Proposed Amendment to IBC legislation worries Insiders BVI FSC says it will provide needed safeguards

The British Virgin Islands Financial Services Commission (BVI FSC) has laid the groundwork for a new regulatory regime for bearer shares in the BVI 
jurisdiction. The proposed regime will provide the business community with 
the safeguards it is seeking for the purposes of financial transactions 
while ensuring that regulators and law enforcement organisations are 
satisfied they can pursue those who would use bearer shares for illegal 
purposes.

In commenting about the new development, the "Financial Times" noted that "bearer shares are deemed to be the property of anyone presenting them, thus allowing companies to hide the identities of their directors and 
shareholders." The same sources explained that bearer shares are issued by International Business Companies (IBCs) domiciled in tax havens "The BVI FSC has stopped short of banning bearer sharesunlike The Bahamasbut instead will restrict their mobility by requiring that they be held within an approved custodian. The law requires that the particulars of Directors of IBCs be kept in the BVI and that the information will be accessible by officials," Monday's edition of the "Financial Times" stated.
In view of this development some members of the BVI Offshore Financial 
Sector have voiced their disagreement and, in particular, Mossack Fonseca & Co. (BVI) Ltd have sent to this newspaper a copy of their letter dated 15 
November to Mr. Michael Riegels, Q.C. (FSC Chairman).

"Based on our experience in the offshore industry, and in our capacity as 
long-term service providers in The Bahamas, we want to share with you our 
knowledge and experience about the economic mishap that occurred there when their government eliminated bearer shares three years ago. Like many other service providers, our Bahamas business has decreased dramatically in the past three years," the letter stated.

Mossack Fonseca disclosed that for the years 2000-2001 their Bahamas 
business decreased by 45 percent: "Clients immediately became very 
disappointed with The Bahamas, and a massive migration started quickly, and still continues".

The well-known Panama-based international law-firm was adamant about the breach of confidentiality that will result from any measure aimed at 
restricting or controlling bearer shares: "the concept and premise of 
bearer shares will be lost. They will no longer be negotiable...and clients 
will not be free to manage their own property/shares."

The firm noted that the offer of a custodian arrangement was unpopular 
among their Bahamas-based clients and resulted in a veritable exodus. "In 
these circumstances, BVI financial institutions and service providers will 
most likely lose additional business, rather than seeing increased business."

Meanwhile the BVI FSC has announced that a Draft Bill is expected to become law shortly as the "International Business Companies (Amendment) Act, 2002". The BVI FSC announcement is old news to the industry in that the BVI Government first announced its intention of controlling the issuance of bearer shares by BVI Companies on 6 June 2000. A press release from the FSC noted that the BVI (jurisdiction) believes that eradicating or outlawing bearer shares would be overkill and that controls can be introduced which will address the issue effectively. The proposed amendment to IBC legislation will put on a statutory basis current principles of accepted good and best practices that have been widely debated internationally and locally.

But Mossack Fonseca & co. said that they are truly worried that the BVI's 
leadership position in IBC sales may "well decline significantly with the 
proposals to amend legislation for immobilisation of bearer shares."