Remarks Delivered by Premier and Minister of Finance
Dr. the Honourable D. Orlando Smith, OBE
2016 Business BVI Asia Annual Regional Conference
18 October 2016
“Standing at the Crossroads of Protectionism”
Good morning, ladies and gentlemen.
Before I begin my remarks I want to welcome you all here today. This is my fifth visit to Hong Kong. Between 2004 when I first visited and now our relationship has reached a new dimension. I would like to especially commend Russell Harrigan for bringing together the Hong Kong business community in this fashion to facilitate discussion of critical developments in the BVI of relevance to industry here. Each time I come I am reminded of the camaraderie that exists between many of you and those of us in the BVI and of the friends we have made here over the years.
That these relationships have translated into successful commercial alliances both here and in the BVI is a testament to the strength of our partnership. Over this time the BVI has become the international partner of choice for China, rooted in over 30 years of partnership and an unwavering commitment on the part of all of us who represent BVI-- our Government, our service providers; it is our expectation and intention to continue this collaboration into the future as we move forward together.
You see, it my firm belief that the future, our futures, the growth of our economies depends on continued globalisation of trade and opening of markets around the world. As I stand before you today, however, the world is changing and in many sectors and nations are seemingly shunning the concept of globalization. In fact, we seem to be at the crossroads of protectionism.
At the G20 Summit held last month in Hangzhou, the G20 leaders, representing 85 percent of global GDP, agreed to reject protectionism and promote global trade. The summit came on the heels of the historic move by Britain to exit the European Union.
It appeared then that the world’s leaders wanted to send a strong message that Brexit, or Britain retracting into itself, should not become a global trend for countries or be a precursor to major economies instituting protectionist policies.
Today, the world watches nervously for the outcome of next month’s U.S. elections. Both presidential candidates on some level have touted some form of protectionism, whether it is regarding the US-China trade deficit or the rolling back of the Trans-Pacific Partnership agreement.
Closer to home, we have seen an incessant attack on Territories like mine which provide the necessary structures, efficient processes and legal environment to effectively facilitate and enable global trade; and yet the refrain and clarion calls from many nations and organisations to remove this value that offshore centres provide to the global economy.
China President Xi Jinping said the leaders in Hangzhou agreed to improve the G20 trade and investment mechanism, endorse the G20 strategy for global trade growth and move toward inclusive and coordinated global value chains. US President Barack Obama said we need to ensure that the world economy is working for everybody.
Global economists accept that over the last quarter century China has lifted itself out of poverty and in turn Asia has become the world’s largest regional economic powerhouse.
From most accounts globalization and global trade have worked well for our world. Yet, we must ask, why in 2016 we are standing at the crossroads of protectionism. What will the future look like? Why are we trying to close the channels that have worked so well for us?
Let me explain some reasons why globalisation has worked for our world.
Decreasing poverty levels – the rise of the middle class:
Globalisation has been by far the greatest driver of human progress ever unleashed. Over the past decades, billions of human beings in every corner of the planet – including in our Caribbean region and in the BVI – have been lifted from grinding poverty and given opportunities that previous generations could only have dreamed of.
Thanks to this movement, the blessings of infrastructure, health care, education and a high quality of life are no longer the special privilege of those lucky few born in the developed and wealthy nations. Today, those basic needs are being met for more people in more places than at any time in history and it is all thanks to our interconnectedness.
Global Regulatory Standards – a flight to quality:
Over the past 20 years regulatory standards have improved and become globalised as standard setters such as the Organisation of Economic Cooperation and Development (OECD) and the Financial Action Task Force (FATF) have worked to make international financial centers operate at a level and transparent playing field. For any financial transaction there are a number of high regulatory hurdles to be met. For banks anti-money laundering and know your customer (KYC) regulations have become essential to doing business. Financial clients now have a level of confidence and comfort in their institutions that was unknown not that long ago. To do business in the global arena, you must be top quality and comply with the highest regulatory standards.
I would hasten to add that BVI does in fact comply with these global standards and has been doing so for many years.
Offshore Financial Centres – The Plumbing in the Global Economy
The fact that today capital that sits in New York, and London, and Tokyo, and Frankfurt, Dubai, Shanghai and Hong Kong and other financial centres around the globe can be pooled and put to use to build a factory in Uganda; or a bridge in Bolivia; or start a business in Indonesia – that has unleashed progress for people the world over. Jurisdictions like the BVI have been fundamental to that powerful surge. Without offshore jurisdictions, global capital would struggle to be put to good use outside of national borders. If capital from multiple nations is to come together for a common purpose, it must be able to incorporate. And that place of incorporation typically cannot be the nation of origin of any one of the investing parties – after all, many of the other investors from other countries may never sleep easy knowing that their money was being held in a country whose laws they may not know, whose politicians they may not trust, and whose regulators they cannot rely upon. Jurisdictions like the BVI have risen up over the past decades precisely because we solve that problem. We create a neutral space, underpinned by strong regulatory rules and a world class legal system where capital from all over the world can come together and be deployed for a common purpose.
Even in the case of those obvious and compelling reasons for globalization, there is a swelling tide towards protectionism.
So where is the world headed and where must we be?
We are heading towards new paradigms such as Brexit. The long-term consequences of Brexit are still to be played out, but clearly there has been a global impact on markets as the UK, one of the previously stabilising forces within those markets, seeks a new path outside the EU and its currency weakens.
The Brexit result and even the US Presidential election campaign demonstrate a clear change of attitude by voters and civil society in the West, especially when it comes to multinational companies paying tax. The attacks on so-called elites have led to urgent instructions being given to international standard setters to address such matters head on. This has had a clear knock on effect into other areas including the ability of high net worth individuals to manage their affairs legitimately, while at the same respecting privacy, wherever they are based.
The voices that we hear today louder than ever calling for nations to turn inward, to cut themselves off from the world, to shun those who are not like them – they are wrong and they stand on the wrong side of history.
The problems of our world will not be solved by people severing the ties that bind.
We will not uplift the poor by destroying the ability of investors to create wealth.
We must work together, not tear each other apart. We must unite in common cause to create a global economy and global community in which opportunity, prosperity and dignity are broadly shared and where corruption, terror and criminality are rooted out.
Only together will we create that better and more just world we all seek.
This era is a true test of our collective resolve.
We are also headed towards new global policies and global regulation.
As business struggles to adapt, it is also facing a slew of new regulation as international fiscal policy has come under focus as never before. The work that the OECD is undertaking in this area and in particular the Base Erosion and Profit Shifting (BEPS) programme reflect this.
We have been watching the development of this programme closely and in December will host a meeting of the OECD together with our colleagues from other countries in the Caribbean to assess more fully the potential impact. Our sense at this stage is that it will be minimal given the type of business that the BVI supports. Nevertheless, as always we will play our part as a fully active member of the international financial community and ensure that our voice and those of our clients is heard.
I will touch briefly on another key challenge which BVI has surmounted – the Panama Papers
From the beginning of the Panama Papers frenzy to its end, the BVI worked with the world’s top-tier media, to ensure that our side of the story was told: the BVI operates in a legal and transparent manner, in compliance with all relevant international regulations. This effort was difficult, to say the least; preconceptions, particularly among journalists, die hard. While this period did present some challenges for the BVI, it also poses broader questions about the way the global financial system operates. What I can tell you is that we are committed to actively supporting the development of a global regulatory framework which is fit for purpose. We are currently engaging with the OECD, which is the international standard setter as well as the European Commission.
Also, the very journalists themselves have noted that offshore centres were quote unquote perfectly legal.
Notwithstanding, the Panama papers served a useful purpose as an impetus towards greater transparency. This is an area where BVI has taken global leadership: the exchange of beneficial ownership information.
Beneficial Ownership and Transparency
Our proposal for a workable solution for global standards for beneficial ownership balances the need for both appropriate levels of privacy and transparency. It is focused on three key pillars – data security, appropriate legal constraints and the principle that any new standard must be applied globally to enable a level playing field.
As all of you know, a world-class global financial services jurisdiction can only succeed if its regulatory framework meets the requirements of international standard setters. We are committed to supporting the development of a global regulatory framework that is fit for purpose.
However, I want to reassure you that we respect the need that many BVI clients have for privacy. The debate on beneficial ownership and our part within that is a clear demonstration of our approach. We have noted the calls for public registers of beneficial ownership and we have said no to public registries.
Our belief is that our own systems are strong and work well. As you will all know to register a company in the BVI you must have a registered agent; that agent must be licensed by the regulatory authority, and must undertake due diligence so that they are aware who a beneficial owner of a company is. Whilst we contend that the systems that we currently have in place are effective, we recognize that new standards are emerging and as such we are improving our mechanisms for sharing information with competent authorities and for cooperating in mutual legal assistance matters.
At the same time we also firmly believe that it is equally important to give you and your clients the assurance that we will vigorously guard our systems to ensure the highest levels of security are maintained to safeguard the levels of privacy and confidentially that clients value in BVI structures.
It is our intention to continue to engage with influencers in this area. This will include HMG, the media, especially in the UK as well as wider political stakeholders and civil society.
BVI Advantages and Developments - Summarised
I’d like to summarize a number of other initiatives in progress that also set the BVI apart from its competitors, all of which positively affect individuals and companies in China and in the rest of Asia seeking to make use of BVI services and products.
Companies and VIRRGIN
BVI companies worldwide continue to command a large market share with almost 500,000 are active. The reasons for their popularity include security of assets, ease of operation, and maintenance and control facilitated by flexible corporate features.
The BVI continues to be a convenient staging post for outbound investment because, aside from its flexibility and legal certainty in using the product, it is also an acceptable investment vehicle because all parties are familiar and comfortable with it
The BVI has for many years had one of the most innovative and efficient systems of incorporating companies, VIRRGIN, and is a global leader in this regard. Incorporations can take place within one or two days, and VIRGGIN filing procedures have recently been streamlined even further.
VIRRGIN Lite was launched earlier this year to allow users located in Hong Kong to have external access to the online Registry system from outside the BVI. Among the services, certificates of good standing and certificates of incorporation can now be collected at our offices in Hong Kong.
Of course there are always growing pains and kinks to work out, as many of you experienced with the register of directors, but we continue to improve, reassess, upgrade and make adjustments whenever necessary.
BVI Forward Campaign
A year ago we launched the BVI Forward campaign, a far-reaching set of initiatives aimed at further strengthening the financial services sector and building greater awareness of the benefits derived from it.
The BVI Forward introduces new services to benefit clients. This initiative evolved from an in-depth study of the Territory’s financial services sector, which was commissioned by the Government in 2014 and facilitated by global consultancy firm, McKinsey & Company.
The study involved detailed interaction with the public and private sector in the BVI and internationally, and included benchmarking from other leading offshore financial centres.
One of our key initiatives is the programme is to attract more value added services into BVI. We wish to pursue areas such as small corporate headquarters and family offices, ecommerce, green tech, maritime operations etc. Ultimately, we wish BVI to be a more substance based economy.
To support this, we have reviewed our immigration and labour laws to create greater efficiency in processes, as well as facilitate streamlined entry of business visitors and qualified investors. We expect to implement changes in 2017.
Similarly, my government has recently approved the development of an investment policy to encourage greater investment in the Territory.
We are moving to best practice in the development and promotion of financial services with the creation of BVI Finance Limited as an independent private sector organization.
The BVI has also introduced a new Limited Partnership Bill that provides customised legislation for the formation and operation of limited partnerships.
The bill, which will become law in early 2017, will introduce a modern, up to date and business friendly approach to limited partnerships.
BVI Evolving as a Arbitration Jurisdiction
The BVI is constantly evolving to remain best in class in the provision of global financial services. As many of you know, the ability of the BVI to support in the area of legal disputes was significantly enhanced in 2009 when the Commercial Division of the Eastern Caribbean Supreme Court was established in the BVI. I commit to you that the BVI will continue to strengthen our Commercial Court system to ensure that it deals with matters expeditiously, economically, proportionately and in a timely fashion. I am pleased to announce that to further augment this offer a new International Arbitration Centre is soon to become fully operational. This has been established to provide essential dispute resolution services on behalf of parties that choose to settle their disputes through arbitration in the BVI.
De-Derisking and Banking
As conversations within the international standard setting bodies develop we will keep you informed of our position. However, I recognise that there is one issue closer to home, which is that of correspondent banking and the difficulty of opening and maintaining accounts for BVI companies. I should first state that this is not only impacting the BVI but the whole of the Caribbean and there are some signs of contagion even beyond. As a result, the matter has been taken up by Caribbean leaders at the regional body of the Caribbean Community, CARICOM.
A step forward was recently taken by the US Office of the Comptroller of the Currency, who has now issued guidance to try to correct this tendency which stresses that de-risking should be undertaken on a case by case basis and not any wider. The IMF also has issued statements recognizing that the tendency could create a major destabilizing risk for the global financial system.
I also note, in another hopeful sign, that the Hong Kong Monetary Authority issued a circular last month acknowledging the difficulties small and middle size businesses have had in opening bank accounts in the SAR, and pledging that it will be seeking to make the process easier while maintaining high regulatory standards.
It is hoped that these movements will have a positive impact. However, in a fast moving business environment neither the BVI nor its clients can afford to wait. I am therefore delighted to support the launch of the new Bank of Asia in the BVI. The bank will be launched early in the New Year with the most advanced cutting-edge technology and will be dedicated to filling a substantial market void to the benefit of the BVI and incorporated business companies.
I believe the Bank of Asia will play a key role in the development of a new global financial infrastructure, in parallel with China’s building of roads, railways and logistical support. You will be hearing more about Bank of Asia later at this conference.
China is already creating offshore trading hubs for RMB as initial steps towards internationalising its currency.
In Latin America and the Caribbean, there is a lot of Chinese business activity. On the logistic side there is a new canal being constructed in Central America, deep water and port development in Trinidad and Tobago and Brazil, and airport construction in Antigua. Commerce goes hand in hand with finance, so the need for banking infrastructure will undoubtedly grow in importance.
In tandem with the growth of the People’s Republic of China (PRC), there is a long-term retrenchment by Western financial institutions. They are risk adverse, have weak balance sheets, and are hampered by cumbersome regulations. Many see this decline accelerating in coming years.
This is where the Bank of Asia can step in and play and important role. We in the BVI are being proactive, moving out into the world to help reshape business and finance, rather than sitting on our island and letting business come to us. This is why we established an office here in Hong Kong – to allow us to be more responsive and deal with issues in real time and why we continue to engage with you at every turn.
As the BVI and its business offer have evolved we have, in turn, observed China’s own plans and in particular the development of the long-term Go Global strategy, including the One Belt, One Road initiative and the plans that run alongside it. While the programme is of significant scale we believe that there are many ways in which the BVI can be a partner.
For example, in 2013 alone BVI companies enabled the investment of $82.5 billion into emerging market economies. I believe that speaks to the scale of expertise and the skills we have in the BVI who can assist you and it is my very firm hope that through this visit and the conversations that flow from it we can demonstrate how we can best support you in the future.
The BVI remains the gold standard in easy to use, easy to maintain International Banking Companies and is at the forefront of regulatory compliance with the Organisation of Economic Cooperation and Development (OECD), Financial Action Task Force (FATF), and other global standard setters. Just as the BVI has been instrumental in Foreign Direct Investment (FDI) flows into China, assisting that country become the most prominent market globally, the next decade or two will see the BVI work with the Republic of China as FDI flows reverse. China has already overtaken the US as the largest source of global Mergers and Acquisitions.
This evening I will be traveling to Beijing – and later we will be going to the other Chinese cities of Tianjin, where we will be signing a Memorandum of Understanding, then to Hangzhou and finally to Shanghai. Our message on this mission is simple and clear.
The BVI/China partnership has been one of success over the last quarter century. And today we are ready to take that success to the next level as a partner of the Go Global strategy.
Finally, I note that one of the five major goals of the One Belt, One Road policy is the creation and enhancing of people-to-people bonds. I believe that in our relationship with you we clearly demonstrate the benefits that such bonds can bring to the enduring friendship between our two countries and I hope that through events such as today those bonds will only deepen.
BVI continues to be one of the world’s leading financial centres, and will continue to be so for the foreseeable future. In partnership with industry, we remain focused on what matters most – creating value for all industry stakeholders including businesses, investors, service providers and the people of the BVI.
That has been our recipe for success for decades and nothing that has occurred will change that. We have seen controversy come and go in the past. We will see it again. And always, we endure by remaining fixed on the fundamentals. That is how we serve not only those we represent, but the many who benefit from our industry throughout the world.
I leave you with the hope that as we stand today at the crossroads of protectionism, we will all heed the call of the G20 leaders, we follow China’s leadership in Going Global, embracing globalization and the potentials it offers for more progress and a world economy that truly works for everyone. BVI remains poised to help you.
Thank you for your time, and I look forward to today’s conference.