As reported by the BVI Beacon, the most recent company incorporation statistics from the British Virgin Islands show 11.471 companies were incorporated in the second quarter of 2014, taking the total for the first half of 2014 to over 25 thousand.
Following the media in secrecy jurisdictions sometimes leads to the websites of offshore secrecy suppliers offering “wealth protection” and “sovereign investment”. These companies almost invariably have an ideological sales pitch, along the lines of “we provide asset protection for those who don’t trust the government”.
Via the Bermuda Royal Gazette:
Judges from various secrecy jurisdictions including Bermuda, the British Virgin Islands, Singapore and the Cayman Islands attended a conference in Hong Kong on “insolvency and corporate rescue”, dealing with “business failure in the substantial investment structures using offshore companies as a platform for investing in China.”
Jason Sharman is a respected academic who has written about money-laundering and shell companies for the World Bank and is regularly cited as an expert. One of his most well-known findings is that it is easier to open an anonymous shell company in OECD countries, in particular the US and the UK, than in offshore secrecy jurisdictions such as Cayman.
Which is why it is rather confusing and disappointing to find this paper by Sharman from 2010 and its accompanying press release. The press release says that “International Financial Centres can boost growth in developing countries”. The paper concludes “…the evidence presented in this paper suggests that there is much to be gained by developing countries cultivating closer relations with IFCs to foster growth and reduce poverty”.
The proposed link between International Financial Centres (IFCs) and development is via the “sophisticated, robust and efficient institutions” in IFCs. Using China as an example, the argument is that “Chinese firms as well as foreign investors form links with IFCs to capitalise on the efficient, transacting-cost-reducing institutions IFCs host.”
So the fact that the British Virgin Islands, for example, is one of the top ten Foreign Direct Investment sources into China is not really due to round-tripping, corruption or tax evasion but to investors taking advantage of BVI’s strong institutions to compensate for Chinese weak institutions.
There are several other things which seem odd about the paper, but I’ll just mention a couple before moving to the really worrying part. For very useful guides to counter the “tax havens are good” narrative please see the Tax Justice Network here and the Treasure Islands blog here.
If the claim is that IFCs help developing countries by enabling investment inflows which would not happen otherwise – for example the 41 billion USD invested into China from BVI in 2008 – shouldn’t these inflows at least be netted against the the illicit financial outflows developing countries lose? Global Financial Integrity estimates that 2.8 trillion USD flowed illicitly out of China from 2005-2011,out of which USD 595 billion ended up in tax havens. And wouldn’t it also be worth looking at who benefits from doing business with IFCs (mostly rich elites and multinational corporations) and who usually loses (the general population that relies on state health, education and infrastructure)?
The most worrying thing about the paper, though, is not the content but the fact that is that it was jointly commissioned by the Commonwealth Secretariat and the IFC Forum. The IFC Forum is an offshore lobby group composed of “law and accounting firms headquartered in Bermuda, the British Virgin Islands, the Cayman Islands, Guernsey, Jersey and Mauritius” including practically all the members of the offshore Magic Circle. Its secretariat at the time was a London PR firm.
The press release for the paper includes this:
“Sharman also finds that there is insufficient evidence to support the two common misconceptions surrounding IFCs; that they drain wealth from developing countries or that they are used for tax avoidance. In fact, the report finds that small IFCs are crucial intermediaries for trade with and investment into developing countries.”
The point is not to bash Jason Sharman here. But I can find no evidence of any direct challenges to his “IFCs are good for development” claim, and the paper seems to have gone largely unnoticed. In the meantime, Sharman’s findings on money-laundering have definitely been picked up by Cayman’s government and media with headlines such as “Cayman’s perfect compliance record“.
At the very least, it seemed worth mentioning.
The British Virgin Islands has now published company incorporation data up to the last quarter of 2013.
11.376 companies were registered in BVI over the last three months of 2013, making a total of 53.321 new registrations during the year. This takes the total stock to 459.882 companies incorporated in BVI, or approximately 20 companies per capita.
However, BVI incorporations are on a downward trend: a 23% fall in the last quarter compared to the same period of 2012, and a 17% fall for the whole of 2013. In the chart below the columns show the incorporations per quarter, and the red line the % change compared to the same period of the year before.
BVI company incorporations 2012-13
Source: based on data from BVI Financial Services Commission
The year 2013 started with a 7% fall in company incorporations in the first quarter, and following Offshore Leaks in April the decline accelerates. It will be interesting to see what effect China Leaks has during 2014.
El Comercio (Peru) reports that
“The company Axbridge Gold, registered in a UK tax haven in the Caribbean, is one of 60 gold exporters rated as high risk due to their links with illegal mining in the regions of Madre de Dios, Cusco and Puno, as well as for buying tons of metal of illicit origin, using nominee directors, engaging in suspicious financial activities and being investigated for money laundering”.
Following the customs authorities confiscating almost a ton of gold in the last two months, El Comercio’s article is based on investigations by the Anti-Money Laundering prosecutor and Financial Intelligence Unit. The three top companies on the list of investigated companies are linked to the British Virgin Islands registered Axbridge.
When El Comercio visited the legal address of one of the companies – the fourth largest gold exporter in Peru – it found a family apartment located above a traditional “ceviche” restaurant.
The remaining 60 companies (half of the gold exporters in the country) under investigation for illegal mining and money laundering include companies suspected of tax evasion and others with links to suspected drug smugglers.