We have recently received the news that the United Kingdom Parliament has passed legislation that requires the overseas territories to set up public registers of company ownership by 2020 and the bill has received royal assent. Given that business incorporations without public disclosure of beneficial ownership — but subject to due diligence and access to overseas tax authorities upon request — have formed an important building block for the development of the Virgin Islands’ financial sector, the timing of the legislation is especially unfortunate given the heavy blows inflicted upon the VI by hurricanes Irma and Maria, which involved loss of life, extensive property damage and disruption of the way of life for nearly all VI residents.

The VI financial sector has provided the territory with employment (for at least some Virgin Islanders and belongers), but more importantly has provided the VI government with a source which amounts to over 60 percent of government revenue and more or less covers the civil service wage, salary and pension bill.

The situation is very unfortunate as the VI has taken steps to substantially improve due diligence on beneficial ownership and cooperation with overseas tax authorities (I can personally attest to that under the United States’ Foreign Account Tax Compliance Act).

 

Discrimination?

But one of the questions about the legislation that has to be asked is whether the overseas territories are being discriminated against.

First, there is the question whether the public registry in the UK is accurate, verified and being effectively policed, about which we have heard doubts and many questions as to whether it does not amount to “voluntary” compliance.

Second, there is the question of the Crown dependencies — namely the Isle of Man, the Bailiwick of Jersey and the Bailiwick of Guernsey (the latter two being commonly being referred to as the Channel Islands). These dependencies have a strange constitutional relationship with the UK (of which they are not a part, just like the VI) and have had authority in their jurisdictions to administer taxes, prudentially spend as they wish, and enact their own legislation regarding internal (including financial) affairs. They are also major offshore financial centres. Yet it my understanding they are not subject to the legislation as enacted by the UK Parliament.

This seems to be inconsistent to say the least! Surely the VI’s limited sovereignty should be as sacrosanct as that in the Crown dependencies.

 

No global standard

Third, there is the question of global standards. There are many legal firms in the UK and elsewhere who will happily advise residents and non-residents on business incorporation, be it in the VI, Mauritius, Seychelles, Panama or various Pacific states and territories (many of course are outside UK jurisdiction). The overseas territories will suffer a competitive disadvantage vis-a-vis these other jurisdictions not subject to the same regulatory regime or without international tax data sharing agreements. And few questions are raised about public registers of beneficial ownership in the US in such states as Delaware, Nevada and Montana. There is little to expect from the US federal government in this respect as any steps that might be taken would be regarded as an infringement of “states’ rights.” Miami and New York have also come under scrutiny by the US Treasury for money laundering and property purchases by “suspect” individuals or corporations.

Surely, the UK Foreign and Commonwealth Office needs to respond to these kind of questions as it determines how to proceed with regard to the VI!

 

 

Dr. Wickham, who lives in the Virgin Islands, worked as an economist for the International Monetary Fund for 30 years, principally in the Research Department, where among other issues he worked in collaboration with the World Bank on sovereign debt problems of developing countries.