Backing the future 

World Commerce Review sat down with Simon Gray to discuss the role of the British Virgin Islands in keeping the wheels of global trade and investment turning What advantages are provided by the British Virgin Islands as an offshore finance centre? The BVI is one of the world’s leading centres for the incorporation of companies, particularly those created to facilitate cross-border trade, investment and business. Ranked as the top offshore centre in the world for the eighth consecutive year according to the latest Vistra 2020 report, the BVI provides a number of benefits as a “tried-and-tested service at a time of economic uncertainty.” At a macro level, a 2017 report by Capital Economics, entitled ‘Creating Value: The BVI’s Global Contribution’, found that BVI-mediated investment contributes over US$15 billion in tax annually to governments around the world and supports two million jobs. On-island, we operate in a politically and economically stable environment under a highly respected legal system rooted in English common law. We have expert practitioners from around the world, including New York, Hong Kong, London and the Caribbean, as well as a wider network of international expertise and we meet or exceed all the highest global standards. How do you create an environment where entrepreneurship is supported and more new, smaller businesses are choosing to call the BVI home? It is expected that by 2030 the global middle class will reach 5.3 billion people and the key to this growth will be the ability to cultivate start-up and entrepreneurial cultures and allow them to flourish around the world. International Financial Centres (IFCs) will be key to this growth by enabling even the smallest businesses to set up secure and robust business structures offshore to help entrepreneurs run nimble businesses without fear of tripping over onerous business rules. In order to cater to this growing market, the BVI has continued to develop innovative products to meet the changing needs of clients. For example, the BVI Micro Business Company, a product recently approved by the BVI Government, has been designed for micro businesses of no more than six shareholders, with fewer than 10 employees and revenue and assets not exceeding US$ 2 million in order to help boost smaller businesses. The BVI recently introduced the Beneficial Ownership Secure Search system. How has this helped in combating illicit financial activity? Following the Exchange of Notes between the Government of the Virgin Islands and the Government of the United Kingdom on the sharing of beneficial ownership information, the BVI introduced its innovative digital platform, the Beneficial Ownership Secure Search System (BOSSs) in 2017. The system enables direct access by relevant authorities to verified beneficial ownership information on corporate entities incorporated in the jurisdiction and has thus far helped the BVI’s Financial Investigation Agency respond to almost 250 requests for beneficial ownership information from UK law enforcement authorities. The gold standard system is designed to directly meet the beneficial ownership requirements of the Financial Action Task Force (FATF), the global standard setter in this area. As such, under BVI law information maintained on the register must be accurate, adequate, current and accessible in a timely manner, making it one of the most advanced platforms in the world as recognized by UK and US law enforcement. It is also worth noting that the BVI is ahead of the UK with regards to providing beneficial ownership information as the UK’s Companies House register does not require verification of information, a core requirement of the FATF. The OECD is tackling tax avoidance and tax evasion. How pleased are you that the OECD recognizes the regulatory framework the BVI has put in place, and how does this demonstrate the BVIs place in the global economy? We are of course delighted that the OECD recognizes the work the BVI has done in our efforts to tackle financial crime given we have always prioritized meeting all global standards in this respect. For instance, the BVI was an early adopter of the OECD’s Common Reporting Standard (CRS) which requires the exchange of information on an automatic basis with a number of jurisdictions for tax purposes. We are also a member of the Inclusive Framework on BEPS led by the OECD’s Global Forum on Transparency and the Exchange of Information for Tax Purposes bringing together over 100 countries and jurisdictions to collaborate on the implementation of the OECD/G20 Base Erosion and Profit Shifting (BEPS) Package. In addition, the BVI is rated as largely compliant by the OECD Global Forum. Outside of the OECD, the BVI has also worked closely with the UK and a number of other international bodies for a number of years to tackle problems of tax evasion and illegal use of the global financial system. As such, we are an active participant in a number of international initiatives including the Financial Stability Board, IOSCO, the global standard setter for the securities sector, and the Egmont Group of Financial Intelligence Units, often exceeding global standards across the board. The digitalisation of finance and the growth of alternative financial instruments like crypto-assets is continuing apace, with smaller financial centres able to move quickly in fintech regulation. What opportunities do you see for the BVI? Fintech is a very exciting space for the BVI and we see huge potential within the crypto assets market in particular. A key element of our efforts to support fintech innovation in the BVI is the ‘wait and see’ approach to regulation that has been adopted by the BVI Government, the Financial Services Commission (FSC) and BVI Finance. The BVI has a long, successful history of not responding rashly when a new product or asset is introduced on-island. Instead, we choose to work alongside the private sector and financial services professionals in order to develop rules that work for them and help them to flourish, rather than stifling progression with unnecessary delays and roadblocks. An example of this innovative thinking can be seen in the FSC’s development of its regulatory sandbox which enables businesses to test innovative products in a safe environment using a bespoke, focused supervisory framework whilst protecting market participants. In 2018 the BVI was ranked one of the leading jurisdictions for ICOs and a recent report found that one in six crypto hedge funds are domiciled in the BVI. We believe that the combination of our supportive regulatory framework, as well as the quality of the infrastructure and service providers we are home to, will help cement our position in this important market going forward. Recent FinTech initiatives included the BVI sponsoring its Think differently – the Great Digital Disruption and the new internet economy event in Singapore and in the BVI in 2018 and most recently in late 2019 its BVI Government sponsored event BVI Digital Economy – a New Driver for Development with the BVI Premier, the Honourable Andrew Fahie, using the theme of Backing the Future. How and why is the BVI such an important financial hub for developing economies in Africa and LatAm? IFCs such as the BVI play a crucial role in addressing the need for developing nations, such as Africa and Latin America, to mobilise finance to facilitate economic development and meet sustainable development goals. A recent report by the Overseas Development Institute (ODI) estimated that IFCs galvanized an additional $1.6 trillion worth of finance to developing countries between 2007 and 2014. The report also found that IFCs boosted developing countries’ GDP by $400 billion and tax revenues by $100 billion during the same period. The BVI helps facilitate this investment as a safe, secure intermediary through which investors are able to channel their funds. All investments made via the BVI are subject to the legal jurisdictions of established international contract law frameworks, including the UK and US, covering contracting, dispute resolution and collateral arrangements. The jurisdiction also provides a provide a neutral location for funds to be amalgamated from multiple sources before being collectively invested. The diversification and tranching of pooled funds reduce the risk to more acceptable levels for international private investors. Finally, IFCs are able to better direct investment into the areas that require the most support within developing economies – usually infrastructure and financial services. For instance, the ODI report found that as a result of offshore intermediation between 2007 and 2014, financial services sectors in developing nations had received an additional $600 billion of extra investment while infrastructure sectors had received some $1 trillion. BVI Business Companies are used by several major international development banks, including the World Bank’s International Finance Corporation and the European Bank for Reconstruction and Development, to help fund projects around the world. What is the benefit of setting up an investment fund in the BVI as opposed to doing so in an onshore jurisdiction? The popularity of BVI funds is testament to both the ease and cost-effectiveness of establishing business in the jurisdiction, as well as the quality of our legislative, regulatory and judicial framework. As investors seek increasingly sophisticated financial instruments to help manage their assets, we are seeing growing interest in our ‘incubator’ funds which allow clients to attract and pool a small amount of investment and manage it through their own fund. A fund holder can invite as many as 20 investors, each of whom must make a minimum initial investment of US$20,000. The fund cannot, however, exceed a cap of US$20 million of the aggregate value of its investments with this combination often cited as the 20-20-20 criteria. Such funds do not require the same level of administrative expertise that a large investment fund does, therefore enabling investors to set up and run a cost-efficient licensed fund that allows them to withdraw on demand. The BVI also provides a supportive business environment for hedge fund start-up managers who can be held up by institutional investors looking for a three-year track record before they will consider investing or alternative sources of funding expecting at least 12-18 months of experience. By using a BVI ‘incubator’ fund or an approved fund, a new manager can get established without having to appoint local directors or functionaries, although an approved fund will still need an administrator, as well as there being no requirement for a local auditor sign off on the fund’s accounts, therefore speeding up the entire process significantly. New regulations require fund managers to have an increased presence in the BVI, but with expert on-island support to help navigate the jurisdiction’s regulations and rules, start-up funds will find a conducive trading environment for all. What’s more, while a start-up hedge fund may be looking for millions in investment, they must also keep outgoings low, making the BVI’s low start-up and ongoing fees a welcome boost. Finally, for managers looking to develop a fresh approach to investing, they are able to set up their funds in the BVI with significant flexibility. Directors or shareholders can amend the constitutional documents of a BVI fund, providing a degree of flexibility for restructuring. It is also worth noting that BVI funds have no regulatory restrictions on investment policies or on performance and other fee arrangements. How is BVI taking part in China’s global expansion plans and Belt & Road initiative? The BVI has had a long and successful relationship with Asia for the last three decades as a leading facilitator of cross-border trade and investment. This relationship is expected to continue to flourish over the coming years as the BVI plays a key role in the progression of China’s Belt & Road Initiative as a mediator for international joint ventures and co-funded infrastructure projects across Asia, Africa and Europe. The BVI’s core advantages, including its highly respected legal system based on English common law, internationally compliant regulations and tax neutrality, make it a particularly attractive jurisdiction for pooling global capital and investing in markets where legal barriers or political risks might otherwise deter investment. What’s more, the BVI is capable of cutting through the complexity of different industries, arranging structures in areas such as oil and natural gas, petrochemicals, metals, manufacturing and electronics, to help create a bespoke partnership or joint venture agreements that provide a transparent, mutually beneficial solution for all stakeholders. By 2030, China will be the biggest economy in the world, but in order to effectively execute its Belt & Road Initiative it will require the use of specialist international finance centres, such as the BVI, to provide the skill needed to achieve success on a truly global scale. ABOUT THE AUTHOR Simon and the BVI Finance team lead the efforts of the BVI in promoting the territory’s international business and financial services both locally and overseas. Simon is a senior financial services professional with a strong international background with experience of Europe, the Middle East, North America, Asia, Africa and Latin America and an established track record of success.
The BVI’s core advantages, including its highly respected legal system based on English common law, internationally compliant regulations and tax neutrality make it a particularly attractive jurisdiction