Statistics released last month by the Financial Services Commission show that 2016 was the financial services industry’s slowest year for new company incorporations since at least 2003, when the FSC began publishing statistical bulletins.
The 7,780 new companies that formed in the Virgin Islands in the fourth quarter of last year are a slight increase from the 7,766 companies that formed in Q3, but are still some 1,500 less than Q4 of 2015, and pale in comparison to the 11,000-plus companies that formed in the fourth quarter of years before that.
And while the total number of active companies — which includes those that renew — has remained around 450,000 in recent quarters, that number took a marked drop, falling from 447,503 in Q3 of last year to 416,784 in Q4.
Company incorporations are one of government’s primary sources of revenue, and incorporation rates are generally considered a bellwether for the health of the territory’s financial services industry.
Government’s recently released 2017 budget estimates suggest that declining incorporation rates have indeed impacted public coffers, with revenue from the Registry of Corporate Affairs – the department that facilitates company incorporations – declining from $171,162,363 in 2015 to $164,030,695 last year.
Government and industry officials have attributed the slowdown in incorporation rates to a variety of factors, including industry uncertainty stemming from changing regulations, as well as negative press damaging the territory’s reputation.
Most notably, there territory’s image took a severe beating last April when media outlets around the world started publishing stories on the Panama Papers, some 11.5 million documents leaked from the Panama-based trust firm Mossack Fonseca that allegedly suggested that VI-registered companies were used for money laundering and other illegal activity.
“It’s hard to deny the timing connection between the decrease and the release of the stories,” Robert Briant, the managing partner of the VI branch of Conyers Dill & Pearman, said last October when the FSC published statistics for Q2 of 2016 — a quarter that was, and still is, the slowest quarter for new incorporations since at least 2003.
A silver lining around the dismal year for financial services is the fact that the VI saw a 27 percent uptick in the number of mergers and acquisitions that happened in the territory, according to a report by the offshore law firm Appleby.
That report states that the VI was one of only two offshore jurisdictions that saw an increase in M&As from 2015 to 2016, and that 19 percent of the world’s offshore M&A deals occurred in the territory.
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