The cabbie who drove me over the vertiginous hills of Tortola toward Road Town, the two-stoplight capital of the British Virgin Islands, told me that his name was Wayne. But he explained that ever since he was a small boy, people had called him "Shorty," so I could call him that too. I'd landed late after a three-leg flight from Toronto, with stops in Miami and Puerto Rico and a last, jarring hop by turboprop ATR. For long stretches of the narrow, winding road from the Beef Island airport, there were no lights to reveal our surroundings. But as he weaved left and right, and gunned the engine of his aging Toyota van to make it up the next steep, Shorty gave me the lay of the place. There were dozens of islands in the BVI-no one can seem to agree on the number-and a whole lot of money. At the far eastern end was Necker Island, owned by Sir Richard Branson. South of us, Shorty indicated with a wave to the left, was Peter Island, where the billionaires liked to hold exclusive weddings. "Sometime we can't go over there for a whole month," he complained. And all around were calm, protected waters, perfect for sailboats. "Mos' people on that plane you came in on," said Shorty, "they coming for the sailing."
Not me. I was there because the British Virgin Islands offers another kind of protection.
Even more than sailing, the business of the BVI is sheltering companies from taxes. Operating as a tax haven isn't unique to this archipelago, of course; plenty of Caribbean islands, along with a few European jurisdictions such as Switzerland and Liechtenstein, have for decades offered the wealthy a place to escape the heavy burden of post-World War taxation. But the BVI has found its métier: offshore incorporation. All of about 25,000 people live scattered throughout these islands, but there are more than 800,000 registered companies here, of which about 460,000 are active. And it's big business: By one estimate, 51.8% of the BVI's national revenue comes from licence and company fees. According to the most recent survey done by KPMG, some 41% of all the offshore companies in the world can be found here.
"Found" is a matter of debate, of course. Because while there are some legitimate legal reasons to establish an offshore company in the British Virgin Islands-hedge funds, for example, appreciate having fewer restrictions on their investments-many people use BVI companies to hide something. Maybe it's identity; establishing an offshore company makes it easier to keep one's name out of certain transactions. Or maybe it's money.
Fraud lawyer Martin Kenney, older brother to Jason Kenney, Canada's Immigration Minister, runs a booming practice in Tortola, charging $650 an hour or a hefty "success fee" to chase down the assets of fraudsters who use offshore companies like those in the BVI to hide millions of dollars from the eyes of wives, business partners and governments. Kenney, his grey hair styled back, his crisp shirt open at the neck, sits in his air-conditioned Road Town office and chuckles as he talks about the years following 1984, when BVI's International Business Companies Act established the country as an offshore financial centre. Those were the days when men would bring in duffel bags full of cash, he says, when you could establish a company or a trust with little or no proof of identity: "In the late '80s and '90s, it was a free-for-all."
Increasingly stiff anti-money-laundering laws, imposed upon offshore jurisdictions largely by U.S. authorities determined to choke off the proceeds of drug trafficking and terrorism financing, have lately made it much harder to secret assets in the BVI. But as Kenney likes to say, "Bad business is still getting booked." And my assignment was to fly here, undercover, and find out how it works.
By coincidence, the very day I began my investigations in the BVI, representatives from the Canada Revenue Agency and the Department of Finance were appearing before the parliamentary finance committee to report on the vexing matter of Canadians keeping money offshore. In the eyes of the CRA, it's a two-pronged problem-tax "avoidance," which subverts the spirit if not the letter of the law, and tax "evasion," which is flat-out illegal. The U.S. government estimates it loses $100 billion a year in tax revenue stashed in offshore accounts. And while the CRA hasn't made an estimate of Canadian offshore money, it has, since 2006, increased the number of full-time employees working on international audits by 44%. In that time, from more than 6,700 cases, it claims to have found $3.5 billion in unpaid taxes.
It takes an accountant to explain how someone might use an offshore company to "avoid" rather than "evade" taxes, so I asked mine. Here's how he put it to me:Report Typo/Error
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