Caribbean Haven Plans New Bank for China Bil­lions Flow

The Star (St. Lucia) - - BUSINESS - By Al­fred Liu

The global cam­paign against money laundering com­bined with the Panama Pa­pers made the Caribbean is­lands of sun, sand and off­shore bank­ing a near no-go zone for the world’s big­gest banks.

So the Bri­tish Vir­gin Is­lands has a so­lu­tion: a bank to ser­vice off­shore com­pa­nies, many of them from China, locked out of the global bank­ing sys­tem by HSBC Hold­ings Plc, Stan­dard Char­tered Plc and oth­ers. The new Bank of Asia (BVI) Ltd. is to be­gin op­er­at­ing on­line later this year.

“We have a cap­tive client mar­ket of all th­ese off­shore com­pa­nies that have had dif­fi­cul­ties open­ing bank ac­counts, not for their own fault but be­cause the legacy banks have stopped want­ing them,” said Carson Wen, 64, a former ac­qui­si­tions lawyer at Jones Day in Hong Kong and now founder and chair­man of the bank. He plans to tar­get the 200,000 out of 400,000-plus BVI com­pa­nies that can’t get bank ac­counts.

The new bank aims to be a land­ing place for the mas­sive flows of money leav­ing China and help res­tore a dwin­dling source of rev­enue for the BVI, which de­pends on in­cor­po­ra­tions for half its bud­get. Caribbean havens have long been used by Chinese com­pa­nies seek­ing tax-friendly ju­ris­dic­tions for over­seas ac­qui­si­tions, and by the wealthy look­ing for dis­creet places to park cash.

Yet mak­ing bank­ing trans­fers eas­ier for Chinese shell com­pa­nies comes with trans­parency is­sues. While there’s noth­ing il­le­gal about com­pa­nies that shield own­ers’ iden­ti­ties, they can be used for laundering funds, evad­ing taxes or hid­ing as­sets.

More than $900 billion is es­ti­mated to have left China last year fol­low­ing a record of nearly $1 tril­lion in 2015, ac­cord­ing to Bloomberg In­tel­li­gence. Chinese gov­ern­ment crack­downs stemmed flows ear­lier this year, but they started pick­ing up again in March.

The num­ber of new BVI-in­cor­po­rated com­pa­nies dropped by nearly a third last year, to about 32,000, af­ter fall­ing since 2012. Min­istries and de­part­ments were forced to re­duce spend­ing in 2017 and iden­tify fur­ther cuts, ac­cord­ing to gov­ern­ment bud­get es­ti­mates.

The idea for Bank of Asia was cooked up over din­ner in Hong Kong in 2014, when Wen met with vis­it­ing BVI Premier Or­lando Smith. Wen knew about off­shore com­pa­nies from his M&A work. Smith asked for his help, ac­cord­ing to Wen.

In a speech in Jan­uary, Smith ex­pressed hope that Bank of Asia “will mit­i­gate against the re­stric­tive bank­ing prac­tices that have im­pacted our in­cor­po­ra­tion num­bers,” cit­ing the ef­fect of the Panama Pa­pers’ rev­e­la­tions. Elise Dono­van, di­rec­tor of the gov­ern­ment’s BVI House Asia in Hong Kong, said in an emailed state­ment that the bank’s li­cense was ap­proved and that BVI of­fi­cials were de­lighted.

Two-fifths “of BVI com­pany in­cor­po­ra­tions are from Asia, and the bank’s open­ing means we can con­tinue to sup­port our en­deav­ors in the re­gion,” she said.

The money be­hind the Bank of Asia comes from a Bei­jing-based In­ter­net video pro­ducer and mo­bile-phone lot­tery com­pany, V1 Group Ltd., and Wen’s San­cus Fi­nan­cial Hold­ings, ac­cord­ing to Hong Kong ex­change fil­ings. Wen said he met V1’s chair­man when struc­tur­ing an ac­qui­si­tion more than a decade ago. The BVI gov­ern­ment had re­quired $100 mil­lion in paid-in cap­i­tal, which Wen said he ne­go­ti­ated to re­duce to $38 mil­lion be­cause Bank of Asia will be on­line-only.

Shares of V1 fell 12 per­cent in Hong Kong on Mon­day, com­pared with an al­most 1 per­cent gain of the benchmark Hang Seng In­dex. The fall, the big­gest in two years, brings the de­cline to 36 per­cent since the an­nounce­ment of V1’s in­vest­ment late last year.

Bank of Asia is the first to get a BVI li­cense in more than 20 years, Wen said. It joins six in­sti­tu­tions with gen­eral bank­ing li­censes, in­clud­ing Canada’s Bank of Nova Sco­tia, which mostly does BVI do­mes­tic bank­ing, ac­cord­ing to the Fi­nan­cial Ser­vices Com­mis­sion.

The bank’s launch has been de­layed by BVI reg­u­la­tory ap­proval of its dig­i­tal tech­nol­ogy, Wen said. Bank of Asia’s know-your-cus­tomer and anti-money-laundering sys­tems will re­quire a cus­tomer to pass at least four lay­ers of iden­tity and com­pli­ance checks, said Wen.

The BVI has signed a global ini­tia­tive oblig­ing it to ex­change tax and ac­count in­for­ma­tion with other coun­tries.

“You have seen laws be­ing passed or up­dated and pa­per com­mit­ments be­ing made,” said Max­i­m­il­ian Hey­wood, ad­vo­cacy co­or­di­na­tor at Trans­parency In­ter­na­tional in Berlin. “But what ac­tu­ally counts is how well they are im­ple­mented and whether the com­pa­nies are prop­erly su­per­vised and in­spected.”

China has been strictly en­forc­ing rules for cit­i­zens con­vert­ing the max­i­mum al­low­able $50,000 per person a year for mov­ing money out of the coun­try. Wen said any trans­ac­tion from China above $50,000 will at­tract a thor­ough review, in­clud­ing on-the-ground checks by Chinese law firms.

“If this bank opens one wrong bank ac­count for one wrong cus­tomer, not only will it de­stroy the bank, it will af­fect the rep­u­ta­tion of the BVI,” Wen said.

China and Hong Kong ac­counted for al­most a third of the off­shore com­pa­nies cre­ated by Mos­sack Fon­seca, the law firm at the cen­ter of the Panama Pa­pers leaks, in­clud­ing shell com­pa­nies of fam­ily mem­bers of pow­er­ful Chinese of­fi­cials, ac­cord­ing to a re­port by the In­ter­na­tional Con­sor­tium of In­ves­tiga­tive Jour­nal­ists last year. HSBC and its af­fil­i­ates were in­volved in set­ting up 15 per­cent of the 15,600 com­pa­nies, the re­port found.

HSBC has been boost­ing com­pli­ance af­ter a $1.9 billion fine linked to money laundering al­le­ga­tions in 2012. HSBC is “quite a dif­fi­cult bank now for peo­ple to open a bank ac­count,” Chief Ex­ec­u­tive Of­fi­cer Stu­art Gul­liver re­cently told share­hold­ers in Hong Kong. An HSBC spokes­woman re­it­er­ated that the bank al­lows off­shore ac­counts if clients have been thor­oughly vet­ted or at the re­quest of au­thor­i­ties. A spokes­woman for Stan­dard Char­tered de­clined to com­ment on off­shore ac­count poli­cies.

The new bank could help re­turn BVI regis­tra­tions to fiveyears-ago lev­els, said Jonathon Clifton, group man­ag­ing di­rec­tor of com­pany for­ma­tion ser­vices at Vis­tra Group in Hong Kong. Some Chinese firms have been in­cor­po­rat­ing in Hong Kong or Sin­ga­pore in­stead, even with­out the tax and other ad­van­tages of the BVI, Clifton said.

The BVI dropped from first to third in Vis­tra’s rank­ing of in­cor­po­ra­tion ju­ris­dic­tions, be­hind the U.K. and Hong Kong, in part be­cause of neg­a­tive pub­lic­ity for off­shore havens, ac­cord­ing to Clifton. Wen hopes to change that.

“We are helping China solve the prob­lem that Chinese com­pa­nies want their abil­ity to re­mit money and do off­shore bank­ing,” said Wen. “That’s our cap­tive mar­ket, mean­ing that peo­ple have nowhere else to go. They have to come to us.”

Carson Wen, Founder and Chair­man of the new Bank of Asia (BVI) Ltd.

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