Tag Archives: BVI

IMF Staff: British Virgin Islands A Haven for Fraudsters, Tax Cheats, Corrupt Officials, Other Assorted Financial Crooks

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The IMF staff doesn’t put the conclusion to their report on the British Virgin Islands’ antimoney laundering controls as starkly as the headline to this post does. But its February 27, 330-page assessment of the island nation’s efforts to curb money laundering leaves no doubt the headline is accurate.

The report finds regulatory oversight of the financial sector is sparing at best, and in the rare instance when a violation is detected, the penalty is laughably weak. What seals the deal for those needing a safe place to stash money from corruption, drug dealing, and other financial crimes is the “who cares about others” attitude of the authorities for crimes committed elsewhere.

“The relevant authorities and key reporting institutions broadly view the illicit activities of the foreign beneficial owners as having an insufficient nexus with the territory and do not consider that VI entities are directly involved in such activities.”

IMF Country Report No. 24/55. British Virgin Islands: Detailed Assessment Report on Anti-Money Laundering And Combatting The Financing Of Terrorism

In other words, if you want to put money you stole from the citizens of your country in our banks or take advantage of our lax approach to verifying who really owns a BVI corporation to keep your country from finding your assets, fine by us. Not our problem.

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The U.S. Could Learn from the U.K. in the Virgin Islands

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Corruption is a perennial problem in the Caribbean. Although many of the Caribbean islands are independent, many others are held by former colonial powers, including the United States and the United Kingdom, which respectively control adjacent island groups known as the U.S. Virgin Islands (USVI) and the British Virgin Islands (BVI). Encouragingly, over the last six years, the UK has undertaken significant efforts to crack down on corruption in the BVI. Disappointingly, the US has yet to follow suit. The US government—and, once appointed, the new US Attorney for the USVI—should follow the UK’s lead and make anticorruption a top priority.

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Public Disclosure of Beneficial Ownership: Do the Naysayers Have a Point?

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Readers are no doubt celebrating the British House of Commons approval May 1 of legislation making it harder for corrupt officials to hide money offshore.  The new law requires that, starting 2021, the British Virgin Islands and the Cayman Islands along with other U.K. overseas territories must publicly disclose the actual person or persons – the “beneficial owners” – of companies organized under their laws.  Some half of the companies identified in the Panama Papers were organized in the British Virgin Islands, and estimates are that between 2007 and 2016 over $90 billion surreptitiously left Russia via British overseas territories.  Somewhere among the billions that mobsters, drug traffickers, and tax evaders are hiding in British overseas territory corporations are likely billions in monies stolen through corruption.  Forcing the corporations to reveal who is behind them will make recovering the monies that much easier.

No reform, no matter how powerful the arguments in support, is without its doubters.  Given the hefty fees banks, lawyers, accountants, and secrecy accomplices of all kinds earn helping hide money, it is no wonder the beneficial ownership legislation has attracted its share of naysayers.  The most thoughtful, and certainly the one who can turn the cleverest phrase, is BVI solicitor Martin Kenney. On Monday on the FCPA blog, he castigated “the NGO ‘transparency’ brigade.” It had “once again raised its guns and placed its cross-hairs over its preferred target: the offshore service providers in the British Overseas Territories.” And thanks to the Commons vote, the brigade can now mount its most wanted “trophy,” the BVI, on its wall.

Laying aside his colorful rhetoric, Kenney has a point.  Actually two.    Continue reading →

The Panama Papers and the “Eligible Introducer” Scam

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Contrary to what the name might suggest, an “eligible introducer” is not a licensed internet dating site.  Rather, as the Panama Papers reveal, it is what corrupt officials, drug lords, and other crooks use to skirt the laws meant to prevent them from concealing their wealth and how they got it.  In antimoney laundering law parlance, an “eligible introducer” is an intermediary willing to vouch for an individual’s honesty.  An earlier post explained how easy it is for corrupt politicians to establish a shell corporation in a place like the British Virgin Islands by paying an eligible introducer to attest to their character.  Here I show how hiring an eligible introducer makes it easy for corrupt officials to secure the real prize: a bank account in the shell’s name.

The post is prompted by a story Trinidad Express journalist Camini Marajh published April 30 recounting how an eligible introducer brokered the opening of an account for a shell company owned by a politically-connected Trinidadian.  The story suggests that what has long been rumored about the offshore industry is true: despite a massive legal edifice meant to keep corrupt money out of banks, with the “right” eligible introducer anyone can open a bank account no matter who they are and how they intend to use the account.  What’s more, as Marajh’s story shows, if it turns out later that the account was used to conceal questionable or illegal transactions, neither the introducer nor the bank is likely to be held responsible.     Continue reading →

Not the “Panama Papers” But the “BVI Papers” or Better Still the “EI” Papers

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The immense public service performed by the consortia of journalists who exposed the inner-workings of the Panamanian law firm Mossack Fonseca is plain to all.  The thousands of stories in multiple languages revealing how M/F works with law firms and banks around the globe to help individuals hide their wealth has provided law enforcement a cornucopia of leads — as the investigations launched in France, Switzerland, South Africa, Pakistan, the United Kingdom, El Salvador, Argentina, and India attest to.  Far more important than nailing a few tax cheats or crooked politicians, though, are the revelations showing how easily firms like M/F can dodge laws that supposedly bar them from helping individuals keep their wealth a secret and what changes are needed to end this legal dodge ball.

But there is a risk that, because the revelations have been dubbed the “Panama Papers,” reformers will be thrown off the scent.  Panama is a small part of the story at best.  The real problem lies in jurisdictions like the British Virgin Islands where, as an April 4 Guardian story shows, an obscure provision in its antimoney laundering law allows M/F and other firms like it to establish a BVI corporation without having to verify who the true, or beneficial, owner of the corporation will be.  This creates an opportunity to introduce a layer of secrecy between the owner and his or her money and law enforcement authorities.  A name better calculated to lead reformers in the right direction would have been the “BVI Papers” since most of the corporations M/F establishes for clients are created under the law of BVI.

An even better name still might be the “EI Papers” as it is the “EI” provision of BVI law that allows M/F to duck verifying the identity of the beneficial owners of the corporations it creates.  “EI” stands for “eligible introducer,” and the best way to see how the EI provision in BVI law makes hiding money so easy is through an example.  Suppose, just for the sake of illustration, Russian President Vladimir Putin was about to come into a large amount of rubles that he would rather Russian citizens and his critics abroad not know about.  How would the EI provision in BVI law help him keep his wealth secret? Continue reading →