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The Peak (Hong Kong) - - Feature -

his sum­mer, the British Vir­gin Is­lands en­dured two Cat­e­gory Five hur­ri­canes (ty­phoons), which smashed homes and flooded streets. While the phys­i­cal dev­as­ta­tion is bad enough, it is also worth won­der­ing what other dev­as­ta­tion lies in wait, with the im­ple­men­ta­tion of in­for­ma­tion shar­ing mech­a­nisms such as FATCA and the Com­mon Re­port­ing Stan­dard (CRS), which is sup­posed to au­to­mat­i­cally trig­ger ex­changes of tax-re­lated in­for­ma­tion be­tween ju­ris­dic­tions.

In this en­vi­ron­ment, can ju­ris­dic­tions like the BVI con­tinue to per­form their old func­tions?

The an­swer seems to be yes, but in a re­duced form, ac­cord­ing to Jonathan Clifton, group man­ag­ing di­rec­tor, Com­pany For­ma­tion at Vis­tra, a trust, fidu­ciary, fund and cor­po­rate ser­vices firm. “The chal­lenge of these ju­ris­dic­tions is how do you bal­ance trans­parency and pri­vacy,” Clifton says. In fact, Clifton ar­gues that the BVIS in par­tic­u­lar were early adopters of CRS, as they had al­ready seen which way the wind was blow­ing.

Though he ad­mits that the over­all num­ber of BVI com­pany reg­is­tra­tions is down, Clifton also reck­ons that we are at the begin­ning of a much “cleaner” in­dus­try. In his view, the rea­sons that in­di­vid­u­als or com­pa­nies will wish to have a BVI reg­is­tered com­pany (or a com­pany with a sim­i­lar ju­ris­dic­tion) will be­come more fo­cused on cor­po­rate needs rather than a re­duc­tion in tax bill. For ex­am­ple, he cites the role that the BVI can play by let­ting Chi­nese and Amer­i­can busi­ness part­ners reg­is­ter in the BVI for the sake of dis­pute set­tle­ment mech­a­nisms that give con­fi­dence to both sides of the JV.

In Hong Kong in par­tic­u­lar, which has been a fa­vored source of busi­ness for the BVI, there is also a con­sid­er­able le­gal struc­ture built up that fa­vors con­tin­ued use of the BVI for com­pany reg­is­tra­tion.

“There will be less quan­tity, but more qual­ity (of busi­ness) over­all. The size of busi­ness may be re­duced, but there’s a more cor­po­rate style en­vi­ron­ment,” Clifton says, point­ing to the fact that the BVI now has a reg­istry of com­pa­nies that in­cludes di­rec­tors and share­hold­ers, and that this in­for­ma­tion is made avail­able

Iron­i­cally, it is the peo­ple who op­pose ju­ris­dic­tions such as BVI who feel the fu­ture is bright for tax havens. Ray­mond Baker, founder of Global Fi­nan­cial In­tegrity, a non profit or­ga­ni­za­tion that re­searches tax avoid­ance, par­tic­u­larly from emerg­ing mar­kets, reck­ons that the re­cent mo­men­tum to­wards global fi­nan­cial trans­parency is slow­ing, par­tic­u­larly in the face of the twin re­sults of Brexit and the elec­tion of Don­ald Trump as US pres­i­dent.

“Post GFC (Global Fi­nan­cial Cri­sis), there was pres­sure to do some­thing, but now the pres­sure to re­verse the rules is sig­nif­i­cant.” With Trump, Baker says, the “agenda for greater trans­parency is on hold.”

With Brexit ne­go­ti­a­tions, Baker wor­ries that the UK gov­ern­ment, un­der pres­sure to keep flows of money go­ing through Lon­don, may weaken its re­solve to un­cover fi­nan­cial se­crecy. A num­ber of well-known cor­po­rate reg­istry ju­ris­dic­tions are ac­tu­ally over­seas ter­ri­to­ries of the United King­dom, such as the BVI and Cay­man Is­lands, or are crown de­pen­den­cies, such as Jer­sey. The Theresa May gov­ern­ment, in­jured by a poor elec­toral per­for­mance, has re­port­edly lost in­ter­est in clamp­ing down on tax havens, with Chan­cel­lor of the Ex­che­quer Philip Ham­mond at one point sug­gest­ing that the UK it­self could be­come a tax haven, should it not get a Brexit deal it’s happy with.

With re­gard to the cur­rent US ad­min­is­tra­tion, Baker con­cedes that he doesn’t re­ally know where Trump’s poli­cies are go­ing.

The United States, which cam­paigned so ag­gres­sively for other coun­tries to share tax in­for­ma­tion, par­tic­u­larly with re­gard to Swiss banks, has it­self be­come a fo­cus of many cam­paign­ers’ ire. Thanks to the way in which in­di­vid­ual states can shape their own laws about fi­nan­cial dis­clo­sure, some have

opted to be­come tax havens.

Delaware is the most ob­vi­ous ex­am­ple (the Uni­ver­sity of Delaware of­fers a bach­e­lor’s de­gree in wealth man­age­ment). Dur­ing the Obama pres­i­dency, leg­is­la­tion was in­tro­duced to force fi­nan­cial dis­clo­sure, par­tic­u­larly with re­gard to ben­e­fi­cial own­er­ship, across the coun­try. At one point, Delaware state rep­re­sen­ta­tives pulled out all the stops in try­ing to put an end to the leg­is­la­tion. They suc­ceeded, even af­ter a duo of for­mer FBI agents went to state of­fi­cials to point out the need for iden­ti­fy­ing ben­e­fi­cial own­ers to fight crime. It didn’t work – Delaware’s state bud­get is now largely de­pen­dent on fees earned from com­pany reg­is­tra­tions.

This sit­u­a­tion is re­peated in nu­mer­ous such ju­ris­dic­tions. The BVI, whose in­fra­struc­ture is now badly dam­aged, has faced calls to have re­con­struc­tion aid from the UK con­di­tioned on open­ing up its books even more. And yet, half of BVI gov­ern­ment rev­enue comes just from in­cor­po­ra­tions.

Mean­while, the amount of money look­ing for a se­cure place to domi­cile is not go­ing away. Finews.asia re­ports that, ac­cord­ing to the Bank of In­ter­na­tional Set­tle­ments, off­shore wealth held by In­dian high net worth in­di­vid­u­als nearly dou­bled from 2007 to 2015, but much of that wealth is now held not in Swiss bank ac­counts, which have fallen from fa­vor, but is now in Asian cen­tres such as Hong Kong, Sin­ga­pore and Bahrain.

So while the pres­sure to open up ac­counts may be eas­ing, or the united front by gov­ern­ments in the past few years may be crack­ing, the pres­sure to keep of­fer­ing dis­crete wealth ser­vices in se­lect ju­ris­dic­tions is not go­ing away.

“One year ago, I would have said that they (tax havens) were on the way out. Now, I’m not so sure,” says Baker.

RE­CENT NEWS Bank of China (Hong Kong) Lim­ited (“BOCHK”) is one of the largest listed com­pa­nies and com­mer­cial bank­ing groups in Hong Kong with ‘A+' long-term is­suer credit rat­ings af­firmed by Stan­dard & Poor's. We have strong mar­ket po­si­tions in all ma­jor busi­nesses. While BOCHK is one of the three note-is­su­ing banks and the sole clear­ing bank for ren­minbi busi­ness in Hong Kong, we of­fer a com­pre­hen­sive range of fi­nan­cial, in­vest­ment and wealth man­age­ment ser­vices to per­sonal, cor­po­rate as well as in­sti­tu­tional cus­tomers. With our strong RMB fran­chise, we are the pri­mary choice for clients in ren­minbi busi­ness. In col­lab­o­ra­tion with our par­ent bank, Bank of China Lim­ited (“BOC”) (stock code “3988”), we pro­vide a full range of high qual­ity cross-bor­der ser­vices to cross-bor­der cus­tomers, multi­na­tion­als, main­land en­ter­prises, cen­tral banks and su­per-sov­er­eign or­gan­i­sa­tions. Since 2016, BOCHK has started ac­quir­ing branches in the South­east Asia re­gion from our par­ent bank in or­der to gain a foothold as a re­gional bank.

HIS­TORY BOCHK Pri­vate Bank­ing Ser­vice was launched in 2012 to pro­vide high-net­worth in­di­vid­u­als and their fam­i­lies with pri­vate and per­son­alised in­te­grated wealth man­age­ment ser­vices. Backed by our Cor­po­rate Bank­ing and Per­sonal Bank­ing pil­lars, BOCHK Pri­vate Bank­ing forms an in­te­grated plat­form with our “1+1+1” ser­vice model to pro­vide a wide and holis­tic so­lu­tion for the per­sonal, fam­ily and busi­ness needs of our clients. By lever­ag­ing our unique edge in the RMB busi­ness and strong sup­port from our par­ent bank (Bank of China Lim­ited), BOCHK also de­vel­ops cross-bor­der RMB prod­ucts and ser­vices to meet the in­creas­ingly so­phis­ti­cated needs of cus­tomers. In ad­di­tion, BOCHK has a com­pre­hen­sive net­work and pres­ence in South­east Asia, al­low­ing clients to take full ad­van­tage of the Belt and Road Ini­tia­tive and In­creas­ing BOCHK'S reach and ex­per­tise across the re­gion.

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