A court in January 2024 Miami will begin conducting an unusual investigation: it Andrew FahyFormer President-elect British Virgin Islands (BVI) He was arrested in 2022 America. U.S. officials say he promised an informant working undercover for them to allow illegal drugs through U.S. ports. AmericaIn return for commission. FahyA person under house arrest Miami, pleaded not guilty. The gray concrete skeleton of the house he was building is still incomplete, on a hill outside. Road CityCapital of the BVI.
The smell of rotten government is at last B.V.I. For four decades, this shining place Caribbean It has made its living by selling foreign companies to front companies that exist on paper, with no real employees or offices. In a few years, this business has financed more than two-thirds of the government budget and made a territory of 33,000 people famous in the business world. “The financial sector has served us well“, it says Natalia WheatleyThis happened Fahy As Prime Minister.
But recently, global efforts to crack down on money launderers and tax evaders have affected the financial sector. B.V.I; The total number of companies registered has fallen by more than a fifth since 2011. CaribbeanVoyage into rough seas.
Almost all countries Caribbean They have, at one time or another, attempted to develop some kind of maritime sector. The Bahamas They were the first to get it right; Today they get 10 to 15% GDP Financial services, especially private banking. But places where work depends Coastal There are Cayman IslandsThe B.V.I And this Bermuda (Actually, in North Atlantic) All three are autonomous territories Britain, dependent on her for defense and diplomacy, but in all other respects responsible for her own affairs. The BVIs are particularly dependent. Maritime financial and business services account for one-third of GDP. They employ one-fifth of the active population.
Maritime centers offer a maritime buffet of efficient and systematic services. But among the laity, however, there is way in this Caribbean islands are sometimes used by con artists and kleptocrats Which often sparks debate. The Tax Justice Network (TJN), an NGO based Britaincounts as frauds involving financial centers of Caribbean And this Bermuda They account for 20% of the $472 billion that governments around the world lose each year to cross-border tax evasion and avoidance schemes. A large share of global losses comes from business conducted for foreigners United Kingdom land area, the Netherlands And Ireland. But for such small places, this is a huge amount.
A little rum
This robbery is now threatened by a new wave of international regulations. It contains Caribbean, two initiatives in particular are currently in focus. The first refers to business transparency. In 2016, Britain began to publish the identity of all persons holding a company in its continental territory, in a public database; It was the first major country to do so. Now It wants its overseas territories to follow suit by the end of the year. The idea is that allowing journalists and NGOs access to records currently only available to the police and other relevant authorities will make it easier to detect tax fraud and irregularities. But tax havens are dragging their feet, presumably because they fear the presence of a public registry will cut into their sales.
A second push is the global agreement on corporate tax reached by 130 countries by 2021. Multinational corporations use loopholes to declare their profits in tax havens where they charge little or no tax., rather than where your sales actually take place. In the future, companies that do this will have to pay more, wherever they do business; At least, that’s the theory. Another goal is to ensure that they all pay at least 15% tax on their profits, wherever they register in the world.
The extent to which Caribbean centers benefit from the corporate “profit shifting” pursued by this agreement varies widely. A universal minimum tax may reduce the incentive for big companies to set up their tents in palm-fringed areas, but it won’t eliminate them entirely. The Bahamas And this Bermuda They talk about raising taxes on big foreign companies: if multinationals are forced to pay more, they better try to pocket the money. The Cayman Islands And this B.V.I They are still deciding how to respond. There are many possibilities for that America Abandon the contract, which will greatly reduce its effect.
All this alienated him B.V.I His glorious days. He notes that in the 1950s, the colony made half of its income by selling stamps to stamp dealers. Oliver Bullough In his bookButler to the world”. Everything changed at the end of the 1970s, when North American companies started establishing companies on the island to take advantage of the favorable tax regime it enjoyed at the time. B.V.I Under a tax treaty between Britain And America. In a few years, the B.V.I They sold businesses to people everywhere. Hong Kongers were particularly excited; Protecting their assets using tax havens is a way to protect themselves from the risks of an imminent return to their home island. China. In the 1990s, the financial sector B.V.I It grew by about 50% per annum. Their bustling, nondescript buildings Road City They gave their address to about 480,000 paying companies. That means more than 15 for every citizen.
Since then, The number of new companies created each year has decreased drastically, from nearly 80,000 in 2007 to 20,000 in 2022. The total number of companies registered in the region has declined at a somewhat slower pace (whereas before customers were buying and disposing of BVI companies at a certain rate, now they are buying and holding less. For longer periods of time). But, despite everything, this number is also decreasing. Recently, the government has managed the revenue this industry generates for the region, in part by raising rates. But there may be a limit to this. Some customers may B.V.I Go for cheaper constitutional centers that are better protected from foreign pressures Delaware.
The economy of Cayman Islands It is more vulnerable to regulatory changes than its Caribbean rivals because its financial sector is much less diverse. The Crocodile They are a great shelter for hedge funds; Bermuda, Center for Insurers. He is a co-ordinator of stand-alone institutions B.V.I In comparison, reproduction is much easier. Compared to its neighbors, the region has done a poor job of gaining experience in other types of financial and corporate services, which would provide greater security as its ability to offer tax breaks and secrecy erodes. Diversification efforts can be fraught with risk. Bahamas Approached Sophisticated Finance, only to discover it was hosting Sam Bankman-RoastA cryptocurrency speculator was jailed on August 8 AmericaBefore his trial for fraud (he pleaded not guilty in January).
A major government report published in 2014 acknowledged the problem. He noted that the bvi needs to diversify the types of financial services it offers and strengthen other pillars of the economy such as tourism. But progress is slow. The devastating effects of the hurricane contributed little to this. IrmaIt hit the island in 2017.
That disaster 70% of buildings were destroyed or damaged and delayed essential efforts to improve their infrastructure. Looking away from the glowing ports Road City, the territory seems worse than his income status suggests. In its litter, enclosed in a platform dug into the steep side of a hill, a fire burns. Their power plant breaks down from time to time. Like the rest CaribbeanYoung people are tempted to join drug gangs America. In the suburbs Road City There is a car with three bullet holes in the windshield.
But dysfunctional politics has hurt it too. Before being arrested FahyBritish Governor B.V.I set up a commission to look for evidence of corruption or “Total dishonesty“In government; last year it concluded that politicians were spending public money “without the application of any objective criteria, without any justification and without fear of any retribution”. The British government refused to suspend the territory’s parliament, as advised by the commission, but would do so if the islanders failed to implement the reforms recommended in its report. Says it can.
After years of riots, people insist. The territory is finally progressing at a good pace. In his office Road City, Lorna SmithA deputy head of government, who took office this year, says his rookie Ministry of Financial Services This will protect BVI’s enterprise-building business and encourage the development of value-added services around it. He talks passionately about the opportunities.Blue Fund”, under which islands can secure money from international investors by protecting their waters and reefs. The following year, he adds, B.V.I Host a major fintech conference on a cruise ship. Wheatley It says tourism is recovering from the pandemic crisis. For the first time in years, visitors can reach the islands directly by plane Miami.
To take advantage of these opportunities, the bureaucracy that hinders the operation of many local entrepreneurs must be cut. The immigration system should be liberalized to make it easier for smart foreigners to call the country home (so far, islanders have been reluctant to grant admission and long-term residency to large numbers of foreigners to start new businesses). In particular, it will require major efforts to fix poor schools, which were easily neglected during the boom years. Without these solid foundations, B.V.I They run the risk of being left behind.
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