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A response to BVI Finance – How to shed the tag of “secrecy haven”

Written by Robert Barrington on Wednesday, 23 January 2019

Late last year the UK’s Foreign Office accepted that corporate transparency may not be introduced in the UK’s Overseas Territories (OTs) until 2023. MPs across Parliament have responded, saying this goes against the spirit of what they voted for. What’s clear is that the longer it takes for the OTs to open-up their company registers to public scrutiny, the more time money launderers using this jurisdiction have to cover up crimes committed using legal entities in those havens of secrecy.

Years of research and investigations have regularly shown how companies registered in the UK’s Overseas Territories and Crown Dependencies – in particular, the British Virgin Islands (BVI) – have been used by corrupt individuals who steal from their own citizens to distance themselves from their crimes.

More than half of the companies exposed in the Panama Papers were registered in the BVI, whilst our recent review of 237 corruption cases revealed that among that sample of cases 1,107 companies from the BVI alone have been involved in high-end money laundering and corruption worth £250 billion around the globe. The secrecy provided by such jurisdictions – where the beneficiaries of companies are hidden from public view –  makes it likely this figure is just the tip of the iceberg.

Lorna Smith, since 2016 the interim executive director of BVI Finance – the trade body for the BVI’s finance and company formation industry – has sought to refute the findings of our research in a letter to the Scottish Herald.

BVI Finance raised a number of questionable assertions in defence of their company services industry, to which we respond below:

1. “We are an active participant in a number of international initiatives, often exceeding global standards, and operate within a stringent regulatory framework and respected legal system”

The BVI’s long overdue money laundering risk assessment was carried out between 2011 and 2014, but published with little fanfare in August 2018. Whilst light on detail, this review casts doubt on the overall quality of due diligence applied by professional services firms operating there, as well as the accuracy of beneficial ownership information they collect. This may explain why companies from the Overseas Territories continue to appear in money laundering investigations. For example,  in July 2018 it was revealed that the UK’s first unexplained wealth order was issued as part of an investigation into an £11.5 million property held by a BVI company.

The assessment also highlights important concerns over the enforcement record of the BVI’s money laundering regulator.  Over the four year review period, this body issued just £750,000 in fines – unlikely to be a credible deterrent against firms like Mossack Fonseca, which repeatedly took on very high-risk clients and flouted basic anti-money laundering controls.

2. “Far from being a “secrecy haven”, the BVI is an early adopter of the OECD’s Common Reporting Standard (CRS), which requires the automatic exchange of information with multiple jurisdictions for tax purposes and has been described by HMRC as “the holy grail” for tackling evasion.”

The BVI is commonly regarded as a secrecy haven because it does not publish information on who owns companies registered there, or even basic details about officers or directors of these entities. Whilst in 2016 it agreed to give UK law enforcement agencies limited access to its company register, British authorities must specify what specific information they wish to view, thus limiting the ability to identify networks and severely limiting the utility of this arrangement.

The BVI claim also only relates to measures introduced for identifying tax evasion, which are different from those used to tackle money laundering.

3. “As evidenced in an independent report by research consultancy Capital Economics last year, the BVI “compares well against many other jurisdictions on international standards”

Since the report by Capital Economics was commissioned and funded by BVI Finance, it cannot be considered as independent.  Indeed, the report’s introduction was written by Ms Smith herself, and one of its key conclusions that ‘the BVI is not a tax haven’ would be counter-intuitive even to the BVI’s most ardent admirers, and certainly to those who use it for that very purpose..

4. “The BVI also operates one of the most advanced beneficial ownership platforms in the world”

Whilst the BVI may claim to have a world-leading register, the secrecy which shrouds it prevents anyone independent or external from actually assessing this claim. Information which is entered onto the BVI’s register is supposed to be verified by professionals forming and maintaining companies there; however, due to the issues raised in the BVI’s risk assessment (see above) it is not clear whether this work is being done to the standard that is claimed.

Opening the register to public scrutiny would provide a more credible second layer of verification, by experts from around the world, which would give greater confidence in the data’s accuracy – public registers and verified registers are not mutually exclusive.

Ultimately, the test is surely this: if the BVI’s systems, and procedures, and oversight, and register are as good as it claims, why are so many corruption cases still traced to the BVI?

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Read 444 times Last modified on Wednesday, 23 January 2019 10:22
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Robert Barrington

Robert is TI-UK's Executive Director. You can view his full bio here, and tweet him @TIukED.

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