Ethics and governance in the European Financial centers

The FT has reported that Michael Foot, a former deputy director of the Bank of England is gonna review the three Crown dependencies of Jersey, Guernsey and the Isle of Man, plus nine overseas territories with significant financial centres, including Bermuda, Cayman Islands and Gibraltar. It will investigate their financial supervision, taxation, financial crisis management and international co-operation.

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Richard Murphy quoted Jack Blum, a US attorney who has specialised in tackling offshore abuse for many years. He can fairly claim to have done more to expose BCCI than anyone else.

Jack Blum testified before the Senate Finance Committee investigation and analysed the problem with the BVI :

The tax avoiders and tax cheats see national borders as their friends and freely use secrecy jurisdictions and jurisdictions with lax trust, corporation and insurance laws to create structures that hide money from tax collectors and law enforcement.

Some jurisdictions have developed specialities in providing these products. The British Virgin Islands, for example, is the place to go for quick, cheap, anonymous incorporation. It has more than 500,000 shell companies. It has also developed a new trust “product” that allows a “trust” to be the owner of a corporation without the trustee having any knowledge about the operation of the corporation. Under U.S. law this is not a “trust.”

It is important to understand that the structures are mere pieces of paper with no commercial reality. They are backed by formalities that allow them to pass paper checklists in other jurisdictions including the United States. For example, the island of Nevis, part of the Federation of St. Kitts and Nevis, is home to tens of thousands of corporations, all of which have boards of directors. When banks and brokerage firms ask about the control of the corporation for AML purposes, the person opening the account furnishes the passport photos of the nominee shareholders, officers and directors. The same twenty people are the nominees for thousands of corporations. They have no knowledge of, or fiduciary responsibility for the corporation’s business. If the nominee directors and officers were water-boarded they could not tell you what the corporation was doing or who owned it. They do not participate in “corporate” decisions and keep no records relating to corporate activities. They do not even know where the records are.

BVI is not the only jurisdiction which has legalized “sham” trusts. Other jurisdictions have passed trust laws that leave the trustee with little or no responsibility

The Financial Services Commission (FSC) is the regulatory authority for all financial services business operating in and from within the BVI.

It regulates all financial services activities conducted in and from within the BVI pursuant to relevant BVI laws to ensure compliance with the relevant international standards and best conduct of business practices.

Its motto is "Vigilance, Integrity and Accountability".

Let's have a look on the content :

If we click Sanction, Enforcement action, the page is empty.

If we search the keywords "enforcement" there are only 4 articles listed with no evidence of actual sanctions.

If there are no enforcement actions, there are only 15 advisory warnings (The older advisory is dated 18/04/2006) especially on professional that are no longer licensed.

The last warning online dated 09/06/2008 wants commenting as it targets jurisdictions that may not be fully meeting the FATF standards on Anti-Money Laundering and Countering The Financing of Terrorism.
It is interesting to see the delay to implement FATF warning : on 28 February, 2008, the Financial Action Task Force (FATF) issued a public statement but the warning is dated 09/06/2008.
This is amasing to see such warning as the US Department of State concludes in the last Narcotic Control Strategy Report that "The Government of the British Virgin Islands should criminalize the financing of terrorism. The GOBVI should continue to strengthen its anti-money laundering regime by fully implementing its programs and legislation. The BVI should also extend the provisions of its anti-money laundering and counter-terrorist financing regulations to a wider range of entities, including money remitters. The GOBVI should ensure that there are a sufficient number of regulators and examiners to exercise effective due diligence and regulation of its more than 800,000 offshore entities in a manner compliant with international standards."

There are big gaps between what assessors (FATF, FMI) state and what's actually going on in the financial centers.



FSC website