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:
A person, call him "Bob," could form a company in Canada (Bob Canada Inc.) and another one offshore (Bob Island Inc.). Whatever money Bob was paid on contract-say, $100,000-could be received by Bob Canada Inc. But Bob could then pay $90,000 to Bob Island Inc. for "consulting services." Bob would have $100,000 in income, but $90,000 in expenses, and so pay tax on only $10,000.
If Bob dealt in hard goods like shoes, he could use Bob Island Inc. to buy shoes from China for $10,000, then sell those shoes to Bob Canada Inc. for $90,000. And Bob Canada Inc. could sell them in Canada for $100,000. So that's $10,000 profit Bob has to pay Canadian taxes on, and $80,000 sitting in a bank offshore. (Bringing any of that offshore money into Canada gets tricky. It might be possible to set up a credit card that would let Bob get cash advances, paid back by Bob Island Inc. But now, by not declaring that money, Bob has slipped over into tax evasion. He's better off using his offshore stash to buy a yacht.)
The CRA is trying to cut off the tax-avoidance avenues for people like Bob by establishing Tax Information Exchange Agreements with various countries, so that it can find out who's keeping how much where. Up to now, it has signed 11 such agreements, several of them with Caribbean jurisdictions. So far, however, the BVI isn't one of them. So when Bob wants to keep his money and his identity safe, he comes here.
In Road Town, you'll find about 80 firms, commonly known as "trust companies," that act as agents in forming and administering offshore companies and trusts. For about $1,500, they'll do the paperwork. (A company named after your grand-niece, with 50,000 no-value shares? Done.) Since there are no taxes to pay in the BVI, there are no books to keep, and no audits of your records. If you wish, many of these firms will provide a person or even another company to act as the "nominee director" of your company, so that your name need not appear on any transactions. And most of them can offer "shelf companies"-that is, companies already incorporated and sitting on the shelf, ready to go. For more money, you can buy a shelf company that has been "aged"-created, say, five or 10 years ago and just waiting, dormant, for someone who suddenly needs to say he's been in business that long.
You can do this online, if you prefer. Many of these firms have websites, and you can download the application forms. (One such firm, Fidelity Corporate Services, provides helpful answers to some common questions about offshore companies. For the most germane of these-"Aren't all offshore companies used by crooks and money launderers?"-Fidelity complains that opinion is part of a government smear campaign, and its answer begins, "Well, aren't domestic companies used by them, too?")
Before I set up meetings with any of these firms, it seemed a good idea to come up with a fake identity. I could go in playing the high-roller, I thought, and even set up a Gmail account under a false name in order to communicate with the firms. That idea dissolved the moment I talked to Jack Blum, a semi-retired former U.S. congression-al investigator and authority on shadowy dealings in the BVI. "They're going to want information about you," he said. "They're going to ask for a passport and some other ID."
So, no fake identity; I'd have to go in as myself. That was probably just as well; I'd never been a very good liar. What about handing over my passport-was that a good idea? I asked the advice of Lincoln Caylor, a fraud lawyer with Bennett Jones in Toronto. "I don't know," he said. "I wouldn't do it." Right.
It also seemed useful, during whatever meetings I could arrange, to at least hint at some underhanded purpose for needing an offshore entity. But what could I, a humble Canadian novelist, be getting up to? After a few more calls for advice, I came up with this: I'd tell them I was about to sign a major U.S. book deal and had a TV development deal in the works, and let the dollars pile up in their minds. As for why might I need an offshore company, I'd mention the fact that my wife was divorcing me, and so...I hoped I could leave the rest to their imagination. Some of this was true-I did have a U.S. book deal and a TV development deal, but for dollar amounts that hardly warranted a sock in a drawer, let alone an offshore company. I was also, as it happened, separated, though between my wife and I everything had long been settled. Exaggeration and implication seemed more within my wheelhouse than out-and-out falsehood.
I ran this scenario past Kenney, to see if it would pass shady muster. He'd chased down billionaire husbands, one who'd forged his wife's signature on a divorce settlement that left her just $33 million. In his Tortola office, he nodded. "That's right in the middle of the road," he said. "You could get some people saying, 'Oooh, that's a little dodgy.'" That seemed just about right.
Downtown Road Town is marked by a busy roundabout and the usual Caribbean atmospherics of car horns, exhaust fumes and a whiff of open sewers. In mid-December, Christmas featured prominently: Inflatable Santas and reindeer wobbled along Main Street in the humid air, and calypso versions of Christmas classics blasted from carpet-store speakers. There are street signs in Road Town, but no one uses addresses. Businesses locate their offices in named buildings, and it is up to you to know where those buildings are. My first appointment, for instance, was with a company I'll call Tortola Trust, in Palm Grove House, a stuccoed building in the banking district (where, as it happens, you'll also find branches of banks such as Scotiabank and the CIBC-owned FirstCaribbean International Bank; thanks to its historic ties to Britain, Canada has long had a dominant banking presence in the Caribbean.)
It took a while, and several entreaties for help from passersby, before I found Palm Grove House. Emerging from the elevator at Tortola Trust, I was greeted by two men in their mid-30s, a South African named Mike and a Brit named James, both of whom were dressed in shirt sleeves, open at the neck. They showed me through an impressive suite of offices into a large boardroom, and brought me a bottle of cold water.
After a few moments of chit-chat, I laid out my "situation." I mentioned a "significant amount of money" coming in and the fact that my wife and I had separated, and that I therefore had "concerns around that money."
James and Mike seemed to view this as reasonable. Thoughtful and relaxed, they probed for details, about my marriage, my family (did I have children?) and my assets. Whatever structure I set up wouldn't be to "defraud a creditor as such," James explained; it would be to help me "safeguard" future earnings. They both seemed quite interested in helping me do that.
I wondered out loud whether there was some way to avoid listing my assets under my name. Wasn't that something a BVI company could help me with?
James laid out my options. Most clients set up a BVI company, he explained, with shares listed in their own name, which would be public. "But then what people do to avoid that," he said, "is they put the shares in a trust. So you have the BVI company and the trust. And the trustee of that would be Tortola Trust BVI Ltd. So we would be the shareholder. So you could say it's definitely not in your name, it's in our name."
This is one of the ways to accomplish what's known as "layering"-putting degrees of separation between the public face of the company and the person that a creditor or a government is really interested in: the Ultimate Beneficial Owner. All of the due diligence requirements in the BVI rest on being able to provide that name when a court demands it. That's one of the reasons that, as of last year, you could no longer use "bearer" shares in the BVI. Bearer shares put ownership of a company in the hands of whoever physically held the shares; if the shares for Bob Island Inc. were kept in Bob's lawyer's safe, the lawyer became the owner.
With the elimination of bearer shares, the owner's name can't be completely hidden. But even so, layers can make the digging more difficult. James tried to explain the intricacies of the company-trust-trustee arrangement, and I tried to push him for assurances that my identity would be protected. "I wouldn't recommend, you know...we're not going to lie," said James, somewhat hesitantly. "But, 'Have you got any assets in your name?' No."
Wasn't that a bit risky, I wondered-to make someone else the legal owner of my assets? Yes, actually. It would be possible, James admitted, for the firm to remove me as director of my company, cash in my assets and hide them "somewhere else in the Caribbean." All of us in the boardroom had a good chuckle about that. And James said the firm had insurance to protect me.
As for what I could do with the assets held by my company, well, I could do anything. Although, "if you wanted to buy a nuclear power station," he said, grinning, "we may have some issues with that."
James and Mike both recommended that I get tax advice from my accountant before going further. (My accountant had already told me that if I wanted to form one of these companies, he'd recommend I start working with another accountant.) And they would need my passport and other details, such as a utility bill to prove my residency, to meet the government's "Know Your Client" requirements. A few minutes later, when James had left, Mike took me through the application and fee schedule. "Once we are the legal owners of the trust and the trust's assets, that's where the confidentiality is working at its best," he assured me. "If somebody comes knocking on the door saying, 'Are you looking after Mr. Trevor Cole? We want to find out this, that and the other,' we'll just go"-he shrugged-"Sorry."
A lot of people, he added, like to list their tax adviser as the point of contact on certain documents. "It's just more murkiness for people to get through." And if I was willing to provide more information on the nature of my assets and the purpose of my company, there was always the option of paying their firm to act as the director of my company. "It removes you further from the scene of the crime, if you like."
Over the next two days, I met with three other firms. In the blue-stuccoed Akara Building, above a small photography studio and an office for the BVI Tourist Board and Film Commission, I found the Panamanian trust company Mossack Fonseca. There was no elevator to take me to the third floor, just a narrow, dimly lit staircase with steps covered in chipped tiles, and the office at the top of the stairs was more humble than Tortola Trust's. There I met with two women-Daphne, from the island of Dominica, and an older woman named Rosemary, who was the managing director.
Throughout our meeting, Rosemary eyed me with some suspicion, but tried to accommodate my concerns about keeping my identity secret. "I understand what you're asking," she said. "You want confidentiality. You want to be anonymous. You don't want anybody to know that you are behind the company. And that can be done. Lots of big corporations and lots of individuals do it." But when I brought up the topic of layering, she became adamant. "You should not even be talking to us about layering."
Why was that?
"Because it is a no-no," said Rosemary. "It's illegal. Layering is illegal." What I could do was tell them I wanted to set up a few companies. I could tell them the structure I wanted. I could even ask for their help setting up a structure for, say, inheritance purposes. "But not layering purposes," she insisted.
After lunch-and a chat with a nice New Zealander named Steve, who was in Tortola shopping for a yacht-I entered the offices of the AMS Group, with branches in Hong Kong, London and Nevis. Here in the BVI, they're located in Sea Meadow House, a two-tone building a short distance from the centre of Road Town. My contact was Nicholas, an affable Brit, reminiscent of a young John Hurt, who showed me into a spacious and well-furnished boardroom.
This time I refused to divulge the source of the money I was getting, or what I wanted to do with it. Nicholas took it in stride, wanting only assurances, for now, that the money was from something "legitimate." He explained that half the firm's business comes from Asia, and they never see the end client. They work mostly with "introducers"-legal or accountancy firms that do all the due diligence work in their own locality and that might order up 10 companies by e-mail and get them that day because there was no onus on AMS to gather any information on the client. But that information had to reside somewhere.
"It's not like the good old days," said Nicholas, a little wistfully. Once, a BVI company was like a packet of biscuits. "It would be sold on and sold on and sold on. And no one knew who on Earth ended up holding the packet of biscuits."
When I brought up the notion of a nominee director, Nicholas admitted that some firms in the BVI offered that service-a few hundred dollars a year might get me a resident of Nevis who would act as a director with a rubber stamp to sign documents. But then he told me something surprising: If there was ever any trouble, my director would run away and my name would show up in court after all. "If you are a nominee director and you're getting paid $300 a year, you are not going to risk your neck for the person you are protecting," he said. "You send in your resignation letter, and then all gets revealed."
I liked Nicholas. I figured if I ever actually wanted to set up an offshore company, he'd be my guy. Before I left, he offered me another insight: "If you really want to confuse people, you can have Chinese characters in your company name as well. We sell tons of them."
One last meeting remained, and this time I wanted to go a step further-to formally begin the process of buying a company.
At Overseas Management Co., housed in a three-storey pink building off Waterfront Drive, I climbed up a dingy and dirty stairwell to the second floor and entered a cramped reception. The ceiling was festooned with Christmas ornaments, and I was led not to a boardroom but to a cluttered office with a small table and two chairs. There I met with Anelena, a petite Panamanian woman with a bright smile.
I almost felt bad for Anelena, because I'd decided to present myself as a busy, uncommunicative guy who needed a company and needed it fast, and sweet Anelena seemed a little bewildered. But she did her best to accommodate me.
"Yes, we can take care of this," she began. It turned out that OMC was another company whose head office was in Panama. Anelena said she would be happy to have the Panama office e-mail me the information requirements, which included a passport, and a list of shelf companies to choose from. I asked if it would be possible to just print out the list right now and let me choose a company while I was there.
"Ehhhh, let me see."
She came back more than 10 minutes later, without a list, and began asking me questions. "You live in Canada, right? And you want to buy a company. What is the purpose of the company?"
Protection of money, I said. And confidentiality.
"Okay," she said, making a note. "I can give you the list right now. But, you know, in order that you can get the company definitely we will need a copy of the passport."
I asked if they could provide a nominee director.
"Ehhh, we have nominee directors. They are located in Panama." Anelena paused for a long moment. "Do you have a business card?"
I said I didn't.
"Uh huh," she said, and gave a nervous giggle. Twice more she mentioned that to start the process she would need a copy of my passport. All I wanted from her, I said, was that list of shelf companies.
"Mmm hmm," she said, and giggled. We chatted for a while about the lack of seafood restaurants in Road Town until I suggested she go out and get that list of companies I wanted. She left and, finally, 16 minutes later, she returned.
"These are the list," she said, laying two sheets of paper in front of me, one showing 15 names pre-checked and available for incorporation, and another with a list of 32 shelf companies ready to go in five jurisdictions.
I looked down the list of BVI companies and circled a name: Ventor Holdings Ltd. That's the one I want,
Anelena said she would send me all the requirements, repeating again the need for a passport. She asked, "What is your occupation?"
"Do you need to know that?"
"I'm an author."
Anelena paused for a second, a little taken aback. "An author?" But she made a note and recovered quickly. Once they'd received all my details and approved me, she said, I could have my company within two days.
The next morning I headed back to the Beef Island airport. My cabbie explained that his name was James, but everyone called him Handbroke. "Because when I was small I broke my hand." On the tarmac, on the way to the airplane headed to Puerto Rico, a BVI resident nodded toward a sleek white Falcon 900EX jet, its tail splashed with the image of an enormous blue eye. That's Sir Richard Branson's plane, she told me with an admiring smile; everyone knew that eye.
Richard Branson, at least, isn't trying to hide. But then, he lives here. He doesn't need to.