BVI corruption scandal puts tax haven status at risk amid EU blacklist threat

A corruption inquiry in the British Virgin Islands, backed by the UK, probes $40M in diverted COVID funds and a cocaine haul worth $250M.

BVI corruption inquiry shakes tax haven's reputation as EU blacklist looms

The British Virgin Islands is facing a significant corruption scandal that calls into question the territory's long-standing reputation as one of the world's most reliable tax havens, icij.org reports.

Outgoing BVI Governor Augustus Jaspert last week announced a formal commission of inquiry to investigate allegations of corruption and the misuse of millions of dollars in public funds. Jaspert, in a Facebook video posted during his final days in office, cited concerns raised by officials, journalists and members of the public throughout his tenure. Among the allegations under scrutiny: $40 million earmarked for COVID-19 relief was allegedly redirected to political allies. In a separate case, the BBC reported that cocaine with a street value of nearly $250 million was discovered at the home of a local police officer.

The inquiry is backed by the United Kingdom, which maintains oversight of the BVI as an overseas territory. The BVI manages its own domestic affairs and taxation, while relying on the UK for defence and diplomatic representation.

UK Foreign Secretary Dominic Raab told parliament that the concerns could not be dismissed. "A consistent and deeply troubling array of concerns have been put to the Governor by local institutions and the community," Raab said. "We cannot ignore such serious allegations."

Shell companies at the centre of global scandals

The BVI is among the world's most frequently used tax havens, drawing legitimate corporations, celebrities and multimillionaires alongside criminal actors. The territory offers inexpensive and straightforward shell company structures that allow owners to keep their identities out of public records. While routing money through BVI-registered companies is legal, those same structures have repeatedly surfaced in major international crime investigations.

BVI companies appeared in a $2 billion scheme linked to a close associate of Russian President Vladimir Putin, as well as in the "corruption pact" case that last week resulted in the sentencing of Israeli tycoon Beny Steinmetz. More than half of the shell companies exposed in the Panama Papers investigation were registered in the BVI, according to an analysis by the International Consortium of Investigative Journalists. The ICIJ's FinCEN Files investigation further revealed that BVI entities appeared in one in every five suspicious activity reports filed by banks with concerns about potential money laundering.

Facing sustained international pressure stemming from those revelations, the BVI last year agreed to introduce a public register of beneficial company owners. Since the United Kingdom's departure from the European Union, pressure from European parliamentarians has intensified to place the BVI back on the EU's tax haven blacklist — a designation the UK had previously lobbied to prevent for its overseas territories.

"A recipe for bad governance"

For years, the BVI and its advocates have promoted the territory as a discreet, professionally regulated jurisdiction for global wealth management. "The BVI is a stable and mature financial center with a distinctive and professional legal and regulatory framework," read an advertising brochure that formed part of the ICIJ's 2017 Paradise Papers investigation. Companies and individuals who had chosen the BVI told ICIJ the jurisdiction offered "a recognised and well established regulatory and compliance regime."

Critics take a sharply different view. Margaret Hodge, a UK member of parliament who has long pushed for greater financial transparency in the BVI, told The Guardian that the latest developments were deeply damning. "The shocking revelations that corruption may be rife in the BVI are a shameful indictment of the tax haven model," Hodge said. "It is clear that an economy based on secrecy and low taxes is a recipe for bad governance, corruption, and criminality."

Source: Google News VG — Crime