Exposé proves bad for business in British Virgin Islands

PUBLISHED : Saturday, 18 January, 2014, 12:29am
UPDATED : Saturday, 18 January, 2014, 4:24am

Revelations about secretive companies set up in the British Virgin Islands have proved bad for business in the Caribbean tax haven.

Incorporations of offshore companies in the BVI fell sharply last year, following leaks about account holders.

The most recent data from the BVI Financial Services Commission shows company incorporations in the tax haven tumbled 21 per cent in the third quarter from a year earlier.

Most of the secret accounts exposed by the US-based International Consortium of Investigative Journalists involved companies incorporated in the BVI.

"If the number of BVI company registrations has come down, the problem has moved to another location. It does not mean there is less criminality," said Julian Russell, director of Hong Kong risk consultancy Pacific Risk.

Russell was aware of one corruption case in Hong Kong with links to the Marshall Islands, another offshore haven.

Under pressure from the US, Britain and the European Union to be more transparent, BVI had been co-operating more with foreign law enforcement agencies, Russell said. But other tax havens had been less forthcoming.

"There are many offshore jurisdictions like Panama and Liberia," Russell said.

The ICIJ began releasing information on BVI accounts last year. The leaks have embarrassed a wide of range of prominent figures. One of the leaks raised questions about French President Francois Hollande's personal friend and campaign treasurer Jean-Jacques Augier.

More than three-quarters of offshore professionals believed the revelations had reduced demand for offshore financial vehicles or prompted clients to move their business from one haven to another, according to a survey by Offshore Incorporations, a Hong Kong-based company formation firm.

The ICIJ said the drop in BVI company registrations reflected the findings of the Offshore Incorporations survey, adding that its leaks "had created a crisis of confidence in the offshore industry".

But Kristian Wilson, a Singapore-based senior associate of law firm Bedell Cristin, said it did not expect a decline in BVI incorporations this year. "There are signs that the global economy is turning and we expect to see more activity in 2014," Wilson said.

BVI Premier Daniel Orlando Smith said this week: "It is no secret that our biggest and most important market in financial services is China. Asia Pacific accounts for more than 40 per cent of our financial services business."

BVI opened its Asia headquarters in Hong Kong last year. It has signed an agreement to strengthen financial co-operation with the Qianhai economic zone in Shenzhen.