We could do worse than follow the BVI model on transparency

  • Ideal model: Bermuda could adopt same beneficial ownership system as British Virgin Islands

    Ideal model: Bermuda could adopt same beneficial ownership system as British Virgin Islands

  • Welcome appointment: incoming Chief Justice Narinder Hargun

    Welcome appointment: incoming Chief Justice Narinder Hargun

Much has been written, and rightly so, about Britain’s misguided move to compel its Caribbean and Bermudian territories to open company registers, as the mother ship itself has done. I have worked in three of the affected domiciles and my work exposed me to the best professionals in the world of cross-border asset recovery for victims of fraud — most are lawyers, insolvency practitioners and specialised accountants. Many of these individuals are the ones that governments — here, in the British Virgin Islands and in Cayman Islands — call on to investigate and assist their own regulators when financial crime, AML/ATF non-compliance and forensic projects are warranted.

Therefore, I knew where to go to get the most informed opinion on this purely political move by Britain. During my five years in the Caribbean, I had the chance to meet, learn from and attend specialist conferences where the very best in the world in asset tracing, preserving and recovery convened and presented in Miami, Puerto Rico, the Caymans and BVI, inter alia, including Martin Kenney — rated as the best in his field.

Understandably, I was more interested in his take on Britain’s law for purely practical reasons. I’ll leave the political views alone; they have been aired ad infinitum. Martin, and others in his area of expertise, make the best case for leaving well enough alone. One is quite serious in that the existing system — being confidential, not secret — has helped law enforcement and those with court orders to glean the relevant ultimate beneficial owner details through shell companies and multiple jurisdictions to recover stolen assets and gain evidence for regulators to prosecute money launderers and confiscate proceeds of crime. This could have been achieved by Martin and his peers — most are members of the international alliance FraudNet — only if such registers are accurate. Opening them up poses many risks and adds hurdles to the worldwide asset-recovery practice, making it more time-consuming and costly, and therefore better for criminals.

One only has to look at the Britain’s Company Register as evidence of its uselessness. This open register of UBOs in Britain is not verified. It is a prime example of form over substance — a condition most qualified accountants are warned against in our first auditing class. It’s a common practice of regulators and politicians, and seems to have crept back into some audit procedures ... it must be catching.

One obvious assumption is that those who seek to use multiple shell companies in many jurisdictions illegally have wealth, whether through crime or simply amassing more originally legitimate earnings by evading taxes and/or other debts — and maybe file for bankruptcy to avoid court-ordered asset seizure, forfeiture or divorce proceeds, etc.

What is the reason for a public register? To unmask those committing financial crimes, which run the gamut from tax evasion, laundering, hiding assets from a spouse in anticipation of a divorce, theft and embezzlement. Fraudsters’ entire goal is concealment, so at best it is naive and at worst moronic to think they will now provide accurate information and become honest actors.

Let’s see how accurate and useful Britain’s model is — the one that they seek to push on us:

1, In February of this year, Global Witness reported that more than 4,000 UBOs are in diapers — except one, who, in February, had not been born

2, There are more than four million companies on this register, with six individuals tasked with managing and verifying it

3, The laws governing Scottish Limited Partnerships, which differ from those in England and Wales, have been exploited — 40 per cent have Soviet and former Soviet beneficial ownership compared with 0.1 per cent of all limited companies

4, SLPs have moved more than $80 billion from Russia in the past few years

5, Five beneficial owners control more than 6,000 companies — it is more than likely these are well-paid front persons, unknowing stooges or UIs, a Russian designation

6, A significant number of companies have not yet provided the names of the persons with significant control, and as we know, many of the names given are false

But the most grievous incident that has most sane professionals “gobsmacked” is the lone prosecution of an individual who supplied false information to the register, openly and deliberately. Companies House pursued and convicted a whistleblower. In this case, Kevin Brewer, a 65-year-old businessman submitted the name Vince Cable, the Liberal Democrat leader, as a UBO to expose the gaping loopholes that fraudsters can and still use with impunity. Brewer exposed his use of Cable’s name to Cable himself, who was then the business secretary.

Yet the following obvious registrations were uninvestigated until journalists did their own checks after Brewer’s conviction. This lone prosecution of a whistleblower served to highlight a level of idiocy heretofore reserved for jokes in British pubs about the Irish, now surpassed by Trumpian Americans. What’s more, it signalled to criminals that you can use obviously false names, and little or nothing will be done. Here’s one of many examples:

The Camorra reportedly managed to set up one British firm with a director named as Ottavio Il Ladro di Galline (“The Chicken Thief”), whose occupation is listed as Truffatore (“fraudster”).

Companies House does not carry out background checks on the individuals setting up firms and, as mentioned, has woefully inadequate staffing to verify details. Wealthy beneficial owners will continue to finance legitimate fronting entities for individuals and/or stooges to hide behind for both valid and nefarious purposes.

Why on earth would any of us want to adopt this useless public registry model and destroy what is already working? That is not to say we cannot make improvements and should ensure that we liaise with one another to adopt a standard such as the BVI’s Beneficial Ownership Secure Search System, which is — and I quote Mr Kenney — “a database that is searchable, with the information being available to UK law-enforcement agencies within 24 hours”.

To understand the strengths and rigour that have been involved in creating this Boss System.ą˛ Of paramount importance is that the present system of private registers has been accessed by law enforcement or through robust court proceedings, and information has been found to be predominantly accurate owing to:

• Privacy

• To ensure the real owner retains legal ownership of the assets in the offshore entity

A wealth of information has therefore been gleaned in this manner that would likely dry up, as those wanting to hide assets will use fronts — nominees — and/or entities, and move to jurisdictions that have been specifically protected by British parliamentarians. Are they likewise protecting themselves and backers.

Both Channel Islands and the Isle of Man are exempt from this edict compelling public disclosure and they become instantly advantageous being able to avail themselves of the protections of a first-rate legal system with leave to appeal to the Judicial Committee of the Privy Council. This entire situation raises red flags that one becomes attuned to after working with and learning from the lawyers, IPs that have unravelled the money trail to companies registered in, among others, BVI, Cayman and Bermuda. Provision of sufficient evidence of the entities used to funnel funds would be needed to obtain court orders permitting the registries to disclose a beneficiary — front — or other shells used that eventually unmask the mastermind. This tracking work provides intelligence on collaborators, patterns, preferred banks and jurisdictions that often intersect with other investigations.

Tracing through false information through the existing British model — the extent of which exceeds the aforementioned statistics — may well lead to the contents of toddlers in diapers.

Martin echoes a point I have made every time politicians and legislators have overreacted and enacted badly drafted law with no foresight to the law of unintended consequences — “you can’t regulate or legislate character”.

Those who refuse to “go legit”, pay taxes, honestly account for marital assets, and who make money from crimes against humanity, will never be deterred by regulations — and I can assure you, they have embraced cryptocurrencies and digital transactions for years now because of near guaranteed anonymity. This is the area that screams out for regulatory focus, caution and legislative restraint with extreme vetting of related business partners.

A final thought: Martin told the Toronto Star that British law forces a level of transparency on Bermuda and the UK’s Caribbean territories that does not exist in Canada. In addition, some of the most secretive jurisdictions based on his experience in attempting to compel authorities to disclose the beneficiaries behind entities linked to massive frauds include Nevada and Delaware. This is why we will never have a global standard and why I urge Bermuda to collaborate with our fellow targets in the Caribbean — and to ensure at a minimum that we have a system as robust and accessible as BVI’s.

When I was living and working there, and had the honour to attend one of the semi-annual FraudNet conferences — an elite network of the best asset-recovery, fraud-busting litigators in the world — every discussion, seminar and educational session focused on combating fraud, winning convictions. There have been many collaborative successes.

FraudNet wishes to find one legal partner in every country that meets its standards and requirements. Bermuda is not yet represented; I hope we will be soon. FraudNet’s first choice some four years ago was none other than our next chief justice, which goes to further validate his selection.

Bermuda is most fortunate that Narinder Hargun delayed his retirement to serve Bermuda. Our future as a premier business centre is in jeopardy without a robust, independent and brilliant judiciary. No doubt Mr Hargun can be of great assistance to our government in dealing with this amendment to the Sanctions and Anti-Money Laundering Bill that may indeed be resolved in the court system as unconstitutional per the advice obtained from a leading British counsel.

Nicolette Reiss is a qualified and licensed certified public accountant and chartered property casualty underwriter with operational and technical experience in reinsurance/insurance and financial services

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Published May 22, 2018 at 8:00 am (Updated May 22, 2018 at 9:13 am)

We could do worse than follow the BVI model on transparency

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