According to the US Treasury, the BVI is one of the most high-risk money laundering jurisdictions in the world. However, in October 2020, the BVI committed to establishing a publicly accessible register of company ownership by 2023 following sustained pressure for greater transparency from Westminster and other UK overseas territories, such as the Cayman Islands. In December, the UK Government’s Foreign, Commonwealth and Development Office published a policy paper setting out a framework to nudge along the adoption of publicly accessible registers by the UK’s overseas territories. In response, the Premier and Minister of Finance of the Virgin Islands, Andrew Fahie stated that “while the Virgin Islands remains committed to the global efforts aimed at tackling illicit financial flows, and will continue to cooperate with international-standard setting bodies on matters related to information exchange, beneficial ownership and economic substance, the Government of the Virgin Islands has significant reservations regarding the Draft Order [which] may pose a threat to those privacy rights secured to individuals under the Constitution of the Virgin Islands.” Despite these reservations, in February 2021, the International Tax Authority of the BVI released an unofficial consolidated version of the Beneficial Ownership Secure Search System Act 2017, indicating that the move towards greater transparency is underway.
In July 2020, the UK Government declared that eight of the UK’s fourteen overseas territories would establish publicly accessible registers of beneficial ownership by 2023. Yet this announcement has been years in the making. Since the BVI moved to prioritise its financial services sector and specialise in company formation in 1984, it has struggled to shift its reputation as a haven for the evasion of tax and similar transgressions. Criminals, attracted by the limited corporate disclosure requirements, have for years woven complex structures of shell companies to conceal the true arrangements and beneficiaries. In 2018, North Korea was accused of creating a web of BVI registered shell companies in order to evade sanctions. It is through these networks that the proceeds of criminal activity can be transformed and reintroduced back into the financial system.
This conduct was most recently exposed in the FinCEN files, which demonstrated that no less than 20% of the reports filed by banks detailing suspicions of money laundering implicated BVI-registered companies. In the case of the Panama Papers, 50% of exposed by the leak were registered in the BVI. The FinCEN leaks solidified the idea that banks, up until this point, have not been taking the enforcement mechanisms in place seriously enough. More worryingly, the leaks only detail the transgressions on paper, the activities out of the public domain are certain to be substantially larger in scale. According to an FATF report released in November 2020, when conditions such as a lack of legal measures are in place, companies can be used for a host of illicit purposes including money laundering, bribery, corruption, tax fraud and terrorist financing. Criminals can devise legal persons to head companies, with directors, secretaries, and a post-box, whilst the actual beneficiary is hidden from public view.
Moves to tackle the problems associated with UBO disclosure closer to home have been under way for years. In 2016, the UK instituted a requirement that limited companies, along with other entities such as charitable companies and subsidiaries of exempted companies, would identify persons with significant control. Then, in May 2018, the UK Parliament passed legislation requiring its overseas territories to implement publicly accessible registers of corporate ownership by 2020. Following this lead, in June 2019, the Crown dependencies collectively took on a schedule for reform for when they would institute the same requirements before the end of 2022. Though the UK succeeded in its implementation through Company House disclosure, this has not yet extended to the UK’s foreign jurisdictions. As a result of slow progress, the deadline forcing overseas territories to publish public registers of company ownership was delayed to 2023.
Why does it matter who the ultimate beneficial owner of a company is? Millions of transactions are processed by banks every day. The integrity of the banking system relies on banks knowing their customers’ identities and sources of wealth. Obliging the UBOs of BVI entities to reveal their interests will efficiently equip compliance professionals with key intelligence to identify potentially illicit transactions.
Previously, Quintel Intelligence has had great success in piercing the veil of secrecy surrounding UBO’s of entities in the BVI by use of targeted disclosure orders. These legal investigations have yielded some impressive results assisting in asset tracing and subsequent freezing and confiscation orders, ultimately securing the client a positive outcome. Although this tactic has proven successful, it can be an expensive and time-consuming method, whereas access to a centralised public database would lead to the same conclusions in a practical and time-efficient manner, to the benefit of both the legal sector and its clients. In short, speed prevents dissipation and with that the need to make numerous disclosure applications in multiple jurisdictions.
A more tangible manifestation of the problems associated with disclosure sits much closer to home. In 2014, Private Eye mapped data from a Freedom of Information request showing all freehold and leasehold land and property registered in the UK in the name of an offshore company between 2005 and July 2014. The data is accessible via a searchable, interactive map. A 2017 Global Witness report revealed the extent of the ownership in London of properties for whom the ultimate beneficial owner is anonymous: for the City of Westminster alone this corresponded to over 10,000 properties, whilst in Kensington & Chelsea it numbered almost 6,000. Meanwhile, a 2019 investigation for the Observer further noted that over £100 billion of property in the United Kingdom is anonymously held. These investigations make for compelling reading, and further illustrate the problems arising from the historic lack of ownership disclosure requirements in the purchase of UK land and property.
In January 2020, the United Kingdom added a new piece of anti-money laundering regulation into the housing market in an attempt to tackle the problem, in the form of the Money Laundering and Terrorist Financing (Amendment) Regulations 2019. Any agent hoping to hook a prospective tenant that seeks to pay rent through an offshore company must now identify the ultimate beneficial owner of the offshore company, which is set to be extended to all property-owning companies this year. Indeed, 2021 is the year the UK government intends to introduce a publicly available and operational register of beneficial ownership for UK properties owned by overseas firms and legal bodies. Currently, a database of overseas companies that own property in England and Wales is publicly accessible. However, the Registration of Overseas Entities Bill, which was published in 2018 and remains in draft stage, is intended to reveal the ultimate beneficial ownership throughout the UK property market. So far, despite a ‘fit for purpose’ rating by the Regulatory Policy Committee, it is not yet clear when the register will be introduced.
Despite the calls for moving towards greater transparency, the UK and its territories remain a destination for dirty money. Last February, the Tax Justice Network claimed that the UK was one of the most secretive financial systems in the world, ranking the UK 12th of 133 countries, and worryingly higher since its previous position of 23rd. Though the integrity of the banking system theoretically depends on it, for banks, there has been little incentive to investigate ultimate ownership. This is the opinion held by financial crime expert, Rowan Bosworth-Davies, who in 2015 observed that compliance with AML regulations on ownership disclosure would render banks prone to losing clients, and all the potential work they may provide as a direct result.
The developments in the BVI signal that change is under way. Ensuring that ownership information is public, accurate and up to date will not only address in part the economic damage arising from the UK’s overseas territories, but also provide for wider reputational benefits on the international stage. This is part of a wide push towards transparency as evidenced by the passing of the Corporate Transparency Act (CTA) by US Congress in December 2020, which will force a reporting company to submit beneficial ownership information to FinCEN. Questions remain as to how the CTA will be administered and applied by January 2022, the deadline for its adoption, though the list of alternative destinations for illicit funds waiting in the wings is vast. Whilst critical advances towards transparency are afoot, it would be naïve to think that a new stage of offshore innovation is not already in progress, as individuals look for a better destination to deposit their assets.
For further information please see Quintel’s Litigation Support services.
Global Risk Investigations
92 Albert Embankment
London, SE1 7TY
+44 (0)203 948 1988