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British Virgin Islands: have they cleaned up since the Panama Papers?

Half a year has passed since the corruption story of the year – the Panama Papers – revealed the real owners behind thousands of shell companies.

Over 50 per cent of the shell companies uncovered in the Panama Papers were set up in the British Virgin Islands (BVI). As of June this year, BVI hosted 430,000 companies: 15 for each of their 28,000 inhabitants.

The Panama Papers showed that over 140 politicians and public officials around the world – as well as tax evaders, drug traffickers and fraudsters – had links to secret companies.

Have these revelations led to any changes in the way BVI does business?

Any progress fighting shell companies?

The British Virgin Islands Financial Services Commission (Motto: “Vigilance. Integrity. Accountability”) is the official body charged with overseeing the corporate service providers that set up and manage shell companies. Those service providers are the equivalent of Mossack Fonseca, the law firm at the heart of the Panama Papers.

The most recent edition of the Commission’s statistical bulletin, published at end of September, shows that the shell company business in BVI has clearly taken a hit. The 16,000 new companies registered in the first half of 2016 represent a 30 per cent drop compared to the same period last year.

However, the Panama Papers seem not to have led to a sustained increase in the enforcement actions authorities are taking.

In April this year – the month the Panama Papers were published – BVI authorities took 16 enforcement actions, including eight administrative penalties and two “strongly worded letters”. By June enforcement actions had fallen back to seven, in line with enforcement activity in previous years.

A separate section of the Commission’s website has further details for a number of those enforcement actions (the list only runs until May). The highest penalty of the year, for US$31,500, was applied to Mossack Fonseca’s BVI branch on 11 April, just a week after the Panama Papers story broke.

According to this service provider’s website – one of the dozens offering BVI incorporation online – a basic incorporation package in BVI starts at US$1,375, and can cost up to US$5,325 for a “BVI premium International Business Company owned by a Belize trust”. With those kinds of fees, the average offshore provider in BVI can recover from a US$31,500 administrative fine within a few days.

There is also little evidence of a change in attitudes on the part of the country’s leadership. A judge in BVI’s Commercial Court recently attributed the popularity of BVI company incorporations to BVI’s “stable, reliable society” and “honest, independent and impartial ‎justice system”, denying it had anything to do with “the false reasons we have heard so much in the past year”.

Since the Panama Papers, international anti-corruption commitments have been made and committees have been set up in many parts of the world. The policies needed to tackle the problem of secret company abuse have also become increasingly well-known and are being widely endorsed. These include the establishment of central, public registers disclosing the real owners of companies, and the effective oversight of professional enablers.

Meanwhile, aside from a drop in company incorporations it looks like business as usual in the British Virgin Islands.

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