Secrecy in The BVI: The Truth Revealed

Money Matters / Planning

Secrecy in The BVI: The Truth Revealed

If you think setting up a company in the British Virgin Islands will help you maintain confidentiality, think again – here’s what it actually protects (and doesn’t).

Written by Harneys on 8 June 2017

Wealthy individuals sometimes use offshore companies in the British Virgin Islands (BVI) to maintain confidentiality of their personal information. Despite this popular myth of secrecy in the BVI, the reality on the ground paints a different picture. So, what information does the BVI law protect and what is available to others? Here’s what BVI companies are obliged to document and how they can be accessed.

The truth is that comprehensive details of ownership and other information are available, especially to the victims of fraud and those seeking to trace assets. In addition, the record-keeping obligations applicable to BVI companies are broad and continually evolving to keep ahead of global regulatory initiatives.

Secrecy in The BVI: The Truth Revealed

Confidentiality in the BVI

There are no rules or obligations on banking secrecy or data protection in the BVI. Instead, rules on confidentiality fall back on English common law principles, which the BVI courts observe as a result of the fact that the BVI is an Overseas Territory of the UK. Under common law principles, confidentiality will be observed under three primary circumstances:

  • where there is an agreement between parties that information should be kept confidential;
  • where the relationship between the parties is one that the law imposes a duty of confidentiality with respect to; and
  • where the nature and circumstances of the person obtaining the information make it such that the law will require that they keep the information confidential.

Agreements between parties to treat information as confidential will generally be observed by the courts so long as the agreement is enforceable as a matter of the law of contract.

In general terms – with the exception of expressly agreed confidentiality agreements – information will only be deemed confidential if it has a ‘necessary quality of confidence’ about it. In broad terms, only information that is not in the public domain or readily accessible by the general public will fall into this category. But once it becomes public, it may no longer be considered a breach of confidentiality.

What records must BVI companies maintain?

The BVI Business Companies Act 2004 (BVIBCA) provides that the Memorandum and Articles of Association of a BVI company must be held publicly with the Registrar of Corporate Affairs. It also requires registers of directors to be held centrally with the registry (however, they may be elected not to be public).

Share registers may also be held with the registry, though these are commonly held solely with the company’s registered agent or company secretary. In addition, it is a mandatory requirement under anti-money laundering laws in the BVI for registered agents to maintain up-to-date KYC information on directors, shareholders, and beneficial owners of BVI companies.

If authorities request for information on beneficial owners of a BVI company, a registered agent will have no more than seven days to present such KYC documents. Failure to deliver the information can result in severe levies being imposed on such agents, including the revocation of their operating licences.

The truth is that comprehensive details of ownership and
other information are available, especially to the victims
of fraud and those seeking to trace assets.

Financial records to be kept

The nature of records and documents to be kept depends on the business undertaken by the company. A holding company with very few transactions must keep the underlying documentation of those transactions (invoices, contracts, and similar documents) – provided that the financial position of the company could promptly be determined from those documents.

On the other hand, a trading company that enters into many transactions would need to keep both the underlying documentation and accounting records – which would help determine the financial position of the company.

Although there is no prescribed form for those accounting records, they typically would include general ledger entries and a cash book as a minimum. What is clear is that there is no statutory or regulatory requirement to produce financial statements – although many companies choose to do so in the interests of their stakeholders.

Most notably, companies are required to retain records for at least five years. In practice – since the limitation period for most actions under contract law is six years – it has always made sense to retain records despite the previous absence of any requirement.

Where should documents be kept?

If records and underlying documents are kept at a place other than at the office of the company’s registered agent, the company must provide the registered agent with a written record of the physical address of the place or places at which the records and underlying documents are kept and must know the name of the person holding such records.

According to the BVIBCA, the records of the company may be kept either wholly or partly as electronic records complying with the requirements of the Electronic Transactions Act 2001.

The bottom line

BVI companies are a great way to achieve corporate flexibility in cross-border transactions with the backing of a court with a sterling reputation, but the perception that it’s a vehicle for maintaining confidentiality may not be wholly accurate. To find out more about offshore companies, get in touch with an offshore law firm such as Harneys.

THE FACTS ABOUT OFFSHORE COMPANIES

If you have offshore companies, or are thinking of setting on up, the landscape has changed considerably over the last few years.
Seek legal advice on how to proceed. Find the best lawyers to help you in our marketplace.

SIGN UP