TAX HAVENS

British Virgin Islands corruption scandal threatens its dependable tax haven reputation

The territory, whose shell companies have repeatedly played a role in notorious global crime schemes, also may be blacklisted by the EU after the Brexit deal.

The British Virgin Islands is reeling from a corruption scandal that threatens to upend the territory’s reputation as one of the world’s most dependable tax havens.

Last week, outgoing BVI Governor Augustus Jaspert announced a commission of inquiry to investigate allegations of corruption and the misuse of millions of dollars in public funds.

The inquiry will focus on a range of claims and alarming discoveries. In a Facebook video posted during his last week as governor, Jaspert referred to accusations he heard during his time in office from officials, journalists and members of the public, including one case in which $40 million earmarked for COVID-19 relief was allegedly siphoned to political allies. In another case under investigation, the BBC reported, cocaine worth almost $250 million was found in the home of a local policeman.

The inquiry is backed by the United Kingdom, which oversees the BVI as an overseas territory. The BVI governs its domestic affairs and raises its own taxes but relies on the United Kingdom for defense and diplomatic matters.

“A consistent and deeply troubling array of concerns have been put to the Governor by local institutions and the community,” U.K. foreign secretary, Dominic Raab, said in a statement to parliament. “We cannot ignore such serious allegations.”

The BVI is one of the world’s most popular tax havens and attracts legitimate business corporations, celebrities, multimillionaires, and criminals alike. The island offers cheap and simple shell companies that allow their owners to avoid registering their names in public.

While owning and piping money through BVI companies is legal, shell companies created on the island are a regular feature in the world’s most notorious scandals. BVI companies appeared in a $2 billion scheme in the name of a close friend of Russian President Vladimir Putin and the “corruption pact” that last week saw Israeli tycoon, Beny Steinmetz, sentenced to jail.

More than half of the shell companies exposed in the Panama Papers investigation were registered in the BVI, according to an analysis by the International Consortium of Investigative Journalists. More recently, ICIJ revealed as part of the FinCEN Files investigation that BVI companies appeared in one in every five suspicious activity reports filed by banks that had concerns about possible money laundering.

Responding to pressure and sustained scandals that highlighted the role of BVI shell companies in global crime, the island last year agreed to introduce a public register of company owners. Following the United Kingdom’s exit from the European Union, pressure from European members of parliament has grown to add the BVI back to the continent’s tax haven blacklist. Previously, the U.K. had lobbied to keep its overseas territories off such a list.

For years, the BVI and its defenders have presented the overseas territory as a reliable location from which the global elite can discreetly and cleanly manage their affairs and avoid the world’s prying eyes.

“The BVI is a stable and mature financial center with a distinctive and professional legal and regulatory framework,” according to an advertising brochure that forms part of ICIJ’s 2017 Paradise Papers investigation. In the past, companies and individuals questioned by ICIJ about their choice of the BVI have praised the jurisdiction as having “a recognized and well established regulatory and compliance regime.”

Many disagree. Margaret Hodge, a U.K. member of parliament who has pushed for greater transparency in the BVI, told the Guardian that the “shocking revelations that corruption may be rife in the BVI are a shameful indictment of the tax haven model.”

“It is clear that an economy based on secrecy and low taxes is a recipe for bad governance, corruption, and criminality.”

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