British Virgin Islands

By Sherri Ortiz, Executive Director, British Virgin Islands International Finance Centre

The BVI strikes the right balance between meeting the business and financial needs of the international community and maintaining regulatory and corporate governance policies that meet, and in many cases exceed, international best practice standards. This approach continues to give the BVI a number of clear advantages for the international business community including:

• Enduring political and economic stability
• A business friendly operating environment
• Efficient company formation and administration processes
• A pool of knowledgeable and qualified business and legal professionals
• A well developed infrastructure, including excellent telecommunication services
• No currency exchange controls and the use of the US Dollar as the official currency
• A commitment to enact legislation that meets business needs and protects the integrity of the BVI and a strong partnership between the public and private sectors.

Development of Trust Law

In the BVI, legislation such as the Virgin Islands Special Trusts Act 2003 (or VISTA for short), and the BVI’s Trustee Act 2003 (also known as the Amendment Act), have created an environment that has consolidated the BVI’s position as the location of choice for international trust settlements and operations. The implementation of the Financial Services (Exemptions) Regulations in August 2007 has clarified the circumstances under which a BVI private trust company must be licensed while the Private Trust Company (or PTC) legislation has also further enhanced the BVI’s international reputation for trusts and estate planning products - with VISTA purpose or charitable trusts being ideally suited to holding shares in PTCs.

Both VISTA and the Trustee Amendment Acts were based on proposals which were made to the BVI government by the BVI branch of STEP - the Society of Trust and Estate Practitioners. VISTA is generally acknowledged as the flagship of the BVI’s 2003 trust law reforms. It has received universal acceptance and a significant degree of positive international attention, and, a substantial number of VISTA trusts have been set up, with underlying assets worth many billions of dollars.

G20 and OECD

The BVI has already surpassed the requirements set by the OECD having signed 19 TIEAs and we will continue to sign further agreements with significant partners over the course of this year and the next. In addition, the BVI has joined the Peer Review Group (PRG) which was formed at the OECD Global Forum on Taxation in Mexico in September 2009. The PRG will be responsible for assessing the implementation of OECD standards in finance centres of member jurisdictions of the Global Forum, and non-Member jurisdictions, based on: availability of information; appropriate access to the information; and the existence of exchange of information mechanisms. The PRG will ensure that there is a monitoring and assessment process which is universally applied to all finance centres.

Regulation

We place great importance on the standards of our regulation. As with all advanced financial centres the BVI maintains an independent regulator, the Financial Services Commission, which became the first institution to be admitted to the membership of the International Organisation of Securities Commission (IOSCO) - on the basis of that organisation’s Multilateral Memorandum of Understanding on Consultation and Cooperation and the Exchange of Information.

In addition, at the end of 2008 the BVI received a very positive report from the Caribbean Financial Action Task Force on its efforts to combat money laundering and terrorist financing. The BVI was widely praised for setting up the Financial Services Commission as an autonomous regulatory authority responsible for the regulation, supervision and inspection of all financial services in the BVI.

2009 also saw the establishment of the Eastern Caribbean Supreme Court (ECSC) which is a world class commercial court based in the BVI. The court has become a key litigation centre for offshore lawyers with commercial cases heard from the ECSC circuits of Anguilla, Antigua and Barbuda, Grenada, Dominica and the BVI.

Accounting and Legal Services

The BVI is the only Caribbean jurisdiction to boast the presence of all six of the largest offshore law firms in the region and the legal profession in the Territory continues to expand and strengthen with a steady influx of lawyers, barristers and solicitors. The world’s top accounting and auditing practices are also present in the BVI and have been for some time. Their professional service offerings include not only the traditional accounting, audit and risk management practices, but increasingly specialist areas such as forensic accounting, corporate restructuring and insolvency management services - being offered from within the BVI. In addition there are of course the many leading international trust and corporate service providers who, through their efficient systems, procedures and people, have helped build the BVI into the world’s corporate domicile capital.

Conclusion

One reason for the success of the BVI as a financial services centre is the high level of cross sector expertise resident in the territory supported by strict adherence to competency requirements. A strong relationship with the private sector enables the BVI to attract the requisite skills base from overseas and develop these skills from the local employment base.

The British Virgin Islands has been at the forefront of international financial services for nearly 25 years and it continues to innovate and adapt to the constantly changing global financial environment to ensure it maintains a gold standard for International Finance Centres for the next 25 years.

Raymond Davern, Head of Trust and Private Client, Conyers Dill and Pearman, BVI

1. Is there any specific legislation which legitimises the retention of any powers by the settlor?

Yes, in important respects. Section 2 (4) of the Trustee Act (also known as the Trustee Ordinance or Cap 303 but here referred to throughout as the “Trustee Act”) explicitly acknowledges, following both the Hague Convention on the Law Applicable to Trusts and their Recognition (the “Hague Convention”) and the English equitable position, that reservation by the settlor of certain rights and powers is not necessarily inconsistent with the existence of a trust. More specifically, section 86 (2) of the Trustee Act provides in relation to a trust created by instrument that any powers may be conferred “on the settlor or some other person” (howsoever named). Section 86 (3) of the Trustee Act further provides, in relation to powers to (a) determine the proper law of the trust, (b) change the forum of its administration, (c) remove trustees, (d) appoint new or additional trustees or (e) withhold consent from specified actions of the trustees, that a person shall not by virtue only of exercising such power be deemed to be a trustee.

2. What limits are there on the legitimacy of a Letter of Wishes and how are such instruments properly created and used?

It is a point of general relevance that English common law and rules of equity apply directly in the BVI, in virtue of the Common Law (Declaration of Application) Act 1705 and sections 14 and 15 of the Eastern Caribbean Supreme Court (Virgin Islands) Act, Cap 80, respectively. Therefore, unless a BVI or applicable UK statute disapplies or usurps the field of operation of English common law and equitable rules, the latter correspond exactly to the common law and equitable rules applicable in the BVI. Since the legitimacy of Letters of Wishes has been the subject of neither UK nor BVI legislation, they are legitimate as a guide to the exercise of trustee discretions in the BVI to the same extent as they would be under English equitable rules in respect of an English discretionary trust. There are thus no requirements for their creation (other than the practical requirement of writing authenticated in some way by the settlor) and are legitimate to the extent that they are not intended to create and are not regarded by the trustee as imposing trust obligations. Letters of Wishes are a practical necessity for professional trustees of discretionary trusts since otherwise, lacking any personal connection to the settlor, the trustee may have no rational basis for the exercise of his discretions. It would seem that a Letter of Wishes may guide the exercise of administrative as well as dispositive powers.

3. What have been the latest developments in trust law and regulation in the jurisdiction and what changes are planned or expected?

The Virgin Islands Special Trusts Act 2003 (“VISTA”) came into force on 1 March 2004 and allowed for a trust of shares in a BVI business company to be established under which the trustee, subject to the terms of the instrument, has neither the power nor duty to intervene in the management of the company and under which the settlor may specify rules for determining who shall be appointed to the board of the company. 1 March 2004 was also the commencement date for significant amendments to the Trustee Act dealing comprehensively and innovatively with the conflict of laws as it affects trusts, purpose trusts, dealings with third parties and charities. The Financial Services (Exemptions) Regulations 2007 (the “2007 Regs”), which exempted private trust companies (“PTC”s) from the licensing requirement otherwise applicable to entities undertaking trust business in or from within the BVI under the Banks and Trust Companies Act 1990 (“BTCA”), came into effect on 1 August 2007. The Commercial Court of the Eastern Caribbean Supreme Court was established in the BVI in April 2009 and all disputes concerning trust funds of US$500,000 or more are automatically assigned to it. It is anticipated that the perpetuity period applicable to trusts other than statutory purpose and charitable trusts may be increased in the near future from the 100 years currently specifiable.

4. Are private trust companies a feature of trusts in the jurisdiction and are there firms or organisations who could host such a private trust company?

PTCs are an increasingly common feature of trusts in the jurisdiction since the coming into force of the 2007 Regs. A considerable number of licensed trust companies undertake trusteeships of PTC shares and professional director services are also available.

5. Are there any particular laws relating to the setting up of a private trust company? If so, are there any precautions which should be taken to ensure that the trust remains valid?

The answer to the first question is in the affirmative. The exemption from licensing will apply if the PTC is a limited company incorporated or re-registered under the BVI Business Companies Act 2004, its memorandum states that it is a PTC, the PTC has a registered agent that holds a class I trust licence and the PTC does not carry on any business that is not trust business, solicit trust business from members of the public or carry on any trust business other than unremunerated trust business or related trust business. Trust business is “unremunerated” if no money or any other form of property is payable to or received by the PTC or any person associated with it (including its directors) in consideration for the trust business services but this does not prevent remuneration being paid to a director for professional director services provided to the PTC. Trust business is “related” if it is provided either in respect of a trust where each beneficiary is related to the settlor by a family relationship recognised by the 2007 Regs or is a charity or is provided in respect of a group of trusts where the settlors of each are related by a family relationship recognised by the 2007 Regs. As a BVI business company, a PTC must have a BVI registered agent whose duty it is to monitor compliance with the 2007 Regs. As to the second question, it does not follow automatically from a company’s failure to meet the foregoing criteria that property once validly held on trust by it will cease to be held on trust since the consequences of failure to meet the criteria are in the first instance regulatory.

6. If the majority of trustees are resident outside the jurisdiction, is it necessary to have one of them, or an agent, resident in the jurisdiction?

There is no requirement in BVI law that a trustee of a BVI trust other than a purpose or VISTA trust be BVI resident or represented in the jurisdiction (save that if a BVI business company, whether or not a PTC, is trustee of a BVI trust, it must as a matter of BVI company law have a BVI registered agent). At least one trustee of a statutory purpose trust must be a “designated person”, ie a licensee under the BTCA, a barrister or solicitor practising in the BVI or an accountant likewise practising and qualified as an auditor for BTCA purposes and the trustee of a VISTA trust must at all times be the holder of a trust licence under BTCA and sole. (For these reasons, a PTC may not be sole trustee of a statutory purpose trust and may not be a trustee of a VISTA trust at all.)

7. Once a trust is set up, what access can the public or government, local or foreign, have to details of the parties involved in the trust or trust assets under OECD Exchange of Information agreements, double taxation treaties or mutual assistance agreements? Is information revealed to foreign tax authorities automatically or solely in response to enquiries properly made under these international agreements?

There is no public register of trusts in the BVI and thus no public right of access to information about BVI trusts. Further, it will ordinarily be implied from the circumstances of a professional dealing between a settlor and trustee that the details of the trust (and the settlor’s affairs generally) are confidential so that their dissemination will be prevented by the equitable remedy of injunction. Such duties and any duties in contract are necessarily subject, however, to disclosure which is required by law. The BVI has to date entered into 19 Tax Information Exchange Agreements the details of which are listed on the website of the BVI IFC at www.bviifc.gov.vg/BVIIFC/TIEAProgramme/tabid/218/Default.aspx. Disclosure may be made only pursuant to request from a competent authority and criteria and procedures are in place to prevent fishing expeditions.

8. What are the main types of trusts and their particular uses (for example, interest in possession, discretionary or accumulation and maintenance trusts)?

Discretionary, purpose, charitable and VISTA trusts are the most common types of BVI trust and they are established for a wide variety of purposes including family provision and estate planning, commercial and philanthropic.

9. Can any type of assets be placed in a trust (examples should be given of types of assets which may be included which are in addition to the normal range of cash, securities and land)?

BVI law follows English law in this respect and there is no prohibition on subjecting BVI land to a statutory purpose trust.

10. What are the formal requirements which are required such as certainty of intention of subject matter and of objects?

The certainty of intention, subject-matter and object requirements are the same in BVI law as in English law save that the objects of a statutory purpose trust under BVI law must be “specific” (as well as reasonable, possible and not contrary to law, morality or public policy).

11. Following the previous question, are shams a danger in the jurisdiction and what are the consequences of an arrangement being declared a sham?

The circumstances in which a purported trust might be classified as a sham and the consequences of its being so classified are the same as in English law.

12. What is necessary to make a trust properly constituted, i.e., to make it active after the trust instrument has been signed; that is, to make the trust properly constituted? What are the consequences of this is not fulfilled?

The requirements as to constitution and the consequences of failing to meet them are the same as in English law save that there is a cogent argument to be made on the wording of sections 84 and 84A of the Trustee Act that a statutory purpose trust may not be validly constituted with a purely nominal sum: the sections appear to require that a sum be settled which is sufficient to make (at least one of) the trust purposes practicably achievable.

13. Can trusts be set up by a declaration by the settlor that he henceforth holds assets which he already owns on trust for someone else, hence becoming the trustee, or is it necessary that there should be a transfer of the settlors’ assets to the trustee accompanied by a written instrument by which the trustee undertakes to hold the assets for the beneficiaries?

The different modes of establishing a BVI trust are the same as those in English law. Since the English Statute of Frauds is thought not to apply in the BVI (and section 53 (1) (b) of the English Law of Property, dealing with trusts over land, clearly does not do so) the only writing requirements for trusts are those which relate to purpose trusts (which, if created before 1 March 2004 must be created in writing but if created on or thereafter may be created or evidenced in writing) and VISTA trusts which must be “created by or on the terms of a written testamentary or inter vivos instrument.”

14. What powers are implied under the trust legislation to trustees and what powers need to be, and usually are, expressed in the trust instrument?

Part III of the Trustee Act confers substantially the same powers on trustees as were conferred by sections 11 to 32 of the English Trustee Act 1925 on English trustees. The power of investment and supplementary provisions are set out in part II of the Trustee Act and, subject to the trust instrument, enlarge the class of authorized investments to any kind of investment wherever situated. The powers of trustees are commonly expanded beyond these, however, and section 93 of the Trustee Act permits an instrument creating a trust to incorporate by reference any or all of the provisions set out in the second schedule to the Trustee Act. These are thought to be sufficient for most purposes and bear strong relation to the extended powers ordinarily to be found in professionally drawn instruments.

15. Can a settlor be appointed a trustee?

The law in this respect is the same as English law save that a person who is not a “designated person” (see response to question 6 above) may not be sole trustee of a statutory purpose trust and a settlor must be the holder of a trust licence under the BTCA in order to be the trustee of a VISTA trust.

16. Can a settlor be made a beneficiary?

The law in this respect is the same as English law but it should be noted that if a statutory purpose trust is established for the purpose of benefiting particular persons, this does not confer on such persons, even if no other purposes are sought to be achieved under the trust, any rights to enforce the trust since exclusive rights of enforcement of a statutory purpose trust are given to a statutory enforcer.

17. Are Protectors/Guardians usually incorporated into trusts in the jurisdiction; if so, what are the specific rules relating to them and, if none, how does the general law treat them?

BVI law specifically recognises that persons, whether called Protectors or otherwise, may be given any powers over the trust and that in relation to the exercise of specified powers, at least, they will not be deemed trustees of the trust by virtue only of such exercise (see response to question 1 above). Protectors are very common indeed in BVI family trusts and subject to the provision made by section 86 of the Trustee Act fall to be treated under the general law as English law treats them.

18. Do protectors/guardians have fiduciary responsibilities?

The law in this respect is the same as English law.

19. To what extent do beneficiaries have any control over the trustees or over their appointment or dismissal?

The law in this respect is the same as English law was prior to the enactment of sections 19 to 21 of the Trusts of Land and Appointment of Trustees Act 1996.

20. Can beneficiaries indicate to the trustees how they wish the trust to be managed or may they terminate the trust when the law relating to such termination is fulfilled (such as under Saunders v Vautier)?

Please refer to the previous answer although it is to be noted that the rule in Saunders v Vautier may be ousted in a VISTA trust for a period of up to 20 years from the date of its creation and it is strongly arguable that particular persons benefited under statutory purpose trusts do not have the right to terminate the trust even if the trust’s purpose is to benefit them exclusively.

21. What is the standard of care required under the law for trustees and what measures exist to ensure an appropriate level of performance?

The law in relation to the standard of care is the same as English law was prior to the enactment of the Trustee Act 2000 (ie the equitable position obtains) save that, in relation to the power of investment, section 3 of the Trustee Act specifies a slightly different and arguably lower standard namely that the trustee exercise the diligence and prudence that a reasonable person would be expected to exercise in making an investment as if it were his own money. Ensuring an appropriate level of performance from trustees is entirely a matter for the beneficiaries in an ordinary trust for persons, the enforcer in a statutory purpose trust and the Attorney-General in the case of charitable trusts.

22. If a trustee fails to take an appropriate measure, what powers are there to correct the error which may be taken by the trustees, (e.g., by agreement with the beneficiaries) or with the consent of the court, e.g., ...............................................................?

The law is the same in this respect as English law.

23. If the trustees fail to fulfil the general terms of their duties or the particular requirements in the trust instrument, what action may be taken by the settlor or by the trustees particularly with regard to the possible need for cross-frontier negotiation or litigation?

The law is the same in this respect as English law.

24. What are the limits that trustees may claim indemnity for costs and expenses of running the trust and opposing outside claims and is any procedure advisable before engaging in litigation (such as a Beddoe application)?

The law is the same in this respect as English law.

25. Are the assets of a trust held by trustees considered in law to be separate from the trustee’s personal assets and thereby insulated from claims against the trustees personal creditors?

Yes. Section 2 (3) of the Trustee Act, following the Hague Convention, states that this is a characteristic of the trust as it is known to BVI law (such that an arrangement which does not have that effect will not be recognised as a trust).

26. On transfer of assets to the trustees, the settlor must arrange for the legal title of the assets to be transferred and undertake whatever transfer procedures are required by the place in which the assets are situated; if this transfer does not take place entirely as proposed when the trust is set up, does this affect the validity of the trust?

The law in this respect is the same as English law.

27. What duty of care and other criteria are applied to the investment of trust funds? Can this duty be delegated by the trustees?

Please refer to the response given to question 21 above. If the power of investment is delegated under section 26 of the Trustee Act (absence abroad), the trustee remains liable for the acts or defaults of the delegate as if they were the trustee’s acts or defaults but an express power to delegate may, as in England, make other provision and include an exemption for all but trustee’s actual fraud.

28. Can trusts migrate into or out of the jurisdiction and may they change their proper law?

Section 81 of the Trustee Act allows a change of proper law from or to that of the BVI if the trust instrument so provides so long as, in the first case, the new proper law recognizes the validity of the trust and the interests of the beneficiaries.

29. Is the jurisdiction governed by the Hague Convention on the Recognition and Enforcement of Trusts and, if not, to what extent are foreign trusts recognised?

The Hague Convention has been extended to the BVI and applies to the same extent as it does in the United Kingdom.

30. What powers are there for beneficiaries to seek replacement of trustees?

The law in this respect is the same as it was in England prior to the enactment of sections 19 to 21 of the Trusts of Land and Appointment of Trustees Act 1996.

31. How are vacancies as trustees filled and what is the normal number of trustees who are appointed to a fixed interest or discretionary trust?

The statutory provisions in the Trustee Act governing the retirement and discharge of trustees and the appointment of new trustees are in substance the same as those contained in the English Trustee Act 1925.

32. Under the law, what criteria are applied to persons licensed to deal with international trusts to determine whether they are ‘Fit and Proper’ persons to undertake this work according to the law?

The Financial Services Commission’s “fit and proper” criteria are: honesty, integrity and reputation, competence and capability, financial soundness.