Business BVI August 2016 by Business BVI

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CONTE NTS AUGUST 2016

SECTIONS 14 15 Contributors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 BVI Calendar . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Ahead of the Curve . . . . . . . . . . . . . . . . . . . . . . . 22

Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Opening Remarks . . . . . . . . . . . . . . . . . . . . . . . .

Spotlight: Insight . . . . . . . . . . . . . . . . . . . . . . . .

BUSINESS

35 62 83 99 114

Masthead. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

AUGUST 2016 EDITION

Tourism and Real Estate . . . . . . . . . . . . . . . . . . Business BVI Guides. . . . . . . . . . . . . . . . . . . . . . Over And Out . . . . . . . . . . . . . . . . . . . . . . . . . .

A STRANGER IN A STRANGE LAND ONE YEAR LIVING AMONGST THE CAYMANIAN

THE RIGHT TO PRIVACY IN THE DIGITAL AGE

THIS BRAVE NEW WORLD

CONFIDENTIALITY IN THE BVI: WHAT RECORDS ARE AVAILABLE?

OVERCOMING CHALLENGES

OPPORTUNITIES FOR SUBSTANCE BASED GROWTH

THE OTHER SIDE OF PANAMA PAPERS

THE NEXT AFRICA

TEN YEARS OF REAL ESTATE DEVELOPMENT IN THE BVI

MOVING T O U RTO I S MTHE A N D ISLANDS BRITISH VIRGIN R E A L E S T AT E

100

THE BVI ADVANTAGE: MAXIMISING FOREIGN DIRECT INVESTMENT AND BOOSTING GLOBAL COMMERCE IN EMERGING MARKETS

104

MOVING TO THE BRITISH VIRGIN ISLANDS

108

FAST FACTS ABOUT THE BRITISH VIRGIN ISLANDS

BUSI NESS BVI GUIDES

AUGUST 2016 EDITION

CONTE NTS F E AT U R E A R T I C L E S

58 Certain Unc er t a i nt y Am id t urm o i l, Ha rn e ys l aw yer l o o k s a hea d 84 Tak i n g l u x u r y t o a n ot h er level : 5 8 0 0 s a t t h e Mo or i n g s 1 14 A different k i n d o f s t ar tup Ne w CEO s ha re s pl a n s for Arb i t ra t i on Ce n t re

AUGUST 2016 EDITION

CONTE NTS

S P O T L I G H T: I N S I G H T

The Value of the BVI to the Global Community

The BVI’s initial considerations on Britain’s decision to leave the European Union

AUGUST 2016 EDITION

E DITORI AL B OARD RUSSELL HARRIGAN

CEO, OYSTER GLOBAL MARKETING GROUP

ELIHU RHYMER

CEO, BVI DEVELOPMENT CONSULTANTS

SIMON SCHILDER

LORNA SMITH, OBE CEO, LGS ASSOCIATES

AYANA HULL

SENIOR ASSOCIATE, HARNEYS

KENNETH M. KRYS

PARTNER, OGIER

FOUNDER AND CEO, KRyS GLOBAL

MANAGING EDITOR PUBLISHER P R O J E C T C O - O R D I N AT O R DESIGN

RUSSELL HARRIGAN OYSTER PUBLICATIONS LTD PORTIA HARRIGAN OYSTER DESIGN TEAM

PHOTOGRAPHY

BVI TOURIST BOARD TODD VANSICKLE

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Business BVI is a bi-annual magazine published by Oyster Publications LTD P.O. Box 3369, Road Town, Tortola, British Virgin Islands Tel: 284-494-8011 Fax: 284-494-3066 www.oysterbvi.com Email: info@oysterbvi.com Please send comments and address changes to this address.

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Business BVI and Oyster Publications LTD are divisions of Oyster Global Marketing Group. www.businessbvi.com

All information in this publication has been carefully collected and prepared, but it still remains subject to change and correction. Use this content for general guidance only and seek extra assistance from a professional adviser with regard to any specific matters. Copyright reserved. None of the contents in this publication may be reproduced or copied in any form without permission in writing from the publisher. These articles do not constitute tax or legal advice, and no action should be taken based on the information in these documents without first consulting suitable tax or legal advisers. No liability for actions taken, or in action, based on the information in these articles, will be accepted.

Opening Remarks

“God has blessed the BVI with many assets. The question is, are we going to sit by and expect him to also merchandize them for us? I think not.”

n preparing to publish one of our daily newsletters Business BVI Daily in June, I came across remarks that Jeffrey Immelt the CEO of General Electric had given in May at the graduation of the New York University’s Stern School. Immelt told the graduates that they are “Entering a volatile global economy, the most uncertain I have ever seen.” In particular, he said, “Globalization is being attacked as never before. This is a world that needs better leaders, with new skill sets. The playbook from the past won’t cut it today. My advice for you as you enter this world is to be flexible, be bold, and don’t fear criticism. Today, I want to discuss how these lessons can be used to navigate the seismic transformation underway in globalization.” See the entire article here http://bit.ly/2bgVQOg Of the thousands of articles I have read thus far for the year in the preparation for our Business BVI Daily, the poignancy of Immelt’s comments remain top of mind. Immelt’s advice is as applicable to the BVI as it is to the graduating class at NYU. If the BVI, which has built an economy based on the facilitation of global commerce, is to thrive in the future, we must be flexible, innovative and bold. We must implement initiatives in every sphere of our lives that strengthen our brand and competitive posture globally. Over the last several months, the BVI has been buffeted by a number of very serious challenges to our status quo. That is the economic engine that has fueled and driven the quality of life we have worked hard to develop and to which we have become accustomed. These challenges have included the matter of Beneficial Ownership, followed by the so-called Panama Papers and to date bookended by the British decision on Brexit. I cannot recall in my lifetime, a similar period when our economic foundation and our constitutional foundation were simultaneously causes for concern. These are unchartered waters for the territory and they are brimming with visible and invisible shoals that we must navigate successfully to reach the next rung on the economic and constitutional ladders. As we navigate these waters, what is crystal clear is that the evolution of the BVI economy to what I call the ‘New Economy’ is unfolding as we speak, one that is hyper competitive. The question is, are we positioned to calibrate and shape the DNA of the ‘New Economy’? The

defining element in the architecture of that economy will be our ability to think in a critical and innovative manner. As a territory, we must be nimble, creative, flexible, disciplined and bold as Immelt said. We must not be afraid of the future; instead we must embrace it. We must understand and keenly appreciate what are the core strengths of the BVI and how we must position and deploy these core assets in the global marketplace, for our collective success. These assets include a first rate natural environment and physical infrastructure, an industrious people, a welcoming and safe cosmopolitan community, a judicial system based on English Common Law, a deep respect for law and order, a college level educated work force and a tier one global tourism and financial services brand. In the case of financial services a brand that is ubiquitous and trusted in Asia, the region that is driving global economic growth. Put another way, God has blessed the BVI with many assets. The question is, are we going to sit by and expect him to also merchandize them for us? I think not. As our late Chief Minister the Hon. H.L. Stoutt would say ‘We must get on with it.’ At Business BVI we are doing just that. Our 3rd annual Asia Regional Conference with a focus on the financial services space is scheduled for October 18, 2016 in Hong Kong. Our theme for this year is Creating the Future: Leveraging our Asia Relationships + Technology. This year for the first time the conference will take place during a wider multicity Trade Mission to Asia led by the Premier and Minister of Finance, Dr. the Hon. D. Orlando Smith. Asia is where the future is economically and we must capitalize on the BVI brand recognition in the region to help us to move beyond the financial services space, in growing the BVI economy. Enjoy and please let us have your feedback and comments – info@oysterbvi.com

RUSSELL HARRIGAN Managing Editor

AUGUST 2016 EDITION

Contributors

GREG BOYD’s article - Overcoming Challenges p.50 Take a look at Nigeria after a recent visit to Lagos and its potential in the offshore space as the largest African economy. “A day after arriving in Nigeria the second big story about the Panama Papers broke. Naturally, I was somewhat concerned about the effect this would have on proposed business development initiatives. However, I quickly appreciated how well versed Nigerian lawyers and business people are to inbound investment structures and the need for offshore vehicles that promote investor and tax neutrality and importantly provide the corporate governance comforts demanded by foreign investors and necessary for maximized investor attraction. A review of the local media and blogs also quickly demonstrated balanced journalism and an educated readership who regard it as prudent business practice to hold assets offshore (outside of Nigeria) for reasons of economic stability and wealth protection but demand that politicians make the required disclosures under Nigerian law of their personal assets at the time of entering and exiting public office – a failure to do that generates much angst and attracts criminal prosecution. This was an entirely different and refreshing experience compared to my review of the media in London the previous week where the readership was mostly being fed what to think through biased journalism comprising the usual rhetoric that offshore equates to theft, corruption and illegal practices.”

Ten Years of Real Estate Development in the BVI p.90 “In writing the real estate article each year, I have been aware how tumultuous the market has been, from the first article for the 2009 edition, written just as Lehman Brothers went under in September 2008 and the economy crashed in reaction to the sub-prime mortgage debacle, through the depths of the recession in 2011 and 2012, before finally emerging with a shaky recovery in 2013 and 2014. Understanding the cyclical nature of real estate in the BVI helps to give a better understanding of what the future may bring to this industry.” EDWARD CHILDS’ annual outlook for the real estate sector is perhaps the most anticipated piece in Business BVI, by both locals and visitors alike. It has become a definitive guide about what is taking place in the real estate space in the territory.

Greg is a Partner at Harneys and he works with many of the world’s leading lawyers, bankers, private equity firms and accountants on cross-border joint ventures, mergers and acquisitions, corporate reorganizations and stock exchange listings.

AUGUST 2016 EDITION

FREEMAN ROGERS contributes to another two interviews in this edition: 1. An Interview with Peter Tarn, Harneys’ London managing partner Certain Uncertainty p.58 discussing the implications of Brexit and the Panama Papers for the jurisdiction. “I think it is helpful to have somebody that has been intrinsically involved with the City of London and the immediate aftermath of the financial crisis. He was one of the few people who was prepared to stand up and defend bankers. I think that’s a good sign. I think that the dangers are, that the OTs become chips in a negotiation which is primarily and inevitably focused on retaining access to EU markets or UK financial services institutions. I think that could go either way, because the inescapable fact remains that any UK Cabinet will quite rightly be looking primarily towards the interest of the City of London, and if the OTs are seen as a hindrance in terms of getting what they want from that negotiation, then maybe we shouldn’t be too sanguine about that.” 2. A Different Kind of Start Up p.114 - An interview with Francois Lassalle, the CEO of the BVI Arbitration Centre. “In three years, I would want this institution to be recognised internationally as a centre in a meaningful way: Not just some random local centre somewhere in the Caribbean, but a proper centre of excellence for international arbitration in this region. And I think that takes time. Some centres have spent over 20 years to do this. Success would be to achieve some kind of recognition within years.” Freeman is the editor of the The BVI Beacon.

AKI CORSONI-HUSAIN is Head of Regulatory within Harneys Tax and Regulatory Department which spans the BVI, Cayman and Cypriot offices. He spent more than three years practising in the BVI office before relocating to Cyprus in 2012 to develop and assist in development of the BVI and Cypriot regulatory practice there. He travels regularly between Harneys’ various locations. In this his first cotribution to Business BVI, he looks at - Confidentiality in the BVI: What records are available? p.46. Despite the popular myth of the secrecy of BVI companies, the reality on the ground paints a different picture. Comprehensive details of ownership and other information are available, especially to the victims of fraud and those seeking to trace assets. In addition, the record keeping obligations applicable to BVI companies are broad and continually evolving to keep ahead of global regulatory initiatives. This article outlines the records that BVI companies are obliged to keep and how they can be accessed.

DR. ALICIA JOHNS, an attorney litigation, at O’NEAL WEBSTER, in this her first contribution to Business BVI. she looks at a timely topic in the offshore space post the Panama Papers, The Right to Privacy in the Digital Age p.40. “The battle over encryption also recently came to a head in the U.S. in the case of Apple Inc. v the Federal Bureau of Investigations (FBI). In February 2016, the tech company refused the FBI’s order to assist it in unlocking an iPhone used by San Bernardino gunman Syed Farook, one of the perpetrators of a mass shooting and attempted bombing. Apple maintained that designing software to undermine the security features of its phone would set a dangerous precedent. The United Nations High Commissioner for Human Rights issued a statement in support of Apple’s position, noting that “encryption and anonymity are needed as enablers of both freedoms of expression and opinion, and the right to privacy.” However, the case against Apple was discontinued in March 2016 after the U.S. government’s declaration that it successfully accessed the data stored on Farook’s iPhone without Apple’s assistance.”

Our Fast Facts Guide p.108 is intended to provide top of mind data about the BVI, its economy and doing business in the territory. We rely on PATLIAN JOHNSON to ensure we are current. Ms. Johnson holds a Masters of Science Degree in Economics and Finance from the University of Bristol.

COLIN RIEGELS is a partner at Harneys and is a regular contributor to Business BVI. Having just returned to the BVI after extensive stints in Hong Kong, Singapore and The Cayman Islands, this article A Stranger in a Strange Land p.36 looks at potential takeaways from the Cayman experience which could benefit the BVI. “But for all that the places have a very similar feel to them. Both places have a love of warm weather and cold beer, a healthy distrust of lawyers and politicians, and a carefully cultured fear of hurricanes. But for me, probably the most interesting point of comparison between the two countries is in relation to immigration and the financial services industry.”

MICHAEL SHUE, Executive Director, Trust Services VISTRA, Hong Kong, in this his first contribution to Business BVI look at - The Other Side of the Panama Papers p.56. “Anyone in the financial services industry will know that the majority of investment funds use Cayman Islands companies, and some are beginning to use BVI companies, sometimes with limited partnerships, segregated cell companies and other corporate vehicles, as part of the investment structuring. This is normal everyday useage of offshore entities and structures. Does this mean that the multitude of investment funds around the world, which are all highly regulated by government authorities, are illegal and involved in tax evasion or criminal activities?”

RAY WEARMOUTH is the Managing Partner, OGIER and is a regular contributor to Business BVI. In this edition Ray looks at: Opportunities for Substance Based Growth p.54 and what is required for the BVI to secure its footing in the space. “In a similar vein to corporate HQ’s, attracting family offices, or branches of those offices, is another area which potentially brings collective advantages to both parties. This is focused on the professionals leading those offices which tend to be compact in size and can manage very diversified and great wealth. This throws off demand for several related services that can be met on the door step. Greentech companies are of particular interest to the BVI. The BVI has the perfect climate and geography for greentech research and development companies to operate in, especially those in the alternative energy space. Those companies typically have small bases and conduct high level, clean and lucrative research programmes of significant international importance. Wind, sea and solar are in abundance and the financial services component offers full service corporate expertise across the board, access to the latest intellectual property laws and a well-trodden global network to link into.”

AUGUST 2016 EDITION

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AUGUST 2016 EDITION

CALENDAR

SEPTEMBER 2016 TO DECEMBER 2016 SEPTEMBER 5 - 8 // SPE Offshore Europe // Aberdeen, UK // www.offshore-europe.co.uk 14 // BVI Finance Breakfast Forum // BVI 16 - 25 // Southampton Boat Show // Southampton, UK // www.southamptonboatshow.com 25-28 // Monaco Yacht Show // Monaco // www.monacoyachtshow.com 29-30 // STEP Latam // Panama // www.steplatamconference.com

OCTOBER 11 - 20 // Moorings Interline Regatta // BVI // www.moorings.com 12 // BVI Finance Breakfast Forum // BVI 17 -28 // Asian Roadshow // Asia // www.businessbviasia.com 19 - 20 // Private Wealth Latin America & Caribbean Forum //Miami 22 - 29 // 30th Annual Pro Am Regatta at BEYC // BVI 26 - 27 // Chilean Risk Management Summit // San Tiago, Chile 29 // Foxy’s Cat Fight Regatta & Halloween Masquerade Ball // BVI

NOVE M B E R 1 - 30 // BVI Tourism Month // www.bvitourism.com 3 // Conversations with Business BVI (David Vincent MD, FACS, Michael Fabrizio, MD FACS, Kirk Heath, MD FACS) // BVI // www.oysterbvi.com/conversations 3 - 7 // Fort Lauderdale Boat Show // Ft Lauderdale, FL // www.flibs.com 5 // Taste of the BVI - Tortola BVI Food Fete // BVI // www.bvifoodfete.com

7 - 9 // European Captive Review Forum (ECF) // Luxembourg // www. captivereview.com 7 - 10 // BVI Charter Yacht Show // BVI 11 - 12 // The Peter Island Resort & Spa Caribbean Food Festival // BVI // www. peterisland.com 9 - 13 // Necker Cup // BVI // www.neckercup.com 12 // BVI Finance Breakfast Forum // BVI 10 - 12 // Legal Week International Private Client Forum // Italy // www.privateclient-forum.com 14 // Conversations with Business BVI (David C. McBride) // BVI // www.oysterbvi.com/conversations 17 - 19 // NBAA Business Aviation Conference and Exhibition // Las Vegas // www.nbaa.org 17 // Insol International Conference // BVI // www.insol.org 17 // Conversations with Business BVI (Brendan Coolidge Monaghan, Ryan Brown) // BVI // www.oysterbvi.com/conversations 19 // Taste of the BVI - Virgin Gorda - Food Fete // BVI // www.bvifoodfete.com 26 - 27 // Anegada Lobster Festival - BVI Food Fete // BVI // www.bvifoodfete.com TBD // BVI Finance Breakfast Forum //BVI TBD // Global Superyacht Forum/METS // Amsterdam, Netherlands // www.globalsuperyachtforum.com

DECEMBER 2 - 3 // Christmas on Decastro Street // BVI // www.bvitourism.com 31 // Foxy’s Old Year’s Celebration // BVI // www.bvitourism.com 31 // Fireball New year’s Eve Bash - Trellis Bay // BVI // www.bvitourism.com

AUGUST 2016 EDITION

Ahead of the curve

Artist rendering of the Guest Bungalow (Exterior)

The restoration of a Caribbean Legend ROSEWOOD LITTLE DIX BAY CLOSED FOR 18 MONTHS FOR AN EXTENSIVE RESTORATION

he legendary Rosewood Little Dix Bay resort temporarily closed its doors on May 1, 2016 for 18 months, to undergo a complete

renovation, which will be the most substantial beautification project since the resort was founded by Laurance S. Rockefeller over 50 years ago.

The restoration will include the

complete redesign of the resortâ&#x20AC;&#x2122;s guestrooms and suites, its three restaurants and overall enhancements

the

landscaping.

The

decision to close the resort was made in order to properly execute and expedite the extensive renovation. Upon reopening towards the end of 2017, Rosewood Little Dix Bay will reaffirm its long-lasting reputation as the Caribbeanâ&#x20AC;&#x2122;s leading luxury resort.

AUGUST 2016 EDITION

New York City-based Meyer Davis Studio, Inc. is leading the renovation and overseeing the overall design concept for the refreshed Rosewood Little Dix Bay. OBMI, a Miami-based architectural firm, is managing the new structure of the Beach Grill and the remodel of the resort’s guestrooms and suites. Landscape Contractors and Design (LCD) is carrying out the design and overall enhancement of the resort’s landscaping, lighting and signage. Together, the three agencies are ensuring that Rosewood Little Dix Bay continues to honour Laurance S. Rockefeller’s original vision of a luxurious hideaway, set amidst the pristine backdrop of Virgin Gorda. The design teams will upgrade Rosewood Little Dix Bay’s guestrooms and suites and will introduce brand new signature suites for the ultimate in relaxation and style. A rebuilt Beach Grill, with an open kitchen will offer a one-of-a-kind beach dining experience, while the iconic Pavilion and Sugar Mill buildings will remain intact but will feature extended indoor/outdoor dining areas. Guests will also enjoy an enhanced arrival experience and the resort’s vibrant tropical gardens will be enhanced with new lighting, signage and improved access to Little Dix Bay beach. The renovation will also bring the addition of new restaurant concepts for The Pavilion, Beach Grill and

Sugar Mill; new world-class amenities; elevated service standards; and an increased focus on sustainability. “This renovation is a testament to Rosewood Little Dix Bay’s commitment to providing unmatched luxury accommodations, the highest level of service and the modern amenities that appeal to today’s luxury global travelers,” said Edward Linsley, managing director of Rosewood Little Dix Bay. “Closing the resort for 18 months allows us to complete this restoration as quickly as possible and allow our guests to return to our island paradise in 2017.” Rosewood Little Dix Bay’s restoration is scheduled to be completed in time for the 2017 festive season. Once the resort reopens its doors, its breathtaking new design and exceptional array of amenities will reaffirm Rosewood Little Dix Bay’s position as the Caribbean’s most sought-after destination and provide guests with an unrivaled luxury experience.

INFO: littledixbay@rosewoodhotels.com +1 212 758 1735 www.rosewoodhotels.com/en/little-dix-bay-virgin-gorda

AUGUST 2016 EDITION

Ahead of the curve

Conversations with Business BVI We live in a global village and the BVI is one of the smallest players in the village. We must constantly punch above our weight to be competitive. Last spring in celebration of the 10th Anniversary of Business BVI we launched Conversations with Business BVI a discussion series intended to host a group of extraordinary individuals, thought leaders and some of the best minds from the business, economic and leadership space in the BVI and overseas. Conversations with Business BVI is intended to provide opportunities for members of the Business BVI Family and the wider community to engage in stimulating discussion on the critical issues shaping the future of the BVI in the business and economic space. We cover topics on leadership in business, the global economy, emerging technology, tourism, the offshore sector and geopolitical global trends in Asia, Africa, the USA and Europe. For the spring series we have had four exciting and timely speakers looking at a range of issues from the emergence of Africa as a global player – The Next Africa, Beyond Panama – The Road Ahead, The Outsize Role of Asia in the Global Economy – Growth Prospects for the BVI to Deepening the BVI Footprint as a Global Corporate Domicile – A Constitutional Perspective.

AUGUST 2016 EDITION

We kicked off the series with Aubrey Hruby, Co-author, The Next Africa (Macmillan, July 2015) a dynamic speaker and someone knowledgeable about everything Africa. Aubrey is a long-time advisor to investors and companies doing business in African markets. She is a Senior Visiting Fellow at the Africa Center at the Atlantic Council in Washington DC. The Next Africa changes the way people think about the continent. A wave of transformation driven by business, modernization, and a new cadre of remarkably talented Africans is thrusting the continent from the world’s margins to the global mainstream. Authors Bright and Hruby detail the cross-cutting trends prompting Silicon Valley venture capital funds and firms like GE, IBM, and Proctor & Gamble to make major investments in African economies, while describing how Africans are stimulating Milan runways, Hollywood studios, and London pop charts. Our second speaker Martin Crawford, CEO, VISTRA Group, based in Hong Kong, has an intimate knowledge and understanding of the global incorporation business and the critical trends shaping the offshore sector. His presentation was timely, Beyond Panama - The Road Ahead a look at what the BVI should be doing in the post Panama Papers environment. Panama’s influence on the growth of the BVI as a leading offshore jurisdiction will be defined by two distinct periods, the fillip the jurisdiction experienced post the 1989 US - Panama intervention and the significant reputational challenges presented by the recent release of the so called ‘Panama Papers.’ The Panama Papers has seen a seismic shift in the way the offshore sector is being viewed globally. We at Business BVI believe that the BVI ‘push

From L-R: Aubrey Hruby, Martin Crawford, Frances Woo, Gerard St.C. Farara Q.C., Colin Riegels, David Vincent MD, FACS,

Our Confirmed speakers for the Fall Series are

Michael Fabrizio, MD, FACS,

as follows:

Christopher Burke, David C. McBride, Brendan Coolidge

October 04 // Colin Riegels, Partner, Harneys

Monaghan, Ryan Brown

TOPIC: Financial Services: What it takes for the BVI to be Globally Competitive November 03 // David Vincent MD, FACS, Founder, The Atlantic Clinic, Michael Fabrizio, MD FACS, Founder, The Atlantic Clinic, Christopher Burke, Executive Board, The Atlantic Clinic TOPIC: Medical Tourism: An Area of Significant Potential for the BVI - The Atlantic Clinic November 14 // David C. McBride, Partner, Young Conaway Stargatt & Taylor, LLP TOPIC: Delaware Takeaways November 17 // Brendan Coolidge Monaghan, Publisher, Chief Revenue Officer, Ryan Brown, Head of Marketing & Innovation  Conde Nast Traveler, New York TOPIC: Conversation with Conde Nast Traveler

back strategy’ must be grounded in and shaped by: THE VALUE OF THE BVI TO THE GLOBAL ECONOMY - as stated by the Hon. Premier in his statement in the House of Assembly in mid April. Martin Crawford was eminently qualified to speak to what he saw as the Strategic Road Map the BVI must adopt with laser like focus over the next 3-5 years in the financial services space post- Panama if the jurisdiction is to remain the Offshore Corporate Domicile of Choice. He left us with much to ponder in the wake of the Panama Papers. Our third speaker in the spring series was Frances Woo, Managing Partner, Appleby, Hong Kong addressed the topic: The Outsize Role of Asia in the Global Economy: Growth Prospects for the BVI Frances has over 20 years of experience working in Greater China and other Asian markets. She practises a full range of BVI, Bermuda and Cayman corporate and commercial law particularly specialising in mergers and acquisitions, advising on public and private offerings of debt and equity, restructurings, structured and other finance matters and funds work (mutual funds, unit trusts, limited partnerships, private equity). Clients include global and regional financial institutions, multi-national organizations, listed

entities and private equity houses. Setting the stage for an Asian discussion must start with  China’s rise, yet another feather in the cap of Asia’s massive economy. Once a poorer cousin of the United States and Europe, Asia now boasts some of the world’s fastest-growing economies and is a major contributor to global growth. In addition to China and its neighbor, India, Asia also has a former powerhouse in Japan, an increasingly affluent South Korea, and the fast-growing Association of South East Asian Nations (ASEAN). In fact, the more one looks at Asia, the clearer it becomes that the region’s ascendancy in the global economy will continue, providing strength and yet creating instability if risks are not addressed prudently. In 1990, Asia’s share in world GDP in real US$ purchasing power parity (PPP) was 23.2 percent. By 2014, this went up to 38.8 percent, much larger than the shares of the United States and the European Union. In fact, Asia’s share is likely to go up in the coming years if current growth trends in key regional economies continue. For example, forecasts by Oxford Economics put Asia’s share at nearly 45 percent by 2025. For companies in the West, Asia has served as a factory. First, it was Japan. Then came countries like South Korea, Singapore, and Taiwan. Finally,

China made its presence felt. In fact, Asian economies have benefitted immensely by being part of global value chains (GVCs). Moreover, as certain countries moved up the value chain over time, others in the region occupied the space left vacant. Data from the Organization of Economic Cooperation and Development’s (OECD’s) Trade in Value Added (TiVA) database show that Asian countries have become ever more integrated with GVCs, thereby pushing up global trade, investments, and development.  Over the last 25 years plus, the BVI has developed a strong brand in Asia driven by its facilitation of global commerce and investment. Hence it is well positioned to build and diversify its reach is Asia. To do so we must become less Eurocentric and more Asiacentric in our thinking if we are to fully take advantage of the BVI brand as we seek to diversify our economy. The BVI’s economic future is tied to Asia not Europe; the Brexit vote has made this very clear. The question is, are we positioned to take advantage of the considerable Asian prospects?  Frances Woo was the right person to help us understand what our next move in Asia must be and why.

www.oysterbvi.com/conversations

AUGUST 2016 EDITION

Ahead of the curve

Hon. Archibald Christian, Junior Minister of Tourism and the Director of Tourism Sharon Flax-Brutus with Nathan Lump and Joseph Messer of Travel + Leisure at the Travel + Leisure World’s Best Awards in NYC on July 20th.

Virgin Gorda was named the Best Island in the Caribbean, Bermuda, and the Bahamas in Travel+Leisure’s annual “World’s Best Awards.” 26

AUGUST 2016 EDITION

Score: 84.98 The standout feature of this British Virgin Island is undoubtedly the Baths, a group of sheltered sea pools and mammoth granite boulders—but excellent snorkeling, first-rate restaurants, and friendly locals garnered just as much praise. The Bitter End, a yacht club and resort, was singled out as the place to stay, due to its excellent all-inclusive packages and proximity to the water. Quiet beaches, like Savannah Bay, were hailed as perfect for those looking for a little seclusion. In the end, some voters found it easiest to simply sum up Virgin Gorda as “the most beautiful place on earth.” www.travelandleisure.com

Peter Island Launches Caribbean Food Festival This November, Peter Island Resort & Spa’s First Annual Caribbean Food Festival brings chefs from islands all over the Caribbean together for a weekend of delicious food, fun, and culinary competition.

Conyers Featuring the talent of: PLEASE PROVIDE Nina Compton, Chef/Owner of Compère Lapin, New Orleans   NEW AD Ron Duprat, Top Chef Competitor from Haiti   Alex Ewald, Chef/Owner of La Tapa, St. John, USVI

Abigail Gullo, Mixologist at Compère Lapin, New Orleans   Todd Howard, Executive Chef, Peter Island Resort & Spa, BVI   Joseph “JJ” Johnson, Executive Chef at The Cecil and Minton’s in Harlem   Lisa Sellers, Executive Chef at Carlisle Bay, Antigua   Roberto Trevino, Chef/Owner of Budatai, Bar Gitano, and El Barril, Puerto Rico

C A L E N DA R NOVEMBER 11TH, FRIDAY 5PM // Welcome reception for Chefs and Judges 7PM // Taste of BVI Dinner // Deadman’s Restaurant NOVEMBER 12TH, SATURDAY 12PM // Chefs’ Beach Relay Race 4 PM // Caribbean Cocktail Challenge 7 PM // Caribbean Tasting Menu 10 PM // Dancing and Entertainment

The Festival coincides with the British Virgin Islands November Culinary Month, and proceeds from the Festival will be donated to support the further education of the BVI’s aspiring culinary professionals.

INFO: www.peterisland.com

AUGUST 2016 EDITION

Ahead of the curve

Miami Direct with BVI Airways, A Game Changer One of the primary strategic challenges facing the BVI economy and further growth therein, is the inability to fly directly from the United States to the territory. Come this winter visitors traveling for tourism or business to the BVI will be able to fly directly from Miami to the BVI with BVI Airways. This will open up significant access to the BVI from the United States our primary tourism market and globally for business and tourism given Miami’s global reach. A BVI Based company, BVI Airways will be utilizing the Avro Regional Jet with a capacity of 85 passengers for the approximately 2.5 hour non stop flight from Miami International Airport to the TB International Airport in the BVI. Plans call for 4 weekly flights to begin on Friday, Saturday, Sunday and Monday with plans to increase the volume based on demand eventually achieving a regular schedule of 2-3 flights daily. Tickets are expected to go on sale this Fall with booking being accessed via the GDS system. Speaking at the announcement, Premier and Minister of Tourism Dr. the Hon. D. Orlando Smith, OBE said that the flight is “Fundamentally critical to the Territory’s continued economic viably and important to its long-term economic development strategy that the Government overcomes the issue of air access as a matter of highest priority. He said direct access for the Territory then means ease of passenger travels to a major international hub, where direct flights from major metropolitan centres around the world can connect to flights directly to and from the British Virgin Islands.” Also speaking at the launch was the Chief Executive Officer of BVI Airways, Mr. Bruce Bradley who welcomed the new partnership, adding “It is a big day for the Government of the Virgin Islands and for tourism. He said they are excited with the leadership that has been provided and the working relationships formed.” Chairman of the BVI Tourist Board, Mr. Russell Harrigan also weighed in on what is indeed a game changing development for the territory and stated that, “As a tourism destination, we will for the first time take charge of our future and our collective objective of building a year round destination, tapping new markets, expanding our annual calendar of events and growing events such as the Lobster Fest, doing more in sports tourism, we will have an airline partner for our summer and fall packages, and yes tapping into the BVI Brand in the financial services space to encourage more persons to do business here as well as vacation in the BVI. Additionally, this flight also has the potential to create completely new business opportunities.”

www.gobvi.com 28

AUGUST 2016 EDITION

Ahead of the curve

Recent Spectrum Awards Expected to Boost BVI Forward Initiatives The recent spectrum awards to telecommunications providers in the British Virgin Islands has been welcomed as a potential boost for the BVI Forward campaign to strengthen the financial services sector and the push to improve business infrastructure in the Territory. The Telecommunications Regulatory Commission recently signed agreements with CCT, Digicel and Flow which will enable the providers to deliver high speed mobile broadband services using LTE technology, bringing the Territory in line with technological developments that have already taken part in other parts of the world. Premier and Minister of Finance, Dr. the Honourable D. Orlando Smith, OBE said an advanced telecommunications network is essential for residents and the business community in order to ensure that the Territory retains its competitive edge in the sectors comprising the economic pillars. Speaking as chair of the Steering Committee that oversees the work of the Financial Services Implementation Unit, the delivery body responsible for implementation of the 10 priority initiatives, labelled BVI Forward, Premier Smith said the spectrum awards and pending improvement in internet access for the Territory are closely aligned to two of the initiatives under the BVI Forward campaign. Premier Smith explained that the Investment in Infrastructure Initiative seeks to develop the business infrastructure in the BVI to bring it on par with the telecommunications services provided in competing financial services jurisdictions. He further explained that closely related to this initiative is the one which seeks to Attract Value Added Services. Through this initiative, the BVI Government seeks to encourage investors to establish businesses in the Territory which will in turn stimulate economic growth and provide employment opportunities. Honourable Premier added, â&#x20AC;&#x153;Improved internet service is a critical building block in creating the new infrastructure needed to facilitate my governmentâ&#x20AC;&#x2122;s thrust to build a substance based economy. The spectrum awards and planned improvements in telecommunications service are expected to provide a comparable level of operation in BVI to what exists in other jurisdictions. In an increasingly challenging global environment, we must do all we can to stay competitive.â&#x20AC;?

AUGUST 2016 EDITION

BVI Establishes

Visa Exemption Program Effective September 1, 2016, the BVI will implement a Visa Exemption Program which will allow nationals of a country that require a BVI visa, but who also hold a United Kingdom (UK), United States of America (USA) or Canadian visa, and are visiting the Territory for business, tourism and other related matters, to enter and remain for a period less than six months. Visiting for the purpose of employment has been excluded as a reason to enter and remain in the Territory under this exemption program. The initiative is part of labour and immigration reforms designed to further streamline entry to the territory by visitors and is aimed at facilitating economic growth. Premier and Minister of Finance, Dr. the Hon. D. Orlando Smith, OBE said “My Government believes that the implementation of our visa exemption program will also help tremendously with our global marketability in tourism and in the financial services sector. Given recent advancements in trade, investment, tourism and financial services in the region, and with Britain’s exit from the European Union, it is in the Territory’s best interest to lift certain visa restrictions as needed in order to facilitate further economic growth in the British Virgin Islands.” The Premier added that it is an established fact that the UK, USA and Canada already have strong systems for issuing visas, therefore, visitors from a country that would typically require a BVI visa or a visa-waiver to enter the BVI, once they hold a current and valid visa issued by the United Kingdom, United States of America or Canada, can travel easily to the BVI. However, the UK, USA or Canadian visas should have more than six months of validity before travel to the territory, and would only apply to visits of six months or less. However, there are still a large number of countries requiring visas to visit the BVI. The Government of the Virgin Islands envisions that the next stage of its visa processes will be the implementation of an e-Visa regime designed to further streamline entry and facilitate economic growth in the Territory. AUGUST 2016 EDITION

Ahead of the curve YCCS announces next phase of expansion on Virgin Gorda

Early spring, Osprey Marine Management Ltd (OMM) announced work on the next phase of the development of YCCS Virgin Gorda. The work will focus on the expansion of the current Clubhouse and Marina facilities and is scheduled to get underway in June 2016. Several projects aimed at offering an increasingly high standard of services and amenities to guests will be at the centre of the development while at the same time ensuring the protection of the local environment in the North Sound. In addition to improving existing infrastructures in order to cope with increased demand, the Yacht Club Costa Smeralda also plans to add a crew bar outlet, a delicatessen and a new arrival pavilion on the main dock. Two accommodation units are also planned as the first step in a larger real estate development scheme designed to address the request for quality accommodation in the area. In line with the Club’s commitment to protecting the environment, a new sewage treatment plant capable of handling all marina pump outs will also be implemented. YCCS VG plans to make marina pump outs compulsory for all vessels berthing in the marina as of January 2017, in order to help safeguard the local marine environment. “This is exciting news for YCCS VG”, commented Yacht Club Costa Smeralda Commodore Riccardo Bonadeo. “We are pleased to now begin to move ahead with the expansion programme and our aim of offering the highest quality services to our clients while helping to build the reputation of the BVI as a premier yachting destination.” The expansion is scheduled to take place over seven months and YCCS VG plans to reopen its doors at the end of December 2016, with completion of works rostered for February 2017. Yacht Club Costa Smeralda Virgin Gorda was inaugurated in 2012 and has since attracted and organized numerous international events in the BVI, such as the annual Loro Piana Caribbean Superyacht Regatta & Rendezvous which is helping to identify the BVI as a superyacht destination. 2017 will mark an important year for the YCCS, that has its origins in Sardinia, Italy as it celebrates the 50th anniversary of the foundation of the Club in Porto Cervo, Italy. A series of special events have been planned which will provide excellent opportunities to publicise Virgin Gorda as a superyacht and luxury travel destination.

AUGUST 2016 EDITION

Rosewood Little Dix Bay announces recipient of the Rosewood Little Dix Bay Tourism and Hospitality Internship Program Rosewood Little Dix Bay, in conjunction with the Government of the Virgin Islands, has selected Allan Boutin as the winner of the prestigious Rosewood Little Dix Bay Tourism and Hospitality Internship Program. The program is administered jointly by the British Virgin Islands Tourist Board on behalf of the Government. This summer, the local British Virgin Islands resident and former busser at Rosewood Little Dix Bay will develop his hospitality skills through hands-on experience at several properties within the esteemed Rosewood Collection.

Boutin joined Rosewood in 2007 as a beach walker at Rosewood Little Dix Bay, a position that he held for five years. After a short hiatus, Boutin returned to the resort in December 2014 and served as a busser at the resort’s three renowned restaurants – Sugar Mill, Pavilion and Beach Grill. Boutin’s passion for the hospitality industry and dedication to his job landed him the coveted 2015 Managing Director Rising Talent Award at Rosewood Little Dix Bay’s annual Tenure Awards. “After years of providing exceptional service at Rosewood Little Dix Bay, Allan was a natural fit for this internship program, and we are so thrilled to offer him this opportunity,” said Edward Linsley, Managing Director of Rosewood Little Dix Bay. “We look forward to seeing Allan learn and grow at our sister properties, and we are confident that this internship experience will pave the way for his bright future in hospitality.”

strengthen tourism in the Virgin Gorda community. In 2015, the relationship blossomed into a signed Memorandum of Understanding which signaled the partnership to benefit the people of the Virgin Islands, specifically BVIslanders living and working on Virgin Gorda. The Rosewood Little Dix Bay Tourism and Hospitality Internship Program is designed to give those employed in the tourism and hospitality fields an opportunity to get hands-on hospitality experience at several Rosewood properties. The goal of the internship is for participants to return home with a broader knowledge base, that they can use to grow in their careers and positively impact tourism in the British Virgin Islands. This year, Boutin will spend six months at three of Rosewood’s renowned properties in Mexico, including Rosewood Mayakoba, Rosewood San Miguel de Allende and Las Ventanas al Paraiso, A Rosewood Resort. The Rosewood Little Dix Bay Tourism and Hospitality Internship Program is in addition to the Hospitality Scholarship, a four-year degree scholarship program at the prestigious Johnson & Wales University.

Premier and Minister for Tourism Dr. the Honourable D. Orlando Smith, OBE said he continues to welcome the collaborative initiative and commends Boutin on being the successful recipient of the internship opportunity. He explained that through this initiative, Boutin, a young professional, will be exposed to the versatile tourism and hospitality industry, and he will be able to compete on the world’s stage and set trends for generations to come.

All rise! Commercial court appoints new justices

Rosewood Little Dix Bay and the Government of the Virgin Islands offer the Rosewood Little Dix Bay Tourism and Hospitality Internship Program as a way to give back to the community and invest in the future of local residents.

The BVI Commercial Court has appointed Justice Samuel Sher, QC and Justice Gerhard Wallbank, QC as Commercial Court Judges to commence during the month of May.

Premier Smith said, “It is important that we continue to recognize the passion people have for hospitality and tourism and engage them by stimulating their interests even further through initiatives like these. The public and private sectors must build a cadre of professionally trained and educated BVIslanders to ensure the sustainability of this economy. By developing the human resources, we are indeed preparing for the effective management, growth and development of the tourism sector.” In 2012, Rosewood Little Dix Bay started discussions with the Government to further

Justice Samuel Sher, QC

Justice Gerhard Wallbank, QC

Justice Sher is a distinguished counsel and arbitrator. He was the Deputy High Court Judge in the Chancery Division and the Commercial Court in English for over 40 years. He has a wealth of knowledge and expertise in international commercial and business law matters. Justice Sher will be the first rotating judge, and is expected to sit for the duration of two months. No stranger to the BVI judicial system, Justice Wallbank has acted High Court Judge of the BVI Commercial Court and High Court on numerous matters. He is fluent in English and Dutch, and also speaks French and German. A member of

the Chartered Institute of Arbitrators, Justice Wallbank’s appointment is for six months. The Eastern Caribbean Supreme Court’s Commercial Division of the British Virgin Islands (BVI Commercial Court) was established in May 2009. The Commercial Court may hear cases from any of the nine member jurisdictions of the Eastern Caribbean Supreme Court and specialises in cross-border and high value commercial, company, trusts and insolvency law matters. The Court has dealt with numerous cases since its inception and continues to play an important role in the BVI’s development of its financial services sector. For more information on Court, please contact commercialdivisionvi@gov.vg

the Commercial them through

AUGUST 2016 EDITION

New 350-ton lift adds peace of mind for yachting community

The installation of the purpose built, first in the region state of the art 350 Ton Lift by CIMOLAI TECHNOLOGY SPA at Virgin Gorda Yacht Harbour, is moving steadily along. Current projections call for work to be completed before the Christmas Holidays. With this new lift, Virgin Gorda Yacht Harbor will be able to execute routine maintenance or running repairs for vessels up to 350 tons and/or up to 39 feet wide and approximately 150 feet in length. The new $3.5million lift is designed to target and cater to the maintenance and service needs of the growing mega and super yacht sector in the BVI and the wider Caribbean. This investment will also help to deepen and broaden the BVI’s presence in the mega and super yacht space regionally. The BVI as the leading yachting destination in the Caribbean and as a top tier financial services jurisdiction is currently stepping up its marketing initiatives targeting these yachts. This is joint public and private sector push, which includes the BVI Tourist Board, BVI Finance, the Virgin Islands Shipping Registry and several private sector partners including YCCS – Virgin Gorda. A full BVI delegation will be attending the Monaco Yacht Show, September 28 – 1 October 2016, partnering with Superyachts.com.

INFO: info@ virgingordayachtharbour.com 284 495 5500 www.virgingordayachtharbour.com

AUGUST 2016 EDITION

B USI N E SS

AUGUST 2016 EDITION

Business BVI Business

COLIN RIEGELS

ans of Russian literature may be familiar with Dostoyevsky’s epic novel, The Brothers Karamazov. One of the subtle sub-themes of the novel is

But for all that the places have a very similar

how during a tumultuous period in their history,

fear of hurricanes. But for me, probably the most

Russian people are unsure what to think about

interesting point of comparison between the two

America – whether they should admire it, fear it,

countries is in relation to immigration and the

or hate it. I have always felt that if The Brothers

financial services industry.

Karamazov had been set in the modern day BVI – well, it would have been quite a different book – but if it had, I am pretty sure they would have substituted in the Cayman Islands for America. No one in the BVI ever seems to be quite sure what they should feel about Cayman - admire it, fear it, or hate it.

feel to them. Both places have a love of warm weather and cold beer, a healthy distrust of lawyers and politicians, and a carefully cultured

Now, to my eternal good fortune, I was naturalised as a citizen of the BVI whilst I was still a child, and accordingly I have never experienced first-hand the work permit application or renewal process in the BVI. But I am led to believe that it is not very much fun. When employees at my firm have to get their work permit renewed annually, the looks

But like many places that we form views about

on their faces do not suggest to me that the event

from a distance, the closer we get to them, the

is their second favourite day of the year after

more we realise that they are quite a lot like us

Christmas. Accordingly, when I was relocating to

really. West Bay looks and feels an awful lot like

spend a year in Cayman and I got off the last of

driving around Carrot Bay. And Anegada could

my series of flights from Hong Kong to George

pass for Little Cayman if they ever wanted to

Town, I approached the immigration counter with

shoot a movie there.

We are not exactly the

a due sense of nervousness, worried that I might

same of course – there are plenty of differences

be refused entry for some tiny technicality on

between the two places. They eat turtle and we

my forms or for some other unforeseen reason.

eat goat. What they call a hill, we would call a

When I handed my passport over the immigration

speed bump. And if you want to visit another

official scanned it, and then leaned closer to

island in Cayman you take a plane, not a boat.

the computer screen to read something. “Oh,”

she says. “You are emigrating to Cayman?” I confirmed nervously that I was. “Well,” she says, breaking out a huge smile that lights up the room “welcome to Cayman! We are really glad that you are coming to join us!” Then she tells me to just wait a moment and she will go and get my work permit – that will save me from having to make a separate trip into town the next day to pick it up. And about two minutes later I am standing outside the airport as the newest resident of the Cayman Islands. Now, I am old enough to recognise that she is doing her job and that she has been told to smile and say nice things (at my age my general working assumption is that any time a pretty girl smiles at me she must have been told to do so…), but it still gives you a very warm fuzzy feeling inside. And I started to realise something then that would become increasingly apparent during my time in Cayman – they are very welcoming towards immigrants in Cayman. When I went to pick up my driving licence the following day, the smiling man behind the desk asked me how long I would be living in Cayman. “Just a year,” I replied. “Oh,” he said, with a disappointed look on his face. Then the smile quickly came back: “Well, you never know. Maybe you will really like it and decide to stay longer!” AUGUST 2016 EDITION

For most of my working life in BVI it has felt like the policy of the Labour Department, and the view of the general public at large, was that every work permit issued to a foreigner meant one less job which could be done by a local. Accordingly, work permits were jealously guarded and only handed out reluctantly if at all. In Cayman, they just don’t seem to think like that. They think that every work permit they give, will mean three more jobs that need to get done by Caymanians. Every person who moves to Cayman will need to rent some place to live, to buy a car, to shop for groceries, and to visit bars and restaurants. And the more of those people that come, the more economic activity there is, and the wealthier everyone gets. With the exception of a couple of protected industries like taxi drivers (some things are universal it seems), the general approach seems to be that if you want a work permit for an employee, you can have one. So long as they come, work hard, earn money and don’t commit any crimes, then they can stay. When I was in Hong Kong I met the former Premier of Cayman, McKeeva Bush. Mr Bush told me whilst we were chatting that it was his objective to double the population of the Cayman Islands with new immigrants. At the time I had just assumed that he was joking, but I have come to realise that he almost certainly was not. The effect of this manifest itself in all sorts of subtle ways. I met the managing partner of KPMG in Cayman, and whilst we were making small talk I asked him how many people they employed locally. He told me it was around 300. Surely not, I said. I didn’t know exactly how many people were employed in KMPG in Road Town, but if you had asked me to guess I would have probably said ten. No more than two dozen at the absolute most. Well, he explained patiently, not all of their work is offshore based. They also do a substantial amount of audit work for local businesses in Cayman. And there are a lot of businesses in Cayman that have grown to a significant size. In addition a lot of regional businesses, like First Caribbean, are headquartered in Cayman. Of course there is one key difference between Cayman and BVI which may account for some

AUGUST 2016 EDITION

of the differences in approach. In Cayman they have lots and lots of spare land. Most of Cayman is still unoccupied and empty. And all of it is dead flat. Accordingly, Caymanians love it when foreigners come and buy land and build houses – it means lots of work for local construction crews. In BVI we are the opposite. We don’t have that much land, and what we do have is very hilly and hard to build on. It makes for great views, but it has created a culture of trying to jealously guard the land against outsiders. In BVI if a foreigner wants to buy land, there is a long and difficult alien land holding licence process, and punitive levels of stamp duty. In Cayman anyone – absolutely anyone – can buy, sell or hold land without any permission from Government. Accordingly, a lot of foreigners buy land in Cayman and build holiday or retirement homes there (clearly it also helps that Cayman has so many direct flights to the US and the UK), and the Caymanians are happy to welcome them. One of the more unusual things about immigration in Cayman is their approach to term limits on foreign work permits. Broadly speaking, every foreign worker can work in Cayman for up to seven years before they either have to leave or apply for Caymanian status. If you apply for Caymanian status they review your public contributions to the country during the seven years that you have lived there, and they allocate points for public service, owning land and similar such things. Those who have enough points at the end of the day are awarded permanent residence which leads on to full Caymanian status. Those who don’t must leave. Many people go away for one year (in financial services they just go and work in another office) and come back and start again. But a good many go through to obtain full Caymanian status first time after less than a decade on island. It might be thought from this that Caymanians are not particularly protective about opportunities for Caymanians. But I certainly don’t believe that to be true. Caymanians seem every bit as patriotic as Virgin Islanders when it comes to trying to ensure that opportunities for locals are maximised. They just approach the issue in a different way. The underlying philosophy is very much that a rising tide floats all boats, but they make sure that their people aren’t being left off those boats. Every business in Cayman has to submit a staffing plan every year to the Labour Department giving the breakdown of their staff, and explaining what they are doing to promote and train Caymanians. Firms that are perceived to be doing the right thing in terms of hiring, training and promoting locals enjoy good relations with the Labour Department. Firms who could be doing more are usually told so, and are often wise enough to modify their hiring and training policies. But the relationship is conducted on a broader and more interactive level rather than periodically refusing work permit

applications. It also helps

prevent “tokenism”. Amongst law firms, there is an expectation that Caymanians of ability will be able to progress through the ranks – it is not simply about packing the payroll with a lot of low paid local staff to balance up the numbers. The other thing that I found to be very different in Cayman was the levels of mutual trust between the Government and the private sector in financial services. In BVI I lose track of how many Government-led committees I have sat on in relation to legal reform and financial services. But they all felt the same. To be blunt, I have always had the strong sense the Government really does not listen very closely to the private sector. Further, there is the nagging sense that their unwillingness to engage closely with the private sector is linked to a mild type of paranoia that some vital “trade secrets” might be relayed to other competing offshore centres, if information about new initiatives were widely known. In Cayman my experience is much more limited, but it was certainly dramatically different. Not only does the Government liaise closely with the private sector on developing the industry, they draw on the private sector skills and outsource big chunks of legislative developments. Not long after arriving in Cayman I attended a meeting on developing an aircraft security registration system in Cayman. At the end of the meeting the Chairman basically allocated all the various drafting tasks amongst the different law firms in attendance, and told them all to make sure they circulated their drafts to everyone else for review before the next meeting. Both the speed of action and the levels of trust were just unlike anything I ever saw in BVI. Similarly when drafts of the new Caymanian Limited Liabilities Companies Law were being circulated confidentially to the private sector for comment, I fully expected that I would be left off the circulation list as someone who was known by everyone to be a “BVI guy”. But I duly received my copy, with a polite reminder that the document was confidential, and I got an equally polite reply when I submitted my comments on parts of the Law that I felt could be improved. The Cayman Islands Government makes much, much better use of the human capital in the private sector to develop its industry. Why is Cayman so different in its approach? I suspect it is two things. Firstly, many more

people in Government in Cayman have worked in financial services privately, so there is greater understanding and trust between public and private sectors. Secondly, because senior private sector employees are much more integrated into Cayman life – they usually own property, and are confident of being naturalised as Cayman citizens in due course – that helps engender a much greater sense of common goals and mutual trust. Now, it is always a dangerous thing to look at another country and say – look, we should be doing it that way. All countries are different, and there is no one-size-fits-all approach for Governments. But I think that there are good reasons to study Cayman and wonder if there are lessons to be learned. In Cayman there is a much greater sense of inclusiveness of foreigners. They become a part of the community, and I am sure it is not a coincidence that they tend to make greater contributions to the community as well. In BVI I think we are less inclusive. My parents were naturalised after they had lived in BVI for 16 years. I suspect today you would need to live in BVI for closer to 25 or more years before you would be considered for naturalisation unless you had some very influential friends. Any person who arrives at Beef Island airport for the first time knowing they must put in at least a quarter of a century before they would be considered for any kind of status is unlikely to develop a strong sense of community spirit. That inevitably reflects itself in the finance industry. Bringing in people with a sense of long term commitment encourages building – and training – for the long term. Some people say that you should never spend too long living in a foreign country or everything will appear strange to you when you return home. I am not sure if that is true, but coming back to the BVI after spending a year in Cayman you certainly do notice some things that you didn’t notice before. And you do wonder if maybe there might be a better way to do some things. In Thomas Friedman’s controversial book, The World Is Flat, the author argued that the real war between countries today is not over land or resources – it is in trying to attract and integrate the best of global talent to develop their economies. If Mr Friedman is correct, then this is one war in which Cayman is doing rather well. B

Business BVI Business

THE RIGHT TO

PRIVACY IN THE ALECIA JOHNS

NTRODUCTION The right to privacy has long been considered a fundamental human right and is widely recognised as such, both internationally and in domestic constitutions. For example, Section 19 of the Virgin Islands Constitution provides that every person has the right to respect for his private life, home, and correspondence, including business and professional communications. However, with the increasing storage and transmission of data and communication electronically, new challenges arise in protecting privacy rights due to vulnerabilities stemming from the threats of interception, government surveillance and cyber-attacks. This article briefly outlines some of the recent developments and challenges in this area, with a specific focus on implications for British Virgin Islands businesses.

PRIVACY VS SECURITY: A GLOBAL BATTLE Given that the right to privacy is not absolute, there exists a perpetual tension between the citizen’s right to privacy and the state’s responsibility for the maintenance of security and transparency. The United Kingdom’s (UK) recently tabled Investigatory Powers Bills (IPB) illustrates this point. The IPB, should it eventually be enacted, would empower security services to collect bulk communications data when deemed necessary for the protection of national security. It would further provide that technology companies may be served with a “technical capability notice” which would require “the removal of electronic protection where reasonably practicable.” A number of United States tech companies have raised concerns before the UK Parliament over whether that provision would require them to create a back door for law enforcement which bypasses built in encryption mechanisms designed for the security of communication over their platforms. Companies are adamant that any such back door would greatly undermine data

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security and would create vulnerabilities in their software, which may be taken advantage of by cyber-criminals. The battle over encryption also recently came to a head in the U.S. in the case of Apple Inc. v the Federal Bureau of Investigations (FBI). In February 2016, the tech company refused the FBI’s order to assist it in unlocking an iPhone used by San Bernardino gunman Syed Farook, one of the perpetrators of a mass shooting and attempted bombing. Apple maintained that designing software to undermine the security features of its phone would set a dangerous precedent. The United Nations High Commissioner for Human Rights issued a statement in support of Apple’s position, noting that “encryption and anonymity are needed as enablers of both freedoms of expression and opinion, and the right to privacy.” However, the case against Apple was discontinued in March 2016 after the U.S. government’s declaration that it successfully accessed the data stored on Farook’s iPhone without Apple’s assistance. These events leave open the question of whether a law enforcement agency may lawfully compel a tech company to bypass its own security features. This question is yet to be judicially tested and remains ripe for adjudication in both the U.S. and the UK. So what bearing do these global developments have on the protection of privacy rights in the BVI? First, it must be borne in mind that the recent developments in these countries have global implications far beyond their borders and therefore necessarily concern the BVI. Both the U.S. and the UK are leaders in cyber-technology and their policies often shape international norms and opinions. It is therefore of great political significance if they are adopting policies that trend towards over-reaching state surveillance, a practice which they have previously decried in less open, authoritarian regimes. Secondly, given the expansive reach of U.S. tech firms and the popularity of their platforms, any compromises in the level of security and encryption offered necessarily affect all their users worldwide. Thirdly, online communication with those located within these countries (both of which possess very strong personal and business connections to the BVI) would be caught within the net of data contained on servers in these states. It is therefore important to monitor global trends in this area in order to mount an appropriate response to the increasing vulnerabilities operative in the digital landscape.

CYBERSECURITY IN THE BVI: THE COMPUTER MISUSE AND CYBERCRIME ACT, 2014 A key component in safeguarding the right to digital privacy is the presence of clear and

robust laws which outline the consequences of cybercrimes and provide a feasible mechanism for enforcement. This is all the more significant in the wake of increasing cyber-attacks and data leaks, including the recent breach at the Panamanian law firm Mossack Fonseca, which resulted in the release of over 11 million documents containing confidential client information (collectively termed the “Panama Papers”). Following a previous data leak in 2013, which involved the publication of confidential data regarding a number of BVI companies, the BVI government passed the Computer Misuse and Cybercrime Act, 2014 (CMCA). The CMCA came into force on September 1, 2014. Under the CMCA, unauthorised data leaks are a criminal offence, punishable by a fine of up to $500,000 or imprisonment for a maximum term of 15 years. However, the CMCA includes an important exception, which provides that a data leak is not an offence if the provision of the information is to a lawful authority for the purpose of advancing a criminal investigation, or if the publication of the information is in the public interest of the Virgin Islands. The public interest exception was included after increasing criticism from local and international press agencies that the CMA provided no protection for journalists who publish leaked information, which reveals evidence of tax evasion, fraud or terrorist financing. It remains to be seen how this public interest exception will be interpreted and the scope of the latitude it will confer to journalists in this area. However, its presence reveals the enduring tension between the competing interests of privacy and transparency; a tension that remains a common feature in the regulation of the BVI’s financial services sector. Another significant feature of the CMCA is that it has extra-territorial application given that it also criminalises unauthorised access to, and dissemination of, data regarding “national security” or a “financial services business,” even if such access or dissemination takes place outside the BVI. A financial services business is defined as any business licensed, registered, incorporated, or otherwise approved under any financial services legislation, or that is otherwise regulated by the Financial Services Commission.

safeguard the cyber security of your business. A number of lessons may be gleaned from the Mossack Fonseca data breach given what has come to light about the vulnerabilities which were present in their system. First, it is important to keep all software up to date and to ensure that sensitive data is adequately encrypted. Secondly, it is important not to place all eggs in one basket: the segmentation of data, with added layers of security depending on relative sensitivity, is crucial. It is also advisable to limit data access within the organisation only to those persons who require such access. While it may be more convenient for all persons to have central access to all data within the organisation, it is more secure to limit respective access only to those who strictly require it. In contemplating such measures, an inevitable trade-off between convenience and security will have to be made. Placing more data offline and outside of central access will no doubt compromise on its ease of accessibility, but this may be a small price to pay in exchange for additional security of confidential information, which once leaked cannot be retracted.

CONCLUSION The rapid advancements in information technology continue to outpace the legal and regulatory frameworks within which these developments take place. Human rights law is by no means immune to the effect of these changes and must be adequately adapted to provide for a meaningful right to online and electronic privacy. However, notwithstanding any legislative changes which may be made to safeguard this right, it is incumbent on each right holder to proactively safeguard his digital privacy in the face of increasing cyber-threats. It also remains to be seen how effective the right to privacy will be in curtailing some of the extensive surveillance powers which the U.S. and the UK now purport to exercise in the furtherance of national security. Finally, it is important to note that this aspect of the debate cannot accurately be cast wholly as a trade-off between privacy and security in absolute terms, given that many of the purported encroachments to privacy, such as loosening encryption, may also operate to undermine cybersecurity in the short and long term. B

PROACTIVE DATA PROTECTION: SAFEGUARDING YOUR BUSINESS When one considers the irreparable harm which is often occasioned once privacy has been breached, the old adage that prevention is better than cure seems particularly apt in this area. Therefore, the presence of harsh penalties for data leaks under the CMCA, clearly does not obviate the need for proactive measures to

Dr. Alecia Johns, DPhil (Oxon.) is the author of “The Right to Privacy in the Digital Age : Recent developments and challenges,” first presented at STEP Caribbean Conference, 2016, St. Lucia. She is an associate attorney in the litigation department of O’Neal Webster, Road Town, qualified to practice law in Jamaica and the BVI. Her professional interests include commercial litigation and corporate insolvency matters. She can be reached at AJohns@OnealWebster.com.

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Business Asia

This Brave New World INDIA, CHINA, AND THE UNITED STATES Chinese and Indian economic growth is entirely in the interest of countries in the ANJA MANUEL Co-Founder and Partner, RiceHadleyGates LLC

growth engines to prosper. Chinese and Indian growth means that U.S., Caribbean and Latin American companies will be able to export more, which supports jobs at home. As these economies rely less on heavy, polluting manufacturing and become more sophisticated, they will gradually pollute less. The increasing economic ties between

ecent headlines call China the “Doomed Dragon,” predict that “China Will Implode,” and explain “Five Signs of the Chinese Economic Apocalypse.” Some western journalists have had a heyday predicting

China’s imminent economic collapse. This sentiment is far too negative. Much less attention has been paid to Asia’s other rising giant, India. If both China and India continue on their current reform path, they will remain two of the world’s fastest growing large economies for the foreseeable future. By 2030, they will be the first and third largest economies in the world, with the largest middle classes that our companies will wish to sell to. They will lead the world in demand for natural resources and energy, and be its first and second largest carbon emitters.

Americas. If we want a growing world economy, we need its two largest, most dynamic

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China, India and the United States also help raise the costs of potential military conflict, so the more the world’s three giants interact economically, the better. The trajectory of India and China’s 20th century economic revolutions provides a baseline for understanding the future of these giant economies. Centuries ago, both giants were major world economic powers with high living standards. Now, after generations of stagnation and struggle, the countries are rising back onto the world stage, as global economic powerhouses as they implement significant reforms that will transform their economies. “Socialism with Chinese characteristics,” the phenomenally successful system that Deng Xiaoping and his heirs established in the 1980s, is still the lodestar of China’s current economic policies. The limits of that system are now becoming clear – over-investment, inefficient state-

owned enterprises, slowing demand for exports, mounting government debt and growing inequality are unsustainable conditions that Chinese leadership must address if the country hopes to continue to grow. The government is pressing ahead with a second round of reforms: growing health-care spending by well over 10 percent a year, trying to make state-owned enterprises more accountable to the market, by feeding them less free capital and forcing them to diversify their ownership, and recently announcing financial reforms that make capital flows and the exchange rate freer. Many in the Chinese leadership support this new round of reforms, but important constituencies like some state-owned enterprises are lobbying against it. The 2015 Chinese stock market crash made the government concerned about public panic and slowed down some key initiatives. But the stock market itself will not really affect China’s underlying economic growth. India was slower to pursue economic reform. Former Finance Minister (and later Prime Minister) Manmohan Singh’s impressive opening of the Indian economy in the 1990s was incomplete, and resulted in a hybrid economy that produced somewhat lopsided results. While the IT and telecom sectors have been able to modernize, largely due to lack of control by the government, much of manufacturing, agriculture, and infrastructure sectors are hobbled by over-regulation. This growth set the stage for the reforms that Prime Minister Modi and his team are trying to enact now to keep growth on course. Modi committed to investing $52 billion on infrastructure in 2014-2016. He is aiming to promote FDI in manufacturing by making it easier for foreign companies to buy land, to hire and fire workers, and apply for industrial licenses. His government has also recently opened up several new areas for investment, including railway infrastructure, telecommunications, insurance and pensions, retail, food marketing, and defense. The government is trying to simplify the tax system and create one national tax on goods and services to replace the many layers of competing state, local and national taxes. Modi and his team are pressing ahead, but due to India’s dispersed political power (Modi’s BJP does not have a majority in the upper house of Parliament and many reforms have to happen at the state, not national level) reform will be slower than many hope. The economic weight of the world has already shifted, quietly but relentlessly, in China and India’s direction. It will continue to do so. Even if the reforms succeed only in part, as is likely, tuning out the noise in economic estimates, it is reasonable to assume that the Chinese economy will keep growing at between four and seven percent for the next several years—likely with a slowdown first, followed by a rally when China’s economic reforms bear fruit-- and then growth rates will slowly decline towards western levels as the economy matures. China’s internal market is so large, and the private sector is becoming so dominant, that even if the government does not complete some of its ambitious reforms (such as privatizing SOE’s, which likely won’t happen quickly), growth will remain fairly steady. At these rates, China will surpass the United States as the largest economy by 2030, although the U.S. and Europe will still have an advantage in living standards, and in many technical, high value sectors.

India has a larger task ahead. Its population is still much poorer. As a democracy, reforms will be harder to push through. Many foreign companies are waiting to see if it truly does become easier to do business in India before they invest. If Modi’s zealous reforms continue, India can unlock some of its latent potential and grow faster than China. It is more likely that the current trajectory of between five and eight percent growth continues in India as well. This would make it the world’s distant third largest economy in 2030, with the largest or second largest middle class, and Asia’s key economic engine outside China. What does that mean for the world? I am often asked if it wouldn’t be good for the United States and others if these two giants – especially China – stumbled. If that happened, the argument goes, companies in the Western hemisphere could again manufacture at home, the United States would once again dominate world trade, and the financial institutions that made the rules of the economic game for nearly seven decades would not have to change. Perhaps, some argue, a drastic economic slowdown in China would even cause the regime to fall, and democracy would take its place. Unfortunately, history has no reverse gear. We want China to grow, even if it means that the Communist Party, with all its downsides, will remain in power for the foreseeable future. We also want India to grow for its own sake, and as another strong, democratic state to help shape China’s rise. Chinese and Indian economic growth is entirely in our interest. If we want a growing world economy, we need its two largest, most dynamic engines to prosper. As former U.S. Treasury Secretary Hank Paulson has explained,i China is America’s fastest growing export market, so problems in China will hurt our companies, and cost us hundreds of thousands of jobs that are supported by exports to China.ii Boeing, for example, which manufactures in the United States, sells more than a quarter of its commercial planes to China and India. If those markets were closed, the result would likely be tens of thousands of layoffs in the U.S. As Chinese domestic consumption and incomes rise, U.S., Caribbean and Latin American companies will be able to export more, and more sophisticated products. Additionally, Chinese investment in the United States has directly created over 80,000 jobs in America iii, with investments reaching $20 billion in 2014 alone.iv Many are afraid of Chinese investment, and it is right that we rigorously review investments (including from China) in strategic sectors like national security, energy and some infrastructure. Nevertheless, these investments can also save or create jobs, and be another unifying force between the two countries. It is also very much in the world’s interest for the Chinese economy to move from exporting goods made with cheap-labor, to one that is more consumer and services oriented. As China’s over-investment in infrastructure and manufacturing slows down, commodities prices will fall. This hurts raw materials exporters like Australia, and Brazil, but will help others like the United States, Europe, the Caribbean and India, who all import these products and will benefit from lower prices. An added benefit is that as China stops relying on heavy, polluting manufacturing, its contribution to the world’s pollution will decline. AUGUST 2016 EDITION

A growing Indian economy also helps the West. As India grows, its wealthier, fast growing population means that U.S. companies will be selling to hundreds of millions of additional consumers. By 2030, based on current trends, India will be adding more people than China to the world’s middle class. While trade between India and the U.S. is small compared to that with China, it is growing steadily, and we should want that to continue.1 Indian FDI is thought to be responsible for at least 90,000 direct jobs, with other reports estimating the Indian tech industry alone was responsible for supporting over 400,000 U.S. jobs in 2015.v Finally, if these two countries do not grow, it will have a major impact on emerging economies. China is already the largest export or import partner of at least 84 countries around the world, more than the United States.vi As both China and India grow and their economies become more sophisticated, they will also have a stake in international governance. If they want to export more technologically advanced products, they will naturally want to protect intellectual property and keep the trading system open. The United States and Latin America have excelled in the face of economic competition in the past. Doomsday newspaper articles about the rise of India and China in particular may make us insecure, but Western companies are excellent innovators, and benefit disproportionately from open, growing international markets – including those in China and India. We must work hard for the rules of the game to be fair, but we should not be afraid to compete. B

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The Congressional Research Service reports that total U.S.-China trade in 2014 was nearly $550 billion. According to a 2015 report by the National Association of Software and Services Companies (NASSCOM), U.S.-India bilateral trade in 2014 was $103 billion. 2

It is of course true that American investment in China and India has created many more direct jobs in those countries than they have so far created here. The point here is not to ignore that fact, but merely to point out that cross border investment increasingly helps the United States as well.

i For a detailed version of this argument, see Paulson, Henry. Dealing with China: An Insider Unmasks the New Economic Superpower. New York: Grand Central Publishing, 2015. ; “United States Exports to China.” Trading Economics, 2015. http://www.tradingeconomics.com/united-states/exports-to-china ii

“New Neighbors: Chinese Investment in the United States by Congressional District.” National Committee on US-China Relations and Rhodium Group, May 2015. http://rhg.com/wp-content/ uploads/2015/05/NewNeighborsExSum.pdf iii

Data from China Global Investment Tracker compiled by the American Enterprise Institute and The Heritage Foundation accessed October 6, 2015. https://www.aei.org/china-global-investment-tracker. v

A NASSCOM report in September 2015 claims that Indian IT companies alone created 156,000 direct and 255,00 indirect jobs in the United States in 2015. “Contributions of India’s Tech Industry to the US Economy.” NASSCOM, 2015. vi

According to CIA World Fact Book data for 2013. 31 countries count the U.S. as their largest exports partner. 26 countries count the U.S. as their largest imports partner. “The World Fact Book.’ CIA, 2015. https://www.cia.gov/library/publications/the-world-factbook/

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Confidentiality in the BVI: What records are available? AKI CORSONI-HUSAIN

Despite the popular myth of the secrecy of BVI companies, the reality on the ground paints a different picture. Comprehensive details of ownership and other information are available, especially to the victims of fraud and those seeking to trace assets. In addition, the record keeping obligations applicable to BVI companies are broad and continually evolving to keep ahead of global regulatory initiatives. This article outlines the records that BVI companies are obliged to keep and how they can be accessed.

In general terms, and with the exception of expressly

agreed

confidentiality

agreements,

information will only be held to be confidential where it has a ‘necessary quality of confidence’ about it. Understanding this is not easy and suffice to say that, in broad terms, only information which is not in the public domain or else readily accessible by the

Confidentiality in the BVI

general public will fall into this category.

What is the law on confidentiality and data protection in the BVI?

Confidentiality agreements and obligations

There are no rules or obligations on banking secrecy or data protection in the BVI. Instead, rules on

As an exception to the position above, agreements

confidentiality fall back on English common law principles, which the BVI courts observe as a result of

between parties to treat information as confidential

the fact that the BVI is an Overseas Territory of the UK.

will generally be observed by the courts, so long as

Under common law principles, a duty of confidentiality will be imposed in three primary circumstances:

the agreement is enforceable as a matter of the law

• where there is an agreement between the parties that information should be kept confidential;

public, that may change the effect of a breach or

• where the relationship between the parties is one which the law imposes a duty of confidentiality

threatened breach of a confidentiality clause. The courts will not normally issue an injunction to

with respect to; and • where the nature and circumstances of the person obtaining the information make it such that the law will require that they keep the information confidential.

of contract. However, once information has become

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prevent breach of a confidentiality clause where the information is ostensibly no longer confidential.

Similarly, although breach of the clause will ordinarily sound in damages, if

must keep the underlying documentation of those transactions (invoices,

the information is public in any event, it may be difficult for the claimant to

contracts and similar documents) but provided that the financial position of

establish loss.

the company could promptly be determined from those documents would not generally have to do much more than that. A trading company, on the other hand, which enters into many transactions, would need to keep both

BVI Business Companies What ownership and governance documents must a BVI company maintain publicly and privately? The BVI Business Companies Act 2004 (the BVIBCA) provides that the Memorandum and Articles of Association of a BVI company must be held publicly with the Registrar of Corporate Affairs. Effective 1 April 2016 the BVIBCA requires registers of directors to be held centrally with the Registry. Further information, such as share registers, may be held with the Registry, though the practice has been that such documents are instead held solely with the company’s registered agent or company secretary.

the underlying documentation and accounting records which would enable it to determine the financial position of the company. There is no prescribed form for those accounting records but they typically would include general ledger entries and a cash book as a minimum. What is clear is that there is no statutory or regulatory requirement to produce financial statements although, of course, many companies will choose to do so in the interests of their stakeholders. What document retention policies should be adopted by BVI companies? The directors will need to ensure that the company complies with its obligations under the BCA. Most notably, companies are subject to a

In addition, it is a mandatory requirement under anti-money laundering laws

requirement to retain records for at least five years. In practice, of course,

in the BVI for registered agents, all regulated by the BVI Financial Services

since the limitation period for most actions under contract law is six years

Commission (BVIFSC), to maintain up to date KYC information on directors,

it has always made sense to retain records despite the previous absence of

shareholders and beneficial owners of BVI companies. In the event of a

any express requirement.

request for information on beneficial owners of a BVI company from the competent authorities, a registered agent will have no more than seven

Where are documents located?

days in which to provide the authorities with such KYC documents. Failure

In the event that records and underlying documentation of a company are

to deliver the information can result in severe levies being imposed on such

kept at a place other than at the office of the company’s registered agent,

agents, including ultimately the revocation of operating licences issued by

the company must provide the registered agent with a written record of the

the BVIFSC.

physical address of the place or places at which the records and underlying documentation are kept and must know the name of the person holding

What is the law on keeping and retaining records?

such records.

The BVIBCA requires every company to keep “records and underlying

Under section 99 of the BCA the records of the company may be kept either

documentation”. Such records and underlying documentation may be kept

wholly or partly as electronic records complying with the requirements of

at the office of its registered agent or at such other place or places, within or

the Electronic Transactions Act 2001. The requirements for electronic record

outside the BVI, but if not kept at the office of the registered agent, a record

keeping have remained unaffected.

of the location where they are kept must be given to the registered agent. Every BVI company must retain the records and underlying documentation for a period of at least five years from the date of completion of the transaction to which the records and underlying documentation relate; or the company terminates the business relationship to which the records and underlying documentation relate.

Mutual legal assistance in the BVI The BVI is a cooperative member of the international community in the fight against financial crime and civil wrongs. Mutual legal assistance is generally offered between countries, including the BVI, in three principle areas in this

Records and underlying documentation of the company, should be in such

regard: firstly, in tax matters and investigations, secondly, in investigations

form as would be sufficient to show and explain the company’s transactions;

into money laundering and other financial crime, and thirdly, in relation to

and will, at any time, enable the financial position of the company to be

enquiries related to financial services. Other more esoteric areas of inter-

determined with reasonable accuracy.

government assistance do exist, such as in relation to sanctions-busting investigations or in extradition matters, but those are not considered here.

What records and documents must be kept by companies and what is the minimum standard?

Tax matters

The nature of records and documents to be kept depends on the business

The BVI adheres to the latest OECD initiatives for the exchange of

undertaken by the company. A holding company with very few transactions

information in tax matters, most recently in the form of automatic exchange AUGUST 2016 EDITION

(AEOI) under FATCA and the Common Reporting Standard (CRS), BVI being an

framework although in general the FIA will engage with equivalent FIUs which

Early Adopter. In addition, the BVI has negotiated 27 bilateral tax information

are members of the Egmont Group of FIUs and on the basis of reciprocity.

exchange agreements (TIEAs) with foreign countries. It is also a party to the OECD’s multilateral Convention on Mutual Administrative Assistance in

Financial services investigations

Tax Matters (the Convention) that covers 94 countries and territories from

Finally, the BVI Financial Services Commission (BVIFSC), the principle

around the world, many of which have not negotiated a bilateral TIEA with

regulatory authority in the jurisdiction, may accept requests for information

the BVI.

or documentation exchange from equivalent overseas authorities under the

In accordance with the requirements of the TIEAs or the Convention, requests for information are sent by overseas authorities to the BVI Financial Secretary. The Secretary delegates the administration of processing such requests to the BVI International Tax Authority (the ITA). The ITA’s remit is governed by

section 32 of the Financial Services Commission Act 2001. These are known as Section 32 Notices and are requests to produce information and/or documents from any persons engaged in, or related to, any financial services business.

the BVI Mutual Legal Assistance (Tax Matters) Act 2003 (MLAT). The MLAT is

A Section 32 Notice can be sent to any person over whom the FSC has

the corner-stone legislation governing exchange of tax information by the BVI

jurisdiction and may specify: the information or type of information required;

authorities with the outside world from FATCA and CRS through to TIEAs and

the documents or types of documents required; the place where, and the

the EU Savings Tax Directive.

period within which, the information or documents should be produced; the format in which the information or documents are to be sent; the person

Anti-money laundering and financial crime

to whom information and/or documents should be provided to; or that any

The principal body dealing with financial crime in the British Virgin Islands is

information provided be verified or authenticated in such manner as the FSC

the Financial Investigation Agency (the FIA). The FIA is the financial intelligence

may require. B

unit – FIU – for the BVI and is regulated by the Financial Investigation Agency Act 2003. The FIA is vested with significant powers under the Proceeds of Criminal Conduct Act 1997. The criteria for cooperation of the FIA with overseas authorities is subject to significant discretion under the legislative

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Business Global

OVERCOMING CHALLENGES GREG BOYD

I recently had the opportunity to visit Lagos, Nigeria for the first time. This followed on the back of various BVI/Africa initiatives including participating in the Business BVI Discussion Series with Russell Harrigan and Aubrey Hruby (co-author of The Next Africa) and attending (as part of a BVI delegation) various African focused events in Washington DC in mid-April on the fringe of the IMF Spring Summit Meetings – a highlight being the Africa Investment Leaders Forum where, as a co-panelist, I discussed inbound co-investment structures and the need for offshore vehicles within those structures. Admittedly, my 4 days in Lagos were mostly spent staying in a business class hotel and attending meetings at the offices of leading Nigerian lawyers and business people and being transported to those meetings in a comfortable SUV by a friendly driver. Even so, many observations were still made and appreciated. Nigeria is now Africa’s largest economy and also most populous country. Average GDP between 2005 and 2013 was a staggering 7.5%. However, China’s slow down and the crashing oil price have reduced GDP to somewhere between 2 and 3% - which is still impressive when compared to the stagnant or negative growth rates of many developed nations.

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Lagos boasts a population of some 21 million people. The road infrastructure is chronically over utilized and suffering as a consequence as evidenced by the crumbling surfaces and numerous pot holes. Traffic is intensely chaotic and congested with a simple wrong turn potentially adding anything between 45 minutes to an hour to your journey time. Street names and numbers are also a bit of a hit and miss affair. Arriving late for a meeting is therefore well understood and accommodated without fuss. And it is advisable to allow 3 hours travel time for the return journey to the airport – a mere 30 kilometers from down town Lagos – where the two lane highway is clogged at least four abreast in each direction. At times you might be tempted to walk to your next meeting rather than face the traffic; but the 30 °C plus heat, humidity and (where they exist) the jam packed sidewalks (with vendors selling everything from clothing and food to SIM cards and air time, not to mention their kindly offer of directions to our driver!) soon dispels that notion. While a few new buildings do scatter the horizon (and more are expected as the Eko Atlantic Project progresses), the majority of the architecture is functional. Former residential neighborhoods are being absorbed and transformed into business districts catering to the growing economy. Office interiors are equally functional. I guess I was expecting more ‘bling’. It contrasts dramatically with what you will see in the architecturally designed CBD of Sandton, Johannesburg (which is ‘bling’ with its glass and steel towers, high end shopping malls, orderly road network and Gautrain station offering a 20 minute rail link to OR Tambo International Airport). Lagos gas stations are either barricaded closed or have very long queues for the fuel pumps; which struck me as odd given the rich oil fields off the coast of Nigeria. But you quickly realize that all of Nigeria’s oil is exported and the refined petroleum imported back at a much higher cost. There is a constant hum of generators around offices; most of Lagos has not had grid power for the last two months or so –private generators therefore keep businesses functioning. Added to the above are the challenges of former corruption and mismanagement, onerous debt obligations, political pressures, currency overvaluations, an insufficiently diversified economy (two thirds of Nigeria’s government revenues rely on oil sales), terrorism and the lack of adequate infrastructure. Yet, despite these challenges Nigeria still manages to conduct business and generate economic growth. A prominent CEO of a Nigerian oil company remarked to me that Nigeria’s resilience to challenge is impressive but imagine how strong the Nigerian economy could be if just two of the top eight challenges were overcome. The net effect would be that the 3% GDP growth would quickly shift back to 7.5% or higher. So how has Nigeria managed to become the largest economy in Africa? And why has it surpassed other countries like South Africa that appear to have more diversified economies and better infrastructure? Nigeria, like many other African countries has a large growing population of young people that are rapidly urbanizing and organizing themselves to make use of agglomeration and economies of scale. Many of these young Nigerians have been educated and gained global business experience in either London or New York and have returned to Nigeria as home front opportunities have been identified. Harvard actually has a recruitment office in Lagos. The educational diaspora effect is the opposite of brain-drain. There is a tangible energy among young business people in Nigeria. They are entrepreneurial and eager to see Nigeria reformed so as it make it the power house of Africa. These young Nigerians are very aware (both economically

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and politically) and eager to ensure that their future is not disrupted by corruption and mismanagement of the economy. You can sense that they want to make a difference and are proud of their country. A focal point of President Buhari’s re-election was the cracking down on corruption. The oil crash has also focused attention on the need to diversify the Nigerian economy and to deregulate it (for example, dropping petrol subsidies). Nigerians have embraced information and communication technologies (ICT), especially mobile technology. Modern ICT systems produce ‘data foot prints’ which are being used to crack down on corruption, force transparency and accountability and attack historic systemic inefficiencies. ICT hubs in Nigeria have promoted various new concepts to attack historic inefficiencies and make every day transactions more efficient (for example One Card). Developmental leapfrogging through ICT is more and more common in emerging markets. A day after arriving in Nigeria the second big story about the Panama Papers broke. Naturally, I was somewhat concerned about the effect this would have on proposed business development initiatives. However, I quickly appreciated how well versed Nigerian lawyers and business people are to inbound investment structures and the need for offshore vehicles that promote investor and tax neutrality and importantly provide the corporate governance comforts demanded by foreign investors and necessary for maximized investor attraction. A review of the local media and blogs also quickly demonstrated balanced journalism and an educated readership who regard it as prudent business practice to hold assets offshore (outside of Nigeria) for reasons of economic stability and wealth protection but demand that politicians make the required disclosures under Nigerian law of their personal assets at the time of entering and exiting public office – a failure to do that generates much angst and attracts criminal prosecution. This was an entirely different and refreshing experience compared to my review of the media in London the previous week where the readership was mostly being fed what to think through biased journalism comprising the usual rhetoric that offshore equates to theft, corruption and illegal practices. When discussing offshore structures with Nigerian lawyers it is also quickly recognized what an excellent job Mauritius has done in promoting themselves as the “investment gateway to Africa”; most of which is due to their marketing initiatives - though their DTA network and inclusion within African customs unions and various trade pacts has also gained them leverage. The recent World Bank report picked out Mauritius as an easy and efficient place from which to transact business (especially in Africa). Interestingly, the BVI is only 500 odd miles further away from Lagos than is Mauritius. Comparing the BVI with Mauritius, the following is noteworthy: • the DTA between Nigeria and Mauritius is yet to be ratified; • the BVI has been a corporate domicile for far longer than Mauritius; • the BVI is the conduit for far more foreign direct investment than Mauritius; and • the BVI Court has adjudicated on many more high profile shareholder disputes and fund blow-ups than Mauritius, thereby producing a solid bench of BVI precedent.

Consequently, the BVI’s depth of experience and expertise should be superior to that of Mauritius; but the BVI has not promoted its financial services

capability within Africa nearly as effectively as Mauritius has. We need to address that imbalance swiftly. A comparison of Lagos with the BVI also revealed striking similarities (ignoring Lagos’ population of 21 million and its scale for the moment). The buildings were similar, the climate similar, many of the roads similar, vegetation similar and Nigerian culture similar – some of the food was even similar. English is the primary language in Nigeria, yet the dialects differ considerably - not dissimilar to the BVI. Global perceptions were fascinating too. While I was in Lagos, David Cameron made his fateful public blunder along the lines of stating that Nigeria is one of the most corrupt countries in the world; a very damning and generalist view of 170 million odd Nigerians. An amusing article in local Nigerian media enquired whether Nigerian Government would seek a formal apology; the response was that they are not concerned about an apology but would appreciate repatriation of the cash (much of which found its way to the UK!). So Nigeria, like the BVI, is also subjected to naive and populous opinion. All too often media rhetoric seeks to define the offshore environment as “dodgy dealings”. Then there are the economic similarities: Nigeria’s economy lacks diversification as it is based on oil and gas; BVI’s economy is based on financial services and tourism (both of which are sensitive and susceptible to global knocks). Nigeria has earned billions from its oil reserves but infrastructure is sorely lacking. The BVI has enjoyed prolific success within both the tourism and financial services sectors over the last 30-40 years yet, like Nigeria, is now on an infrastructure push to ensure it is globally competitive in the years ahead. Switched on Nigerians are not only asking the pertinent questions as regards why they lack infrastructure given the vast revenues earned from oil over the past decades, they are also actively supporting and pursuing strategic changes to ensure that similar faults are not repeated and to ensure that Nigeria remains Africa’s leading economy. Criticisms or complaints about the lack of infrastructure in the BVI or why the BVI is not the region’s leading educational or medical hub given the revenues generated by tourism and financial services over the previous decades are far more easily made than constructive solutions. The BVI economy and its population has grown very quickly over the last couple of decades and it is therefore not economically unusual that infrastructure is forced to play ‘catch-up’ behind such expansion. Offshore financial centers the world over, especially the BVI, are under attack from developed nations. There are also some thirty or so offshore financial centers now competing for work. Revenues from BVI Financial Services have plateaued as a result and may well face decline in the near term. We too need to harness ICT in order to attack inefficiencies and prioritize productivity and services necessary for our economic sustainability and to keep us competitive in the global economy. These are things that the recent McKinsey Report identified and are the subject of BVI Forward – which is an initiative aimed at implementing 10 key programs that will sustain the BVI economy through the coming decades. (see www.bviforward.vg). The first necessary step to enable BVI Forward to succeed is a BVI community wide understanding and keen appreciation of what BVI Financial Services are and what they mean to the BVI and to the BVI’s future generations. Most persons in the BVI are likely linked or very close to being linked with the BVI Financial Services sector. We may be directly involved in the BVI Financial

Services sector through employment with a financial services business or the BVI Financial Services Commission or we may have a relative that is. Alternatively, we may be indirectly linked through the provision of goods and services or leasing of offices or residential property to operators and employees within the BVI Financial Services sector (or have relatives that do so). Or we may be employed by the BVI Government, rent office space to the BVI Government or are a supplier of goods and services to the BVI Government – which is reliant on revenue generated by the BVI Financial Services sector for payment of salaries, rentals and supplies. The two greatest global economic shocks in the last 100 years were: • The Global Financial Crisis: during which US GDP decreased at an annual rate of approximately 6% in the fourth quarter of 2008 and first quarter of 2009 and the U.S. unemployment rate increased to 10.1% by October 2009. • The Great Depression (between 1929 and 1932): during which worldwide GDP fell by an estimated 15% and unemployment rose to around 25%.

The BVI Financial Services industry is one of the carotid arteries carrying the life blood of the BVI economy; if it is severely damaged the BVI will suffer a massive (perhaps fatal) economic heart attack. It accounts for something like 60% of the BVI Government’s revenues. If it were to fail, the economic effect on the BVI could be more than four times worse than the Great Depression; we or someone close to us, or very many of us, would be left unemployed or without our usual reliant income stream. The Brexit Referendum result will lead to the process of the UK exiting the European Union, which will likely include further significant challenges for the BVI. The BVI is the world’s leading corporate domicile. Like Nigeria we too have to overcome populous perceptions and challenges to maintain our status. We know that the BVI Financial Services sector provides a valuable product and service to both the BVI and the global economy and that message must be understood and actively supported, promoted and vocalized. Martin Crawford of Vistra, Hong Kong recently commented that the BVI is facing severe challenges – however, BVI Forward represents a forward looking plan which is an advantage many other offshore jurisdictions do not currently enjoy.

Everyone in the BVI community is a stakeholder and custodian responsible for ensuring the continued success of the BVI Financial Services for future generations. It is vital we all take personal responsibility to educate ourselves about the BVI Financial Services and current challenges and collectively support and successfully implement the initiatives of BVI Forward. B AUGUST 2016 EDITION

Business Global

Opportunities for Substance Based Growth RAY WEARMOUTH The Changing World. As many industries around the world find themselves being disrupted by technological advances, changing social attitudes and challenges to globalisation, it is no surprise that the global financial services industry is navigating less certain waters than ever before. Banks, stock exchanges, fund managers, accountancy firms, law firms and a whole plethora of businesses and professions that form part of that industry find themselves in a rapidly changing, often uncertain, environment. The International Finance Centres of the UK’s Overseas Territories and Crown Dependencies sit in the middle of that environment although they are already well versed in continuous evolution and change, usually driven by externally-driven forces. As such, their adaptability, outlook and modus operandi suit change well. Whilst the current winds of change in relation to political and national globalisation appear to suggest a “stop and think” attitude, the global harmonisation of standards and regulation in the financial services sector have continued to go in the opposite direction. The OECD’s Global Forum Review, the Common Reporting Standards and the FATF Recommendations all represent global standards which have

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already been accepted around the world. That international playing field should now be level, by its global nature, and this very much suits the British Virgin Islands (BVI).

All Part of the Plan. The global harmonisation of standards and regulation within the wider financial services world has long been anticipated and recognised by the BVI. It has typically been an early adopter of such standards, fully appreciating the important role it plays in international commerce. It continues to see those international standards as being part of its fabric and an important bedrock for the success of its own financial services industry. Exceeding those standards and being an international partner with the G20 nations and OECD countries is part of its kite mark for success. When McKinsey & Co endorsed the BVI Government’s Strategic Plan for Financial Services in late 2014 a clear pathway was set for how the BVI would continue to thrive in a changing world where those standards would evolve quickly. The two part plan of remaining a world leader in company incorporations while at the same time expanding its value-added services offering was considered fit for purpose. It also mapped out the likely road that international standards would take and planned the BVI’s own journey along that road. The plan contained ten key deliverables

which have been put into action and life through the BVI Forward platform which is the delivery mechanism for those ten items. Adding value-added services, particularly those which build substance in the BVI, is, in essence, the most fundamental element of BVI Forward. In OECD terms, substance growth helps deliver permanent establishment under the OECD’s BEPS Action Plan. It also complements other existing financial services products and diversifies the BVI’s home economy. BVI Forward’s ten deliverables are holistic and bring together a number of independent parts. Each part brings individual benefits but the cumulative effect is exponential for all of them. As such, the sum of the whole is certainly greater than the sum of the parts. A number of those parts represent important stepping stones for the optimum delivery of the value-added services and products element. A number of those are structural in nature, involving both physical infrastructure and organisational structure. The latter would include, for example, the way in which the jurisdiction’s marketing efforts are structured and organised. With those elements in place, the value-added component can be added in the most effective way.

Structural Enablers. Attracting businesses and investment into the BVI which will build substance requires a very carefully constructed plan. Inward investment programmes are popular throughout the world with governments across the globe regularly offering attractive incentive packages to potential candidates. Special economic zones regularly feature in many of those packages. In developing its own investment programme the BVI has carefully reviewed several other programmes, looking at the successful and less successful elements of the plans executed todate by various countries around the world. It has carefully examined the impact that those programmes have had. The social impact, good and bad, almost always outweighs the direct economic benefit over time. A delicate balancing act is called for. From an infrastructure perspective, the BVI’s location calls for convenient and quick air access to help attract inward investment, and investing in specific infrastructure more generally is one of the ten deliverables under the BVI Forward plan which includes an extension to the BVI’s airport to enable wider air access. The construction of the BVI’s new Arbitration Centre is well on its way to being completed. This new facility will help broaden the jurisdiction’s value-added offering more generally. Immigration controls for any country present a challenge. Striking the balance between

protecting national interest and welcoming external investors and personnel is never easy. The BVI has found a good balance over the last 30-plus years. However, it plans to enhance its current work permit and related processes to reflect a more efficient and structured process which will help it to be able to continue to attract and retain a first rate international work force which also helps secure the return of highly talented BVIlanders who leave to study and work at leading universities and firms around the world. The marketing of BVI financial services has been re-thought and BVI Finance, the Governmental marketing function for the BVI, is being re-shaped as a private sector vehicle which will have a public-private partnership with the Government. This is a material step forward for the industry and a key development towards being able to build more substance.

Finding Synergies. As a small territory with a limited land mass and a small population, growth of any value-added business requires careful thought. The overall footprint of each new business is a key consideration. Finding synergies to offer easy bridges towards investment and / or the re-location of businesses and products to the BVI is one of the first priorities of the substance-based growth plan. Sectorial synergies make obvious sense. Adding more strength and depth to existing tried and tested offerings carries less investment risk and is easier to manage. Bolting-on additional complementary and secondary services to those already in place is the next step. Geographical synergies are also relevant to building out the existing offering and to adding new value-added products and services. The geographical position of the BVI points to certain target audiences as being more likely to be looking towards the BVI than other countries. The US Eastern Seaboard and the pan Caribbean region are obvious candidates. It is fortunate that those regions include some major international cities and offer a wide and diversified potential user base.

New Products and Services. A prioritised list of products and services which will be focused on to help build substance in the BVI has been settled. The short listed items are complementary to the territory’s existing offerings and also fit together well. A number of the areas of focus have already seen early successes for the territory and in those cases the focus is on improving the existing base and looking to build on those foundations. Attracting corporate headquarters has been a focus of two or three leading International

Finance Centres. The BVI also sees a number of benefits in focusing on this area. Action point 7 of the OECD’s BEPS Action Plan explores what is needed to establish “permanent establishment” and not run into harmful tax practices. In order to change tax residency and satisfy BEPS, careful planning and execution is needed. Applying the synergies noted above means that the BVI’s target list will include small head offices of high value companies with both sector and geographic connections to the jurisdiction. For example, this would include attracting head offices in the marine or tourism sector that already operate in the wider pan-Caribbean or Eastern Seaboard region and would be natural fits for the BVI, also offering their own synergies in return. Being able to offer a one-stop combined package to such HQ’s is a major attraction. In a similar vein to corporate HQ’s, attracting family offices, or branches of those offices, is another area which potentially brings collective advantages to both parties. This is focused on the professionals leading those offices which tend to be compact in size and can manage very diversified and great wealth. This throws off demand for several related services that can be met on the door step. Greentech companies are of particular interest to the BVI. The BVI has the perfect climate and geography for greentech research and development companies to operate in, especially those in the alternative energy space. Those companies typically have small bases and conduct high level, clean and lucrative research programmes of significant international importance. Wind, sea and solar are in abundance and the financial services component offers full service corporate expertise across the board, access to the latest intellectual property laws and a well-trodden global network to link into. Ecommerce, internet based and support businesses tend to be portable and create a number of tertiary services around them. They are usually low impact and the personnel operating in those industries also tend to be mobile. Nonfinancial advisory services, such as recruitment providers, destination planners and technological support offices would suit the territory well. They would support and enhance existing industries and create others. As new products and services continue to come on-line the territory will tailor its laws to help enhance their effectiveness. The BVI’s Strategic Plan for Financial Services has already served it well during turbulent times for the wider financial services sector. Having a clear plan which includes diversification and adaptability, and which takes account of the ever-changing world, gives the BVI a very strong foundation for future growth. B

Business Global

The other side T of the Panama Papers

he Panama Papers, leaked by the International Consortium of Investigative Journalists (“ICIJ”) has occupied news headlines around the world over the past few months; suggesting that British Overseas Territories, commonly referred to as “offshore jurisdictions” have been used for tax evasion and the facilitation of the flow of funds sourced from criminal or illegal activities. Many prominent politicians, celebrities, and the rich and famous have been named as having used offshore entities or trusts to hold some of their assets. However, so far, only a small minority of these high profile persons have been implicated in any wrongdoing in proportion to the huge amount of documents (11.4 million) and data ( 2.6 terabytes) that have been leaked from the world’s fourth-largest offshore law firm, Panamanian based Mossack Fonseca.

MICHAEL SHUE

Not surprisingly, politicians such as former British Prime Minister David Cameron have been attacked for being associated with offshore entities, where his late father used a British Virgin Islands (“BVI”) company to conduct fund

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speculation by the mere fact that he has a close relative in the business of property development, who has used BVI companies as the business vehicles. There are thousands, if not millions, of offshore companies that have been, and continue to be used by property development businesses around the world. Does this mean that all such businesses are evading tax or implicated in criminal activities? I am sure that the property development companies in Hong Kong all use BVI and other offshore companies as part of their business operations – does this make them criminals, which is the picture that the news media is painting? The leaked information disclosed that British actress, Emma Watson, is a beneficiary in an offshore company based in the BVI. A spokesman for the actress confirmed that she set up an offshore company for the sole purpose of “protecting her anonymity and safety”. The spokesman is quoted as saying that the actress receives “no tax or monetary advantages from this offshore company”. UK companies are required to publicly publish details of their shareholders and therefore do not give her the necessary anonymity required to protect her personal safety, which has been jeopardised in the past owing to such information being publicly available…….Offshore companies do not publish these shareholder details. Emma receives absolutely no tax or monetary advantages from this offshore company whatsoever – only privacy.”

operations in a tax efficient manner, which transpired to be perfectly legitimate and lawful. However, the news media frenzy generated plenty of front page news and no doubt a lot of revenue from the saga, which turned out to be “much ado about nothing”. Anyone in the financial services industry will know that the majority of investment funds use Cayman Islands companies, and some are beginning to use BVI companies, sometimes with limited partnerships, segregated cell companies and other corporate vehicles, as part of the investment structuring. This is normal everyday useage of offshore entities and structures. Does this mean that the multitude of investment funds around the world, which are all highly regulated by government authorities, are illegal and involved in tax evasion or criminal activities? China’s President Xi Jinping was also dragged into the news because a brother-in-law of his, Deng Jiagui, a property developer, was listed as the sole director of three companies registered in the BVI. Again no wrongdoing has been exposed, and President Xi has been the victim of innuendo and

Hong Kong actor, Jackie Chan, was also revealed to have used offshore companies. According to Time magazine: “the documents reveal that Chan owns at least six companies that are managed by Mossack Fonseca, the Panama law firm from which the papers originate. However, just because Chan is mentioned in the documents, it does not mean or imply that he is guilty of any wrongdoing. In fact, the ICIJ specifically wrote in its report that “there is no evidence that Chan used his companies for improper purposes.” Emma Watson and Jackie Chan, like most celebrities and stars, who have become rich and famous through their profession, as with most wealthy families;use offshore companies and trusts for a variety of genuine, perfectly legitimate reasons, including confidentiality or privacy, asset protection, estate and succession planning, probate management, wealth planning, etc. Trustees, whether of offshore or onshore trusts, all understand that most of their famous and wealthy clients want to keep their wealth planning confidential for fear of blackmail and kidnapping, which is a real risk in Asia, and in other regions like Latin America. Such cases are not uncommon

even in Hong Kong, which is considered to be one of the safest cities in the world. However, it is unfortunate, that journalists and the news media manipulate the news by using the word “secrecy” instead of the words “confidentiality” or “privacy” when referring to offshore entities and trusts, implying a sinister, evil, criminal, illegal intent. Why is it that journalists and the news media, who are supposed to be the guardians of democracy, individual rights and personal freedom and liberty, disregard our treasured ideals of personal confidentiality and privacy by attacking the ways and means that people use to protect such personal rights? Perhaps the conspiracy theory that the news media is merely the tool of politicians and governments around the world to serve their own purposes is true, because what we are seeing is an increasing attack on personal liberties, by so-called democratic governments hungry to fill their tax coffers and to prop up their ailing economies. Another word used by the news media for its emotional and sensational value is “haven”, where offshore jurisdictions are referred to as “tax havens”. The word “neutral” is more appropriate in such a context, as offshore entities are commonly used within a multi-national corporate, fund or trust structure. The offshore company is tax neutral, especially where it is used as a holding company, and therefore cheaper and simpler to use than an onshore company, which is likely to be more expensive and complicated to use because of the government fees, accounting and other issues. Offshore companies are an important part of global business, and like any business such as a widget manufacturer, the business owner is going to use the most economical, simplest component to produce that widget – as long as it gets the job done without compromising the quality and standard of the end product – it is a case of pure economics and common sense. So why should all offshore entities and trusts be so vilified just because very few of them are used for tax evasion or illegal activities? In other words, a few offshore entities or trusts caught being used for tax evasion or illegal activities should not stop the legitimate use of such structures by the majority of businesses, companies and individuals, who use them for genuinely valid reasons. It is interesting to note that those who use onshore companies in Delaware or Nevada in the United States of America, are subject to much less compliance and regulation than offshore companies, and the news media seem to show little interest in them. B

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Business Global

CERTAIN U NC ERTAINTY

AMID TURMOIL, HARNEYS LAWYER LOOKS AHEAD

Interview conducted, condensed and edited by RUSSELL HARRIGAN and FREEMAN ROGERS

The territory’s financial services industry has had a tumultuous year. The United Kingdom continued ramping up regulations, the Panama Papers hit the news in April, and the UK’s Brexit referendum followed in June. Peter Tarn, Harneys’ London managing partner, met with Business BVI in July to discuss what the recent turmoil means for the BVI. The future, he said, might not be as bleak as many fear.

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Globally, 2016 so far has been a year of great economic uncertainty, and the BVI has been centre stage. From your vantage point, what has been the impact on the jurisdiction from the United Kingdom’s new beneficial ownership requirements, the Panama Papers, and now Brexit? I think they’re very different topics. If we start with Brexit as being the most current issue, the first thing to say is I think it really shouldn’t have come as such a surprise to the UK media — and therefore to the world’s media and to the UK’s and the world’s leadership. I think the signs were all there. In terms of its impact on the overseas territories, I think a lot of the comment I’ve seen has tended to be pretty superficial in terms of analysis. I’m actually quite optimistic about what it means for the overseas territories in the medium term. I think it makes the short term horrible: I think the lack of a UK voice in EU fora is going to be difficult, and that particularly plays through in terms of how the EU’s rather strange approach to blacklists will play out over the autumn. One short-term problem with Brexit is what is being called the “common EU list of problematic tax jurisdictions.” I think the chances of the BVI being on that initial list are extremely high. It’s also important to note that that is a preliminary list. My suspicion is it will be based strongly on tax rates, but it’s a preliminary list with actually no consequences: It’s designed to create a group of countries with which the EU will negotiate over the coming year before it actually gets teeth. In the more medium term, the largest benefit of Brexit from an OT perspective from what I see is a changing mindset in the UK if the Brexit fallout goes the way I expect and hope it does: where the UK positions itself very clearly as a global trading hub and a global trading nation — not looking inwards as a lot of the commentators have suggested, but looking outwards. There’s a natural tendency, I suppose, to look towards the English-speaking world and the Commonwealth, but if you look at what that means, that’s a huge potential set of trade partners once you include India, the US Canada, Australia, Africa, the

Caribbean. But clearly it has to include China, and all of the signs on that in terms of UK intentions seem to be good. So I think that repositioning of the UK more naturally aligns it with places like the BVI. I think the BVI’s trading nexus with China becomes more important to the UK and something which maybe they will see finally as a little bit of an untapped jewel which has benefits, as opposed to seeing it through a European prism. It’s that general mindset change that to me provides the reason for optimism coming out of Brexit. Does that make any difference in 2016? Probably not, but I do see it as something that will become increasingly powerful during the next two or three years. With the Brexit pending, how do you see the BVI fitting into the UK strategy in a way that advances our cause? I don’t think I can answer that with specifics. I’m talking about a mood change and seeing the world through a different prism. However, I’m a lawyer, so I tend to see lots of things through the slant of legal networks and legal analysis. One of the greatest bits of soft power that the UK retains is the English legal system, and in a nontechnical sense we are part of that legal system; we are a part of the way in which English law concepts are used around the world. Yes, pieces of our law are divergent from English law and should continue being divergent. But being part of that broad force and that broad piece of soft power just naturally gives us a place in that push-out towards a more global world.

Do you think that UK Prime Minister Theresa May’s view of the world as it relates to the OTs is different from David Cameron’s? I’m not sure I can answer that: I wouldn’t claim to have any insight or even any particular knowledge of what her view of the OTs is. David Cameron’s position, I think, is slightly easier to analyse: A transparency agenda was certainly part of his personal legacy ambition. Even since stepping down, there have been signs and comments that he wants that to continue, and it is one of the things of which he is most proud. That transparency agenda has had a direct impact on the overseas territories, and it has a momentum which will continue beyond him leaving office. So I think it is unlikely to be high on the list of priorities of any UK leaders to reverse that. I do

see that as a continuing trend. As a former mayor of London, Boris Johnson, the UK’s new foreign secretary, has an intimate knowledge of the workings of the global financial landscape. Do you think that this experience will help the overseas territories in terms of trying to get the UK Cabinet to understand what we do? I think it is helpful to have somebody that has been intrinsically involved with the City of London and the immediate aftermath of the financial crisis. He was one of the few people who was prepared to stand up and defend bankers. I think that’s a good sign. I think that the dangers are, that the OTs become chips in a negotiation which is primarily and inevitably focused on retaining access to EU markets or UK financial services institutions. I think that could go either way, because the inescapable fact remains that any UK Cabinet will quite rightly be looking primarily towards the interest of the City of London, and if the OTs are seen as a hindrance in terms of getting what they want from that negotiation, then maybe we shouldn’t be too sanguine about that. In order to mitigate such challenges, how do the OTs position themselves in the next months before the negotiation starts? I think the most important thing is making civil servants in the UK aware of global trade flows: We have a position and we can be of assistance. That’s the key to it. The platform of the Republican Party in the United States includes a plank for the repeal of the Foreign Account Tax Compliance Act. What would a repeal of FATCA mean for the BVI and the global offshore sector? I think there’s an upside in a limited operational sense: In outsourcing US tax compliance, which is what FATCA clearly is, the most key thing for compliant institutions is that it has moved a bunch of costs. So on a very limited basis, having that cost stripped back would be a good thing for a lot of people, including a bunch of US financial institutions. None of the studies I’ve seen are suggesting that the gain to the US Treasury is going to be anything like the cost of implementation, but the cost has been outsourced. It’s not just been outsourced to nonUS institutions: It has been a net cost to the world of finance without any real corresponding benefit. AUGUST 2016 EDITION

In more general terms, I think FATCA’s importance was being the first rock rolling down the hill in terms of a great deal more detailed reporting. You see the [the Common Reporting Standard], the country-by-country reporting; you see the adoption of FATCA-like legislation around the world, and I don’t think you turn the clock back on that. Over the past two years, the BVI has worked to move along the recommendations of the McKinsey Report. How do you see these initiatives helping to reposition the jurisdiction in a post-Brexit world? I think they are all useful suggestions. I think that there is a real benefit to the BVI in implementing them. Implementation has been slightly patchy, but I think the Panama Papers have stiffened the resolve of government to implement those reforms — seeing them not as nice-to-haves but as absolutely essential. I think that they are important and sensible. The single note of caution I would raise is I don’t think that they solve all problems. Whilst I think the idea of bringing more substance into the BVI is right and important, that is solving a current problem. If you look at general tax policy around the world, there is clearly a movement where politicians actually want to tax entities on turnover in their jurisdiction. So they’re no longer interested in profit; they’re no longer interested in recognising some of the legal structures which exist and some of the treaty networks that exist. They say actually, “If you’re serving this many cups of coffee in my country, I want to tax you, and I don’t really care how profitable that activity is.” So I think there’s a danger in terms of seeing substance in the BVI in a legal and managerial sense as heading off those sorts of issues: It won’t. For all sorts of reasons, deepening the talent pool, increasing the number of people, benefit the jurisdiction. I’m just warning that it’s not a full solution to some of the pressures that are out there. In terms of raising revenue locally, the more substance, the better.

If there was a 2.0 to McKinsey, what would the architecture be? I think to expect there to be a single, very-easy-to-administer product which the lawyers can produce, which somehow replicates the revenue streams of the IBC originally and the Companies Act more recently is unrealistic. There has to be a broadening. You can’t come up with a pure legal solution that doesn’t have local impact, although we will try. But there are legal functions, which countries are willing to outsource to centres of excellence in the same way as other pieces of economic activity become concentrated in given countries or jurisdictions. I think there is an opportunity for the BVI in an increasingly digital world to make itself a hub for some of those things, particularly if you think about dispute resolution. I tend to see companies as partially a dispute-resolution tool. They are actually a mechanism for settling arguments, analysing and allocating risk, as much as they are anything else. They’re not seen that way, but to a lawyer that’s what they are: They allocate risk between different types of investors and different types of managers. And I see that general line of progress as the best opportunities. I think the challenge is what you can do with limited physical resources. Is the basic infrastructure there? If it’s not, we need to build it. We need to find several niche areas in which we can add value to the world’s economy. Dispute resolution is one where — having had a very successful Commercial Court over the last six or seven years — there is a brand to be built up

AUGUST 2016 EDITION

as long as it’s nurtured. There is a natural possibility of moving that out into arbitration and electronic dispute areas. But that does rely on the infrastructure. I think one of the things that we don’t shout about enough as a jurisdiction is that the high levels of [customer-due-diligence] compliance that are imposed on the overseas territories actually ought to give us a competitive edge in terms of a hub for developing and selling that product. The layers of customerdue-diligence documentation that are required by so many players in any sort of transaction that you undertake today are highly inefficient. If you could get to a point of being a hub which people dipped into for that information, I think that has very interesting consequences. A lot of people are looking at that. A lot of the advance is technological and it is not necessarily happening here, but it’s one of the few things at the moment where the vast number of people with touch-points in the BVI gives us some sort of competitive advantage. Has Harneys seen any recent reduction in its incorporation business? We are not a huge volume player in that market. We’re gaining market share, so we’re seeing numbers. We’re moving in the right direction, but I don’t know whether that is necessarily true of the industry. Do you recall a prior period that might hold some lessons to help guide the BVI through the current challenges it’s going through? I came to the BVI in 1997. I clearly pick out the [Organisation for Economic Cooperation and Development’s] 1999 Harmful Tax Initiative as a sea change in terms of the perception of offshore and the way in which the industry — and frankly therefore the island — had to operate. I have to say that until this year I was always firmly of the opinion that that had been the closest to some sort of fundamental crisis that we’ve seen. It’s very difficult to remember how you felt and thought, but I think this is of a similar magnitude. What’s the good news from that? The good news is that we survived and prospered. The only other comparable point in my career in the BVI was clearly the financial crisis. The phones stopped ringing for a couple weeks, and you had a lot of people around the world, including ourselves, thinking, “How do we survive this?” Those are clearly the two low points. I think the whole combination of transparency initiatives and Panama Papers feel like certainly the lowest point since 2008. But from 1999, from 2008, we managed to not just survive, but to prosper. Asia is clearly a leading global market for the BVI as a jurisdiction. Given what seems to be deepening economic challenges in Europe, are you doubling down in Asia? Asia’s always been the most important market for the BVI. We are seeing that absolutely continuing. Again, I know that incorporation numbers for the jurisdiction are not looking especially healthy in Asia terms. I think that is primarily driven by lack of access to banking arrangements rather than the leaks or anything that’s really happened at this end. But in terms of where we intersect with that market in terms of use, we’re continuing to see very strong transaction volumes. There are emerging competitors. There are increasingly challenges from established competitors as well, but the market doesn’t feel fragile in any way. I think the challenge is to comply with the Western European-, North American-driven regulatory norms whilst maintaining a product that has relevance and importance in Asia. And that’s a really difficult tightrope to walk. B

AUGUST 2016 EDITION

Spotlight: Insight

BVI FINANCIAL SERVICES:

The value of the BVI to the global economy

AUGUST 2016 EDITION

STATEMENT BY PREMIER AND MINISTER OF FINANCE

DR. THE HONOURABLE D. ORLANDO SMITH, OBE DURING THE EIGHTH SITTING OF THE FIRST SESSION OF THE THIRD HOUSE OF ASSEMBLY OF THE VIRGIN ISLANDS Monday April 18, 2016

adam

Speaker,

updated

this

have

just

Honourable

House with where we are in strengthening

our

Financial

Services structure. Now I would like to put things into a different perspective, focusing more on the value of the BVI to the global economy. Madam Speaker, no doubt that earlier this month, the world was shocked by the release of the socalled Panama Papers. The leak of over 11 million documents from the law firm Mossack Fonseca has raised troubling questions for people and governments the world over.

the world have rushed to draw false conclusions from the revelations in the Panama Papers. These critics have built an unsubstantiated argument that indicts not just the corrupt individuals and institutions implicated in the leaked papers – but the entire global financial system and, in particular, offshore jurisdictions including the BVI. It is true that in the Panama Papers examples have surfaced of the law firm Mossack Fonseca establishing corporations in the BVI for potentially illegitimate purposes. The BVI does not now and never has claimed that our entire financial services system is 100% free of illegal activity. No financial system in the world

For the BVI, the most important is the role of

has ever or could ever make such a claim. It is

offshore jurisdictions in the international finance

an impossible, unreasonable and unattainable

system and the position of the BVI itself

standard.

The ongoing investigation by the BVI Financial

But, I stand here today before you and before the

services Commission is not a reaction to a scandal

eyes of the international community and say with

– but is fundamental to how we run – and how we

unwavering confidence: The BVI’s financial system

have always run - our financial centre – with an

is well-regulated; it is well run; it is founded on a

unwavering commitment to transparency, integrity

basis of integrity; and, we of the BVI are fiercely

and proper regulation.

proud of our industry because we know the role

Now, more than ever, these values are essential to the future of our financial services industry and

it plays not just in our own prosperity, but in the progress and growth of the entire world.

the broader global financial system of which it is

Those who today seek to smear the good name

a part.

of the BVI and offshore jurisdictions generally

Because today, that system is under dire threat.

must themselves be transparent about their real motivations and true message.

Many in the global media and in countries around

AUGUST 2016 EDITION

Many of these critics are not simply offended

– that has unleashed progress for people the

It is no exaggeration to say that in virtually every

by the allegations raised in the Panama Papers.

world over.

corner of the world today there are businesses

Rather, they seek to sow doubt about the value of our modern, interconnected global economy. They fundamentally believe that the process of globalisation which has resulted in a totally interconnected market place, unhampered by time zones and national boundaries and which

Jurisdictions like the BVI have been fundamental to that powerful surge. Without offshore jurisdictions, global capital would struggle to be put to good use outside of national borders.

being run, profits being generated, people being employed and local taxes being paid by companies that are domiciled in the BVI. And it is also no exaggeration to say that many of those investments would simply never have been possible had a jurisdiction like the BVI not

has transformed the world over the past three

If capital from multiple nations is to come

existed, that could make the pooling of resources

decades, has on the balance been a bad thing

together for a common purpose, it must be able

possible and efficient.

for humanity.

to incorporate.

They see the free flow of capital across borders

And that place of incorporation typically cannot

the wake of the Panama Papers – think carefully

as a threat to things they hold dear.

be the nation of origin of any one of the investing

about what you wish for.

And so they wish to turn back the clock. They

parties – after all, many of the other investors

wish to lessen the interconnection of nations.

from other countries may never sleep easy

They wish to stem the flow of capital from one

knowing that their money was being held in a

part of the world to another. They wish to slow the

country whose laws they may not know, whose

But heaven help us if we throw the baby out with

pace of global investment.

politicians they may not trust, and whose

the bathwater.

regulators they cannot rely upon.

If we begin to sever the ties that bind nation to

are entitled to their own opinion and I trust that

Jurisdictions like the BVI have risen up over the

nation and make global investment possible, it

their intentions are good.

past decades precisely because we solve that

is not the rich and the powerful and corrupt who

problem.

will suffer.

We create a neutral space where capital from

The rich and the powerful and the corrupt rarely

all over the world can come together and be

suffer. They find their ways to do their business.

deployed for a common purpose.

It will be the poor and the striving who are hurt. It

Whether an investor sits in Russia or America or

will be the workers whose jobs will be destroyed

I do not stand here to judge these critics. They

But I am here to say in the clearest possible terms – we could not disagree with them more. Globalisation has been by far the greatest driver of human progress ever unleashed. Over the past decades, billions of human beings in every corner of the planet – including in our Caribbean region and right here in the BVI – have been lifted from grinding poverty and given opportunities that previous generations could

Europe or Asia – they know that if they put their money into an investment project incorporated in the BVI – then they have recourse to well-run courts that uphold the British common law;

only have dreamed of.

They know that their corporation will sit under the

Thanks to this movement, the blessings of

oversight of the Financial Services Commission

And so I say to the critics who have risen up in

Yes, we all agree that global corruption is a cancer that must be fought.

or never created. It will be the local government whose drive to develop infrastructure will falter. It will be the communities who will lose out on badly needed wealth creation. Those would be the victims of a de-globalised world.

in a jurisdiction that has been named among

Here in the BVI, we will not be shamed into

quality of life are no longer the special privilege

the best regulated in the world, a jurisdiction

silence on this point.

of those lucky few born in the United States, or

which conforms to the absolute highest global

in Europe or in the small number of other wealthy

standards;

nations.

They know that while they will pay all appropriate

services system – we absolutely adhere to

Today, those basic needs are being met for more

taxes in their home nations and in the nations

standards that any nation – including the

people in more places than at any time in history

where they ultimately invest their capital, they will

wealthiest and most developed nations on Earth

and it is all thanks to our interconnectedness.

not have to pay a double-tax for simply holding

– would be proud of.

infrastructure, health care, education and a high

The fact that today capital that sits in New York,

their assets through BVI structures

We know perfectly well that while we may not be perfect in the management of our financial

• Intermediaries

the

BVI

are

bound

and London, Tokyo, Frankfurt, Dubai and other

These benefits are profound. In 2013 alone,

by professional obligation to maintain

financial centres around the globe can be pooled

BVI companies facilitated the investment of

adequate, accurate and current information

and put to use to build a factory in Uganda; or a

82.5 billion US dollars into emerging market

regarding the beneficial ownership of any BVI

bridge in Bolivia; or start a business in Indonesia

economies.

company and to disclose to the Government

AUGUST 2016 EDITION

of the Virgin Islands as required. The 2014

And let me be clear – the BVI was not dragged

to cut themselves off from the world, to shun

Global Shell Games report found that 94%

kicking and screaming to these reforms. We

those who are not like them – they are wrong and

of BVI service providers are compliant with

embraced them. Indeed, we led on them.

they stand on the wrong side of history.

To the extent that we have had moments of

The problems of our world will not be solved by

contention between us and various international

people severing the ties that bind.

regulations that compel them to refuse to establish companies without proper documentation, as compared to just 6% of providers in the US state of Delaware and just 45% of providers in the United Kingdom. • As well as strict Anti-Money Laundering rules, due diligence policies, Know Your Client protocols and domestic laws, the BVI’s financial regulators are recognised

bodies as well as other national governments – it has been over legitimate disagreements about the substance of proposed regulation. It is neither our duty nor our right to simply go along with every proposal emanating out of London, or Washington, or Brussels or elsewhere.

members of the International Organization

Those capitals have their own interests and

of Securities Commissions, which is the

perspectives – and we have ours.

global standard setter for the securities sector.

sometimes they are driven by a well-intentioned

• The BVI was one of the first jurisdictions in the world to implement the OECD’s (Organisation for Economic Co-operation and

When they advocate for certain proposals,

Development)

Common

Reporting

Standard for the automatic exchange of tax information. • The BVI has tax transparency agreements with over 100 developed countries, including Tax Information Exchange Agreements with 27 countries and multilateral agreements

desire to strengthen the regulation of the financial system.

pressure of the press and the public.

which it is.

as more compliant in tracking corporate

thought.

the

BVI

inter-governmental

with US Foreign Account Tax Compliance Act (FATCA), and UK International Tax Compliance to provide data on financial accounts held by United Kingdom

We all live today in deeply uncertain times.

their residents to the

create a global economy and global community

This era is a true test of our collective resolve. We will either let scandals like the Panama Papers, or the economic crisis frighten us into a global retreat – or we will use them as inspiration to do even more to create a global environment that promotes legitimate investment and deeper human connections. Here in the BVI we will stand and we will fight on the side of progress. That has been our way for decades. That is the

Around the world, we witness growing problems

foundation of our economy and our society. Those

like climate change, health epidemics and

are the values we champion.

pollution and wonder what the future holds for humanity. And everywhere we see evidence of income

has

apart. We must unite in common cause to

just world we all seek.

these governments are simply responding to the

Ladies and gentlemen, let me conclude with this

agreements with the US and UK to comply

We must work together, not tear each other

Only together will we create that better and more

organisation (NGO) Tax Justice Network

• And

direction we must go: forward.

the case in the wake of the Panama Papers –

the transformative driver of human progress

(US) and UK[1]

the world – on all these issues there is but one

And in other cases – and this may be increasingly

Matters.

regulatory standards than the United States

My fellow BVIslanders and my fellow citizens of

criminality are rooted out.

rule of law, and to stand up for globalisation as

the BVI as more compliant with international

more efficient.

broadly shared and where corruption, terror and

on Mutual Administrative Assistance in Tax

• The Financial Action Task Force (FATF) ranks

global flow of capital safer, better regulated and

the expense of others.

international regulation, to stand up for the global

United Kingdom, Germany and Japan.

offshore jurisdictions like the BVI that make the

in which opportunity, prosperity and dignity are

countries, under the OECD’s Convention

countries - ahead of the United States, the

And we will not stamp out corruption by destroying

interests who seek to advantage themselves at

Our job here in the BVI is to stand up for proper

beneficial ownership than half of the G8

of investors to create wealth.

Sometimes they are driven by their own special

providing for tax cooperation with 76

• The BVI is ranked by the non-governmental

We will not uplift the poor by destroying the ability

inequality between the rich and the poor and we question whether justice will ever come to this

And with the likeminded and the kindred spirits of the world we will move forward together to realise our shared vision of a better tomorrow. Thank you. B

world. I have no answers to these questions. But I do know this – the voices that we hear today louder than ever calling for nations to turn inward,

AUGUST 2016 EDITION

Spotlight: Insight

The BVI’s initial considerations on Britain’s decision to leave the European Union STATEMENT BY PREMIER AND MINISTER OF FINANCE DR. THE HONOURABLE D. ORLANDO SMITH, OBE JUNE 30, 2016

AUGUST 2016 EDITION

adies and Gentlemen, as you are keenly aware, the people of the United Kingdom (UK) voted in a referendum on Thursday, June 23 for Britain to leave the European Union (EU) after 43 years of membership. My Government respects the democratic decision of the British people to end Britain’s membership in the EU. Democracy is something that we all cherish. We are the servants of the people we represent. Since the results of the referendum were announced, events have been and continue to be fast moving – from the financial markets globally, to Westminster and Whitehall. Prime Minister Cameron is standing down, paving

the way for a new Prime Minister of the United Kingdom. The outcome of this contest will be known by September 9. As well as choosing a Cabinet, it will be up to the new Prime Minister to formally start the process for the UK’s exit. Importantly, this decision is not only relevant to the UK, but also the British Virgin Islands (BVI) and other Overseas Territories (OTs) who are legally associated with the EU on the basis of Britain’s current EU membership. The BVI has had a longstanding and beneficial relationship with the EU in which we benefit as British citizens from the ability to travel, study, work and live in the EU. Our tourism and financial services industries benefit from commercial links with the EU, and

the BVI Government has received technical assistance and funding support for projects such as the construction of the Culinary Arts Centre, the Library and Resource Centre and Eileene Parsons Auditorium at the H. Lavity Stoutt Community College (HLSCC); and the newly built Sage Mountain Visitors Centre Understandably many people are concerned about the near and long-term impact on the Territory of the UK leaving the EU and how they will be personally affected. Let me first remind the public that there will be no immediate changes to the UK and BVI’s existing arrangements with the EU. This is because the UK under its EU treaty obligations must negotiate its withdrawal, a AUGUST 2016 EDITION

process which will take at least (2) two years after the UK Government advises the EU formally of its intention to leave the bloc. One issue that many BVIslanders are concerned about is travel and migration rights. British passport holders and those holding British Overseas Territories Citizens passports in the meantime will continue to be able to travel as normal. Similarly, British citizens will be able to live, work and study in the EU, visa-free, as was the case before the referendum. However, the free movement of UK passport holders within the EU will, of course, be a subject for the exit negotiations. I want to reassure the public that my Government will be working with other Overseas Territories to make our case to the UK Government that the Overseas Territories should be directly involved in Britain’s negotiations with the EU to ensure that the interests of our people and territories are met. This means going beyond purely consultation. Let me be clear. We want to be more than consulted. Just yesterday, I spoke to Minister Duddridge, who has responsibility for the Overseas Territories, and he assured me of the UK’s Commitment to ensure that its exit negotiations also take into account the interest of the OTs. While I thanked him for the commitment, I reiterated our position that BVI and other Overseas Territories must be engaged in the discussions where it is of relevance to us. Our London Office has already begun engagement in this regard as BVI holds the Chairmanship of the United Kingdom Overseas Territories Association (UKOTA) of which I am the President of its Political Council and Mr. Benito Wheatley our UK and EU Representative the Chairman. Now, while these events are happening thousands of miles away it is clear that there are implications which are closer to home and in which we have an important stake.

IMPLICATIONS Tourism The UK decision to leave the EU does present some immediate risks of which we must all be aware. First, the referendum outcome rattled the UK, European and international financial markets. The value of the pound dropped, and continues to be volatile. British holiday makers do make up an important part (and is the largest grouping) of our tourist arrivals from Europe, who will understandably be concerned about their financial position and likely hesitant to spend as before. If the pound does not recover its lost

AUGUST 2016 EDITION

value in the weeks and months ahead, we could see a tapering off of UK visitors to the Caribbean, which would affect the BVI. We will be monitoring this closely in the weeks ahead. Despite the uncertainty presented by Brexit, we remain confident in our tourism product and ability to attract European tourists to the BVI over the longer term. Very importantly, it should be noted that most of our tourists do originate from the United States and so the impact on our Tourism industry in that regard will be limited. Financial Services In the financial services arena, we remain an attractive jurisdiction for international business. In fact, there is the potential for the BVI to become a greater strategic asset to Britain as a territory outside of the EU, in terms of channeling investment into the UK economy, to drive infrastructure and housing development, as well facilitating UK investments into other regions globally. Our financial services sector – with which we have been in close contact during this period - is well diversified, with much of our business now originating in Asia, which has been less impacted by the outcome of the referendum. EU Funding Support The BVI has had a beneficial relationship with the EU. We have grown and deepened our relationship with EU institutions over recent years, and while we do not receive any direct funding there are regional programmes ranging from biodiversity to strengthening the development of small and medium-sized enterprises. As you will recall, in 2015 I hosted EU meetings here in the Territory in my capacity as Chairman of Overseas Countries and Territories Association (OCTA), alongside the European Commission for International Cooperation and Development Mr. Neven Mimica. My theme was ‘Unlocking the value of the OCTs’. My key objective was to secure EU support for setting up centres of excellence in the BVI and other territories and establishing them as regional hubs. Progress is being made following up on this agenda.

In terms of EU commitments to provide future technical assistance and support to the BVI on climate change, sustainable energy, and marine biodiversity, I will insist to the UK Government and EU that they follow through on their obligations. This support will assist my Government in delivering its sustainable development agenda with respect to less reliance on fossil fuels, driving sustainable tourism and adapting to extreme weather events. BVI has not only received support from the EU, but has been a leader in the EU arena. The BVI Co-Chairs with the European Commission the OCT-EU Financial Services Partnership Working Party (PWP), which met earlier this month to discuss financial services issues. We also represented the OCTs at the United Nations’ Third International Conference of Small Island Developing States, from which the OCTs currently benefit in terms of renewable energy.

BENEFITS OF EU TO OVERSEAS TERRITORIES The value of the EU to the BVI has been set out in a report recently published by UKOTA on the benefits and prospects of the OT-EU relationship. The report was commissioned by the UKOTA Political Council of which I am President to ensure the Overseas Territories and other stakeholders are aware of the value of the territories’ relationship with the EU. This report is available to the public and can be found on UKOTA’s website. Ahead of the Pre-Joint Ministerial Council hosted by the Turks & Caicos Islands next month, a second report will be published which will look at the prospects for the OT-EU relationship following the UK vote to leave the EU. My fellow OT Leaders and I will consider the finding of the report and determine our positions on negotiations with the UK Government. We will remain vigilant as the situation progresses. This is inevitably a time of uncertainty as new political leadership in the UK is defined, and it comes to terms with its new reality outside the EU. During this period, we will continue to make our case both to the UK and the wider European community to ensure that we achieve a position of maximum advantage for the BVI.

I am pleased that the EU is currently funding the Caribbean Small and Medium Enterprise Project, which BVI manages, that is strengthening the territory’s ability to support our small businesses.

However, it is time for the BVI to look at what is best for its people in the longer term. This must be a priority for all of us and will be a personal focus for me as we move forward.

We will also benefit very soon from the EU-funded Territorial Strategies for Innovation (TSI) project, which is aimed at making innovation a driver of economic growth as we seek to diversify the economy.

I look forward to reporting back to you in due course as my Government considers the implications of Brexit and next steps in safeguarding the interests of our Territory. B

AUGUST 2016 EDITION

The Next Africa

CHAPTER 2

Capital Is King: Global Investment in Africa AUTHORS

We don’t look at the past. We are all looking forward. —Joseph Ntambara, 42, Rwanda Trading Company senior procurement officer

The key is continued investment in building our people’s capacity. Jake Bright

AUGUST 2016 EDITION

Aubrey Hruby

—Rwandan president Paul Kagame

From Little Rock to Kigali Before Africa’s growth story became well publicized in 2010, some American businessmen from Little Rock, Arkansas, were already viewing the continent through an investment lens. The country they were focused on was not South Africa, Ghana, or Kenya. It was Rwanda. Years past its devastating 1994 war and genocide, Rwanda was one of the African nations that would make the list of the world’s 10 fastest-growing economies from 2001 to 2010. The country’s president, Paul Kagame, who had led the small East African country out of the war, had plotted Rwanda on a new path. The core tenets of which were to reduce poverty and improve living standards by embracing private-sector growth, modernize the country’s business infrastructure, and supplant foreign aid with foreign direct investment (FDI). As neither Kagame (a former military commander) nor Rwanda had extensive experience with the global private sector, the president began making overtures to U.S. business leaders, urging them to advise and invest— including approaching some Americans from Little Rock.

the Kagame and Ford kids played soccer in the presidential yard, the American CEO and the Rwandan president bonded over a discussion of the freedoms of Western civilization: political, religious, and economic. “He told me the state alone could not bring economic freedom,” said Ford. “That required entrepreneurs who know how to make money teaching other people how to make money.” The two also agreed that businesses and markets, if harnessed properly, could empower Rwanda and its people much more effectively than foreign aid. Kagame gave Ford a challenge: “If you can find just one person to invest in Rwanda’s economy, you will have done more for this country than anyone has the right to ask of you.”* After their initial four-hour dinner meeting, Kagame would call Ford from time to time for business counsel. This eventually led to Ford joining Rwanda’s Presidential Advisory Council, a commitment he had more time for after brokering the $28 billion sale of Alltel to Verizon in 2007. In 2009, Scott Ford determined that the best way to help Rwanda attract investors would be to invest in a business venture himself, “checking that box per the president and

In 2005, U.S. executive Scott Ford found himself in an

my dinner conversation” and “creating that example it can

unanticipated conversation with Rwandan president Kagame.

be done.” After doing some due diligence on the country’s

At the time, Ford was the CEO of Arkansas telecom firm Alltel.

various sectors, he decided to get into Rwanda’s coffee export

He was in Rwanda with his wife and three boys visiting the

business, a stretch from his background in telecoms and

Sonrise School for at-risk youth and orphans of the genocide,

banking.

an institution, founded by Rwandan bishop John Rucyahana, that Ford supported. The Southern CEO and African president were brought together by investment banker Dale Dawson, Ford’s former boss, who helped organize the Friends of Rwanda network, a small group of American business leaders dedicated to Rwanda’s private-sector development.

Ford tapped another Arkansan, Todd Brogdon, to lead the effort. Brogdon had already been enlisted through the Friends of Rwanda network to set up microfinance lender Urwego Opportunity Bank of Rwanda in Kigali. A CPA by training, with a career in private equity, Brogdon had as much experience in the coffee business as Ford—none—and no more experience

Kagame heard that an American telecom CEO was in Kigali

in Africa when recruited to set up Urwego. “At the time, I

and sought Ford out for a meeting to discuss modernizing

didn’t have a passport and couldn’t have told you much about

Rwan- da’s telephone company. “I wasn’t actually too tuned

Rwanda, except that it was somewhere in Africa,” recalled

to go and didn’t really know who he was at the time,” recalled

Brogdon. “And when people started talking to me about

Ford. “I sent word, ‘No thanks, I am here with my family and kids.’ They came back, ‘Great, the president has family and children too. Sunday dinner, seven p.m., his house. He’ll send a car to the hotel for everyone.’ ” After the dinner, as First Lady Kagame hosted Mrs. Ford and

* Ford also recalled Kagame’s view that the West, in its persistent advocacy of human rights, was often overlooking the power of economic freedom in bringing about other freedoms in a country such as Rwanda, telling him, “The key test is when the poorest of the poor can taste the benefits of the system economically, they won’t settle for a political system that denies them political or religious rights.”

AUGUST 2016 EDITION

aid and development, the only thing I could think of was

upgrades needed to become successful in Rwanda’s coffee

that ’80s Live Aid concert.” Brogdon and Ford assembled a

trade, Ford and Brogdon also were able to find a balance

team, became quick studies in the coffee trade (Rwanda’s

between company profits and empowering local workers.

second-largest export), and soon targeted an underperforming

Their backgrounds played a role in offering more than just the

government-owned coffee mill for purchase. In April 2009 they

bare minimum salary to Westrock’s Rwandan staff. Both Ford

arranged the $2 million acquisition of the Rwandex coffee

and Brogdon have referred to themselves as “faith-motivated

factory, a 8,000-square-foot facility in the hills of Kigali, which

businessmen,” drawing on their Christian upbringings. Each

had been taken over in bankruptcy from its European owners

has roots in rural Arkansas (Brogdon’s great-grandparents

by Rwanda’s central bank.* The foreign direct investment

were sharecroppers, and both have sets of grandparents

was funded by Scott Ford’s U.S.-based Westrock Capital, and

who were farmers), and they share an appreciation for the

created the Rwanda Trading Company (RTC), and subsequently

benefits that upward mobility brings to working-class families.

Westrock Coffee. At first many in the coffee trade establishment didn’t quite get Todd and his team. “We didn’t know people in the industry . . . and found the primary U.S. trade group, the Green Coffee Association, through Google. Three of us signed up and went to their annual meeting in Atlantic City,” explained Brogdon.

“We have to be profitable or we don’t stay around. But even in that model, there’s lots of room to treat people right,” said Ford. And when he and Brogdon did their initial assessment of Rwanda’s coffee industry and the past operating practices of their mill, they didn’t find the standards that matched their values. The first issue was the low prices farmers were getting for their coffee. “They had only two mills in the country to

“Here are three hicks from Arkansas . . . showing up and

sell it to, and a duopoly prices like a monopoly. We figured

saying, ‘We’re from this new company called Rwanda Trading

out farmers were only getting about 50 percent of what their

Company and we’re going to export coffee here from Africa.’”

coffee was worth, compared to farmers in Kenya or Tanzania

The initial reception? “Those guys looked at us like ‘What?’ In

with multiple buyers,” said Ford. “So we set out to reset prices

the industry everything about us didn’t fit the typical coffee-

and started buying coffee at a price where we could make a

trading businesses that had been around for decades. We

10 to 20 percent profit on our equity, but not 50 to 80 percent,

did not fit in,” said Brogdon. The two felt, Todd recalled, like

which is what was going on.”

the unpopular kids in the high school cafeteria, people quietly snickering, “There are those guys from Arkansas who think they’re going to sell coffee from Rwanda,” when he and his team walked by. †

They also noted the low wages workers had previously received at the plant and the lack of basic employee facilities, such as bathrooms, for the dozens of women coffee sorters. “They told me managers had a bathroom. When I asked about

Establishment skepticism aside, the novice American coffee

the women, they said they went behind the plant and leaned

traders who purchased the mothballed mill in April 2009

against the wall,” recalled Ford. “I thought, ‘What if the shoes

exported their first containers by August of the same year. They

were on the other feet. I lived here, something happened to

also began their most important relationship in Rwanda—the

me, my wife came to work at the mill to support my family,

one with their employees. While sizing up strategy and facility

and the man who owned this plant couldn’t even offer a decent wage or a proper restroom,’” said Ford. “That’s when I decided the first thing we are going to do is build some proper

* Westrock Capital paid $1.6 million for the plant and invested $500,000 in fixed assets to make it operational. † According to Brogdon, the story of their showing up at the Green Coffee Association (founded in 1923) is now fondly told among board members and the establishment players who were there. Association contacts have since assisted in expansion of RTC’s global distribution network.

AUGUST 2016 EDITION

employee facilities and pay our workers as much above the minimum market wage that we can.” According to Brogdon, Rwanda Trading Company started compensating its workers about 25 percent (on average) above Rwanda’s market rates, with performance-based options for bonuses. It also began

offering skills training and opportunities for many seasonal

coffee sent my children to school.” He also spoke of the

(three-month) employees to work throughout the year.

beneficial cycle of economic growth that profitable companies

Five years later, a visit to the RTC in Kigali revealed that the local employees are the primary engine of the coffee factory’s fairly manual operations. RTC’s main Kigali location employs 120 full-time staff and approximately 300 seasonal workers—

such as RTC can create in Rwanda, including for his wife’s well. They have choice and information. It is a free market, and they can make price comparisons on where to sell their

the latter being predominantly women, according to plant

coffee,” said Ntambara. “Some make a million francs a

managing director Clay Parker. RTC has also trained a handful

year—they are buying cars, refrigerators, building new houses.

of local managers, some of whom have traveled to the United

Perhaps they will even buy from my wife’s store,” he explained

States for additional coffee trade training.

with a chuckle. When asked about life before the end of the

In and around RTC’s warehouse, Rwandan men arrange masses of boxes and bags of coffee, while dozens of women

war and his job at RTC, Ntambara said, “We don’t look at the past. We are all looking forward.”

work side by side on organized plots sorting coffee. Of the

After five years of operating and growing in the country, RTC’s

women, senior hand sorter Beata Kampire came knocking on

Scott Ford and Todd Brogdon are looking ahead, too. The results

RTC’s factory door in 2009 looking for a job when her husband

generated by Ford’s original $2 million acquisition of an old

became disabled in an accident. The mother of two and

Rwandan coffee mill demonstrate the possibilities of foreign

grandmother said that the best part of her job “is working with

direct investment over foreign aid—something envisaged in

and helping the other women at the company.” Kampire serves

Ford and Kagame’s first meeting. In 2014, RTC exported more

as a de facto work and life mentor to many of the younger

than seven million pounds of coffee, or roughly 20 percent of

sorters. “I like teaching them how to sort and giving advice on

Rwanda’s total coffee exports. Many Americans may already be

problems they are facing in their daily lives,” she said. “RTC

drinking java sorted and brought to market by Beata Kampire,

has given my family opportunity we would never have had since

John-Bosco Nyiringabo, and Joseph Ntambara. RTC’s branded

my husband has been unable to work and I became the sole

coffee now sells in Walmart and Kroger stores, and their

breadwinner,” she explained. “RTC also keeps me young,” she

private-label coffee is sourced by Intelligentsia, Starbucks,

added.

and the Omni hotel chain. The company now employs more

RTC is shaping a budding entrepreneur in 33-year-old manager

than 400 Rwandans, has generated $15 million in revenue,

John-Bosco Nyiringabo, who is enthusiastic about the

and paid more than $1 million in local compensation. RTC

opportunity the mill gives him to learn business. He works with

pays taxes to the Rwandan government and participates in

the farmers in the fields, advising them on how to operate the

the country’s new social security program, which allows hand

coffee-washing stations and improve basic processes, from

sorters such as Beata Kampire and hundreds of other women

accounting to quality control. Nyiringabo aspires someday to

to log their earnings in the country’s new retirement benefits

create his own company helping farmers build businesses

system.

around agricultural products: “Many farmers don’t know

RTC is also credited with breaking up Rwanda’s coffee duopoly,

how to reach the market. I do. I can teach them to do better

resetting prices the country’s farmers could command. “Once

business.”

small hardware store. “Some farmers are starting to do very

we did that, it shifted prices on coffee from about 50 cents a

RTC’s senior procurement manager, 42-year-old Joseph

pound to 80 to 90 cents a pound. That’s the value of about

Ntambara, began working in coffee in 1995, hoping to rebuild

an additional $100 million to Rwanda’s farmers,” said Scott

his life as one of the country’s many returning post-war exiles.

Ford. RTC’s parent, Westrock Coffee Company, has expanded

Of the opportunities the sector has provided him and other

into Tanzania, and in 2014 it purchased Falcon Coffees, which

Rwandans, the father of five said, “Coffee built my house;

sources from Ethiopia, Uganda, and Democratic Republic of

AUGUST 2016 EDITION

the Congo. Collectively the Arkansas-based coffee venture

business issues. When it came to South Africa’s economic

now employs 500 in Africa and is approaching revenues of

policy, he chose free markets and foreign investment.

$100 million.

That Mandela would embrace the open-market path is

Looking to the future, RTC CEO Todd Brogdon envisions a

somewhat remarkable given the African National Congress’s

time when Rwandans take over the company. “We would love

(ANC) and his own Marxist-Communist leanings. As an activist,

nothing more than someday the Rwandan Trading Company

Mandela was close to Cuba’s Fidel Castro and openly called for

goes public on the Rwandan stock exchange, and 50 years

nationalization of South African companies. Yet as president,

from now it’s a publicly traded company run and operated by

he embraced an open economy and courted international

Rwandans,” he said.

investors,

miraculously

realigning

the

ANC’s

socialist,

development-state orientation toward trade, investment, and

Madiba as African Visionary on Investment Through growing investments like RTC’s, Rwanda has nearly tripled its FDI since 2009 to over half a billion dollars in 2014. Add that to the country’s recent billion-dollar international bond issuances, and you get a country that has transcended a war-torn past to become a new destination for global capital. And in the twenty-first century’s hyper-economic world, global capital—who wields it, attracts it, and uses it most wisely— is a critical determinant of national success. Nowhere is this more apparent than in emerging economies over the last two decades. As greater percentages of total global investment have flowed to emerging and frontier markets (surpassing the amount to advanced economies for the first time in 2013), so, too, has fierce competition to entice it. For countries in Asia or Latin America with critical infrastructure and employment needs,

attracting

foreign

investment

has

commonly

determined which nations did the most to build roads, bridges, and power plants; create jobs; raise incomes; and improve living standards. The ability to draw and manage international capital successfully has also given some countries formerly on

connecting to global capital markets. There were a lot of reasons he did this. It has been suggested that he started to change his views in jail, and sealed his opinion with regard to open markets while attending and addressing the 1992 World Economic Forum annual meeting in Davos.* Surely his transformation was both visionary and strategic. He had taken note of the direction the world was heading: away from communism and toward globalized finance, businesses, and markets. He was also acutely aware of the need to create jobs for South Africa’s growing youth population. In 2000, Mandela would say, “As I moved around the world and heard the opinions of leading business people and economists about how to grow an economy, I was persuaded and convinced about the free market.” Indeed, Mandela knew he needed to open the country for business and attract foreign investment because South Africa’s post-apartheid economy was in trouble. Years of sanctions aimed at divestment had left the country economically isolated and the government nearly broke. Madiba set out to reconnect South Africa commercially to the world. So he went

the world’s economic sidelines (e.g., India, Brazil, and China) front-row seats in elite forums of global business. While Sub-Saharan Africa (SSA) has been late to this game, an unexpected visionary to the merits of attracting international investment was Nelson Mandela. As South Africa’s first postapartheid president, Mandela could have taken the country in a lot of directions in those early days of his tenure starting in 1994. At each juncture, he seemed to make the right call. Sometimes overlooked in Madiba’s legacy was his stance on

AUGUST 2016 EDITION

* Former South African finance minister Trevor Manuel named the 1992 World Economic Forum as an important economic policy turning point for Mandela. According to Manuel (then an adviser), Madiba insisted that the advance text of his speech be altered away from ANC hard left economic rhetoric and toward attracting investors, giving the “private sector . . . a central role in . . . creation of wealth and jobs,” and making six references to the need for international investment in the post-apartheid South Africa. Mandela’s turn toward open markets also connects to his 1991 Davos conversations with former Chinese premier Li Peng. Former World Economic Forum director Lance Knobel recalled Mandela referencing conversations where Li told him of the ANC’s early economic policy platform, “We’ve tried that, and it doesn’t work.”

about bringing in the people (such as vice president Thabo

volumes to Africa’s past adversities, since no country or region

Mbeki and finance minister Trevor Manuel) and implementing

in history has achieved sustained prosperity without significant

the policies that would do it.

participation in the world economy.

Years later, the dividends are pretty clear. As Africa quickly

Fueled by Africa’s economic growth boom, SSA’s investment

becomes the world’s next growth region and engine of business

scorecard is fast improving. There are a number of technical

(even as Nigeria has surged ahead with the continent’s largest

categories for foreign investment. We’ve simplified three major

GDP), South Africa still very much remains Africa’s economic

channels of global capital into Africa:

beacon. It has Sub-Saharan Africa’s largest stock market capitalization, most heavily traded currency, highest sovereign credit rating, most internationally held government bonds, and one of the continent’s strongest middle classes. South Africa also maintains Africa’s most modern business infrastructure,

• Foreign direct investment (FDI): Investment from one country (normally by companies) into a company or entity in another. The most common measure of international capital flows.

attracts the highest value of foreign direct investment, and is

• Foreign portfolio investment (FPI): Investment in the

a de facto capital for global companies operating throughout

stocks or bonds of a country from investors or entities in

Africa.

an outside country.

While South Africa has stagnated in recent years, the country’s economic successes over the past two decades reflect the

• Diaspora remittances: Money sent from Africans abroad to relatives or friends in their home countries.

wisdom of Mandela’s open-market, pro-investment decisions. To contrast, the conventional direction facing him when he first with few advocates as a model of prosperity for Africa to follow.

Foreign Direct Investment to Sub-Saharan Africa

A central theme in our approach to understanding Africa’s

In 2010, as Scott Ford’s less-publicized $2 million foreign

transformation is highlighting large shifts in things happening

direct investment in Rwanda was creating jobs and coffee

now that were not happening, say, 5 to 10 years ago. More

exports, three multi-billion-dollar announcements of capital

of those dramatic movements (particularly in the business

toward Africa would ripple across the global investment

space) have been occurring in SSA than perhaps anywhere

landscape. In June 2010, India’s largest mobile phone

in the world. The increased movement of global capital to the

operator, Bharti Airtel (now Airtel), acquired Middle Eastern

region is one of those trends. Mandela set the stage for South

telecom company Zain’s Africa business for $10.7 billion. At

Africa to become the outsize recipient of FDI to the continent.

the time, Airtel was pushing the limits of its Indian subscriber

But even that reality could be upended in the next several

base (around a hundred million) and CEO and billionaire

years, as international money continues to move in greater

Sunil Bharti Mittal had been eying Africa as a destination to

volumes to new destinations all over Africa.

make a bold growth move. The acquisition was the largest

took office was more aligned with contemporary Zimbabwe,

ever emerging market cross-border transaction, claimed Airtel,

A New Destination for Global Capital

expanding the company’s presence in 15 African countries and making Airtel the world’s fifth-largest mobile phone provider.

Until recently, a telltale indicator for SSA’s decades of

In the deal’s wake, in September 2010, came another multi-

disconnect from global markets was investment—or the

billion-dollar announcement: IBM’s $1.5 billion arrangement to

comparative lack thereof. SSA ranked dismally in major forms

manage Airtel’s backend technology operations in 16 African

of capital flows into the early 2000s, regularly registering

countries. Then, during the same month, Walmart announced

less than 3 percent annually in key categories. This speaks

its $4.6 billion acquisition of South African retailer Massmart,

AUGUST 2016 EDITION

FIGURE 2.1:

Foreign Direct Investment in Sub Saharan Africa Increase in Value and Percent over Four Year Increments 60

250%

21.5%

Over a span of eight months in 2010, business news reverberated with $16.8 billion in FDI-related Africa news. That definitely got our attention, along with that of many investors and CEOs, reinforcing the viability of Africa’s economic narrative around things like mobile technology and consumer goods. Suddenly global business actors had more than just GDP figures to affirm Africa’s economic potential. They could now connect a trail of big investments and deals, most in billions not millions, directed by very savvy companies. Africa’s 2010 investment headlines were not an anomaly. They coincided with a historic rise in FDI to SSA occurring since the 2000s. It should be no surprise that the factors fueling Africa’s GDP growth (namely, greater political stability, better fiscal housekeeping, productivity gains, and diversifying economies) also foster increased investment. Since 2000, FDI to SSA increased sevenfold, more than doubling from 2004 ($12 billion) to 2008 ($38 billion) and increasing 42 percent from 2008 to 2014, to $55 billion. This upward flow of capital to Africa has broken SSA out of one of its less than 3 percent rankings. The region gained nearly 4 percent of global FDI in 2014, compared to less than one-half of 1 percent in 2000. Significant returns on FDI—as high as 36 percent in Nigeriaand 9 percent for Africa as a whole, versus 6 percent globally— have no doubt persuaded many investors. While FDI into SSA is still concentrated in about a third of its countries (89 percent to 15 nations in 2013), the number of projects is increasing, and funds to non-extractive sectors are expanding. The entire African continent showed an increase in its share of global FDI projects, to a record 5.7 percent in 2013, with some 64 percent of investments going to tech, media, and telecom; financial and business services; and consumer goods sectors.* In 2013, SSA showed a marked increase * SSA’s top four 2013 FDI recipients were South Africa ($8.1 billion), Mozambique ($5.9 billion), Nigeria ($5.6 billion), and Ghana ($3.2 billion). We sourced data for this passage directly from the United Nations Conference on Trade and Development (UNCTAD). Ernst and Young’s 2014 Africa Attractiveness Sur- vey was also referenced. Rates of FDI return came from Deutsche Bank Re- search.

AUGUST 2016 EDITION

USD BILLIONS

200%

40 150% 30 100%

84%

42%

40%

$6.7

$4.8

0 1996

2000

$12.3 2004

50%

$38.7

$55

2008

PERIOD INCREASE

a referred to “a platform for growth and expansion in other African countries,” Walmart spokesperson Andy Bond said in a statement quoted by the New York Times.

2014 AMOUNT

Source Date: UNCTAD, AFDB

INCREASE

FIGURE 2.2:

Sub Saharan Africa's Growing Share of Global FDI 3.5%

2014

2.1%

2008

1.6%

2004

0.4%

2000

0.9%

1996 0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

Source Date: UNCTAD, AFDB

(10.76 percent) in greenfield FDI (that is, investment in new, from-the-ground-up ventures). The latest 2014 numbers for Information Communication Technology (ICT) showed $5.86 billion in FDI into SSA tech infrastructure in 2014—$2.96 billion of it going to South Africa, Nigeria and Kenya, per data we sourced from the Financial Times’ FDI Markets database. In addition to roads, bridges, and power plants, greater investment in ICT infrastructure is part of a mounting, countryby-country commitment to digitally wire Africa’s economies and citizens. FDI projects building out Africa’s technology ecosystem are popping up everywhere. In Nigeria, the United Arab Emirates’ phone operator Etisalat invested $1 billion in upgrades to its mobile and Internet network from 2009 to 2014. Intel’s investment arm, Intel Capital, opened a Lagos office in 2013 to manage its expanding investments in African

FIGURE 2.3:

Foreign Direct Investment in Sub Saharan Africa

startups. In 2014, IBM opened two new mainframe centers,

Increase in Value and Percent over Four Year Increments 2.500

and universities across the continent.

2,000 USD BILLIONS

computing, and mobile services to clients, business partners,

Across SSA, FDI flows and greenfield projects are adding up quickly, with positive ripple effects in creating jobs, professional capacity, infrastructure, and services.

12 10 8

1,500 6 1,000 4 500

Foreign Portfolio Investment to SSA

PERIOD INCREASE

in Nairobi and Johannesburg, to offer greater big data, cloud

Ghana

Nigeria

Rwanda South Africa Gabon

Serbia

Senegal

Kenya

Ivory Coast Etopia

ISSUANCE AMOUNT

While government bond markets rarely capture the allure of

Source Date: Dealogic, Moody’s, TNA Research

YIELD AT ISSUE

stocks, each year global investors purchase trillions of dollars in sovereign securities from nations around the world. Whether U.S. Treasuries, German bunds, or Chinese 10-year notes,

billion issuances. Kenya is using its 2014 Eurobond money to

these fixed-income instruments generally provide investors

upgrade power, roads, and seaports. Zambia plans to spend

more stable (though typically lower) returns than stocks, while

on improved health care and railways.

offering governments a financing channel for services and

Many bond issuers are getting national credit ratings for

infrastructure. Sovereign bonds also bring an extra measure

the first time, as they’ve become more accountable and

of accountability to governments through national ratings and

transparent, which is opening access to this previously

yields, both of which go up or down in global markets based on

unavailable financing market. African governments are also

good or bad economic policies.

benefiting by inclusion in standard indicators, J.P. Morgan’s

So how has SSA factored in sovereign bond markets over the last few decades? It largely has not, with the exception of South Africa. Another mark of Africa’s financially disconnected past, few SSA countries even had sovereign credit ratings (a basic requisite for issuing global bonds) into the 2000s. A record boom in global African bond issuances, many maiden, over the last two years is changing this picture. Since 2013, SSA

Emerging Market Bond Index Global (EMBIG). “EMBIG is a benchmark index. The moment these governments make it to the index, they are no longer as exotic as they used to be,” said PIMCO’s Francesc Balcells, an emerging-market fund manager, referring to the increased comfort shown to African bonds by international investors once those bonds are rated and listed by J.P. Morgan.

countries issued $11.9 billion in dollar-denominated sovereign

SSA’s entry into global bond markets (something we view

Eurobonds—more over a 15-month period in 2013/14 than

the previous four years combined.

economically disconnected past) has brought out a small

In fact, many Americans may already be holding African bonds in their investment portfolio. Big institutional investors such as PIMCO and Fidelity have been increasingly buying them, attracted to higher yields, improved sovereign risk profiles, and a new regional asset class to diversify their portfolios. Connecting to global bond markets has given African

resoundingly

positive

given

Africa’s

aid-dependent,

chorus of Afro-pessimism that’s worth addressing. Given the previous fiscal woes of African governments, it’s no surprise that some business journalists and economists, most notably Nobel laureate Joseph Stiglitz, have sounded alarms regarding SSA’s recent sovereign borrowing spree.* They point to the possibility of a new African debt crisis or warn that bonds

governments, who are scrambling to deliver infrastructure to match their economic growth and emerging middle classes, a source of financing other than private loans or foreign aid. Nigeria is funding greater electricity output with its recent $1.5

* We’ve been fans of Stiglitz’s writing and beneficiaries of his economics textbooks. However, we’ve respectfully disagreed on his stance on African bonds, including in my (Jake’s) May 29, 2014 article in The Atlantic’s Quartz, “The Wrath of Markets.”

AUGUST 2016 EDITION

impose fewer conditions and monitoring on governments than

which have received more enthusiastic investor press than

multi-lateral lending from other countries.

its sovereign bond markets, yet are still fairly nascent and

There are certainly always risks to sovereign debt markets. But the critics of African bonds have yet to suggest better ways for governments to pay for crucial infrastructure. To wean themselves off foreign aid and move from “frontier”

exchanges, but most of them have fewer than 40 total listings. Prior to 2011, South Africa aside, SSA’s total stock market capitalization was less than $100 billion, around double that

to “emerging” market status, SSA countries need sovereign

of Starbucks today. By 2014 the combined value of equities on

bonds, just as China or Brazil did. When SSA governments

Nigeria and Kenya’s stock markets would exceed that, as many

meet the same criteria as other countries to receive national

SSA exchanges had embarked on campaigns to upgrade their

credit ratings, are listed on benchmark indexes, and pass the

securities markets and encourage new listings.

scrutiny of hard-nosed investors at the world’s leading bond

Per early 2015 numbers, the leading SSA exchanges by value

funds, why shouldn’t they finance their development through

and stocks are South Africa (market cap $1.01 trillion, 392

international bonds? And if certain govern ments, through

listings), Nigeria ($84 billion, 193 listings), and Kenya ($25

poor fiscal and economic management, bring on the scrutiny

billion, 65 listings). Moving forward, we expect to see three

of ratings agencies and investors, that’s exactly the kind of

vital trends with SSA stock markets. The first is modernization

accountability that is desired.

relatively small by value. The entire continent has 29 stock

of exchange trading platforms paired with better governance

Sovereign Credit ratings and variable bond yields provide instant

and financial reporting. In East Africa, discussions are

and economically tangible feedback. Investors and Africa’s

ongoing to create a regional stock exchange through the

citizens will be watching keenly how these new bond funds

intergovernmental East African Community integrating the

are spent compared to original commitments, most of them to

markets of core members Kenya, Rwanda, Tanzania, and

upgrade infrastructure. Too much corruption or bad economic

Uganda. This comes on the back of successful efforts to

policy will cause investors to dump certain bonds and drive up

upgrade the IT infrastructure of the Nairobi Stock Exchange.

borrowing costs. The Nigerian government realized this during

These measures are improving stock liquidity (the ability of

its 2014 central bank whistleblower corruption scandal. When

investors to quickly get in or out of stocks) and supporting

central bank governor Lamido Sanusi, a globally respected

Kenya’s moves to enter derivatives and futures markets. In

financial steward and Time 100 honoree, raised the issue to

French-speaking West Africa, the Côte d’Ivoire–based regional

Nigeria’s parliament of $20 billion in missing state revenue,

stock exchange Bourse Régionale des Valeurs Mobilières,

he was fired by the country’s president, Goodluck Jonathan.

or BRVM, has digitized and harmonized trading across all its

The affair sparked widening spreads on Nigeria’s new bonds, a

16 members. Nigeria’s stock exchange recently partnered

drop in its stock market and currency, and a Standard & Poor’s

with NASDAQ to adopt the latter’s superfast X-stream trading

sovereign credit downgrade.

platform, OMX. And on financial reporting, many of SSA’s

There will certainly be sovereign borrowing ups and downs;

leading stock exchanges are adopting new standards, including

similar to Argentina, some SSA nations will find it difficult to

requiring listed companies to provide certified financials from

meet investor and fiscal commitments. But countries such as

big-four auditing firms such as PricewaterhouseCoopers (PwC)

Greece have faced the same problems, and few suggested

or KPMG.

they simply not participate in global bond markets.

The second trend to expect—indeed, an intended result of

Another benefit of SSA countries connecting to national credit

modernization efforts—is a doubling and tripling of SSA stock

ratings, sovereign bond markets, and new digital trading

listings and public financing for businesses. Nigeria, Kenya,

platforms is enhanced ability to attract other forms of foreign

and Ghana’s exchanges have all launched efforts to encourage

portfolio investment (FPI). This includes Africa’s stock markets,

greater listings from companies representing diversified

AUGUST 2016 EDITION

business activity. African stock experts such as Ugandan fund

foreign aid. What’s more, during both years, remittances

manager Larry Seruma, predict that SSA’s total stock market

to all of Africa ($30–$35 billion) topped FDI to the entire

capitalization will double within two years to roughly $2.2

continent, according to analysis by the African Development

trillion, and then every three to four years after that.

Bank. Diaspora dollars have continued to grow. SSA’s 2013

The third and most pervasive trend to expect from SSA’s

remittances of $32 topped bilateral aid of $26.2 billion, and

equities markets, one highly indicative of the next Africa, is

these diaspora numbers represent only official flows through

greater inclusion of African stocks in investment portfolios

money transmitters such as Western Union. Additional funds

across the world. Larry Seruma has been a leader of that

are brought home in pockets, bags, and suitcases.*

change. Through his U.S.-based Nile Pan Africa Fund, Main

Africa’s remittance patterns speak volumes to the fundamental

Street investors can now own a portfolio of Africa’s fastest-

changes occurring on the continent. Unexpectedly, the sum of

growing stocks for as little as $1,000—the minimum

money earned through the hard work and success of African

investment required for individuals.

immigrants abroad and sent home informally exceeds total

With assets of $45 million, Nile was the first and only

foreign aid from the advanced economies in which those

African mutual fund to advertise across the United States,

immigrants are working. And that very aid is rooted in a

on Bloomberg News, offering investment options online. Nile

decades-old concept that Africa and Africans lack the full

also won the prestigious 2014 Lipper Award for Best Emerging

capacity to succeed economically.

Markets Fund, returning roughly 9 percent annually through

As African remittances bolster SSA markets by financing

2013.

consumption or paying for things like school fees for sisters,

“We will see many more issuances and global ownership of

brothers,and cousins, they are also becoming an important

African stocks,” said Seruma. “The major indices in Europe

source of investment finance for entrepreneurial ventures,

and the U.S. are adding more exposure.” More generally,

from curbside shops, to tech startups, to Nollywood movies in

Seruma thinks Americans will invest in African stocks primarily

Nigeria. Similar to startup ventures in the United States, the

for higher yields and portfolio diversification, but he also

first round of seed financing is often from family and friends.

believes that Nile represents a new approach to the continent beyond charity: “The best way to help Africa is to invest in Africa. That investment gets Americans, first, high returns and

Beyond China

an allocation in the continent. But in Africa it also has the

While stories on China’s hefty Africa investments have been

potential to reduce the cost of capital, to provide more stable

favored by business media, in March 2013 a slightly different

jobs, more sustainable economic growth, and reduce poverty.”

headline gained attention. “Malaysia, Not China, Is Asia’s Top

We agree—the Old Africa: donation to celebrity charity; the

Investor in Africa,” reported a widely recirculated Reuters story

Next Africa: African stocks in your 401(k) earning 12 percent.

that made Time’s “Must-Reads from Around the World” list. Per the piece, Malaysia’s total FDI portfolio in Africa of $19.3

Diaspora Dollars

billion surpassed that of China’s $14 billion. Furthermore, it

Although remittances (money sent home from immigrant populations abroad) are not a conventional global investment indicator, we believe they reveal much about Sub-Saharan Africa’s transformation. In 2010 and 2011 something remarkable occurred for Africa. For two consecutive years, money wired home by SSA’s immigrant populations exceeded

* Fees on African immigrant remittances fees, an estimated $1 billion in 2014, are a hot topic. SSA has the highest remittance cost of any region in the world (12 percent), according to a 2014 Overseas Development Institute report. This skims productive output away from its economies, but as we’ll discuss, the total value of diaspora dollars and their fees (reduced, it is hoped, through technology and competition) also presents tremendous opportunities for digital finance in SSA.

AUGUST 2016 EDITION

noted Africa’s growing status as a multi-national destination for global investment based on increasing FDI from BRICS

companies to finance and build infrastructure, in exchange

countries, such as Brazil, Russia, and India. In 2012 these

for African concessions of commodities or land. The

countries collectively held investments in Africa of $47.7

conventional wisdom says Africa needs infrastructure;

billion, compared to China’s $27.7 billion.* When it comes

China needs resources from Africa (largely commodities)

to annual FDI flows, in 2012, there were capital flows ($14.7

to fuel its industrializing economy, while simultaneously

billion) from the traditional sources such as the United States

creating new markets (Africa’s billion-plus population) for

($3.7 billion), UK ($7.4 billion), and Italy ($3.6 billion).

its goods.

Sure, China continues to invest significantly in Africa, but

Then there are the China-in-Africa criticisms. On the lighter

moving forward, it will be less of a standout, as many countries

side, the Chinese are faulted for a lack of transparency or

redefine priorities toward greater trade and investment with

uneven partnerships (e.g., insisting Chinese materials and

SSA. We also expect a greater mobilization of U.S. FDI into

workers are used on major Africa projects or demanding

Africa, especially following 2014’s historic U.S.-Africa Leaders

outsize concessions), or their neglect for pressing

Summit, which saw some $14 billion in new U.S. business

democracy and human rights improvements on the back

commitments toward Africa.

end of their Africa deals. The starker critiques border on conspiracy, and involve accusing China of imperialist

ANNOTATION ON CHINA IN AFRICA Much has been made of China’s strategic direction and investments in Sub-Saharan Africa over the last decade. In fact, the topic of China’s presence in Africa, investment in Africa, and convoluted motives toward Africa has become a popular subgenre in books and media. For those unfamiliar with the subject, here is our simplest breakdown. In the least editorial terms, for the last decade China has increased political and commercial ties with Africa on a rapid scale. It has broadened diplomatic relations and cultural exchange programs with Africa, expanded trade in goods and services, and embarked on a spree of SSA business and investment activity, largely coordinated through partnerships with African governments. Over the last five years in particular, China was involved in construction of Kenya’s Thika Super Highway and financed the African Union’s new $200 million Addis Ababa headquarters, to give just a couple of examples. Characteristics of these partnerships often entail agreements for Chinese government entities and

behavior in Africa and even labeling the China-Africa venture as twenty-first century colonialism. So what’s our take on all this? After a great deal of discussion, we determined not to make China-in-Africa a prominent focus in this book. While China’s elevated activity in SSA certainly deserves recognition, we feel the topic is overplayed in many policy discussions, overshadowing other key trends on the continent and SSA’s increasing leverage with a multitude of global investment partners. Additionally, in some cases we think certain diatribes on SSA’s relationships with China border on paternalism. (African governments are sovereign entities with plenty of capable actors to look out for their interests.) In other cases, such as those dealing with human rights, better business terms, or lack of transparency, we certainly acknowledge that there are many flawed deals and practices in China’s Africa relations. But trends are already in motion that will address these things moving forward. To start, increasing FDI from more countries proves that a larger world is eager to do business with Africa, creating competition for China and more negotiating leverage for SSA. As for transparency, democracy and human rights concerns, China and SSA governments will likely learn in Africa what China is learning at home: it’s nearly impossible

* BRICS stands for Brazil, Russia, India, China, and South Africa.

AUGUST 2016 EDITION

announcing the $6 billion Carlyle and Blackstone deals. to create freer markets without spurring growing middle

Dangote went on to reference India’s surprise global

classes and more educated citizens who demand freer

deals years earlier, and alluded to a future where African

media and political systems. These demands are building

entrepreneurs regularly make investments in large ventures

in SSA and will no doubt create new pressure points on

outside the continent: “Twenty years ago nobody would

African governments to better manage business with all

have imagined Indian companies would be taking over huge

outside partners, not only China.

corporations, like the Arcelor deal or Tata’s deal with Jaguar. It is only a matter of time.”

Torrents of Opportunity Mandela’s vision of the power of investment in building postapartheid South Africa in 1994 is becoming a reality for the rest of SSA. The world is witnessing a historic mobilization of private capital toward Africa, one that will play a pivotal role in enabling its countries and unlocking greater economic potential for many Africans. Billions of dollars in FDI are fueling private sector development, skills transfer, and jobs in new GE plants in Nigeria and coffee mills like Rwanda Trading Company in Kigali. African governments are now financing infrastructure such as roads, hospitals, and power dams through billions in globally rated bonds, whose performance is tracked on benchmark indices. Main Street American investors, who in the past may have connected with SSA only through a taxdeductible donation, are now financing African social and private-sector development by purchasing stocks earning 10 percent returns. Greater investment in Africa, and the competition among its countries to create the proper environments to attract that investment, will be a permanent part of Africa’s future. In years to come, South Africa will be rivaled by countries such as Nigeria as the number-one destination for FDI on the continent. Another trend, one that is already under way, will be greater cross-border investment between African countries. South Africa is already leading the charge, and Nigeria and Angola have set up their own sovereign wealth funds. And in the not so far off future, be ready for a new indicator to pop up in the global reports on FDI—the one for African FDI into countries like the United States or in Europe. “It can happen,” Aliko Dangote told us in a conversation at the Business Forum of the 2014 U.S.-Africa Leaders Summit, just a few hours after

AUGUST 2016 EDITION

TOURI SM AN D R E A L E STATE

AUGUST 2016 EDITION

Tourism

The BVI has the largest base of 5800 catamarans in The Moorings fleet. They were first introduced three years ago, with just one unit to test the waters; the level of interest and bookings catapulted The Moorings to a whole new level of luxury sailing. Business BVI spoke with Ian Pedersen, Marketing Manager, and Josie Tucci, General Manager, of The Moorings, about the draw of the 5800s and the importance of evolving their fleet.

BUSINESS BVI: How would you describe the typical crewed yacht guest?

BB: Why are crewed yacht programs becoming the new norm in recreational sailing?

IAN PEDERSEN: We cater to the affluent traveller, who doesn’t need to necessarily know how to sail, but aspires to being on the water, feeling that thrill of luxury travel. We often get a mix of families or couples as each 5800 can accommodate up to 10 guests.

IAN: For some guests I think the draw is that they don’t have to lift a finger the entire trip, but they get the full authentic sailing experience. Even if you are an avid sailor, there is still an appeal for a crewed yacht, as chartering a boat in the Caribbean for your first time can be daunting; the crew is there as full support and can show you the inside track and best spots and guests enjoy the quality of the cuisine our chefs create. Crews have been involved in some of the local BVI culinary events and we expect to see more of this happening.

JOSIE TUCCI: Our international guests tend to be in their 50s+, and often book with us to celebrate a life event like a birthday or anniversary. Locally, we do get guests who use the 5800s as accommodation rather than as a sailing trip. For example when the RC44 tour was here, the boats were docked up at the Bitter End Yacht Club as alternative lodging. The 5800s have to be rented out for a minimum of 5 days, unless it is within 2 weeks of departure, then we can look at what is available, especially for residents of the BVI that want to just enjoy a long weekend.

BB: How many people work for the crewed yacht program? JOSIE: Close to 70 employees are on crew in high season in the BVI, some rotate locations through the different seasons. For example in the summer months, the BVI’s typical low season, crew might work at our Mediterranean base.

JOSIE: That market segment is looking for a ‘floating villa’ concept – guests can be as active as they want but it is nice to have someone taking care of catering and sailing. It is so much more intimate in comparison to the cruise market, allowing you a higher degree of control and flexibility.

JOSIE: We are seeing growth out of the UK market as new flight routes open up, hopefully this will continue with better direct routes being created to the Caribbean.

BB: What is the price point for a week on the crewed yacht? IAN: The starting price point is roughly $20,000 on the 5800s for a week in the off-season. In the high season it can almost double in peak weeks, over the Christmas break, for example. Everything is all-inclusive, the fuel, food, crew. The price stays the same regardless of the number of guests on board; whether it is 4 or 10 people.

BB: Is the market demand shifting towards Catamarans rather than Monohulls? If so, what is driving this trend? Will Monohulls ever be phased out?

BB: Which are the 3 dominant markets for these programs?

JOSIE: This has been a trend for many years; we actually used to have crewed monohulls 15 years ago, but catamarans have taken over in popularity due to the convenient increase in space.

IAN: The most dominant market is the USA; approximately 80% of our guests come from there. The remaining 20% is evenly split between Europe and South America, in particular Brazil.

IAN: Catamarans are the ultimate platform on which to enjoy your Caribbean vacation. When you are on vacation it is not about the performance of the boat, like it might be for racing, but the space

AUGUST 2016 EDITION

and comfort on board with all the amenities you would get in your hotel room or resort. You get to take the hotel room with you from place to place. It really is the best of both worlds.

BB: How has your fleet grown over the past 3 years? JOSIE: 3 years ago we introduced the first 5800 yacht. We now have 15 units operating in the BVI and we are expanding the 5800s through the rest of our exotic bases, such as the Seychelles and the Mediterranean. IAN: For a while, the 5800s were only available in the BVI but in the last calendar year we have launched them into the Windward islands, Croatia, St. Maarten and St. Lucia.

BB: What is the rationale behind investing in the 5800s over other models? JOSIE: We really wanted to accommodate more than 6 guests, which is the maximum capacity of the 4800 model; now we can house up to 10

guests. Customer demand for bigger boats has driven this and we are fortunate to have such an affluent market base. Robertson and Caine build all our catamarans to our specification. If we were looking to increase boat size we would build to our own specs – that’s what makes The Moorings so special, we can custom build based on feedback from guests and boat owners. We are very proud of the 5800. It is exclusive to the Moorings.

BB: What features do the 5800 have that sets it apart from its predecessors? IAN: It is basically a tri-level boat; it is the only sailing catamaran in the fleet that has a fly bridge, which has seating for 12, a wet bar and grill. It certainly adds another dimension to the boat. Also, the 5800 is the only model with a 3rd crew member. JOSIE: It has advanced technology that allows for greater independence on the water. For example it is the only model in our fleet that has reverse osmosis water makers on board.

BB: What does the future hold for The Moorings BVI base and its fleet? JOSIE: Half of the business we do is in the BVI and we will always continue to develop in the BVI and the Moorings Village is our pride and joy; it contains our maintenance and customer facilities. We are also testing out the 514PC Powercat in the BVI and we have had a lot of customer demand for it. We expect to be looking at expanding that product over the next year. Powercats allow you to get around the BVI faster which is good for a certain demographic, but on the other hand we still have customers interested in the romantic nature of sailing and exploring the BVI the old fashioned way. We expect the fleet to keep expanding but it’s also about renewing it as well. Every yacht is in the program for 5 years. Every year 20% of the fleet is renewed. We do have plans for new models but we can’t reveal it yet. Watch this space! B

INFO: www.moorings.com. AUGUST 2016 EDITION

AUGUST 2016 EDITION

Real Estate

Ten years of real estate development in the BVI

t seems hard to believe that it is ten years since the first issue of BVI Business Guide appeared in 2006. Congratulations to Oyster Communications on their ten year anniversary, not only for maintaining an excellent

publication, but for the continued improvements that each edition brings. In writing the real estate article each year, I have been aware of how tumultuous the market has been, from the first article for the 2009 edition, written just as Lehman Brothers went under in September 2008 and the economy crashed in reaction to the sub-prime mortgage debacle, through the depths of the recession in 2011 and 2012 before finally emerging with a shaky recovery in 2013 and 2014. Understanding the cyclical nature of real estate in the BVI helps to give a better understanding of what the future may bring to this industry. As we look back over the last ten years from 2006 to 2016, we can see how the market has changed. 2006 was probably, in hind sight, the height of the market, when developers and purchasers alike could not get enough real estate in the Caribbean. While 2007 is often seen as the peak, by mid year, the first cracks

EDWARD CHILDS

had appeared in the US economy, with concerns over sub-prime mortgages and derivatives. It took a further twelve months for the full impact to take effect, resulting in the demise of Lehman Brothers and KSF (Kaupthing Singer & Friedlander), two banks which were active in the Caribbean region, leading to devastating consequences and stalled real estate development in many islands.

AUGUST 2016 EDITION

In the BVI, the sales statistics from the period 2005 to 2008 show a rapidly expanding market, reflecting the willingness of developers and purchasers alike to become invested in real estate developments. In contrast, real estate sales in 2013 and 2014 have been more static as the market recovers. The dip in sales in 2006 cannot be readily explained, except that stamp duty rates for Non-Belongers changed from 8% to 12% in 2005, possibly affecting the volume of sales in 2006, as purchasers took time to adapt to the new rate. That aside, the annual sales of homes over $500,000 in the above table clearly demonstrates an expanding market. Due to the volume of transactions, it was taking the Government over twelve months to process landholding licences, therefore activity in 2008 reflected contracts signed, for the most part, some twelve to eighteen months earlier at the height of the market. Total transaction volume recorded in 2014 is inflated by a single villa sale at $11.0M. The period 2002 â&#x20AC;&#x201C; 2007 resulted in some fundamental changes in the traditional real estate market previously established in the BVI, which comprised a mix of land sales and existing home sales, each generally at low volumes. Purchase of land for house construction was considered risky, as cost over runs and frequently poor levels of finish led to unhappy investors frustrated at the whole development process and there were

TOTAL VOLUME ($M) OF HOME SALES IN THE BVI: 2003-2015 (Sales over %500,000) $50.0 $46.4

TOTAL SALES VOLUME ($M)

$45.0 $40.0 $35.0

$32.6

$31.4

$30.0

$27.5

$25.0 $20.0

$18.4 $16.5

$15.0 $12.3

$10.0 $5.0 $0.0

$16.1

$14.6 $11.6

$10.0

$8.9

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Graph 1 shows the total volume of villa sales in the BVI over $500,000 from 2003 to 2014

$7.0

$2.6

AUGUST 2016 EDITION

Jan-Jun Jan-Jun 2014 2015

fewer covenanted estate sub-divisions available with paved roads and underground utilities. As a result, overseas purchasers increasingly looked for developed property which could be renovated. As the market expanded in 2003-04, the scarcity of inventory of existing homes on the market saw house prices starting to rise, with purchasers competing for a limited inventory of homes for sale. In contrast, land values were slower to increase, mainly due to the perceived risk of development. At the same time, buoyed by the healthy economy, riding particularly on the success of the financial sector, there was increased demand for real estate from island residents (both Belongers and Non-Belongers) as well as overseas investors looking to purchase a home. As house prices started to increase, this market started to look at the availability of land as an alternative and the development of new homes started to increase as a result. New subdivisions, such as Trunk Bay and Cooten Bay on the north coast of Tortola provided an opportunity to acquire land on covenanted estates, while on older residential estates such as Belmont Estate, Shannon and Romney Park, villa sales predominated as house lots were already sold out. The real estate boom started in 2001 following several years of growth in the stock market, fueled in particular by the dot com boom. As stock markets began to falter in early 2001, investors sought alternative

markets and switched to real estate, which at that time was considered under-valued. The baby boomers of the 1950s/60s were coming to an age when their children were finishing education and disposable income was increasing. Banking institutions were quick to jump on the bandwagon and the availability of credit in the market helped push up domestic property values in the United States. European investors were attracted to the Caribbean by strong US Dollar exchange rates. Homeowners, buoyed by increasing first home values and the availability of financing, took advantage of this increase in home equity and looked to purchase a second home. The Caribbean real estate boom had begun. For many Caribbean islands, the benefits of external investment in real estate are obvious. The acquisition of homes or land by foreign investors brings in much needed hard currency, creating tax income for Governments, creating jobs in construction and tourism and adding to the existing number of hotel or rental rooms through the construction of villas and condominiums, which may or may not be part of a resort community. Many successful residential resort developments exist in the Caribbean today based on the sale of real estate to foreign investors. However, the boom period after 2003 led to larger resort development projects with increasingly costly infrastructure requirements. To off-set the initial up front cost of the infrastructure, developers began to sell off-plan, taking deposits from purchasers before committing to construction. Banks

were quite happy with this formula as it was perceived to reduce the otherwise substantial development risk. However, timing in real estate is everything. Many developments became unsustainable after 2007 when market conditions changed and second home buyers from North America completely exited the market. Development projects ground to a halt and Purchasers lost their deposits along with any additional funds that they had committed against construction. Most islands in the Caribbean were affected by failed developments â&#x20AC;&#x201C; except the BVI. It has to be said that the BVIâ&#x20AC;&#x2122;s good fortune in not ending up with failed real estate developments was not entirely by design. The BVI Government of the day was equally keen to encourage the expansion of the tourism industry through the development of resorts as any other. However, the slow pace of Government approvals in the BVI, combined with antipathy from a local population towards major development projects, resulting in social impacts through the importation of labour, meant that many of the proposed projects simply never broke ground â&#x20AC;&#x201C; Scrub Island being the exception. The strength of the financial sector in the BVI had created one of the highest per capita incomes by GDP in the Caribbean (behind only Bermuda and Cayman) and unlike many Caribbean Islands which relied primarily on tourism, the BVI had another, more important, source of revenue to shore up Government expenditure. The hunger for development in the BVI was simply not as strong as in other Caribbean

AUGUST 2016 EDITION

islands which had rolled out the red carpet to developers and foreign purchasers alike. For a while, all sectors of the market in the BVI were happy â&#x20AC;&#x201C; sellers had a relatively liquid market (except for the time taken to process landholding licences), contractors were kept busy and there were purchasers for all types of property and price ranges. And then came the crash. Skip forward to 2016 and what has changed? It is not enough to simply state that the real estate market is cyclical and we are now on an upward trajectory again as economies recover. The real estate market now operates very differently. Development in residential resort projects has changed substantially as the vulnerability of the pre-sale development model was exposed by the post 2007 economic crisis. It is now virtually impossible for a developer to obtain financing to fund infrastructure for greenfield developments unless through private funding sources. With a number of stalled developments still hanging over the real estate market in the Caribbean, frequently in liquidation or receivership, investors are looking to acquire these existing projects at cents on the dollar with substantial infrastructure in place, rather than risk the up-front costs associated with the development of greenfield sites. Development is now focused on existing projects which are not cash flowing, but where there is potential to renovate without having to develop infrastructure. This model appeals particularly to private equity firms who are willing to invest in the Caribbean where the upside potential of existing projects can be realized more quickly than from greenfield sites. Anguilla has been a particular focus for private equity firms as has Puerto Rico with recently enacted tax legislation attracting substantial US investment. The other significant demand driver that has emerged in the new post-2007 market is the enactment of Citizenship by Investment Programmes (CIP) by independent Caribbean nations such as Dominica, Grenada, St Kitts and Nevis and more recently Antigua. St Lucia, which suffered significantly post 2007 with a number of stalled projects, is now looking seriously at this legislation to kick start development on the island. A CIP offers investors the opportunity to acquire a passport in return for investing in an approved project. In return, the investor, frequently from the Far East or Middle East, will benefit from visa free travel, normally to Europe and Canada, should that countryâ&#x20AC;&#x2122;s passport so permit. While many Caribbean islands are keen on taking advantage of such programmes, there remains the risk that Europe or Canada will change their immigration laws and require citizens of these countries to obtain visas in order to travel. This will impact the ordinary citizens of these countries as well as those seeking visa free travel. The Canadian Government issued the following advice to citizens of St Kitts and Nevis : November 22, 2014 â&#x20AC;&#x201C; As of 12:00 p.m. EST today, citizens of St. Kitts and Nevis will require a visa to travel to Canada. Canada has implemented the visa requirement on St. Kitts and Nevis due to concerns about the issuance of passports and identity management practices within its Citizenship by Investment program. Canada is acting to protect the safety and security of Canadians and the integrity of our immigration system. The visa requirement will ensure that Canada will be able to properly determine the true identity of St. Kitts and Nevis passport holders and to deny entry to those who would otherwise be inadmissible to Canada. The BVI is not impacted by either of these demand drivers. Private equity firms have yet to consider the BVI as a potential destination for investment due to the time taken to obtain consents and landholding licences compared with other Caribbean islands offering more attractive incentives for

AUGUST 2016 EDITION

development. This is not necessarily a bad position for the BVI, where investment in resort projects in the past has tended to be undertaken by investors with a more vested, long term and sometimes benevolent interest in the Territory and its citizens. Equally, the thought of selling the BVI passport in return for investment in a project is not one that will pass muster in the BVI, not least due to its status as a UK Overseas Territory. What has impacted the BVI, as well as all other countries in the Caribbean, is the perception of risk by foreign investors seeking a home in the sun. Purchasers are now far more aware of the risks associated with investing in projects overseas and are looking for development projects to be significantly advanced in terms of infrastructure before being willing to commit to investment. This, in turn, places a far greater burden of risk on the developer to provide this infrastructure up front without the benefit of pre-sales. It is notable that the three projects progressing in the North Sound area, Oil Nut Bay, Moskito Island and Blunder Bay, all involve the sale of land rather than developed units, although all three developers had the burden of providing significant infrastructure at the front end of the project. Only the condominium development at Nanny Cay on Tortola has involved the development of residential units, although development risk was reduced by developing in phases once commitments were received on new units. With many of the units being sold into the local market, this was an instance where pre-sales were successful. Perhaps the most significant difference between the real estate market in 2006 and 2016 is the number of properties available for purchase. While we do not have the statistics for properties on the market in the BVI in 2006, as we have noted above, it was very much a vendorâ&#x20AC;&#x2122;s market, with a limited inventory to choose from and a reasonable supply of purchasers seeking an investment. We now track property listings in the BVI (for properties listed in excess of $500,000) and summarise the statistics as follows. We now track property listings in the BVI (for properties listed in excess of $500,000) and summarise the statistics as follows. Since we started collating listing information in 2013, there have been over 200 properties offered for sale each year in the BVI at a price in excess of $500,000. However, sale transactions in 2013 and 2014 average around 21 sales per year for properties in the same price category. There remains a significant imbalance therefore between supply and demand for developed properties in the BVI. Table 1 shows that more than half of these listings are for villas in the $1.0M - $3.0M price category whereas the majority of sales annually are for villas sold for less than $1.0M. Table 1 also indicates that the average listing price has fallen in 2014 and 2015, although not by a significant amount (7% and 2% respectively in 2014 and 2015). Table 2 shows how listing prices have changed between September 2014 and September 2015 categorized as increased, unchanged or reduced. Overall, the listing price for the majority (73%) of listings remained unchanged while the listing price for only 19% were reduced and the listing price for just 8% of properties was increased. The biggest reduction in pricing was in the $3.0M+ category where the listing prices of 36% of the listings were reduced, compared with only 13% of the properties in the $1.0M - $3.0M category. There were a total of 23 new listings by

AUGUST 2016 EDITION

September 2015 with 22 properties being withdrawn from the market in the same period.

Total value and average value of listings over $500,000 No. of homes listed by price range

2013

2014

2015

$0.5M - $1.0M

$1.0M - $3.0M

108

104

115

Over $3.0M

219

206

207

$484,756,999

$410,673,249

$415,091,999

-15.3%

1.1%

$2,213,502

$2,052,835

$2,005,275

-7.3%

-2.3%

Total

Total value of listings Total Change on prior year

Average listing price Average listing

Change on prior year

Number and value of residential listings over $500,000 at September 2015 Total

$0.5 - 1.0M

$1.0 - 3.0M Over $3.0M

Increased

Unchanged

135

184

102

207

115

Reduced Total listed at Sep 2014 New listings Total listed at Sep 2015

To provide further context to the question of asking price against selling price, we have analysed the sale of villas over $1.0M since 2010 to determine the difference between asking price and eventual sales price. These statistics are contained in Tables 3 and 4 below. Table 3 analyses the villas sales over $1.0M by year. It is hard to draw firm conclusions from such a small data set. However, the data for the years 2010 to 2013 indicate that average marketing times were short, at between two to three years, and that the eventual sale price achieved was 12% to 20% less than the initial listing price. In contrast, sales in years 2014 and 2015 showed a much greater average marketing time of around six years, and a much higher difference of 30% to 49% between the initial listing price and the eventual sale price.

Analysis of villa sales by year > $1.0M (2010-2015) Year

Villa Sales Analysed

Avg Listing Price

Avg Sale Price

Difference

Avg Years on Market

2015*

$6,650,000

$3,398,500

-49%

6.5

2014

$3,053,571

$2,130,536

-30%

2013

$2,697,143

$2,365,321

-12%

2012

$7,001,500

$5,610,000

-20%

2011

$1,646,667

$1,346,250

-18%

2010

$1,646,667

$1,346,250

-18%

Analysis of villa sales by year > $1.0M (2010-2015)

AUGUST 2016 EDITION

The markets in Tortola and Virgin Gorda show slightly different trends. Table 4 compares the average sale price and average listing price of villas in Virgin Gorda and Tortola that have sold since 2010 in the price range above $1.0M. Virgin Gorda has moved considerably ahead of Tortola in terms of average sale price with properties selling, on average, at 64% above prices achieved on Tortola. Similarly, the data indicates that there has been less adjustment in the pricing of properties on Virgin Gorda with final sale prices achieved being approximately 17% less than initial asking price, compared to 33% on Tortola. This indicates either a stronger market or more realistic sellers on Virgin Gorda, or probably a mix of both.

Analysis of villa sales on Virgin Gorda and Tortola > $1.0M (2010-2015) Island

Villa Sales Analysed

Avg Listing Price

Avg Sale Price

Difference

Tortola

$3,386,667

$2,273,933

-33%

Virgin Gorda

$4,484,000

$3,739,375

-17%

Data includes asset and known share transactions

Analysing the villa sales over $500,000 for the first six months of 2015 in the BVI as a whole, there are seven recorded sales, six of which are priced between $500,000 and $1.0M and one over $3.0M as shown on Graph 2 below. This is similar to the number of sales achieved in the same period in 2014 although the total value of all sales transactions in the first half of 2015 fell by 21%, resulting from the greater number of transactions below $1.0M. Property enquiries remain steady but the level of interest has not approached the pre 2007 levels, when it sometimes seemed as if the phone would not stop ringing.

BVI HOME SALES: 2003-2015 (Sales over %500,000) 30

$50.0 $45.0 $40.0

SALE PRICE ($M)

NUMBER OF SALES

$35.0

$30.0 15

$25.0 $20.0

$15.0 $10.0

$5.0 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Number of sales

Jan-Jun Jan-Jun 2014 2015

$0.0

Average home price

With the 2015/16 high season upon us, there is certainly expectation that the level of property enquiries will increase. North Sound remains active with construction continuing at Oil Nut Bay and Moskito Island and sales about to start at Blunder Bay. On Tortola, Nanny Cay is launching its next phase of development with a new marina basin and further town

AUGUST 2016 EDITION

home development in the wake of the successful sale of the first 32 units. Scrub Island is finally out of receivership and looking forward to reviving the development and rekindling interest in their condominium and town home units. The Caribbean will continue to be heavily influenced by the health of North American and European economies. The decision by the Federal Reserve on when to increase interest rates in the United States will certainly play its part in the continued recovery of the real estate market. Recent data showing a slowdown in US growth in the third quarter of 2015 led to the Fed announcing that interest rates would for now remain static, unchanged as they have been since December 2008. Citing continued moderate economic growth, concerns about external influences (the stock market meltdown in China being one) and the home job market, an interest rate rise seems unlikely, at least until 2016. For the BVI, the tourism industry and resort sector will continue to play an ever important role in shaping the economy as the financial services industry remains under threat from external regulation. The Government is targeting investment and diversification in the economy, keen to start new areas of growth now to stabilize the economy rather than waiting until it is too late. The real estate industry contributes positively to the economy, as external investment in the purchase of villas or land contributes 12% stamp duty from each sale. However, restrictions on foreign investment through landholding licences conditions, combined with uncertainly regarding the ability of overseas investors to rent villas, has contributed to the property market not rebounding as quickly as it might with a corresponding positive cash flow to the Governmentâ&#x20AC;&#x2122;s coffers. For the real estate market to expand, sellers need to price their property in line with the market expectations and the restrictions placed by the Government on the acquisition of property by overseas investors and the ability to rent need to be reviewed. Without either, the recovery of the real estate market will remain steady, but slow. B

B U SINE SS B VI GUI D E S

THE BVI

CORPORATE ADVANTAGE: MAXIMISING FOREIGN DIRECT INVESTMENT AND BOOSTING GLOBAL COMMERCE IN EMERGING MARKETS

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Business BVI Guides

he BVI grew as an offshore

and will only invest in a foreign market if there is a reasonable prospect of success and the legal

finance centre in the 1980s, by

structure is sufficient to protect the investment. Using BVI corporate structures can help achieve

providing tax efficient solutions

this by mitigating structural risks.

for U.S. businesses. Over the

past 30 years, the BVI has evolved rapidly with the changing times to become the leading offshore corporate domicile, offering an exceptional depth of corporate experience and expertise to individuals and interests from across the world. Just as the BVI Corporate Advantage has

THE BVI CORPORATE ADVANTAGE: • OECD-compliant jurisdiction • Progressive legislation that evolves with business demands, including the BVI Business Companies Act

evolved to become about much more than

• Competitive on costs relative to other offshore finance centres

tax, its geographical interests have widened

• Commercially focused and responsible corporate governance

far beyond the U.S. With almost half a million

• Rapid registration – within 24 hours, subject to satisfying regulatory requirements

active BVI Business Companies, BVI structures have become a favoured vehicle through which to transact cross-border commerce, M&A and investment. BVI companies remain popular with investors from China and Hong Kong – in 2009 it is estimated that Hong Kong and the BVI together received 73% of China’s FDI outflows.

• Maximum corporate flexibility (ideal for multinational Joint Ventures and cross-border M&A) • Innovative fund structures for investment strategies with a higher risk profile • Companies can be registered with foreign character names (eg Chinese) in addition to their English name • Effective exit strategies for investors (IPO, share or asset sale)

BVI companies are behind many of the most

• Credible and efficient dispute resolution supported by a robust legal framework based on Common Law, with rights of appeal to the Privy Council in London

substantial cross-border investments in Africa,

• Transactional fluency through deep skill set, expertise and professionalism

used by investors from the U.S., Europe and

• A neutral environment where commercial partners are able to structure deal parameters and objectives securely and without local or foreign law bias

They are used increasingly by entrepreneurs and investors from emerging markets.

China. According to the Financial Times, the BVI is the second largest global source of international foreign direct investment, with more than $125 billion invested through the

• A Corporate Registry with an unrivalled Premium service for key transaction approvals (ie mergers)

engine of global economic growth.

• Adherence with international initiatives for transparency, mutual cooperation, information exchange, and anti money-laundering regulation

International investors do not choose the

The BVI is evolving to become the most progressive Corporate Finance Centre

BVI to minimise tax, though this may be an

focused on maximising FDI flows and global commerce.

BVI each year. The BVI has emerged as an

added benefit. International investors make investment decisions based on risk profile, AUGUST 2016 EDITION

101

The British Virgin Islands and Global Commerce The recent ‘Panama Papers’ hacking scandal and subsequent reporting appears to make little distinction between the allegations of misconduct by Mossack Fonseca and the

international regulatory standards than the US and UK 1 • BVI has inter-governmental agreements with the US and UK to comply with US FATCA, and UK International Tax Compliance to provide data on financial accounts held by its residents to the United Kingdom

important role that internationally regulated offshore jurisdictions like the British Virgin Islands play in international trade and finance. Much of the media coverage also fails to acknowledge basic facts about the BVI’s role in international finance.

1. The British Virgin Islands has some of the highest regulatory standards in the world.

The BVI has some of the highest global regulatory standards in the world, as judged by the Organisation for Economic Co-operation and Development (OECD) and Financial Action Task Force (FATF). • BVI was one of the first jurisdictions in the world to implement the OECD’s Common Reporting Standard for the automatic exchange of tax information. • BVI has tax transparency agreements with over 100 developed countries including TIEAs with 27 countries and multilateral agreements providing for tax cooperation with 76 countries, under the OECD’s Convention on Mutual Administrative Assistance in Tax Matters. • BVI is ranked by the NGO Tax Justice Network as more compliant in tracking corporate beneficial ownership than half of the G8 countries (US, UK, Germany and Japan), and is ranked ahead of 20 countries in total. • The FATF ranks BVI as more compliant with

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As well as strict AML rules, due diligence policies, KYC protocols and domestic laws, the BVI’s financial regulators are recognised members of IOSCO (the International Organization of Securities Commissions, which is the global standard setter for the securities sector). Intermediaries in the BVI are bound by professional obligation to maintain adequate, accurate and current information regarding the beneficial ownership of any BVI company and to disclose to the BVI Government as required. The fact is that international regulatory standards have become much stronger – onshore and offshore – in the past two decades. Since the regulation of the offshore industry began 20 years ago, the BVI together with the majority of offshore financial centres have adopted fully compliant regimes and ongoing compliance with international standards, and continue to play a legitimate, fundamental, role in global commerce.

2. The British Virgin Islands plays an important role in global commerce, promoting economic development and cross-border trade.

Not only are offshore structures legal but they are also normal and extremely common, and used by companies around the world to aid in the efficient organisation of their businesses. Law abiding, legitimate investors choose BVI because it offers a structural advantage, that delivers management control and access to new markets, while treating all investors equally or

as commercially agreed. Other advantages are credible and efficient dispute resolution and effective exit strategies. The BVI is the world’s leading international finance centre for facilitating the flow of foreign direct investment2; it is an engine of economic growth benefiting developed and developing economies alike. In 2013 alone, BVI companies facilitated the investment of US$82.5 billion into emerging market economies, into projects ranging from infrastructure development to technology advances and resources growth, all of which have fuelled socio-economic progress and access to services including water, power, healthcare and education3. FDI fuels socio-economic growth in emerging markets: through job creation, infrastructure development and access to services including water, power, healthcare and education. Through FDI, developed economies can access and serve new markets and customers, and access technological and natural resources. This means increased revenue for the home economy, which ultimately translates into economic growth, more jobs and better lifestyles for the people in ‘home’ economies. The BVI enables businesses, which would otherwise be forced to operate in jurisdictions that restrict access to international finance because of regulatory, political, legal complexity or development reasons – to access capital in the international market via equity investment, IPOs, project and acquisition debt financing. BVI’s laws and courts are based on UK Common Law. The Privy Council serves as the court of final appeal for the BVI and the local courts settle disputes efficiently and effectively. Globalisation is dependent on functioning free markets and free trade. Accessing corporate advantage is consistent with the principles of free market specialisation. The BVI’s depth of expertise in relation to cross border transactions (including the resolution of disputes) is a significant attraction factor and why BVI is and will continue to be the corporate solution of choice for cross-border trade, joint ventures, debt financing, IPOs and more.

1. The BVI embraces tax transparency

2. The British Virgin Islands is not a secrecy jurisdiction

The BVI cooperates fully with foreign tax authorities and the jurisdiction has led the way in adoption of automatic exchange of tax information, the gold standard of tax transparency. BVI was one of the first jurisdictions in the world to implement the OECD’s Common Reporting Standard for the automatic exchange of tax information.

The BVI has robust anti money laundering and know your customer checks, which are absent in Nevada, Wyoming and Delaware, for example. The BVI regularly improves its transparency regime: for example, on 1 April 2016, the BVI introduced a central private registry of directors.

As the UK Government recognised in the communiqué of the Joint Ministerial Council in December 2015, “it is not appropriate to refer to these Overseas Territories as ‘tax havens’.”4 Unlike Panama, BVI and most offshore jurisdictions are not blacklisted by the OECD, and operate to the highest standards of integrity.

The BVI actively investigates appearances of non-compliance and works with foreign competent authorities to detect, prevent and prosecute illegal activities, ensuring that its laws are enforced and action taken transparently if any wrongdoing is identified. For example, in December 2013 the FSC fined Mossack Fonseca for failing to undertake enhanced due diligence5.

The BVI is a tax neutral jurisdiction. Tax neutral jurisdictions do not add additional tax to whatever is imposed by onshore or home jurisdictions. Equally they do not reduce the tax burden otherwise owed in the ‘home’ jurisdiction.

In 2014 the Global Shell Games6 report found that BVI service providers (94%) had some of the highest standards of compliance in the world, when it comes to refusing to establish companies without proper documentation, compared to the US state of Delaware (6%) and the UK (45%). In 2015 the BVI made commitments to enhance cooperation between UK and BVI law enforcement authorities on beneficial ownership at the Joint Ministerial Summit with the UK Government. Beneficial ownership registers are new, and they are not widespread. The UK introduced its own register of beneficial ownership on 6 April 2016. B

BVI is ranked by the OECD (3 August 2015) as ‘Largely Compliant’ with FATF recommendations on beneficial ownership (the Financial Action Task Force sets global standards for fighting money laundering and terrorist financing) – in the same study, the UK is ranked Partially Compliant, and the US is ranked Non-Compliant 2

FDI is the major economic driver of globalisation and accounts for over half of all cross border investment. FDI facilitates socio-economic factors such as job creation and primary infrastructure and services (water, power, healthcare and education). Through FDI, companies can access and serve new markets and customers and access technological and natural resources. 3

The BVI is the world’s 4th largest recipient of FDI inflows. Despite its comparatively small size, BVI is a close competitor to the US, where $159bn FDI flowed into developing countries in 2013.

“Joint Ministerial Council 2015 Communiqué”, Foreign & Commonwealth Office, 3 December 2015. (https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/488498/Overseas_ Territories_Joint_Ministerial_Council_2015_Communique.pdf) 5

http://www.bvifsc.vg/Publications/EnforcementAction/tabid/378/ctl/EnforcementSummary/mid/1188/actionId/16935/language/en-US/Default.aspx

Findley et al (2014): Global Shell Games. Cambridge University Press (Cambridge). Global Shell Games tested standards in practice by sending 7,500 email requests to corporate service providers in over 180 countries around the world, attempting to establish companies without the proper documentation required by the FATF Recommendations.

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MOVING TO THE BRITISH VIRGIN ISLANDS Business BVI Staff Writer

Many dream of living in paradise, waking up to the sound of breaking waves, relaxing on white-sand beaches and living in a place where both the sky and sea are blue and the people are friendly and laid-back. Once you have decided to make this dream a reality and just before you take the leap you need to consider the practicalities, such as informing your loved ones of your decision (highlighting the benefits to them as you do so), researching the cost of living and finally securing a job that is going to enable you to make this life style change. The British Virgin Islands, a beautiful collection of 60 islands, cays and rocks in the north eastern Caribbean, some 60 miles east of Puerto Rico, offer what many expatriates are looking for. The strong economy, characterized by a growing tourism and financial services sector, a strong public sector and a growing private sector continue to draw people from virtually every country in the world. The process of emigration is fairly straight forward, once you know what to expect and how to go about it.

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Business BVI Guides

Work Permit And Immigration Matters

are urged to obtain passports to enter the BVI. Upon entering the BVI, all expatriates must have a return ticket to their home country. Once in the BVI, the employee can receive his work permit by visiting the Labour Department. The Territory’s new work permit cards are highly sophisticated holographic cards, that can also be used as a pictured identification card and are the size of a regular bank card. It is very important that work permit holders have their work permit cards on their person at all times.

Once you have found your ideal job in the British Virgin Islands, if you are not a citizen of the BVI, you must obtain a work permit. This permit allows you to legally work in the Territory for a specific employer. Even if individuals plan to work for a few months, a Temporary Work Permit must be obtained. While work permits are being processed, perspective employees must reside outside of the BVI.

Once the card is received, employees must take the card and job letter to the Immigration Department. There a stamp is placed in the employee’s passport showing that he or she is a legal resident of the BVI. Once this process is completed, employees are legally permitted to work, reside and travel in and out of the British Virgin Islands.

Work permit applications are filed by the employer and not the employee. A new work permit application form must be filed with supporting documents, such as: • Cover letter from employer • Prospective employee’s resume • Proof of qualifications for the job • Copy of newspaper advertisement of the job • 1 passport sized photo of applicant Work permit applications are processed within 30 working days. Once the work permit is approved, the application is forwarded to the Immigration Department. Immigration then grants a clearance letter which will be used by the employee to enter the Territory. The employer will be given the clearance letter and a medical form to forward to the employee. A thorough medical must be done and a medical certificate granted before entering the BVI. Once the employee enters the Territory, the medical certificate must be approved by the BVI Health Services Authority. If any additional vaccinations or tests are needed, these can be done by the Government’s health clinic. IN

IRG

ITIS

ISL

IAL

S DS

Labour Department 284 468 3701 ext. 4708/ 4780 Immigration Department 284 468 3701 ext. 4700/ 4770

It is important to note that citizens of particular countries must obtain a visitor’s VISA to enter the British Virgin Islands. This can be obtained at the nearest British embassy in the applicant’s home or residing country. A full list of qualifying countries can be obtained from the Deputy Governor’s Office website at www.dgo.gov.vg. Additionally, while the need for passports to enter the BVI for United States and Canadian citizens have been extended; citizens of those countries

RIT

Social Security Social Security is a compulsory insurance plan to which employers, employees, self employed individuals must contribute. It is designed to protect insured persons from financial distress by providing partial income replacement when particular contingencies arise. Sickness, maternity, invalidity, age, funeral, survivor’s and employment injury benefits are paid to qualified persons. All working individuals between the ages of 15 and 65 years must register with the Social Security Board and obtain a BVI Social Security card. This is a one time registration. To register, persons must fill out an Employee’s Registration Form and submit proof of birth, i.e. birth certificate or passport. Forms may be collected and filed at the Board’s office in Road Town. Social Security payments are mandatory. Contributions for private employees and self-

employed persons are 81/2 percent of insurable earnings. Employees contribute 4 percent of that total and 41/2 percent is contributed by employers. Civil servants contribute 71/2 percent; 31/2 percent by employee and 4 percent by Government. Social Security contributions can also be voluntary for persons who have worked in the Territory and are living abroad or for persons who no longer work but are not at the eligible age of 65 to collect benefits. This contribution is 7 percent of earnings established by the Board. Social Security Board 284 494 3418

Travelling To The British Virgin Islands The Terrance B. Lettsome International Airport is located on Beef Island. It is the Territory’s main airport with internationally recognised airport code, EIS. Some travelers fly into the United States Virgin Islands’ island of St. Thomas at the Cyril E. King International Airport, code STT. After arriving at this airport take a 10 minute taxi ride to the waterfront ferry terminal in Charlotte Amalie where you can catch various ferries over to the BVI. The ferry ride is usually 45 minutes to West End, Tortola or 60 minutes to Road Town, Tortola. In St. Thomas, persons may also travel via sea plane to the BVI’s Sister Island of Virgin Gorda. If you choose to arrive in the BVI, via the USVI, you must clear immigration in the British Virgin Islands.

Shipping To The BVI Shipping personal effects from home furniture, personal goods and even vehicles can easily be done through a shipping agent in the Territory. Once you have identified the agent you would like to use, you will be informed of the closest company to your address in your home country that you can have items delivered to or packed for pick up. As the sender,

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you must provide shipping agents with a list of items to be shipped as well as their estimated costs. Make certain you receive all documents and agreements pertaining to your shipment from the partnering agent in your home country in order to retrieve your goods once they have landed in the BVI. Once completed, items are then shipped to the Territory. Once they have arrived you will be notified by the local shipping agent who will sign release forms to be presented to port authority and Customs officials to clear your items. The cost of shipping items to the Territory varies widely. Ensure that you research estimates from companies before deciding on a final shipping agent. Once your items arrive in the Territory, you will only then be charged for the service. It is always recommended to insure items with the shipping agent. To declare goods with Customs you must have an itemised list of goods shipped and their costs. Government waives up to $1000 for new residents on goods imported. The following is a break down of duty charges for other items: • Vehicles • Household goods/furniture • Electronics/ computer hardware • Clothing • Reading materials

20% 15% 15% 10% 0%

Her Majesty’s Customs 284 494 3701 Ext. 6800/6802

Mail Though the Territory does not have home mail boxes, the mailing service is much like most postal services world wide. Without a private mail box, persons can collect mail sent to them at their community post office. Residents may apply for private mail boxes by submitting an application with the BVI Postal Service at the main Post Office in Road Town, Tortola. The annual cost for these mail box rentals is $35 for a letter size box. In 2006 the BVI launched its internationally recognised postal codes. These postal codes allow other mail services to have an exact and distinctive code for the Territory. This works just the same as zip codes in the United States and postal codes in the United Kingdom and Canada. This allows mailing companies to process mail to be shipped to the Territory more efficiently.

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Ultimately, this allows residents in the BVI to obtain their mail in a more timely manner. Residents can also obtain United States mail boxes through various companies in the BVI. This allows persons to have their international mail sent to a US post box and delivered by their hired company to the BVI. This is an excellent resource when ordering items online or to receive mail quickly from the United States. Major courier companies such as UPS, FedEx and DHL also operate in the BVI. Post Office 284 468 3701 ext. 4996

Housing The real estate market in the BVI is growing steadily. At times it may seem difficult to find your right home in paradise, but with persistence and a good realtor, in no time you can be listening to the waves, watching the sun come up from the hill tops or living in a town that still has more greenery than most in other parts of the world. Unlike some countries, the British Virgin Islands does not have a Housing Authority. Prospective tenants and home owners are responsible for finding living arrangements and negotiating the best rent or lease. Many landlords offer short term leases to accommodate the Territory’s migrant labour force. The average starting rent of a two bedroom apartment in the BVI is approximately $800. Most land lords require two months rent as a refundable deposit along with proof of income - such as a job letter, before renting to new tenants. If you are in the market to purchase or build a home, all expatriates must obtain a Non-Belonger Land Holding Licence. The application process is managed by the Ministry of Natural Resources and Labour. To obtain this licence the following documents are needed with a completed application form: • A police certificate • Four consecutive newspaper clippings of the property’s sale ad • A valuation report of the property • A financial statement showing one year of banking practices • Two references • Sale agreement for the property

• Proposed purpose of property • A detailed description and time table of any works to be done on the property. The Ministry of Natural Resources and Labour reserves the option to ask for additional supporting documents from applicants. A non refundable fee of $200 is required for processing of the application. For corporate groups the application fee is $500. The average processing time for a Non-Belonger Land Holding Licence is 12 to 14 weeks. Once a licence is granted, property owners must follow development agreements that were stated when applying for a licence. Failure to do so may result in a fine of 40 percent of the cost of the property or forfeiture of the property. Property taxes are payable annually to the Government’s Inland Revenue Department. If home owners are seeking to rent their property, non-belongers or persons that are not citizens of the BVI, must seek permission from the Ministry before undertaking such a venture. Ministry of Natural Resources & Labour 284 468 3701 ext. 2147/ 2137 Inland Revenue Department 284 468 3701 ext. 2155/ 3140

Transportation The British Virgin Islands does not have a formal public transportation system. However, taxi services may be called from any location on islands. Various ferry services operate interisland shuttles throughout the major islands of the British Virgin Islands, Tortola, Virgin Gorda, Anegada and Jost Van Dyke. Plane services may also be obtained to travel from Tortola to Anegada and Virgin Gorda.

Driver’s License Visitors to the BVI may obtain a Temporary Driver’s Licence from the Licensing Department or car rental companies. For $10, drivers will get a temporary licence that is good for 3 months. If stopped by authorities, visitors must have this temporary licence along with their passport. If you plan to live and drive in the BVI for longer than 3 months, a BVI driver’s licence must be obtained. To obtain such a licence, once the

temporary licence has expired, driver’s must file an application at the Vehicle Licensing Department, along with supporting documents; work permit, passport, BVI Social Security card, and temporary licence. Additionally, a written driver’s test must be taken. The written test is administered from 8:30 a.m. to 1:30 p.m. daily. Once a driver passes this test, a BVI licence will be granted. If a new resident is importing a vehicle into the Territory or purchasing a vehicle in the BVI, the vehicle must be registered and licensed in the BVI. Drivers may purchase licence plates from the Vehicle Licensing Department, then have the car insured and inspected before the car is registered and qualified to be driven in the BVI. Vehicle Licensing Department 284 468 3701 ext. 4938/ 4939

Banking The British Virgin Islands hosts a variety of private and public banks that are recognised internationally. Some of these institutions are: Banco Popular, Scotia Bank, First Bank. First Caribbean and VP Bank. Presently the BVI does not host any credit unions. Once becoming a resident of the BVI, to obtain a bank account, persons are required to show proof of identification, passport as well as a social security card. Some banks allow residents to use a United States social security card when registering for an account. Account holders may then begin to build a financial identity within the BVI’s banking system. Persons may apply for credit cards, loans and mortgages and even consolidate accounts from their previous country of residence.

Health Services Health care in the British Virgin Islands remains relatively inexpensive to consumers in comparison with other developing Territory’s. Peebles Hospital, the main hospital servicing the BVI is on the island of Tortola. The new Peebles Hospital was officially opened in mid December 2014.

A number of private clinics also service residents of the BVI. These clinics have on staff senior medical professionals that are general doctors as well as practising physicians in a wide range of specialisations such as gynecology and obstetrics, cardiology as well as dermatology. Supporting these clinics are various private pharmacies with competitive pricing for the latest medicines.

Education There is a wide variety of child care facilities in the BVI. Day care centres accept children as young as 4 months old. The cost of this type of care ranges from $160.00 to $430.00 monthly. The average school year begins in early September and ends in late June. Children that will be at least 5 years old within the school year and up to 16 years old are required by law to attend some form of matriculating educational facility, this also includes home schooling by a child’s parent. If expatriate parents are travelling with children to take up residency in the BVI, the parents must seek permission from the Immigration Department to have the child in the BVI for the purpose of attending school. There is a separate application to have the child enrolled in the school system. When in the BVI, the Education Department will facilitate the processing of applications for entrance into the BVI school system. It is important to note that if a parent plans to enroll a child in a private institution or home school their children, they must also register with the Education Department. Parents are then responsible for the filing of applications at private institutions. Parents have a choice of two schools when entering the public school system. While there are numerous primary schools, there is only one public secondary school on Tortola, Virgin Gorda and Anegada. Students living on Jost Van Dyke must commute to Tortola to attend high school. The following information about the child or children is required when applying to attend public schools: • List of previous schools attended • Birth certificate • Immunisation card • School report or transcript

• BVI Health Services authorisation of child’s immunisation card Of the parents, the following documents are needed: • Work permit card • Passport • Contact information Once the child is approved by the Education Department to attend a public school, a letter is sent to the Immigration Department and the appropriate authorisation is placed in the child’s passport, declaring the child a legal resident of the BVI. There are a number of private primary and secondary schools in the BVI. Monthly tuition for such schools starts at $300. Parents wishing to home school their children are required to submit a course outline as well as the home school programme they intend to follow. Closing dates for school registration are April 30 for entrance beginning in September of the same year and November 30, for entrance in January of the upcoming year. The Territory currently has two tertiary institutions. Students may obtain accredited associates degrees from the H. Lavity Stoutt Community College as well as certification for various courses. The BVI also hosts a campus site for the prestigious University of the West Indies. Students are able to enroll in classes and participate in face to face as well as teleconference and distance learning courses. Applications to attend these institutions are available at their offices on Tortola. Education Department 284 468 3701 ext. 2036/ 2037

Library Services There are five public libraries in the BVI that are located on the Territory’s four main Islands. Two on Tortola; in Road Town and East End, one on Virgin Gorda, Anegada and Jost Van Dyke. To obtain a permanent library card, persons must be residing in the Territory for at least 6 months. If visiting the Territory for shorter than six months, visitors may obtain a temporary card by paying a refundable fee of $5 and submitting the name of one reference that can return borrowed books in your absence. Library Services 284 468 3701 ext. 4931/ 4932 AUGUST 2016 EDITION

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FAST FACTS ABOUT THE

by PATLIAN JOHNSON

ECONOMY

DEMOGRAPHICS/SOCIAL Population^ Population Density Population growth rate (annual average)

Nationality Ratio Literacy Rate Life expectancy at Birth Major Religious Denominations

28,054 183.2 km2 2.5% 64% 96.9% 79.32 Methodist, Anglican, Roman Catholic

GEOGRAPHY/CLIMATE Area (BVI) Rainfall (average annual) Temperature (average) Time Zone

57.08 mi2 40 in 28ï&#x203A;¼C Atlantic Std Time

GOVERNMENT HEAD OF STATE Queen Elizabeth II represented by the Governor

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United States Dollar US$ 923, 211 million US$ 32,377 1.93% 2.8% 18, 859 Tourism, Financial Services

DEPENDENCY STATUS British Overseas Territory JUDICIAL SYSTEM Common Law CAPITAL CITY Road Town

Source: Central Statistical Office ^ 2010 Population Census * 2012 estimates

108

Currency GDP (nominal)* GDP per capita (nominal)* Inflation Rate (2014) Unemployment Rate* Employed Persons (2014) Major Industries

COMMUNICATION Country Phone Code 284 Zip Codes VG1110, VG1111, VG1112 Telecommunication Providers 4

Business BVI Guides GOVERNMENT

HEALTH

The BVI is self-governing overseas Territory of the United Kingdom with the Queen as the Head of State represented locally by the Governor. The Governor is responsible for external affairs, defence and internal security, the Public Service and administration of the Courts. The ministerial system of government is led by an elected Premier, a Cabinet of Ministers and the House of Assembly.

Currently, primary health care is provided by Peebles Hospital, with additional services provided by a small private hospital and several private medical clinics. Patients requiring treatment services beyond the scope of Peebles Hospital are referred to Puerto Rico, the US Virgin Islands, Jamaica, Barbados and mainland United States. The BVI Health Services Authority established under the BVI Health Services Authority Act, 2004 is responsible for managing the public health care service throughout the Territory including the general administration and functioning of the Peebles Hospital and the recruitment and training of health care professionals.

Government’s main source of revenue comes from financial service levies followed by payroll taxes and import duties. In order to ensure sustained growth the BVI government continues to implement measures aimed at increasing revenue collection and managing expenditure levels. The Protocols for Effective Financial Management negotiated with the United Kingdom and the 2012 amendments to the Public Financial Management Act, 2004 set out the Government’s commitment to fiscal sustainability. This will be accomplished through medium term planning, regular review and reporting of economic and fiscal affairs, delivering value for money by efficient procurement processes and by managing risk

The Government of the BVI has embarked on an extensive development of the health care infrastructure and administration with the aim of improving primary health care services. The new Peebles Hospital is now completed and the state of the art facility includes a physical theory unit, psychiatric ward and hydrotherapy pool. The Government has unveiled its National Health Insurance (NHI) Scheme to be implemented January 2016. The NHI Scheme will provide universal affordable health care to all BVI residents.

SOCIETY

ECONOMY

POPULATION

ECONOMIC INDICATORS

The population of the British Virgin Islands (BVI) is diverse and growing. The majority of persons are of Afro-Caribbean decent. Minority ethnicities include Caucasians, East Indians, Middle Eastern, Chinese, and Portuguese. The major force driving population growth has been immigration mainly to meet the shortage in local labour supply. Approximately 68 percent of the employed are foreigners thus accounting for a diverse and varied labour force. The Government sector is the major employer followed by the tourism industry and the financial services sector. Annually there are twelve paid public holidays and the local labour code sets modest requirements for paid sick and holiday leave. Trade unions are virtually non-existent and work days lost through industrial action are infrequent. Local law provides for a work permit regime. Under this system a foreigner will only be granted with a work permit if a qualified local is not available to fill the position. The government has set a minimum wage of $4 per hour.

EDUCATION Publicly provided education is free at the primary, secondary and now territory levels thereby facilitating access to all children. Education is compulsory up to the age of 16 and the Education Act, 2004 regulates all aspects of the Territory’s education system including Early Childhood Education. The Government’s Ministry of Education operates 17 primary schools and four secondary schools, including a technical-vocational school and a school for disabled students. There are also several private primary and secondary schools; some parochial and some secular. The H. Lavity Stoutt Community College (HLSCC) is a two-year tertiary institution offering associate degrees in the areas of business, natural science, social services, hospitality, computer studies, marine studies and financial services. Through affiliations with other tertiary institutions HLSCC also offers degree and master’s programmes in various disciplines. The College also offers specialty courses based on the needs of the labour market.

MEASURE

2013

2014

Nominal GDP Growth (%)

0.7

2.8

Inflation (%)

1.5

1.93

Unemployment1 (%)

2.8

Source: Central Statistical Office 1

Please note that the rate of unemployment is based on 2010 census figures.

The BVI economy is based on two distinct economic pillars, namely Tourism and Financial Services. Growth in the tourism and the financial services industries has resulted in expansion of the construction sector, both private (residential and commercial) and public, the real estate sector (residential and commercial) and the wholesale and retail sectors. For the majority of the past decade economic growth has been positive with the exception of the negative effects of the global economic crisis. However, the economy is rebounding and is still one of the strongest in the Caribbean. Prices in the BVI have increased moderately over the last five years with an average growth rate of 2-3%. The BVI’s principal trading partner is the United States. The majority of imports (goods) originate from the United States including Puerto Rico and the US Virgin Islands. Similarly, vast majority of BVI exports (in the form of services - specifically financial services and tourism) are used by United State consumers. The BVI is not a major export of goods.

MAJOR SECTORS TOURISM AT A GLANCE With its crystal clear waters and white sand beaches, breathtaking scenery, intricate coral formations, tranquil atmosphere and warm people the BVI is a popular destination for sports enthusiasts as well as those who want AUGUST 2016 EDITION

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a peaceful vacation. The largest island Tortola is the major hub for most visitors and the starting point for discovering the other islands. Major attractions include the nature trails at Sage Mountain National Park, the huge boulders at the Baths, the pristine waters of White Bay, the wreck of the Rhone and the flamingos at Nutmeg Point. Yearly scheduled activities which attract numerous visitors include: the Emancipation Festival in August, the BVI Music Fest in May, and the BVI Spring Regatta in April. Sailing is one of the most popular activities for tourists. The year round trade winds and numerous islands, inlets and cays has given the BVI the title of the ‘sailing capital of the world’. Other water sports such as scuba diving, snorkelling, windsurfing, kite boarding and kayaking are also extremely popular. Sailing is one of the most popular activities for tourists. The year round trade The BVI is also a popular port of call for major cruiseships. The current cruise pier facility is undergoing a significant transformation to be completed by the end of 2015. The improvements include an extension of the pier to accommodate larger ships and the development of the landside to comprise of shops, restaurants and entertainment amenities. The Government continues to upgrade tourist attractions and infrastructure and encourages private investment and public private partnerships in the sector. Other infrastructural developments expected in the near future include expansion of the T.B Lettsome International Airport and upgrades to various ports of entry throughout the BVI. Through the BVI Tourist Board numerous marketing initiatives have been developed to promote and enhance the Territory’s tourism product. The “Jewels of the BVI” programme promotes a collection of locally owned hotels, inns and villas by providing valuable information about the properties and activities via an official website (www.jewelsofthebvi.com) and a hotline. The “BVI VIP Club” rewards repeat visitors with special discounts at participating businesses throughout the Territory, special arrival privileges at the airport and tourism updates via a newsletter subscription.

TOURIST ARRIVALS AT A GLANCE

Excursionist (Cruiseship and day trippers)

TOTAL

Marketing and promotion of the products and services of the financial services sector is conducted by the recently rebranded BVI Finance – a department within the portfolio of the Premier’s Office. The Financial Investigation Agency (FIA) which was launched in 2004 functions as a specialist investigative law enforcement arm of the government with the objective of curbing financial crime. Its primary focus is to investigate the BVI financial services industry and support the Virgin Islands mutual legal assistance regimes. The BVI London Office and the BVI Asia House in Hong Kong were commissioned to establish a presence in Europe and Asia to take advantage of economic opportunities not limited to financial services and tourism.

FINANCIAL SERVICES AT A GLANCE FINANCIAL SERVICES

2013

2014

Banking and Fiduciary Banking (general and restricted)

110

116

Trust (restricted)

Company Managers

Money Services/Financing Business

147

145

Trust (general) Class I, II & III

Insurance

2014*

Actual Change

%Change

366,108

386,049

19,941

5.4%

Domestic Insurance

Insurance Managers

112

115

1,558

1,511

375,739

386,449

10,710

2.9%

741,847

772,498

30,651

4.1%

Source: Central Statistical Office * Estimate

Captive Insurance

Mutual Funds Professional Professional (cumulative active) Private

FINANCIAL SERVICES The growth of the financial services sector in the BVI was mainly due to the The growth of the financial services sector in the BVI was mainly due to the success of the International Business Company (IBC) (now known as the BVI Business Company subsequent to the enactment of new incorporation legislation – BVI Business Company Act, 2004) first unveiled 30 years ago in 1984. In later years the BVI secured business that was redirected from Panama during the Noriega regime and from Hong Kong when it was handed back to China in 1997. The Asian market thus accounts for a large portion of company incorporations in the BVI.

110

The industry is regulated by the Financial Services Commission (FSC) which is an autonomous body responsible for the licensing, regulation, supervision and inspection of all financial services business.

2013*

TOURIST ARRIVALS Overnight

Modern and innovative legislation, a robust regulatory framework, clever marketing, economic and political stability, quality technology and communication facilities and a full range of legal, banking and account services have contributed significantly to the continued growth of incorporations. Closely related sectors such as captive insurance, investment business (mutual funds), trust and estate formation, company management, corporate restructuring, securitisation, insolvency and shipping and trademarks have developed.

AUGUST 2016 EDITION

Private (cumulative active) Public Public (cumulative active)

550

539

125

Incorporations BVI Business Companies BVI Business Companies (cumulative active)

53,329

50,835

459,882

457,971

Insolvency Practitioners Source: BVI Financial Services Commission

BUSINESS COMPANIES The BVI is one of the largest centres for the incorporation of business companies with around 1 million companies incorporated since the enactment of the International Business Companies (IBC) Act in 1984. Over 450,000 are still active today. Because of the flexibility of its use BVI business companies have been used in a plethora of business transactions and structures including structured finance and securitisation, succession planning, IPOs and listings on stock exchanges and joint ventures etc. The incorporation regime has changed somewhat with the introduction of new company legislation – the BVI Business Companies Act, 2004 which replaced the IBC Act repealed on January 1 2007. The core features of the IBC Act which made it a success remain along with improvements to ensure the longevity of the Virgin Island’s market share. The new Act for instance widens the range of corporate vehicles available for use, simplifies the statement of capital and the registration of charges.

INSURANCE (CAPTIVE) The BVI captive insurance market is one of the fastest growing and largest in the world with the majority of business originating from the United States. Other countries of origin include Guernsey, Taiwan, Switzerland, the Middle East and South America. In addition to this excellent geographic spread of business, there also has been a significant distribution of captives from an industry segment standpoint. The captives cover the following industries: finance and insurance, construction, health care and retail trade. The domestic insurance market is, however, smaller in comparison. The new Insurance Act, 2008 which replaced the 1994 provides a modern structure for licensing, supervision and administration of insurance business in the Virgin Islands while simultaneously meeting international insurance standards. The Insurance Regulations 2009 which replaced the 1995 regulations provides clarity on details relating to insurance business in and from within the BVI. Both came into force on February 1st, 2010.

INVESTMENT BUSINESS The BVI is one of the premier jurisdictions for fund domiciliation and is now is regulated by the Securities and Investment Business Act (SIBA) and Regulations which came into force on 17th May, 2010 replacing the Mutual Funds Act 1996 (as amended 1997). SIBA sets out the new legislative framework under which the Financial Services Commission (FSC) regulates individuals, mutual funds and other investment related entities conducting business in and from within the BVI. Persons such as investment advisers, those dealing in investments or arranging dealings in investments, managers, custodians, those providing administration services with respect to investments, and operators of investment exchanges are now required to be licensed. SIBA introduces the authorised representative regime where all BVI funds are required to appoint an authorised representative resident in the BVI and licensed by the FSC. SIBA also provides a framework for dealing with insider trading and market abuses. The BVI continues to update its regulatory regime to meet the needs of stakeholders. The Approved Managers Regime came into force the end of 2012 and creates a new regulatory environment for fund managers by reducing the regulatory burden under SIBA. The SIBA (Amendment), 2012 facilitates the new regulations for the Approved Managers Regime. The FSC has created two new regulated fund categories – incubator fund and approved funds. They were created in order to provide more flexibility to smaller and start-up financial services businesses. Under the new fund

categories, managers and principals of smaller, open-ended funds may be approved to conduct business within a lighter regulatory framework. The Securities and Investment Business (Incubator and Approved Funds) Regulations 2015 come into force on 1 June 2015.

BANKING The Virgin Islands is characterised as a conservative banking jurisdiction. At the end of 2014 there were 6 banking institutions licensed to operate in and from within the BVI with total assets of approximately US$2.5 billion. The domestic market is serviced by six commercial banks which offer a wide range of competitive services: Scotia Bank (BVI) Limited, First Caribbean International Bank, First Bank Virgin Islands, Banco Popular de Puerto Rico, VP Bank (BVI) and the National Bank of the Virgin Islands. The banking sector is regulated by the Financial Services Commission under the Banking and Trust Companies Act, 1990 and subsequent amendments.

INSOLVENCY The Virgin Islands boasts a modern comprehensive insolvency regime that meets the needs of the growing incorporation, investment and financial services activities in the BVI. The governing legislation, the Insolvency Act 2003, makes provisions for the licensing and regulation of insolvency practitioners a wide range of liquidation and rehabilitation alternatives, a director’s disqualification regime and the establishment of an Official Receiver’s office.

TRUST MANAGEMENT Trust Management forms a major component of financial services activity in the Virgin Islands. The BVI trust sector has experienced moderate growth since 1995. Revised legislation, together with the highly flexible BVI Business Company, has opened up wider markets for the BVI trust. Trusts are formed under the Trust Ordinance 1961 (based on the English Trustee Act 1925), as updated and amended by the Trustee Amendment Act 1993 and 2003. The amendment Acts considerably modernise and update the legislation, creating a more flexible regime for trusts. Changes include provisions to make trusts more attractive in a commercial context and a new set of conflict of law rules that contain robust, comprehensive, and carefully crafted provisions to protect BVI trusts against “forced heirship” claims. In addition, the rules surrounding trust duty have been updated to make it clear what documents are subject to trust duty and how this must be paid. At the same time, rules which require no public register of trusts in retained, thereby protecting confidentiality. The Virgin Islands Special Trusts Act, 2003 (VISTA) is another piece of legislation which updated the trust regime. VISTA trust, overcomes many problems associated with the “prudent man of business rule”, which typically made trusts unattractive vehicles to hold assets which settlers intended trustees to retain. The Act enables a shareholder to establish a trust of his company which disengages the trustee from management responsibility and permits the company and its business to be retained as long as the directors see fit. The majority of Virgin Island trusts are exempt from all taxes provided there are no beneficiaries resident in the BVI, and that the trust does not conduct any business in the BVI or own any land in the jurisdiction. There is a large and sophisticated community of professional advisers on trust matters in the Virgin Islands. Companies offering trust services must be licensed under the Banks and Trust Companies Act, 1990. AUGUST 2016 EDITION

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SHIPPING

REAL ESTATE

MEASURE

2013

2014

BUYING AND SELLING PROPERTY IN THE BVI

Annual Vessel Registrations

245

234

Total Vessels Registered

3,743

Foreigners planning to purchase property in the British Virgin Islands require a Non-Belonger Land Holding License. Agreements to purchase property are therefore made contingent upon such a license being obtained by the purchaser.

Source: Virgin Islands Shipping Registry

As the sailing capital of the Caribbean and an esteemed corporate domicile, the Virgin Islands is also a popular jurisdiction for the registration of ships. As a Category One Register, within the Red Ensign Group, large vessels of unlimited tonnage and mega yachts of up to 3,000 gross tons can be registered in the Territory. In both instances, the owners must be a Virgin Islands citizen, British citizen, British Overseas Territories Citizen, British subject, a British national under the Hong Kong Order 1986, a national of a European Union member state, or a body corporate incorporated in a member state of the European Union or a British possession, including the Virgin Islands. If you do not meet the nationality requirement, you may register a company in the Virgin Islands in order to register a vessel. Registration procedure also requires the de-registration of the vessel from its current registry, a survey of the vessel and the submission of ownership documents to the Registrar of Shipping. The registration fee is $550, and an annual fee of $100 is payable to maintain registration. In addition, there will be legal fees charged by the firm you choose to assist you with registration.

TAX INFORMATION EXCHANGE AGREEMENTS

Application for a Non-Belonger Land Holding License is made to the Government of the British Virgin Islands, Ministry of Natural Resources and Labour. If the application for a license relates to undeveloped or partly developed land, the applicant will be required to make a commitment to the Government of the British Virgin Islands to expend a specified sum on development within a specified time period. The purchase of property by all persons including citizens and foreigners is subject to a Government stamp duty subsequent to transference of the property. The rate of 12% of the purchase price or appraised value whichever is higher, is payable by any foreigner and citizens are required to pay a 4%. The stamp duty on leaseholds is lower. Other costs associated with the purchasing of property in the BVI include: legal fee (usually between 1.5% to 2% of the purchase price), bank fees, 10% deposit to the seller's agent to be held in escrow on the signing of the purchase agreement, pending acceptance and completion. There are no restrictions on an overseas investor re-selling a developed property. The property must however, be advertised for four weeks in the local press to give any local person the opportunity to purchase the property on the same terms.

A Tax Information Exchange Agreements (TIEAs) is a bilateral agreement that has been negotiated and signed between two countries to establish a formal regime for the exchange of information relating to civil and criminal tax matters. The purpose of TIEAs is to promote international co-operation in tax matters through exchange of information. TIEAs grew out of the work undertaken by the Organisation for Economic Cooperation and Development (OECD) to address the lack of effective exchange of information among financial centres. Information exchange is based on requests relating to specific criminal or civil tax matters that are under investigation. The BVI has a long tradition of providing legal assistance to foreign regulatory and law enforcement authorities and continues to be committed to the OECD’s principles of transparency and effective exchange of information.

BVI COMMERCIAL COURT The BVI now has a state of the art Commercial Court to serve the expanding needs of commercial litigation in the Territory and the Eastern Caribbean. The commercial court is a division of the regional Eastern Caribbean Supreme Court (ECSC) and will hear commercial matters from nine Caribbean nations and territories, including Anguilla, Antigua and Barbuda, Dominica, Grenada, Montserrat, St. Kitts and Nevis, St Vincent, St Lucia and the BVI. The court officially opened on 30th October, 2009 (although it was in operation since May 2009) and specialises exclusively in domestic and cross-border commercial and insolvency matters. Prior to the establishment of the Commercial Court, all cases were handled by the High Court.

Under the guidelines provided by the OECD and the new international tax standard emanating from the G-20 Summit in April 2009, jurisdictions are required to sign at least 12 TIEAs. To date the BVI has signed 27 TIEA’s. The BVI has agreements with Ireland, the Kingdom of the Netherlands, Curacao, St Maarten and Aruba, the United States, the United Kingdom, Australia, New Zealand, France, The Faroes, Greenland, China, India, Germany, Poland, Portugal, the Czech Republic, the States of Guernsey, Canada, Japan and South Korea and the Nordic group of countries Sweden, Norway, Finland, Denmark and Iceland. The International Tax Authority (ITA), established under the Ministry of Finance, is the Competent Authority in respect of all matters relating to Tax Information exchange. It ensures that the BVI effectively exchanges tax information with other countries under the laws of the Virgin Islands and the relevant TIEAs.

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BVI INTERNATIONAL ARBITRATION CENTRE The British Virgin Islands’ Arbitration Act 2013 came into force on October 1st, 2014 with the objective of facilitating the resolution of domestic and international disputes. The Act provides for an establishment of an Arbitration Centre which is responsible for providing the necessary facilities and support for arbitration and mediation proceedings along with promoting the BVI as arbitration jurisdiction.

PUBLISHER’S NOTE: The information in this guide has been carefully collected and prepared, but it remains subject to change and correction. Use these contents for general guidance only and seek extra assistance from a professional adviser on all any specific matters. Readers can contact the relevant authorities mentioned in this Fast Fact Guide.

2016-2017

PUBLIC HOLIDAYS OCTOBER 2016 21

St. Ursula’s Day

DECEMBER 2016 25 Christmas Day 27 Boxing Day

JANUARY 2017 01

MARCH 2017 06 H. Lavity Stoutt’s Holiday 13

Commonwealth Day

APRIL 2017 14

Good Friday

Easter Monday

New Year’s Day

02 New Year’s Day Holiday

GOVERNMENT LISTINGS

Government Ministries Central Administrative Complex Road Town Tortola British Virgin Islands www.bvi.gov.vg Premier’s Office Tel: (284) 494-3701 ext 2152/2058 Fax: (284) 494-6413 E-mail: premieroffice@gov.vg Ministry of Finance Tel: (284) 494-3701 ext 2144/3306 Fax: (284) 494-6180 www.finance.gov.vg Ministry of Health and Social Development Tel: (284) 494-3701 ext 2174/2172 Fax: (284) 494-5018 E-mail: ministryofhealth@gov.vg

Ministry of Communications & Works Tel: (284) 494-3701 ext 2183/2163 Fax: (284) 494-3873 Ministry of Natural Resources and Labour Tel: (284) 494-3701 ext 2147/2137 Fax: (284) 494-4283 Ministry of Education and Culture Tel: (284) 494-3701 ext 2151 Fax: (284) 494-5421 Statutory Bodies/ Associated Agencies Financial Investigations Agency 2nd Floor LM Business Centre Fish Lock Road Road Town, Tortola Tel: (284) 494-1335 Fax: (284) 494-1435

E-mail: fia@bvifia.org www.bvifia.org BVI Finance Cutlass Tower, 4th Floor Road Town, Tortola Tel: (284) 468-4335 Fax: (284) 468-2590 E-mail: info@bvifinance.vg www.bvifinance.vg BVI Tourist Board 2nd Floor, Akara Building De Castro Street Road Town, Tortola Tel: (284) 494-3134 Fax: (284) 494-3866 E-mail: info@bvitourism.com www.bvitourism.com The BVI Commercial Court Old Banco Popular Building Main Street Road Town, Tortola Tel: (284) 468-2724 Fax: (284) 468-2729 cdecsc@gov.vg Financial Services Commission Pasea Estate Road Town, Tortola Tel: (284) 494-1335 Fax: (284) 494-1435 E-mail: webmaster@bvifsc.vg www.bvifsc.vg Telecommunications Regulatory Commission Road Town, Tortola Tel: (284) 494-6786 Fax: (284) 494-6786 www.trc.vg

Carretera 8838 San Juan, PR 00926-2745 Tel: (787) 721-2525/ 782-8800 Fax: (787) 782-8801 E-mail: tdardet@bvitourism.com E-mail: erivera@bvitourism.com Latin American JG Black Book 594 Broadway, Suite 1001 New York, NY 10012, USA Tel: (212) 967-5895 Email: Alexandra@jgblackbook.com Italy Aigo Communicazione Pizza Caiazzo 3 20124 Milano, Italy Tel: 39-02-667-14374 Fax: 39-02-669-2648 E-mail: staff@aigo.it Germany, Russia & Eastern Europe Schwarzbachstr 32 D-40822 Mettmann Bei Düsseldorf Germany Tel: 49-2104-28-66-71 Fax: 49-2104-91-26-73 E-mail: g.romberg@travelmarketing.de United Kingdom 15 Upper Grosvenor St. London W1K 7PJ Tel: + 44-207-355-9585 Fax: + 44-207-355-9587 E-mail: infouk@bvi.org.uk

Virgin Islands Shipping Registry Cutlass Tower, 3rd Floor Road Town, Tortola Tel: (284) 468-2902/2903 Fax: (284) 468-2913 E-mail: vishipping.gov.vg www.vishipping.gov.vg

New York 1 West 34th Street Suite 302 New York, NY 10001 Tel: 800-835-8530 / 212-563-3117 Fax: 212-563-2263 E-mail: info@bvitourism.com U.S. & Canada 300 Park Avenue South Floor 12 NEW YORK, NY 10010 Tel: (212) 481-7000 Fax: (212) 481-9440 Email: bvi@mbooth.com

Government Overseas Offices

Immigration/Labour Information

BVI London Office 15 Upper Grosvernor Street London WIK 7PJ United Kingdom Tel: + 44 207 355 9570

Immigration Department 2nd Floor RJT Edifice Building Wickham’s Cay 1, Tortola Tel: (284) 494-3471 or 494-3701 ext. 4700/4770 Fax: (284) 494-4399 E-mail: immigration@bvigovernment.org

BVI House Asia Suite 5106, 51/F., Central Plaza, 18 Harbour Road, Wanchai, Hong Kong Tel: (852) 3468 8533 Fax: (852) 3107 0019 BVI Tourism Offices British Virgin Islands, Asia, Africa & Pacific BVI Tourist Board AKARA Building, 2nd Floor Road Town, Tortola British Virgin Islands Tel: (284) 494-3134 Fax: (284) 494-3866 Email: lharrigan@bvitourism.com Puerto Rico, Caribbean & Latin America Chirino Office Plaza, Ste 202 #1739

Labour Department 2nd Floor, Ashley Ritter Building Road Town, Tortola Tel: (284) 494-3451/9 or 494-3701 ext. 4708/4780 Fax: (284) 494-4399 E-mail: labour@bvigovernment.org Emergency Numbers Police, Fire & Ambulance 999/911/112 Virgin Islands Search & Rescue 767 BVI Electricity Corporation 494-3911 Fire and Rescue 494-3473 Hospital 494-3497 Police Headquarters 494-3822 Water and Sewage 494-3416

AUGUST 2016 EDITION

113

OVE R A N D O UT

FRANC O I S L A S S A L L E

NEW CEO SHARES PLANS FOR ARBITRATION CENTRE Interview conducted, condensed and edited by Russell Harrigan and Freeman Rogers When Francois Lassalle became its first CEO in April, the BVI International

take time, so if we can get to thirty within three years we’re actually rolling,

Arbitration Centre consisted of two empty floors in the Ritter House.

and that would be a great success. Having said that, you don’t need thirty to

The rest was up to him.

make a name for yourself: You need two of the right ones. If you manage to attract two big arbitrations — big in terms of either the companies that are

At the Financial Services Commission offices in Pasea Estate, where he has

arbitrating here or the amount in dispute — then you’ve created something

been working pending the centre’s completion, Mr. Lassalle sat with Business

that will be recognised, and that will be good PR for the country.

BVI in June and explained his plans for transforming an obscure start-up into a renowned centre that attracts arbitrations from around the world. What do you see as potentially some of the biggest strategic challenges in establishing the centre? How will you measure your rate of success at the BVI International Arbitration Centre in three to five years’ time?

I won’t dwell too much on the operational challenges. We’re renting two floors in Ritter House — right now it’s really a concrete interior — so we need to

In three years, I would want this institution to be recognised internationally as

get from that to a proper state-of-the-art facility that could be in New York

a centre in a meaningful way: Not just some random local centre somewhere

or Singapore or Paris. It needs to feel the same. So that will be a challenge

in the Caribbean, but a proper centre of excellence for international arbitration

in itself. But we also need to create all the processes behind it, the rules,

in this region. And I think that takes time. Some centres have spent over 20

and to find the right arbitrators. All of these are challenges that I think we’ll

years to do this. Success would be to achieve some kind of recognition

overcome.

within years.

In terms of key challenges, there is an infrastructure challenge in terms of

In terms of actual arbitrations, within three years I’d like to see a flow of thirty

travel. It is hard to get to the BVI. When you want to compete with centres in

to forty international arbitrations go through BVI. And that’s actually quite

European capitals — or Singapore, Hong Kong, New York, or even Miami —

aggressive. Year one, if we get one we’ll be lucky. Year two, if we see even ten,

you’ve got straight flights from anywhere in the world to those locations. The

we’ll be lucky. So it will really start in year three anyway. And that has been

good news is our target audience are international business clients and law

the case if you look at centres like Singapore: I think they had eighty to ninety

firms that are used to operating internationally, so these guys take planes

cases after twenty years, and it’s only over the last five to ten years that

like we take taxis. The bad news is they don’t like to have more than two

they’ve started to really go up in terms of numbers of arbitrations on a yearly

stops, and right now it is more than two stops for most of them. I think the

basis. They’re at three hundred now or something like that. These things

direct route [from the BVI] to Miami is going to make a huge difference, so AUGUST 2016 EDITION

115

I’m looking forward for this to materialise. I think the extension of the runway

important factors for people selecting a seat of arbitration, and we’re one of

within the next two to three years, if that’s the case, will make a tremendous

the very few spots on this side of the pond to have that.

difference.

Going back to our location, if you’re looking at a dispute between a South

From a structural point of view, I’m also going to engage with hotels and

American company and an American company, right now the options are

restaurants because I think the BVI is well-versed in servicing tourists —

limited. Usually they’ll end up in Miami or New York, which are neutral, but

people coming here and enjoying the beaches and so on, or renting boats.

less so for the South American company. And guess what? We’re spot in the

They’re not necessarily used to business travellers, and this is what the

middle. So if we do provide the right rules, the right institution, and the right

centre’s going to attract. That means proper office space in these hotels;

operational facilities, then there is no reason why we wouldn’t be able to

business centres; facilities to have videoconferences, and not just a plug for

attract that business.

your laptop to do Skype. These people, if they come here for two weeks for a hearing, will be on other cases, and if there’s a down day they might have to do a videoconference with their clients in New York or wherever they come from. These kind of facilities don’t really exist right now. These are things that we’ll need to work on together with the hotels. But I’m not worried to the extent that there is monetary value for the hotels to do this. You order an audio-video conference system; it will be in the BVI within three weeks. And they’ve got rooms that they could convert. Compared to extending the runway, getting that sector to up their game to accommodate business travellers is

The other thing that is very good for the BVI is the reputation of its commercial court and its understanding of arbitration. The arbitration proceedings need strong commercial courts, but we also need these courts to not interfere, and only become involved when they have to. This is extremely important. We’ve got courts that get it, that have a strong reputation. Another positive, is that appeals in the BVI commercial courts can escalate to the Eastern Caribbean Court, which also has a strong reputation and ultimately to the Privy [Council] in London. So that offers immense security for people who

not something that I deem to be a danger to success of the centre.

want to resolve their disputes in the BVI.

What I’m more concerned about is immigration and labour laws, to the extent

And then the BVI Bar Association is not just some random legal community:

that the centre needs to be entirely independent. Right now anyone who wants to come and do an arbitration would either need to get a work permit or a work permit waiver, which means that the centre is not independent to the extent that someone has to stamp a paper saying that a person can enter the country and do an arbitration. If you compared this to Singapore — a country renowned for being strict, where you can go to jail for throwing

This is probably the best bunch of lawyers in the Caribbean. Most of them operate internationally. They’re well versed in complex litigation in particular. So in the event where an international arbitration requires local counsel, or an element of a dispute requires knowledge of BVI law, you’ve got excellent people on island. It’s not just the lawyers: You’ve got experts in corporate governance, accountants, people who actually understand the business.

chewing gum on the street — you can walk up to the airport in Singapore

That in turn will benefit the BVI.

and get a visa to enter the country and do some arbitration. This is the

The other thing that I think is extremely helpful, is the government. The

kind of legal framework that the centre would need, whether this is only for arbitration or for every business traveller that wants to come and work in the BVI.

government absolutely backs this up. They get it. They understand that this is a good way to diversify the economy. And if we are successful, it’s actually going to generate benefits not just for the legal sector but for other sectors as well: tourism, because we’ll fill hotels and we’ll fill restaurants; the legal

What do you consider some of the BVI’s biggest assets in entering the global

sector; the accountants; the trust services.

arbitration space? First of all, the BVI is a famous jurisdiction for corporate services. It’s

Why the BVI and why at this time for you personally? What’s driving you to

the biggest offshore centre, and that automatically and obviously gives it

invest your time and energy here?

credibility to have international arbitration in relation to these companies. One of our goals is to use the BVIIAC as a beacon for regional arbitration. We’ve got plans to become the first centre in the Caribbean and create some momentum around arbitration, not just the BVI. We’ll do trainings for anyone in the world — and particularly in the Caribbean — to come and train to become arbitrators in the BVI. We’ll do something around women in arbitration; we’ll do something around young arbitrators. We want to become a centre of excellence for international arbitration in the Caribbean and beyond. And guess what? No one is doing this in the Caribbean region. Most of the centres in Latin America are intrinsically local or regional.

The last time someone created a centre with that kind of ambition was about 20 years ago, if not more. If you’re looking at Singapore, Brazil and so on, you’re talking the seventies, the eighties, the nineties. So being contacted to lead an initiative to create a truly international arbitration centre is an amazing opportunity. All the stars really aligned to create an environment that made this offer attractive. At a very personal level, my career has been quite eclectic itself. I started in asset management in London. I moved into a start-up: I grew the international operations; we ended up selling this to a big international rating agency. I worked for them and then moved to the legal sector: I worked for Linklaters, advising senior management there,

[The BVI also has a] strong, stable economy; a stable political landscape.

and then Dentons. So I’ve got the financial experience; I’ve got the start-up

All of this is critical. Common law: The local law is actually one of the most

experience, which is required right now; I’ve worked for law firms; I’ve been a

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AUGUST 2016 EDITION

global business manager for Linklaters and Dentons; I’ve run practices doing

point is different. We are a conduit for international business. There is a

international arbitration, amongst other things. So when I was looking at the

lot of business that goes through or is in the BVI. You put a centre on this

job description and I was comparing this to my CV, it was actually ticking all

and you don’t actually have to explain to people that you’re going to be the

the boxes one by one. That’s the first time in my life I was able to do that.

conduit for dispute resolution through arbitral proceedings in that region. So

Usually there are a few boxes you can’t tick. Then they tell you, “Oh, by the

that, more than a takeaway, was more a reassuring thought. That’s the first

way, it’s a paradisiacal island in the Caribbean.” And you’re like, “Hmmm.

thing I took from there.

Okay!”

I [also] realised the importance of government backing. This conference was 1,000 people — all business travellers from all over the world — and the

What do you see as some of the leading trends in arbitration globally, that the

only big conference centre in Mauritius is pretty much downtown. The nice

BVI must be aware of if it is to be a relevant player in the arbitration space?

hotels where they put everyone were north of the island — you had about an

For a very long period of time, the three major centres were untouchable — New York, Paris and London — and everything else was regional. With the rise of Hong Kong and Singapore and, to a lesser extent, Stockholm, international arbitration is changing quite rapidly. Historically, if you had a big case you had to go to Paris or London or New York. Now you’ve got quite a few more options, including Asia. And guess what? Asia is on the rise. So

hour to go from the hotel to the conference centre, which was a down point — but we had police escorts to get us through traffic; things like that. The prime minister went to give a speech, and so on. I realised that this can’t work without that kind of hands-on, consistent support. So that reassured me as well, because I think I’ve got that; I think the government understands that this is going to benefit the country.

I think that’s one of the big trends, and that’s a good thing. There is no big

In terms of the [other] takeaways, I think 20 percent of the arbitrations in

change in Latin America yet, and I’m hopeful we’ll be that change.

the world relate to businesses or agreements that touch on Africa. Only two

The other hot topic right now, is the challenge by Lord Chief Justice in England about the English Arbitration Act 1996. Basically, the act was enacted 20 years ago, and he believes this is the right time to look at whether or not it’s fit for purpose. In particular, he raised concerns about the fact that

percent of the arbitrators in the world come from Africa. They’re banging that drum in Mauritius, because it’s not normal. I think we’ve got the same problem. Probably another 20 percent of disputes come from either the Caribbean or Latin America, but very few arbitrators actually probably

because a lot of cases are no longer going to commercial court, but are

come from here. I think international arbitration is going to become more

going through arbitration, English common law does not evolve anymore:

international, and this is why I want this institution in the BVI to become a

You get less precedents for those cases because arbitration is done behind

beacon in the Caribbean for arbitration.

closed doors. [In] the Arbitration Act, the right of appeal was kind of curtailed for arbitrations. And he’s talking about extending that right of appeal. That challenge to arbitration is massive: To the extent that you extend the right of

Which centres would you consider to be the BVI’s key competitors at this time?

appeal for arbitrations, you are basically attacking one of the founding pillars,

The biggest challenge could come from the Caribbean if other countries get

which is to provide a fair, anonymous, quick, and hopefully cheaper process

their acts together. I know that Barbados, Bermuda, Bahamas are all trying

to resolve your dispute. If the other party can appeal the award 90 percent

to do something in that space. Now, they’ve failed for the last 20 years to

of the time and you end up in commercial courts, then what’s the point of

do anything with it. There are a few factors where I think we have a distinct

starting with arbitration? You might as well litigate in commercial courts from

advantage. But if there was to be another centre in the Caribbean — although

day one. So that’s an arbitration killer. A lot of people have reacted to this. If

competition can be healthy — that would be a challenge.

London was to extend the right of appeal, London would die as an arbitration centre pretty quickly, and this could create shockwaves in the arbitration world.

I think Miami is a competitor, because it’s positioning itself for that Latin American-Caribbean side of arbitration. I also understand that they’re trying to position themselves for trust arbitrations. It’s Miami; it’s easy to get to. I think Brazil could be a challenge. Although they’re quintessentially local and

I know that you recently attended a major arbitration conference in Mauritius.

regional right now, they were in Mauritius and they didn’t try and hide the

What were some takeaways of key relevance to the BVI project?

fact that they want to position themselves globally. They’ve got fully-fledged

Mauritius as an island is not a conduit for international business, so

operations there handling two hundred and fifty or three hundred cases per

when Chinese companies want to invest in Africa they usually go direct

year — local, essentially, but you can apply that. But they don’t have the

to those countries. What Mauritius is trying to do — because they’re far

same legal system as we do. So at the same time as they are potentially

from everything — is to position themselves as a conduit for international

a strong competitor, I do generally believe that we’ve got a stronger [unique

business going into Africa, as the backdoor of Africa. So they created an

selling point]. The thing is, right now I’m talking about something that doesn’t

international arbitration centre to facilitate that. They want businesses that

exist. I think our story starts when the sign goes up on the wall in Ritter

have disputes all over Africa to go to Mauritius to arbitrate them. Our starting

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What are your timelines and your key milestones over the next couple years for the Ritter House facility?

Have the Panama Papers had any impact on moving the project forward? It hasn’t had any direct impact, [but] I think there is an impact. The

The heads of terms are signed, and we’re about to sign the lease. We’ve got

reputation of the BVI impacts the reputation of its commercial court, of its

the plans. We are about to engage with builders. I want the build to start

Bar Association, and everything, and will impact the reputation of the centre.

by mid-July at the latest. That’s a pretty tight timeline: I want the build to be

And I think I’ll need to have stock answers for questions about the integrity

done by the end of October. That’s pretty hardcore by all standards, partially

of our courts, and whether it is okay for the BVI to be an offshore “tax haven”

because I’ve got specific requirements for the centre. It’s not just an office building. One, soundproofing: You can’t afford a breakout room or a hearing room to not be completely soundproofed. If the other party is hearing what

and an international arbitration centre that should be neutral with integrity. It’s not a deal killer.

you’re saying in your breakout rooms where you’re designing your strategy for the next hearing, then that’s it. And that may require materials that aren’t readily available. So there are some intricacies in the actual build itself. I’d like to go through a soft opening by mid-November, because we probably ought to have an international arbitration conference next year. We can’t get to that point without a centre. So that’s the kind of timeline: By mid-

What are your thoughts on Brexit and its potential implications for the offshore sector and the BVIIAC? This is not the result I was hoping for. The resulting heightened uncertainty over Britain’s relationships with other countries, will damage confidence

November, I’ve got a centre.

and investment, at least for a few years. Put simply, Brexit is not good for

I’m renting two floors. The actual centre will be on the third floor; the

some banks in Asia have already stopped lending cash to buyers of London

secretariat and reception will be on the first floor, and we’re still finalising the design for that.

business. One just has to look at the forex for Sterling or to the fact that properties, to realize that there is going to be an impact. How significant of an impact depends on the time it will take to clarify the situation, but I can’t

The rules should get out in August, together probably with the panel of

see how the UK would be able to secure as favorable a trading relationship

arbitrators and the website. Ultimately, the deadline for everything is the soft

outside the EU as it enjoys at present. It simply doesn’t add up.

opening, so by the time we open we should be able to handle an arbitration.

More positively, a lot of the offshore activity does not relate to the UK, e.g. it comes straight from Asia, Russia, etc. so I do not think there will be a

What will the centre’s staff look like eventually? Are you looking to make

material impact on this sector in the short term. However, if global business

more hires soon?

activity is impacted by Brexit, that means there is going to be, overall, less of

This side of Christmas, one hire. I need a number two. We’re about to go to market with an executive-manager-type role, because I’m going to travel, and also I’ll have different streams of work and I’ll need to be able to delegate some of them. Now, the government support materialises through the FSC incubating me. So I can tap into their resources, and that will enable me not to hire anyone until [we’re generating income]. As we grow and start generating some income, I expect this to be quite a small operation. You

a need for offshore vehicles in order to carry out investments. With regards to the BVIIAC, because we are a nascent institution and our objective is relatively small (albeit aggressive for a new centre), I am quite confident that we will not be impacted. Moreover, it is important to understand that only 5-15% of contracts/agreements go into dispute in the first year or so. So most of the disputes we are going to see over the next couple of years will relate to pre-Brexit contracts anyway.

would probably have some IT, probably one HR — and accounting I might outsource or I might get someone. Then in terms of the actual administrative arbitrations, until we get more than ten or twelve arbitrations I will not have

What keeps you up at night?

anyone on my books. There are experts out there that I will be able to hire

At this point, nothing in particular. I think it’s just the sheer size and

in the same way that I will have arbitrators come here. When you get ten

complexity of what needs to be done. When you’re moving forward with a

[arbitrations], then you can hire someone to sit at the centre. There will be

start-up, usually you’ve got a pretty defined small product, and you just bring

space for about ten people in there, and if in ten years’ time we become

that forward. You don’t rent two ten-thousand-square-foot floors in a brand-

extremely successful and we administer two hundred arbitrations a year,

new building on the other side of the world: You play it small; you’re in your

then I will have probably thirty or thirty case managers/counsels, and these

garage and you move forward. This is a hybrid start-up to the extent that

can be local people. But it kind of depends on how things go. I’m looking at

the product is quite complex; the intricacies of making it happen are quite

this as a start-up. The biggest cost in any start-up operation is employment.

complex; the build-up is complex; the processes behind it are complex; the

So until I generate some cash flow by renting rooms and so on, or handling

marketing around it is complex. I think the sheer size of what needs to be

arbitrations, I will probably try proactively not to hire anyone. Obviously I want

done is what keeps me up at night. There is always something I need to

to, but I need that flexibility.

think about. B

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