BVI – A Compliant Global Partner

A history of transparency, respect of privacy, and steadfastness against money laundering

The BVI has longed championed the need for transparency - within the boundaries of privacy - and the fight against money laundering and terrorist financing. Its fight against money laundering began in the 1990s with enactment of the Proceeds of Criminal Conduct Act 1997 (POCCA), Anti-Money Laundering Guidance Notes 1999 and the Anti-Money Laundering Code of Practice 1999 (AML Code 1999).

The POCCA criminalised money laundering and made possible the seizure of property tainted by a predicate crime. Moreover, it provided avenues through which a person who assisted a money launderer may be prosecuted. The AML Code 1999 required financial institutions and corporate service providers to identify and verify the beneficial owners of legal entities and arrangements created in the Territory. At that time when the BVI opted to enact anti-money laundering legislation, many competing financial centres were exceedingly reluctant to take the same path; so then, as now, the BVI was the standard setter.

In 2001 the BVI further strengthened the regulatory oversight of its financial services sector by establishing the Financial Services Commission (FSC). It was the Financial Services Commission Act 2001 that gave birth to the FSC and in 2010[1] the IMF said of that legislation: “the Financial Services Commission Act, in particular, provides a strong framework for the supervision of [Corporate and Trust Service Providers] and other financial services in the jurisdiction.”

The Business Companies Act, 2004 (the BC Act) is another milestone in the BVI’s quest for transparency. In particular, the BC Act restricted a company’s power to issue bearer shares unless expressly provided for in its Memorandum and Articles of Association. However, where such power is provided and bearer shares are issued, the bearer share certificate must be lodged with a custodian authorised or recognised by the FSC. It must be noted that the probity of authorised custodians is tested by the FSC to ensure that they have strong systems to secure custody of the certificates, and comply with the requirements of all relevant BVI legislation. Recognised custodian status is limited to entities that perform clearing activities or act as investment exchange in a country that is a member of the Financial Action Task Force (FATF).

Further, bearer shares in issue before the passage of the BC Act were required to be lodged with a custodian or exchanged for registered shared by 31 December 2009, failing which the bearer share lost all entitlements such as voting rights. Unsurprisingly, the previously mentioned 2010 IMF report concluded that: “This regime, together with the statutory obligations of the registered agent to ascertain beneficial owner information and customer due-diligence obligations, appears to be in keeping with the FATF Recommendations.”

Static – No! Evolution – Yes!

BVI legislation and its regulatory framework continued to evolve. In 2008, the Anti-Money Laundering Regulations (AML Regulations) and the Anti-Money Laundering and Terrorist Financing Code of Practice (AML Code) were enacted and given effect. Those pieces of legislation were based on the FATF Recommendations and included elements of the Third EU Directive on Money Laundering[2] to which European member states adhere. Importantly, however, is the fact that in many instances the BVI went beyond the FATF Recommendations and the EU’s Directive. For example, the FATF Recommendations and the EU’s Directive seem to suggest that identification and verification should be conducted on natural persons who owns or controls 25 per cent or more ownership of a legal entity. However, BVI legislation reduced that threshold to 10 per cent. This effectively required the identification and verification of a greater number of persons, an increased chance of preventing money laundering and terrorist financing and a tighter and better regulated financial sector than many jurisdictions.

The BVI’s financial services sector is governed by a wide raft of legislation that facilitates the provision of products and services for which the BVI has become renowned. Yet it is the Regulatory Code 2009 (the Code) that binds the various parts – corporate and trust, banking, insurance, investments – together to create an environment that is conducive to international finance and sufficiently compliant to satisfy the BVI’s obligation to international partners. The Code places legal obligations on all entities licensed by the FSC; these include obligations for good corporate governance and timely disclosures for example. It also outlines the conduct required of all officers and agents of those licensed entities. The consequence of a breach of the provisions of the Code may be enforcement action affecting the fit-and-proper status of the entity, its directors or officers, or a monetary administrative penalty.

Following its Mutual Evaluation of the BVI in 2008 the Caribbean Financial Action Task Force (CFATF) concluded that: “The British Virgin Islands’ legal framework for combating money laundering (ML) and terrorism financing (FT) is comprehensive.” Moreover, the IMF concluded that: “The BVI has a comprehensive legislative framework for the supervision of [its financial services sector],  which is largely in keeping with the international standards in this area.” Such conclusions by internationally reputable organisations validate the BVI’s commitment to maintaining robust legislations, adhering to and at times exceeding best practices, and being a world-wide leader and standard bearer for regulatory compliance. That was then. What of now?

 The New Environment – 2015 onwards

After an in-depth assessment of BVI laws in 2008 the CFATF emphatically concluded that:

“There are no financial secrecy laws in the Virgin Islands. Information can be obtained either by production of a court order or by the competent authorities, namely the FSC or the FIA, with appropriate authorization. There is a comprehensive framework of international cooperation legislation and procedures to assist foreign judicial, law enforcement, prosecutorial, tax, and regulatory authorities”.

Yet, between 2013 and 2014 the BVI was blacklisted by France for poor cooperation in tax matters and rated as Non-Compliant by the Global Forum under the Organisation for Economic Cooperation and Development[3] (OECD). This indicated that although the framework was set, perhaps implementation or adherence to it by some licensed entities was lacking.  

The BVI moved assiduously to correct the deficiencies that led to the blacklist and non-compliant rating. The Mutual Legal Assistance (Tax Matters) Act was amended and the International Tax Authority was strengthened in order to efficiently respond to requests for assistance from foreign competent authorities. This resulted in the BVI being removed from France’s blacklist. Moreover, the recommendations of the Global Forum were implemented resulting in a largely compliant rating in 2015.

Previously, licensed entities were allowed to rely on third party introducers to hold information regarding the beneficial ownership of companies. Such introducers were expected to be subjected to regulations in line with the FATF Recommendations and supervision by a regulatory body. However, in 2015 the AML Regulations and AML Code were amended to require licensed entities to collect information regarding the beneficial owner of each new and existing Business Company. This move encourages greater transparency within the boundaries of privacy as such information will be collected and maintained by the licensed entities.

The BC Act was amended in 2015 to, among other things, compel each company to file identification information of its directors at the Corporate Registry. This complies with the 2012 FATF 40 Recommendations, and helps the BVI demonstrate even more forcefully that it is a serious partner in the fight against money laundering and terrorist financing.

The Gold Standard

In the current global regulatory environment dominated by FATCA and Common Reporting Standards, greater transparency in business and international finance is the goal. The BVI is committed to doing its part to allow transparency whilst simultaneously respecting the right to privacy. The BVI ensures that sufficient information is requested from persons seeking to use BVI products and services whilst concurrently avoiding onerous obligations that may stifle business. It is a balance that the BVI has maintained for many years thus ensuring positive ratings from supra-nationals such as the IMF, CFATF, OECD and others. Indeed, the BVI continues to be the gold standard of business savvy, regulatory compliance and a sustained fight against tax evasion, money laundering, terrorist financing and other financial crimes.

Marlon Marquis
Group Compliance Officer. He oversees the compliance functions of the Group’s BVI, Cayman Islands and Mauritius entities.   He is the Chairman of the BVI Association of Compliance Officers, member of Joint Anti-Money Laundering and Terrorist financing Advisory Committee, and member of Caribbean Regional Compliance Association.