British Virgin Islands: "Sun, Sand, and the $1.5 Trillion Dark Offshore Economy"
From Bloonmberg Businessweek: The British Virgin Islands is nominally home to 400,000 companies, and desperate to fend off the transparency movement.
The British Virgin Islands
is home to more than 400,000 companies that hold $1.5 trillion in
assets. You wouldn’t know it if you walked through Road Town, the
capital of this Caribbean archipelago. Hens and roosters compete
brazenly with cars on the single narrow lane of Main Street. Law firms
that set up and serve thousands of offshore companies occupy modest
buildings next to brightly painted wooden houses that host cheap beauty
salons and clothing shops with names like Goodfellas.
Besides a few mangled green street signs on Main
Street, few roads are marked. The BVI doesn’t have mail delivery; its
businesses and 32,000 residents use post office boxes as their
addresses, which is why one P.O. box in Road Town can be the nominal
home to thousands of companies from around the world. Hundreds of
lawyers, accountants, and company agents work from buildings dotted
around the main island of Tortola. In some tax havens—Luxembourg, Monaco,
or even parts of the Cayman Islands—money is dripping off every corner.
In the BVI, the wealth passes through almost without a trace.
When I visited in April, my first stop was Tobacco Wharf, a
collection of anonymous-looking houses tucked off the main road, where
the global accounting company BDO Ltd.
occupies a four-story green-and-beige building surrounded by palm
trees. Inside I was greeted by Ryan Geluk, a lanky, bearded accountant
who serves as the company’s deputy managing director on the island, and
Neil Smith, the BVI’s director of international business. Geluk started
tapping away on a keyboard to show me the database he’s so proud of: the
Beneficial Ownership Secure Search System, or BOSS, which the BVI
started using in 2017 to satisfy international demands that it keep
track of the owners of its companies. A screen on the wall showed a
dataset. He clicked on
Almighty Dollar, a company registered to P.O. Box
9272 in Road Town in December 2007, with a passport number and date of
birth for its owner, John Zykov-Wumu.
Almighty
Dollar isn’t a real company but rather a prototype, which is all Geluk
could show me. Even though he helped get it up and running, Geluk
doesn’t have permission to scan the whole database. In fact, only two
people, a pair of unnamed employees of the BVI’s Financial Investigation Agency,
are able to search the entire system, which holds details on about
600,000 owners who have directly or indirectly controlled companies
here. It’s thought that roughly a third of all offshore companies
globally are registered in the BVI.
Geluk said BOSS uses encryption that’s never been hacked. “If someone
accesses it from somewhere unusual like North Korea, it will be shut
down immediately,” he told me, adding that the data are housed in a
secret location known only to him and his team. “All I can say,” he
said, “is it’s held in a G-7 country, and it’s not the U.S.”
Change is coming to the BVI, though not if the
politicians and businesspeople here—as well as plenty of less-connected
people—can help it. Last year the U.K. Parliament voted to force
transparency on the BVI and the 13 other British Overseas Territories, a
collection of former colonies where the flags display the Union Jack,
the queen appoints a governor to control foreign affairs and law
enforcement, and the judicial system is based on English common law. It
was a rare moment of cross-party consensus among British members of
Parliament, who have been in gridlock
since 2016 over the terms of leaving the European Union. The crucial
part of the transparency legislation is a requirement that each Overseas
Territory produce something like BOSS and make it public.
The BVI’s place in the dark offshore economy was illuminated by the 2016 Panama Papers leak, in which 11.5 million documents from the law firm Mossack Fonseca were released by the International Consortium of Investigative Journalists.
The disclosures sparked probes worldwide into money laundering,
sanctions violations, and tax avoidance, and it didn’t pass without
notice that more than half the companies outed in the leak were
registered in the BVI. (The scandal should have been called the BVI
Papers, more than a few people suggested.) It was clear from the
disclosures that BVI regulation was inadequate, and that remains a
concern today: Last year, BVI regulators conducted only four on-site
inspections of financial firms.
People here are well aware of the outrage over hidden wealth and lost
tax revenue. They just don’t believe they’re to blame, and many people
deny that their country is even a tax haven or a secrecy jurisdiction.
The BVI is, in fact, one of the most vocal opponents of the worldwide
transparency drive, which makes the success or failure of its pushback a
barometer of whether the global squeeze on the offshore industry is
working.
When you walk the dusty streets of Road Town, it isn’t
immediately clear why local people would be invested in the transparency
fight. The companies registered here don’t pay taxes. Entire islands in
the 60-island archipelago are owned by rich people from other countries
(Richard Branson owns Necker Island; Google’s Larry Page owns Eustasia),
and there are few signs that wealthy people who use the BVI spend much
money in the local economy. Damage from Hurricane Irma, which swept over
the BVI in September 2017, is still evident everywhere. But islanders
up and down the economic scale answered my questions about transparency
the same way: The BVI would be a much poorer place without its
financial-services industry. It costs $450 to form a company
with fewer than 50,000 shares and another $450 a year to maintain
registration. As modest as that might sound, it’s what makes the economy
go. Financial services account for 62% of the BVI’s $372 million in
government revenue, and the number will probably decline if it adopts a
public register of company owners.....
