GoodBye to the BVI International Business Companies Act. Long live BVI Business Companies Act

On the 1 January of this year the British Virgin Islands Business Companies Act 2004 (the BVI BC Act) became the only Business Companies Act in the jurisdiction, after 2 years of transition period when the old BVI International Business Companies already on the register were permitted to operate under the International Business Companies Act or Companies Act. Now the International Business Companies (IBC) Act, which was enacted in 1984 and brought more than 700 thousand registered companies to the BVI, is completely replaced with the above-mentioned BVI BC Act.

The main changes implemented in the new legislation, which were noticed and most of all discussed by the community a year ago, concerned:
a) new bearer shares regime: The companies are allowed to issue bearer shares, but they must be kept by an Authorised or Recognised Custodian. The owner of the bearer shares must provide the following information to the custodian:
* full name of the beneficial owner of the shares,
* declaration that no other person has an interest in the shares, or full names of any persons having an interest in the shares.
b) the requirement to maintain the Register of Directors at the Registered Office of the IBC in BVI
c) new annual license fees reflecting different approach to companies with or without bearer shares kept fully or partially with BVI Custodian

These measures were enacted to make the British Virgin Islands legislation compliant with the international standards, including the 40 anti-money laundering recommendations of the Financial Action Task Force. The new legislation was also put in compliance with European Union (EU) Savings Tax Directive and EU Code of Conduct on Business Taxation.

However, the above list of changes in the new legislation concerning the BVI financial services is far from being complete. Many offshore specialists may confirm that this legislation is providing other positive changes for financial institutions and corporations, undertaking a wide range of structured, asset and project finance transactions in the British Virgin Islands.

As recently said Christopher Lloyd, a Senior Partner in Walkers’ BVI office: “The new regulations allow corporations much more flexibility in structuring their particular transactions in ways that are most advantageous to their business goals. At the same time, the rules incorporate sophisticated creditor protections.”

The new BVI BC Act also provides for statutory recognition of security over a BVI company's shares, which is usually the key component of complicated multiple-step financial transactions. This is one of the new legislation features that could be especially attractive and useful to financial institutions and corporations, that are looking for undertaking structured, asset, and project finance transactions.

BVI the Third in the List of Countries Licenced by the Department of Economic Development of Dubai

The British Virgin Islands are in the top list of countries whose foreign companies and their branches during last year received licences from the Department of Economic Development of Dubai (DED).

The Department of Economic Development was established in 2002 with the purpose to organise, regulate and boost trade and industry in the Emirate of Dubai. Last year it has issued 170 licences to branches of foreign firms; that is about 20% more than the number of licences issued last year.

The maximum number of licences – 24 - was issued to the British companies, German firms were granted 13 licences. British Virgin Islands with 11 licences are the third in the top list. They are followed by Indian and American companies, with 10 and 8 licences respectively. Lebanon is in the top of the list among the Arab countries, with 6 licences issued to businesses from the country, and it is followed by Kuwait (3).

The British Virgin Islands are also among the leaders in providing offshore services in the countries of Arabian world. Recently the well-known offshore law firm Conyers Dill & Pearman has established its Middle East office in Dubai International Financial Centre to provide multi-jurisdictional offshore legal services. Company's specialists in the Middle East office will consult on the matters of corporate and commercial law, hedge funds, private equity and venture capital funds, project financings and securities.

Department of Economic Development has formulated policies and procedures to encourage foreign investments and create the right environment for international investors to do business in Dubai. Mr Ali Ibrahim, Deputy Director General for Executive Affairs of Dubai Department of Economic Development, has commented, “ The Emirate has grown by an average of 12 per cent over the last five years with enterprises in Dubai standing to benefit from the availability of local capital, an evolved financial market and a pool of skilled workforce.”

British Virgin Islands companies invested more than 1 billion USD in China last month

Just in January 2007, BVI companies have invested 1.02 billion USD in China. The amount of investments allowed BVI to remain the second in the list of countries investing in rapidly growing economy of China. Actually, when the matter concerns Foreign Direct Investments, China is one of the leading countries by the stable growth of Inward FDI, while BVI is one of the leaders by the growth of Outward FDI. Inward FDI in China is growing already for the 7th consecutive year since 1999. Outward FDI from BVI is growing each year since 1990.

It is important to note that in 2006, China attracted the largest amount of foreign direct investments among all developing countries worldwide, and, according to United Nations Conference on Trade and Development (UNCTD) statistics, it has the high 4th total ranking – just behind USA, UK and France. It was achieved in a year when worldwide foreign direct investment totaled 1.2 trillion US dollars, the highest record since year 2000. When analyzing the outward Foreign Direct Investment flows, British Virgin Islands in the previous year was the 16th in the world, behind only such mega economies like USA, UK, Germany, France, China, Canada, Switzerland, Japan.

The leader of the top 10 countries that invested in China in January 2007 was Hong Kong,with 1.677 billion USD. The second investor is British Virgin Islands, with 1.019 billion USD of investments. Next regions in the top list are South Korea (396 million USD), Japan (323 million USD), Singapore (246 million USD) U.S. (236 million USD), Mauritius (191 million USD), Taiwan (136 million USD), Cayman islands (134 million USD), and Samoa (117 million USD). These ten countries accounted for 86.62% of China’s total actual foreign investment.

In January 2007, 3370 new enterprises were established in China, which were directly invested by foreign investors. This is a 10,71% increase if compared to January 2006. Foreign capital consumption in China reached 5.175 billion USD, - the 13.86% increase over January 2006.

BVI Securities and Investment Business Act could be enacted this year

There is wide range of regulated financial services available on the BVI: insurance, banking and trust business, mutual funds - each of them is regulated by particular Division of Financial Services Commission - Banking and Fiduciary Services; Corporate Services; Insolvency Services; Insurance; Investment Business. Also there is wide range of regulated entities - registered agents, insurance managers, agents, brokers, accountants, auditors, insolvency practitioners, mutual funds’ administrators and managers etc., all of them being controlled by the Financial Services Commission.

However there are still some niches of financial services that need to be taken under control in the BVI. One of them is forex exchange trading and broker dealing business. It is expected that Investment Business division could take under control these businesses, and currently the Securities and Investment Business Act is being drafted by the BVI authorities. It could be enacted by the third quarter of 2007.

Another financial service sector that should be regulated by the enactment of the Securities and Investment Business Act is hedge funds. The BVI regulator currently has almost no means of getting detailed information on hedge funds that are located in different countries, and has little means how to control them. Currently there are more than 2.5 thousand hedge funds registered in BVI. The jurisdiction has become especially popular for registering funds by US and European fund managers, because of the possibility for non-US and non-European investors to avoid paying taxes on their non-US and non-European investments in their domicile countries.

In accordance to the newly drafted legislative act, funds registered in the BVI could be required to conduct regular audits, have 2 directors and appoint “whistleblowers” to root out fraud. Ruth Chadwick, the investment business director at the Financial Services Commission, has said the legislation was being drafted to keep up with hedge funds investing in "exotic, difficult to value products". She added, “There is much more room for fraudulent-type activity in a professional fund because of this lack of clarity".

Funds would also be required to have two directors, independent of each other, to increase transparency and accountability. Currently there is no such requirement.

Some words about “whistleblower” as far as this doesn’t exist in the US. The act will probably include a clause creating an “authorized representative of a hedge fund in the BVI. This person would act as a whistleblower informing on the facts of breaking the terms of the fund's public placement memorandum, or on detecting any improper asset valuation or trading.

Currently this is quite a questionable idea as far as several lawyers in the BVI are warning that whistleblowing requirement, if not handled carefully, could have a chilling effect on the business in the territory.

Let’s see what will be included in the BVI Securities and Investment Business Act that we will hopefully get presented in 3rd quarter of this year. Notwithstanding the final version of the act, there is no doubt it is needed for the BVI to strengthen its positions in this niche of offshore financial services market, and to keep its popularity and high reputation.

The UK Parliament Member Promotes Autonomy for the BVI

A member of the UK Parliament Mark Simmonds during his familiarisation visit in the British Virgin Islands has informed about his plans to promote more autonomy for the British Virgin Islands in discussions with his Conservative Party colleagues in the UK.

On February 8, Mark Simmonds addressed members of the Tortola Rotary Club during their weekly luncheon meeting. In his speech he told about the objectives of his visit, one of which was to understand the intricacies of the territory to feed into his party's development of policies regarding the UK/BVI relationship. It is interesting to note that there is another prominent person with the same name Mark Simmonds - Senior Active member of the Rotary Club of Tortola.

Simmonds noted that the subject of the Overseas Territories is not raised in the Parliament as often as it should be, and added that he would like to see improved links between the UK and the Overseas Territories.

"One of the reasons I'm here is to understand more about the opportunities that exist in BVI, and also to go back to the United Kingdom Parliament with a much greater knowledge and be able to cement and improve the links between the UK and BVI and other Overseas Territories," Simmonds said.

The government of the British Virgin Islands is engaged in the talks on constitutional changes with the UK government, the third round of which took place in October. All the negotiations are based on the territory's request for a new constitution, and the points discussed are taken from the report of the British Virgin Islands Constitutional Commission.

The general points discussed include the duties of the Attorney General, the definition of belonger status and the rights of local population. Other issues touched upon in the talks are the creation of the sixth ministerial position, the need for a human rights chapter in the constitution, the functioning of the Executive Council and the reserve powers of the governor. The possibility of establishing a cabinet system of government is also under consideration. The one recommendation already implemented is establishing the position of director of public prosecutions.

Mark Simmonds, the opposition party's shadow minister for international development, has left the Territory on Saturday, after a weeklong visit. Another round of discussions on the constitutional changes will take place in London at the end of February, with Foreign Office Minister David Triesman.

New Managing Partner to Head Appleby's Expanding BVI Office

The Managing Partner of Appleby Hunter Bailhache Group has announced on February 9, 2007 the appointment of Alex Erskine as Office Managing Partner for the BVI office of Appleby Group.

Alex Erskine is to take up residency in the British Virgin Islands, and will succeed Huw Moses, who has occupied this post since the time of BVI office establishment in 2004. Mr. Erskine joined the Group in 1999, after his work as Deputy Legal and Compliance Director of the asset management division of UBS AG, and became a Partner of the firm on the 1st April 2006. He got his practice as the local Team Leader of the Funds and Structured Finance team within the Corporate Commercial practice group in Bermuda. He was educated in Ghana and England, studied law at the University College of Wales, and passed his professional exams in 1987. In 1996 he was invited to the Bar of England and Wales, and in 2006 he was invited to the Bermuda Bar.

Alex Erskine is to play a leading role in the Appleby firm's expansion of its office in the Caribbean territory, as a practitioner in the areas of corporate and commercial law and as a specialist in advising on structuring and operating investment vehicles, including mutual funds, hedge funds, unit trusts, partnerships, and close ended funds. Alex Erskin provides general advice on securities offerings, listings, investment banking, asset management issues, brokerage, custody and financial services.

Mr. Erskine has commented his appointment as the head of Appleby's BVI office by saying, “We are looking to expand the office, with the addition of further lawyers practising in the corporate commercial and litigation practice groups, building on the capability which is already well established in the BVI office".

The Group's managing Partner Peter Bubenzer has said, “Appleby has been established in BVI for over three years and Alex arrives at a period of growth for the British Virgin Islands office.”

Appleby Hunter Bailhache, which after the merger between the two offshore law firms has approximately 600 lawyers and staff in the major offshore jurisdictions of the British Virgin Islands, the Cayman Islands, Bermuda, Jersey and in the financial centres of Hong Kong and London, also has recently announced the launch of its new office in Mauritius.

Ogier to Complete Merger with WSmiths in the British Virgin Islands

It was announced that international offshore expert firm Ogier has completed its merger with WSmiths in the British Virgin Islands, thus giving the firm access to three further offshore jurisdictions. Both offshore financial services providers have announced about the merger in autumn 2006, and it became effective from February 1, 2007.

The newly merged firm continues to operate under the Ogier brand, providing legal and finduciary services in nine financial centres around the world, employing over 600 professional and support staff.

The merger extends Ogier's presence in the British Virgin Islands, Montevideo and Hong Kong, in addition to already existing branches in the Cayman Islands, Guernsey, Ireland, Jersey, London, and an associated trust company in New Zealand. Ogier's chairman Jonathan White remains the head of the combined firm, while WSmith's managing partner Duncan Smith becomes the head of the Hong Kong office.

Ogier's chairman Jonathan White, which remains the head of the combined firm, has commented, “Since announcing the merger with WSmiths back in October we have very much been working as one group, integrating services and procedures and briefing our clients on our expanded capability. This now been formalised by the legal merger of the two businesses”.

WSmith's managing partner Duncan Smith, who has become the head of the Hong Kong office, added, “We are delighted by how well the merger has gone, feedback from our clients has been very positive as they see the opportunities arising from working with a truly multi jurisdictional group.”

One of the key benefits of the merger is that Ogier has created an extended network of offices covering all time zones and key financial markets, including the rapidly growing markets of Asia and China. Now the group will offer clients advice on all legal aspects concerning BVI, Cayman Islands, Guernsey and Jersey, plus associated fiduciary services.

BVI IFC to Select Destinations for Road Shows and other Marketing Initiatives in 2007

Last year I mentioned the road shows to different parts of the world as one of the ways how the Territory would be popularized by the BVI International Finance Centre and BVI Financial Services Commission. We also discussed the details of BVI government road show to China that happened on February 20, 2006. This year, BVI IFC is choosing road show destinations as part of its ongoing programme to market financial services industry of the Territory.

Mr. Humphry Leue, Chief Operating Officer of the BVI IFC, noted that the Centre’s road show programme has been the trademark of marketing activities and it will continue this year. He informed the Department of Information and Public Relations on the Centre's plans to visit London, Dubai and Qatar, as well as on the possibility to return to Hong Kong and Singapore. He said, “Asia remains one of our largest and most important markets as people in the business would know”.

From my side I should add that inclusion of Dubai and Qatar in the roadshow confirms that the British Virgin Islands government is thouroughly planning to strengthen BVI positions in the rapidly developing financial services market of Arabic countries. The blog also contained information on an international offshore law firm Conyers Dill & Pearman which last summer started its operations from the Dubai International Financial Centre (DIFC), and on the BVI-based international investment firm 3iC Group launch of Dubai Growth Fund (Enmaa') Class A shares.

Mr. Leue added that IFC intends to make more focussed marketing efforts, namely to schedule smaller events to target specific groups of professionals in the financial services industry. He explained that the road show formula incorporates different products and attracts a large and diverse audience of professionals while the smaller events, planned in 2007, will target specific profesisonals in the financial services industry.

Other marketing initiatives of the Centre this year will include regular press briefings with local media, workshops and seminars with different BVI organisations, publications in the international press.

The BVI International Finance Centre was established in 2002, for supporting the financial services industry of the Territory, and currently it plays the key role in promoting and marketing the BVI as a leading financial centre. IFC is focusing merely on marketing and promotion, while regulatory functions of the local financial services industry are in the sole responsibility of the BVI Financial Services Commission.

3iC Group Licensed by the BVI FSC is Launching a US$100 million Shariah-compliant Public Fund

Another BVI Financial Services provider is making serious step towards Islamic countries by providing Shariah compliant investment services. As discussed previously Islamic countries are becoming more and more important market for offshore services providers, and British Virgin Islands have strong positions there.

On January 29, 2007 3iC Group has reported about the launch of Dubai Growth Fund (Enmaa') Class A shares. 3iC Group, the sponsor and manager of Enmaa', is an international investment firm licensed by the BVI Financial Services Commission with operations in the United States and Malaysia.

Enmaa' is a open-ended public shariah-compliant mutual fund with a total size of US$100,000,000, with the minimum investment amount per customer US$1000. It is the first among the three classes of shares, that is part of the AED 1 billion Dubai Growth Fund announced by the group last quarter. The fund primarily invests in high growth equities and pre-IPO opportunities in the Middle East and some international markets, following the Dow Jones Islamic Indexes criteria. Enmaa' is diversifying its investments across industries and markets, aiming to achieve 25% annual return on investment.

Emirates Islamic Bank PJSC is the receiving bank, which will also process subscriptions and redemptions for the Dubai Growth Fund. HSBC Bank Middle East is the custodian and administrator of the fund. The National Investor (TNI), which is leading asset manager in the UAE, will manage portfolio of Enmaa'.

Dr. Akram Yosri, managing partner of 3iC Group, has commented, “ This is a unique shariah-compliant fund as it is the first to involve that many world-class financial institutions and individuals under one flag to service all types of investors in the region”.

Mr. Faisal Aqil, General Manager of Retail Banking, Emirates Islamic Bank, has said, “We are pleased to extend our support to the launch of Enmaa which should help contribute to the regional economy and provide customers with an alternate Shariah compliant investment opportunity. As such, we are happy to be associated with this initiative."

Gaskin Appointed as Acting Deputy Financial Secretary

Last week the government announced that Wendell M. Gaskin has been appointed as acting deputy financial secretary at the Ministry of Finance. Mr. Gaskin followed Neil Smith, who was appointed Financial Secretary in 2006.

Wendell Gaskin served as director of the Internal Audit Unit, from 2000 until his appointment at the Ministry of Finance, and has 16 years of experience in audit, accounting and financial management.

Before that he was the financial controller of the BVI Ports Authority, from 1998 till 2000 and internal auditor at the Ministry of Finance, from 1995 till 1998. Mr. Gaskin was also the director of business affairs and chief fiscal officer for the USVI Legislature, from 1993 till 1995. He has been an instructor at H. Lavity Stoutt Community College since 1991.

Mr. Gaskin, as an acting deputy financial secretary, serves as the desk officer for departments under the Ministry of Finance. He also serves as government desk officer for the Social Security Board. His task is also to facilitate and organise financial arrangements with multilateral banking institutions, and to ensure that all policies and legislation pertaining to the Development Bank of the British Virgin Islands are formulated and operated within Government stated policies.

The UK MP to Make Familiarisation Visit to the British Virgin Islands

Mr. Mark Simmonds, the UK Parliament Member, will be on a familiarisation visit in the British Virgin Islands from February 4 until February 10, 2007. His visit is co-ordinated by the BVI International Affairs Secretariat (IAS), and is part of the Secretariat's policy of strengthening the British Virgin Islands relationship with “Friends of the BVI” group, which was formed of the Members of the UK Parliament by the initiative of Lorna Smith, in her being a Director of the BVI London Office. As an Interim Director of the BVI London office, she actively worked with BVI All-Party Parliamentary Group, registered in the UK in late 2004. Currently Mrs. Lorna Smith is the Executive Director of the BVI International Affairs Secretariat.

Mrs. Lorna Smith in her comments on the UK MP familiarisation visit has said, “When we build close relationships with parliamentarians it helps to raise the profile of the BVI and affords the Territory effective representation and influence in the United Kingdom and in the European Community generally... Meetings and tours have been planned that would expose Mr. Simmonds to the economic, social and political life of the BVI in some of his specific areas of interest”.

The Director of International Affairs also noted that Mr. Simmonds is a good advocate for the BVI and other UK Overseas Territories in the British Parliament, who recognises the United Kingdom's strong historic ties with the Caribbean. She said, “ In Parliament he impressed on the UK Government the need to pay attention to the effects that the European Union (EU) Savings Directive would have on the BVI economy and other Caribbean territories “.

Mr. Simmonds is the Shadow Minister for International Development with the Conservative Party. Last May similar familiarisation visit was made to the BVI by UK parliamentarians, who were also members of the BVI All Party Parliamentary Group.

During his visit, Mr. Simmonds will meet with Chief Minister Honourable Dr. D. Orlando Smith, and eith his Excellency the Governor David Pearey, with Deputy Chief Minister Honourable Ronnie W. Skelton, Speaker of the Legislative Council Honourable Inez Archibald, Leader of the Opposition Honourable Ralph T. O’Neal, and members of the BVI Constitutional Negotiation Team.

He will also meet with other officials from the Ministry of Health and Social Development, Ministry of Natural Resources and Labour, the Financial Services Commission, BVI International Finance Centre, the Ministry of Education and Culture. Mr. Simmonds will also visit the BVI High School in Road Town, and the Bregado Flax Educational Centre on Virgin Gorda.