BVI expands services

As a group of islands situated about sixty miles east of Puerto Rico, the British Virgin Islands (BVI) are a hidden gem, writes Lyndon Driver

 

Over the last 30 years, the BVI has established itself as a leading offshore financial centre, offering one of the most sophisticated and convenient frameworks for international businesses. The business environment is supported by a sound legal system, efficient and efective regulatory environment, stable government and quality infrastructure. Over the last two decades the BVI has worked to diversify its financial service products and has seen strong growth in the areas of trust and estate planning, mutual funds and captive insurance.

By recent estimates, 50 percent of all currency transactions processed internationally involve offshore financial centres and the BVI is one of the key market players. As recently as 2008 it was estimated that there are 450,000 active companies registered in the BVI for transaction purposes. In spite of its success, the scale of the BVI as an offshore financial centre and its relative importance in the global economy is not widely recognised, as to date the jurisdiction – unlike some of its counterparts – has shied away from publicity.

International Finance Centre
But this could be about to change. Since its foundation in 2002, the BVI’s International Finance Centre (IFC), has played a pivotal role in the promotion and marketing of the BVI as a leading financial centre. The IFC is a testament to the BVI government’s commitment to support the financial services industry and one of the key aims of the IFC is to provide a voice to the BVI’s financial industry.

Sherri Ortiz, director of the IFC, says, ‘The BVI has a sound regulatory framework, an entrepreneurial community and a government that is committed to developing innovative, business-enabling legislation. Such a state has attracted leading law and accountancy firms to its shores. As a body, the IFC is dedicated to fostering a cohesive working relationship with the private sector and the regulatory authority, and to provide assistance and advice to those seeking to use the BVI as a hub for financial services.’

Recent developments that have improved the professional standing of the BVI’s regulatory and legislative structure have helped the IFC in its task.
 
SIBA
Earlier this year saw the implementation of new mutual funds legislation for the BVI, which has resulted in the bolstering of legal and regulatory support. The Securities and Investment Business Act (SIBA):
– Updates and modernises the regulation of the BVI investment funds industry, by repealing the current 1996 Mutual Funds Act and replaces it with SIBA and the Mutual Funds Regulations 2010;
– Introduces an investment business licensing regime to regulate entities conducting “investment business” in or from within the BVI
– Adopts restrictions on, and regulations for, the making of “public issues of securities” into the BVI and;
– Introduces a market-abuse regime
 
Importantly, SIBA does not significantly alter the framework for the regulation of BVI funds and most of the popular concepts remain intact, as many of the legislative changes made under SIBA and the Mutual Funds Regulations of 2010 merely codify existing BVI FSC policies which have developed over recent years in line with evolving international standards.

Fund managers already find the legal and regulatory system in the BVI familiar and easy to use as the former Mutual Funds Act of 1996 has been in place for well over ten years. Furthermore, the majority of BVI laws and regulations are derived from English law, so are familiar to the majority of international businesses. The main thrust of the new legislation is to introduce laws that regulate investments, public issues of securities and limit market abuse.
 
Business Companies Act 2004
The BVI Business Companies Act of 2004 has received positive reviews from legal practitioners for its flexibility. Five different types of companies can be incorporated under the Act, and in particular, many investors welcomed the introduction of segregated portfolio companies (SPCs), as these allow umbrella funds to be set up with limited liability between share classes – which was not permitted under the former regime – and so avoids potential cross-class liability issues. The Act also includes statutory merger and consolidation provisions, which make it possible for two entities (only one of which needs to be a BVI entity provided certain conditions exist), to merge with all the assets of both entities consolidated into the surviving entity. This has made the BVI more attractive for joint venture vehicles and for the restructuring of companies and funds.

BVI companies can also list on worldwide stock exchanges including the LSE, AIM, NYSE, NASDAQ, ISE, TSX and BOVESPA.
 
TIEA’s
Tax Information Exchange Agreements (TIEAs), introduced as a requirement for all offshore financial centres at the 2009 G20 summit, is a bilateral agreement that provides for a full exchange of information on criminal and civil tax matters between all countries party to the agreements. The main principles of the TIEAs are:
– The BVI either approaches a country, or is approached directly by a country, to enter into discussions to conclude a TIEA
– TIEAs are negotiated on the BVI’s behalf by a team of officials from the International Finance Centre, the Ministry of Finance, the Inland Revenue Department and the Attorney General’s Office, with ongoing representation from the Financial Services Commission. Once the agreements are agreed in draft form, they are considered at official level for approval by the BVI Cabinet
– Once the relevant constitutional arrangements and approval processes have taken place in both countries, a ceremony takes place where the formal agreements are signed by representatives of the respective countries.

These agreements, however, must go through the legislative processes of the signing jurisdictions to be brought into effect
– After the legislative processes are complete, the agreements usually come into effect immediately in respect of criminal tax matters and at the beginning of the next taxable period for civil tax matters, which is 1 January of any tax year for the BVI
– In the BVI, a TIEA is brought into effect in accordance with the provisions of the Mutual Legal Assistance (Tax Matters) Act, 2003 by issuing an Order made by the Minister of Finance. Information requests can only be processed once the TIEA comes into force and they cannot be made retroactive.

Within four months of the G20 edict, the BVI had in place 12 TIEAs and today operates a total of 17, with countries including the US, the UK, Australia, The Nordic council (including Denmark, The Faroe Islands, Finland, Greenland, Iceland, Norway and Sweden), New Zealand The Netherlands, The Netherlands Antilles, Aruba, China, Ireland and France.
 
Financial services (exemptions) regulations
The implementation of the Financial Services (Exemptions) Regulations in August 2007 have clarified the circumstances under which a BVI private trust company must be licensed. The PTC legislation, together with the continued popularity of BVI Special Trust structures (VISTA) ensure that the BVI is able to provide a full suite of trust structures to suit international demand.
 
Anti-money laundering and terrorist financing code of practice
In 2008, the FSC issued the Anti-Money Laundering and Terrorist Financing Code of Practice, together with the Anti-Money Laundering Regulations. These replace the previous antimony laundering code and guidance notes first issued in 1999. The new regulations have been introduced to ensure the BVI keeps in step with the changing global environment and international anti-money laundering standards, thereby protecting its standing as a well-regulated international financial centre.

Recent cases have underlined the fact that the BVI is committed to taking appropriate legal action to maintain the integrity of its offshore operations. In May 2010 a joint BVI-Bermuda investigation (known informally as the ‘IPOC’ case) resulted in convictions of BVI and Bermuda-based corporations leading to fines, costs and confiscation orders totalling over $45m. This investigation cost both territories over $3m and engaged lawyers, investigators and accountants for almost three years. This case followed on the heels of a smaller – but no less significant – prosecution in that it is to date the BVI’s largest civil forfeiture case ($100,000).
 
Legal framework
Further efforts to bolster the BVI as a top-tier financial services centre have included the addition of a commercial court, which is currently under construction. When introduced, the BVI will become the headquarters of the Eastern Caribbean Supreme Court’s commercial court. Many investors already take comfort from the fact that the BVI has a legal and judicial system based on English common law principles, with ultimate appeal to the Privy Council in England. The BVI legislators continue to work diligently to ensure that the legal and regulatory framework remains flexible whilst meeting international standards. In the current economic climate, the BVI’s proven judicial system and creditor-friendly insolvency legislation will be of increased importance to investors.

Aside from an expertise in financial, legal and regulatory quarters, the BVI also enjoys a Category One shipping status, allowing it to accommodate mega-yachts and large shipping vessels. It is also a member of the ‘Red Ensign’, a distinction that inspires confidence in its high standards. As a member of this exclusive club BVI representatives regularly attend all the major yacht shows; in Abu Dhabi, Monaco and Miami.

The real beauty of the British Virgin Islands is its proven leadership in meeting the needs of international business. The jurisdiction has a proud tradition of achieving balance and transparency in regulation; meeting and in many cases exceeding international best practice standards. It is reviewed annually by SATS and the IMF and is a member of IASCO.

The British Virgin Islands has become a high-quality international finance centre, and is regularly undertaking programmes to expand its financial services offerings to meet the needs of the global markets. Today it could not be easier for a company to benefit from the BVI’s opportunities, as the the IFC’s online registration system allows a company to become part of the BVI’s jurisdiction within 24 hours.

Sherri Ortiz says, ‘Our vision at the IFC is that the British Virgin Islands continues to be recognised as an innovative, efficient and respected international finance centre through the quality of its people, services and regulatory environment.’