Comment: Publicly-accessible registers of beneficial ownership are not the silver bullet for fighting financial crime

Originally Published by “International Investment”

Over the past 30 years, the British Virgin Islands (the BVI) has developed a robust system in place for identifying beneficial ownership which is and can readily share any necessary information with relevant law enforcement agencies, says Ryan Geluk, pictured below left, deputy managing director of BDO British Virgin Islands. Crucially the BVI is constantly looking at how it can further bolster its regime and innovate its systems to ensure these remain market leading and to more efficiently and effectively cooperate with law enforcement authorities to trace beneficial ownership. This includes the creation of an innovative technology platform called BOSSs (Beneficial Ownership Secure Search System).

At the heart of BOSSs is a searchable portal that provides the BVI law enforcement authorities with the ability to have rapid access to verified beneficial ownership information on any BVI company. It allows the BVI to share information within 24 hours with our treaty partners- which will put us ahead of most of the other jurisdictions. No global standard exists so the BVI continues to maintain the right to privacy which includes the right to keep one’s financial affairs private," deputy MD of BDO British Virgin Islands

The BVI's current regime has been proven to be one of equivalent effectiveness whilst allowing us to provide the appropriate balance between transparency and legitimate concerns over privacy. The BVI has an internationally compliant and transparent regime for beneficial ownership. It is commercially private, while responding to requests from international law enforcement with agreements in place with over 100 developed countries.

Standards

The BVI complies fully with all international standards and has a long track record of being an early adopter of new standards as and when they are implemented. The BVI is compliant with the recommendations of the Financial Action Task Force (FATF) on anti-money laundering and counter-terrorist financing. It has an FATF compliant rating, the long-standing requirement for companies' beneficial owners to be known. The BVI has also been recognised by the OECD as being largely compliant in the international exchange of information.

It was one of the first jurisdictions in the world to sign up to the OECD's Common Reporting Standard (CRS) for the automatic exchange of tax information. This model creates a system which is the equivalent to a central register and one which is widely regarded as more effective than a public register. For instance, Professor Jason Sharman, noted author of Global Shell Games, perceives the lack of an enforceable verification process as a fault with what he calls ‘the passive, archival central registry alternatives in British, EU and US blueprints'. Currently, however, no global standard exists so the BVI continues to maintain the right to privacy which includes the right to keep one's financial affairs private.

Exchange

Thus, common with other similar territories, a system of exchange of information with other territories, including the United Kingdom, has been developed through the signing of information exchange agreements whereby information will be exchanged upon valid request.  The Exchange of Notes signed between the Governments of the Virgin Islands and the United Kingdom confirm that this will occur within a 24-hour period (or one hour on specified circumstances) which puts us ahead of many other jurisdictions when it comes to exchanging beneficial ownership information. 

Beneficial Ownership

The Beneficial Ownership Secure Search system (BOSSs) was developed to allow for instantaneous access by the relevant Competent Authority without the risk that a corporate service provider or company is tipped off that a search is being conducted. Any valid search for beneficial ownership information is normally because of some sort of investigation by law enforcement, which already has the ability to request this information under our current regime.  This system is much more efficient than the current UK model whereby a company can be incorporated by anyone and beneficial ownership information is not being tested or verified, and which then leads to significant inaccuracies to occur and the ability to provide false or misleading information without proper oversight.  corporate service providers are regulated entities in the BVI and are required to verify the beneficial ownership information being provided.

Some argue that public registers of beneficial ownership are the silver bullet for ending illicit financial activity globally.  Why should the BVI not follow suit? Firstly, a public register does not highlight who nefarious persons are and as such, they will not be effective in identifying them.  Criminals will simply find a way around them.  Secondly, it is viewed that a public register would have no discernible impact on fighting crime whilst removing the ability for corporations to keep their corporate affairs private.  Thirdly, with an already proven regime for fighting financial crime, the implementation of a public register would only punish the masses who are following the law.  The BVI has a long history of taking enforcement action against those who are found to be breaking the law.  Under the BOSSs Act, 2017, enforcement actions will be taken against companies which fail to update their beneficial ownership information within 15 days of a change. 

In addition, stiff fines and or prison terms can also be levied on those found guilty of providing knowingly false information to the corporate service provider which is loaded into BOSSs.  There are also penalties levied against corporate service prroviders who knowingly enter false information into BOSSs or do not do so on a timely basis.  With such a regime and system in place, it will undoubtedly help to deter persons from committing financial crimes much more efficiently than the implementation of a publicly accessible central register.

Are there benefits to be a leader in this race?

Regardless of what we believe the correct position to be, strength supports momentum. Recent examples such as the implementation of BOSSs, early-adoption of the CRS and initiation of the registers of directors are all evidence of the acceptance that there is evidence of a global shift toward a more transparent system in the exchange of information - to an extent.  For the BVI, the adoption of these have not resulted in significant long-term declines in incorporations or renewal rates. 

Though history has shown that the BVI has demonstrated strict compliance to international standards, there are many who believe that it is better to dictate than to be dictated to - the latter normally does not benefit the laggards.  Therefore, the adherence to a strict position may not lead to the strongest position in the long-term.  With an acceptable model that would be designed to protect privacy, a strong position of leading the momentum could allow the BVI to dictate a methodology which would support our position. 

Is there evidence to support a shift to a global standard?

The BVI has always followed the requirements of international standard setters, and if a publicly accessible register on beneficial ownership becomes the international standard, then it will be implemented within the BVI.  It is notable that those who have recently implemented public registers, which include Luxembourg, the Netherlands and Germany, have all chosen similar methodologies which help to protect the privacy of the beneficial owners, yet make their systems publicly-accessible.  All three countries have instituted legislative rights to protect those individuals who would be put in harm's way if their ownership information were to be exposed.  These systems all recognize that everyone is entitled to the basic human right of privacy.  A system which only allows the search of the beneficial owners of a company is viewed to be the only acceptable system, as evidenced by these recent examples. The Crown Dependencies have also demonstrated a move towards acceptance of a publicly-accessible register at some point in the future.

Unavoidable

It is unavoidable that, for the near future, the debate over publicly-accessible registers will continue into the foreseeable future as politics continues to dominate the discussion. However, the question remains the same, how do we stop financial crime? The answer: giving law enforcement authorities across the world access to readily available information at their disposal, which is accurate, timely, objective and verified. To ensure an effective global standard, and as recommended by the FATF, a concerted effort from cross-jurisdictional stakeholders is needed if we are to forge ahead. That includes implementing effective measures to prevent financial crime and ensuring information on beneficial ownership is available to competent authorities without impediments.

Ryan Geluk, Deputy Managing Director of BDO British Virgin Islands

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