Monday, November 28, 2016


Most compliance officers now know to be wary of banking, or conducting transactions with, companies formed in the British Virgin Islands,  in light of the Panama Papers disclosures regarding the use of BVI corporations, formed with bearer shares, for tax evasion, for hiding the proceeds of corruption, or for a number of financial crimes. There is one additional caveat that should be observed: dealing with Restricted Purposes Companies (RPC) from that jurisdiction, could expose your bank, or your clients, to additional risks not generally known.

The BVI restricted purposes company has finite, and very limited, corporate powers and capacity; it is specifically limited to undertake a specific activity. Any other use of the company is outside its scope and authority. This means that banks, and clients, that conduct business with a restricted purpose company cannot presume that the transaction was authorized, and within the power of the company.

While BVI regulations require that such corporations carry the unique designation "(SPV)," for Special Purpose Vehicle, in their corporate name, unless one is aware of precisely what that means, individuals could fail to make the appropriate due diligence inquiries, to ascertain whether the transaction at hand is authorized. The other issue is, of course, whether a financial criminal will delete that restrictive designation from its corporate vehicle name, when seeking to deposit the proceeds of crime in an account in your bank.

As one legitimate purpose of an SPV is to remove debt from a corporation's balance sheet, it has a potential as an instrumentality of financial crime. Remember also that money launderers are only limited by their imagination, and they will certainly find a way to utilize an SPV to clean dirty money, if they haven't already done so.

The most pressing reason for compliance to be concerned, though, is the failure of a client, counter-party, or customer's customer to identify his BVI company as an RPC. Given your utter inability to identify the Beneficial Owner of a BVI company, a bank customer could be defrauded, and then have no recourse through litigation, when a default occurs, and it turns out to be an unauthorized transaction.

Do we need to obtain an affidavit, affirming that a certain BVI company is not an SPV, or will a certified copy of the articles of incorporation suffice, given the rampant use of Photoshop to alter documents ?   

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