Business BVI January 2015 by Business BVI

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January 2015 Edition

CONTENTS

Business

S E C T I O N S

by Andrew Seekts and Sean Theron

by Robert Briant

Business Tourism and Real Estate Lifestyle Spotlight On Asia Business BVI Guides

FORENSIC TECHNOLOGY IN THE INFORMATION AGE

Masthead Opening Remarks Contributors Ahead of the Curve Bookshelf

LESSONS FROM DELAWARE Q&A WITH ELISE DONOVAN

by Russell Harrigan

TRANSACTIONAL SUCCESS OFFSHORE? THE ROLE OF CORPORATE LAWYERS

by Robert Briant

64 68 74

COMPLIANCE = CHANGE OR EXTINCTION

by Shamini Chase

BVI FUNDS: PREPARING FOR THE NEW ABNORMAL

by Simon Schilder

ADDRESS TO BUSINESS BVI ASIA INAUGURAL REGIONAL CONFERENCE IN HONG KONG

by Dr. The Honourable D. Orlando Smith, Premier And Minister For Finance

January 2015 Edition

THE IBC ACT: BUILDING OF A NATION

by Colin Riegels

Tourism and Real Estate 103 105

111

Lifestyle

115

Business BVI Guides

112

VILLAS - MEETING THE 5-STAR DEMAND

by Chris Smith

THE OUTLOOK FOR REAL ESTATE 2015: THE NEW MEDIOCRE

by Edward Childs

PRIVATE JET TRAVEL: A GROWING NECESSITY FOR HIGH-END TRAVELERS

by Andrew Collins

Contents

116 122

16 18 20 23 46

MOVING TO THE BRITISH VIRGIN ISLANDS

by Business BVI Staff Writer

FAST FACTS ABOUT THE BRITISH VIRGIN ISLANDS

by Patlian Johnson

MASTHEAD OPENING REMARKS CONTRIBUTORS AHEAD OF THE CURVE BOOKSHELF

January 2015 Edition

CONTENTS LEAD ARTICLES

100 70

60 14

January 2015 Edition

TAKING STOCK—THE CHANGING FACE OF BVI FINANCE by Colin Riegels

THE BVI: A BRAND AND AN IDEA by Dr. The Honourble Kedrick Pickering, Deputy Premier And Minister of Natural Resources and Labour

100

CHRISTMAS IN JULY AS THE PUERTO RICAN NAVY INVADES THE BVI by Todd VanSickle

CONTENTS

SPOTLIGHT: PIVOTING TO ASIA

THE BVI: CHINA’S INVESTMENT ROUTE TO THE WORLD by Christopher Bickley

BVI PRIVATE TRUST COMPANIES FOR CHINESE FAMILIES AND BUSINESSES by Richard Grasby and Charlie Sparrow

MEETING THE GROWING OFFSHORE FINANCIAL NEEDS OF HIGH NET WORTH INDIVIDUALS IN CHINA by Alvin Ma

EMERGING OPPORTUNITIES IN ASIA FOR BVI PRODUCTS by Stephen Adams and Kristian Wilson

CHINA’S FUTURE SPV DEMAND SPELLS OPPORTUNITY FOR THE BVI by Jeffrey Chen

January 2015 Edition

EDITORIAL BOARD 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

M A N AG I N G E D I TO R PUBLISHER P R O J E C T C O - O R D I N AT O R DESIGN P H OTO G R A P H Y A D V E RT I S I N G

B U S I N E S S B V I .C O M

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 Email: info@oysterglobalmarketing.com Please send comments and address changes to this address.

RUSSELL HARRIGAN OYSTER PUBLICATIONS LTD PORTIA HARRIGAN OYSTER DESIGN TEAM TODD VANSICKLE RUSSELL HARRIGAN KATE MULLAN PORTIA HARRIGAN

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. 16

January 2015 Edition

OPENING REMARKS

Moving Beyond Your Bubble The New Year is always a period of reflection and refocus. True reflection and refocus however, require a commitment to ‘Moving Beyond Your Bubble.’ It means taking a leap not a step, moving beyond the comfortable predictability of yesterday, divesting of our personal investment in the status quo, embracing really new ideas as opposed to repelling them like antibodies fighting an infection, it means not being afraid of engaging top-draw thinking, talent and ideas to assist in becoming a ‘Culture Carrier’ for our companies and for brand BVI (pp54,62,70). We deliberately selected this theme for the January 2015 edition of Business BVI. We believe that the territory’s future prosperity depends on each of us being committed to doing our fair share of the heavy lifting required, to build any such prosperity. As a territory we must all row in the same direction, in what is a very competitive global economic steam with powerful crosscurrents (p60). At Business BVI our reflection and refocus started early last year as we planned this our 9th edition. Yes, it was nine years ago that we launched Business BVI. Our objective was to create a magazine that is a well-respected, high quality curated publication, designed to promote the British Virgin Islands as an attractive jurisdiction for international business and investment. Nine years later, Business BVI contributes significantly to the soft power and global branding of the territory (p74). However, in the new global abnormal in which businesses and economies must compete, there are no laurels to rest on. We must stay relevant to our readership and advertisers. Hence, the team at Business BVI spent the greater part of 2014 refocusing on our relevance as we worked on this edition. The result? In this issue we are rolling out a number of major improvements to the magazine. You could say we took our own advice early and we are Moving Beyond Our Bubble. We completed a total redesign of the magazine, making it a far easier read. Our redesign started with our masthead, highlighting ‘BVI in red. Our traditional cover graphic also evolved to an original design reflecting the edition’s theme. On the inside you will notice new additions and changes such as: Ahead of the Curve - This new upfront section is intended to focus on current happenings across the major sectors of the economy. Bookshelf - We have also redesigned and moved this section far forward as an immediate follow to ‘Ahead of the Curve’ providing and easy segue to the main sections of the magazine. Contents - We have streamlined our core content into 5 primary areas of focus: Business (local and global coverage) Tourism & Real Estate, Lifestyle, BVI Business Guides and Spotlight - with a specific focus in each edition. In this issue Spotlight focuses on Asia. Infographics - The introduction of original infographics will catch your eye. Global Writers - With the expanding global footprint of the magazine we expanded the geographical range of our writers.

Last year was a significant year for Business BVI as we went global with our inaugural Business BVI Asia Annual Regional Conference at the Peninsula Hotel in Hong Kong. We thank our sponsors: BVI House Asia, Harneys, OIL, BVI International Finance Centre, Maples, Mourant Ozannes, and Walkers (p40). Our 2nd Annual conference will take place on September 24, 2015 at the Grand Hyatt, Hong Kong. We are also planning a Global Wealth Management Conference and an Arbitration conference later this year in the BVI. As we go to press in mid December, in what IMF’s Christine Lagarde called the “new Mediocre” the global economy seems destined to end the year with mixed results. The world’s major regions are either experiencing slower growth as in Asia - China, Japan and India in particular or near zero growth as in Europe led by Germany, the United Kingdom and Russia. The global economic bright spots are in North America. The United States leads with 3.6% GDP growth in the 3rd quarter and a record 57 straight months of job gains. This includes better-than-expected growth in workers’ average hourly wages, which rose 0.4 percent in November. Other bright spots sparsely dot the planet in parts of South America and Africa. Using BVI lens, the immediate concern is that of contagion where slower growth globally could become a drag on the US economy. On the bright side, falling global oil prices, some 40% since last July will be an added boon to US consumers, enhancing confidence. We anticipate that this will be a fillip to this winter, spring and summer tourist season for the BVI and the region. On the home front, we at Business BVI share the view that the economy has turned the corner and that there is good reason for optimism as we enter 2015. Tourism is growing again, driven by the all important overnight sector and government is finally making the level of investment required in the territory’s cruise infrastructure to ensure its sustainability and competitive posture. Additionally, investment in the tourism plant by the private sector continues at a good pace, particularly on Virgin Gorda with Oil Nut Bay, Mosquito Island and the development at Blunder Bay leading the charge. We have also seen the commencement of multiyear refurbishment at Rosewood Little Dix Bay and at Peter Island Resort and Spa. This is taking place while the water based side of tourism is coming off what was perhaps its best year ever with 2015 looking just as promising. This sector however, must respond to the looming threat of the USVI so called Six Pack Law. Time for Yachtsman Friendly Policy 2.0. There are also strong reasons for cautious optimism on the financial services side of the economic table (pp88,90,94). In August last year, the Government engaged the services of global management consultants - McKinsey & Company – to undertake a Financial Services Management Consultancy, aimed at charting a new direction in the BVI financial services sector. The strategy, which will emanate from this consultancy, will be a first for the sector, formulated to address its continued development. This decision by the government, which was concurrent with its decision to retain a top tier global public relations agency, bodes well for the future. The mandate of the new public relations agency will be to adopt a more proactive thought leadership driven, global public relations strategy, aimed at improving brand BVI globally. Here it is anticipated that special emphasis will be directed at the Asian markets. This sector also awaits a final decision on the potentially disruptive matter of beneficial ownership. Enjoy!

Artwork - We have also taken a design decision to include more original artwork in the magazine’s graphic profile. With this edition, Business BVI will become semi annual, publishing in January and July, a decision driven by the expansion of the magazine’s global footprint. We will also deepen our presence in Asia - Hong Kong, China and Singapore along with South America, the United States and Europe.

January 2015 Edition

RUSSELL HARRIGAN Managing Editor

CONTRIBUTORS

STEPHEN ADAMS joined Bedell Cristin BVI in February 2012 as a partner and is now based in Singapore. He has over 15 years’ offshore legal experience and advises on a full range of corporate matters including banking, mergers, acquisitions, investment funds, hedge funds, alternative investment, financing and capital market transactions. In this his first Business BVI article jointly shared with his colleague Kristian Wilson, they take an in depth look at Emerging Opportunities in Asia for BVI Products p.90.

CHRISTOPHER BICKLEY: Partner and Head of the Hong Kong office of Conyers Dill & Pearman. His practice includes all aspects of corporate law with specialist expertise in corporate finance. He is experienced in IPOs and listings on the Main Board and the GEM of the HKSE. The BVI: China’s Investment Route to the World p.84 is his first contribution to Business BVI looking at the BVI role in China’s FDI growth from approximately US$38 billion in 2000 to $240billion in 2010.

ROBERT BRIANT: Partner & Head, BVI office of Conyers Dill & Pearman advises on all aspects of corporate and commercial law and provides specialist advice to hedge funds. He is a frequent contributor to Business BVI. Two timely pieces - Delaware Lessons p.54. Delaware, the leading corporate American domicile and how the BVI can use similar strategies as the dominant global offshore incorporation centre. Transactional Success Offshore? The Role Of Corporate Lawyers p.62.

In today’s global financial arena Compliance = Change or Extinction p.64 It is also fast becoming a critical element in a company’s competitive arsenal as detailed by SHAMINI CHASE. She is Head, Compliance ATU General Trust (BVI) Limited. She is a qualified attorney at law with a masters in international banking and finance law, with extensive regulatory experience in offshore services jurisdictions, including the British Virgin Islands, Anguilla and Saint Lucia. She has been a BVI FSC Approved Compliance officer for a number of years.

JEFFREY CHEN: Partner of Shanghai Chen He Law Firm in Shanghai, practicing in crossboarder investment, financing and tax planning, focusing on Counseling SMEs, and Legal Support to Wealth Management of HNWIs. In particular, Due Diligence for FDI or ODI Projects; Structuring, Investments and Documentation Guidelines of Investment and Management. China’s Future SPV Demand Spells Opportunity for the BVI p.94 is a new area of opportunity for the BVI and Jeffrey is uniquely qualified to lead the way.

The BVI: A Brand and an Idea p.70. A must read on the DNA of the modern BVI. “There is nothing artificial about the success of the BVI—a British Overseas Territory that has the United States dollar as its legal tender; a territory where people from over one hundred different nationalities reside.” By DR. KEDRICK PICKERING the Deputy Premier and Minister of Natural Resources and Labour. The BVI, the world’s leading corporate domicile, with 454,000 active companies and over 500 active limited partnerships, plays a key role in structuring global FDI, the world’s fourth largest recipient with approximately US$92 billion in 2013.

COLIN RIEGELS is a partner and head of the banking & finance global practice group at Harneys, Singapore. His experience includes some of the largest M&A in BVI legal history - US$5.6 billion Alfa Telecom and Cukurova Group and US$8.6 billion Russian oil BP and TNK mergers. Colin’s articles - The IBC Act: Building of a Nation p.78, The history of the groundbreaking Act and Taking Stock: The Changing Face of BVI Finance p.60 - Its critical global role.

SIMON SCHILDER: Partner and Head of the Investment Funds practice at OGIER, BVI Office, covering cross border and multi jurisdictional M&A; corporate finance; equity capital markets, listings of SPACs, joint ventures and investment funds. BVI Funds: Preparing for the New Abnormal p.68, examines the BVI Fund sector, concluding that the continued appeal of the sector in the new abnormal will be the territory’s ability to remain nimble, innovative and willing to embrace new product development.

ANDREW SEECKTS joined KRyS Global - BVI in June 2011, relocating to the BVI from Melbourne, Australia. Andrew has over six years’ experience in dispute resolution, fraud recovery, insolvency and turnaround. At KRyS Global, Andrew has managed the complex liquidation of Fairfield Sentry Limited, the largest feeder fund into the Bernard Madoff scheme. In this his first Business BVI article, jointly shared with his colleague Sean Theron, they take an in depth look at Forensic Technology in the Information Age p.52.

CHRIS SMITH relocated to the BVI in 1992 to work for Sir Richard Branson on Necker Island and transitioned later to Virgin Gorda and real estate, villa rentals and management. BVI sales and vacation rental clients are mainly Americans, so in 2005 Chris and his colleagues partnered with Coldwell Banker. They are Exclusive Agents for Rosewood Little Dix Bay on Virgin Gorda and Nanny Cay on Tortola. Villas - Meeting the 5-Star Demand p.103 a growing accommodation choice for multigenerational visitors.

January 2015 Edition

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. The Outlook for Real Estate 2015: The New Mediocre p.105 will not disappoint. Edward provides a comprehensive look at the sector. Even here at Business BVI, we await his annual prognostications with baited breath. Enjoy.

“The private aviation industry offers travelers a more personalised and convenient way to get to their destination. Flying private was once seen purely as a luxury but today, it is regarded as an important asset to many businesses and individuals looking to save time. Time is truly a valuable commodity and it is one of the main benefits of private aviation.” - From Private Jet Travel: A Growing Necessity for High-end Travelers p.112 by someone who should know, ANDREW COLLINS, President Sentient Jet.

SEAN THERON is a Manager with KRyS Global Cayman Forensic Technology and Fraud Investigation Team, with more than 10 years’ experience with data handling and analysis. He has consulted on fraud investigations, asset tracing, and corporate recovery engagements involving millions of documents, petabytes of data and multiple computer forensic analyses. He provides expertise and focus to all types of complex cross-border engagement. Sean co-authored his first Business BVI article Forensic Technology in the Information Age p.52 with his colleague Andrew Seekts.

RICHARD GRASBY is a Partner at Maples Hong Kong and Heads Trusts and Private Wealth, Asia. He advises institutional trustees and private individuals on all areas of trust law and related private client issues. He also advises trustees, investment managers and investors on the establishment of investment funds, with a particular focus on unit trusts and private funds for wealthy individuals and families. Richard co-authored his first Business BVI article Private Trust Companies for Chinese Families and Businesses p.86 with his colleague Charlie Sparrow.

CHARLIE SPARROW is an Associate at Maples Hong Kong. He advises individuals, companies, trustees, banks, leading law and accountancy firms, family offices and investment managers on a variety of BVI law and Cayman Islands law trust structures, including associated corporate and regulatory matters. Charlie first joined Maples and Calder in London in 2008. He previously worked for Charles Russell LLP. Charlie co-authored his first Business BVI article Private Trust Companies for Chinese Families and Businesses p.86 with his colleague Richard Grasby.

Our Fast Facts Guide about the BVI p.122 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. Patlian joined the Ministry of Finance, Government of the Virgin Islands in 2011 and was appointed the Deputy Financial Secretary responsible for Economic Development and Fiscal Affairs. Ms. Johnson holds a Masters of Science Degree in Economics and Finance from the University of Bristol.

TODD VANSICKLE has been a journalist and photographer for more than 18 years. For the past 11 years, he has lived and worked in the British Virgin Islands covering everything from regattas to billionaires. He has two beautiful children and is married to a wonderful wife. Todd is a Business BVI regular and the right person to tell us about Summer tourism and the annual Christmas in July Puerto Rican Navy Invasion of the BVI p.100 .

ALVIN MA’s involvement in the wealth management & investment banking field spans 32 years. He is now Head of Emerging Wealth Private Banking EFG Bank - Hong Kong responsible for HK, Macau & PRC wealth management business development & marketing. He manages and coaches 6 Private Banking professionals. Meeting the Growing Offshore Financial needs of High Net Worth Individuals in China p.88 is a new area of opportunity for the BVI and Alvin is uniquely qualified to lead the way.

KRISTIAN WILSON is a senior associate at Bedell’s Singapore. An experienced commercial lawyer, trained at Slaughter and May in London and Paris. and Practiced offshore law in Jersey and the BVI. Kristian advises on BVI law and his practice includes corporate, financial, commercial and regulatory matters. In this his first Business BVI article jointly shared with is colleague Stephen Adams, they take an in depth look at Emerging Opportunities in Asia for BVI Products p.90.

January 2015 Edition

Highly recognized for assisting multinational corporations as well as high net worth individuals with their corporate and estate planning needs and for our unparalleled expertise in structuring complex, innovative and sophisticated mergers and acquisitions and capital market and financial transactions worldwide.

arifa.com

CORPORATE SERVICES SERVING CLIENTS WITH EXCELLENCE AND INTEGRITY

AHEAD OF THE CURVE

January 2015 Edition

AHEAD OF THE CURVE

NATURE’S LITTLE SECRETS EVOLVES TO REFLECT MULTIGENERATIONAL TRAVEL TRENDS

he British Virgin Islands have succeeded in establishing themselves as “Nature’s Little Secrets,” a fitting tag that has perfectly described the Caribbean destination for more than 18 years. The British Virgin Islands Tourism Board (BVITB), which works to promote travel to the destination, is now ready to unveil a new advertising campaign that gives viewers a look into what makes the BVI such a great secret. Developing the British Virgin Islands’ new marketing campaign began with survey research performed by the BVITB’s new marketing agency, Myriad Marketing. Participants included consumers and members of the travel industry including hoteliers, product operators, wholesalers, general travel agents, and specialist travel agents who have sold BVI in the past. The survey compared the BVI against a primary set of similar destinations and collected participants’ opinions on what influences travel decisions, where and when they travel, their interests, current impressions of the British Virgin Islands and demographics. The research was then analyzed with the goals of defining the BVI’s strengths, areas of opportunities and target consumer. So, who is the BVI’s target? The ideal BVI traveler is experiential and active, and motivated to travel by a destination’s accessibility to beach activities, dining and cultural experiences. As an understated destination, overflowing with these vacation essentials, the research determined that the BVI’s new branding campaign would need to speak to independent-minded, well-traveled individuals who seek unique experiences. They are taking time for themselves and believe the proper way to travel is with a relaxed sense of refinement and untucked luxury. With the results Myriad was able to recommend a new creative strategy that targets the ideal BVI visitor, showcases the destination’s diverse offerings and most importantly, motivates travel. In a study of competitive destinations, it’s no surprise that many islands are comparable when describing features, however the most successful destinations make you feel something from their advertising. Knowing this, Myriad chose to highlight the experience and mindset of travelers on a trip to the BVI rather than the characteristics of the destination itself.

January 2015 Edition

Considered a bold move in an environment that heavily relies on social media shares and word of mouth marketing, Myriad positioned the British Virgin Islands as an adventure travelers are keeping to themselves. The BVI’s new “Keep It To Yourself ” branding campaign communicates a very personalized sense of discovery. The messaging is based on the idea that the BVI is an alluring destination where your personal experience is a rewarding journey only a few have traveled, and it should be kept that way. The visuals also make photographs of the BVI’s locations more rewarding, as if the viewer is being afforded the opportunity to see someone else’s private experience. Building on “Nature’s Little Secrets,” which highlights the destination’s secluded and unspoiled natural state, the new campaign remains a reflection of what the islands truly represent: un-crowded explorations and incredible secrets to be discovered. The “Keep It To Yourself ” theme is also easily tailored to promote industry trends. As seen in advertisements motivating romantic travel, “Let’s Keep This Between Us,” and multigenerational travel “Lets Keep This All To Ourselves.” The British Virgin Islands’ new “Keep It To Yourself ” print and online branding campaign will launch in the United States in winter 2015. See the double page spread on pages 4 and 5. In addition to the new branding campaign, the BVI Tourist Board continues to work closely with the industry partners to increase awareness of the destination in its major source markets. Some of the recent partnerships include the sharing of booths at the major consumer and trade shows, industry partners providing complimentary accommodations, yachts and airline tickets to host travel agents and journalists from the major markets. This year, the BVITB partnered with the IFC and Shipping Registry on a joint advertising campaign with the Robb Report and Elite Traveler magazine to promote the destination.

AHEAD OF THE CURVE

ROSEWOOD LITTLE DIX BAY

50 YEARS YOUNG

January 2015 Edition

n January 18, 2014, Rosewood Little Dix Bay on Virgin Gorda marked 50 years with its golden anniversary celebration.

In honour of the momentous occasion, the resort began a multi-phase “renewal” that includes fully renovated rooms, suites and public areas, as well as chic new dining spaces. “Over the past 50 years, we have provided a haven for our beloved guests, a relaxed and luxurious environment in harmony with our stunning natural surroundings,” said Angus Pitkethley, director of sales and marketing for Rosewood Little Dix Bay. “This renovation project will ensure that this special ambiance will remain intact for the next 50 years, while we maintain the unmatched service and attention to detail that has become a trademark of Rosewood Little Dix Bay.” The first phase of the renovation project was completed in 2014 with the unveiling of five new Tree House Suite accommodations. The guest rooms at the resort are the rebirth of the iconic stilted Tree House Cottages originally built by Laurance Rockefeller, the resort’s founder and designer. Just steps from the ocean, the new suites feature expanded wraparound terraces with sun decks and unobstructed panoramic beach views. Through design and architecture, the new Tree House Suites pay homage to Mr. Rockefeller’s original vision for the resort and his commitment to protecting the environment. Future enhancements to the resort will stick to the ethos of preserving and enhancing the resort’s natural surroundings, and where possible, infusing the local culture and indigenous materials into aspects of the overall design.

Phone: 284-495-5555 • 1 888 ROSEWOOD (767 3966) Email: helen.mcbride@rosewoodhotels.com www.rosewoodhotels.com January 2015 Edition

AHEAD OF THE CURVE

OIL OFFSHORE 2020 ANNUAL MARKET RESEARCH INDICATES GROWTH AND CONSOLIDATION FOR THE INDUSTRY

ince 2010, Offshore Incorporations Limited (“OIL”) has conducted an annual “Offshore 2020” market research. This year over 300 global senior industry stakeholders took part, highlighting major trends and providing insights into the future state of the offshore industry. According to the research, the offshore industry continues to weather a political storm but the industry is emerging strongly, embracing better regulation, more transparency and a higher degree of professionalism. Research respondents say the fundamental role the offshore industry plays in the global financial supply chain is being better recognized. Nearly two thirds of the respondents expect FATCA already enacted in the US to be adopted universally across the OECD by 2017, and 88% anticipate automatic exchange of information between OECD nations within this timeframe. Whilst the debate over the critical balancing act between transparency and privacy with increased regulatory oversight will continue, to ensure that the benefits that offshore structures and financial services bring are not undermined in the process.

Increased regulatory and compliance standards have had a significant impact, with demand switching among jurisdictions. Businesses will gravitate to jurisdictions that are seen as more transparent, offering traditional offshore benefits combined with onshore credibility. As a result, the rise of mid-shore jurisdictions such as Hong Kong and Singapore is seen as inevitable, but the BVI and Cayman Islands retain their competitiveness due to mature infrastructure and efficiency for international holding company structures and fund formations.

Regulations having the most impact on the industry

Jurisdictions by importance

25%

FATCA

41%

Anguila Anti money laundering

In the next 5 years 5%

AIFMD

1.8 2.0 1.6 1.7

Barbados

2.3 2.4

Bermuda

Today

3.4 4.0

The BVI Source: OIL

Source: OIL

Exchange of Information

More Important 1.6 1.7

Bahamas

14%

In the next 5 years Today

Less Important

3.6 3.8

Cayman Islands

13%

2.5 2.6

Guernsey

2.3 2.3

Isle of Man Beneficial ownership disclosure

15%

2.6 2.7

Jersey

*Others include: Savings Directives, UCITS, EU Directives, BEPS, International Trust Act, KYC, bank account opening requirement and compliance, tax transparency initiatives, increased DTAs and accounting standardisation.

Crown Dependencies or British Overseas Territories

2.4 2.4

Cyprus

Europe Mid-Shore Asia

2.8 2.7

Ireland

3.2 3.1

Luxembourg Others

2.5 2.4

Malta

3.0 2.9

Netherlands

Regarding the potential OECD “regulatory end game”, are the following likely by 2017?

YES Publicly available beneficial ownership information The end of the use of offshore structures

What is the likely impact on clients’ business (Scale of 5, 5 being the most significant) Source: OIL

Average Rating

3.7

83%

3.5

93% 57%

Automatic exchange of information between OECD nations

12% 35%

65% 29% 17%

January 2015 Edition

3.5

43% 88%

FATCA will be adopted universally across the OECD

Uniform global (non-tax) regulation such as licensing

17%

A central (non-public) registry of beneficial ownership

Tax accounting standardisation

4.1 3.8

Hong Kong

71% 83%

3.4

Labuan

1.8 1.8 3.8 3.5

Singapore 1.6 1.7

Belize Cook Islands

1.4 1.5

Mauritius

2.2 2.2

New Zealand

2.1 2.0 1.9 2.1

Panama

3.4

Samoa

2.9

Seychelles

2.4 2.4

UAE

2.4 2.2

2.9

USA (Delaware)

1.9 1.9

2.9 2.8

For service providers, higher compliance standards will create a “flight to quality” as well as to increase the costs of running the business, including additional headcount to meet reporting demands, and investing in more advanced IT systems. A “Big Four” in corporate service providers with global resources and capabilities is likely to emerge which have the scale to invest in their product offerings while remaining price competitive.

Client origination by country: Top 10 locations in the next five years

UAE

India

China

Russian Federation

G8 tax G20 tax OECD “White list” transparency transparency push

push

Automatic exchange of information Source: OIL

2002

2009 2010

2013

Regulatory convergence

Singapore

Australia

Source: OIL

13% 10%

9% 6%

OECD TIEA

Taiwan

40%

Roadmap for industry consolidation

Hong Kong

FATCA Automatic exchange of information BO public registry consultation 2014

Consolidation 2002

2014

“Big 4” corporate service providers

Private equity investment 2014 2004

2008

2010 2011 2012 2013

Doughty Carlyle Hanson & Co Group acquired acquired TMF Group OIL

HG Capital acquired ATC

IK Investments Partners acquired OIL

Doughty Hanson & Co Fund V acquired Equity Trust

OIL merged with Vistra

Blackstone Group acquired Intertrust

TMF Group acquired KCS Blackstone Group acquired ATC Intertrust merged with ATC

Preferred jurisdictions for outbound China investments

The BVI

Jersey

Hong Kong

Samoa

Others*

40%

TMF Group merged with Equity Trust

33%

Source: OIL

5% 2%

China will continue to be a major growth driver for new business within the industry. Chinese outbound direct investment continues to grow, reaching US$90 billion in 2013, up from US$60 billion just two years ago, with more than three quarters said to be corporate M&A related. Hong Kong and the BVI were cited as preferred jurisdictions for China outbound business by a wide margin.

Seychelles

*Others include Labuan, Luxembourg, United Arab Emirates, Ireland, Cayman Islands, and the UK.

Jonathon Clifton, Managing Director, Asia of OIL said, “The industry has faced its share of storms over the past few years but we believe it is emerging stronger for it. Obliging the industry to conform to a higher standard is essential to its long-term health and those that are able to offer a genuine value proposition will be well placed to benefit from both the industry consolidation to come, as well as the opportunities from the evolving needs of clients operating in today’s increasingly complex global financial markets.” Each year, OIL hosted roundtable events to launch the research report and this year OIL Offshore 2020 roundtables were held in nine different locations including Hong Kong, Singapore, Shanghai, Taiwan, Dubai, the BVI, Cayman Islands, London, Cyprus; with more than 900 participates.

January 2015 Edition

AHEAD OF THE CURVE

BVI LEADERSHIP IN THE EU ARENA

Left to Right: Mr. Eleftherios Tsiavos, Head of Sector Facilities Management – Financial Instruments, DG DEVCO; Mr. Markos M. Tipolitakis, ACP Delegate at Permanent Representation of Greece to the EU; OCTA Chairman, Premier Dr. Hon. D. Orlando Smith, OBE; and Mr. Theo Saramandis, Head of the OCT Task Force, European Commission.

n late February 2015, the BVI will play host to high-level representatives of the European Union (EU), Overseas Countries and Territories (OCTs) and EU Member States at the 13th OCT-EU Forum on Tortola. High on the agenda will be cooperation on strengthening the economic and environmental resiliency of the OCTs as they pursue sustainable development.

The forum and other closely related meetings to be held over the course of several days will be the culmination of Premier Dr. Hon. D. Orlando Smith, OBE’s term as Chairman of the Overseas Countries and Territories Association (OCTA) headquartered in Brussels, Belgium. Premier Smith as OCTA Chairman has internationally represented the 22 OCTs associated with the EU by the Overseas Association Decision (OAD), which are also constitutionally linked to one of four EU Member States that include Britain, Denmark, France and the Netherlands. The theme of his chairmanship ‘Unlocking the value of the OCTs: Sustainable development through innovation, competitiveness and green growth’, was selected based on OCTA’s identification of these three pillars of sustainable development as the keys to building OCTs’ economic and environmental resilience. By focusing on these areas, the OCTs have the potential to become centres of excellence, regional hubs and pilots in several economic and environmental sectors involving services, research and development (R&D), and information and communication technology (ICT). Under Premier Smith’s OCTA Chairmanship, the BVI has raised the profile of the OCTs internationally and in the EU. Among the list of successful activities and initiatives are: • A financial services policy dialogue in Brussels co-chaired by the BVI and European Commission • BVI representation of the OCTs at the EU’s Mapping and Assessment of Ecosystems and their Services (MAES) conference • BVI representation of the OCTs at high-level talks between OCTA and the European Commission’s Directorate Generals for Environment and Development Cooperation-EuropeAid • BVI representation of OCTA at the United Nations (UN) Third International Conference on Small Island Developing States in Apia, Samoa

Left to Right: OCTA Chairman/Premier of the BVI Dr. Hon. D. Orlando Smith, OBE shakes hands with Mr. Marcus Cornaro Deputy Director General for Geographic Cooperation at DG DEVCO-EuropeAid

• BVI and OCTA co-organisation of the Guadeloupe International Conference on Biodiversity and Climate Change In the lead up to the 13th OCT-EU Forum, the Premier will seek to build support for OCTA in the European Parliament where a stronger voice for the OCTs is needed. January 2015 Edition

AHEAD OF THE CURVE

ENTER BORRELLI WALSH Following a long-standing friendship and association with Meade Malone and MWM Corporate Services, the firm’s founders, Cosimo Borrelli and Jacqueline Walsh, have now formalised their association with Mr Malone and jointly established Borrelli Walsh (BVI) Limited. Borrelli Walsh has been involved with BVI over the last 15 years, primarily through taking joint appointments as liquidators and receivers over BVI companies with operating businesses and assets in PRC, Singapore, Indonesia, Russia and internationally. With an increasing focus on BVI throughout Asia (and on Asia throughout BVI) having the right resources on the ground in BVI has become increasingly important for the firm and its clients. Nilani Perera has relocated from the firm’s Hong Kong office to head the BVI office and work alongside Mr Malone. Mr Borrelli and Ms Walsh will also play increasing roles in the BVI practice.

n August 2014, Borrelli Walsh opened its office in the British Virgin Islands. Borrelli Walsh is a leading independent restructuring, insolvency and forensic accounting firm headquartered in Hong Kong with additional offices in Singapore, PRC and Indonesia.

The firm has been involved in some of Asia’s largest and most difficult corporate collapses and investigations in recent years. In particular, Borrelli Walsh made headlines around the world as Chief Restructuring Officer of Berlian Laju Tanker, the dual-listed Indonesian shipping company and as liquidators of Akai, a Hong Kong-listed electronics conglomerate that was, at the time, Hong Kong’s largest corporate collapse. Borrelli Walsh also recently made a significant breakthrough in taking control of PRC subsidiaries with a landmark Supreme People’s Court decision relating to an insolvency practitioner’s authority and power to change PRC Legal Representatives and developed (and continues to develop) an innovative asset management solution involving an ownership structure for and acting as General Partner and Investment Manager for distressed or troubled portfolios.

January 2015 Edition

Ms Perera has over 10 years of experience, including 4 years in the firm’s Hong Kong office where she advised on cross-border assignments including PRC, and three years in the Cayman Islands. Mr Malone is well known throughout BVI. He is a Licensed Insolvency Practitioner with over 20 years’ experience. Mr Malone’s experience includes being appointed by Courts as Liquidator on behalf of lenders, financiers, secured and unsecured creditors, investors and other interested parties. This partnership will combine the firm’s Asian and offshore skills and experience to provide a seamless cross-border service between its offices in BVI, PRC, Indonesia, Hong Kong, Singapore and internationally, around the clock.

PETER ISLAND RESORT & SPA

EYE ON THE FUTURE

eter Island Resort & Spa broke ground in April this year launching the resort’s Beautification Project which includes innovative plans and enhancements to the resort’s Marina and A-frame Ocean Cottages. To ensure a continued high quality guest experience, the Beautification Project is being rolled out in phases for completion by March 31, 2015. Phase 1 is now completed and phase 2 is well underway which entails room makeovers and bathroom renovations for all 32 Ocean View Cottage units. A new Ocean View Deluxe Room category is also being launched with units located on the cottages’ ground level with French doors opening out to private garden patios. Bathroom renovations include a redesign with new, large, pebble-floor, walk-in showers for all the units and stand-alone soaking tubs for the Ocean View Deluxe Rooms. Luxury amenities for all include IPod alarm clocks, fine cotton waffle robes, Nature Bissé bathroom products, mini-bars stocked with complimentary beverages and the resort’s signature flip flops. Phase 2 will be completed by December 1, 2014. The final phases of the project will reinvent the resort’s arrival experience. Once completed, guests will be welcomed in a brand new reception area just steps from the dock. The welcome area will be a covered, open-air, bohio-style building with a guest

lounge with an indoor waterfall. By relocating the welcome area closer to the dock, the arrival process is streamlined so guests can begin their vacations that much sooner. Marina facilities are getting a complete overhaul and expansion including a new sea wall, new and expanded Dive Shop, a Captains’ Lounge with restrooms and WiFi, a Commissary and a Marina Office. Guest feedback has been very supportive and positive throughout the project thus far and this is expected to continue throughout the final phases of the project. “We are excited to perfect our slice of paradise and to be making enhancements to our Ocean View Cottages and Marina that will ensure that the guest experience continues to exceed expectations,” states General Manager, Wilbert Mason. “The sense of arrival guests experience when they get to Peter Island is special. It’s their ‘Welcome to Fantasy Island’ moment. This project takes that ‘We’ve Arrived!’ exhilaration to a new level. The very moment guests sail around the bend into Sprat Bay and step ashore, they will know you’ve reached ‘that place’ that is paradise in paradise.” Phone: 800-346-4451 or 616-458-6767 Email: reservations@peterisland.net www.peterisland.com

January 2015 Edition

AHEAD OF THE CURVE

PIRATES IS BACK!

irates Bight Restaurant on Norman Island is back, bigger and better than ever. The restaurant reopened for its second season since the tragic fire that destroyed the original establishment in October 2013. However, like a phoenix rising from the ashes, Pirates has managed to rebuild and preserve its chic beach-lounge aesthetic beloved by long-term visitors and make some exciting enhancements. The most noticeable change is the new open-air beach Pavilion which will cater to special events and private parties. The Pavilion will feature bottle wine service and a tapas menu designed by Chef Patrick Williams and Chef Xavier Gili from Guana Island. Both the Pirates Bight Restaurant and the Pavilion are open and running to provide patrons a wonderful opportunity to enjoy delicious Caribbean cuisine and stellar service on Norman Island. Let Pirates Bight make your next event something truly memorable, contact Jessica Blackman (284) 442-5882.

January 2015 Edition

AHEAD OF THE CURVE

MULTIGENERATIONAL NUT HOUSE

ost people know Oil Nut Bay (ONB) for its luxurious and innovative villas that have some of the most stunning views in the BVI. However, ONB developer Mr. David Johnson has also kept in mind future generations that will eventually call ONB their home. The Nut House Kid’s Club and Nature Centre is one of the resort’s unique features that offers a range of activities and programming designed for the entire family, while encouraging respect for the land and sea. The ageappropriate activities for younger children and teenagers, include experiments and hands-on interactions designed to teach them about the Territory’s history, flora, fauna and environment. The centre hosts’ group activities twice a day, in the morning and afternoon. The facility also provides “free time,” during which the children and parents can enjoy the facility. Additionally, the resort has a “Parents Night Out,” where the kids can enjoy nighttime activities, while the parents enjoy an evening together. Located in the heart of the development, the centre is housed in a Balinese-style hut adjacent to the four tennis courts “The Nut House is an area where we want parents to feel safe and comfortable leaving their children, but also feel welcome to join in the fun,” Mr. Johnson said. “Creating events where the entire family can be together, enjoying one another will remain the centerpiece of our vision as a generational community.”

Phone: 284 393 1000 • 800 761 0377 Email: info@oilnutbay.com www.oilnutbay.com 36

January 2015 Edition

AHEAD OF THE CURVE

GUANA ISLAND RESORT #2 ON CONDE NAST TRAVELER’S BEST CARIBBEAN RESORT LIST Check into this Guana Island cottage, Fallen Jerusalem (named after an island near Virgin Gorda), and you will be rewarded with views of both the Caribbean and the Atlantic and a terrace so private that you can sunbathe naked—or do just about anything else that takes your fancy. To reach the island, you fly to Tortola, where the Guana Island staff escort you to the dock and the motor launch for the ten-minute ride to the island. Phone: 1-800-544-8262 Email: reservations@guana.com www.guana.com

January 2015 Edition

R E B R A N D I N G As the Leadership of MWM Global Holdings (MWM) look to the future, one thing is clear -- “CHANGE” is coming. While this has always been the case, what is different about change this time around is that it has the potential to fundamentally alter the foundation of financial services in the British Virgin Islands, on which our Firm is built. As a result, the question we now ask ourselves is no longer, “What can we do to keep up with the rest of the world?”, but rather, “ What can we do to STAND OUT from the rest of the world?” Out of that place of questioning came forth the strong belief that the only way forward lies in changing the way we DO and SEE business so that we can transform the future of our business.

The icon itself points the Firm and its services towards the future, unbounded by its past so that it has the freedom to seek out new opportunities as they arise within the scope of our vision for the future.

The result has been the transformation of our brand from a collection of different logos, messages, and images, to one cohesive brand united with the vision of becoming, “A Global Leader in Inspiring and Helping Businesses Succeed”. We strive to accomplish the vision through the integration of the principles of the Six Pillars of Success into every area of our business as we move forward into unfamiliar territory – doing it “The MWM Way”. To reflect this new direction, our branding encompasses the following elements:

The variation in the colours of the MWM logo reflect a grounding in the services that our firm has traditionally delivered to our clients, while adding the additional ingredient of the principles of the six pillars of success -- Giftedness, Vision, Discipline, Productivity, Patience, and Integrity. The lightening of the blue as it extends upwards symbolises our optimism about the future.

The MWM Business Network branding represents the platform where we engage clients, professionals, and business owners in what we believe is a revolution in how to see business so that together we can transform the future of business in the British Virgin Islands and beyond. In summary, our new branding embodies a company continually positioning itself to navigate skilfully into an uncertain future, while holding to the strong commitment to deliver the world class services that are essential for business success – and we’re doing it “The MWM Way”!

January 2015 Edition

life cycle in order to give our students the time needed to complete the curriculum and hence allow them to be ready when they leave the secondary level to go on to tertiary education or the world of work,” Hon. Walwyn said.

ideas about the challenges and opportunities that Asia and the BVI face in the global financial services space. The one-day conference featured an extensive high level roster of speakers from the BVI, Hong Kong, Shanghai, Singapore and Shenzhen including British Consul General of Hong Kong, Macau Caroline Wilson, the BVI Premier and Minister for Finance Dr. the Hon. D. Orlando Smith, OBE, Managing Director and Chief Executive Officer (CEO) of the BVI Financial Services Commission (BVIFSC) Robert Mathavious, Commercial Court Judge, Justice Edward Bannister and Director of BVI House Asia, Elise Donovan to name a few. The conference sought to generate ideas and solutions through discussions on a wide range of presentations and panels.

Preparing for Global Competition In 2014, the BVI education system was amended to increase the number of years of schooling in an attempt to better prepare students for the work force and to conform to international standards. Instead of 12 years of education, students are now required to complete a combined 13 years in primary and secondary school before receiving a high school diploma. “The demands of the economy are requiring that the education system provide students with the opportunity to compete for the best jobs,” Education and Culture Minister, Hon. Myron Walwyn said during the sixth sitting of the third session of the House of Assembly. “However, many have been falling short of expectations both at the workplace and higher education institutions. An additional year will help to give them this advantage.” Data from the business community and the H. Lavity Stoutt Community College (HLSCC) helped to determine that many students leaving secondary school were unprepared and unable to cope with college. Stages, classes and forms have been replaced with grades - Kindergarten through Grade 12. The Education Minister is hoping that the remodeling will facilitate a smoother transition for students throughout the region and internationally. “We are adding an additional year to the school 40

January 2015 Edition

Business BVI Pivots to Asia On September 11, Business BVI launched its inaugural Annual Asian Conference in Hong Kong. The conference theme was “Pivoting to Asia – The Pathway to New Opportunities. More than 120 high-level executives and stakeholders attended the conference to discuss the evolving global financial landscape and share

“Business BVI was pleased to convene this conference, which we see as a much needed opportunity for the leading decision makers of the BVI financial services sector, both public and private, to meet and discuss the key challenges and opportunities facing the future of this vital sector of the BVI economy,” said Mr. Russell Harrigan, Managing Editor of Business BVI and conference organiser. “The idea is to gather annually, the best minds in the offshore industry in what is the BVI dominant market, Asia, to discuss and strategise how to ensure that the BVI retains its position as a leading global financial services centre.”

Moving Cruise Tourism to the Next Level The BVI is forging ahead with a $35-million cruise ship pier and park development project to stay ahead of the curve. The project includes an expanded, widened and strengthened dock and the development of first time landside facilities including a welcome centre, immigration and customs services, restaurants and shopping amenities. Road Harbour is also being dredged to accommodate larger vessels. The dock will be extended from 755 to 1,299 feet and widened from 32 to 45 feet to accept the new generation of cruise vessels. “If the BVI is to keep pace with the global cruise industry trend towards larger ships accommodating more than 3,000 passengers, then we must act swiftly to upgrade our port facilities and enhance the visitor experience,” Communications and Works Minister, Hon. Mark Vanterpool said. “As a Government and a people, we have already established that this project is crucial to the economic development of this Territory as we seek to enhance our allimportant tourism industry.” IDL Projects/Meridian Construction Ltd. was the awarded the contract for the project with a bid of $30,774,525.00 The BVI Ports Authority expects 297 cruise ship calls to port between October 2014 and April 2015 bringing more than 600,000 passengers. The BVI Government has signed berthing agreements with Disney and Norwegian Cruise Lines guaranteeing a total of 425,000 passengers every year beginning in mid-2015.

BVI Launches Culinary Month For the second consecutive year, the BVI Tourist Board (BVITB) has hosted a multi-day food event to improve the Territory’s tourism product and showcase the culinary talent the BVI has to offer. In today’s competitive market, BVI tourism officials are well aware that “sun, sand and sea” are not enough to attract the lion’s share of visitors to the region. In 2013 the BVI Tourist Board launched its first Anegada Lobster Fest which was rebranded last Fall as the BVI Food Fete and features a month of events at various venues throughout the Territory. Celebrity chefs, market-style expos, cooking competitions, pub crawls and rum tastings are just a few of the events planned. “In all of our research and our travels within the last few years, we’re seeing that culinary driven events are major tourism trends worldwide,” BVI Director of Tourism Ms. Sharon Flax-Mars said.

Meeting the Growing Trend for Private Jet Travel Coming and going to the BVI has been made easier and more comfortable since IAM Jet Centre Tortola, an exclusive boutique fixed-base operator (FBO), opened its doors at Terrance B. Lettsome International Airport in early 2014. “Since launching IAM Jet Centre Tortola this year, we have received extremely positive feedback from the private jet community. Business jet activity over the summer months exceeded our expectations and is a source of great encouragement as we eagerly anticipate a very active winter season,” said Mr. Thomas Harper of the IAM Jet Centre’s Business Development Unit. Mr. Harper added that the IAM Jet Centre continues to work with the BVI Tourist Board January 2015 Edition

to promote the Territory as a luxury tourist destination.

BVI office as we continue to grow and invest in the BVI, while our litigation practice continues to work on some of the jurisdiction’s most complex and demanding cases. I look forward to contributing to this process in my new role as we build on our excellent practice here in the BVI.”

“Our local team is now fully trained and certified according to the standards set by the business aviation trade,” Mr. Thomas said. “Over the past months, they have been actively involved in ongoing promotional efforts, raising the profile of the BVI as a location which is friendly to business aviation and the high-end traveler.” The FBO serves high-end clientele who rendezvous in the Caribbean aboard luxury mega yachts or at resorts.

Nanny Cay - A Centre of Excellence in Yachting One of the Territory’s largest marinas is currently undergoing a $30-million expansion, which will add 120 slips.

The IAM Jet Centre opened on Tortola during the company’s 25th year of service, is the fourth in the region, joining Grenada, Barbados and Montego Bay, Jamaica. IAM Jet Centre, Tortola features in-house customs and immigration processing, an elegant lounge and meeting spaces, high speed Wi-Fi access, ground and boat shuttle transportation, reliable jet fuel supply, state-of-the-art security screening and trained and focused customer service staff. “Tortola is the commercial centre of the British Virgin Islands, serving as the official seat of Government as well as the gateway for the Territory’s world renowned international financial services industry and its spectacular marine tourism — featuring amazing gem-like islands scattered in every direction and set in pristine turquoise water,” IAM Jet Centre’s Group Managing Director, Mr. Paul Worrell said. “Many of these islands are seasonal homes and getaways for some of the world’s leading personalities. Fabulous exclusive resort communities like Oil Nut Bay complement purpose built marina facilities designed to cater to luxury super yachts, and which will contribute to the steady growth of high-end tourism to the BVI. The opening of our elegant new jet centre will further enhance this effort,” he added.

Moving Up the Ladder BVIslander Jerry Samuel was promoted to partner at Conyers Dill & Pearman in April, 2014, after joining the firm in 2008. The experienced litigator covers all aspects of commercial and civil litigation, including representing clients before the Commercial Court in matters related to insolvency, cross-border relief and assistance, contract disputes, urgent interim relief, shareholder disputes, enforcement of judgments, security enforcement and asset tracing. His practice involves working closely and regularly with international legal teams on various types of multi-jurisdictional transactions. The BVI lawyer is internationally recognised for his expertise and has been named a “leading lawyer” by Legal 500. Additionally, Mr. Samuel is an integral member of the Conyers BVI office’s litigation and restructuring team, which recently continued its band one ranking in Chambers Global. The directory praised the practice and noted its “excellent reputation for handling some of the BVI’s largest and most complex disputes.” “Jerry is an excellent litigator, advising on some of the BVI’s most substantive cases,” said Mark Forte, Head of Litigation and Restructuring. “With his depth of knowledge and on-theground experience, he is a valuable resource for our clients seeking expert counsel on a wide variety of litigation matters.” Conyers is an international law firm advising on the laws of Bermuda, the BVI, the Cayman Islands and Mauritius. The firm has a global network that spans over eight offices worldwide. “I am grateful for this accomplishment and I am delighted to join the partnership at Conyers,” Mr. Samuel said. “This is an exciting time for our

January 2015 Edition

The expansion plans have been in the works since 2009 and work started in October, 2014. The project is estimated to create more than 100 jobs, according to developer Mr. Cameron McColl. “We believe the economic effect will be substantial. We’re working hard to make Nanny Cay a centre of excellence in boats and the boat repair business and we’re seeing more and more businesses seeking to be based there,” Mr. McColl said. The 2012 master plan for the expansion called for a narrow breakwater to protect the slips, but amendments to that plan approved by the Town and Country Planning Department will now see it widened to 180-feet and become the site for eight townhouse units. “This expansion will further strengthen Nanny Cay’s position as a leading marina and boatyard

in the Caribbean. This significant investment shows our commitment to the British Virgin Islands and our confidence that it will maintain its position as the sailing capital of the world,” said Nanny Cay General Manager, Mr. Miles Sutherland-Pilch.

forward to the BVI working with Shenzhen to explore opportunities for the BVI, for example, development planning, trans-shipment and financial services.” During the week-long visit, the Premier’s schedule included a meeting with the Director of Immigration, Hong Kong Mr. Eric Chan; a presentation to the Hong Kong General Chamber of Commerce; hosting the BVI House Asia first anniversary reception; presenting recognition awards to firms and individuals who have been strategic partners with the BVI for more than 25 years; delivering the keynote address during the inaugural Annual Business BVI Asia conference.

The expansion will also include more parking, additional cameras and enhanced security. As part of its development agreement with TCP, the marina plans to contribute to H. Lavity Stoutt Community College’s marine training programme, which Mr. McColl said would have far-reaching benefits. “This is a venture that the community as a whole will benefit from as a result of this arrangement,” he said. “What we’re trying to do, wherever possible, is to find training courses that are recognised elsewhere in the world because these bring added value to participants.”

Doubling Down on ASIA Premier Dr. the Hon. D. Orlando Smith, OBE traveled to Asia in September to strengthen the Territory’s economic and financial services relations. During a weeklong visit the territory’s leader met with business leaders, government officials, the media, financial services practitioners and clients in Hong Kong and elsewhere in that region. The visit coincided with the first anniversary of

Guana Island Honored for Biodiversity Conservation the opening of the BVI House Asia in Hong Kong and the 30th anniversary of the International Business Companies Act. “The Asia Pacific region continues to be a fundamental market for the British Virgin Islands,” Dr. Smith said. “Around half of our financial services business emanates from the region, and given its increasingly influential role in the global economy, Asia represents a significant economic opportunity for the BVI both in terms of financial services as well as tourism. A primary focus for the jurisdiction is to continue to be a trusted business partner for our Asia stakeholders and to support their ongoing economic success.”

Guana Island won the Caribbean Tourism Organization’s Biodiversity Conservation Award for 2014 at the State of the Industry Conference in St. Thomas. The award, judged by a panel of tourism and environmental specialists, showcases sustainable tourism best practices in the Caribbean. For over three decades, Guana Island has hosted research and conservation efforts led by The Conservation Agency and Texas Tech University. Scientists from around the world conduct projects on endangered plants and animals, including the critically-endangered Stout iguana, restored to Guana Island in 1984 and now flourishing on the island.

Acting Permanent Secretary in the Premier’s Office, Mr. Broderick Penn and Managing Director and CEO of the BVI FSC, Dr. Robert Mathavious accompanied the Premier to Asia. Dr. Smith met with Mr. John Tsang Chun-wah, the Financial Secretary of Hong Kong, to discuss the continuing evolution of offshore centres in Asia and other crucial issues related to offshore and mid-shore financial centres, as well as room for mutual collaboration. As a follow-up to the two MOUs signed in January, the BVI delegation visited the city of Shenzhen. “The developments of Shenzhen are remarkable,” Dr. Smith said. “I was proud that through our business companies (BCs), the BVI played a critical role in that development. I am looking January 2015 Edition

importance of the 30th anniversary of the International Business Company (IBC) Act. “One of the many strengths of the IBC lies in the way the original legislation that established it and the subsequent updates and refreshments were developed — that is, through close collaboration between the regulator, private sector and government to develop an attractive solution to new challenges which were then facing the international business community,” he said. He acknowledged the relevance of his trip Hong Kong to celebrate the momentous occasion, given the integral role that BVI I business company play in Asia’s business activity. The result of this collaboration over many years is that BVI companies have been kept simple, accessible, appropriate and cost-effective for myriad asset and wealth management purposes, including joint ventures and transactional business. Safeguarding Sharks In May 2014, the BVI established a permanent shark sanctuary in its waters. Extending to include about 30,933 square miles, the sanctuary protects sharks and rays species from commercial fishing. This includes a ban on the sale and trade of shark products within the Territory.

2011. According to Pew, other countries have agreed to establish shark protection areas by May 2015, including the Dominican Republic, Grenada, Jamaica, Puerto Rico, St. Kitts and Nevis, St. Lucia, and St. Vincent and the Grenadines

“Hong Kong has long been one of the BVI’s most valued strategic partners and I am particularly pleased to see how our relationship has matured and strengthened over the years – notwithstanding the challenges that we have both had to face as the global economy transitions to a new normal,” Dr. Mathavious said. He expressed the opinion that the BVI Asia House has helped bridged the gap between the BVI and Asia. “I know many of you here today have pressed long and hard for the FSC to have a physical presence here,” he said.

The BVI waters are home to several threatened or near-threatened shark species including the oceanic whitetip, scalloped hammerhead, tiger and Caribbean reef sharks. “Our people are committed to sustainably managing our resources,” said Dr. the Hon. Kedrick Pickering, who is the Deputy Premier and Minister for Natural Resources and Labour. “We recognise that sharks are important to our oceans and our reefs and that the best way to manage their populations is to let them fulfill their ecological role as apex predators.”

Michelle Georges was recently appointed as the FSC’s representative at BVI Asia House and will act as the “bridge” between the Hong Kong business community and the FSC’s office in the BVI.

The Fisheries (Protected Species) Order 2014 punishes offenses with a fine of up to $1,000.

Virgin Gorda Voted Top Caribbean Island By Travel + Leisure

Dr. Pickering hopes the sanctuary will not only protect sharks and rays, but will strengthen the Territory’s fisheries and coral reef habitats.

The BVI Tourist Board was thrilled last summer to share news of the “World’s Best Awards” 2014 reader’s survey from Travel + Leisure, whereby Virgin Gorda was ranked the Top Island for the Caribbean, Bermuda and the Bahamas. Virgin Gorda was also ranked No. 8 on the Travel + Leisure World’s Best Awards 2014 list of Top Islands Overall.

“We applaud the British Virgin Islands for protecting its valuable shark populations,” said Ms. Imogen Zethoven, Director of Global Shark Conservation for The Pew Charitable Trusts. “It is our hope that the leadership demonstrated here will reverberate throughout the Caribbean.” The BVI is the third Caribbean jurisdiction to protect sharks, following the Bahamas and Honduras, which became shark sanctuaries in 44

January 2015 Edition

Navigating the Global Regulatory Landscape In a speech to more than 120 people at the inaugural Business BVI Asia conference in Hong Kong, Managing Director and CEO of the BVI FSC, Dr. Robert Mathavious highlighted several key initiatives that have helped shape and navigate the financial services industry. In his speech, Dr. Mathavious recognised the

“This is indeed good news. Part of my Government’s vision for our tourism industry is to create a captivating and safe tourist destination,”

said Premier and Minister for Tourism, Dr. the Honorable D. Orlando Smith OBE. “Though the natural beauty of our islands is exquisite, we are constantly seeking ways to develop attractions to add to the BVI tourist experience. We are strengthening our product and adding to our current tourism menu while exploring ways to make our offerings more attractive and relevant for new and repeat visitors.” Premier Smith added, “We will continue to establish BVI as a global brand, welcome more visitors to our shores streamline processes to attract investors; continue to create efficiencies and fresh market opportunities and most of all work with the private sector to make our tourism industry even more vibrant; providing the ultimate, unique visitor experience.”

Travel At Your Service Virgin Gorda’s transportation choices stand to benefit from a product boost as At Your Service Executive Transportation launched into the market on Saturday, November 1. Catering to VIPs, executives, locals and tourists the service is used for special events, weddings, anniversaries, and dinner nights in Virgin Gorda. The company has in its fleet a couple luxury vehicles, a Cadillac Escalade and a Chevy Limousine styled van. “Virgin Gorda is very unique so a unique product was introduced. There’s a certain discerning clientele that requires this is the kind of service because this is what they are accustomed to,” said

Mr. Trefor Grant, the man at the helm of the new company. “I think the locals and visitors alike will love this additional transportation choice. It’s a great service being offered and offered professionally.” Mr. Grant is also Chief Operations Officer, Driftwood Resorts, which manages Nail Bay Estates and Resort and Anegada Beach Club. His unique experience in the tourism industry managing hotels and properties has led to the formation of the transportation company. Once a customer charters a vehicle they will be chauffeur driven to their destination. Prices vary based on destination, time and basically what the client demands. “This is an added service that adds a level of luxury and personalized service that persons who come to Virgin Gorda appreciate, whether it be with friends, relatives or guests, just relax and enjoy the ride with At Your Service” said Mr. Grant. Travel in style and comfort with Travel At Your Service. Contact the company at 1-284346-5883

BOOKSHELF

We hope that you enjoy our selection of current books on leadership, politics, management, economics, business and geopolitics that we trust will provide insight and ideas and above all, will be fun reading.

The End of Greatness: Why America Can’t Have (and Doesn’t Want) by Aaron David Miller The End of Greatness takes a journey through presidential history, helping us understand how greatness in the presidency was achieved, why it’s gone, and how we can better come to appreciate the presidents we have, rather than being consumed with the ones we want.

“It’s time to abandon our illusions and take a more realistic view of the presidency…A provocative and highly readable analysis.”— Kirkus

The End Of Normal

Review

by James K Galbraith

“Galbraith puts his pessimism into an engaging, plausible frame. His contentions deserve the attention of all economists and serious financial minds across the political spectrum.” —

Today, four factors impede a return to normal. They are the rising costs of real resources, the now-evident futility of military power, the labor-saving consequences of the digital revolution, and the breakdown of law and ethics in the financial sector. The Great Crisis should be seen as a turning point, a barometer of the rise of unstable economic conditions, which should be regarded as the new normal. Policies and institutions going forward should be designed, above all, modestly, to cope with this fact, maintaining conditions for a good life in difficult times.

The Education Of The Value Investor by Guy Spier This book traces the arc of a transformation. Author Guy Spier started his career as a Gordon Gekko wannabe -- brash, short-sighted and entirely out for himself. Then, a series of transformations and self-realizations led him from an investment banking job with a third-rate firm to managing his own fund, which has generated tremendous returns for his investors.

Review

January 2015 Edition

(Publishers Weekly

The Elephant and the Dragon

Review

by Robyn Merredith

“A comprehensive primer on the development of these Asian tigers.”—

The Elephant and the Dragon is the essential guide to understanding how India and China are reshaping our world. With labor now unbound from geographic borders, we’re seeing startling shifts in how—and where—nearly everything we buy is made. In a compelling mix of history and on-the-ground reporting, veteran journalist Robyn Meredith untangles the complex web of business and politics, as well as environmental and cultural issues that entwine India, China, and the West.

Ninety Percent of Everything: Inside Shipping, the Invisible Industry That Puts Clothes on Your Back, Gas in Your Car, and Food on Your Plate

by Rose George Ninety Percent of Everything reveals the workings and perils of an unseen world that holds the key to our economy, our environment, and our very civilization.

Leaders Eat Last: Why Some Teams Pull Together and Others Don’t by Simon Sinek

Noam Lupu, San Francisco ChronicleKirkus

Review “George provides an engaging, much-needed, and in-depth tribute to shipping’s essential role in providing worldwide goods and services.”— Carl Hays

Review “As refreshingly simple and easy to follow as it is thought-provoking.” —

In his travels around the world, Simon Sinek noticed that some teams were able to trust each other so deeply that they would literally put their lives on the line for each other. Other teams, no matter what incentives were offered, were doomed to infighting, fragmentation and failure. Why? The answer became clear during a conversation with a Marine Corps general. “Officers eat last,” he said.

Management Today

All The Truth Is Out: The Week Politics Went Tabloid

Review

by Matt Bai Yahoo’s national political columnist and the former chief political correspondent for The New York Times Magazine brilliantly revisits the Gary Hart affair and looks at how it changed forever the intersection of American media and politics.

“Matt Bai is right to see the story of Gary Hart’s downfall as a singular moment in American politics.”— The Washington Post

January 2015 Edition

The Virgin Way

Review

by Richard Branson

‘’[Branson’s] business instincts are matched by an ability to motivate people who work for him. And who wouldn’t want to - Branson seems hellbent on making sure that everybody, but everybody, is having as much fun as he is.’’—

Now Branson gives an inside look at his strikingly different swashbuckling style of leadership. Learn how fun, family, passion, and the dying art of listening are key components to what his extended family of employees around the world have always dubbed (with a wink) the “Virgin Way.”

Time

How We Got To Now

Review

by Steven Johnson

“A great science writer.” —

From the New York Times–bestselling author of Where Good Ideas Come From and Everything Bad Is Good for You, a new look at the power and legacy of great ideas.

Bill Clinton

The Road to Mozart

Review

by Ketil Bjørnstad

“musically tuned and painfully vulnerable … the protagonists will be remembered long after the reading is finished.” —

“Way to Mozart” is a biography based on Mozart’s letters and new research. But it is also a book where Ketil Bjørnstad tells of his first encounter with Mozart, in the living room at home at Roa . He writes about what it was like to grow up with a composer he still plays every day. It is also about choices Ketil Bjørnstad had to take early in life, when he jumped off his career as a classical pianist performing and instead sought a future as a writer, composer and jazz musician.

The Key: How Corporations Succeed in Solving the World’s toughest Problems by Lynda Gratton In The Key, Gratton maps out how bringing resilience to a fragile world starts with what happens inside a corporation—when intelligence and wisdom are amplified, emotional vitality enhanced, and social connections harnessed. She explains how corporations can leverage this inner resilience to help solve global problems and how a corporation’s unique innovative, scaling and mobilizing, and alliance building capabilities—are some of the tools for combating global ills.

January 2015 Edition

Ole Jacob Hoel, Adresseavisen

Review “In this important book, Gratton shows how companies can both build resilience for the future and make a positive difference in the world.”— Martin Gilbert, CEO Aberdeen Asset Management

World Order by Henry Kissinger Henry Kissinger offers in World Order a deep meditation on the roots of international harmony and global disorder. Drawing on his experience as one of the foremost statesmen of the modern era—advising presidents, traveling the world, observing and shaping the central foreign policy events of recent decades— Kissinger now reveals his analysis of the ultimate challenge for the twenty-first century: how to build a shared international order in a world of divergent historical perspectives, violent conflict, proliferating technology, and ideological extremism.

Review “It is vintage Kissinger, with his singular combination of breadth and acuity along with his knack for connecting headlines to trend lines.”— Hillary Clinton

Worthy Fights

Review

by Leon Panetta

“Worthy Fights is Panetta’s addition to the Cabinet bookshelf, and it’s very readable, with the frank descriptions of personalities and events that distinguish this genre at its best.”—

The inspiring and revelatory autobiography of the defense secretary and CIA director who led the intelligence war that killed Bin Laden, among many important roles in a legendary career.

The Washington Post

Where Good Ideas Come From

Review

by Steven Johnson

“Another mind-opening work from the author of Mind Wide Open.” —

The printing press, the pencil, the flush toilet, the battery--these are all great ideas. But where do they come from? What kind of environment breeds them? What sparks the flash of brilliance? How do we generate the breakthrough technologies that push forward our lives, our society, our culture? Steven Johnson’s answers are revelatory as he identifies the seven key patterns behind genuine innovation, and traces them across time and disciplines.

Publishers Weekly

The Fracking Truth by Chris Faulkner The Fracking Truth is a primer on America’s ongoing energy revolution, but it’s also a call to action. The oil and gas industry has failed itself and failed the American public by doing a poor job of educating the public on fracking and related technologies that have created the American energy revolution.

January 2015 Edition

BUSINESS

January 2015 Edition

BUSINESS - GLOBAL

FORENSIC TECHNOLOGY IN THE INFORMATION AGE by Andrew Seeckts and Sean Theron

n the past five years, we have seen more developments in technology than in all the years before that combined. Technology is fast, easy to access and paperless. While those developments have assisted us with our daily lives, they have also become tools for perpetrators of fraud to deceive innocent people and avoid detection. Criminals use technology to disguise their illegal dealings, and to move funds across jurisdictions. Their operations are complex and they deploy significant resources to evade detection. It is therefore imperative that the professionals investigating fraudulent behaviour keep pace. A new breed of investigator, the technology forensic professional, has developed. These professionals identify information exchanged on a global scale and stored electronically (Electronically Stored Information or ESI) and conduct comprehensive analysis to expose fraudsters and retrieve stolen assets.

January 2015 Edition

What is Forensic Technology? Mention forensics to most people these days and their first reaction will be to think of CSI and its TV ilk: a head tilt, a sly David Caruso smile, and the revelation that the evidence has proven beyond doubt that the accused is guilty. In practice though, forensic technology is quite simply the process of finding truth from ESI. Forensic technology is an essential component of every financial investigation, and the vast majority of contentious, non-contentious and fraud-related litigation. It is the right team of forensic technology professionals applying an array of forensic technology tools to recover information, analyse and manage it, and employ it in building a case against alleged fraudsters and criminals.

Issues Facing the Forensic Professional Identifying the relevant ESI and jurisdiction where it is stored, accessing it and performing subsequent analyses are key considerations for a forensic professional. The classification, collection, evaluation and analysis of digital evidence pose significant challenges, and an integral part of every forensic investigatorâ&#x20AC;&#x2122;s arsenal is the use of digital data tools and technologies to overcome these. The transition from stand-alone computers to intricately distributed clients through server networks, mobile devices, local and wide area networks, means that there has been a significant increase in the sources of digital data a forensic investigator will be able to review. Additionally, these devices and network infrastructure can be spread across jurisdictions and will often have duplicated or modified digital data stored on them that may or may not be relevant to the investigation. The significant volume of ESI created by large scale international litigation and/ or fraud also represents challenges for a forensic investigation. The volume of ESI being produced by these matters is such that random searches will rarely result in a smoking gun being detected. To overcome these obstacles, experienced forensic professionals will use all the tools available to them. Tools Available to the Forensic Professional eDiscovery. Electronic discovery is the process of identifying, collecting and producing ESI. The processes and technologies of eDiscovery are often complex because of the sheer volume of ESI produced and stored. Additionally, electronic information is unlike hard copy evidence because of its intangible form, sheer volume, transience and persistence. Electronic documents are more dynamic, and contain metadata (things like time/date stamps, author and recipient information, and file properties). Preserving original content and metadata for ESI is essential to avoid later claims of impropriety, spoilage or tampering. Hard copy evidence can also form a part of eDiscovery, in that it can be digitised to enable review and analysis in conjunction with the digital evidence. Digital Forensics. Digital forensics encompasses the recovery and investigation of ESI stored in digital devices. It can include analysis and recovery of ESI from all kinds of storage devices including personal computers, laptops, servers, mobile phones, printers and even iPods and other MP3 players. Criminals often believe they can store their information safely using passwords and encryptions, or evade detection by deleting or destroying information. However, this is not always the case. The experienced forensic technology professional can often access the ESI despite these precautions, and timely action is key to ensure that ESI is not lost or overridden. Custody Chain and Data Handling. Once ESI has been captured, it needs to be stored securely to avoid spoilage and tampering. For ESI to be used in any litigation, forensic technology professionals need to ensure they comply with the relevant rules and laws of their jurisdiction. In particular, the preservation

of metadata from electronic documents creates special challenges to prevent spoilage. KRyS Global has the capacity to record continuity in the chain of custody, showing evidence of the data being acquired, imaged and analysed. This is completed on all engagements to ensure there are no gaps in the chain of custody and to prevent the credibility of evidence being called into question. The evidence therefore remains forensically credible, defensible and admissible in court proceedings. Data Analytics. Once ESI has been captured, stored and properly preserved in a secure manner, analysis can begin. Trained forensic technology professionals use data mining and analytics tools to extract information from a large set of data, which is then transformed into an understandable structure for further use. Generally, data analytics is the process of analysing large volumes of data from different perspectives, using sophisticated computer algorithms to assist with otherwise manually-intensive tasks. Additionally, it can be used to identify anomalies, misstatements, errors and deliberate distortions of results. The key to effectively analysing ESI is the use of experienced forensic professionals who can create the relevant algorithms and set appropriate assumptions before the analysis begins. As an example, KRyS Global was recently appointed experts to review a significant number of transactions through multiple bank accounts. The appointment was made in an effort to resolve a dispute between a master and feeder fund over who was entitled to the funds in these accounts. The forensic professionals from KRyS Global reconstructed the data and converted it to a format which enabled it to be analysed. Additionally, they were able to verify the work of forensic accountants to ensure that the analysis was free of any human errors. In another scenario, KRyS Global was engaged after unauthorised wire transfers were made from a userâ&#x20AC;&#x2122;s bank account. The forensic technology professionals identified what was likely to be a malicious attack by a hacker and, employed the most appropriate tools to identify points of entry, the method of attack, and the techniques used by the hacker to perpetrate the fraud. Conclusion Just because fraudsters are increasingly using sophisticated technology to evade detection, there is no need to lose hope. The very technology that criminals are using to move funds around the world leaves a trail of ESI and can provide the key to pursuing them, and recovering the assets. The experienced forensic professionals at KRyS Global have all the tools they need to collect, retain access and analyse ESI. Forensic technology is an extremely complex field. As with all complex matters, the key to understanding and utilising the processes and tools available is through the use of experienced and trained professionals. At KRyS Global, â&#x20AC;&#x201C;the Forensic Technology Services team offers all the services described above at its six locations, including the British Virgin Islands. The service line was launched in direct response to the ever changing landscape of forensic investigations and increasing digitisation of information. BB January 2015 Edition

BUSINESS - BVI BUSINESS

LESSONS FROM DELAWARE by Robert Briant

Overall Lessons There are two overall lessons from the Delaware success story: a) treat the making of a business jurisdiction as a business, and b) ensure all constituencies work together to make it successful. There is an unwritten compact between all of the constituencies creating the Delaware product to set aside internal competition and protectionism and to work together as one unit to sell the Delaware product. There are 49 other states, all wanting a slice of the Delaware business. The external competition is intense. As a result, all of the constituencies have come together, sometimes formally but more often informally, to perfect their own area of the product and to work together to ensure each area works seamlessly with the others to improve the overall product. The making of a business jurisdiction is a business. Everyone in Delaware knows this. Everyone treats it like a business and the only way a business can be at the top of its market is for the units to work together to constantly improve the product. On this note, let us examine the four reasons that Delaware is the number one business jurisdiction in the United States. Delaware General Corporation Law

elaware is the second smallest state in the United States of America. It is also the leading corporate domicile and company law jurisdiction. Delaware has over one million active business entities, each paying an annual government fee. More than half of the Fortune 500 companies are incorporated in Delaware. Delaware is the brand name for company law in the United States. Offshore, the British Virgin Islands (BVI) is the brand name globally for offshore incorporations. With over 450,000 active business companies, the BVI is the leading offshore incorporation domicile, far surpassing all of its competitors put together. However, the BVI is purely an incorporation jurisdiction while Delaware is the pre-eminent business jurisdiction. So, why is Delaware so successful? What can the BVI learn from Delaware? This article examines the factors that have combined to create the Delaware product. It also considers how these factors can be brought together in the BVI to improve incorporation numbers and more importantly, to expand and diversify the BVI product to make it a pre-eminent global business jurisdiction rather than purely an incorporation jurisdiction. The building blocks are already here in the BVI. They just need to be consolidated.

January 2015 Edition

The Delaware General Corporation Law is the most advanced and flexible company statute in the United States. In the late 19th century, New Jersey had the most innovative company law in the United States and Delaware modelled its law on this. In 1913, the then New Jersey Governor, Woodrow Wilson passed anti-trust laws inhospitable to corporations, and the incorporations business moved to Delaware.1 Delaware has never looked back. But an event over a century ago is not enough to keep the incorporations business in Delaware. What has Delaware done since then to keep the incorporations business in that state and to expand that business to include company law in order to become a full service business jurisdiction? The statute itself is easily duplicated, and has been duplicated by several states. However, it is the process and philosophy behind the statute that has kept Delaware at the top of its game. Over the years, the statute has been constantly revised and fine-tuned, keeping current and innovative. But where does this drafting come from? The Corporate Law Section of the Delaware Bar Association, comprised of Delaware corporate lawyers, is responsible for recommending, reviewing and drafting amendments to the statute.2 In other words, the corporate lawyers in the state are responsible for the Delaware General Corporation Law. This is part of the unwritten compact mentioned earlier. Delaware lawyers are in constant contact with the users of Delaware companies. These users identify issues with the statute and point them out to their corporate lawyers which in turn creates a virtual cycle of change (and a vicious circle of change for competitor jurisdictions), allowing

Delaware to keep its statute at the forefront of company law developments in the United States. Delaware embraces changes to its General Corporation Law. In fact, change is regarded as a fundamental feature to ensure that Delaware remains the top jurisdiction for company law. These changes are led by the Delaware corporate lawyers who are at the forefront of these developments and who accept their responsibility to keep the statute current. The Legislature The second reason that Delaware is so successful is that the legislature gives high priority to company law issues and calls on corporate lawyers to draft the necessary amendments to the General Corporation Law. The legislature has approached its incorporation and company law product as a long term investment. Pandering to any one interest group is avoided and instead, the legislature has sought to create balance in the law, with the guidance of the corporate lawyers as embodied in the non-partisan committee. What is interesting is that it is the smallness of the state which assists in this regard. Everyone knows everyone, and can tell when proposals are being pushed forward for partisan reasons. It is understood that when the corporate lawyers get together to propose amendments that they leave their client specific interests at the door and propose amendments which are in the best interests of the State of Delaware. Failure to do so is likely to get the lawyer booted from the committee. In short, the legislature recognises the importance of company law to the jurisdiction and relies on the expertise of the persons who deal with it daily and their willingness to act in the best interest of the state. Through this harmonious relationship, the Delaware product is able to remain at the forefront of company law in the United States. The Courts The Delaware courts are considered the leading business law courts in the country, along with New York courts. The judges are well prepared and extremely familiar with complex business transactions. The decisions are of high quality and the courts are known for their speed. The legislature has invested heavily in the courts to ensure they are of top quality. When coupled with the volume and the quality of incorporations, there is that virtual cycle again where Delaware judges hear cutting edge issues first, making it impossible for competitor jurisdictions to break into the model. An interesting aspect of the Delaware courts is that it is the Court of Chancery which hears corporate law disputes while commercial law disputes are heard by the Delaware Supreme Court. In other words, one court for disputes regarding companies and their workings, and another court for disputes involving contracts. The Secretary of State’s Office The Secretary of State’s Office, or in our vernacular the Registry of Corporate Affairs, has an excellent reputation for two reasons, efficiency and attitude.3 These persons, more than any others, recognise that they are running a business which is critical to the success of the state. They know they have to respond to their customers’ demands, that being the demands of the registered agents and corporate lawyers. They are user-friendly. They offer a multitude of services, such as late night filings, expedited filings,

pre-clearance and others to ensure that their product never falls behind that which is offered by other jurisdictions and which meets the needs of customers. Much like the corporate lawyers are constantly updating the General Corporation Law, the managers in the Secretary of State’s office are keeping their systems up to date and staying responsive to the needs of their customers. Further, the staff work with their customers to create solutions. Unlike most government bodies around the world, the Delaware Secretary of State’s Office is run like an efficient business which generates income for the state. Softer Factors There are softer factors which help to keep Delaware at the cutting edge of its business. The people of Delaware are aware of the importance of incorporations and the company law business to their state, and that the business employs a significant number of people. The people of Delaware support the time that the legislature spends on this business recognising that it is a necessary use of their time for the good of the state. Most American corporate lawyers are knowledgeable about Delaware law, making it the lingua franca for lawyers in states not connected to Delaware. Delaware recognises and embraces this feature, knowing it is much better to have a larger ‘pot’ in which Delaware lawyers can play a pivotal role rather than trying to restrict the growth of that ‘pot’. A more subtle factor is the approach to regulation. A business approach is applied to the issue of regulation. Delaware “seeks to avoid over-regulation frowned upon by the market, while at the same time avoiding underregulation frowned upon by regulators in other jurisdictions. In doing so, [Delaware tries] … to bring private sector experience to bear upon the regulatory design process, seeking to maintain a cutting-edge regulatory regime while at the same time conveying stability and credibility to global markets and their foreign regulatory counterparts”.4 Lessons to be Learned Do we in the BVI have anything to learn from Delaware? Frankly, any one running a business should always look at similar successful businesses, as almost certainly there are lessons to be learned. This is not always easy when the business provider is a jurisdiction rather than an individual. The BVI is fortunate. The success of Delaware provides a comparable jurisdiction that can and should be considered. Lessons to be learned: •

Diversify into the business of incorporations and company law

•

Treat the business as a business

•

Ensure that all the constituencies work together

•

Update the company legislation regularly, as recommended and drafted by the private sector, notably the corporate lawyers

•

Have a legislature which is aware of and supports the financial services product, including the company law product

•

Support the courts

• Ensure the Corporate Registry is always innovative and efficient; operates the business for the good of the jurisdiction and is responsive to customer demands

January 2015 Edition

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•

Ensure the citizenry is aware of the role financial services plays in the success of the BVI and that they are tolerant of the resources invested in the product

• Avoid restricting the practice of BVI corporate law, if doing so limits the growth of BVI corporate law as a product •

Treat regulation as part of the product and ensure that the private sector is actively consulted and its views are considered in the ongoing attempt to create an appropriate level of regulation to avoid driving away business, while at the same time complying with international obligations in an appropriate time scale

Conclusion

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These are just some of the lessons that can be learned from Delaware. No doubt there are many more. If it is recognised that we are in the business of offering both incorporations and company law, that Delaware should be examined in greater detail and that the private sector should play a leading role in the growth of the BVI business product, then this article will have achieved its objective. The building blocks currently exist in the BVI. The Territory can become the global offshore equivalent of Delaware. However, if we do not act promptly, the building blocks will develop elsewhere and the BVI will have lost its chance. BB

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Business Courts”, 2008. Lewis S. Black, Jr., “Why Corporations Chose Delaware”, 2007; Parsons and Slights. 2

Lewis S. Black, Jr., “Why Corporations Chose Delaware”, 2007. 3

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Christopher Bruner, “Delaware as ‘MarketDominant’ Small Jurisidiction”, 2014. 4

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January 2015 Edition

BUSINESS - BVI BUSINESS

Q&A

with Elise Donovan, Director BVI House Asia AND Russell Harrigan, Managing Editor

Asia is on the agenda of anyone and everyone looking for economic growth opportunities, from companies to countries, the USA to the BVI. Business BVI sat down with Elise Donovan, Director of BVI House Asia last Autumn to discuss the BVI strategic business and economic objectives in the region.

RH - How long have you been the director of BVI House Asia?

ED - I was appointed to director of BVI House Asia in January 2014. 0

RH - What was your role previously and how do you feel it best prepared you for the challenges of this job?

ED - I have worked in the BVI Government as both the Director of International Affairs and the Executive Director of the BVI International Finance Centre (BVI IFC). Both helped prepare for this position in a quasidiplomatic and foreign service role. The BVI IFC is responsible for marketing, promotion and reputational management of the BVI’s financial services industry. BVI House Asia was established in 2013 to help manage the more than 25-year relationship that the BVI has with the Asia Pacific region, particularly in the financial services industry. As Asia Pacific is where a significant portion of the BVI’s financial services business originates, BVI House Asia puts a strong emphasis on financial services. 0

RH - What have been the areas of focus for BVI House Asia in 2014?

ED - To date, we’ve been building relationships with the financial community as well as conducting a number of educational and promotional events on the BVI’s financial services products and offerings. We have been working primarily in Hong Kong and in some of the major cities in mainland China. Highlights of these activities include sponsorship and key

January 2015 Edition

participation in the first Business BVI Asia Regional Conference, the China Offshore Summits in both Beijing and Shanghai, as well as presentations across the region for the 2014 Offshore 2020 report. We were also pleased to have the Premier present to the region’s media houses and Hong Kong’s largest Chamber of Commerce on the role of the BVI and offshore centres in the global economy. The BVI Financial Services Commission, the regulatory authority, has also established a regulatory presence here to be of direct service and to be more responsive to BVI practitioners in the region. 0

RH - What are BVI House Asia’s plans for 2015?

ED - We will be doing educational and promotional activities in more mainland cities as well as the other countries throughout the region. We will also expose the market to the great variety in the BVI arsenal. We are well known for company incorporations, but we’ll be using a range of media to highlight the value-added services that the BVI has to offer in its portfolio. This will include seminars, conferences and bespoke presentations on the breadth and depth of solutions that BVI has to offer Asian clients for their wealth-management needs. This will include presentations on established services, such as trusts and estate planning, funds and investment business, captive insurance, ship and aircraft registration and other services in the pipeline. 0

RH - What is the importance of cultivating relationships between Asia and the BVI?

ED - We’re cultivating and

building on a relationship that has a long history. The BVI has been working with Asian business since the 1980s and is uniquely positioned to further propel economic growth across the region. Drawing on our deep experience and mature infrastructure in Asia, we are committed to building effective, trusted and responsible relationships with our clients, business partners and vested third parties. Asia has the fastest economic growth as a region and the BVI is growing along with it. BVI has been a conduit of that growth and the demands for BVI companies and other structures continue to grow. More than 40 percent of BVI’s financial services business comes from Asia, so it’s important that we continue to strengthen the relationship and to be in a position where we can be more responsive to the demands and needs of the Asian market. 0

RH - What are the challenges in today’s landscape for building international business relationships?

ED - Although offshore international financial centres play a central role in the global financial system, they are facing a range of challenges linked to economic downturns, increased global regulatory measures, reputational issues, demands for increased tax revenues and more transparency. Offshore centres have to maintain client confidence in the face of all these pressures and still innovate and offer solutions for an expanding and diverse global economy. 0

RH - How can we best overcome them and what are

some of the Key trends to keep an eye on in Asia?

ED - We recognize that we are not operating in a static environment, and the BVI welcomes the challenge our industry faces to balance the needs of a complex global economy with the responsibility to do what’s right. We are committed to transparency and upholding the spirit of international law and regulation while maintaining and respecting the trust our clients have placed in us. In this constantly changing environment, we have to be ready to adapt, innovate and be responsive to the new demands of our clients and the market generally. Being physically located in the heart of the Asian market in Hong Kong, provides better opportunities to be in tune with and respond swiftly to market needs. What’s Trending in Asia: 1. As the fastest growing economic region, the number of high net worth individuals (HNWI) continues to grow and correspondingly the amount of investible wealth has increased significantly. Over the last five years the Asia Pacific region has emerged as a leading source of wealth growth. The HNW population will be looking for solutions to not only preserve their wealth, but also grow their wealth. With more than a quarter century working in the region, the BVI has become adept at providing a range of services to help this constituency attain their wealth management aspirations. Whether it’s a special trust, a joint venture, pre IPO or a company, the BVI provides the complete business solution. 2. Five years after the financial crisis, investor confidence is increasing globally, but certainly it is strong in Asia. There is

confidence in all aspects of wealth management, confidence in financial markets, and confidence in future wealth generation. This is evidenced, for example, in China where there has been a rapid increase in Outward Direct Investment (ODI) by Chinese corporations, amounting to $103 billion (US) in 2013. Outward direct investment is expected to catch up with inward foreign direct investment flows by 2015. Chinese enterprises are investing globally in resource extraction and other areas. BVI corporate structures are widely used by Chinese enterprises to make those investments around the globe. There is also confidence in the BVI corporate structure as tested, tried and proven successful for the Chinese investor. The statistics will show that the BVI is a leading source of foreign direct investment in China and other countries in the region for not only inward investment, but for outward investment as well. 3. China’s interest in continued global integration is in innovation. The aim is to raise China’s position is to have stronger/different role in the global economy. Its policy objectives are to move up the value chain, developing leading innovation and centres of knowledge, and redefining its role in the international division of labour. This will allow China to be not just a manufacturer of the world’s products, but an innovator of new technologies. 4. China is opening up more to very specific ways. It is entering into more international trade agreements, it is internationalizing the renminbi, and it has established free trade zones. Again, the BVI has an excellent corporate product and is wellpoised to assist the Chinese investor to achieve these objectives. Across Asia, there are hundreds of BVI qualified

lawyers, corporate service providers, accountants and other experts, who have a wide range of experience in using BVI structures to facilitate trade and investment in global markets. 5. China and other Asian countries opening up in the 1970s led to the globalization of production with Asia becoming the world’s manufacturer and Western countries the world’s consumer. With the growth of the middle class and the HNW population, Asia is increasingly becoming not just a production economy, but a consumption economy as well. Asia already has 60 percent of the world’s population and that’s a very large consumption market. Investors are eager to tap into this market. Here again, the BVI is poised to facilitate investment into the region. It has a very solid investment vehicle. Having worked with Asian businesses for over 25 years, the BVI has served as a conduit between international businesses and Asian markets, facilitating robust growth and creating economic opportunity for people and businesses across Asia. It is our innovative and sophisticated products and our ability to remain nimble and respond to the needs of the market, that has made the BVI the jurisdiction of choice in Asia.

Elise Donovan Director BVI House Asia Suite 5106, 51/F., Central Plaza, 18 Harbour Road, Wanchai, Hong Kong Tel: (852) 3468 8532 Fax: (852) 3107 0019 Mobile: (852) 9022 9835 elise.donovan@bvihouseasia.com.hk

January 2015 Edition

BUSINESS - BVI BUSINESS

TAKING STOCK—THE CHANGING FACE OF BVI FINANCE by Colin Riegels

ot so long ago I found myself sitting in a room full of lawyers in Singapore discussing the position of a South East Asian conglomerate which was in financial distress with over $2 billion in outstanding debt. Like many regional corporations, the group had organised its many business units so that each individual unit was held under an offshore company, and in this case these were primarily BVI companies. Whilst I had been in many such lawyers’ meetings before, it suddenly struck me during this particular meeting that everyone around the table was looking at me to lead the discussions on potential restructuring options. When I first started practising BVI law nearly two decades ago, BVI lawyers were rarely invited to such meetings, and when they were, they would invariably sit quietly in the corner and remain silent unless they were asked whether any particular proposal would cause issues in the BVI. As I was gathering my thoughts, it occurred to me that as a jurisdiction, sometimes we don’t realise how far we have come until we stop and look around. It would not be accurate to say that the quiet evolution which has occurred in the BVI’s offshore finance industry over the previous 20 years has gone entirely unnoticed. On the contrary, it has recently been a very popular subject of discussion. The BVI offshore industry was originally built upon a platform which, in crude terms, was inclined towards a “pile them high and sell them cheap” business model in relation to offshore structures. This model experienced enormous success, at one stage reaching a staggering estimated market share of nearly 45% of the world’s consumption of offshore structures. Unfortunately, when you reach a pinnacle that high, normally the only way left to go is down. In days gone by, half-hearted attempts were made from time to time to introduce higher value structures through reforms to trust law, partnership law and one ill-judged attempt to foster e-commerce. Save for a couple of semi-honourable exceptions like the Virgin Islands Special Trusts Act (VISTA), none of those were particularly notable successes compared to the company regime. In days gone by, it really was all about the companies. A BVI lawyer could often go for months on end without consulting any legislation other than the International Business Companies Act to advise his clients.

“The challenge for the BVI and for industry practitioners within the BVI is to make sure that in this brave new world we are the colonists and not the corpses.” 60

January 2015 Edition

But in the early 2000s things began to change. I think much of the real impetus for change may have been the arrival of Caymanian law firms in the BVI. When Walkers first opened its doors in 2001 in very humble premises in the Mill Mall, there was an uncanny sense that things would change, but no one was quite sure how. The fact that the office of Conyers Dill & Pearman was destroyed by fire shortly after Walkers arrived led to local lawyers joking that they had underestimated just how aggressive the Caymanians intended to be. Although the comments were made in jest, the reality was not far removed – dramatic changes were imminent. In due course, Walkers was followed by others, and soon, pretty much every international offshore law firm worth its salt from Cayman, Bermuda and Jersey had an office in Road Town. This in turn created an unprecedented level of exposure for the BVI offshore product. Clients engaging in high value structuring work who had previously focused solely on Cayman, Bermuda or Jersey were now being introduced by their lawyers to the benefits of BVI structures , and this created both impetus and pressure to “move up the value chain”, to use the jargon of management consultants. In 2002, the BVI saw its first mega joint venture formed – the merging of the Russian oil businesses TNK and BP. The timing may have been purely coincidental but in some sense, high value joint ventures were a logical progression for BVI structuring. The TNK group had extensively employed BVI structures long before the merger, but the jaw dropping size of the deal guaranteed the BVI the attention of the legal world. In 2014, when the parties finally exited the joint venture, the interests were sold off to Rosneft for a staggering $55 billion. In the wake of the TNK-BP merger, a series of

other high value mega mergers using BVI joint venture vehicles followed. Probably the most famous of was the Alfa Telecom - Cukurova merger, which later became famous largely because it fell into seven years of acrimonious litigation. Part of the trend towards mega joint ventures was driven by innovative legislative drafting. Section 120(1) of the BVI Business Companies Act, which came into force on 1 January, 2005, allowed joint venture parties to provide that directors nominated by one of the parties could owe their primary duties to that party, rather than to the company as a whole. Like many brilliant ideas, sometimes it takes only a small innovation to lead to big changes. The late 2000s saw a steady increase in venture capital and private equity work in the BVI. Although part of this simply reflected global market trends, it undoubtedly started the metamorphosis of BVI company work. The latter part of the first decade of this millennium, right up to the global financial crisis of 2008, and slightly beyond, will probably be remembered as the golden age of BVI corporate practice. At that stage, the BVI product was flourishing at all points along the value scale. There was still a vibrant volume market for generic BVI companies acting as group holding companies, cashboxes and asset holding vehicles but these were complemented by the new growth in much more sophisticated corporate structures which created new opportunities to add value. It wasn’t all gold; the funds industry never quite reached the dizzying heights in BVI that it did in certain competitor jurisdictions, and the less said about the BVI’s attempt to build a captive insurance industry, the better. Nonetheless, there was so much offshore finance work in those heady days that one of the biggest problems was recruitment of good people to manage it all. And then the world changed. People all over the world remember the collapse of Lehman Brothers in 2008 as a turning point in the world’s economy and there is a natural inclination to extrapolate that to the BVI. There is a grain of truth to that; there is no doubt that credit markets dried up which sucked the life out of much of the business which had grown up in a business binge fuelled by the cheap and ready capital. However, I have always suspected that the real reasons why BVI offshore business began to reshape itself more dramatically in the years following Lehman were more subtle. One of the many consequences of Lehman’s collapse was a dramatic escalation in the amount of financial regulation around the world. In a sense, the surge of financial regulation following 2008 was nothing new for the BVI. The last two decades have also been characterised by the steady growth of anti-money laundering rules and financial services regulations – both onshore and offshore. This has in turn created ever increasing pressure in the low value sector of the market. Multiplying compliance obligations for banks and other institutions which deal with offshore structures creates a natural push towards only dealing with structures which are sufficiently high in value to make those compliance costs worth adherence. The low value sector of the market is simply being choked off by the cost of compliance. It is not stretching the truth to say that for many banks, opening a bank account for a low value offshore company is now simply more trouble than it is worth, and that has been strikingly evident recently in Hong Kong. Whether we like it or not, this trend is now irreversible. Regulatory creep is here to stay, and it will only grow both at home and abroad. In the BVI, the expanding regulatory creep has been bolstered by a second growing trend – tax information exchange. In and of itself, tax information exchange is nothing to be afraid of. Despite the popular perception in Hollywood and the media, offshore structures are used far less for tax planning than is commonly espoused and where they are used for tax planning, most countries have “forced disclosure” rules. Therefore, legitimate clients rarely have anything to fear from tax information requests. Like everything else, this new regime has a compliance cost. In the case of the most invasive forms of tax information exchange, the Foreign Account Tax Compliance Act (FATCA), the cost is substantial, and in many countries this will run into billions of dollars. For example,in the United Kingdom, it is estimated to be US$2.1 billion. I haven’t yet seen any credible estimates for the cost of compliance with FATCA in the BVI. Similar to financial regulation, this huge cost pressure actively drives the low value sector of the market away from our shores and into the arms of less responsible jurisdictions. These developments should not necessarily be viewed in an entirely negative light. The new world of increasing regulation and transparency also represents the green fields of opportunity. It represents change, and change can be painful, but as the old axiom goes - in every threat, there is an opportunity. The new regime of greater regulation and transparency creates a new open space for firms and jurisdictions

to stake their claims. The increased desire for substance offshore opens up a myriad of new opportunities. Robust compliant structures have more value in a world where everything is open to scrutiny. Those who can provide these services effectively will thrive; those who are not able to do so will not retain their clients in the financial services industry for the long term. The global history of offshore finance is littered with the corpses of jurisdictions and businesses which failed to adapt and were consigned to the graveyard of history. The challenge for the BVI and for industry practitioners within the BVI, is to ensure that in this brave new world, we are the colonists and not the corpses. The early signs are encouraging. The establishment of the Commercial Court in the BVI has been a resounding success, showing that BVI litigators can play a central role in multi-jurisdictional disputes and hold their own amongst the behemoths of cross-border dispute resolution. Similarly, the array of corporate restructuring options have enabled insolvency practitioners and restructuring lawyers to expand their roles. Raising capital now typically involves far more input and expertise at the offshore level than in yesteryear. However, other areas have lagged behind comparatively; there is still little work done within the jurisdiction for fund or trust administration despite the greater push towards “substance” in management in the offshore space. The challenges of operating in the higher value space are no less formidable simply because we have had the luxury of time to evolve. The competition is fierce. The BVI remains handicapped by the non-existence of any real banking infrastructure behind it. The pressure to add value and to innovate is constant. The never-ending barrage of international initiatives seeking the mythical hidden offshore tax booty creates a constant drain on time and resources. Although it is improving, Government is still too slow and too ponderous when responding to requests by the private sector for reform. None of these things are likely to change soon but despite all these challenges, and possibly, because of them, this is a fantastically exciting time for the BVI’s offshore industry. The truth is, nobody can predict exactly where as an industry, we are going to go next but it is going to be an exciting ride. For anyone who would rather be a passenger than a driver, they had better be careful not to fall out of the vehicle. BB January 2015 Edition

BUSINESS - BVI BUSINESS

TRANSACTIONAL SUCCESS OFFSHORE?

THE ROLE OF CORPORATE LAWYERS by Robert Briant

hile researching for the article “Lessons from Delaware”1 , the role of the corporate lawyer in Delaware stood out as a significant reason for the success of Delaware. When looking at offshore financial centres, the corporate lawyer plays an equally important role, although perhaps not as well developed as in Delaware. Further, when discussing the difficulties faced by certain offshore financial centres, the issue circled back to the role of corporate lawyers, and their inability to progress change. It is the thesis of this article that the offshore financial centre that best emulates the role of corporate lawyers in Delaware will likely be the most successful transactional offshore financial centre. The British Virgin Islands (BVI) is well positioned, if it chooses to do so, to adopt a Delaware type model and by doing so to advance ahead of its competitor jurisdictions and become a leading transactional offshore financial centre. First let us look at Delaware. The most important corporate law statute in Delaware is the Delaware General Corporation Law (DGCL). The Delaware General Assembly (the legislative body) is responsible for the DGCL. In the ordinary course of other legislation for which the General Assembly is responsible, there are debates in the house, debates in committee and other public consultations on legislation. None of this takes place for changes to the DGCL. When changes are made to the DGCL, the vote by the General Assembly is invariably unanimous with no partisan controversy2. The reason for the lack of debate in the General Assembly is that all changes to the DGCL and related corporate law originates from and is drafted by the Corporation Law Section of the Delaware State Bar Association. In particular, it is the governing body, the Council, of the Corporate Law Section which develops the legislative changes, debates the issues and drafts the proposed amendments. This process is a significant reason that Delaware is able to keep its corporate law legislation at the cutting edge of corporate law legislation in the United States. The Council is made up of twenty three members. These members are all corporate lawyers and litigation lawyers in Delaware. “As a matter of practice, and in recognition of the size of their corporate practice groups, seven of the large commercial firms in Wilmington [ Delaware] have nominated two members

January 2015 Edition

each; the other members practice in smaller firms, all in Wilmington”3. As such, the Council represents a cross section of the corporate (as well as the litigation) lawyers in Delaware. Notably absent are any lawyers not based there. Proposed changes are suggested to Council members, whether by their clients or from lawyers outside of Delaware, who then bring up the proposals in Council. However, “the work of the Council proceeds in private. There is a strongly held tradition that preliminary or potential legislative proposals are not to be discussed with or disseminated to persons outside the firms represented on the Council”4. The members of the Council act in the best interests of the state. The members are “obligated to leave parochial client interests behind when proposing corporate legislation, to present issues fairly and in an even handed fashion and always deal candidly with the legislature on matters involving corporate law”5. Once the Council has drafted and agreed amendments, the amendments are submitted to the Corporation Law Section for approval and then to the Delaware General Assembly. The approval of the Corporation Law Section is usually routinely obtained, although not always. If the interests of other stakeholders were not considered by the Council, which is rare but happens, then the interests of these other stakeholder are raised at the meeting of the Corporation Law Section. The Council will consider the issues raised and, if required, revise the draft legislation. Once approved by the Corporation Law Section, the amendment is almost invariably approved by the Delaware General Assembly6. This interaction can be best described as follows: “The DGCL is the great beneficiary of an unwritten compact between the bar and the state legislature. In broad outline, the terms of the compact recognize that the legislature will call upon the expertise of the Corporation Law Section of the Delaware State Bar Association to recommend, review and draft almost all amendments to the statute.7” However, the Corporation Law Section and the Council are always acutely aware that they must strive to maintain the trust and confidence of the General Assembly8. In this way, Delaware keeps its corporate legislation at the cutting edge. The process is not nearly as formalized but is not dissimilar in many of the offshore financial centers. In virtually all offshore financial centers, there are one or two law firms which stand out as the largest firms. It is these firms which propose and draft legislative changes to the corporate law statutes. When this happens the jurisdiction moves forward. However, there are often forces at work blocking or slowing down these changes. Interestingly, these forces are not the smaller law firms or other private sector bodies, but rather Government or regulatory forces. Further, it is the experience of these firms that the bodies are not blocking or slowing down these changes for genuine legislative or regulatory reasons. A case in point at the time of the writing of this article is the proposed LLC (limited liability company) legislation for the Cayman Islands which was drafted by the private sector and is ‘stuck’ in the Attorney General’s chambers for review. Cayman Island lawyers are frustrated by these delays, and generally do not believe that the delays are as a result of a genuine desire to improve the draft legislation. I am afraid that there are no studies or journal articles to cite as evidence of this practice. The evidence is entirely anecdotal. However, the evidence cuts across many jurisdictions and there is a great deal of such anecdotal

evidence. For those in doubt, they should discuss the issue with private sector members in the various offshore jurisdictions. However, what this does mean is that the offshore financial centre which adopts a quasi-formal but private sector multi-firm driven model, such as is used in Delaware, will have the platform for ensuring that their corporate legislation is on the cutting edge of offshore corporate legislation, and will greatly assist it in being a leading transactional offshore financial centre. It is important though to emphasise the nature of the changes to the company law that are being referred to. The BVI Business Companies Act and the DGCL deal with the internal affairs of a company. They deal with the company as a legal entity and the theoretical underpinnings of this artificial entity. Amendments to the DGCL are very conservative. Changes are not proposed unless a problem has been identified, either through litigation or the practice of corporate lawyers. The amendments proposed by the Council usually do not generate controversy, as they are often on technical issues9. There is a distinction between regulation and company law, and it is for this reason that most company law statutes do not regulate, other than with respect to the internal affairs of the company. As such, the regulators should still regulate, and let the persons who deal with the company law day in and day out be responsible for the development of that law. But why is it desirable to be a leading transactional offshore financial centre? Being a leading transactional jurisdiction adds more substance. It means more business and industry, as evidenced by the Cayman Islands, Bermuda and the Channel Islands. It means more opportunities in financial services, as well as generally more economic activity throughout the economy. It also diversifies the BVI economy away from its reliance on the incorporation business. To be certain, the BVI has already expanded significantly since I arrived in the BVI sixteen years ago. However, further growth is required to become a leading transactional offshore financial centre. Delaware is the most successful model of a company law jurisdiction. Further, Delaware is not in competition with offshore. The offshore financial centre which emulates Delaware will likely be the most successful transactional offshore financial centre. Supporting the role of corporate lawyers in developing corporate legislation is a big step in this regard. BB

Published on page of this magazine. Lawrence A Hamermesh, “The Policy Foundations of Delaware Corporate Law”, 2006. 3 Hammermesh. 4 Hammermesh. 5 Lewis S. Black., Jr, “Why Corporations Chose Delaware”, 2007. 6 “No proposals recommended by the Corporate Law Section have ever failed to pass in the General Assembly”, Curtis Alva, Delware and the Market for Corporate Charters: History and Agency, 1988. 7 Black. 8 Hammermesh. 9 Marcel Kahn & Edward Rock, Symbiotic Federalism and the Structure of Corporate Law, 2005. 1 2

January 2015 Edition

BUSINESS - BVI BUSINESS

COMPLIANCE = CHANGE OR EXTINCTION by Shamini Chase

ver the last decade, we have witnessed a number of events and crises that have resulted in a plethora of regulations impacting financial industries globally. It would be remiss not to acknowledge the divergent views that exist on the topic of global financial regulation. Some argue that a heavily regulated environment will stifle market participants with adverse consequences on financial markets. Conversely, others reference events such as the 2007-2008 global financial crisis as the adverse consequences of under-regulation. To venture into an examination of the contentions propounded by either side of the debate would be a futile exercise. Instead, what must be acknowledged is that the architecture of the global financial market has already changed to one that is heavily regulated. The objective of this article is to assist readers in appreciating the important role of compliance following this change. It is submitted that the only option to ensure survival in this regulatory minefield is to embrace this attitude of compliance. To achieve this, the article: (i) provides the reader with a background, explaining how and why this change occurred; (ii) discusses the important role of compliance in the success and viability of a financial institution by exploring the effects of non-compliance; (iii) explores how consequences of non–compliance by financial institutions are systemic on the jurisdiction of operation and its economy; and (iv) discusses the evolution of the compliance officer as a key player in ensuring the success and viability of a financial institution in today’s heavily regulated environment. It is expected that by the conclusion of this article, readers would appreciate that compliance has become the gold standard. It has become a reputational branding which will ensure the viability and success of institutions and jurisdictions which have embraced this concept; and the eventual extinction of those which have failed to adjust. Background In the financial services industry, compliance refers to adherence to the regulations, policies, and guidelines that apply to a financial institution (FIs). Hitherto, compliance was not a concept widely appreciated by FIs. More often than not, regulatory standards and prohibitions were blatantly ignored; compliance was largely perceived as a hindrance that prevented FIs from attaining optimum growth and profits. After the worldwide and disastrous effects of the 2007-2008 global financial crisis, international policy makers recognised the need for more stringent monitoring and supervision of FIs to avoid a recurrence of this calamity.

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Governments also agreed, as they were the ones left to bail out these large FIs due to the grave systemic consequences which would result from their failure. This has resulted in a plethora of regulation enacted to ensure that FIs are aggressively monitored and supervised – such examples include the passing of the Dodd-Frank Wall Street Reform and Consumer Protection Act which made significant changes to America’s financial regulatory environment, and the Financial Action Task Force (FATF) revision of their global anti-money laundering (AML) standards. The overall objectives of these rules and regulations were to restore market confidence; ensure consumer and investor protection; ensure financial stability and reduce financial crime. The Effects Of Non-Compliance The important role of compliance in this regulatory environment can more effectively be appreciated by discussing the implications of non-compliance. The fact is, it has simply become too costly not to be compliant. Demonstrating their aggressive approach towards enforcing compliance, international regulators have encouraged, or rather, bullied governments to ensure that non-compliance is sufficiently deterred. In response, governments have significantly amplified fines and penalties for non-compliance and regulators have been unsympathetic in their enforcement of these sanctions. The objective of this new stringent enforcement of compliance is to attack where it hurts; the pockets of FIs. Notable examples in the United States include, HSBC was fined US$1.9 billion dollars for its blatant failure to implement anti-money laundering controls in 2012 and Standard Chartered Bank’s US$300 million dollar fine in August 2014 (on top of the US$327 million dollar fine imposed in 2012) for failing to keep its promise to regulators to remedy anti-money laundering problems. In Europe, the European Union’s (EU) anti-trust regulators slapped a €446 million fine on Societe General, for manipulating benchmark interest rates1. The EU regulators also fined other notable FIs including Deutsche Bank, JP Morgan and Royal Bank of Scotland (RBS), €1.7 billion for rigging the Euro Interbank Offered Rate (EURIBOR). Additionally, regulators have also increased their on-site and off-site testing to ensure prudential monitoring and supervision of FIs. The UK went as far as revising its regulatory model to ensure effective monitoring and supervision of their FIs2. In the BVI, the Financial Services Commission (FSC) has followed the stead of foreign regulators, significantly increasing its regulatory oversight through both onsite testing and offsite monitoring. As a result, there has been a significant increase in the number of FIs subjected to enforcement

actions, which include the issuing of fines, warning letters, directives and other penalties3. Additionally, the fines and penalties for non-compliance with regulatory obligations have been drastically increased by amendments to the BVI’s AML enactments in 2012. Beyond the fines, enforcement action also delivers a detrimental blow to the reputation of a FI. Loss of client confidence, loss of business, downsizing of operations and possible extinction, are all logical and likely consequences of a tarnished reputation. This reputational tarnishing is often played out through the media and assisted by regulators through publication of FIs subjected to enforcement action. The obvious aim is to serve as a warning to clients, and as an example and deterrent to other institutions. The architecture has been intentionally designed to ensure that the above mechanisms allow very little room for non-compliance to go undetected. If and when detected, the consequences have been made to be so devastating, that FIs have been forced to comply. The Systemic Consequences Of Non-Compliance As discussed earlier, this heavily regulated environment and the rigorous enforcement of compliance with its many obligations really arose because FIs proved their inability to regulate themselves. Non-compliance by FIs carries the risk of tarnishing the reputation of the jurisdiction within which it operates. The collective failure of FIs (or one large enough financial institution), has detrimental effects which can be global in nature, depending on how interconnected those financial institutions are. To avoid a repeat of the global crisis, although some academics argue that such crises are necessary, international regulators have placed the onus on domestic regulators and governments to implement a robust regulatory

environment in their respective countries. Like financial institutions, countries are also subjected to enforcement action where they fail to comply with imposed undertakings. This is achieved through the blacklisting process, practiced by international regulators like the FATF and the Organisation for Economic Cooperation and Development (OECD), which publish a list of “non-cooperative and high risk jurisdictions” that have been evaluated and found to have poor compliance standards. As a result of this blacklisting process, compliant countries do not want to risk tarnishing their reputation and possible sanctioning for engaging in activities with blacklisted or non-compliant countries. The resulting sequestration undeniably impacts a country’s ability to function and can significantly curtail a country’s realisation of economic growth. The Evolution Of The Compliance Officer Compliance has become the gold standard that FIs aspire to, not by choice, but really as the only solution for survival in today’s brutal regulatory environment. A top-shelf compliance regime has become an invaluable asset of any FI in this environment and it requires investment. An undervalued or underresourced compliance function will result in unavoidable regulatory enforcement action. So how does one build a top-shelf compliance function? For starters, the significance of the role that the compliance officer now plays must be appreciated, valued and utilised by the FI. Additionally, the increased demand for compliance has led to the evolution of the role of the compliance officer, which is not a newcomer to the list of professions at a career expo. The role of compliance officer has enjoyed a long tenure in heavily regulated industries such as financial services and healthcare. January 2015 Edition

Undeniably, it is a role that has conventionally been undervalued in FIs. Once a role traditionally held as a dual function role, within either the legal or operations department, today’s compliance officer is a senior-level officer in a financial institution. In fact, many organisations have elevated the compliance role to a member of the elite C-suite with the growing prevalence of the Chief Compliance Officer, reflecting the importance of the role4. Most organisations in other jurisdictions have similar variations to reflect the seniority of the position within the organisation’s management. In an April 2014 article, the Financial Times reported that according to its resources, the compliance officer is one of the hottest areas of financial recruitment5. As also reported in that article, the compliance officer role has gained importance in our current financial environment as financial institutions need to ensure that they play by the rules as a result of the “tsunami of regulatory initiatives and substantial fines that followed the financial crisis of 2007-09”. The significance of the role of the compliance officer has not gone unnoticed in the BVI. It is now a requirement for every entity licensed and regulated in the BVI by the FSC to have a designated compliance officer who “…has the appropriate skills and experience and is otherwise fit and proper to act as the licensee’s compliance officer6.” Additionally, the FSC must approve the compliance officer of each FI to ensure that he/she has the relevant skills, qualification and experience required for the job7. Further, the compliance officer must also satisfy the Commission’s fit and proper test8. Today, the compliance function is no longer treated as reactionary or policing from the background. Now, compliance officers are, or ought to be, systemically involved in all important steps in the decision making process. To efficiently perform this role, the modern compliance officer must be commercially pragmatic and solutions based. He/she must understand the FI’s business and acknowledge the commercial reality when designing and implementing the internal controls for the organszation. He/she must also be solutions based, in order to allow optimum business growth and expansion, whilst still ensuring the FI’s compliance with the regulatory framework and its own internal controls. It should be noted that in most instances, enforcement action against an FI takes place as a result of none or late involvement of the compliance function in the decision making process.

Conclusion In the new regulatory environment, compliance ensures survival. It has become a reputational branding that opens doors for FIs and jurisdictions that have embraced it, whilst for others non-compliance has closed doors and severed relationships. As a result of the detrimental reputational effects of non-compliance, clients do not want to be affiliated with non-compliant FI’s; FI’s have been forced to terminate business relationships with non-compliant FIs; and jurisdictions are restricted from engaging or forming alliances with other jurisdictions deemed non-compliant. To ensure this, both institutions and individuals perform regulatory health checks on FIs and jurisdictions before entering into business relationships or investing in them. FI’s are directly asked to confirm their regulatory status and whether or not they have been subjected to any enforcement action. Additionally and alternatively, a more proactive approach is usually taken by simply visiting the website of the FI’s regulator or inquiring directly with the regulator. Compliant FIs have therefore benefited from their decision to be compliant, an invaluable asset in their global marketing and positioning. There is, and will continue to be a natural and inevitable demise and extinction of non-compliant FIs and jurisdictions that fail to uphold stringent regulatory standards. In my view, we have seen and will continue to see a “flight to compliance”, as clients seek to find refuge in FIs and jurisdictions with this reputational branding, ensuring the long term growth and success of these institutions and jurisdictions. It is also unlikely that we will witness a decrease in the output of regulations affecting the financial sector in the foreseeable future. Compliance has become the imposed gold standard. The FATF recently announced the conclusion of its third round of mutual evaluations9. In the fourth round, all member countries will be examined to determine their compliance with the new revised standards to ensure that they and other non-member countries have systems that deliver results which will lead to a stronger and safer global financial system. Institutions and jurisdictions that have learnt to adapt to this new financial architecture by embracing a spirit of compliance will naturally survive this regulatory wave; those that have chosen not to, will find that it is only a matter of time before they become extinct. BB

It is noted that Societe Generale is appealing the method of calculation used by the EU Commission to determine the amount of the sanction.

This new model came into effect on 1 April 2013.

According to the information on the FSC website – there were 58 licensed entities issued with enforcement action in 2011, 59 in 2012 and 97 in 2013. As at the date of writing this article, information for 2014 was not available on the FSC’s website. 3

A title particularly associated with US organizations.

Financial Times Article: http://www.ft.com/cms/s/0/cadd54a6-c3bd-11e3-a8e0-00144feabdc0.html#axzz3B2BydnVv Section 42 of the BVI Regulatory Code, 2009 (as amended)

Note that certain classes of licensed entities are eligible, subject to FSC approval for an exemption from appointing a compliance officer. However, even in those circumstances, the licensed entity must demonstrate how the compliance function is being performed, to the satisfaction of the FSC. 7

Specifically the Commission assesses the proposed individual’s honesty, integrity, reputation, competence, capability and likely soundness of judgment in the discharge of duties and responsibilities assigned to him or her – Section 8(a) of the Guidelines for the Approved Persons Regime 8

http://www.fatf-gafi.org/topics/mutualevaluations/documents/communique-start-4th-round-mer.html - last accessed 21 September 2014

January 2015 Edition

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BUSINESS - BVI BUSINESS

BVI FUNDS: PREPARING FOR THE NEW ABNORMAL by Simon Schilder

or the BVI finance industry, 2014 marked the 30th anniversary of the enactment of the International Business Companies Ordinance (Cap 291) (the IBC Act). The success and popularity of the IBC Act and its successor statute, the BVI Business Companies Act, 2004 has formed the cornerstone for the BVI’s success in the global finance industry by facilitating the astonishingly successful BVI company product. Its popularity has enabled the BVI to become the dominant global market leader for company incorporations, with over half of the world’s offshore companies domiciled in the BVI and with such companies being widely used throughout the world and in all global markets and sectors. The success and appeal of the BVI company product has facilitated its use within the investment funds sector. Whilst the Cayman Islands continues to

January 2015 Edition

be the dominant jurisdiction in this sector, particularly for hedge funds, the BVI has for more than a decade, comfortably sat as the alternative jurisdiction of choice for investment managers in structuring their investment funds. Approximately 2,500 funds are currently registered with the BVI Financial Services Commission (FSC). Of this number, the overwhelming majority are registered as “professional funds”, which are funds for “professional investors” or sophisticated investors, with a minimum investment of US$100,000. The utilisation of the BVI’s “professional fund” product for these purposes reflect both the demographics of typical investment fund investors, the majority of whom are pension plans, endowments and high net worth individuals and the appropriate balance of regulatory oversight afforded to investment managers and investors alike by the professional funds regime.

The Evolving Regulatory Landscape In the evolving regulatory landscape, onshore regulatory initiatives such as the European Union’s (EU) Alternative Investment Fund Manager’s Directive (AIFMD) have opened up additional structuring possibilities around the alternative use of EU jurisdictions such as Luxembourg, Ireland and Malta for investment managers seeking to attract EU based investor capital. However, the BVI continues to be a compelling choice of domicile for investment managers. The fundamental reasons for this, namely the provision of a tax neutral platform with an appropriate level of regulatory oversight, are as valid today as they were before the financial crisis. As with all jurisdictions, the experiences of the financial crisis prompted the review and updating of financial services legislation in the BVI, which resulting in the enactment of the Securities and Investment Business Act, 2010 (SIBA). The legislative change introduced by SIBA for funds was reasonably minor and principally involved the introduction of a more formal regime of ongoing reporting obligations, so as to enhance the ability of the FSC and other regulators around the world, to manage systemic risk in the global financial system. Given that the United States of America (USA) continues to represent the largest market for investment funds and with approximately 60% of the world’s hedge funds managed by US based investment managers, the introduction of the US Foreign Account Tax Compliance Act (FATCA) has been a particularly significant development for the BVI. The BVI Government has since entered into a Model 1B intergovernmental agreement with the USA. A similar inter-governmental agreement was entered into with the United Kingdom (UK) in November 2013 for what has become known as “UK FATCA”. Within the BVI, work on FATCA preparedness has been ongoing throughout 2014 and includes putting in place the necessary legislation and infrastructure to enable the BVI to meet its obligations to the USA and the UK under these inter-governmental agreements. At the same time, BVI funds, most of which are “Reporting Financial Institutions” for the purposes of FATCA, are to dealing with their registration requirements with the Internal Revenue Service (IRS) to obtain a “GIIN”, as there is no equivalent registration requirement under UK FATCA).Their FATCA preparedness has required them to begin performing specific due diligence on their existing investors in advance of the commencement of their annual FATCA reporting to the BVI’s Tax Information Authority. The BVI’s USP The overriding popularity of the use of the BVI company product is underpinned by the Territory’s attraction to the investment funds sector as a tried and tested choice as a funds domicile. In addition, the BVI funds product is well understood and accepted by all stakeholders and there’s a platform of effective regulatory oversight and sophisticated local infrastructure available on the ground in the BVI to service this industry. One of the consequences of the evolving regulatory landscape in this new abnormal has been to raise the barriers to entry for start-up investment managers in particular, leading to an overall decline in new fund launches

throughout the world, including in the BVI. However, when compared to pre-financial crisis levels, the BVI continues to offer a cost effective fund product, with significant time to market advantages, in comparison to alternative jurisdictions for domicile for funds. There are significant cost savings available both at the time of set-up and in the ongoing costs of maintaining the fund structure. These advantages have made the BVI a popular choice of domicile for both small and start-up investment managers and household name investment managers, with investment management titans such as Appaloosa Management; Caxton Associates; GAM; Graham Capital; and King Street Capital all choosing to base their investment funds in the BVI. The Future? Critical to the continued appeal of the BVI funds product in this new abnormal environment will be the Territory’s ability to remain nimble, innovative and willing to embrace new product development. The success of this was most recently be seen with the enactment of the Investment Business (Approved Managers) Regulations, 2012 (the Approved Manager Regulations), first introduced at the end of 2012 and then further refined at the beginning of 2014. Its purpose is to provide eligible investment managers establishing their investment management vehicles (as opposed to fund vehicles) in the BVI with the ability to choose to alternatively become licensed under the Approved Manager Regulations in addition to the pre-existing licensing regime available under SIBA. The Approved Manager Regulations therefore, complement the more regulated regime available for investment managers under SIBA and, appeals in particular, to non-institutional investments managers by offering a lighter touch regulatory regime with quicker time to market. To be eligible to take advantage of the Approved Manager Regulations, investment managers need to have aggregate assets under management (or in the case of closeended funds, aggregate capital commitments) below stipulated thresholds (currently US$400 million for managers of open-ended funds and aggregate capital commitments of US$1 billion for managers of close-ended funds). As market confidence has continued to improve during 2014, we have seen a significant uptake in interest in the Approved Manager Regulations, with increasing numbers of applications being made to the FSC. In addition to coming up with potential new fund products, in preparing for the new abnormal, we are also seeing investment managers seeking innovative ways to utilise what is currently available. By way of example, a number of start-up investment managers have begun to seek to utilise the “private fund” category of funds available under SIBA, coupled with certain exemptions available for the appointment of custodians and auditors. This is intended to test their investment strategies and establish a track record within the forum of a formal regulated fund vehicle, whilst maintaining strict controls over their cost base. Additionally, we have also seen some family offices looking to establish more formal fund structures for their private investment vehicles, in order to take advantage of domestic tax deferral and estate planning opportunities and again utilising the BVI’s private funds regime for these purposes. BB

January 2015 Edition

BUSINESS - BVI BUSINESS

THE BVI:

A BRAND AND AN IDEA by Dr. The Honourble Kedrick Pickering, Deputy Premier And Minister of Natural Resources and Labour

January 2015 Edition

incentian Prime Minister Dr. Ralph Gonsalves, in his “Idea of Barbados” article, published in the Barbados Today newspaper in April of last year, opined that, “’Successful’ British colonies such as the BVI [British Virgin Islands]and Bermuda are in many ways artificial societies.” The statement was made in the context of promoting an idea for regional leaders to consider as they look to the future development of Caribbean economies and societies. In his discussion, he noted and sought to justify, that while some Caribbean countries provide very strong brands (e.g. Jamaica) and various opportunities, none provide an “idea” that could possibly be replicated or duplicated as much as Barbados. Yet, a careful analysis of the BVI points to a possible idea worth mentioning, when one considers that ultimately, leadership matters. There is nothing artificial about the success of the BVI—a British Overseas Territory that has the United States dollar as its legal tender; a territory where people from over one hundred different nationalities reside; a territory that has provided economic support to its Caribbean neighbours and their nationals; and one that continues to remain stable, viable, peaceful and mostly secure in its overall growth path. There has been a plethora of deliberate decisions over the years in the BVI, most of which have realised real and tremendous benefits and have provided a strong foundation upon which the obvious and noticeable success has been built. Largely devoid of major political strife and an unwavering commitment to improve the lives of its people, the leaders of the BVI have consistently acted in a manner that has kept the Territory on a forward path. Mary Proudfoot in her Constitutional Report of 1965 on the BVI wrote, “I have been very impressed by the ability and seriousness of the people of these islands. I believe that with help, they would be perfectly well able to manage their own affairs, to the limited extent that their present dependence on the grant-in-aid for recurrent expenditure permits.” Reporting before Ms. Proudfoot, however, was Carlene O’Loughlin, who in a 1962 report on the economic potential of the BVI said, “If the necessary public services to secure economic prosperity are not prioritised, there will be a continuous increase in grant-in-aid, and a continuous emigration, until in time, a point would be reached when the continuation of grant-in-aid to a decimated population would be so unreasonable, as to make the only possible alternative, evacuation, or a sellout to private individuals having significant means to convert the islands into playgrounds for a selected few or into bird sanctuaries, offering negligible opportunities for employment.” Approximately seventeen years later, in 1979, the BVI under the leadership of then Chief Minister, Willard W. Wheatley, ceased receiving this grant-inaid. The Carlene O’Loughlin predictions, which I refer to herein as the O’Loughlin Prognosis have long been debated and in some ways have served to inspire and motivate BVIslanders to develop not only their country, but themselves. It was almost as if the O’Loughlin Prognosis awakened and invigorated the indomitable spirit within BVIslanders, motivating them to prove the prognosis premature and overly pessimistic at best. BVIslanders are a proud, ambitious people with a long standing and deep attachment and commitment to “their land” (both physically and emotionally). They are amongst some of the first slaves to have been freed in the Western World and have a bond with the land to which they were transported as their new home that cannot and will not easily be broken. Dr. Michael O’Neal in his book entitled Slavery Small Holdings and Tourism, chronicled this chapter in BVI history, providing a concise historical point of

reference for those keen on understanding this very important aspect of the Territory on a deeper and more comprehensive level. This important piece of BVI history—the idea of a symbiotic relationship between BVIslanders and their land, has helped to shape a significant component of the “BVI Brand”. Before going any further, it might be instructive to point out that the name “BVI” is itself a brand. It is easily associated with the successful principle of the Rule of 3. Some of the world’s most recognisable and prosperous telecommunication networks: CNN, ABC, BBC, PBS and other successful brands such as UPS, IBM and ING are associates of the Rule of 3. Those of us who understand matters of the spiritual will align this with the importance of the Rule of 3 if we simply consider the Trinity. It is said that the Rule of 3 pervades every facet of our daily lives: social, spiritual, economical and professional. There are very few countries that can boast of being affiliated with the Rule of 3. The BVI is one of the few and its success has also exemplified the rule that ideas are best explained or presented in threes. The BVI Brand has therefore evolved out of the overarching BVI Idea to be successful. While it can be argued that the brand itself developed, to some extent, accidentally or coincidentally, it is clear that the BVI Brand developed from an underlying philosophy to create a distinct identity, underpinned by a determination to succeed. As an illustration, the BVI is often referred to, and is recognised as the sailing capital of the Caribbean. In fact, some have refused to limit this recognition to the Caribbean stage and have defined the BVI as the sailing capital of the entire world. The very ability to be classified as the sailing capital of the world is no small accomplishment and is based on several factors, some of which are natural, others given and others earned. These factors include the beauty of the environment, the geography of the islands with their many bays, coves and magnificent beaches, all of which delight sailors, and the amenities that have been developed to facilitate and augment them. The point to be illustrated here is that a brand is what something is, whether it has been so defined or whether it has happened by deliberate or evolving circumstances. In the BVI context, the BVI Brand did not just happen. It is both a direct and indirect consequence of what constitutes the very idea of the BVI, or the BVI idea, whichever approach is preferred. A brand has definitive characteristics, such as an identity or a label. Branding by comparison is quite different. Branding is an application given and invariably handled by consultants or experts. A territory such as the BVI has not been branded, though specific features and characteristics have been attributed to it, creating a brand image. Independent Policy Adviser, Simon Anholt bears this out in the Foreign and Commonwealth Office (FCO) publication, Engagements where he stated, “Places certainly have their brand images, but the extent to which they can be branded is still quite properly the subject of intense debate.” Notwithstanding all of the foregoing, there is a prevailing thought in some circles, that economies primarily based on financial services are indeed artificial. Bermuda and the BVI are regarded as examples of such “artificial societies”. While we do not purport to speak for Bermuda, I beg to differ with the statement of the Prime Minister of St. Vincent and the Grenadines as it relates to the BVI. Firstly, the BVI economy is based on the twin pillars of financial services and tourism, the latter being the number one contributor to gross domestic product, the sector that employs most of the work force, and the industry in which locals have the most investment. Further, neither tourism nor financial services developed by accident in the BVI. To the contrary, the BVI’s economy and development on a whole is based on a

January 2015 Edition

chronology of calculated decisions and decision making, followed through by organised and careful implementation. Leadership while executing the BVI idea over the last sixty years has played a pivotal role in the emergence of a BVI Brand. The re-establishment of the Legislative Council in 1950 was to a large extent, a direct result of the 1949 March, borne out of the desire to create investments and a new economic order. The idea behind the march was to find a new form of Government that would give the people of the BVI greater input into the affairs that affected them. The organisers of the 1949 March were Theodolph Faulkner, Carlton deCastro, and Isaac Glanville Fonseca, all of whom recognised that a new form of Government was perhaps the best way forward and the legendary and timely nature of that march can now easily be recognised in the historical re-establishment of the Legislative Council in 1950—a prime indication that in the most crucial of times in BVI history, leadership really mattered. Subsequent to this seminal move, were a number of pre-meditated decisions that could easily be the foundation of what is today, the BVI Brand. Probably one of the most significant decisions during the 1950s and 1960s was the visionary approach in seeking the consent of the British Government to allow the US dollar to become the legal tender of the BVI. The subsequent meetings in Washington confirm this view. The BVI has always been special and its geography is no exception. It is a British overseas territory, far removed from Britain and positioned in the middle of the United States Virgin Islands (USVI) and the Eastern Caribbean. Trading became difficult with the neighbouring USVI due to currency barriers and a decision was made to resolve this problem. In what is regarded as a historical milestone, the leaders of the day sought and gained approval for the use of the US dollar as legal tender in the BVI. The non-belonger land holding licence, which has its genesis as far back as 1922 (when it was referred to as the alien land holding licence) was next in the list of the arsenal of intentional acts in fulfilling this BVI Idea. The subsequent revisions and amendments to that piece of legislation to ensure that non-belongers met certain qualifications and obligations, and obtained a licence in order to own land in the BVI, has by and large helped the BVI and BVIslanders as a whole to be able to maintain control of land in their own territory. The critical amendments to this legislation as a means of land preservation, retention and control were decisive and deliberate. BVI land is the blood that runs through the heart and the will that makes up the soul of the people of the Territory. The plan was therefore devised to ensure that as far as possible, the land remained in the hands of locals. The legislation was further recently amended to ensure that even in circumstances where land was being sold by banking institutions at auctions (in foreclosure situations, for example), such purchasers had to obtain the non-belonger land holding licence also—a position which hitherto, did not exist for fear that the banking institutions would be held hostage in such circumstances, if a potential purchaser were to be subjected to the sometimes, lengthy and arduous, non-belonger land holding licensing process. The leaders rationalised that the consequences of allowing BVI land to disappear into the hands of non-belongers were far greater than any consequential threat or obstruction caused to a banking institution in trying to auction the property. With this idea in mind to continue to protect its nationals, the leaders did not hesitate in following through with the further amendment to the legislation. By the same token, the protective treatment of the national parks and introduction of the National Parks Trust Act are further indications of a people and their leadership who recognised the value of maintaining 72

January 2015 Edition

control of their assets. The visionary J.R. O’Neal, of blessed memory, and his commitment to building an institution of national parks in the BVI is one of those pillars that is fundamental to understanding the BVI Idea and ultimately what became part of the BVI Brand. The affiliation and relationship the Territory had with Lawrence D. Rockefeller only further facilitated the late J.R. O’Neal to consolidate this idea. The eventual naming of the Botanical Gardens in honour of the late J.R. O’Neal is a reflection of his contribution to the development of green space in this BVI Idea and the recognition of the importance of national parks as a pillar within this widely developing BVI Idea. In 1967, the establishment of ministerial government in the BVI was another signature historical moment.The advent of the Hamilton Lavity Stoutt Government and what was then referred to in certain circles as the “country boy” who became chief minister, is unquestionably a major event in contributing to what we now know as modern day BVI. It was the late Mr. Stoutt whose vision embodied and personified education—a leader who truly believed and demonstrated that the advancement of the BVI was inextricably linked to the education of its people. The construction of the BVI High School was the paradigmatic event of his administration. Before the existence of the BVI High School, only a select few could attend the then Virgin Islands Secondary School. The creation of the BVI High School opened the floodgates of education, allowing all eligible BVIslanders to have a secondary school education. This profound commitment catapulted BVIslanders into being classified as one of the most educated class of persons in the English speaking Caribbean. The H.L. Stoutt Community College, pioneered relentlessly by Mr. Stoutt and driven passionately by his pre-occupation with education, was also part of this vision that established the BVI Brand/Idea and has been the tertiary education “rites of passage” for many young BVIslanders of the current generation. Clearly, these consciously planned decisions are not the making of an artificial society. Finally, tourism and financial services have been the economic pillars of strength to this BVI idea. Tourism in the BVI has made a tremendous contribution to the establishment of the BVI Brand. The construction of Little Dix Bay Resort on Virgin Gorda is recognised by most analysts as the genesis of modern day tourism in the BVI, helped in large part by the vision of Laurence D. Rockefeller in 1960, to invest in the perennial augmentation of the BVI Brand. The BVI is a high-end tourism market, offering products such as Peter Island, Necker Island, Little Dix Bay Resort and most recently, Oil Nut Bay (Virgin Gorda). The consequential development of the yachting industry and now the mega-yachting industry are the direct result of the continuous building of a BVI brand. The BVI environment is its number one asset, and it is recognised that there can be no tourism without such an asset. A recent study done by the University of Amsterdam and the Wolf Foundation clearly illustrated the value of the environment to tourism and confirmed that 90 percent of all tourists arriving in the BVI, visit because of the natural beauty and its distinct environment. The preservation of this natural beauty and distinct environment from any type of contamination has been, despite many challenges, intentional in building and maintaining the BVI Brand. The 1984 passage of the International Business Companies Act was perhaps the epitome of all the pre-meditated decisions which formed the economic piece of this BVI Idea. Faced with the United States refusing to renew the Double Taxation Treaty which the the two countries had previously entered, a decision had to be made to preserve the right to attract commerce to the BVI, with such persons being confident that they could continue to enjoy the benefits of only being responsible for corporate taxes in one country at a time. The Act became known as the IBC Act and 30 years later,

it is recognised as the pioneering landmark for the BVI Brand in the area of financial services. The late Cyril B. Romney, a former Chief Minister, was one of the leaders instrumental in cultivating this aspect of the BVI Idea. The financial services piece of the BVI Brand is therefore not a coincidence, although, admittedly, it has been helped by international events, chief of which was the Panamanian revolution. However, we must recognise the wisdom that has been applied to the preparation and maintenance of an industry that has survived the last thirty years by introduction of pertinent legislation to improve the product and maintain compliance with changing international standards. The maintenance programme has been ingenious in ensuring that the BVI Brand was not eroded by the constant international measures and pressures. To disregard this wisdom as artificial illustrates not paying enough attention to detail or a blatant refusal to give credit where it is due. The BVI Brand is further well recognised for the fact that there has long been public/private co-operation in the industry, both from an operational standpoint and also as it concerns identifying the need for new legislation and new financial services products. Added to this is the fact that at the House of Assembly level, there has always been unity and commitment in ensuring that any required augmentation to the financial services arsenal is unanimously agreed upon and approved without delay—a purposeful commitment to the BVI Brand at every level of operation. In conclusion, it is worth reiterating that the BVI Brand is both a direct and indirect consequence of a number of historical events. The BVI, small though it may be, punches way above its weight category. To be recognised positively internationally for its twin pillars speaks volumes of the nature of

the leadership that the BVI has had over the last fifty to sixty years. the natural attractions and tourism products have been rated as “wonders of the world”. In Asia, the BVI business company has become a staple product and its relevance so innate that it is simply referred to as a “BVI”. It is a brand that has developed over time, with some limited external help but moreso, from an internal desire to survive successfully. Ultimately, what the BVI Brand and Idea BVI demonstrate is that leadership does matter. It was a series of calculated and deliberate leadership decisions that has carried the BVI over the last sixty years. The BVI Idea did not develop by accident, or coincidence, though, admittedly the BVI as a brand might have (as there was no evidence of a decision at inception to create such a brand). Although many factors, external to the Territory’s control have contributed to this BVI Brand, it is the combination of committed leadership, thoughtful planning and preparation that have placed the BVI economy where it is at this point in time. Importantly, the value of the BVI Brand has also been recognised, associated and influenced, from infancy to present, by international personalities such as Laurence D. Rockefeller, Sir Richard Branson, (owner of Virgin Atlantic), Henry Jarecki (successful venture capitalist and philanthropist) and David Johnson, (reputably successful real estate developer). These well-known world contributors have all bought into the BVI Idea and their interest in assisting with the development of the BVI only adds credence to the brand and to the idea that the BVI has become. Today, as the Territory continues to develop successfully, the BVI Brand continues to market a country to the world whose natural qualities, characteristics, product offerings and success are undeniably real. BB

BUSINESS - INSIGHT

ADDRESS

TO THE BUSINESS BVI ASIA INAUGURAL REGIONAL CONFERENCE.

year after formally launching BVI House Asia here in Hong Kong it is a distinct pleasure to be invited to address this Conference under the banner of Pivoting to Asia. BY PREMIER AND MINISTER FOR FINANCE DR. THE HONOURABLE D. ORLANDO SMITH

The Co-Chair of the conference tells me that it was almost 25 years ago that Sir David Li, owner of the Bank of East Asia (BEA) entertained the first BVI official delegation to Hong Kong led by one of my predecessors, the late H Lavity Stoutt right here in this iconic Hotel Peninsula. Our Chief Regulator Dr. Robert Mathavious was part of that delegation, as was the co-chair. At that time, I remained happily at home looking after the physical health of the BVI. Needless to say, within weeks of that initial visit, the BEA was using BVI structures for wealth creation for its clients. That company has now morphed into another entity that helped us to establish our presence here in the last twelve months or so.

I told that little story because it so aptly demonstrates the synergy that has existed between the BVI and the Asia Pacific Region and specifically Hong Kong for more than a quarter of a century. Before getting into the meat of my discussion, allow me to congratulate Russell Harrigan and his team from Business BVI for his vision and indeed courage in mounting this first conference outside his home zone. While as a Government we have mounted road shows and related activities to promote the BVI, and we have opened an office to serve this region in real time and to cement our relationship; no member of the BVI private sector has had the foresight to bring practitioners together in this fashion, in this market place, to take a close look at where we are and to strategise on the way forward. These have been challenging times; it is often said that adversity strikes in threes, but for us in the BVI it seemed at one point that there was no end to our count.From the leaking and subsequent publishing of thousands of client files containing private information by the International Consortium of Investigative Journalists (ICIJ), to our being blacklisted by France, to BVI clients experiencing difficulties in opening bank accounts in Asia for rather mysterious and unclear reasons, to being deemed to be non- compliant by the Organisation for Economic Cooperation and development (OECD), to the UK’s proposed introduction of central public registries of Ultimate Beneficial Owners (UBOs), to the implementation of the Foreign Accounts Tax compliance Act (FATCA), and I could go on. For the last 18 months, everything including the kitchen sink was thrown at the BVI as a jurisdiction. However, I stand before you today to tell you that the BVI has weathered these storms; we have turned that corner and the symbiotic relationship between the BVI and Asia remains secure. I am fully aware that Hong Kong is very attuned to BVI developments but allow me to explain how we have managed to secure that relationship and perhaps more importantly, reveal some exciting plans for moving the BVI to the next level. I expect there will be spirited discussion of the objective of this gathering, which is paving the path to new opportunities. Speaking of opportunities, in addressing the Hong Kong General Chamber of Commerce, I pointed to the fact that even during the global financial crisis, China’s outward and inward Foreign Direct Investment (FDI) flows through the BVI increased. Although major economies struggled, China continued to experience growth and chose the BVI as a partner to facilitate this growth. The exponential growth of the middle class in China and its boundless entrepreneurial spirit undoubtedly creates the greatest opportunities for us to build on together for our mutual benefit. I also note that trends show that China’s outward investment is set to overtake inward investment within two to three years. Interestingly, outbound Chinese investment grew by an average annual rate of 45 percent between 2002 and 2011, and in 2013 swelled to US$101 billion, making it the third largest investor in the world. Offshore finance centers were responsible for facilitating a large percentage of this investment, and thereby fuelled global economic growth. BVI corporate vehicles and other structures have always been the cornerstone of Chinese investments and we are excited by the prospect of continuing to

January 2015 Edition

We thank the bankers - and especially those with us today, for allowing us to do so. But we need a little more; we need you to make it simpler for BVI businesses to open accounts with your banks. We must find some way to do this. I welcome your thoughts on this critical issue during the discussion. We believe there are opportunities in the banking space in the BVI and we would like to see Asian commercial banks establishing branches in the Territory. Despite the new regulatory landscape and high costs, we believe the level and diversity of services offered by the BVI globally can amply support such entities. We are in fact looking to engage the right person to lead this charge as a priority. September 9th was a public holiday in Hong Kong but we could not afford to travel all this distance to relax for even a moment. The BVI delegation took the opportunity to visit Shenzhen in furtherance of two Memoranda of Understanding (MOU) the BVI signed with that city in early January of this year. support Hong Kong, Mainland China and indeed the wider Asia Pacific Region (APR) in this burgeoning growth. But we must ensure that we are well positioned to take full advantage of the new opportunities. Today we begin that assessment! I am extremely proud of the work being done by our Director of BVI House Asia (BVIHA), Elise Donovan in promoting the BVI Advantage and educating clients about its benefits especially on the Mainland. This is essential as it is predicted that in a few short years more direct business will emanate from Mainland China than via Hong Kong! We expect to do more of this direct promotion as we strengthen our relationship with the Mainland. But we are by no means restricting our promotional activities to China as South Korea, Singapore, Indonesia, Japan and India are equally fertile and emerging jurisdictions that present a myriad of wealth management opportunities. If there is a flip side to this new normal, it’s that the traditional high volume incorporation work of the pre global financial crisis period is being replaced by lower volume work which calls for more tailor made or ‘bespoke’ solutions. This is desirable without question - especially for the law firms. The BVI has always been a multidimensional jurisdiction; we must therefore find a way for traditional users of BVI entities to continue to do so. Small and medium-sized enterprises are equally valuable as the mega deals that are completed using BVI entities. This is perhaps a good segue to discuss the critical role that banks play in the economic relationship between the BVI and Asia. At the outset, I want to reiterate that the BVI has no interest in anything other than legitimate business. I am nevertheless aware that international rules have changed and that a higher level of due diligence is now required for opening bank accounts. Furthermore and frankly, it seemed that BVI companies were being singled out for tougher standards, a trend that started at the beginning of last year. Although to an extent we may have turned the corner on this, the need definitely exists for greater collaboration between the banks and the industry. I trust that that closer collaboration begins today. Together with the industry, we have done our part by physically visiting banks in Hong Kong, sitting down with their management and at times their clients, to explain and elaborate on the offerings of the BVI.

Although some of our time was spent on matters related to my tourism portfolio, the other MOU we signed with the Qianhai Authority was very much on my mind. Permit me to put the latter into context - shortly after the formal launch of BVIHA last year, we were approached by a delegation from Shenzhen about forging closer ties with that city. Needless to say, we were delighted to say yes. By January of this year, we had signed two MOUs - the relevant one for this meeting being with the Quinhai Authority which is their Free Trade Zone. Among the objectives of that MOU are: • To find opportunities in financial cooperation and to further develop financial industries. • To visit each other to discuss finance and investment matters of mutual interest including financial services industry planning, financial innovation and offshore financing. • To encourage and promote financial cooperation between the regions, including cross-border RMB commerce, financial regulation, shipping finance, securitisation, insurance and reinsurance innovation. Ladies and gentlemen, the opportunities could not be made any more explicit. The door is wide open for building a mutually rewarding relationship with one of the wealthiest cities in China. One prerequisite is the establishment of a cooperation office which the authorities there have offered to provide. January 2015 Edition

My hope is that in the coming weeks, a group comprised of Government and industry representatives will visit Shenzhen to meet with a counterpart group to discuss areas of specific cooperation. To be effective, this must be properly orchestrated and timed. I therefore leave it in the hands of our capable BVIHA Director to move forward vigorously on this new frontier.

We recently revised and improved the legislative framework relating to the security of computers and computer-related data. We took into account necessary and appropriate measures to ensure adequate protection of the Territoryâ&#x20AC;&#x2122;s national security, key economic bases (such as financial services business) and infrastructure services.

I am happy to see that we have among our presenters Jeffrey Chen of Shanghai. I am keen to hear from him what he considers to be our prospects for taking advantage of their recently established Free Trade zone.

Our recently passed Cybercrime Act addresses the issue of unlawful publication of computer programmes or data. It is now an offense for a person to publish any information sourced from a protected computer (as defined in the Act) or any information obtained from a computer which the person knows or ought reasonably to have known was obtained without lawful authority. The point of emphasis is the illegality of the action engaged in.

On September 9th, we toasted the 30th anniversary of the International Business Companies (IBC) Act, now known as the BC Act. While I will not attempt to steal our Chief Regulatorâ&#x20AC;&#x2122;s thunder, as I know that he will in his inimitable style chronicle the developments over the last thirty years, it is fair to repeat what I said last year to the British Chamber of Commerce: it was this piece of legislation that launched the BVI star in Asia. And that star continues to shine brightly thirty years later. As a Government, it is our responsibility to make sure that this quintessential Act remains an effective tool for fostering all opportunities that present themselves in financial services. As such, we always move expeditiously in the House of Assembly to ensure quick passage of all requisite amendments. I would be delighted to hear from you - in the margins of the conference if necessary, about what further changes are required to put us on an even stronger footing. I spoke previously about the headwinds we are facing. The leaks I referred to earlier fuelled a political and public debate perhaps like no other headwind, resulting in a crisis of confidence in the BVI and reinforcing negative perceptions about the jurisdiction. In this business, there will always be a degree of unpredictability and therefore, in addition to our robust media response, we moved to further safeguard the BVI against a repeat of such incidents.

January 2015 Edition

Although similar legislation exists in most jurisdictions that are serious about the integrity of their financial services industry, the action we took prompted criticism from various international and highly respected publications. However, we held firm as it was the only way to stop the irresponsible and indiscriminate publication of clientsâ&#x20AC;&#x2122; private data. Turning now to a few international regulatory issues starting with FATCA, which has become the new gold standard in financial services: I am pleased to share that in August 2014, I signed off on IGA 1(b) in Washington DC, having consulted with industry representatives who were of the unanimous view that this arrangement where the information would be passed to the local Government for onward transmission to the Internal Revenue Service (IRS) would work best for their clients. Interestingly, China signed on just before the BVI with little fanfare. At the outset, I mentioned some of the other challenges we faced coming into this conference including the French blacklisting. Having now provided them with 98% of the information sought in accordance with our Tax Information Exchange Agreement (TIEA), we are cautiously optimistic that come December 31st, the BVI will no longer be included on the French blacklist.

Similarly, we are undergoing our OECD supplementary review later this year that would hopefully clear the way for a positive rating in the second review phase. Although these events have not significantly impacted our business, the BVI must be seen to be meeting all international standards at all times. I have spent considerable time talking about the status quo and I know you are wondering what is in the pipeline or what is on tap. For starters, the BVI is a Category 1 Registry under the UK Red Ensign Group which means we have the capacity to register ships of all sizes and pleasure craft especially. We expect to combine this with an aircraft registry in the near future. A competing jurisdiction started such a facility just five years ago and has become very prosperous. What is interesting to note is that 20% of all aircraft registered in that jurisdiction were owned by BVI companies! We believe it would be a natural progression for the BVI to offer a secure and efficient registry for aircraft as a value added service to these already BVI domiciled asset holding companies. I am conscious that you are keen to know the BVI’s position on the issue of Beneficial Ownership and a Central Public Registry, as is being proposed by the United Kingdom. At this point, we are assessing the results of the consultation launched late last year to determine the next steps.

As we move into our 30th year of financial services, we continue to subscribe to the adage, ‘if it ain’t broke don’t fix it’, all the while making sure to stay ahead of the curve. Given the myriad of changes that have occurred in the post 2008 global crisis, some regulatory in nature and others market driven, as a Government, we have found it necessary to assess where we are in financial services and how to pivot effectively. In furtherance of that goal, we selected the leading management consulting firm which is in the midst of carrying out its assignment. Several of you have no doubt been in touch with them, as they, like us, are conscious that it is in the market where it all happens. The views emanating from the market are critical to the outcome of this assignment. Similarly, we have recently engaged an equally prestigious public relations firm to help us manage our image and reputation. These decisions did not come cheap, they come at a cost that demonstrates our commitment to this industry. Given the critical nature of our financial services, we cannot afford to ‘settle’ for less. Today is a red letter day for financial services in Asia, as we sit together to chart the way to new opportunities. Pivoting towards these new opportunities requires a commitment to partnership. I look forward to cementing that partnership with each of you as we forge through the programme. BB

January 2015 Edition

BUSINESS - INSIGHT

THE IBC ACT: BUILDING OF A NATION by Colin Riegels

GDP (nominal/current prices)

86.3

923.21

Total Current Revenue

19.2

302.4

(actual)

Import duties (revenue) budgeted

5.2

27.4

Total No. of IBCs/BCs

253

1,184,292

161,625

741,847

10,985

28,054

(Ever Incorporated)

Central Government Budget

22.3

321.9

(cruise and overnight)

(recurrent&capital)

Education Budget

Imports (goods) 2012 estimate

Tourist Arrivals

3.4

77.3

Population

47.9

298.6

(1980 and 2010 census respectively)

1984 2013 US$ millions

Sources: Ministry of Finance Central Statistics Office BVI Government

the language barrier. Mr. Butler therefore expressed an interest using the BVI going forward. Mr. Riegels welcomed the opportunity saying they would be very happy to assist and promised to examine the prospects right away.

On this otherwise unremarkable day, the rotary telephone rang with a deafening jangle, and the receptionist answered. On the other end of the line was a Wall Street lawyer by the name of Paul Butler from renowned New York law firm, Shearman & Sterling. Like so many Wall Street lawyers, Mr. Butler was a highly capable and astute businessman. He also had characteristic American friendliness and charm in abundance. He could anticipate immediate attention because international telephone calls were uncommon in those times. Cable & Wireless had laid the necessary undersea cables only a few years before. Mr. Butler asked politely to speak to either of the two lawyers and he was connected with Mr. Riegels. Few pleasantries were exchanged as telephone calls were extremely expensive under the Cable & Wireless monopoly, and Mr Butler explained the purpose of his call. The American corporate lawyer spoke of the double taxation treaties between the USA and various “micro-states” in the Caribbean which offered the potential for generous US tax relief. He had been dealing with lawyers in the Netherlands Antilles, but was experiencing difficulty communicating because of

The transaction went well. Undoubtedly issues would have arisen, but nothing that proved insurmountable. The transaction was followed by another, then another, until there was a steady stream of US tax related work going through the offices of Harneys. Mr. Butler would later remark that he had been rather lucky selecting the BVI and Harneys. Although he had anticipated having to closely supervise the local lawyers who were inexperienced in such matters, he had accidentally stumbled across two very competent men. Mr. Westwood was a Cambridge graduate who, after spending time at the English bar, had worked extensively in industry. Mr, Riegels was an Oxford man who placed fifth in the entire country when he sat the English bar. The

lthough nobody knew it at the time, the inception of the BVI’s International Business Company Act occurred during1976. Nobody now recalls the exact date, except that it was during the summer. It is reasonable to assume that it was a hot day, and in most of the offices in Road Town, Tortola, the overhead fans would have been turning lazily to avoid creating enough breeze to disrupt the piles of assorted paper on desks. Amongst those offices, there was only one law practice in the Territory at the time, which was the firm of Harney Westwood & Riegels. Within their offices on Russell Hill, there were just two lawyers - Neville Westwood, a veteran of the Second World War who had settled in the Caribbean with his wife and daughter in search of a more peaceful life, and Michael Riegels, who had recently relocated to the BVI with his family from Tanzania after a period of civil unrest. Harold Harney had by this time passed away.

January 2015 Edition

relationship between the three men became very warm. Shortly thereafter, the two Harneys partners hired a third man to join them: Richard Peters, a brilliant young tax barrister from London and a former Cambridge organ scholar. The future seemed spectacularly bright at this stage. But even in the days before Edward Snowden had been born, the all-seeing eye of the American Government fell upon the BVI soon enough. The success of the double tax treaty was causing concern in Washington, and the American authorities summoned a delegation from the BVI to discuss the treaty. The delegation was led by McWelling Todman, QC, affectionately known as- Mac–who was a native Tortolian lawyer of exceptional ability. The delegation was not especially successful. Mr. Todman would later joke grimly that their meetings had been not so much a case of negotiation as plea-gotiation. In any event, the Americans unceremoniously cancelled the double taxation treaty in 1982. The situation looked potentially grim. Up until the mid-1970s the BVI had been something of an economic backwater. There was little infrastructure or industry, but the increasing economic traction that the incorporation work had brought had injected a certain degree of prosperity into the islands. People were anxious for the momentum to continue. The then Attorney General was a Barbadian named Lewis Hunte, a man of infectious charm and good humour who had come to the BVI and proved himself a skilled draftsman during the much needed modernisation of the BVI legislation. Mr. Butler suggested that the best way to respond to the cancellation of the double taxation treaty was to offer a new corporate product in the market. Instead of promoting a structure which would create tax leakage in powerful countries such as the USA, the BVI should seek to create a tax-neutral company, using up to date legislation which would provide a user friendly, flexible modern corporate vehicle for multiple commercial purposes in any country in the world. The idea received encouragement and support of Ken Bain, the BVI Financial Secretary at that time. A committee of five persons comprising of Paul Butler, Lewis Hunte, Richard Peters, Michael Riegels and Neville Westwood was tasked with developing the legislation to create this new type of corporate vehicle. Mr. Butler in New York and Messrs Peters, Riegels and Westwood in the BVI worked on producing a first draft of the proposed new legislation. This draft was scrutinised with Mr. Hunte in the Attorney General’s Chambers on a daily basis to craft it into a suitable legislative format for the BVI. Although later they would sometimes be referred to as the “gang of five” who was responsible for drafting the IBC Act, in reality, the majority of the work was done by Mr. Peters, the youngest member of the group. At the suggestion of Mr Butler, the legislation was based upon Delaware corporation law which was thought to be the most modern in the world at the time; but incorporating additions from innovative company legislation in other jurisdictions as well. At times, this led to some grating jurisprudence – using American legal terminology within an English common law system. However, after 18 months the task was completed and on 15 August, 1984 the Legislative Council of the BVI passed the International Business Company Act, making it law. Reflecting on the IBC Act, it is easy to overlook how radical it was at the time. It streamlined the incorporation procedure and removed the requirement of corporate capacity. It abolished the need for corporate benefit, recognised that companies could exist without members, and permitted companies to provide financial assistance for the acquisition of their own shares. It provided for true statutory mergers, and created new statutory tools for restructuring and reorganisation. Most of these innovations would not appear in English company law until the Companies Act 1986, and some

did not appear until the Companies Act, 2006. It is not mere hyperbole to say that the IBC Act was ahead of its time. Back then, the Government and private sector were not really concerned with how radical the new statute was. What they were really concerned about was whether accountants and lawyers in other jurisdictions would use these new International Business Companies or IBCs. So they waited. At first it was slow. Very slow. Very few new companies were incorporated under the Act. People were tempted to write the whole endeavour off as a failure. Then suddenly, like a desert after the rains come, it all started to bloom. From about 1989 to about 1997 the incorporation numbers exploded, growing exponentially at the almost unmanageable rate of nearly 50% growth yearon-year. The infrastructure at the Companies Registry struggled to keep pace with the sheer volume of incorporations. Lawyers, accountants and trust companies poured into the sleepy capital of Road Town like miners in the California gold rush. New offices had to be built. House prices surged. Infrastructure was upgraded. For better or for worse, the BVI experienced rapid economic growth on a scale it had not contemplated at the outset. In 1999, after a study on behalf of the British Government, the accountancy firm KPMG estimated that the BVI had amassed a 41% global market share for offshore vehicles. By 2004, the BVI would have the 12th highest Gross Domestic Product (GDP) per head of population in the world. During the 1990s, it became a popular topic of conversation at business lunches in the BVI to identify what happened to “flip the switch” on the IBC Act. For many years the popular theory was that it was the invasion of Panama by the USA. There was a neat symmetry to the theory. The USA had killed off the first incarnation of the offshore industry, so it was fitting that an American geopolitical event should give birth to the second. The broad premise was that Panama was a leading player in the offshore industry until the Americans invaded that country in December 1989 to arrest the Panamanian dictator, General Manuel Noriega, on charges of drug trafficking, racketeering and money laundering. The unrest arising from the invasion caused business to flee and the BVI was one of the main beneficiaries. However, the theory is probably over simplistic. Incorporation numbers had already begun to balloon before the Americans loaded their rifles and boarded their warships. There is nothing about the period immediately following the invasion which shows a particularly large spike as against the year before or the year after, although undeniably the US invasion of Panama was beneficial to the growth of the financial services industry in the BVI. Another popular theory was that much of the popularity of BVI companies can be attributed to just one man: Sir Li Kai-shing, a Hong Kong business magnate who is now Asia’s wealthiest man. Back in the late 1980s, the businessman then simply known as Mr. Li, was reorganising his highly successful shipping business, Hutchison Whampoa. Mr. Li made the fateful decision that he would use BVI IBCs as the holding companies in the reorganisation. Such was the regard for Mr. Li, that other businessmen and young entrepreneurs rapidly followed his example. Whilst the theory regarding Hutchison Whampoa may or may not be more accurate than the Panama theory, there is little doubt that the IBC proved to be extraordinarily popular in Hong Kong. In fact they became so ubiquitous that even today Hong Kong businessmen will often refer to using “a BVI” as a shorthand reference for an offshore company, regardless of its jurisdiction of incorporation. Professionals in the BVI joked that when a man turned 18 in Hong Kong his father would hand him a mobile phone and a BVI company and tell him to go and make his way in the world. January 2015 Edition

Whilst both of these events indubitably had an impact, the man who may well have done the most to kick-start the use of IBCs was an energetic chartered secretary from Liverpool by the name of Ted Powell. Mr. Powell is an extremely astute businessman and entrepreneur with a larger than life personality, who never really accepts no as a final answer. Living in Hong Kong, Mr. Powell recognised the talismanic power of the number eight in Chinese culture. Being in the business of selling offshore companies, Mr Powell thought that there would be huge demand in Hong Kong for companies which had the unfathomably lucky providence of being incorporated on 8 August 1988, or 8/8/88 if you prefer – the luckiest day of the Chinese century. He set about trying to organise the incorporation of a large number of IBCs on that day. However there was a serious problem. In the BVI, the first Monday, Tuesday and Wednesday of August are public holidays, celebrating the emancipation of slavery in 1834. All Government offices would be closed on the fateful day, including the Companies Registry. A lesser man may have given up, but not Ted Powell. He enlisted the support of a highly capable local lawyer named Richard Parsons and between them they begged, bullied or cajoled (history does not record which) the Registrar of Companies to prepare all of the relevant company incorporations ahead of time, then briefly open the Registry on that special day to officially incorporate the companies on that date. Those lucky companies proved to be just as popular as Mr Powell had predicted and sold at an incredible rate. The rest, some might say, is history. In truth, no one can be certain what caused the rise in popularity of the IBC, or even if there was one single cause of the growth in popularity. It may simply have been a combination of a good product, with good timing, and a decent slice of luck. Almost like a quasi-religious text, the statute had rarely been amended. Most of the effort focused on managing the infrastructure of the Companies Registry to cope with the growth. However, there was at least one amendment which was to have notable beneficial reception. In 1991, changes were introduced to create a simple but comprehensive system for registration of security interests created by IBCs. This proved extremely popular with lenders in terms of providing debt financing to BVI companies. Leading international finance lawyer Philip Wood, QC once remarked that he thought the BVI security registration system was the “best in the world”, and this later helped to cement the BVI as a market leader in the structured finance market. Eventually in the early 2000s, the industry in the BVI effectively plateaued. Incorporation numbers were high, but stable. Cynics like to suggest that the end of the period of growth coincided exactly with the creation a new regulator for the industry, the Financial Services Commission. However, it is more likely that this was just a coincidence. Like any industry, there is a stage where further growth is not really possible and the objective then becomes consolidating the gains. The new regulator focused on trying to create a regulatory environment which would foster growth in higher value products such as investment funds and captive insurance. By this time, the IBC Act had been driving the BVI’s economy for the better part of two decades. All around it, the world of commerce had moved on. The world where Michael Riegels had a conversation with Paul Butler over newly laid undersea cables had metamorphosed unrecognisably into a world of high speed satellite communications and electronic commerce. The time when lawyers might send carefully typewritten documents to each other by post for review and comment over the course of several weeks had been replaced by electronic versions rebounding back and forth between Blackberries several times a day. At times, the IBC Act appeared increasingly

January 2015 Edition

out of pace with this new world, almost as if it was trying to send a telex to an e-mail address. Industry practitioners began to realise that it was time to replace the model. There was also external pressure on the BVI to change its model company legislation. The IBC Act had been predicated on “ring fencing”. Broadly speaking, so long as the company did not conduct any business in the BVI, then it was treated as tax exempt for BVI purposes. This was seen as creating “unfair tax competition” by the Organisation for Economic Cooperation and Development (OECD) and other international bodies. Voices which grumbled that the OECD had never seen any tax competition which it did regard as fair were largely ignored. The process of replacing the IBC Act with a modern statute began. After two years of work, this would eventually come to fruition in the form of a ponderously named new statute, the BVI Business Companies Act, which was passed into law on 24 December, 2004. Some well-meaning but overpaid consultant advised that the name of the new statute would cause the resulting companies to become known as “BVIBCs” which would create some form of brand recognition with the existing “IBCs”, but in the end it proved to be too much of a mouthful and lacked the simple elegance of its predecessor. Vast numbers of companies were incorporated under the IBC Act, making it necessary to impose a transitional period to allow the migration of the existing companies from one corporate regime to another. Although no new companies could be formed under the older statute from 1 January, 2006, the IBC Act itself was not actually repealed until 31 December, 2006. However, before it was repealed, Mr. Parsons, the same man who was involved in the 8/8/88 incorporations, made an unusual request of the Companies Registry. He asked if he could submit a request for the incorporation of an IBC on behalf of a client, a leading Hong Kong trust company. His special request was that the Registry staff wait until the end of the day before processing the incorporation. The name of that company was, fittingly, “The Last IBC Limited”. Looking back on the transformative changes brought about in the BVI by a single piece of legislation gives rise to mixed feelings. In many ways, it all seems so recent, although much of the history occurred nearly 40 years ago. In other ways, it all seems so impossibly far away. The tall steel and glass offices in modern Road Town seem a million miles away from the old offices with ceiling fans and telexes chattering in the background. A generation of lawyers is now growing up in the BVI, who have never seen an incorporation under the IBC Act. Although the BVI is still a small place and Tortola still has a small island feel, the prosperity brought about by the IBC Act is evident everywhere. Messrs Todman and Westwood have sadly passed on, but other key players from the early days of the IBC Act are still with us, although most of them are enjoying well-earned retirements. It is not inscrutable to wonder when those five men sat down in the Attorney General’s chambers and started drafting the IBC Act, whether they really had any idea at all that their actions would transform the economic status of a nation. BB

Property

Date

Price

Acreage

$/Acre

Necker Island

Oct 1979

$ 329,940

$ 4,124

Mosquito Island

Feb 2007

$20,000,000

120

$166,666

Little Thatch

2014

$55,000,000

$1M

BVI Financial Services Sector Micro Review The Last Decade

What’s next? 1600

Global Income 2002: $260m

201

1200 315

17% 800 201

315

83%

400

210

110 105

2002: $260m

Global Income 2012:

2012: $726m

2022: $1.5b

$726m versus

900

28%

675

72%

450

225

2002

2012

BVI

$215m

$525m

Overseas

$45m

$201m

0 2002: $260m

2012: $726m

Private Sector – Overseas Private Sector – BVI

Income grown three fold. A marked (+10%) increase in overseas based income (%) NB: Best guesstimates and some conjecture

Government Fees

Strategy and Observations

2013: ?

2014: ?

2015: ?

• Lead pack

• Well Diversified

• Internationally Co-operative

• Key Industry Players

• Well Established

• Mature Industry

• Well Versed

• Weathering Storm

• Maintaining equilibrium 2 – 5% growth is good

Economic Crisis

UK Budget

Taxation Concepts

Mid - Shore

Auto Exchange

Competitors

Clients and Products

UK FATCA

DTA’s

Diversified

Clients

FATCA

TIEA’s

Growth

Products

AIFM

NGO’s

Income

Peer Review

Industry

Government

FSC

G20

OECD

Industry

FSC

Government

Source: OGIER BVI

January 2015 Edition

SPOTLIGHT: PIVOTING TO ASIA

January 2015 Edition

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

THE BVI: CHINA’S INVESTMENT ROUTE TO THE WORLD by Christopher Bickley

50% Kazakhstan Lukoil

Spain 40%

(US$1.5 billion; Sinopec)

Repsol

(US$7.1 billion; Sinopec)

2.6B

Peru

Petrobras

Africa

72% Brazil

Banco Industrial e Commercial

(China Construction Bank) (China National Petroleum Corporation)

2000

US$38

2010

- will most probably be China’s next investment powerhouse - 2007: the International & Commercial Bank of China acquired 20% of the South Africa Standard Bank for 5.5B US$ - 2012: China almost doubled it’s FDI to 2.5B US$ with 2000 of its companies investing in 50 African nations - 2013: the Chinese National Offshore Oil Corporation secured a 2B US$ contract to develop oil fields in Uganda

US$240

PRC Foreign Direct Investment (billions)

revious decades have been characterised by the global investment community’s attention on the People’s Republic of China (PRC) as its economy went from the fifth to the second largest in the world with growth rates in the double digits for a number of years. This has been achieved by a clear focus on promoting and applying its economic resources towards internal development. Investment in infrastructure, the development of mega cities and the creation of modern transportation systems continue to be a feature of the PRC economy. One can now also see a growing emphasis on the Government prioritising a move up the value chain with a focus on education, technology and consumerism. Foreign Direct Investment (FDI) has been a fundamental pillar for growth in the PRC with FDI increasing from approximately US$38 billion in 2000 to over $240billion in 2010. China is now the most popular country for investment having overtaken the United States in 2012.

January 2015 Edition

Now that China has taken its seat on the global economic stage and growth rates have eased to less dizzying, although still remarkable heights, as a natural step, it looks abroad. To date, many substantial overseas investments have been led by state owned enterprises. It seems clear that currently, such investment is not necessarily intended to open up new markets for Chinese businesses but to complement the country’s internal development. Much of the investment has been of a strategic nature, focusing on energy and other natural resources. As early as 2001, the PRC Government promulgated the initiative for Chinese companies to go global as part of the 10th five year plan. An initial forerunner of outward mergers and acquisitions (M&A) was the landmark Lenovo/IBM transaction in which Lenovo acquired IBM’s personal computing arm in 2004. The move to “go global” has been reiterated in

subsequent five year plans and “explosive growth” is expected over the next decade in outward FDI. Currently, FDI outflows represent a mere US$60 billion or approximately one quarter of inbound FDI. The PRC Government has recently relaxed outbound investment rules so that only transactions with a value of over US$1billion require approval from the National Development Reform Commission. An increase in outward bound investment will also naturally follow the rise of the number of significant Chinese companies as they look at overseas markets. Whilst only 34 companies made the list of Fortune 500 companies in 2008, 89 companies graced the list in 2013. The current list of companies is heavily weighted towards the state owned conglomerates. These conglomerates have been at the forefront of China’s M&A activities in recent years. In 2007, International and Commercial Bank of China (ICBC) acquired a 20% stake in South Africa’s Standard Bank for US$5.5 billion. This has been augmented by ICBC’s acquisition of a controlling interest in a London based trading unit of Standard Bank this year. In 2013, China National Petroleum Corporation (CNPC) acquired Petrobras’ oil and gas assets in Peru for US$2.6 billion and China Construction Bank acquired a 72% stake in Brazil’s Banco Industrial e Commercial. Sinopec acquired a 40% stake in Spanish oil refiner Repsol in 2010 for US$7.1 billion and recently acquired 50% of a Kazakhstan oil producer from Lukoil for US$1.5 billion. There’s no better place to see the development of Chinese intentions than the African continent. With abundant natural resources and governments keen on investment, Africa is likely to be a significant home for Chinese investment in the coming years. FDI increased from US$1.4 billion in 2009 to US$2.5 billion in 2012 with over 2000 Chinese companies investing in more than 50 African nations. In September 2013, Chinese National Offshore Oil Corporation secured a US$2 billion contract to develop oil fields in Uganda. As this decade progresses, the composition of the Fortune 500 list and Chinese M&A are likely to change with the growth of more private Chinese companies looking at external investment. A clear example of this is the acquisition of Smithfield Foods by Shuanghui International Holdings Limited for US$4.5 billion in 2013. The acquisition made the group the world’s largest pork company which helped springboard its subsequent listing on the Hong Kong Stock Exchange earlier this year as the renamed, WH Group Limited. Fosun International has also completed a series of transactions in recent years, including acquisition of an interest in Club Med, purchase of One Chase Manhattan Plaza in New York and the acquisition of Portugal’s largest insurer Caixa for US$1.36 billion. It is also likely that China’s newest generation of technology companies will be on the acquisition trail sooner rather than later. On Alibaba Group’s roadshow, prior to its record listing in September on the New York Stock Exchange, Executive Chairman Jack Ma, underlining the company’s global ambitions, made the now famous statement - “We are not a company from China; we are an Internet company that happens to be in China”. As most people are aware, a key source of inbound investment into the PRC has been BVI investment structures which annually have provided close to

10% of all FDI into China. This use of BVI investment vehicles in Asia and specifically for investment holding and joint venture activities in Hong Kong and China is well documented. A BVI business company provides a tax neutral flexible structure which is internationally recognised and supported by robust infrastructure. Now that the PRC has turned its investment focus globally, there is no doubt that PRC companies will find the advantages so useful for inward investment, to be equally, and in some cases, more useful for outward investment. BVI structures offer PRC companies a neutral playing field through which they can structure their acquisitions and hold their investments. Ultimately, the operating company in any territory is likely to be established where the business is being carried on but there are benefits to be derived from the subsidiary or joint venture entity that holds the subsidiary being established in BVI. Where the acquisition is being structured as a joint venture, BVI offers a neutral platform which favours neither joint venture party. In the event of any disputes, BVI offers a globally recognised court system very familiar with handling international disputes with a right of appeal to the Privy Council in the United Kingdom. BVI this year also welcomed a new BVI Arbitration Centre, a key component in any dispute resolution jurisdiction. A crucial element in a good holding structure is efficient fund flows. Where a BVI business company is being used and funded through equity interests, the BVI Business Companies Act, 2004 offers a flexible structure for the distribution of profits, providing a straightforward solvency test for the directors of the company to comply with before distributing those profits back to the parent company. A separate fundamental advantage is the tax neutrality of a BVI business company. The use of BVI structures is not intended to “deprive” any territory of tax as the operational business will always be subject to the taxes of that territory. The advantage of a BVI company is to allow any funds received from the operational business to be distributed back to the parent company without a second tax charge being levied at the BVI level. Equally, this permits a group to more efficiently organise its tax affairs on a global basis by maintaining profits at the BVI level, which can be applied and disbursed to other areas of the group more efficiently. Finally, the Act contains many facilitative provisions to help with M&A activities. In particular, the Act provides for the ability of a business company to merge or consolidate with other companies. Merger for this purpose means that two or more constituent companies merge into each other with one of the companies surviving. A consolidation provides for two or more companies consolidating into a new company. The Act further permits mergers and consolidations with foreign companies, with the surviving company permitted to be a BVI business company or a foreign company. The PRC and the BVI have had a long-standing, mutually beneficial relationship and the BVI provides an important piece in the building blocks of China’s economic development. The next decade is likely to see a significant increase in global M&A activities for Chinese businesses and BVI structures are a perfect platform to facilitate that process. BB January 2015 Edition

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

BVI PRIVATE TRUST COMPANIES FOR CHINESE FAMILIES AND BUSINESSES by Richard Grasby and Charlie Sparrow

the beneficiaries are connected persons, a charity or the settlor) or a group of related qualifying trusts. Trusts are ‘related’ where their settlors are the same person or are connected persons. PTCs for Chinese Families Pre-IPO family trusts

ith a substantial presence in Hong Kong for 20 years, Maples and Calder has witnessed the extraordinary growth of Chinese businesses and financial markets, and consequently the growth of the wealth structuring industry. The British Virgin Islands (the “BVI”) has been an integral part of this growth, given the extensive use of BVI vehicles in these markets. Traditionally, the BVI vehicle of choice has been the BVI business company. While the BVI business company continues to be popular, we have more recently seen a greater use of BVI law trusts. Although the trustee of those trusts is often a licensed BVI trust company, we have also noticed a marked increase in the number of BVI private trust companies (“PTCs”) being established to act as trustee. This article covers the various uses we have seen for PTCs in the past 12 months, demonstrating the wide variety of opportunities for which PTCs can be used by Chinese families and businesses. Requirements to Qualify as a BVI PTC Any company incorporated in the BVI that carries on ‘trust business’ within or outside the BVI must be licensed under the Banks and Trust Companies Act, 1990 (as amended) (the “1990 Act”), unless its business comes within the Financial Services (Exemptions) Regulations, 2007 (as amended) (the “Regulations”). A PTC that carries out only ‘unremunerated trust business’ or ‘related trust business’ (as defined in the Regulations) is not required to obtain a trust licence under the 1990 Act. Provided that neither the PTC nor anyone associated with it receives remuneration, the PTC will be deemed to carry out only ‘unremunerated trust business’. A professional director may be remunerated for professional director services provided the director is not otherwise associated with the PTC. ‘Related trust business’ means trust business provided in respect of a single qualifying trust (i.e. where 86

January 2015 Edition

Investor appetite for initial public offerings (“IPOs”) was reinvigorated in the second half of 2013 and there have been many IPOs on the major stock exchanges globally since then. Many of these IPOs have been issued by Chinese based businesses, some of which have been very high profile (e.g. Alibaba’s recent listing on the New York Stock Exchange). In respect of the majority of such IPOs with which we are involved, the founder(s) and/ or principal shareholder(s) (the “Principal”) already hold their shares in the company to be listed (“Listco”) through a BVI holding company, or they establish a new BVI company to hold their shares in Listco. Often they then consider whether the BVI holding company should be held in a BVI law trust – usually (but not always) for the benefit of themselves, their spouses, children and other descendants. In this context, Maples and Calder is most often asked to provide advice and help establish a type of trust to which the Virgin Islands Special Trusts Act, 2003 (“VISTA”) applies (a “VISTA Trust”). A detailed analysis of VISTA is outside the scope of this article, however, in summary, VISTA is a regime under which a settlor may transfer shares in a BVI company (which may hold the assets, including a family business or those with high risk attached that the holder would prefer to put into trust) to the trustee with limited or no obligation on the trustee to interfere in the management of that company, or any business it may hold. Outside VISTA, negation of trustee responsibility in this way may not be so readily or clearly achieved. Typically, in adopting VISTA,

the settlor wants the advantages that a trust can offer, without the trustee having any real responsibility for, or involvement in, the running of the business. Indeed, the trustee would prefer not to have that responsibility either, but a trustee of an ordinary trust has a number of duties imposed on it by law, especially where it is a controlling shareholder. The first matter for the Principal as the prospective settlor to consider when establishing a new pre-IPO family trust is which trust company is the most appropriate trustee. More often than not, the Principal will request an introduction to a BVI licensed third party professional trust company. There are numerous professional trust companies from which to choose, including bank-owned trust companies, private equity-owned trust companies and independent trust companies. The most appropriate one to use will depend on a number of factors including, without limitation, the personal preference of the Principal and the type and value of assets to be put into trust. However, in the right circumstances, there may also be the option to establish a PTC to act as trustee of the Principal’s new trust(s), assuming that the PTC will at all times satisfy the requisite criteria to qualify as a PTC. Such circumstances would include the overall trust(s) arrangements being properly structured, the appropriate people being appointed as directors of the PTC , the ownership of the PTC itself being properly considered and arranged and the trust(s) of which the PTC will be trustee being properly administered in accordance with the terms of such trust(s). It is also worth noting that since May 2013, a BVI PTC is able to act as the trustee of a VISTA Trust. Other private wealth/family trusts In addition to Principals transferring their substantial interests in Listcos to trustees (whether PTCs or professional trust companies) to hold on the terms of a trust (often a VISTA Trust), wealthy individuals and families from China now often consider establishing BVI law trusts as well, for the same reasons that wealthy individuals and families in the West and elsewhere have always done: namely lifetime wealth planning, succession planning, avoiding probate, asset protection, privacy, etc. In conjunction with their relevant onshore legal, tax and other trusted advisors, these wealthy Chinese individuals and families will establish the type of trust that is suitable for their own and their family’s personal circumstances. For example, this may be a fully discretionary trust, a discretionary trust with reserved powers, a fixed interest trust or a combination of all these elements. VISTA may or may not be applied to any of these trusts. Again, it will always depend on the specific requirements of the Principal and his family. PTCs for Chinese Businesses Employee benefit trusts Maples and Calder has been involved in the establishment of a number of BVI law employee benefit trusts (“EBTs”) for Chinese businesses, in various contexts over the past year. For example, a private equity firm may want to incentivise key staff of a private company it has just acquired; the Principal of a Listco may want to reward the management of his business for their hard work that has led to an IPO; or an already listed company may want to devise a method to increase the retention rates of its employees. The common theme in each case is the desire to establish an incentive

or reward (and by extension, retention) scheme (the “Scheme”) for management, employees and, in some cases, the dependants of such management and employees (the “Beneficiaries”). A trust can be a suitable vehicle for structuring such a Scheme because, if the EBT is set up properly, it will enable the assets of the Scheme to be segregated from those of the employer, thus providing much needed security to the employees. The trustee of the EBT holds the Scheme assets until such time as the benefit of those assets is to be conferred on any one or more of the Beneficiaries of the EBT. The specific terms of the EBT will depend on all the relevant onshore legal and tax considerations in any particular case. The trustee of an EBT may be a BVI licensed professional trust company which would usually also administer the Scheme. However, if appropriate, a BVI PTC can also be the trustee of an EBT and if necessary, the employer and/or the PTC can engage a third party to administer the Scheme. Commercial property holding structures Trusts are used in a variety of commercial contexts, usually for specific tax and regulatory reasons in a particular jurisdiction. Maples and Calder has recently been involved in the restructuring of a substantial commercial property business that held many of its commercial properties through a number of BVI law unit trusts. The trustees of these various unit trusts were existing PTCs. Collective investment structures Trusts are used in a variety of collective investment contexts for specific tax and regulatory reasons in a particular jurisdiction. We have recently been involved in the establishment of a new PTC to hold investments collectively on the terms of various BVI law trusts. Added Complexities of PTCs (a) A PTC must act properly and appropriately in the administration of the trust(s) of which it is acting as trustee. The composition and conduct of the board of directors of the PTC is therefore crucial. For example, having family members as directors might create greater potential for disputes between directors than among professional directors. (b) There may be tax or other legal implications of certain directors being on the board of the PTC. (c) If the shares in the PTC itself are owned by individuals (e.g. the matriarch or patriarch of a family), it will be necessary to consider what happens to those shares on the death or incapacity of such individuals. There may also be tax or control implications if ownership is held by individuals. Conclusion Despite the added complexities, there is a wide range of uses and contexts in which a PTC may be appropriate, subject to all relevant legal and tax advice. BVI law trust structures using PTCs (as well as VISTA) are becoming more widely used in China and are now creating a regular flow of high quality trust business into the BVI. They are crucial tools for the international trust practitioner, but they require careful tailoring to the circumstances and the settlor’s wishes. BB

January 2015 Edition

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

MEETING THE GROWING OFFSHORE FINANCIAL NEEDS OF HIGH NET WORTH INDIVIDUALS IN CHINA by Alvin Ma

igh net worth individuals (HNWIs) in China allocate a large part of their wealth to offshore business or investment activities. Professional offshore banking service therefore plays a very important role in their wealth management plans. There is no doubt that the banking system in Hong Kong has been renowned for its sophistication. However, with the tremendous influx of HNWIs from China in recent years, financial institutions in Hong Kong have had to step up their game in handling the offshore financial needs for that demographic. The offshore platform for most state-owned; provincial and city banks and financial Institutions in the People’s Republic of China (PRC) as well as international private banks with their North Asian headquarters domiciled in Hong Kong, is directed solely at providing offshore asset protection solutions for their PRC based customers. Each is aiming to acquire 2,000 to 4,000 HNWIs in three to five years out of an annual 18% Compound Annual Growth Rate (CAGR) ever-growing 2.2 million HNWIs in China. Riding on the advantages of most PRC banks’ parentage and synergy from one’s on the ground coverage and networks, as well as international private banks’ international booking centre offshore asset protection capabilities and advantages; a series of unique and customised private banking services and products have been developed, which are aimed at providing customers with the offshore financial solutions that best suit them. Around 70% and 30% respectively of Hong Kong based PRC and international private banks customers are HNWIs from China. To cater to their needs, the objective is to be the borderless private bank which offers customers unique offshore United States Dollar (USD) and Renminbi (RMB) advantages and finely-orchestrated wealth management solutions. The four core pillars of this business model are identified as follows: Borderless PB services accessibility from HK, China and the region The aim is to provide HNWIs with borderless private banking services in the region. The account opening referral arrangement has been started in selected branches in most PRC based private banks, including branches in Beijing, Shanghai, Shenzhen, Dalian, Nanjing, Hangzhou, Guangzhou, Chengdu, Jinan, Suzhou, Tianjin, Xi’an, Zhengzhou and the well established private banking centers in Beijing, Shanghai and Shenzhen. For various PRC based private equity and asset managers and international private banks, outbound Business Introducer (BI) & External Asset Management (EAM)

January 2015 Edition

mutually beneficial co-operative agreements and programmes are in great demand. With this parent/subsidiary and BI/EAM referral programme, customers can enjoy the borderless private banking services with ease. Entrepreneurial Private Banking HNWIs in China need to finance their business in Hong Kong to accelerate their global expansion strategies. Corporate private banking service is a hybrid of both corporate and private banking advisory solutions that seeks to revitalise the idle assets of the global Chinese entrepreneurs or senior executives to bridge their personal and corporate financial needs, ultimately helping them to simultaneously enhance and preserve wealth, Unique RMB-based niche solution RMB, in terms of customer deposits and certificates of deposits, in Hong Kong has reached 1.2 trillion Chinese Yuan and the number is expected to break 1.4 trillion Yuan by the end of next year as mentioned in some market research.* With most HK based PRC Banks and international private banks via their PRC correspondent banking connection with their parent in PRC and various China based Banks, one’s strength in RMB-based investment

products can help to effectively construct an innovative RMB-based portfolio with unique RMB products for their customers. At the same time, they eliminate foreign exchange risk. Examples of those RMB products include RMB Dim Sum bonds, basis risk free Exchange-Traded Funds (ETF) and index linked structured products. Core-Satellite Active Advisory Having experienced the financial crisis, HNWIs in China now shift their focus on risk management and thus prefer to have a truly diversified portfolio. In early 2009, HNWIs in China allocated 80% of their assets to the traditional asset class which included cash, deposits, stocks and investment funds. In 2011, however, this percentage fell to 70% while other types of alternative investments and new products emerging from the recent market circumstances (such as inflation-linked products) were increased by 5% and 4% respectively**. This again proves the importance of a well diversified portfolio to HNWIs. With oneâ&#x20AC;&#x2122;s strength in RMB leadership and exclusive product expansion, seasoned investment advisors/consultants are able to channel their private banking customers to access the professional portfolio management model, allowing them to benefit from a core portfolio customised to long-term objectives for stability and from satellite

investments to take advantage of market opportunities with unique China market insights to capture the potential growth. Along with the afore-mentioned four core pillars, most private banks, be it PRC or international in Hong Kong plan further to recruit the prime mainland professionals through Quality Migrant Admission Scheme. By providing them with customised training programmes, all aim to equip their private banking China team with professionalism, excellent standard of service quality and efficiency. The relationship-manager-to-customer ratio is expected to remain at 1 to 50 to 80 in order to provide the HNWIs in China with personalised services which complement their offshore banking needs. BB

NOTES *http://www.hkma.gov.hk/eng/key-functions/international-financial-centre/renminbi-business-hong-kong.shtml http://www.hkma.gov.hk/media/eng/doc/key-functions/monetary-stability/rmb-business-in-hong-kong/hkmarmb-booklet.pdf http://www.hkma.gov.hk/eng/market-data-and-statistics/monthly-statistical-bulletin/table.shtml#section1 **. Source: Bain & Company, income of high net worth population - wealth distribution model

January 2015 Edition

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

EMERGING OPPORTUNITIES IN ASIA FOR BVI PRODUCTS by Stephen Adams and Kristian Wilson

January 2015 Edition

The Role of the BVI in Asia

Opportunities: Listings, Funds and Insurance

Although the BVI is the leading offshore incorporation jurisdiction, BVI companies are generally used in Asia as holding companies and simple investment vehicles. BVI companies are not commonly used as listing or fund vehicles, or for captive insurance. For example, the vast majority of listed offshore firms on the Hong Kong Stock Exchange are incorporated in the Cayman Islands (Cayman), although many of these firms have one or more BVI subsidiaries. Similarly, 55% of all hedge funds and 12% of all private equity funds are domiciled in Cayman and the BVI. However, the BVI’s share of the funds market is just 10% of all hedge funds and 1% of private equity funds.

he British Virgin Islands (BVI) is the world’s leading corporate domicile, with approximately 454,000 active companies and over 500 active limited partnerships. The BVI plays a key role in structuring foreign direct investment (FDI), being the world’s fourth largest recipient of global FDI inflows, receiving approximately US$92 billion of global FDI in 2013. In terms of outbound FDI, the BVI also plays a leading role in structuring investment into Asia. For example, the BVI is the second largest investor in the People’s Republic of China (PRC), having provided US$10.4 billion (or 9.1%) of inward FDI into that country in 2010, and approximately US$1 billion (or 25%) of FDI into Taiwan in the same year. Similarly, the BVI is involved in structuring investment in other Asian nations. In the first quarter of 2011, the BVI was used as a platform to fund $200 million worth of investment in Indonesia through 30 different projects, and between 1988 and 2012, the BVI was involved in structuring US$15 billion (or 7.1%) of inward FDI into Vietnam, with investment in over 510 separate projects. These facts clearly show that the BVI has been an important platform for structuring international trade and has played a key role in Asian FDI. However, past performance is no guarantee of future success, and this article will look at ways in which Asia may present new opportunities for the BVI, so that the jurisdiction may build upon its success in Asia and continue in its role as the pre-eminent offshore centre for Asian investors. Sources of Success Before considering the emerging opportunities, it will be instructive to look at the reasons why the BVI has been so successful in Asia. It is only through understanding the strengths of the BVI and its potential limitations, that we can understand how the Territory can build upon its successes and position itself for the future. One of the key reasons for the BVI’s success is the power of its brand in Asia. BVI companies are widely used by Asians to structure their investments and the name BVI is synonymous with offshore, with many Chinese investors simply referring to an offshore company as a “BVI”. The reasons for this success can be seen in the strength of the Territory’s product offering, as BVI companies are inexpensive to incorporate and maintain, offer a tax neutral investment platform and are easy to operate. Additionally, the BVI benefits from the highly skilled professionals who administer and advise in respect of BVI entities, the corporate flexibility offered by the BVI Business Companies Act, 2004 and the legal certainty provided by a dedicated commercial court. Despite these numerous sources of strength underpinning its success, the offshore market in Asia is becoming increasingly competitive, and it is clear that the BVI must continue to fight hard to maintain its pre-eminent position as an offshore centre. Having identified the successes, it is important to consider some potential areas of opportunity for the BVI, specifically, areas in which the BVI offering is currently under-developed and new opportunities in Asia for BVI products.

The aforementioned points illustrate that although the prevalent use of BVI companies in simple corporate structures attests to confidence in the BVI product, the BVI is under-utilised in higher profile and greater value transactions. There is no specific reason per se why BVI companies should not be used as fund or listing vehicles, and in fact there are certain flexibilities permitted by BVI law which make BVI companies more appealing for such structures., Success in this field will depend on marketing the BVI as an alternative or preferred platform for listings and fund formation. It is recognised that Cayman dominates the listing and funds industry in Asia due to familiarity with the jurisdiction for these specific product lines. To a great extent, this has been due to the number of funds lawyers operating from Cayman, but it is also attributed to the historic presence of Cayman firms in Asia, where there has clearly been an inherent bias towards promoting Cayman structures. This structural bias can change however, as more BVI lawyers have relocated to Asia in recent years, creating an overseas pool of talent which is a valuable asset for the BVI. Given that the new generation of offshore lawyers in Asia have lived and worked in the BVI, and have a real understanding of BVI law and the regulatory regime, there is more opportunity to promote the BVI in higher value listing, funds and insurance structures. This approach is likely to be amplified by the vigorous engagement of the BVI Government in Asia, which can be seen with the establishment of BVI Asia House in Hong Kong, under the stewardship of Elise Donovan; the recent secondment of Michelle Georges from the Financial Services Commission to Hong Kong and the inaugural BVI Business Asia Conference in Hong Kong in September 2014 which was attended by leading representatives from the BVI government, judiciary and industry. This engagement with Asia can only benefit the BVI as it allows policy makers to get a direct understanding of the Asian markets, listen to the needs of Asian professionals, take direct and positive action in Asia, and educate the Asian markets about the benefits of choosing the BVI as a platform for higher profile transactions. Opportunities: New Prospects in Asia There are also new opportunities for the BVI; limited partnerships being one potential area of growth. This is an area in which, historically and for no obvious reasons, the BVI has fallen behind Cayman. At the end of 2013, Cayman had 14,396 active partnerships, compared with 582 in the BVI.

January 2015 Edition

This disparity is not due to any lack of demand, as Asian clients do have an interest in BVI limited partnerships. In fact, Bedell Cristin’s Singapore office advised on the formation of a number of such partnerships in 2014. The main issue is that Asian professionals are simply unaware of the virtues of BVI partnership structures. It is therefore important to recognise that the BVI is not just simply a company incorporation jurisdiction. Another opportunity arises with private wealth structures. As widely observed, the Asian middle class is growing, wealth is increasing and societies are aging. These developments are accompanied by a demand for innovative ways of maintaining and passing on private wealth. Given the familiarity in Asia with BVI companies as a means of structuring and investing wealth, the logical next step would be to promote the use of BVI trusts, such as Virgin Islands Special Trust Act (VISTA) trusts and private trust companies, in succession planning, and many practitioners are already promoting such structures within Asia. A further opportunity arises with Chinese outward investment. A key development in the PRC has been the growing outbound investment of Chinese enterprise, supported by the state policy of ‘going global’. Historically, the BVI has been the investment vehicle of choice for inward investment into the PRC, but there is no reason why the BVI should not also be a preferred vehicle for outward investment. Aside from the recognised advantages of offering a tax neutral and flexible investment platform, BVI companies also offer an advantage in cross-border transactions as joint venture vehicles and offer a neutral, stable and certain legal platform for the resolution of disputes. As a result, there is an obvious benefit for using BVI companies in structuring Chinese investment into overseas markets. The BVI can also play a role with the growth of South East Asia as an investment market. Taking the funds industry as an example, there are a number of BVI funds which invest in the region and a handful of BVI funds that have been set up and operate within South East Asia. Similarly, with 92

January 2015 Edition

the growth of inward FDI into the region, there may be opportunities in project finance or joint ventures, which are areas in which BVI companies are frequently used to structure inbound investment. Potential opportunities may also emerge with the rise of the ‘mid-shore’ jurisdictions of Hong Kong and Singapore. Some observers consider these mid-shore jurisdictions as a threat to traditional offshore centres, given that they compete on cost, are established and well regulated financial centres, and also offer certain regional tax advantages. Although the mid-shore centres may impact on the incorporations market, particularly where the main driver for investment is to secure a regional tax advantage, it is likely that BVI companies will be used at other levels in holding, investment or acquisition structures, given the many legal and structural advantages to using a BVI company in contrast with a Hong Kong or Singaporean company. In particular, BVI companies are not constrained by the type of statutory or regulatory inflexibilities that exist in the mid-shore centres. As a result, there are grounds to promote the BVI as a flexible solution, where structural and legal demands take priority over tax considerations in structuring Asian investment. Of course, these are just a few of the many opportunities open for BVI products, but the general point to consider is that there is space for the BVI to develop and expand market share in Asia. A key point to note, however, is that the ability of the BVI to capitalise on these opportunities will not only depend on identifying trends, but also on the ability of the BVI to keep providing solutions to legal and financial needs. This requires a government that is responsive to business, a regulator that can balance prudent oversight with commercial flexibility and legislation that remains on the cutting edge of commercial practice. The BVI is fortunate, as it currently has these elements in place, with a government and regulator that are keen to listen and are prepared to act, factors which suggest that the BVI is already well placed to take advantage of the emerging opportunities in Asia. BB

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

CHINA’S FUTURE SPV DEMAND SPELLS OPPORTUNITY FOR THE BVI by Jeffrey Chen

n 8th October 2014, the State Council of the People’s Republic of China (PRC) announced a very exciting and encouraging decision, that is, except for those ruled (by laws and regulations), overseas or Outbound Direct Investment projects (ODI) shall all be changed to a filing system instead of an administrative examination and approval system. According to the explanation via news conference, this decision reflects the further reform of administration on investment and financing and the continuous trend in simplifying administrative control and releasing administrative power. Together with a series of new rules promulgated and announced by the National Reform and Development Committee (NDRC), the Ministry of Commerce (MofCom), the State Administration of Foreign Exchange (SAFE) and the State Administration of Taxation (SAT) in 2014, the investors and potential investors, both corporate or individual, all cheered and applauded, nominating the year 2014 as the starting milestone of liberalisation of China’s ODI. General Introduction of China’s ODI Administrative Licencing System Unlike the administration of Foreign Direct Investment (FDI) into China, which consists of the Law on Wholly-foreign-owned Enterprises (WFOEs), the Law on China-Foreign Equity Joint Ventures (EJVs), the Law on ChinaForeign Contractual Joint Ventures (CJVs) and the Company Law of PRC, except the Law on Application of Foreign-related Civil Relationship promulgated by the Standing Committee of the National People’s Congress on 28th October, 2010 with effect from 1st April, 2011, there is no such law ruling ODI of China. Additionally, the administrative scheme of the PRC still relies mainly on administration regulations and rules with its power lower than the laws of the PRC. In line with the enforcement of the Administrative License Law of the PRC, ODI activities would definitely touch the areas of national security, public security, macro-economy control,

January 2015 Edition

eco-environment protection as well as property safety.When there are no laws regulating ODI administrative licensing, the Administrative Licensing Law allows the State Council and its committees, administrative bureaus, central bank, etc., to set up licensing procedures by regulations and rules. Hence, China’s ODI administrative licensing scheme could be represented by three directions with active governmental institutions. Firstly, on the Administrative Licensing Direction, the National Reform and Development Committee (NDRC), the Ministry of Commerce (MofCom) are taking a leading position with other functions supported by State-owned Assets Supervision and Administration Committee (SASAC), China Securities Regulatory Commission (CSRC), China Banking Regulatory Commission (CBRC), China Insurance Regulatory Commission (CIRC) etc. On the Foreign Exchange Administration Direction, the People’s Bank of China (PBC), the State Administration of Foreign Exchange (SAFE) are more active in licensing than the National Audit Office, and the National Bureau of Statistics in operational data collection. Thirdly, on the Tax Administration Direct, the Ministry of Finance (MoF) and the State Administration of Taxation (SAT) are the main functional authority.)If local pilot or experimental practices are to be counted, the practice of ODI licensing by China (Shanghai) Pilot Free Trade Zone and any future pilot Free Trade Zones could be categorised as a kind of specific local or regional sample with consent by the State Council. Reactions from professionals and investors reflect their satisfaction on the trend of China’s administration to open-up or liberalise ODI since the commonly recognised Likonomics.Created by Barclays Capital, Likonomics has three key pillars: no stimulus, deleveraging and structural reform. Likonomics could be explained in one sentence, that is, to make the market play a decisive role in the allocation of resources, and this has been clearly adopted and affirmed in the announcement of the 3rd session of the 18th Platinum of the Chinese Communist Party Central Committee in late 2013,

which led to the new round of reform of China’s economic system. As the focus of deepening the comprehensive reform is to launch the economic system, its core issue is obviously to properly handle the relation between the government and the market. The change of the description of the function of the market from a Basic Function into a Decisive Role not only shows its dominant position but also further clarifies the relationship between the government and the market, or, the administrative power and the market demand. Recent Progress of ODI Administration: Licensing and Filing Reform and Foreign Exchange Administration It is necessary to review the progress and evaluation of laws and regulations, together with policy changes on ODI in 2014 to better understand China’s revolution of execution of administrative power onto private investors represented by private-owned enterprises (POEs), as well as public investors represented by state-owned enterprises (SOEs). However, professionals in the offshore finance service market, should always bear in mind that for business linked with China, the country’s huge market and the market demand for each product, industry or service should always be oriented as a decisive role, as should the examination of function of newly effected laws, regulations and rules. From 1 January 2014, there are several regulations and rules effecting ODI from China.The following two directions are particularly remarkable: 1. On Administrative Licensing Direction: • The Administrative Provisions on Examination and Approval, and Filing of Overseas/Outbound Investment Projects promulgated by NDRC (NDRC Order 2014-9) on 10 April 2014, which took effect from 1 May 2014, replacing the Provisional Administrative Provisions on Examination and Approval, and Filing of Overseas/Outbound Investment Projects (NDRC Order 2004-21). • The Amended Administrative Provision on Overseas/Outbound Investment promulgated by the MofCom on 6 September, 2014 (MofCom Order 2014-3), with effect from 6 October, 2014 and replacing the Administrative Provision on Overseas/Outbound Investment promulgated by the MofCom on 6 March, 2009 (MofCom Order 2009-5). • The Executive Meeting of the State Council held on 8 October, 2014 announced that Category on Investment Projects for Administrative Examination and Approval shall be amended to promote effective investment and entrepreneurship and except for minority projects already ruled by laws and regulations, for any other ODI projects, the examination and approval system shall be cancelled and replaced by the filing system. The same meeting held on 3 November, 2014 further announced plans to build-up a more transparent investment examination and approval system, namely, an online-examination and approval system for investment projects within the same supervision online platform with an information sharing function and with a crossnation coverage to speed up the approving process using the mechanism and the technology combined methodology. 2. On Foreign Exchange Administration of Capital and Investment Direction: SAFE issued the Circular on Relevant Issues Concerning Foreign Exchange Administration for Overseas Investment, Financing and Round-trip Investment Undertaken by Domestic Residents via Special Purpose

Vehicles (SPVs) with effect from 4 July, 2014 (SAFE Circular 2014-37) and repealed the administration’s Circular on Relevant Issues Concerning Foreign Exchange Administration for Financing and Round Trip Investment Undertaken by Domestic Residents via Overseas Special Purpose Vehicles (SAFE Circular 2005-75). Undoubtedly, the State Council under the leadership of Premier Li Keqiang has made remarkable progress in removing any unnecessary barriers to investment enterprises and individuals, seeking to create a market-driven macro-economic control method to transform the previous economic development mode, which mainly relied on governmental investment and SOE giants. Regarding the NDRC Order 2014-9, compared to the previous NDRC Order 2004-21, there are three major aspects with remarkable changes. Firstly, the administrative power in examination and approval of investment projects has been greatly improved, while the scope of examination and approval has been reduced. In particular, ODI projects shall all be treated with filing system; secondly, the approval process has been simplified,time-frame clarified and accordingly, the level of standardisation and efficiency have been enhanced.Thirdly, the spirit of legal administration, the clarification of governmental responsibility, the requirement on strengthening supervision instead of entry-barrier, and the maintenance of business order is well highlighted. NDRC would not divide investment projects into resource oriented or non-resource oriented divisions. Unless the investment projects relate to sensitive states or regions, or sensitive industries, NDRC at the central government level would only verify those where the investment from Chinese investors reached USD 1 billion or more. For investment amounts lower than USD 1 billion, an application filing is enough. The change from examination and approval into filing, could stimulate domestic enterprises’ global investment enthusiasm and initiatives. As to the MofCom Order 2014-3, it limited the ODI projects under examination and approval system into two parts; for destination states, only those states without diplomatic relations with China and those states being under sanction by the United Nations are subject to examination and approval system, and a searching route has been introduced in MofCom’s website. For ODI industries which include export restricted products and technology or industries, more than one state would be subject to examination and approval and the rest of ODI projects are all to be categorised into filing system. Also, one remarkable reform is that the issuance of ODI Approval or Filing Certificate would illustrate the final destination of the investment, any structuring vehicles between China and the destination state/region would be ignored. This essentially means that for the first time, offshore structuring is lawfully recognised and allowed by a ministerial governmental authority. In practice, if the ODI enterprise could complete the online form correctly by fitting the requirements clearly listed into the online application system, a Certificate of ODI Filing could be issued within three working days, shortening the previous time-consuming process. The processing time for ODI Examination and Approval projects has also been reduced by five working days; for central government administered state-owned or privateowned enterprises, the processing time would be 20 working days by NDRC, while for the local government administered state-owned enterprises and private enterprises, it would be 30 working days only by local Reform and Development Committees (LDRCs). The above NDRC and MofCom rules received a warm welcome by existing and potential ODI investors and reflect the confidence of the State Council in the market as the decisive role in allocating resources. Nevertheless, as China is still being recognised by the International Monetary Fund (IMF) as January 2015 Edition

a state with foreign exchange administrative control for cross-border capital, it would be necessary to introduce the newly changed SAFE Circular 201437, which reflects the loosening-up of foreign exchange on capital flow in the investment arena. Replacing SAFE Circular 2005-75, SAFE Circular 2014-37 further simplifies the registration process for Chinese residents seeking the roundtrip investment transactions where Chinese companies (Domestic Entities) are re-organised to create an offshore holding company (the SPV) that will control the domestic entities and seek offshore financing. Also, for the first time, overseas investments by Chinese individuals are formally legalised under the SAFE Circular 2014-37. Significant changes between Circular 2014-37 and Circular 2005-75 are identified as follows: • Contribution of Offshore Assets. Contrary to Circular 2005-75 under which Chinese residents were only permitted to use their domestic assets to establish the SPV, Circular 2014-37 allows Chinese investors to contribute their legally-held offshore assets into the SPV. • Initial Registration. Under Circular 2005-75, Chinese residents must register the SPV with SAFE before the SPV undertakes any substantial capital change (e.g. equity financing, equity transfer or round-trip investment). However, under Circular 2014-37, SAFE registration is only required prior to the Chinese residents’ contribution of assets into the SPV—implying that SPVs are permitted to solicit offshore financing prior to the SAFE registration. •

Scope of Amendment Registration. Circular 2014-37 narrows the scope of events that requires an amendment of the SAFE registration. Under Circular 2014-37, in the event of a change to any basic information of the SPV (e.g. identity or name of the Chinese investor and the term of operation) or a change in the Chinese investor’s shareholding in the SPV, an amendment SAFE registration is required. The requirements under Circular 2005-75 for an amended SAFE registration for any equity financing, establishment of subsidiaries and material change in the capital structure by the SPV have been eliminated.

• Employee Stock Options Plan. Under Circular 2014-37, the employees of the domestic entities are now permitted to file with SAFE any stock or option incentives received from the SPV. Prior to Circular 2014-37, Chinese employees were not able to pay for stocks of the SPV unless the SPV was already listed on an offshore stock exchange. • Makeup Registration. Circular 2014-37 clarifies that if the Chinese residents have contributed into the SPV without registration, they are required to file for a makeup registration with SAFE. Notably, Circular 2014-37 removes the wording in Circular 2005-75 requiring the Chinese residents to submit evidence that there was no violation of SAFE regulations and a special audit report listing capital flows between the SPV and the domestic entities for such makeup registration. These stringent requirements have been cited to discourage makeup registrations. By providing a makeup registration, SAFE opened a window to encourage investors for registration to collect information and data for future administrative guidance rather than heavy administration. This is also a reflection of the ideology of Li’s government on lessening entry-barriers to investment entry-barrier and careful operation of administration. As mentioned in the beginning of Circular 2014-37, its issuance aims to support the implementation of the “going-out” strategy adopted by the Chinese government. Compared with Circular 2005-75, Circular 2014-37 96

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reflects the trend of SAFE’s policy to gradually loosen the restrictions and simplify the procedures for overseas financing and investment by Chinese residents, so as to fully utilise the financial resources in domestic and overseas markets. However, as Circular 2014-37 was only recently issued, the actual interpretation and enforcement of the above changes by SAFE remain to be seen, especially the understanding of banks which take the position for a due diligence check when investors holding Certificates of ODI Filing/ Approval are applying capital to remit overseas. The current attitude of banks is quite ambiguous if not negative. It is quite understandable because there is always some psychological inertia for banks as a group of dovish and moderate players in the capital market, but the circles of legal practitioners, investment advisers and radical entrepreneurs have already coveted the broad overseas platform in combining the international market and the domestic market, for capital, products or services together and are eager for the creditable and honorable harvest. No one could reject the temptation in profits from the potential huge and urgent demand in SPV incorporation, let alone the increasing numbers of Chinese billionaires and their awakening global wealth management or global assets allocation awareness. Three Opportunities for the BVI to Provide Suitable Structure by SPV Incorporation and its derivative services As a small Caribbean territory, the British Virgin Islands (BVI) has been both a significant recipient of global FDI and a leading contributor of FDI into China. Underpinned by the Territory’s common law jurisdiction nature with the ultimate court of appeal being the Privy Council in London, and by its notable quality of commercial law and the calibre of industry professionals; the BVI specialises in the establishment of offshore structures, such as companies, partnerships, trusts and funds. The BVI is also a jurisdiction popular among international investors due to its tax neutrality with no income, corporate or withholding taxes, light regulation with no foreign exchange controls or takeover codes and flexible corporation legislation. These benefits offered by the BVI to FDI investors might almost be the same or similar with other offshore jurisdictions such as the Cayman Islands, Seychelles, Mauritius, Bahamas and Bermuda. To China, the BVI has an extra sound record which has been recognised in previous round-tripping investment by domestic investors to enjoy the tax incentives imposed by the Chinese government in encouraging FDI into China, mainly, the two-year corporate income tax exempted and the three-year half-tax rate preferential treatment for Foreign Invested Enterprises (FIEs) of a manufacturing nature before the consolidation of FIEs’ Corporate Income Tax and Domestic Enterprises’ Corporate Income Tax in 2007 with some sun-set function deferred until 2012. Obviously, tax neutrality and light regulation are the main two functions that BVI offered or provided and which FDI investors preferred to use. It is no wonder that a lot of the literature on Chinese FDI assumes that a substantial proportion of Chinese activity in offshore centres is due to the round-tripping of funds. Consequently, the BVI can be regarded as one of the leading offshore jurisdictions used by investors with FDI into China. The BVI has remained in the top three sources of FDI into China, and in 2010, for example, the jurisdiction achieved the status of second-largest investor in China, providing USD10.4 billion or 9.1% of total inward FDI into China. However, along with the success in marketing BVI, there is an over-emphasis on the role of taxation leading to a misconception about the nature and types of offshore transactions. As a result, much commentary is preoccupied with notions of round-tripping, tax and transparency, and fails to adequately address the key

drivers behind the use of offshore jurisdictions, which are essentially legal in nature and entail the management of legal and commercial risks. This might reflect the situation disclosed by OIL in its OFFSHORE 2020 survey that with the tax transparent campaigns suggested by Organisation for Economic Cooperation and Development (OECD), G8 or G7 countries, and G20 countries, and with the prejudice of tax haven rooted into the minds of China tax officers, the BVI has an image that directly links it to tax evasion and tax avoidance. This could explain some of the current decrease in BVI market share as well as the amount of managing capital. The future robust, legal rationale behind the use of offshore jurisdictions should definitely be addressed, encouraged and promoted to the end users, professionals, incorporation agents, financial services providers, but more importantly, the officers in the tax authorities, for the substantial function, not merely the tax planning function for using BVI. Successful examples in which offshore vehicles have been used in the PRC could be used to illustrate the key attributes of FDI, namely to acquire management, ownership and control. To what degree would such management, ownership and control be recognised and enforced, and is the legal environment sufficiently robust to protect such rights? On the other hand, an investment involves legal risks and it is essential to ensure that an investor has legal protection from such risks, whether by ensuring that the legal structure is secure or that legal complications in the regulator environment have been overcome or are protected against such risks. These fundamental reasons have not been well described to Chinese investors to help them understand why offshore vehicles feature in Chinese FDI, let alone Chinese ODI. Only after such background and history is well circulated to potential investors, that the Chinese market could regain the confidence using BVI and other offshore jurisdictions for efficient and risk minimised investment structuring to overcome legal complexity. Earlier in March 2014 when the National Committee of the Chinese People’s Political Consultative Conference (CPPCC) was held, news reports said Chinese companies would have a more lenient environment for investing overseas later in the year. This prediction has already been realised with the launch of a series regulations and rules from the State Council and its subordinate authorities. From the recent press conference when announcing the MofCom Order 2014-3, MofCom officers confirmed that over 97% of offshore vehicle users in ODI had no link to tax evasion, money laundering, terrorism or corruption. OIL OFFSHORE 2020 SURVEY also concluded that the driving force for choice of offshore jurisdictions would not focus on tax planning as usual. It is estimated by some famous fiduciary service providers or consulting companies that the Overseas Assets and Properties owned by Chinese ranges from USD 450 billion to USD 658 billion. Bain & Company even predicted that half of numbers of Chinese High Net Worth Individuals (HNWIs) with wealth over USD 16 million are currently investing overseas.The loosening-up of foreign exchange control and simplification of ODI filing processes reflect moves by the Chinese government not to control but rather to encourage ODI. Even the much criticised Measures on International Incomes and Payments Reporting amended and announced by the People’s Bank of China should only be read as a data collection procedure for China’s central banks confidence in monetary forecast under the Statistics Law of PRC, incorporated with tiny penalties for not reporting activities, but not a sanction for those who failed to report. Official data shows that China’s outbound investment from non-financial sectors reached $90.17 billion in 2013, up 16.8 percent from 2012, and China’s investment to Russia and the United States (US) surged in 2013, up 518.2 percent and 125 percent year-on-year respectively. Analysts attributed the surge of overseas investment to big projects in Russia and the US. Meanwhile, as encouraged by central and local governments, ODI from China would and should mainly focus on the exchange of TWO MARKETS, being the domestic markets and overseas markets, and TWO SOURCES, being the capital and technology from overseas and towards overseas. Moreover, with over 100 Double Tax Treaties and dozens of Tax Information Exchange Agreements that China has signed, smart and efficient tax planning routes by using BVI as an SPV would still exist but tax avoidance or tax evasion by using BVI is not worthwhile in the future as G20 already announced that, each government should have a way to collect its own taxes to overcome attacks from the financial storm. BB

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TOURISM AND REAL ESTATE

January 2015 Edition

T O U R I S M A N D R E A L E S TAT E

CHRISTMAS IN JULY

AS THE PUERTO RICAN NAVY INVADES THE BVI by Todd VanSickle

he summer months in the BVI can be a period of uncertainty for several businesses throughout the Territory. Whether it is the hurricane season or idyllic weather elsewhere that keeps travelers at home tending to gardens and barbecuing in backyards, the end result remains the same: a quieter BVI. Each year, there are plenty of signs of the impending slow season. Several restaurants and hotels shutter their doors, while hand written signs are posted in windows letting customers know they will reopen in October. On the water, charter boat companies move their fleet to dry dock or to safer anchorages as a precaution for potential hurricane impact, while cruise ship arrivals are few and far between.

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As dire as this scenario is, there is some relief and it hails from only 90 miles west of the BVI. Each July, the Puerto Rican Navy—a name that boaters from the United States territory affectionately call themselves—stage beach parties, revel at random bars and restaurants, and shop at local supermarkets giving the BVI a much needed economic injection. The almost weeklong gathering in the BVI is known as Christmas in July. This year, the Puerto Rican Navy made the trip to the BVI with its largest fleet to date. Its size was evident when hundreds of boats and partygoers filled Pond Bay on Virgin Gorda. “When Puerto Ricans go on vacation, they want to go where the fleet is going,” organizer Javier Lopez said. “We like to hang out together. We call ourselves the navy because we stick together; we help each other and have fun together.” Mr. Lopez is the President of JL Marketing in Puerto Rico. He doesn’t take credit for starting Christmas in July, but accedes that he has taken it “to the next level.” He first got involved with the event six years ago. Since then, it has grown so much, the event now has sponsors, including banks and beer and rum companies in Puerto Rico. He explained that beach permits, bands and other costs have to be offset with sponsorship because partygoers are not charged admission to such events. There are even more expenses involved with the Leverick Bay Poker Run, which he too has helped double in size over the past seven years

with strong support from Puerto Rican boaters. As a member of Club Nautico San Juan, Mr. Lopez has good access to the majority of boaters in Puerto Rico. Whenever there is an event, such as Christmas in July, Lopez communicates with boaters through e-mail and on a one-on-one basis, which he has found to be very effective. He said the Puerto Rican Navy comprises of the “one-percenters” or “high-end” market in Puerto Rico. On average, the annual income of the boaters is $600,000 to $1.5 million. The territory, which has a population of about 3.6 million people, is the third most populated island in the Caribbean.

“It is nice to see that the trend is coming back,” Ms. Flax Mars said. “For a while, they stopped coming, at least not in the numbers we are seeing today.” The BVITB treats the Puerto Rico market similar to the United States, the United Kingdom and Latin American countries. It has contracted a public relations and marketing firm there to focus and attract potential visitors from Puerto Rico. The BVITB previously had an office there but it is no longer operational. Currently, the BVITB does not maintain specific records of Puerto Rican visitors because they are tallied as US visitors. “However, we can say from what we have seen, from the information that we have received from some of the hoteliers, that the numbers are up from the Puerto Rican market,” Ms. Flax-Mars said. BVI businesses that benefit the most from the Puerto Rico visitors are the ones who adapt, the BVITB Director stated.

“This is an upscale niche of Puerto Rico,” Mr. Lopez explained.

“There has to be this acceptance that the Puerto Ricans are different than the average visitor,” Ms. FlaxMars said. “They are very family oriented and activity driven.”

The BVI Tourist Board (BVITB) helps facilitate on-site immigration services and entertainment and according to Mr. Lopez, they, have always supported the Puerto Rican Navy.

In July, several Virgin Gorda businesses catered to the visitors by offering something they could relate to. Bitter End Yacht Club in North Sound had a guest chef from Puerto Rico, while Club Ecstasy and the Rock Cafe in The Valley brought in a Puerto Rican disc jockey and mixologist, to work alongside their bartenders.

“They help a lot,” he said. “And why wouldn’t they? We are key to the islands’ tourism. We contribute a lot to the economy of the British Virgin Islands.”

“We found that those businesses which offered something that was a little familiar to Puerto Ricans tended to fare better than those who had nothing at all,” Ms. Flax-Mars said.

BVITB Director, Sharon Flax-Mars said she doesn’t know of any other demographic that travels to the Territory in such large numbers at any one time. The proximity of the two territories and their mutual love of power boating are some of the reasons why it is possible, she added.

Additionally, businesses need to start thinking ahead and preparing for the Puerto Rican invasion weeks in advance by stocking up on certain products, she advised, noting that several stores ran out of ice during Christmas in July. The BVITB Director also suggested hotels offer packages to cash in on the presence of Puerto Rican visitors. “I think there are more opportunities for businesses to become more engaging,” Ms. Flax-Mars said. Nowadays, Puerto Ricans are not only visiting the BVI once a year. According to Lopez, there are other

“They are very important to the economy, especially at a time of year when we don’t have a peak in US visitors,” Ms. Flax Mars said. “It gives us a little boost going into the slow season.” She explained that a lot of the tourists from Puerto Rico utilize marina services, and this year during Christmas in July, The Moorings and Sunsail saw an increase in the number of boats that were chartered. Mr. Lopez estimates that in July, as many as 2,000 boats of all sizes with an average of five persons on board made the trip to the BVI from Puerto Rico. During Christmas in July alone, there were at least 800 boats, according to Mr. Lopez. “We didn’t reach higher numbers because the sea conditions were very rough,” Mr. Lopez said. “About 30 percent of the smaller boats stayed at Culebra.” To avoid the rough passage between the islands, some Puerto Ricans took an airplane to Virgin Gorda and then rendezvoused with friends on bigger boats at the Virgin Gorda Yacht Harbour. Ms. FlaxMars said this is nothing new. She recalls 20 years ago when she was employed by American Eagle, the men would make the trip to Virgin Gorda by boat and the women travelled by plane.

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events like the August Emancipation Festival, Music Fest in Cane Garden Bay and Easter Festival on Virgin Gorda that are quickly becoming popular activities for the Puerto Rican Navy to frequent. “The Puerto Rican Navy loves the BVI, because they love the water,” Mr. Lopez said. “Once they go somewhere and they are happy, they will communicate by word of mouth and come back again and again.” Jorge Pierluisi considers himself a member of the Puerto Rican Navy. On a good year, he makes about five trips to the BVI with eight people, which includes friends and family. “What can I say, I am a fanatic,” Mr. Pierluisi confessed. In late August, he had already visited twice and was planning a third trip by the end of the year. He normally makes stops at Virgin Gorda, Tortola,

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Norman Island and Jost Van Dyke. “We sometimes stay on the boat in the marina, or sometimes in a hotel,” Mr. Pierluisi said. “We go out to restaurants and sometimes take tours. The British Virgin Islands is one of my best vacations. I just try to go with the flow. I really don’t have a budget when I go there.” Although he stocks up the boat in Puerto Rico, he has to replenish supplies in the BVI, especially ice, food, alcohol and fuel. On average, he stays in the Territory for seven days. “It has become a tradition,” Ms. Flax-Mars said. “A lot of them will tell you that they came here with their parents and now, they are bringing their kids. The BVI resembles what Puerto Rico was like 20 years ago. For them, it is a nostalgic experience.” BB

T O U R I S M A N D R E A L E S TAT E

VILLAS - MEETING THE 5-STAR DEMAND by Chris Smith

homes at Leverick Bay. In each of these locations, permission was sought by the owners and granted by the BVI Government for vacation villa development, enticing buyers and facilitating the process. So much so that these communities are now integral to the economy; many local businesses have been built up around them including car rental companies, boat rentals, grocery stores, chef services, dive shops and retail outlets. Clennell Vanterpool, owner of Mahogany Car Rentals on Virgin Gorda readily admits that his business is “entirely reliant on guests staying in villas renting cars. They account for over 95% of our business. We meet most guests at the airport or ferry dock with their car when they arrive and allow them to drop it off at the same place when they leave. The goal is to make life as easy as possible for our customers.” Nowadays, there is less land available for purchase in Virgin Gorda since most of the good, available plots were sold years ago. The homes built on them many years ago are now older and some are a little dated. Reinvigorating the initial development decades ago, communities of villas are springing up in areas such as Oil Nut Bay and Blunder Bay in the North Sound area, building on the already extremely successful concept of managed villas with resort facilities such as Nail Bay and Little Dix Bay.

he market for luxury villa rentals on Tortola and Virgin Gorda is strong despite the Territory’s perennial chicken and egg situation: there are no five-star resorts because of insufficient airlift and only limited airlift because there is insufficient luxury tourist accommodation. The absence of a highend resort on Tortola has left a huge gap in the tourism market and there is ongoing debate over the merits of extending the Terrance B. Lettsome International Airport runway to attract a five-star resort and adequate airlift. Luxury villa rentals have filled the void but to assess the future, we must understand the past.How did we arrive at this point? In the late 60s and early 70s, the British Virgin Islands (BVI)was ripe for development: Virgin Gorda got the luxury resorts of Little Dix Bay, Biras Creek and Bitter End whilst Tortola went down the sailing route and developed world-class yacht bases operated by charter companies such as the Moorings and Sunsail. In Virgin Gorda, the families from the north east coast of the United States (New York, Boston, Philadelphia, etc.) who had been staying at Little Dix Bay year after year were among the first expatriates to buy land and build vacation homes in the coveted locations of Guavaberry Spring Bay near The Baths and Mahoe Bay. Similarly, people who stayed at the Bitter End Yacht Club or sailed up to North Sound bought land and built vacation

In Tortola, it was largely those who had been sailing in the BVI for many years or staying on Peter Island who bought land and built vacation villas. In some instances, the husband may have been considering buying a larger boat but the wife, perhaps tiring of the salty lifestyle, wanted something on dry land! Increasingly, without a five-star hotel, villa vacations have become an integral part of Tortola’s luxury tourism market and there is now a good inventory of high quality villas in world-class locations including Belmont, Long Bay and Parker’s Estate at Trunk Bay. Again, many local businesses have been developed to service these villa guests. Ashburn Harrigan who owns Platinum Yacht Charters in Tortola said, “day charter bookings by villa rental guests of our 50’ and 51’ luxury Sea Ray powerboats has grown so much in the past couple of years that we are expanding our fleet next season just to keep up with demand.” Ginny Hawksley who heads up the BVI Tourist Board in London said “the luxury villa market is the fastest growing market for outgoing UK [United Kingdom] tourism. In 2012, the BVI was included in only one villa specific tour operator programme. Now, the Territory is included in twelve as we go into 2014/15 high season. More families are travelling together and these are often multi-generational groups or a number of families or couples travelling together. The demand for supporting infrastructure, focused and experienced villa managers, wide food provisioning options, jeep and boat rentals, concierge services to book restaurants and activities, chefs and other villa staff are all on the rise.” The demand is varied, ranging from stand-alone villas with attentive management catering to the needs of guests, to villas within a resort which

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is a growing niche area with groups who want to be independent but take advantage of the on-site kids’ clubs, bars, restaurants, entertainment and spas. Further commenting on the villa market and demand from the United Kingdom, Ginny said, “For the BVI, if we keep focused on this market and ensure that the quality of the villas, the supporting infrastructure and local facilities keep meeting the increasing expectations of this market, I believe we will be reaping the rewards for many years to come. It is important that we the BVI Tourist Board, villa owners and villa management companies keep an eye on the improvements being made by our biggest Caribbean villa competitors in Mustique, Barbados, Antigua and Barbuda, and Anguilla. The launch of our new VI Airlink service meeting British Airways and Virgin Atlantic flights in Antigua and Barbuda on Fridays and Saturdays has been well received by all UK tour operators who want to get their clients from their UK home to their ‘BVI home away from home’ as quickly and efficiently as possible. Shorter travelling times are particularly embraced by families with children and grandparents.” The BVI has villas to suit every taste. There are exceptional properties at the top end such as Aquamare, Baraka Point, St Bernard’s Hill, Katitche Point and Golden Pavilion, which come with on-site managers and are fully staffed. In the middle of the range are the villas managed by BVI Villa Rental, a Coldwell Banker BVI affiliate company, including the villas at Trunk Bay - Villa Aja, Villa Soleil, Villa Lune and Villa Ventana and those at Smugglers Cove, which include Villa Ariana, Villa Maya and Villa Sade. These villas are fully managed but the managers are not on-site full-time, ensuring privacy for guests but still providing the highest standard of services (maid service, private chefs and spa facilities) when required. Completing the range of properties available are owner-managed villas for the truly independent renter. For those who own property, having a home in the BVI is often the fulfillment of a dream after visiting here many times on vacation and wanting to spend more time here, often to escape cold winters back home. Though retired, their lives are still busy, so they generally will only be able to use the villa for a couple months per year. Therefore, the option to rent out their home when not in use is generally thought to be attractive because it is often better to have people occupying a home with maid service than to keep it closed up for months on end and to help offset some of the costs of ownership. Most owners are under no illusion that they can make a real profit from their vacation rental home or pay off a large mortgage from rental income. If someone from overseas buys a home in the BVI solely for that reason, they are likely to be disappointed as this is very hard to do. Fortunately, most are more realistic than that. Having said that, most of the ordinary day to day running costs can be covered if the home is attractively designed, well laidout with vacation renters in mind and in a great location, be it close to the beach, with plenty of privacy or high in the hills with an amazing view and breezy, cooler temperatures. There are many ways to market a vacation home and the internet has certainly made it far more cost effective and easier to reach a global audience. Websites such as www.VRBO.com and www.Homeaway.com are very, very productive for many BVI villas. Also the value of third party travel agents and tour operators should not be ignored. Whilst many people now book their own vacations through websites like VRBO, there are still a large number of people, typically very busy, high-income folks, who still prefer to let an agent do the legwork for them. Great relationships between property owners or their property managers and overseas agents such as Trudi King, owner of www.bestofbvi.com, are absolutely essential if an owner really wants to maximise the number of rental weeks booked. “A villa in the BVI is

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an excellent choice for travellers who do not wish to be restricted to an allinclusive hotel” said Trudi who specialises in the BVI. “We only recommend vacation villas we have personally viewed so we can match our clients to the perfect rental villa based upon their requirements.” The additional weeks booked will more than cover what you pay in commission. It is also advisable that overseas based home-owners establish good relationships with their suppliers of third party services, such as day charters, car rentals, and chef services as this usually results in excellent referrals. It is also important to understand the market, who exactly rents these villas. Many villa renters have visited the BVI before, stayed in a hotel, on a yacht or came aboard a cruise ship and want the independence of a villa for their next visit. To be able to immerse themselves into the local community and island life from which they are so often sheltered in their hotels is a big draw, as is the ability to curb costs by catering at home but still having the option of eating out or having a private chef. Perhaps it is the location near to a favourite beach that they prefer. “We have rented Villa Aja at Trunk Bay for the last two years and will not go back to staying in hotels, said one repeat client of BVI Villa Rental. “We love exploring the island in our rental car and stopping off at the local bars & craft stalls. And what a beach! We couldn’t ask for more.” The BVI’s reputation for a relatively low crime rate adds to its attractiveness as a villa rental destination when compared to competitors in other Caribbean islands. As positive an experience as it is for the renter, there are equal benefits for the owner. Renters have no preference for ownership of the villa; if the house is built in the right location and is well-designed well, it will rent. There is a common misconcception that rental villas are all owned by expats but that is not the reality. The long-term rental market which has been very strong in Tortola for the past decade has been the preferred choice for many BVIslanders. Several successful vacation villas such as Villa Sade at Smuggler’s Cove and Allamanda on Little Mountain are locally owned. Having established that the luxury villa market is the way forward for Tortola and Virgin Gorda alike, it leads us to the question: how does government policy impact on BVIslanders and expatriates in this lucrative rental market? As a ‘non-belonger’ homeowner, permission to rent your home must be sought from the BVI Government. In certain areas such as Mahoe Bay in Virgin Gorda, you are likely to be given permission as long as the home is rented out and managed by the onsite rental management company. There are several considerations to the Government’s policy of deciding who may rent out their villas, not least of which is over supply, which would become a problem if local owners of equally desirable rental villas found they were losing out. However, the 7% accommodation tax, paid by villa guests, is clearly an increasingly important source of revenue for the BVI Government, enough perhaps to encourage vacation villa development as long as there is a system in place to ensure the requisite tax is paid. Clearly, such encouragement would be a boost to the construction industry in the BVI. Government’s policy might also be tailored to incentivise BVIslanders to enter this market in greater numbers. In short, a strong luxury villa rental market is a win-win for the BVI. Villa rentals benefit the economy through extra revenues from accommodation tax and other related expenditures by visitors. Villa rentals also provide injections to the local economy through the construction industry, maintenance, cleaning service sector, transportation providers, restaurants and general retailers, ensuring that vacationers’ money is flowing directly to local businesses and not just the big resorts. The villa rental market has much potential for further growth and, with the right support, will continue to flourish to the benefit of all. BB

T O U R I S M A N D R E A L E S TAT E

THE OUTLOOK FOR REAL ESTATE 2015: THE NEW MEDIOCRE by Edward Childs

“T

he new mediocre” is how Christine Lagarde, head of the IMF, described the world’s economy in October 2014. Reflecting on continued volatility in the markets, the IMF called the economic recovery “weak and uneven” with growth forecasts downgraded for the remainder of 2014 and into 2015, and the recovery more country specific. The Eurozone is predicted to return to near stagnation (with some parts already back in recession) while the emerging markets are also struggling to maintain forward momentum. Even the two nations with the most robust economies, the United States and the UK, have recently reported mixed economic data indicating that growth may slow. The health of the US economy has a critical impact on the Caribbean; from inward investment, export markets and the all-important tourist dollar, the United States remains the single most important influence on the Caribbean. While the recovery of the US economy continues, with improved unemployment figures, import figures and private sector investment, any negative impact to the growth cycle in the States will have a corresponding impact on the Caribbean. After two years of upward trends, house price inflation in the States has finally slowed as average house prices return to near normal pricing levels. The turnaround in the US economy has been led by shrewd fiscal policy making by the Federal Reserve with quantitative tapering following a sustained period of quantitative easing, combined with historically low interest rates. Quantitative Easing, or QE, is a policy whereby the Fed increases the quantity of money in the economy through the purchase of

bonds and mortgage backed securities. As assets are purchased by the Fed, their value increases, which in turn has a dampening impact on interest rates. At the end of October, the Federal Reserve announced the end of QE, based on the “substantial improvement in the outlook for the labor market” and that “there is sufficient underlying strength in the broader economy”. However, questions remain as to the longer term impacts of QE on inflation. The question now is when will interest rates increase? With inflation remaining low, there is no pressure on the Fed to increase interest rates. While recent strengthening of the US Dollar would indicate that interest rates will increase sooner than later, perhaps in the first or second quarter of 2015, recent mixed economic data from the States and elsewhere may result in interest rates remaining static perhaps even through to 2016. Equity markets remain volatile as investors react quickly to negative economic results. At the same time, investors remain wary of alternative investments which are perceived to offer a less favourable return/risk profile. The recovery will continue to remain sensitive to the cost of money and the pace and scale of interest rate rises will influence the sustainability of the recovery. In our last report on real estate trends, we commented how the overall consensus was of optimism as economies stabilized and started to show a sustained recovery. This was reflected, at least in the BVI, in sharply improved real estate sales for 2013, compared to the prior year. Twelve months on, has this confidence of an improvement in the market been maintained? Possibly, January 2015 Edition

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much like the IMFâ&#x20AC;&#x2122;s reflection on the world economy, we have moved to a period where sustained growth remains elusive.

Within the BVI, we are moving to the interesting pre-election period (which should be around the [fourth quarter of 2015?) when the respective political parties start to pull punches about the state of the economy and the important issues facing voters in the BVI. Perhaps the most pressing issue remains the state of the financial services sector, for years the mainstay of the economy, which is facing unprecedented external challenges to conform to tax exchange agreements and transparency with respect to company ownership. As concerns remain about the future of this industry, the Government engaged the global consulting firm McKinsey & Company to review its status and make recommendations to strengthen. It also embarked on a range of infrastructure projects and has sought private sector investment in the tourist industry as a means of stimulating the domestic economy. Continuing our research into the sale of villas in the BVI (at a price point above $500,000), the half year results to June 2014 reflect market trends indicating that the recovery is uneven. We caution that the real estate market in the BVI is relatively small and fluctuations from year to year can be expected even when the market is strong. The following tables show the BVI Home Price Index from 2003 to 2013, with half year comparison to through June for 2013 and 2014, together with the split between local and foreign investors. It is also noted that the tables exclude share transactions in property companies as these transactions are not recorded as part of the Land Registry data, although villa sales by this method are generally rare. 106

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Half year comparison

1.6 1.4 1.2

1.0

0.8 0.6

0.4 5

Median Sale Price

Number of Home Sales

0.2

0 2003

2004

2005

2006

2007

2008

2009

2010

Number of House Sales

2011

2012

2013

JanJun 2013

JanJun 2014

Median Sale Value

Belonger and Non-Belonger Home Sales 2003-2014 (Sales over $500,000) 35 30

Number of Sales

If the economy in the Caribbean region as a whole is to improve, then governments need to focus on sustainable development where job creation is balanced against debt reduction. Tourism remains the regionâ&#x20AC;&#x2122;s most important industry and fortunately the overall upward trend in visitor arrivals has continued over the past three years, with overnight visitor arrivals to the Caribbean increasing by over 2% between 2012 - 2013 and a slightly higher increase expected for 2014. Governments in the Caribbean have few tools to influence economic growth as so much investment is driven from external sources, which in turn is dependent on the international economy. However, regional governments seeking to encourage investment will need to offer competitive incentive packages to external investors if development is to take place.

BVI Home Price Index 2003-2014 (Sales over $500,000)

25 20 15 10 5 0

2003

2004

2005

Belonger

2006

2007

2008

2009

2010

2011

2012

2013

JanJun 2013

JanJun 2014

Non-Belonger

The ten year trend shows how the number of sales increased through 2008 with a tapering off until 2012, following the boom and bust cycle experienced before and after 2008. The results for 2013 then reflected a strong bounce back, compared to 2012, with a total of 21 sales over $500,000 compared to just 9 the year before. However, the half year results to June 2014 indicate that there were just 6 sales compared to 11 for the same period in 2013. As noted above, it can be difficult to draw substantive conclusions from this data due to the relatively small data set, combined with the time taken for sales to close due to the Government approval process. Looking at the total value of sale transactions provides another indication of market trends with a total of $18,267,500 in inventory sold in the first six months of 2013 compared to $8,898,750 in the same period in 2014. The median sale price remained at around $1.3M in both periods. The activity of foreign investors is evident in the second table which shows how Belonger (and BVIslander) investors helped to underpin sales in the BVI from 2009 to 2012 while investments by foreign investors increased substantially in 2013 as market conditions improved. While the first six months of 2014 still shows a majority of villa purchases by foreign investors, this reduced to four sales compared to ten in the same period in 2013.

BVI Home Sales Over $500,000 Categorized by Sale Price 18

This table indicates that the market remains dominated by villa sales below US$1.0M with only four villas having sold above US$3.0M between 2009 and June 2014 (although we are aware of at least three sales over $3.0M which have closed in the latter half of 2014 plus a further three completed through share transactions). The first six months of 2014 indicates that three villas sold in the $1.0 to $3.0M price band compared to two villas below $1.0M and one over $3.0M.

Number of Homes Sold

16 14 12 10 8 6 4 2 0

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Up to $1M

$1M to $3M

Over $3M

Comparing asking prices and eventual sale prices on Tortola and Virgin Gorda shows how the market is diverging between the two islands. We have tracked villa sales over US$1.0M since 2010 on both islands with the following table showing the average difference between asking and selling prices on each island and the difference between the islands in terms of average asking price and average sale price. Comparison of Asking Prices and Sale Prices Villas on Virgin Gorda and Tortola Priced over US$1.0M Island

Number of Sales

Average Asking Price

Average Sale Price

Difference

Tortola

$2,731,136

$2,106,545

-23%

Virgin Gorda 10

$4,484,000

$3,739,375

-17%

Difference

64%

78%

Data includes asset and known share transactions compiled by Smiths Gore

This data shows that, on average, selling prices on Tortola were 23% below the asking price and in Virgin Gorda were 17% below the asking price. The data also shows that the homes sold on Virgin Gorda were priced significantly above those on Tortola, with the average listing price for homes sold on Virgin Gorda being 64% above those on Tortola and the average sale price on Virgin Gorda 78% above those on Tortola. At the end of 2014 there remains a large inventory of unsold homes in the BVI, with more than 200 properties listed for sale in excess of $500,000. Just over half of these homes are priced at between $1.0M and $3.0M, giving purchasers plenty of choice in this price range. Of the properties listed at the end of 2014, 160 have been on the market for more than a year with 31 now listed at an average of 17% below their asking price in 2013 and 7 at an average of 13% above their asking price in 2013. Overall, the list price of those 160 homes has dropped by approximately 2.5%. Looking at how the real estate market in the BVI has changed over the

2013

JanJun 2013

JanJun 2014

past twelve months, the focus has remained on development in the North Sound area and specifically on Oil Nut Bay and Mosquito Island. The central infrastructure facilities within both developments are now maturing, indicating the importance that each developer has placed on providing finished facilities within a short time frame to reduce the perceived risk for purchasers. Between the two developments, a total of eighteen lots have sold over five years indicating a sales pace averaging around three lots sold per year. Sales have totaled over $85M which has provided Government with over $10M in stamp duty, demonstrating the importance that such sales have for the economy of the BVI. At Oil Nut Bay, Victor International has completed the up front infrastructure for the project together with the public areas of the resort which now include the Beach Club, fitness centre, Nut House (kids club) and Nature Centre, two tennis courts and the resortâ&#x20AC;&#x2122;s Palm Centre management offices. By the end of the year, there will be ten villas completed and a further eight homes under construction with over $56M in contracts being bid locally to contractors from the BVI. The next phase of development includes the completion of the Marina Village by the end of 2014 plus the completion of additional back of house facilities and a utility distribution centre. Development of the central facilities on Mosquito Island is due to complete by the end of 2014 with the first of the home ownerâ&#x20AC;&#x2122;s residences to be completed in 2015. There will be a total of ten residences on the island, with the home sites comprising just a quarter of the total land area. The central facilities include a clubhouse and pool, kitchen with three dining pavilions, tennis centre with two courts and a water sports pavilion. Construction is currently underway on the back of house facilities which include management offices, staff accommodation and service areas. At Blunder Bay, located at the western end of North Sound across the water from Mosquito Island, a new residential sub-division is taking shape with ten lots on offer to the market with lot sizes ranging between one and just over two acres. Following several years of planning, including the submission of detailed environmental reports, the developers commenced construction towards the latter part of 2013 with the basic infrastructure comprising the roads, utilities and docks now in place or under construction. The January 2015 Edition

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development will focus on a family orientated experience with a range of common facilities, including a managers residence, beach recreation areas and water sports facilities. Four of the lots will have private docks while the remainder of the lots will have a shared dock facility. Blunder Bay Estates will provide an attractive niche market between its larger neighbours, catering to owners who value the ambience of a retreat on North Sound and the many amenities available within a short boat ride away.

be debated, the sale of the Stanford Investment Bank island portfolio (in liquidation) in Antigua this summer to a Chinese developer, with plans for a US$750M mixed use resort residential development, has demonstrated the importance of this market to the independent island nations seeking to encourage tourist development. This is the largest proposed development in the Caribbean after the Baha Mar development in the Bahamas, another Chinese financed development.

Nanny Cay has continued with its successful townhouse development, with the last of the 32 units sold in 2014 and the final block of four due to be handed over to purchasers in November. The main expansion of Nanny Cay is due to commence at the end of the year with the new marina located on the east side of Nanny Cay due to commence operations during 2015. A further 56 townhouse units are planned in eight blocks overlooking the new marina, comprising a mix of three and four bedroom units. Construction of these units is expected to begin on completion of the marina with condominiums including a marina slip. To accommodate this marina and condominium expansion, a new reception is due to open in December 2014 at the hotel to serve both the marina and hotel plus the condominium owners.

Significant real estate development projects are also under way in St. Kitts where the Park Hyatt hotel development commenced in 2014 together with construction of a marina. Both projects are within the Christophe Harbour resort development project. Closer to home, the USVI Government has announced a resort development on Water Island on the site of the former Water Island Hotel and Beach Club which was destroyed by Hurricane Hugo in 1989. Puerto Rico has also seen significant investment with Puerto del Rey Marina near Fajardo acquired by Putnam Bridge Funding who also acquired La Cuidadela housing and commercial complex in San Juan. Separately, John Paulson, president of Paulson & Co who rose to fame in 2007 when betting that sub-prime mortgages would tumble, acquired a majority stake in the St. Regis Bahia Beach Resort. These investments in Puerto Rico have been the result of aggressive incentive schemes offered by the Puerto Rican government to encourage investment to help the ailing economy.

One of the BVIâ&#x20AC;&#x2122;s more recent resort developments, Scrub Island, went into receivership in November 2013 with the developers immediately filing for Chapter 11 protection in the United States. Litigation between the lender and developer continues for control of the management and operation of the resort. As the litigation is taking place in the United States, this could be a protracted exercise. In the meantime, the lender has been trying to sell its debt although no announcements have been made as to the outcome of this exercise. The resort remains operational and is still part of the Marriott Autograph Collection. Taking a look at the wider Caribbean, among the most significant developments in the investment market are the economic citizenship programmes adopted in St Kitts, Antigua, Dominica and Grenada. Other islands, such as St Lucia, are also looking at the potential of such a programme to tap into a significant market dominated by Middle and Far Eastern purchasers looking for visa free travel to Europe and other countries. While the pros and cons of such programmes will continue to 110

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At the end of 2014, a degree of uncertainty has crept back into the economy led by faltering Eurozone and emerging market economies. Projections are being down graded and equity markets, reflecting the volatility, have fallen by over ten percent since the summer, wiping off the gains experienced in the rest of the year. The Caribbean is not immune to this volatility and we must expect cautious growth in residential sales over the coming months. Despite this, we expect to see continued improvement in residential sales in the BVI as our market remains more dependent on the USA economy which has been far less impacted by recent volatility. The number of villas available on the market in the BVI remains high, compared to the number of sales, indicating that purchasers will still have a significant amount of choice when deciding to invest. BB

LIFESTYLE

PRIVATE JET TRAVEL: A GROWING NECESSITY FOR HIGH-END TRAVELERS by Andrew Collins

â&#x20AC;&#x153;Time is truly a valuable commodity and it is one of the main benefits of private aviation.â&#x20AC;?

The Private Jet Industry

he private aviation industry offers travelers a more personalised and convenient way to get to their destination. Flying private was once seen purely as a luxury but today, it is regarded as an important asset to many businesses and individuals looking to save time. Time is truly a valuable commodity and it is one of the main benefits of private aviation. The hassle and time spent on commercial travel is eliminated as passengers do not have to deal with lines, security checkpoints, large airports, lost luggage or connections. Travelers can access over 10 times as many airports flying privately than commercially which offers greater efficiency as they can generally fly closer to their destination, thereby reducing travel time. There are also many options in private jet travel that provide more economical ways to take a private jet and the industry is constantly evolving to meet the needs of customers. The private jet industry recently experienced resurgence. The increase in private aviation travel is mainly due to the strong correlation to the economy. As the economy strengthens, the business of private aviation operators

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experiences similar growth. The recent improvement in the overall health of the economy has allowed businesses and individuals to remember the benefits of private flying. Additionally, the economic downturn caused a great deal of consolidation in the private aviation industry since 2008, forcing companies to create more efficient models as customers demanded lower costs and increased flexibility. It was a catalyst that sparked many changes in the world of private aviation and companies have to evolve to survive. Options in Private Jet Travel The options for private aviation are made up of two groups, ownership and on-demand services. Ownership includes both whole ownership and fractional ownership, while on-demand services include charters and jet cards. Purchasing or leasing a jet is the most convenient option for private aviation but by far, the most expensive. A wholly owned jet is available at the ownersâ&#x20AC;&#x2122; command which is a great option for individuals and businesses that can afford it.

The three other models are more economical and each has benefits that a business or individual should consider when evaluating options for private jet travel. The fractional ownership structure allows multiple owners to invest in one aircraft and have usage rights to that jet. However, usage may be limited due to the availability of the aircraft as there are multiple owners. Another option is chartering a jet which allows travelers to book a private jet as needed and requires no upfront cost but also does not guarantee availability. Jet cards allow travelers to purchase hours or a specific dollar amount and like a debit card, the hours or dollars decrease as they are used. Cards were previously associated with a specific jet model and age class but many now allow flexibility and options. Today, the jet card model is the fastest growing segment in private aviation because it provides the flexibility of whole ownership without the risk of a depreciating asset and at a much lower cost. With the numerous methods of private aviation, travelers can choose one or more options to best suit their needs. Additionally, as owners and fractional owners only have access to one jet, they will often look to charter and jet cards to provide a different size or model aircraft for a trip that includes more passengers.

Sentient Jet In 1999, Sentient Jet invented the jet card approach to flying privately and today, the company is the largest independent provider of jet cards with over 4,000 active cardholders. Since its inception, Sentient has since led the market with a unique business model that combines flexible terms, impeccable service and a relentless focus on safety. One of the main benefits of being a Sentient Jet Cardholder is the access to high quality and safe aircraft with as little as 10 hours notice. The company’s 25-Hour Card programme offers industry-leading value for private jet travel and protection from the risk of depreciating assets. The convenience and value has made jet cards the fastest growing private aviation segment. Sentient also offers Cardholders the flexibility to choose between four jet sizes: Light, Mid, Super-Mid and Heavy aircraft, as well as the choice of Preferred or Select age class. Pricing for a Light Preferred jet starts at $ 124,825 and on average, Sentient’s hourly rates are 20% to 30% lower than other jet card programmes. The company’s customer service team is trained to work with cardholders to choose the appropriate category and age class to ensure the perfect jet for each trip. Sentient Certified Sentient only works with the top 20% of operators in the United States and its network of certified operators must meet the company’s rigorous standards to ensure that clients always have access to executive aircraft that comply with the highest standards of safety and quality. If the operators meet the rigorous standards, they are deemed “Sentient Certified.” A critical difference between Sentient and its competitors is its safety infrastructure. Safety is the top priority at Sentient, which is why the company created the industry’s first and only Independent Safety Advisory Board, which is comprised of former officials from the Federal Aviation Administration (FAA) and the National Transportation Safety Board (NTSB). Sentient’s mission is to exceed the industry’s best practices. The Safety Advisory Board devised rigorous safety protocol that highlights every facet of a flight, using proprietary research to produce a comprehensive report for each upcoming flight that is carefully analysed in Sentient’s daily flight report. The company’s Chief Safety Officer has final determination over whether a flight should be delayed or cancelled, even if it inconveniences a client. We even go to great lengths to source a new jet if the initial jet chosen for a flight does not meet our standards for any reason. The Sentient Difference Sentient’s relationship with customers is, has been and continues to be the most important aspect of our business. The team is dedicated to providing superior service and outstanding overall experience when passengers fly with us. Sentient continually works to provide cardholders with the most flexible, intelligent and sensible choice in private air travel and this means constantly analysing its business model and evaluating whether it can be updated to better serve customers. However, Sentient’s commitment to safety and service has not changed since 1999; those two factors have always been and will always be key to securing the company’s revenue generation capacity.

“Flying private was once seen purely as a luxury but today, it is regarded as an important asset to many businesses and individuals looking to save time.”

We also like to surprise and delight our customers by remembering and celebrating special occasions including anniversaries, birthdays, significant business meetings and holidays. Our team will go to great lengths to provide a memorable experience like decorating a jet in team colors and logoed blankets for a flight to a college football game or a half cheese, half pepperoni from our cardholder’s favorite New York City pizza shop after an important meeting. Exclusive Benefits In addition to the private jet services that cardholders have access to, they can also take advantage of a comprehensive selection of exclusive benefits which include complimentary accommodation, upgrades and activities at great hotels and resorts. In 2013, Sentient launched its first Cardholder Benefits Guide with a unique selection of exclusive benefits through its partnerships with some of the world’s finest hotels & resorts, private clubs, world-class destinations and luxury and lifestyle brands.

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In 2013, Sentient grew revenue to more than $150 million

35% Growth in sales Jan - Aug 2014

Equivalent to over 32,000 hours or 1,300 25-Hour Jet Card

60%

40%

Corporate

Leisure

Monday - Wednesday

Friday - Sunday

Increased

year-over-year

10%

17%

*January to May 2014

This year, Sentient expanded its already robust offerings to provide cardholders with a wider range of benefits. The 2014 guide features a number of exclusive experiences and offers, available only to Sentient’s valued customers including retail partners such as Oscar de la Renta; transportation partners such as Hertz; and hotel and resort partners such as Montage Hotels & Resorts, The Little Nell and The Mark Hotel. These partnerships differentiate Sentient from other companies because it is able to offer cardholders added value on top of the already value-oriented model. Sentient’s partnerships to offer unique cardholder benefits is one of the factors currently driving the company’s growth.

whether that is through newer aircraft, exclusive benefits or other ways. There is an existing opportunity to work with more operators that are strategically set up to fly cardholders throughout the Caribbean, including the BVI. Sentient currently offers a guaranteed, transparent pricing model and service area for the Caribbean and we are always looking to grow our supply sources as well as our luxury partnerships.

Growth

Overall, increased private jet travel presents tremendous opportunities and Sentient is keen to work with the businesses in BVI to provide travelers with an unforgettable experience. BB

Sentient’s performance is somewhat indicative of the overall resurgence in the private aviation industry following the financial crisis but the company’s growth can also be attributed to its innovative and practical business model that focuses on the jet card approach to flying. In 2013, Sentient grew revenue to more than $150 million and sold over 32,000 hours which is equivalent to more than 1,300 25-Hour Jet Cards. Additionally, the company saw a 35% growth in sales January through August 2014 which shows the resurgence is continuing.

With the recently added FBO in the BVI, Sentient now sees an opportunity for more private flights into and out of the BVI and in turn, increased expenditure. The influx in travel will drive demand for hotels, resorts, dining options and retail stores. This provides a unique opportunity for Sentient as the company continuously evaluates partners for its benefits programme.

Sentient’s mix is about 60% corporate and 40% leisure, and resurgence is evident in both categories. From January to May 2014, corporate travel, which we is categorized as Monday through Wednesday, increased 10% year-over-year and leisure travel, Friday through Sunday, increased 17% year-over-year. Entrepreneurial Opportunities in BVI With more than 15 years’ experience in the private jet industry, Sentient has deep knowledge of the sector and having witnessed the evolution of private travel, the company foresees great entrepreneurial opportunities for businesses in the BVI. Private flyers seek convenience, efficiency and service and safety and the new Fixed Based Operator (FBO) has opened a door for companies and individuals in the British Virgin Islands. Sentient is constantly looking to provide the best options for cardholders 114

January 2015 Edition

“Sentient’s mission is to exceed the industry’s best practices.”

BUSINESS BVI GUIDES

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BUSINESS BVI GUIDES

MOVING TO THE BRITISH VIRGIN ISLANDS by Business BVI Staff Writer

any 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 continues to draw people from virtually every country in the world. The process of emigration is fairly

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straight forward once you know what to expect and how to go about it. Work Permit And Immigration Matters 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. 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

countries 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 a 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 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 the employee 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. Labour Department

284 468 3701 ext. 4708/ 4780

Immigration Department

284 468 3701 ext. 4700/ 4770

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. 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. 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

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, 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

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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 20% • Household goods/furniture 15% • Electronics/ computer hardware 15% • Clothing 10% • Reading materials 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

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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. 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.

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

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 inter-island shuttles throughout the major

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.

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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

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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

BUSINESS BVI GUIDES

Fast Facts About the British Virgin Islands by Patlian Johnson

Demographics/Social 28,514

Population*

183.2 km2

Population Density Population growth rate

2.5%

(annual average)

64%

Nationality Ratio Literacy Rate

98.2%

Life expectancy at Birth

79.32

* 2012 estimates Major Religious

57.08 mi2

Area (BVI)

40 in

Rainfall (average annual)

28Ë&#x161;C

Temperature (average) Time Zone

Atlantic Std Time

Methodist, Anglican, Roman Catholic

Ro a

Denominations

Geography/Climate

wn o T

Capital City Dependency Status

British Overseas Territory Head of State

Queen Elizabeth II represented by the Governor

Government

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Judicial System

Common Law

Economy Currency GDP (nominal)*

Communication

United States Dollar US$ 923, 211 million

GDP per capita (nominal)*

US$ 32,377

Inflation Rate (2013)

1.5%

Unemployment Rate*

3.1%

Labour Force* Major Industries

284

Country Phone Code Zip Codes

VG1110, VG1111, VG1112

Telecommunication Providers

Source: Central Statistical Office * 2012 estimates

18, 247 Tourism Financial Services

Government The British Virgin Islands (BVI) is a self-governing Overseas Territory of the United Kingdom (UK) 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, administration of the Courts and disaster preparedness and response. The ministerial system of government is led by an elected Premier, a Cabinet of Ministers and the House of Assembly.

2015 PUBLIC HOLIDAYS New Year’s Day

Thursday, 1st January

Anniversary of H. Lavity Stoutt’s Birthday Monday, 2nd March Commonwealth Day Monday, 9th March

Government’s main source of revenue comes from financial service levies followed by payroll taxes and import duties. 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 UK 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.

Good Friday

Friday, 3rd April

Easter Monday

Monday, 6th April

Society

Whit Monday

Monday, 25th May

Population The population of the 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% of those employed are foreigners, thus accounting for a diverse and varied labour force. The Government is the major employer, followed by the tourism industry and the financial services sector.

Sovereign’s Birthday Saturday, 13th June Territory Day

Monday, 29th June

Festival Monday

Monday, 3rd August

Festival Tuesday

Tuesday, 4th August

Festival Wednesday

Wednesday, 5th August

St. Ursula’s Day

Monday, 19th October

Christmas Day

Friday, 25th December

Boxing Day

Monday, 28th December

Annually, there are 12 paid public holidays and the Virgin Islands 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 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. January 2015 Edition

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Education Publicly provided education is free at the primary, secondary and now tertiary levels thereby facilitating access by 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 Ministry of Education & Culture operates 17 primary schools and four secondary schools, including a technical-vocational school and a school for differently abled 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, the HLSCC also offers Bachelor’s and Master’s degree programmes in various disciplines. The college also offers specialty courses based on the needs of the labour market. Health Currently, primary health care is provided by Peebles Hospital and a number of Government-run health clinics. Additional services are provided by a small private hospital and private medical clinics. Patients requiring treatment beyond the scope of Peebles Hospital are referred to Puerto Rico, the US Virgin Islands, Jamaica, Barbados and the United States (US) mainland. 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 Peebles Hospital and the recruitment and training of health care professionals. The BVI Government has embarked on 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 expected to be operational in 2015. The state of the art facility includes a physical therapy unit, psychiatric ward and hydrotherapy pool. The Government has unveiled its National Health Insurance (NHI) Scheme with implementation expected in 2015. The NHI Scheme will provide affordable, universal health care to BVI residents while providing a dedicated source of funds for strengthening the local health care system. Economy ECONOMIC INDICATORS MEASURE

2012

2013

Nominal GDP (US$ millions) – revised estimates

909,355

923,211

Nominal GDP Growth (%)

-0.68

1.52

Inflation (%)

2.2

1.5

Unemployment (%)**

3.1

GDP per capita ($) – revised estimates

32,155

32,377

Source: Central Statistical Office The BVI economy is based on two distinct economic pillars, namely tourism and financial services. Growth in both industries has resulted in expansion of the construction sector, both private (residential and commercial) and 124

January 2015 Edition

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 with the majority of importedgoods originating from the US inclusive of Puerto Rico and the US Virgin Islands. Similarly, the vast majority of BVI exports, primarily services in the financial services and tourism industries, are used by US consumers. The BVI is not a major exporter 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 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 on Virgin Gorda, the pristine waters of White Bay on Jost Van Dyke, the wreck of the Rhone off the coast of Salt Island and the flamingos at Nutmeg Point on Anegada. 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 have given the BVI the title of the ‘sailing capital of the world’. Other water sports such as scuba diving, snorkelling, wind-surfing, kite boarding and kayaking are also extremely popular. The BVI is also a popular port of call for major cruise ships. The current cruise pier facility is undergoing a significant transformation to be completed in 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 include expansion of the Terrance B. Lettsome International Airport and upgrades to various ports of entry throughout the BVI. The Government continues to upgrade tourist attractions and infrastructure and encourages private investment and public private partnerships in the sector. Other infrastructural developments include expansion of the Terrance B. Lettsome International Airport and upgrades to various ports of entry throughout the BVI. TOURIST ARRIVALS AT A GLANCE TOURIST ARRIVALS

2012*

2013*

Actual Change %Change

Overnight Excursionist

351,404

366,108

14,704

401,744

375,739

(26,005)

(6%)

TOTAL

753,148

741,847

11,301

1.5%

(Cruiseship and day trippers)

Source: Central Statistical Office * Estimate FINANCIAL SERVICES AT A GLANCE FINANCIAL SERVICES

2012

2013

7 102 87 21 3

6 110 82 21 3

Captive Insurance Domestic Insurance Insurance Managers Mutual Funds

157 34 14

147 37 14

Professional Professional (cumulative active) Private Private (cumulative active) Public Public (cumulative active) Incorporations

95 1590 31 577 6 151

112 1558 36 550 6 125

64,062 459,005

53,329 459,882

Banking and Fiduciary Banking (general and restricted) Trust (general) Class I, II & III Trust (restricted) Company Managers Money Services/Financing Business Insurance

BVI Business Companies BVI Business Companies (cumulative active) Insolvency Practitioners

Financial Services 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. The BVI Business Company Act, 2004 was first unveiled 30 years ago in 1984. In the ensuing 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. 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. 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. Marketing of the financial services sector is conducted by the International Finance Centre (IFC), a department within the portfolio of the Premierâ&#x20AC;&#x2122;s Office which has organised various road shows in some of the major financial centres including London, New York, Hong Kong, China, Dubai and Qatar. 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 Islandsâ&#x20AC;&#x2122; mutual legal assistance regimes. The BVI London Office and the recently opened BVI Asia House in Hong Kong were commissioned to establish a presence in Europe and Asia to take advantage of economic opportunities but not limited to financial services and tourism. Business Companies The BVI is one of the largest centres for the incorporation of business companies with around one million companies incorporated since the initial enactment of the IBC Act in 1984. Approximately 459,000 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 and improvements have been made to ensure the longevity of the BVI market share. The new Act for instance widens the range of corporate vehicles available for use and simplifies the statement of capital and the registration of charges.

Source: BVI Financial Services Commission January 2015 Edition

125

Insurance (Captive)

Insolvency

The BVI captive insurance market is one of the fastest growing and largest in the world with the majority of business originating from the US. Other countries of origin include Guernsey, Taiwan, Switzerland, the Middle East and South America. In addition to this excellent geographic spread of business, there has also been a significant distribution of captives from an industry segment standpoint. The captives cover finance and insurance, construction, health care and retail trade industries. The domestic insurance market is, however, smaller in comparison. The new Insurance Act, 2008 which replaced the 1994 legislation, provides a modern structure for the licensing, supervision and administration of insurance business in the BVI 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 1, 2010.

The BVI boasts of 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.

Investment Business The BVI is one of the premier jurisdictions for fund domiciliation and is now is regulated by new state of the art legislation. The Securities and Investment Business Act (SIBA) and Regulations came into force on May 17, 2010 and replaced 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. The new legislation also provides a framework for dealing with insider trading and market abuses. In addition, all existing public, private and professional mutual funds previously authorised under the repealed Mutual Funds Act, 1996 were required to comply with the relevant sections of SIBA by December 31st, 2010. The BVI continues to update its regulatory regime to meet the needs of stakeholders. The Approved Managers Regime came into force at 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 professional fund is the most popular of funds registered and recognised in the BVI. 69% of active funds being professional funds, 25% private funds and 6% public funds, based on 2013 figures. Banking The Virgin Islands is characterised as a conservative banking jurisdiction. At the end of 2012, there were seven 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 also regulated by the FSC under the Banking and Trust Companies Act, 1990 and subsequent amendments.

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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 which is based on the English Trustee Act, 1925 and which was 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 are 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 settlors intended trustees to retain. The Act enables a shareholder to establish a trust for 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 BVI 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. Shipping MEASURE

2012

2013

Annual Vessel Registrations Total Vessels Registered

242 3,680

245 3,743

Source: Virgin Islands Shipping Registry As the sailing capital of the world and an esteemed corporate domicile, the BVI 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 clients do not meet the nationality requirement, they may register a company in the BVI in order to register a vessel. Registration procedures also require 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 chosen to assist with registration. Tax Information Exchange Agreements The purpose of Tax Information Exchange Agreements (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 and are not intended to facilitate fishing expeditions. 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. 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 26 TIEAs, some of which are not yet enforced. This secures a spot for the BVI on the “white list” of countries including the US, UK and Canada which have substantially implemented the internationally agreed tax standard, as stipulated by the OECD.

In addition to the US, the BVI has agreements with the UK, Australia, France, the Netherlands, New Zealand, Greenland, the Faroe Islands, Aruba, China, Portugal, Czech Republic, Ireland, Germany, India, Canada, Saint Maarten, Curacao, Guernsey, Poland, Japan and the Nordic group of countries including Denmark, Finland, Iceland, Norway and Sweden. Real Estate Buying and Selling Property in the BVI Foreigners planning to purchase property in the BVI require a Non-Belonger Land Holding License. Agreements to purchase property are therefore made contingent upon such a license being obtained by the purchaser. Application for a Non-Belonger Land Holding License is made to the BVI Government through the 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 BVI Government 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 4%. The stamp duty on leaseholds is lower. Other costs associated with the purchase of property in the BVI include: legal fees (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 agreementpending 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. January 2015 Edition

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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 Eastern Caribbean Supreme Court (ECSC) and will hear commercial matters from the nine-member Organisation of Eastern Caribbean States (OECS) comprising of Anguilla, Antigua and Barbuda, Dominica, Grenada, Montserrat, St. Kitts and Nevis, St Vincent and the Grenadines, St Lucia and the BVI. Operational since May 2009, the court was officially opened on October 30, 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. 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.

BVI International Finance Centre Haycraft Building, Pasea Estate Road Town, Tortola Tel: (284) 494-4335 Fax: (284) 468-1002 E-mail: info@bviifc.gov.vg Website: www.bviifc.gov.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 Website: 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 Website: www.bvifsc.vg Telecommunications Regulatory Commission Fishlock Road Road Town, Tortola Tel: (284) 494-6786 Fax: (284) 494-6786 Website: www.trc.vg

GOVERNMENT LISTINGS Government Ministries

Central Administrative Complex Road Town Tortola British Virgin Islands Website: 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 Website: 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 128

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 Website: www.bvifia.org

January 2015 Edition

Virgin Islands Shipping Registry Sebastian’s Building Administrative Drive Road Town, Tortola Tel: (284) 468-2902/2903 Fax: (284) 468-2913 E-mail: vishipping.gov.vg Website: www.vishipping.gov.vg Government Overseas Offices

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

Puerto Rico, Caribbean & Latin America Chirino Office Plaza, Ste 202 #1739

Carretera 8838 San Juan, PR 00926-2745 Tel: (787) 782-8800 / 721-2525 Fax: (787) 782-8801 E-mail: tdardet@bvitourism.com E-mail: erivera@bvitourism.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 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 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 Immigration/Labour Information

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 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