For years there has been tension between the drive for more transparency on beneficial ownership data – in order to foil tax evaders, money launderers and various criminals – and to protect legitimate privacy in a dangerous world.

A ruling just over a year ago by a top European court against public registers of beneficial ownership has encouraged the British Virgin Islands to row back from taking such a step. 

“The safeguarding of these fundamental human rights necessitates the application of a ‘legitimate interest test’ to determine access for those parties whose request for beneficial ownership information is genuinely aimed at preventing or combating money laundering and terrorist financing,” Lorna Smith, Minister for Financial Services, Labour and Trade in the Caribbean jurisdiction, said in a statement late last week. 

The BVI, which is a British Overseas Territory, and other such jurisdictions, including the Crown Dependencies such as Jersey, the Isle of Man and Guernsey, had committed to setting up publicly accessible registers of beneficial ownership, commonly referred to as PARBOs, on the basis of European Union member states' implementation of the EU Fifth Anti-Money Laundering Directive.

“However, the decision late last year by the European Court of Justice changed the international context, affirming privacy and data protection as fundamental human rights which must be respected and appropriately weighed when providing such access,” a statement from the BVI government said.

“Given this, the [BVI] Government has determined that while the Virgin Islands do not fall within the ambit of the ECJ, in light of legal opinions received on the ECJ judgement and the constitutionality of creating a PARBO in the Virgin Islands, it considers that its approach must take into account the ECJ judgement to help minimize the risk of legal challenges on human rights grounds,” it said.

The move highlights how significant the ECJ ruling – which provoked criticism from those demanding more transparency in the fight against illicit finance and tax evasion – has been. For years, governments around the world have pushed for more openness about beneficial ownership, although privacy campaigners have also warned that without safeguards, important information could fall into the wrong hands, such as kidnappers.

In the US, the wealth management industry is bracing itself for the arrival of the Corporate Transparency Act, effective January 1. The legislation has been rolled out to tighten screws on money launderers, handlers of terrorism finance, and tax fraudsters. As geopolitical crises continue, such as in Ukraine and Israel, the need to tighten controls has been underscored. The Act applies to US-formed corporations and limited liability companies along with certain foreign-owned entities doing business in the States. Many sole practitioners, small businesses and middle-market businesses will also be required to file ownership reports. These reports require companies to provide information on any individual who, directly or indirectly, exercises substantial control over the company, owns or controls at least 25 per cent of its ownership interests. A key feature of the US act, however, is that data collected on beneficial ownership will not, as far as this publication understands, be placed into a public register, but will only be accessible by a number of US agencies. 

IFCs in competition
As countries such as Switzerland have ended bank secrecy (at least for cross-border clients) and other jurisdictions have tightened practices to get off various “blacklists” and “graylists” for compliance purposes, the beneficial ownership issue remains a delicate one for jurisdictions. An article in Bloomberg (December 11), citing data from M/HQ, a firm operating in the wealth sector, said that in the fast-growing jurisdiction of Abu Dhabi, for example, more than 5,000 special purpose vehicles exist in Abu Dhabi Global Market compared with just 46 in 2016. The article quoted an advisor saying that HNW individuals are moving wealth from the BVI, Caymans, Mauritius and Singapore to Abu Dhabi. 

Against such a background and the European court ruling, the BVI appears to have decided to press “pause” on the public registers button.

“The Virgin Islands, have for many years, played a proactive and significant role in the international arena, battling against the misuse of its financial sector for money laundering, terrorist financing and other illicit purposes,” the government statement said. 

“Transparency is key to this but so is respect for international law. The Minister has therefore confirmed that the Government will continue to undertake the technical work of designing and building systems that deliver on its commitment to implement a PARBO consistent with the standards to be identified in the implementation review of the EU’s Fifth Anti-Money Laundering Directive. But this will be done in ways that ensures its human rights obligations are met.”

“Our commitment to international standards is unwavering. We are not just participants; we are collaborators and leaders, sharing vital information and insights to aid global efforts in the fight against financial crime. An example of this is our exchange of information agreement with the UK which has been critical in freezing over $400 million in assets in accordance with relevant obligations under the Russian sanctions regime,” Smith said.

The BVI added that its government will continue to “engage the United Kingdom, and other partners on evolving regional, international and global standards and best practices in implementing PARBOs.”