Ethics and governance in the European Financial centers - territories_of_the_crown

BVI : an analysis from Jack Blum

noreply@ (jturquey) — Tue, 29 Jul 2008 06:40:00 +0200

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

BVI Financial Services Commission

noreply@ (jturquey) — Thu, 17 Jul 2008 07:45:52 +0200

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

BVI

noreply@ (jturquey) — Sun, 13 Jul 2008 11:55:00 +0200

Among the Territories of the Crown, the BVI wants commenting. A local professional describes the advantages by underlying a couple of qualities from fraudsters' point of view:
1) Not only are there no currency controls, but with the US$ used as the BVI currency, it is essentially impossible for the government to regulate the money supply and hence to ever impose currency controls.
2) Despite its international popularity as an offshore financial centre, the BVI does not have the high profile, attention getting reputation of other centres. It represents an ideal offshore location for clients seeking confidentiality without the 'red flags' that are often raised through the use of more well publicised centres.
3) IBC formation legislation in the BVI requires only one shareholder and one director (both of which may themselves be other corporations); no corporate officers are required; bearer shares are permitted; there is no requirement for an annual general meeting; the company need only keep such accounts and records as the Director(s) think appropriate.
4) The BVI government need not be informed of the identity of the IBC's shareholders or directors.

An to conclude that many of the benefits of the BVI flow from this combination of a very high level of flexibility and the unquestioned confidentiality.

The BVI are identified as a tax haven by US Senators.

So it is a risk for the reputation of another jurisdiction when its professionals or shareholders choose an auditor from the BVI when such professionals or shareholders are neither competent nor honest, all the more than it is demonstrated in public and official sources and than the jurisdiction is small.

We find such situations in the Corporate Registration in Luxembourg, which is a risk for reputation of the Luxembourg financial center in the context of the hunt against tax havens and of an increasing transparency.

BVI FSC Supplements Anti-Money Laundering Legislation

noreply@ (jturquey) — Sun, 13 Apr 2008 17:12:38 +0200

On 25 February, BVI FSC published 3 new documents related to Anti-Money Laundering legislation. The documents were gazetted on February 22, 2008. The largest document, including 127 pages, is Anti-Money Laundering and Terrorist Financing Code of Practice, 2008.

Know more

National Audit Office Report on the Crown Protectorates

noreply@ (jturquey) — Wed, 05 Dec 2007 07:14:55 +0100

National Audit Office Report on the Crown Protectorates demonstrates that the enforcement of the legal and regulatory framework is not credible in these financial centers (see p 23 of the report).
The positive thing is the transparency of the Audit Office on the issues. The bad thing is that the political will is missing as british authorities are aware of the situation.

Read report

British tax havens non compliant

noreply@ (jturquey) — Fri, 30 Nov 2007 07:08:32 +0100

The National Audit Office has published a review for the Foreign and Commonwealth Office on Managing risk in the Overseas Territories.

Read summary of the report

Read Richard Murphy's analysis