The Guardian reports this morning that:
The premier of the British Virgin Islands (BVI) has been arrested in a sting operation in Miami on charges of conspiring to import cocaine into the United States and money laundering.
The BVI governor, John Rankin, confirmed in a statement that Andrew Fahie had been arrested on Thursday morning, saying: “I realise this will be shocking news for people in the territory. And I would call for calm at this time.”
Oleanvine Maynard, the manager director of the Caribbean territory's port authority, and her son Kadeem were also detained in the operation.
Compared to other Prime Ministers who I think should have charges brought against them this seems like a low-grade offence, but leaving such comparison aside, and noting that no one is guilty until proven so in court, that such an allegation might be made does not surprise me.
The British Virgin Islands, as I have recounted over many years, including in two books on tax havens, is a centre for international crime. It provides more than 400,000 companies that are used by corruption service providers. I can think of quite literally no legitimate reason for the use of a BVI company, unless you are running a store in the BVI that is.
Is it surprising then that such allegations might be made? Not at all. You have, in my opinion, to be a defender of corruption to be engaged in defending the activities of the BVI, as its Premier is. And corruption corrupts.
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As far as corruption is concerned, money is the biggest motivator.
Between 2002 and 2014 I was a Director of and owned shares in a BVI company (I can already feel the sharp intake of breath!!). Let me explain…..
The “standard” set up for a hedge fund is to have a BVI (or similar jurisdiction) company that owns assets and trades those assets. The trading activity of this company are controlled by a management company based in the country where the manager lives (eg. Singapore). The BVI company pays fees to the Singapore management company…. which in turn pays Singapore corporation tax and the manager pays tax on salary and dividends in the normal way.
If the trading is successful the BVI company will make profits and the tax rate on those profits in BVI is zero.
If investors receive dividends or make capital gains when shares in the BVI Co. are sold then they will pay tax on this as they would on any investment they might make according to the jurisdiction where they live.
There are two potential problems. First, will the investors just pocket the dividends and not tell their home tax jurisdiction? Second, is it fair that companies that genuinely operate in the BVI pay corporation tax and those holding companies do not?
With regard to the first, in my case, all the investors were personally known to me and worked in a job where cheating on taxes would be a career ending crime. Tax was paid when/where it was due. The problem with many BVI companies is secrecy where “who really owns the shares?” is unclear and there are long chains of shell companies…. all to avoid being caught cheating on taxes.
Regarding the second, the zero tax rate in the BVI is a different issue. Investors would argue that to pay corporation tax in the BVI and then their own taxes on top would be “being taxed twice”. Also, where should this company be based? In fact, London offers zero tax for this type of company (but the costs of meeting the rules prohibit small funds). On the other hand, the good folk of the BVI who DO pay tax might feel hard done by.
The issues of tax competition are a complex balance between countries acting in the own sovereign self interest BUT as a part of the international community…. and I am not sure where that balance lies.
So, in conclusion. Secrecy is the big problem, tax competition is the secondary problem but it is much broader than the BVI and would include UK, Delaware, Jersey etc..
PS – I am no longer a Director of the BVI company. It was shut down when the manager in Singapore retired. Would I do it again? I am not so sure.
I am not convinced by the double tax argument
Most tax agreements can resolve that
And if the only reason to use the BVI is to avoid tax I stick by my claim that there is no good reason to use the BVI
Tend to agree with Clive Parry. The problem isn’t tax arbitrage. At a minor level the well-advised can secure marginal tax advantages but, truth be told, once they’ve paid the advisors they will probably find the advantages weren’t worth it.
The problem with BVI (& Caymans, TCI, Jersey, Guernsey, IoM etc) is that they sell secrecy. It is the secrecy that allows people to save tax, rather than BVI’s supposed ‘low tax system’. That is why you can safely say that what BVI colludes in is tax evasion rather than avoidance. Of course, they also collude in much worse things, particularly in allowing oligarchs to simply fleece their own country willy-nilly. I would guess the US authorities think worse things include drug dealing. I’m not going to be hypocritical enough to slaughter anyone for being involved in illegal drugs, but there can be no doubt the BVI facilitates that trade massively.
As the person credited with defining the term secrecy jurisdiction I agree
Most people here now don’t know about this phase of my career
https://fsi.taxjustice.net/Archive2011/Notes%20and%20Reports/SecrecyWorld.pdf
Just a couple of minor observations on the tax point about BVI, and in particular the statement:
“Second, is it fair that companies that genuinely operate in the BVI pay corporation tax and those holding companies do not?”
I think it is important to note that the BVI doesn’t have income or corporation tax, so there is no difference between so called holding companies or companies that genuinely operate in the BVI.
As to the double taxation question, well typically funds structured through an offshore company offer “tax deferral”, it is a completely different argument as to whether the “deferral” becomes permanent due to delays in the crystalisation.
One common issue with offshore funds is that when dividends are first paid they often come with a “tax credit”, but that tax credit is washed away in the process of putting them into the fund and if the income is eventually brought into the home country it no longer receives any tax credit at all, which is completely different to the situation with a purely domestic fund.
For example if shares in a quoted UK company are held by a BVI company which acts as a fund then when income is distributed to somebody invested in the fund it would no longer carry the tax credit. It is easy to contrast this with the situation where shares in a quoted UK company are held by a UK fund or company and the income comes with a tax credit when paid.
In light of this why would anybody use an offshore fund? Typical reasons are around deferral, policies that don’t tax income received outside the country (eg remittance basis), investors that live in multiple countries or differences in the taxation of capital gains.
Maybe
But note what I said about secrecy too
Liz Truss says she is appalled by the news and will urgently pursue publication of the inquiry into ‘unrelated’ allegations of corruption. At the inquiry the BVI were defended by Geoffrey Cox, the UK Attorney General. He collected a reported £1,000,000 from his ‘part time’ role. It maybe that the inquiry, which has been sitting for nearly 18 months found the case complex and that is why it is taking so long to report. It could be that Mr Cox presented a case that required much thought. It could also be that when the money laundering tree was shaken several unexpected names were revealed.
Shades of the corruption allegations in the Turks and Caicos, which as a result were under UK direct rule from 2009 to 2012.
Apropos, it is being reported that the inquiry into alleged corruption in the BVI is recommending direct rule for two years. https://www.reuters.com/world/uk/british-virgin-islands-should-be-temporarily-returned-british-rule-inquiry-says-2022-04-29/
There appears to be an assumption that the government from Westminster would be less corrupt. Shall we talk about immorality and criminality at the heart of the UK’s government, and financial scandals such as multiple billions directed at friends and family through PPE procurement?
I think we should let Ireland run it
Even if they are a tax haven
Let Ireland run the UK? Two tax havens, sitting in a tree? Well, ok, we tried the reverse for some time, so I suppose we could give it a go.
Better than us running it
Have the people of the BVIs had any say in the assumption of UK direct rule? Might they be a trifle upset to have their colonial masters back in charge? If they’ve been following events in the UK and understand UK’s role in facilitating the moneylaundering in their islands. might they not think the UK Gov is being hypocritical and suspect that the UK is taking advantage of the circumstances to enhance its own moneylaundering profits? There may come a point when they take to the streets to protest the loss of their (tainted) democracy. What does UK do then – send in the troops?
Ken
They are not really independent at all. They are run by a corrupt equivalent of a town council completely in hock to the finance industry
30,000 people is hard to consider a viable state imo
Richard
Yes, let Ireland take over. They’re fair, honest & incorruptible. Have you read anything Fintan O’Toole has been writing for, like 20 years?
Yes, but with all the faults they’re now vastly better than us
And I acknowledge the faults