI agents often rely heavily on third parties, such as lawyers, to provide information about the ultimate owners of companies under their management i.e. they aren’t always 100% sure who their ultimate client is
BVI agents often rely heavily on due diligence checks by these third parties i.e. the agents don’t check themselves whether their ultimate clients present a money laundering risk
those tasked with regulating BVI agents don’t seem to understand, or care, whether BVI companies are involved in money laundering so long as the underlying crimes don’t take place on their territory
To make matters worse, the BVI’s company registrar is staffed by just nine people in charge of processing 30,000 incorporations annually, meaning that it is highly unlikely that the information provided by agents is verified effectively.
Following the damning assessment from FATF, the BVI has rushed through a new law to amend its Companies Act. Importantly, these changes include a new definition of beneficial ownership (Section 2) and new requirements about managing beneficial ownership information (Section 16), which includes the foundations for a potential legitimate interest access system that is to be defined in detail via regulations (see Section 55). Below we provide a quick assessment of what these new provisions say, and what they show about the BVI’s direction of travel.
There’s cause for concern that the BVI’s stated approach would mean that applicants who can demonstrate legitimate interest wouldn’t get access to beneficial ownership information necessary to assist investigations. Instead, the BVI proposes to only release information on those holding 25 per cent or more of shares or voting rights. This means that journalists, businesses and NGOs won’t be able to see details about those owning companies via trusts or otherwise exerting significant control over them.
In practice, this could make it easy to avoid new transparency requirements and risks undermining the purpose of the register. For instance, we already know that a quarter of all BVI companies on the UK’s register of overseas entities are controlled by trust structures, and that their information would not be accessible to applicants. This includes Wastom Holdings Ltd, who ICIJ found out via leaks was really owned by the sanctioned Russian, Igor Komorov. And this is just a snapshot of what could be missing – there will likely be a transparency black hole for tens of thousands of companies, if not more.
In addition, the BVI still hasn’t laid out its legislative framework for legitimate interest access, which it will prescribe via regulations at a later date. The BVI Government will need to decide who can access the information and how. These regulations will make the difference between a workable register and one that is not, and the UK Government will play a key role in laying the ground rules.
Minister Doughty may want to encourage the BVI to steer clear from the approach currently proposed by the Cayman Islands, which requires applicants to seek data on case-by-case basis rather than being granted access to the entirety of the register. Not only would this be expensive – a rough calculation based off the Cayman islands proposed $30 fee, means it would cost $10.5 million to seek information on all 350,000 BVI companies – it would also not be effective. This would require an enormous workforce to respond to these queries, far-beyond the current capacity of the BVI registrar’s nine employees. Similarly, they shouldn’t require applicants to show a legitimate interest in information about a particular company, as many investigations use the register as primary source of evidence rather than to confirm existing suspicions.
The BVI has promised to legislate for a legitimate interest access register in early 2025. As the deadline looms – yet again – the upcoming JMC will be an opportunity for the UK Government to set out what genuine progress towards corporate transparency looks like. Chiefly, the Foreign, Commonwealth and Development Office should make clear that legitimate interest access registers can only be welcomed as a positive step forward if they follow best practices set out in the EU’s Sixth Anti-Money Laundering Directive. These should grant those with legitimate interest access to registers in full, in a timely and transparent fashion. This would mark genuine progress for the UK in achieving transparency in its offshore financial centres.
Additionally, Stephen Doughty should press the BVI on the quality of its register. As FATF made painfully clear, in its current state, the BVI register is unreliable and inaccurate.
The BVI’s poor track record on tackling money laundering to date, fuelled by its outsized shell company industry, makes it a test case for the new Labour Government to show how serious they will be about ‘making the UK the anti-corruption capital of the world’. We hope that Stephen Doughty encourages the BVI to show genuine progress towards corporate transparency, by enhancing effective legitimate interest as an interim step to public registers. Failing this, the BVI will continue to be a facilitator of corruption worldwide, undermining law, order and stability whilst damaging the UK’s reputation in the process.
