Following the leak of decades of confidential data from Panama based law firm Mossack Fonseca, the British Virgin Islands - alongside other Overseas Territories - has come under scrutiny for its status as an offshore financial centre.
Having established a credible and popular industry over three decades, the territory pulls 60% of its revenue from the financial services sector, mainly through the establishment of trusts and companies. A significant proportion of the local population are employed directly or indirectly in related roles. Subsequently, in response to the flood of confidential information and ensuing media storm, some outlets have taken to criticising the territory for a perceived failure to comply with transparency and regulatory initiatives.
There has, however, been a fundamental misunderstanding about the BVI’s role in the world’s financial industry, how it attracts foreign investment to the UK and elsewhere by offering a business friendly environment for multinational companies. FOTBOT sat down with the Premier and Minister of Finance Dr. the Honourable D.Orlando Smith, OBE, to discuss the sudden increase in interest towards the BVI’s offshore status and the critical point at which it finds itself balancing the need for confidentiality against public interest. During the interview, Premier Orlando paid particular attention to the efforts BVI is taking at a domestic and international level to fight against any forms of illegitimate business. We also discussed ongoing education, biodiversity and tourism initiatives designed to strengthen the territory’s position as a dynamic living space for its approximately 30,000 residents.
I began my interview with the most pressing question, that of the BVI’s position as an offshore financial centre and how it works to ensure compliance with international transparency regulations. Premier Smith makes it clear from the outset that the believes the BVI has an established track record in this regard:
‘The BVI has been involved in the financial services for the past 30 years, it’s one of the best well-regulated jurisdictions that we know. It has been recognised by all the standards set by the FATCA (The Foreign Account Tax Compliance Act), the IMF…’
Even with the approval of these international organisations, the same organisations that regulate business in the much of the western world, and notwithstanding the right to privacy, the BVI has been criticised for a lack of transparency. Contrasting with this narrative, the Organisation for Economic Co-operation and Development (OECD) through its ‘Global Forum on Transparency and Exchange of Information for Tax Purposes’ recently rated the BVI as ‘largely compliant’ with international standards, and noted that significant improvements had been made. The same rating was given to the United States and many other countries on the OECD’s list. Still however, despite the approval of supranational organisations and similar arrangements in many other countries and regions, the island’s tax policies continue to draw attention. There is of course always room for improvement, and the premier believes that ‘the industry continues to retain confidence in the BVI as a jurisdiction of choice and simply because we do believe in transparency’.
More specifically, Premier Smith set out a future strategy for building an even more robust framework to counter corruption and any financial wrong-doing.
‘…whilst balancing the need for appropriate levels of transparency and privacy, I have set out a three pillar approach. Firstly, data security: As we begin storing huge quantities of private, highly sensitive information, and providing that data to a number of individuals, the risk of a leak increases exponentially. Any measures to store more data must be compatible with the need and ability of systems to keep this information secure. Secondly, the application of appropriate legal constraint: Governments and law enforcement agencies have legitimate reasons for seeking access to otherwise confidential business information and, therefore, must be subject to appropriate safeguards. And thirdly, a globally applied standard: Without applying any new standard globally and equitably, there is a real risk that illegal activity will simply find a breeding ground in a non-compliant or less rigorously regulated jurisdiction.’
Our conversation swings to how the financial industry is entwined with the local economy and the livelihoods of its residents, 7000 of which are employed by the various trust companies, insurers, lawyers and banks based on the islands. When asked if he believes the enduring push for regulatory compliance brings with it more employment opportunity for locals, Premier Smith notes that a recent report created for the BVI by global consulting firm McKinsey pinpointed the employment of BVI islanders as a key driver for sustainable growth. Improving capacity, he argues, is similarly based on drawing in more residents to an industry often seen as the employer of temporary expatriates.
McKinsey’s report was based on an intense three month review of the BVI’s financial services sector, and has resulted in a national initiative called ‘BVI Forward’. Premier Smith writes on its website that BVI Forward is designed to guide the territory’s government in diversifying and adding ‘value added activities’ to the traditional business of incorporations. As part of the drive to involve locals in the financial sector, the government has reinvigorated the ‘Financial Services Institute’ (FSI) to give students a chance to train in programs relating to business development, international trust management and other specialised disciplines. He explains with pride that local businesses are ‘supportive’ of the institute, glad to train BVI islanders in how to take advantage of their country’s unique position and learn skills essential to domestic development.
I’m curious, given the recent attention from Westminster, how he feels about historical support from the UK for the financial services industry in the BVI and other tax neutral jurisdictions such as Barbados, the Cayman Islands and Jersey. It is a matter of record that a number of politicians and business people have used both legal and illegal tax strategies based in territories similar to the BVI to manage their wealth. No doubt, there are some figures that continue to use the BVI’s expertise in incorporation, wealth creation and wealth management to their advantage, although more prominent cities and regions such as London and Delaware, U.S. are not dissimilar. Many of these activities are completely legal and now subject to intense monitoring. So why the sudden change of heart? Premier Smith believes the misconception is a result of the 2008 financial crisis:
‘…there was a growing resentment...people have mistakenly, unfortunately turned their resentment to offshore financial centres.’
He notes that the crisis was caused by ‘unregulated activities’ in US/UK financial markets, as such the economies of these established countries were ‘seriously affected’. I ask about the balance between confidentiality and transparency in regards to that. How can people believe that the financial services industry is not a cover for illicit activities if there is so little information about who uses offshore jurisdictions? He acknowledges that some may question such practices, but argues that:
’… confidentiality is something which is important to persons involved in these jurisdictions, this is not because of the desire to evade taxes, confidentiality is important because people can use information against them in many ways, such as extortion, and so you don’t want to expose people to that.’
Drawing parallels to the privacy customers at UK banks enjoy, he argues that it is ‘natural’ for people to want their financial information to be confidential.
Even so, the BVI regularly complies with law enforcement requests regarding companies incorporated in the territory. After the Panama Papers controversy, an initiative has been introduced in collaboration with the UK government to create a platform for company information that is private, but can be queried by the BVI Tax Authority at the UK’s request. This is in aid, according to the Premier, of the BVI sharing information more ‘readily’. In addition, the BVI has over 100 information sharing agreements with countries interested in financial data, including the United Kingdom.
Looking to the future, and the BVI’s efforts to continuously improve its compliance measures, Premier Smith agrees that the involvement of international organisations such as the World Bank, the Financial Action Task Force and the OECD remains integral to the development of global standards. BVI officials were quoted as such in various UK newspapers after the scandal broke, continuously emphasising the territories strong relationship with these bodies and their role in monitoring regulatory compliance. The Premier maintains that his government is in constant conversation with the financial industry in London as to the BVI’s commitment to fair practices, and will travel to Westminster soon to: ‘actually demonstrate our regulatory position…so that we continue to justify confidence in the jurisdiction.’
Overall, he notes that ‘…the BVI is one of the best regulated financial services jurisdictions in the world’, and continues to develop new strategies for wealth management similar to those employed by financial institutions in New York and the City of London.
Our conversation turns to Brexit, and its future effects on the BVI’s economy. Premier Smith believes that the European Union is beneficial to all the British Overseas Territories, offering funding for small business development and marine biodiversity at a time when preserving the islands natural beauty remains essential. I have written for FOTBOT before as to the consequences of leaving the EU, and how I feel more should have been done by those in Westminster to consider those affects. He agrees that the influences of a Brexit will be ‘difficult to say’, but that he hopes a relationship could continue between the BVI and the EU independent of the UK. David Cameron recently referenced the BOT’s in his statement to the House of Commons after the Brexit vote, noting that they along with other devolved administrations would be involved in negotiations with the EU.
Before moving on to other topics, the Premier is keen to make one final remark about the BVI and its position in the world, stating:
‘I want to leave no-one in any doubt that the BVI has a legitimate and important role to play in the global financial system and that we have a bright future. I am proud of the amount of foreign direct investment we help funnel to other countries, particularly those in Africa that truly need it. We have an enviable environment built on a respected legal system and established professional services, I hope to continue attracting legitimate business to the BVI for many years to come.’
The BVI has long capitalised on its verdant islands and crystal clear waters as a draw for international tourism. As I walked to this interview, I passed the newly constructed Tortola Pier Park cruise ship terminal and shopping facility, a cluster of colourful buildings designed to attract day trippers coming off the massive ships that dock daily in Road Town. Premier Smith is keen to underline the fact that the park bases its success on the achievements of local business people and entrepreneurs. ‘Despite that of course there will be those who want to go outside to the beaches, go into town or Virgin Gorda, and so it’s a mixture of things, which I think we will continue to benefit the BVI’. He’s right in saying that tourists can visit any of the 60 islands and cays that make up the BVI, but his government has embarked on a strategy to redevelop ‘places of interest’ on Tortola so that tourists are drawn farther into the island and get a chance to connect with local culture and people. One of these, the new Queen Elizabeth Park, was opened on the day of this interview. In addition tourists will be soon able to visit St. Phillips Anglican Church and burial ground, which was constructed in 1840 and is said to be the first church built for liberated Africans in all of the Americas.
‘We are also continuing to work on the restoration and conversion of Her Majesty’s Prison on Main Street into a Museum. The completion of the Paraquita Bay Mangrove Boardwalk is another priority tourism attraction that is being worked on.’
One enduring obstacle to the BVI’s tourist industry, according to Premier Smith, has been a lack of travel access for those choosing to fly to the territory from the UK, US, and countries farther afield.
‘We know that we were having some short comings as far as getting visitors access, and this has hampered us as far as development is concerned. So we have put in place, hopefully starting in the fall of this year, a direct flight between Miami and the BVI to attract visitors successfully and easily.’
This is in part, he says, due to a focus on increasing the rate of ‘overnight visitors’ to the BVI and not only day trippers, even though he recognises that cruise ships are ‘part of world tourism’. Following this topic, we move to how the BVI can protect its natural beauty from the tourism industry, which can often become a corrosive influence on local culture. Historically, the government has always had measures in place to protect the territories natural biodiversity. As a child during my schooling on Tortola, I remember visiting mangrove trees to learn about their essential role in the marine ecosystem and protecting the shore. The Premier recognises that there must be ‘constant changes and improvements’ in this regard:
‘Well we’ve done a lot of things, like this climate change policy that we have put in place…a lot of that is about protecting the environment. Part of that whole thing is looking at protecting our near shore, we are actually going to have about 20% of our near shore protected.’
Given the constant influx of charters, cruise ships, tourist boats and divers along BVI coast line the protection of the near shore is essential. Other strategies involving the preservation of reefs and corals remain high on the government’s agenda.
Finally, we move to education and how Premier Smith sees the territory’s students helping to strengthen the BVI’s global standing going into the future. When talking about the improvement of local education at H Lavity Stoutt Community College (HLSCC), he says that he understands the need for constant evaluation:
‘Yes, in fact, we have recently added new subjects to the education curriculum including financial services, tourism and Virgin Islands history. We are constantly evaluating and monitoring the new subjects in the secondary school curriculum to ensure that our students have a good grasp of these subject areas that contribute to the overall development of our human resources. At the collegiate level, we have already developed associations with other regional and international institutions so that our students can participate in global conversations...'
Premier Smith notes that the BVI has developed a Master’s in education and nursing programs with international partners, hopeful that students will use the opportunity to ‘get the experience of living abroad’. HLSCC recently became accredited by the Middle States Commission on Higher Education (MSCHE) based in Philadelphia, which means that BVI students can in the future exchange credits more easily when they choose to study in the US after completing an educational period with the college. Additionally, a technical school has been opened to focus on the practical skills needed to keep the territories infrastructure, such as marinas, roads and coastal defences, up to the required standard. The Premier argues with confidence that his government is continuously ‘enhancing the capacity of our tertiary institutions so people get the education that is necessary.’
Our interview has come to an end, and I’m pleasantly surprised about the amount of time I’ve had with a government leader in constant demand by international media. As someone personally connected to the territories, I’ve felt the BVI has not been given sufficient space to defend itself against the oft uniformed criticisms of newspapers capitalising on popular dissatisfaction with the financial industry on a global scale. Whilst more can always be done to improve transparency, it is a grave misconception that the BVI does not like to comply with international regulations surrounding the complex web of trusts, lawyers, accountants and insurers that makes up its thriving financial services industry. The sector provides a platform for a continuous flow of foreign investment into the United Kingdom and the rest of the world (including countries where it is desperately needed), something which should be recognised and appreciated by those in Westminster. It is FOTBOT’s hope that we can provide, through these types of profiles, a more realistic and fact based analysis of offshore jurisdictions and their relationship to the major world economies.