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BVI: Benefitting Vested Interests?

May 15th, 2014

12559285104_39652df5b6_zThis piece originally appeared on the blog of Global Witness, a Coordinating Member of the FTC.

Britain’s credibility as a global leader in the fight to end corruption is under real threat.  Its fate lies in the hands of the Governor of a sunny, palm-fringed Caribbean island who was appointed by the UK itself.

Last year, as chair of the G8, the UK committed to creating public registries of the real owners of companies. This was a hugely important move by the UK and one we support wholeheartedly. With global support, such a measure could put a stop to some of the worst problems of our time; tax evaders, corrupt politicians, terrorists, drug cartels, warlords and other criminals all use anonymous companies to cover their tracks.

So what’s gone wrong?

Well, if you want to set up a company to hide what you are doing, the British Virgin Islands (BVI) is a great place to do it. We regularly come up against BVI companies in our investigations, as do others like tax justice campaignerRichard Murphy. The World Bank Stolen Asset Recovery Initiative looked at over 200 cases of grand-scale corruption and found the vast majority of these cases used secret companies and that the BVI was the second most popular place to set them up (after the US on which we are also vociferously campaigning).

So if Britain’s crackdown on predatory use of secrecy is going to work, the UK’s offshore havens need to change their behaviour too. And while BVI has agreed to consider the idea of public registries, it has also now found a way to undo all the good work and potentially make the problem much worse.

Last year, an international group of journalists published a huge cache of leaked BVI documents showing how easy it is for government officials and their families to use anonymous companies in the BVI, and elsewhere, to hide their identity and their assets. Undoubtedly in reaction to these leaks, the BVI is now proposing new laws that would make it a crime for anyone, in any country to leak or publish leaked information about a BVI company.

This would mean punishments of up to 15 years in prison and/or a US$500,000 fine, for crimes like publishing the excellent article in this week’s Observer showing how Asian palm oil giants appear to use the BVI’s veil of corporate secrecy to evade taxes in the countries where they make vast profits. The same article quotes a Canadian lawyer based in the BVI as saying “the frequency and the size of the frauds [taking place] is changing dramatically” in the territory.

Astonishingly, the new law imposes a lower sentence of ten years in prison for child pornography— apparently, reporting financial wrongdoing is worse. Let me repeat that: BVI thinks that child pornography is less awful than corporate whistleblowing. Those accused of child pornography crimes can seek a public interest defence (where the material is used for scientific, research or law-enforcement purposes): those accused of sharing information cannot.

A last minute amendment does concede the right for whistle-blowers to tell the police if someone appears to have breached BVI laws, but this is nowhere near good enough. Again, a strange precedent: do you need permission to tell the police if a law has been broken? The secret structures in question are almost always used to breach other countries’ laws anyway but all-too-often, authorities in the countries where crimes actually happen are dysfunctional, if not directly corrupted, and  unlikely to investigate.

The Computer Misuse and Cybercrimes Act 2014 has been passed by the BVI House of Assembly, but now needs to be approved by the BVI governor Boyd McCleary before coming into force.  Governor McCleary  should not sign it, and the BVI government should reconsider the legislation. In order to attract more business, it needs to demonstrate that the BVI is a respectable place to incorporate, not sell the idea that a BVI company carries the distinct whiff of corruption. Individual financial privacy should be respected, but crime victims must also be protected – this measure would put that balance even further out of kilter.

It would also be almost impossible to enforce. Presumably they couldn’t extradite those in breach from their home countries, so BVI authorities would be left making sure journalists, NGO workers and others didn’t set foot on their territory. I’m told it has lovely beaches, but such a deterrent wouldn’t stop me doing my job.

Those who work on this issue in the UK government generally suggest they are helpless to intervene in the affairs of our Overseas Territories. But that’s not the case – they can , and they have. In 2009, endemic corruption in the Turks and Caicos Islands promoted the UK government to take full control until order was restored. The UK also stepped in to abolish the death penalty in 1999 and decriminalise homosexuality in 2000 in the Caribbean territories.

When the issue is serious enough, the UK has intervened and it should do so again now. Last summer, David Cameron noted that Britain’s Overseas Territories “have taken action to make sure that they have fair and open tax systems”. These were hugely welcome steps. But if the BVI passes this law, it will have taken several huge leaps backwards, and dragged the UK’s hard-fought efforts with it. Let’s hope the Foreign Office is on the phone to the Governor as we speak.


Image used under Creative Commons Licensing / Flickr User BVI4092

Written by Gavin Hayman

RT @alexcobham: Fascinating discussions today at the @UN_PGA's high level event on illicit financial flows https://t.co/vZcPq9bBsJ https:/…
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