While elections for the Virgin Islands House of Assembly are likely months away, another election with implications for the territory will be held next Thursday when United Kingdom voters hit the polls to decide who will represent them in the UK Parliament.
Currently, the two main players — the ruling Conservative Party and the opposition Labour Party — are neck in neck in the polls. Ultimately, one of them is expected to form a coalition government with a smaller party like the Liberal Democrats or the Scottish National Party, according to various election forecasts.
Whatever the result, the Virgin Islands is likely to feel the effects.
The biggest election issue pertaining to overseas territories is whether they each will be required to compile a publicly searchable register listing the beneficial owners of companies based in their jurisdictions.
Leaders in the VI and other OTs have opposed this proposal, which they say could damage financial services industries.
But both Labour and Conservative officials have pushed for the registers, arguing that they would increase transparency and help the UK reduce tax avoidance and evasion.
The parties, however, differ on how to implement that policy: Labour argues that OTs should be required to adopt a register, and the Conservatives counter that they should be encouraged but not forced to do so.
The issue is not new, but it became a major election topic in February when Labour leader Ed Miliband told the OTs that they would have six months to create public registers under a Labour Party government.
If they fail, he wrote in a letter, he would ask the Organisation for Economic Co-operation and Development to add them to its “tax haven” blacklist.
Mr. Miliband’s statements were met with derision from OTs and Conservative Party leaders alike.
Chancellor of the Exchequer George Osborne, a CP member, said such a policy would alienate the UK from other countries like the United States and Germany, which also don’t have public registries.
Bermuda Premier Michael Dunkley fired back as well, saying that he was “surprised and disappointed” that Mr. Miliband would consider his territory a “tax haven.”
Meanwhile, VI and Cayman Islands officials said they never received the letter that Mr. Miliband claimed to have sent.
Manifestos
In spite of such pushback, the LP has stuck to its guns: It reiterated its stance on beneficial ownership in its party manifesto released this month, promising to prioritise a crackdown on tax avoidance.
“Our first finance bill will close the tax loopholes that cost the [country] billions of pounds a year,” the document states. “British overseas territories and Crown dependencies will be required to produce publicly available registries of the real owners of companies based there.”
The Conservative manifesto, which was also released this month, doesn’t mention the issue of beneficial ownership, but it states briefly that the party will fight tax evasion by leading “international efforts to ensure global companies pay their fair share of tax.”
The proposal for a public registry of beneficial owners has been met with resistance by stakeholders in the VI financial services industry, who cite privacy and security concerns and worry that public access could severely undercut their business.
“It would be bad,” Kenneth Morgan, a director of the VI office of the trust company Rawlinson & Hunter, said in an interview last year. “A lot of the people who use the BVI to structure private wealth — quite legally, legitimately — would be undermined.”
Premier Dr. Orlando Smith has recently dodged questions on whether his administration would establish a beneficial ownership registry.
“It is not in the public interest at this time to answer further questions because of ongoing discussions on this matter,” he said during a March 12 House of Assembly meeting in response to a question about the issue from opposition member Julian Fraser (R-D3).
Dr. Smith has, however, cited a recent survey where 80 percent of VI residents and industry practitioners reportedly responded that the current system of maintaining corporate information is adequate.
He also pointed out in February that the territory’s regulatory regime already meets international standards like those set out by the Financial Action Task Force and the G20’s High-Level Principles on Beneficial Ownership and Transparency.
Dr. Smith said the VI will continue to improve its current system by boosting regulation of the agents who form companies and improving how beneficial ownership information is shared.
Pressure
Whichever party leads the next UK government, VI officials expect the territory will continue to feel pressure from the international community over beneficial ownership and other issues surrounding the financial services industry.
“What is clear is that there is cross-party agreement that more is to be done to crack down on tax avoidance and evasion by multinationals,” BVI Finance explained in a newsletter this week. “Reform of [Her Majesty’s Revenue and Customs’] powers to investigate and penalise should be expected, no matter the result of the election. It should also be expected that more scrutiny should be placed on the tax arrangements of [European Union] member states and, in turn, on British overseas territories and Crown dependencies.”
However, Dr. Peter Clegg, a professor of international relations at the University of West England, said that besides the possibility of a beneficial ownership registry requirement, he’s not expecting the next administration to implement policies that could drastically affect financial services industries.
“Some of the rhetoric is quite strong, but there is the underlying issue of the economic sustainability of OTs that rely on [financial services],” said Dr. Clegg, who studies governance issues in non-independent territories in the Caribbean.
EU referendum
If the Conservatives retain the government, a Tory-led administration would pose the possibility of another challenge for OTs: Prime Minister David Cameron has promised a referendum for voters to decide whether the UK should leave the European Union.
Some British citizens want to leave the EU for a variety of reasons, but the most common is the lack of immigration restrictions within the union, according to Ben Lauderdale, an associate professor of social research methods at the London School of Economics.
“The UK has seen high levels of immigration in recent years from elsewhere in the EU, but is not allowed to place any restrictions on that immigration,” Dr. Lauderdale wrote in an article for FiveThirtyEight.com, a website that uses statistical analysis to predict election results.
The Labour Party, the Liberal Democrats, and the Scottish National Party generally favour staying in the EU, while an exit from the union is a central platform of the UK Independence Party.
According to the non-profit organisation Friends of the British Overseas Territories, a UK exit from the EU would most impact Gibraltar, the only OT that is an EU member.
If the UK exits, Gibraltar would have to follow, said Dr. Clegg.
“For the Caribbean OTs, the effects would be different,” he said. “They would no longer benefit from the [overseas countries and territories] arrangements.”
The VI receives multiple grants from the EU, and Dr. Clegg said he thinks those monies would disappear in the event of a UK exit.
“The OCT status is directly related to EU membership, and member states that also have territories that benefit from OCT arrangements — France and the Netherlands — would object to any continuing support for the British OTs,” the professor explained.
EU travel
Travel could be affected, too. Last June, the Governor’s Office announced that VI belongers and other British OT residents now have visa-free access for 90 days to the EU’s Schengen Area, which consists of 26 European countries, as well as Romania, Bulgaria, Croatia and Cyprus.
“In terms of visa-free access, … that could possibly continue despite a UK exit,” Dr. Clegg stated. “It would depend on the kind of arrangement that the UK could negotiate with the EU post-departure.”
Though coming decisions on beneficial ownership and EU membership could certainly impact the territory, Dr. Clegg said that the next UK administration probably won’t have as much impact on OTs as some past administrations — especially the early 2000s Labour Party government which extended British citizenship to OT citizens when it passed the British Overseas Territories Act 2002.
“That seemed to be the most significant change in terms of the country engaging with overseas territories,” Dr. Clegg said.
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