The economic fallout from the Covid-19 crisis has sent businesses across the globe reeling — and fraudulent businesses are no exception, Virgin Islands based asset recovery lawyer Martin Kenney said in a Zoom interview last week hosted by the Miami-based news service OffshoreAlert.
And, when those companies go under, he said, some of the fallout could find its way to VI courts.
“Through the Covid crisis we’ve been very busy,” he said, “and I expect that there will be a lot more work coming from the economic fallout.”
The VI, he pointed out, is home to more than 400,000 active companies, and the single biggest source of those companies is China. A few years ago, he recalled, the Chinese shipbuilding industry collapsed.
“For the holding companies in China that went insolvent, the insolvency proceedings were run here in the BVI High Court,” he said. “We had major fighting between creditors and shareholders and managers over here in the BVI, which set the cadence of that whole workout process, and there was some fraud work that came out of that.”
During the pandemic, Mr. Kenney said he’s already seen three major fraud cases come through his office in the past month, “which I don’t think we would have seen if it wasn’t for the current economic crisis, at least not now. I think that the crisis is revealing a lot of fraud.”
Mr. Kenney, a native of Canada, has been practising since 2005 in the VI , where he’s made his name as an international “fraudbuster,” as Wired magazine put it.
“The only thing standing between the victim and their money is information,” he explained during the OffshoreAlert session. “Our principal job as recovery lawyers is to gather evidence to discover documents attributing a manifestation of wealth to wrongdoers’ wrongdoing. And so, if you’re going to be in this work, being based in a place like the BVI is sensible.”
Despite his many dealings with thousands of VI-based companies, he said, he has managed to build a good relationship over the years with leaders in the territory. In fact, he was hired by the VI government last year to probe the BVI Airways deal that cost taxpayers $7.2 million.
“The Premier’s Office and the Financial Services Commission welcomed us openly,” he said.
“Initially, some of the management of trust companies were concerned about our presence, got annoyed when we sued them for information under
something called Norwich Pharmacal disclosure order … to get information to further investigations. But over time, I think the people in the local financial services sector appreciate that we’re [not] here to create problems for them.”
‘Advocate’ for the VI
When asset-recovery firms have a healthy relationship with regulators and the courts, he said, their work helps “combat the perception that the BVI is a bad place and that all we do is hide money for crooks [and that] there are no remedies for victims, which is all largely false.
So I’ve become an advocate actually, ironically, for the territory.”
Mr. Kenney added that many jurisdictions could learn a lot from the VI if they seek to become healthy international financial centres.
David Marchant, editor of OffshoreAlert, asked Mr. Kenney if he had ever stumbled across sensitive information related to a case while socialising with other financial services practitioners.
“The short answer is yes, but I try not to exploit that kind of situation,” he said. “I try my best not to, let’s say, get involved in subterfuge or surreptitious ways of getting information. Of course, there are people known to have some drinks in the BVI, and some people speak too much in such a setting. And I’ve heard things said here that probably shouldn’t [be said]. But I just try and get them out of my mind.”
Mr. Kenney added that a common misconception is that all offshore centres are the same.
“Some are clearly well run: … The BVI, the Cayman Islands, Bermuda, randomly [spring] to mind. And then there are some that are really seedy.”
He called the VI a “hyper-regulated jurisdiction” compared to the US, which he described as “offshore going onshore.”
“Delaware, right? A million companies, right?” he said. “Nobody knows who is buying the companies. There’s no record in Delaware for me to get a disclosure order against [the state] to determine the ultimate beneficial owners of a Delaware LLC.”
In the VI, however, “$20, $30 [or] $40,000 will get you a proper disclosure order,” he said. “The other side doesn’t know that [you know] about who owns a BVI company, and off you go.”