COLUMN | British Virgin Islands’ Premier and Ports Director in drug arrest shock [Offshore Accounts]

Two weeks ago (here), we ran a piece on the sham of flags of convenience, and how the International Maritime Organisation (IMO) has allowed secrecy and money laundering to flourish because it has failed to compel flag states to investigate and make public the ultimate beneficial owners of vessels under their ship registries. We also pressed for the ultimate beneficial owners of corporate shell companies owning vessels to also be included in the public domain.

We specifically named the British Virgin Islands (BVI) as one of the worst offenders. The BVI is a no-tax territory of only 32,000 people (including Sir Richard Branson, on his lovely private island of Necker) and boasts of 368,893 active companies as of December 31, 2021 (here), more than ten companies per resident. Most of these brass plate entities have no meaningful connection to the territory, or any actual business activities there.

Some of them own ships and rigs.

Busted!

Now, the premier of the BVI, Andrew Fahie, and the managing director of the British overseas territory’s Ports Authority, Oleanvine Maynard, and her son, Kadeem Maynard, have been arrested in Miami by the American government’s Drug Enforcement Agency (DEA) (Reuters coverage is here.). The trio were caught on tape offering to allow Mexican drug-smugglers use the BVI’s ports to trans-ship and store cocaine bound for Puerto Rico in return for million of dollars.

Yes, the leader of the BVI is in prison awaiting trial for collusion in narcotics trafficking – a less than ideal situation for the man responsible for running one of the world’s largest offshore financial centres, the self-proclaimed “yachting capital of the world,” and a place where many shipowners, rig owners and oilfield services have registered businesses.

The key to any country is its reputation

For most of 2021, Mr Fahie had been facing a grinding commission begun by the former British governor into allegations of malfeasance in his administration, an inquiry headed by a former British judge, Sir Gary Hickinbottom. BVI is one of fourteen remaining British Overseas Territories, like Gibraltar, Bermuda, and Ascension Island. Britain administers the BVI’s defence and foreign affairs, and appoints a governor to oversee the elected government, which Mr Fahie headed until his arrest.

As recently as November 2021, Mr Fahie was confident that he would be exonerated by the final report.

“The key to any country is its reputation,” Mr Fahie told The Guardian newspaper here, “but so far, and thank God for that, there is no evidence provided in the Commission of Inquiry showing that the BVI is corrupt.”

Two tons of cocaine discovered previously – not a problem

Despite the fact that a BVI policeman had been found with two tonnes of cocaine worth US$250 million in his house as recently as November 2020 (Reuters coverage is here.), Mr Fahie made a strong rebuttal of the claim by the previous British governor that senior figures in the BVI government were involved in drug-running.

“I find that statement very irresponsible,” the premier said. “It is clear from the inquiry there is no evidence to back up what he is saying, and it would be interesting to see if he would be willing to say that outside the protection of the inquiry as a private citizen. In saying that, he did not bear in mind the reputation of the BVI, families, the economy.”

Unfortunately, the evidence from the DEA looks much more compelling.

The sting

For months, DEA informants pretended to be members of the Sinaloa cartel, seeking to use the BVI as a trans-shipment hub. They had been tipped off by men who claimed to be members of the Lebanese terrorist group Hezbollah that they could introduce the so-called cartel members to senior members of the government who could assist them in their cocaine shipping, according to local reporter Suzanne Carlson here.

This raises further questions as to what Hezbollah members were doing in the BVI in the first place, and why they could make introductions to the managing director of the territory’s ports to people they believed to be Mexican gangsters.

I assume Ms Maynard has a very different set of Linkedin contacts compared to mine, so let’s park that for now.

BVI shell companies to launder drug money

Ms Maynard told the DEA agent that she could get the necessary licences for the storage of the drugs, and that she would register shell companies into which the payments to her could be made.

What a surprise – an official in a tax haven is accused of using that tax haven’s secrecy and loose corporate regulations for their own private benefit to conceal wrongdoing.

The ports director allegedly talked to the undercover DEA informant about Mr Fahie.

“I know the type of person he is,” the director said about Mr Fahie. “If he sees an opportunity, he will take it. He is a little crook sometimes. He is not always straight.”

A side hustle at an industry conference

Mr Fahie and Ms Maynard were in Miami on official government business, attending the Seatrade Cruise Global Conference, which claims to be the largest cruise industry trade event. But the pair weren’t drinking bad coffee and sitting through boring slideshow presentations from engine manufacturers, like most of us do at such events.

Designer bags full of cash

The pair were at an airport meeting their friendly undercover DEA agent with a wiretap posing as the Mexican drug lord. The BVI premier was arrested after viewing what the DEA informant claimed were designer shopping bags packed with hundreds of thousands of dollars in cash stashed on a private jet, ready to be flown to the BVI. The fake cartel member said that this cash was for Mr Fahie himself as an advance payment for his support in the scheme. Ms Maynard was also arrested after she had sighted the cash on the DEA jet and had exited the plane.

Dodgy deals in Dakar?

In another recording made by the DEA at a meeting in Tortola, the BVI capital, the premier is alleged to have calculated that he could make US$7.8 million from assisting with the shipment of cocaine worth US$78 million, and he wanted an upfront payment from the cartel. He allegedly complained that Britain didn’t pay him very much as a government salary, and said he needed the cash because he owed money to someone in Senegal who he claimed had “fixed” some political issues for him.

We should emphasise that neither Ms Maynard, nor her son, nor premier Fahie has been convicted in court yet, but they are all in custody in Florida awaiting trial and have been formally charged.

The inquiry drops

Following news of their arrest, the Commission of Inquiry immediately published its report into the territory’s government. You can read the full, 946-page report here.

“The state of governance in the BVI is appallingly bad,” Sir Gary remarked on page 695 of the report. “In all the circumstances, including the absence of any acceptable explanation for that state and the way in which elected public officials continue to shun the basic principles of good governance knowing that that gives rise to an environment in which dishonesty in and around government can flourish.”

He concluded that the islands’ self-government should be suspended, as “the conditions which allowed this state of affairs have not changed and, as things currently stand, are likely to remain unchanged for the foreseeable future,” without intervention from London.

This recommendation has been disputed by Mr Fahie’s deputy, Natalio Wheatley, who was promoted to acting premier when Mr Fahie’s cell door slammed shut. Mr Wheatley wants to continue to run the island without interference from Britain.

Strange, that.

Why does this matter?

The BVI drugs bust and the damning commission of inquiry report matter because they go to the heart of why the IMO needs to be much, much stricter in enforcing transparency on flags of convenience and ensuring that the beneficial ownership of vessels, including super yachts, is in the public record.

The BVI’s laws exemplify the laws of many other tax-havens, both in the Caribbean and further afield, so it is worth highlighting why the IMO needs to take action.

Secrecy and poor enforcement

No public information about directors or shareholders of BVI companies exists. The BVI permits the existence of co-called bearer shares, where literally whoever is holding the share certificate is deemed to own the shares. In case that the company has the ability to issue bearer shares, the only records the BVI government collects is the number and date of the bearer share certificates, number of bearer shares for each class, and the name and address of the approved custodian of the certificates.

The BVI claims it is “a tax neutral territory,” where there is no income tax, corporate tax, capital gains tax, wealth tax, or other similar fiscal laws. It’s a libertarian paradise, as Sir Richard Branson claims that he chose the BVI for its beautiful weather and lifestyle opportunities (here) rather than for the tax benefits he enjoys by living there, after he sold his Oxford estate in the UK to his two children.

But you don’t have to set up a company to enjoy the benefits of the BVI secrecy regime. There are also non-charitable trusts and partnerships available, with even denser layers of secrecy.

Let’s look at the company filings, oh!

The requirements for companies to produce financial records are detailed in section 98 of the BVI Business Companies Act 2004. This states that:

“A company shall keep records that are sufficient to show and explain the company’s transactions; and will, at any time, enable the financial position of the company to be determined with reasonable accuracy. A company that contravenes this section commits an offence and is liable on summary conviction to a fine of US$10,000.”

So, financial statements for a BVI company largely don’t exist, because companies don’t have to file them, or even keep them at their Registered Offices. This is true in many other countries with flags of convenience.

Given that there are US$1.5 trillion of assets held by BVI companies, the fine of US$10,000 for non-compliance seems, shall we say, miniscule.

Independent audits of accounts are not required, either.

I am unaware of any action being pursued against companies for not presenting financial records to the BVI when requested. Why would the BVI request records, anyway, when it has deliberately attracted businesses to register by touting the benefits of privacy, no taxes, and the absolute minimum regulation?

There seem to be no significant anti-money laundering prosecutions (AML) in the BVI of which I am aware, either. At least the neighbouring Cayman Islands managed to fine (here) one of its leading corporate service firms more than US$5 million in May 2021 for breaches of AML regulations.

The Cayman’s regulator CIMA said that it had imposed the fine for Intertrust’s “pervasive and protracted history of non-compliance” with rules to combat dirty money, and for the company’s failure to remediate the breaches.

This prompted outrage from readers of the local paper who claimed such strict measures would drive business away from the islands and lead to people losing their jobs in Grand Cayman. Sadly, law enforcement can be tough, as Mr Fahie has discovered.

A junkie for registration fees?

Indeed, the government of the BVI is dependent on fees from setting up shell companies for its budget. More than half of last year’s BVI government budget came from fees amounting to US$196 million raised from setting up off-the-shelf companies (here).

The BVI has backed itself into a corner where the island’s economy is far too dependent on corporate services to wash money from international sources through locally registered companies, and the government itself also depends on those revenues.

The International Monetary Fund (IMF) has highlighted (here) that many countries have financial services sectors that are overly powerful. The BVI and many of the other Caribbean tax haven registries for ships, like Saint Kitts, Saint Vincent, Antigua, and the Bahamas, have boxed themselves in a corner. They need the money from their secretive financial services and ship registry businesses, and cannot afford to raise their standards of disclosure and regulation in case their customers go elsewhere where fewer questions are asked, and less information is disclosed.

“Russia is a gas station masquerading as a country,” the late John McCain once joked, correctly.

BVI and many other flags of convenience are now corporate rubberstamping agencies masquerading as countries. They have few other viable sources of income. The United Nations UNCTAD Review of Maritime Transport 2021 (here) showed that the three largest registries of tonnage by deadweight are Panama, Liberia, and the Marshall Islands.

Setting up companies, issuing ship’s documents, and registering corporate vehicles is big business.

Liberia’s private ship registry is big business

For example, the Liberian International Ship and Corporate Registry (LISCR), which is privately owned and pays royalty fees to the actual Liberian government, is estimated to have annual revenue of around US$75 million (here). In 2021, Liberian President George Weah called for an amendment to the maritime agreement between the government and LISCR to increase the country’s revenue share from 25 per cent to 30 per cent, which the country’s senate passed (here).

Since LISCR is a private company, we were unable to establish the profits it made from its ship registry operations. Liberia’s total government budget in 2021 as a whole was US$570 million (here), and in 2019 the press in Monrovia reported that Liberian government officials had to fly to the US to request a loan from LISCR, so that the government could pay its civil servants (here).

This is dependence writ large.

Change is coming to Tortola

Next year, the British government has already insisted that BVI launch a publicly accessible register, showing the ultimate owners of the hundreds of thousands of international companies registered there. Good.

When Mr Fahie conceded that the islands would be making more corporate ownership data available, he was very careful to hedge his bets in his parliamentary statement here, saying that there was a risk that kidnappers might target those named as beneficiaries of BVI trusts.

A man awaiting trial for drug smuggling said he had the interests of “innocent potential victims” at heart when he considered legislation disclosing beneficial ownership of BVI companies and the beneficiaries of BVI trusts.

Complete independence?

The BVI could decide to vote for independence and sever all ties to the pesky UK and its demands for transparency and “good governance.”

However, with Mr Fahie in custody in the US, this is less likely, and whilst the UK itself is hardly an exemplar of best practice for anti-money laundering, it is clear that the government by Mr Fahie and his ilk has been a disaster for the islands, for its neighbours, and for the international financial system.

The BVI is either lucky or unlucky (depending on your perspective) in that it is a British overseas territory with some oversight by London. A world of sovereign states has a problem when a government goes rogue. Mr Fahie’s case shows that the IMO needs to be careful in pandering to the interests of members who may be benefiting from secrecy and low regulation for their own advantage.

Big money and small states

The IMO recognises all states as being equal. As such, the governance of international shipping is only as strong as the weakest state. Events in Florida and BVI matter, because they show how vested interests can capture entire countries, especially small and vulnerable ones, leading to what Sir Gary described as “appallingly bad” standards of government.

Similar issues of small countries, big financial interests, and an international regulatory system that might be vulnerable to influence by vested interests exist in seabed mining, as we have covered previously (here).

Again, transparency, openness, and free debate are the best solutions to governance issues here.

“If I paraphrase Shakespeare and the Bible…”

I’ll leave the last word to Mr Fahie, who told the Financial Times (here):

“One thing I do know is that we will do our best to guard the reputation of the Virgin Islands. Because if I paraphrase the Bible and Shakespeare, a man’s reputation is all that he has.”

Indeed.

Background Reading

The Tax Justice’s Network’s Corporate Tax Haven Index 2021 is here. The top three tax havens were the British Virgin Islands, the Cayman Islands and Bermuda. Other jurisdictions famous as flags of convenience also appear in the top twenty, including Luxembourg, the Isle of Man, the Bahamas, and Cyprus.

The Jamaica Observer newspaper has excellent on-going coverage of the BVI’s political crisis here.

The history of flags of convenience by Carlos Negret is here.

Graham Barrow’s website has a vast treasure trove of information on money laundering worldwide here.

We also highly commend the Organised Crime and Corruption Reporting Project here.