Saturday, October 8, 2016


Fifteen Men on the Dead Man's Chest
For compliance officers, following banking best practices means adopting, and not deviating from, a risk-based program. To do otherwise not only exposes your bank to regulatory fines and penalties, but also to potential personal liability, in the current state of enforcement policies and procedures.

In practical terms, this often means making hard choices. including the rejection of  classes of clients, or types of transactions, that you have previously approved. These decisions can alienate existing clients, and even officers whom you work with, but they do need to be made, for reduction of risk is now considered to be the primary mission of compliance.

For this reason, it has come time to objectively consider whether the risk levels of allowing clients to use corporations formed in the British Virgin Islands, have become to high to continue the practice. Notwithstanding BVI public statements about foreign governmental, and law enforcement, access, to bearer share information, the honest truth is that an experienced financial services professional can insure that the name of the true, ultimate beneficial owner never appears anywhere, under any circumstance.

 The fact that the Panama law firm of Mossack and Fonseca, whose sordid global tax evasion and money laundering operations has been brutally exposed in the Panama Papers, made the BVI their corporate formation jurisdiction of choice, speaks volumes, regarding the universal abuse of that location for the facilitation of criminal financial activity. The use of a "sandwich," meaning BVI company, owned by another corporation, or foundation in a distant tax haven, makes identification of beneficial ownership impossible.

The United Kingdom, upon whose protection the BVI, as an British Overseas Territory, relies, is unable to compel the islands' local government to publish a public registry of beneficial owners, is evidence of the lack of control that the UK Foreign and Commonwealth office has over its children. Like Frankenstein's monster, the Overseas Territories' offshore financial centers have grown up, and become impossible to supervise, let alone control.

The BVI company has become the first offshore selection for corrupt Politically Exposed Persons (PEPs), mainland Chinese tax evaders, narcotics traffickers, and the usual suspects in the world of financial crime. Its original intended uses, to provide confidentiality for the wealthy, or international businesses engaging in creative tax avoidance, have been supplanted by the criminal element. please do not insult my intelligence by assuring me that a custodian of the shares makes it all low-risk; any novice financial criminal knows how to cope with that hurdle.

For that reason, it makes no sense to continue to allow any bank client, to use a BVI corporation, for any purpose, lest you pay the price, with regulators, or law enforcement, down the road, if you unwittingly facilitated a major criminal, or sanctioned terrorist, organization. Look closely at the risk-vs-return calculation, and  come to the conclusion that it simply does not, any longer pay for any compliance officer to approve any account opening, specific financial transaction, real estate or operating business purchase or sale, or financing of any sort or type, where a corporation formed in the British Virgin Islands, is involved.

Assess the risks, and make your choice, but remember this: in this current climate of negative media disclosure of all the worts associated with offshore financial centers a/k/a tax havens, you are only fooling yourself if you believe that it is still acceptable to allow the use/abuse of BVI companies, in any matter where you, or your institution, are directly, or indirectly, involved.   

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