Kenneth Rijock

Kenneth Rijock

Tuesday, September 23, 2014

SHOULD YOU STOP OPENING ACCOUNTS WHERE THE CLIENT IS USING A BVI CORPORATION ?




If you are not paying close attention to what is going on in Hong Kong, you may have missed this: two of the world's largest international banks have now make it extremely difficult for clients who are using companies incorporated in the British Virgin Islands (BVI) to open accounts with them. Many Chinese businessmen routinely employ BVI companies, for both legitimate tax avoidance, as well as illicit purposes, and two of the big banks have decided that the risk levels are too high for comfort. Banks in the US and EU should follow suit, in my humble opinion. I have never bought the argument that wealthy foreign clients need BVI companies for privacy; It's tax evasion, my friends, or worse.

If HSBC and Standard Chartered now choose not to open accounts for many BVI companies in Hong Kong, should you consider following suit ? I know, you are always being told by your clients' counsel that their BVI bearer shares are being held by a "Custodian," but have you ever looked on the official website to see exactly who the authorized custodians are ? Some of them are local entities, whose parents you might not be comfortable doing business with yourself, due to their "colorful" histories. I know that I personally have issues with a number of them. Have you ever taken the time to vet the Custodian of a BVI company ? I doubt it.

No prudent compliance officer should be comfortable asking a BVI-domiciled custodian to verify beneficial ownership of one of its clients; the economy of the jurisdiction prospers, in large part, due to its corporate formation industry, and relies upon repeat business, and word-of-mouth. The temptation to protect their clients, where your verification of information that they supply is virtually impossible, presents too great a risk for my liking. They may also unreasonably delay your inquiries, forcing some banks to make business decisions that they later come to regret.

Of course, if you are old school, like me, you find the utter concept of bearer shares a recipe for the facilitation of tax evasion, money laundering, terrorist financing, and various and sundry other white-collar crimes.  If your client must conceal beneficial ownership, he's a prime candidate, not for privacy, but for tax crimes, or worse. Also, given the obscene number of Chinese nationals who have acquired BVI companies over the years, many of whom are PEPs, there's really no secret about the probable true purpose of a number of of BVI companies; laundering criminal proceeds, from corruption.

HSBC and Standard Chartered are, for once, correct. Tell your new foreign client to come back with a corporation formed in a jurisdiction where you can actually ascertain beneficial ownership from the original stock certificate, the transfer ledger, and a supporting opinion of counsel.



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