The tropical paradise where the rich hide their secrets
The tiny Caribbean island of Nevis offers greater corporate privacy than anywhere else on Earth. Oliver Bullough reports
Tax havens hate attention. Places such as Jersey, Switzerland and the British Virgin Islands (BVI) made a handsome living from helping their clients break other countries’ laws for decades, without anyone really noticing. Then came the 2007-08 financial crisis, and the good times ended. Rich nations, angry about the loss to their budgets caused by tax dodging, put diplomatic pressure on the havens. Activists exposed them in the press. The release of vast troves of confidential information – Swissleaks, the Panama Papers, the Paradise Papers – cemented a public perception that offshore financial centres exist to help the powerful dodge their obligations to the rest of us, and governments have queued up to punish them. In May, when Britain’s Parliament voted to force transparency on its Caribbean islands, it was the latest blow to the offshore havens.
Yet, at the heart of this increasingly encouraging picture, there remain a few hold-outs – places that have stuck to the old habit of keeping the secrets of the powerful. Foremost among them is Nevis, a solitary volcano in the Caribbean with a population of 11,000, which has been implicated in some of the most sordid financial scams of modern times, from Britain’s biggest ever tax fraud to the fleecing of 620,000 vulnerable Americans in a $220m payday-loan scam. The story of Nevis reveals the difficulties the world faces in trying to put an end to tax evasion, fraud and kleptocracy.
While its rivals have lost business by opening up, Nevis has doubled down on secrecy. Not long ago, I spoke to a lawyer with extensive experience of the island, who asked not to be identified because he still needs to work with Nevisian officials. “The only good thing that Donald Trump could do, if he was ever so inclined,” he said, “is take a battleship and roll it up to Nevis, and literally train the guns and say: ‘Get rid of these bulls*** laws or I’ll blow you to kingdom come.’” In short, he said, “A bright light needs to be shone on this cockroach.”
Tax havens are often lumped together as if they all do the same job. In reality, they are distinctive and highly specialised predators in the financial shark tank. At the top of the food chain are places such as London, Switzerland and New York. These apex predators are surrounded by clouds of pilot fish that snap up the scraps: places such as Monaco, Jersey and the Cayman Islands. Jersey specialises in trusts, the BVI in incorporation, Liechtenstein in foundations. They also differ in their tolerance for criminality. Among the British territories, Gibraltar is dodgier than Guernsey, but cleaner than Anguilla. And they serve different regions: Mauritius for Africa and India; Cyprus for the former Soviet Union; the Bahamas for the US.
In the world of offshore, Nevis is a bottom feeder. It specialises in letting its clients create corporations with greater anonymity than almost anywhere else on earth. Last year, information on 70,000 Nevisian companies was leaked as part of the Paradise Papers, but that didn’t help us find out who owns them: ownership information is so secret there that even the island’s own corporate registry doesn’t know. In other words, there was nothing to leak.
“We feel very strongly that people are entitled to some semblance of financial privacy,” the Nevis premier, Mark Brantley, himself an offshore lawyer, told me when we met in his office in January. “Why shouldn’t you be entitled to a secret?” But the secrets don’t belong to residents of Nevis, of course: it would be hard to keep anything quiet for long on an island this size. The secrets belong to foreigners and are being kept from other foreigners, with Nevis getting paid to protect them.
We can see that these secrets exist thanks to the UK’S Land Registry, which lists all offshoreowned property in the country, along with the registered address of the company that owns it. Some of the secrets are mundane and could be entirely innocent. For instance, who is behind Shi Li Gao Trustees Ltd, the Nevis-incorporated company that owns 13 Brunswick Gardens, a handsome terrace a short walk from Kensington Palace? Some of them are intriguing: why would a Catholic primary school in Liverpool be held via this little Caribbean volcano? And some are decidedly weird: who on earth decided to structure their ownership of a room in a hotel on Llandudno’s North Parade through Caribbean Establishment LLC?
But all of these questions are impossible to answer because the secrets are sealed away in Nevis. If these properties were owned via a British company, the true owner of that company would have to be declared to Companies House. If they were owned via a BVI company, that information would be available to the British police. But a Nevisian company is a closed book, and some people really like it that way. While the number of companies created on the BVI each year has collapsed, the number created in Nevis has stayed stable. Since 2012, the island’s financial services
“‘We feel strongly that people are entitled to financial privacy,’ says the Nevis premier. ‘Why shouldn’t you be entitled to a secret?’”
sector has grown by more than a quarter. That is a pretty good argument for Brantley’s government not to open up its corporate registries to foreigners. Secrecy pays.
It is this provision of secrecy that makes Nevis such an obstacle to investigators. If police can’t prove who owns something, they can’t prove it was criminally acquired, say, or that tax was avoided on the profits from it. This is what crooks are looking for when they send their business offshore. About 300 British properties are owned in Nevis, and Brantley was unrepentant in defending the secrecy his island provides to those properties’ owners. “Why should a bureaucrat in London, or wherever, curious about his neighbour’s financial situation, pick up the phone and say, ‘You know what, I need to know if Mr John Smith, who’s my neighbour down the road, has an account or a company in Nevis.’ Why’s that his business?” Brantley asked.
It is an interesting philosophical question, but it is also a major problem. Countries recognise and respect each other’s laws and sovereignty, so Nevis corporations have as much international validity as anyone’s. So scoundrels can keep routing their business via Nevis, breaking the chain of traceable ownership, and hiding themselves and their crimes from discovery. That means crooked politicians, tax dodgers and fraudsters in Ukraine, Nigeria, Malaysia or the US get to mismanage their country’s finances for their own benefit.
From the sea, Nevis (pronounced “knee-vis”) resembles a green nipple. It is elegantly symmetrical, a tropical volcano ringed with golden beaches. By surface area, it is roughly the same size as Bristol, yet its peak is taller than any mountain in England, so the whole island slopes upwards, starting gently where the beach bars shelter among the palm trees, then steadily steepening, while the tree cover gets denser. If you hike up the peak, you are in true rainforest, and will find yourself scrutinised by monkeys in the overhanging greenery. It is a gorgeous place. The island was once a major centre for Britain’s sugar growers and slave traders, but it slipped into obscurity in the 18th century, when it was outcompeted by larger and more fertile rivals. In the 19th century, Britain added it to neighbouring St Kitts for administrative purposes, and it was as the junior half of the Federation of Saint Christopher and Nevis that it became independent in 1983.
In 1984, Bill Barnard, an American lawyer who had taken to vacationing on Nevis, asked the island’s premier if he would be interested in getting into the offshore game. Thanks to the almost complete autonomy Nevis enjoys under the federal constitution of St Kitts and Nevis, its first premier, Simeon Daniel, was free to do what he liked. US lawyers looked for inspiration to Wyoming, which had invented the limited liability company (LLC), a useful structure that allowed people to avoid identification and taxes at the same time. In simple terms, Nevis’s laws allow rich people to put ramparts around their property, to protect it from someone who may want to use the courts to take it away, whether that be a business partner, a spouse, an estranged child, or indeed anyone. All tax havens do this, but Nevis turned the ratchet many clicks further than its rivals.
To bring legal proceedings on Nevis, you have to file a $100,000 bond with the court as proof that your case isn’t frivolous. If you win, that is only the beginning of your quest for the assets. Nevis’s regulator holds no information on either the ownership of the company or its assets. Nevis’s LLCS can’t be wound up, meaning you won’t be able to confiscate assets they own, and you would have to seek redress elsewhere. If you want to challenge the legality of a property being put in a Nevisregistered trust – for example, if you thought the property actually belonged to you – you have to prove beyond reasonable doubt that the trust’s creation was fraudulent, and you would have to begin that legal challenge within a year of its creation. This is tricky, since Nevis law requires all information on the trust to be confidential, so you would be unlikely to know it even existed.
These ludicrously formidable defences are not really intended to be used, but instead – like the bright colouring of a poisonous tree frog – they exist to warn you off attacking in the first place. If they can persuade a plaintiff to settle out of court for less than is owed, then, for a rich person with vulnerable assets, they are well worth paying for. This is perhaps why a wealthy person might want to own a Kensington house (or, indeed, a Llandudno hotel room) via a Nevisian company: it prevents a divorced spouse, or any other creditor, from accessing that property without a tortuous legal process.
Britain’s biggest ever tax fraud – for which five men were jailed in November, after attempting to scam the Treasury out of £107m in tax – involved Nevis-registered companies, which were helping to hide the identity of the fraudsters. The family of a former president of Taiwan used a Nevis trust to help to hide their ownership of corruptly acquired US property. Ukraine’s deposed president, Viktor Yanukovych, used Nevis structures to hide his stolen assets, as did corrupt Russian officials who stole $230m from the budget in 2007. (When the accountant Sergei Magnitsky uncovered the scam, they arrested him and left him to die in jail.) British trader Navinder Sarao, who pleaded guilty to fraud for helping cause 2010’s flash crash, diverted some of his profits to a Nevis structure called the NAV Sarao Milking Markets Fund.
Charlestown, Nevis’s capital, is a handsome place, consisting of a long street of two-storey buildings parallel to the shore, many with first-floor balconies for catching the sea breeze. Its most striking feature, however, is the truly remarkable number of signs advertising lawyers and accountants. The Devon town of Ilfracombe, with its 11,000 inhabitants, has two lawyers’ offices, an insurance company and two sets of accountants, as well as a branch of Lloyds and a Nationwide. The 11,000 Nevisians, by contrast, host six domestic banks, one international bank, 18 insurance managers, seven international insurance entities, four money service businesses and 58 registered agents, many of them law firms. Nevis may be the most over-lawyered place on earth.
When you get off the ferry, almost the first house you see is the Henville Building, nominal home to the Azerbaijan first family’s business empire. If you then turn right at the T-junction, you see the Edith Solomon Building, which hosted an Idaho payday loan company that was shut down by the state government in 2012 for operating without a licence. Journalists digging around face formidable obstacles: according to a 1985 law, anyone on Nevis disclosing financial information without a court order is liable to a prison term of up to a year, as well as a fine of $10,000. Like any financial centre, Nevis must choose between turning away dirty money, or attracting as much business as it can. I did not find my visit to Nevis reassuring.
A longer version of this article first appeared in The Guardian. © Guardian News & Media Limited 2018
“Anyone on Nevis disclosing financial information without a court order faces a prison term of up to a year and a fine of $10,000”