The British Virgin Islands (BVI) is a very small British overseas territory in the Caribbean, with a population of around 25,000 natural souls. However, it is also the domicile for over 800,000 offshore vehicles. Most of those vehicles are companies, but a small number are limited partnerships or trusts. A report by KPMG in 2000 suggested that approximately 41% of the world's offshore vehicles were formed in the BVI.
The difficulties facing regional offshore competitors like the Cayman Islands have taken a similar toll on law firms in the British Virgin Islands (BVI). Fund formation practices have been forced to redirect their efforts towards restructuring and, in some cases, liquidating established funds....
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The difficulties facing regional offshore competitors like the Cayman Islands have taken a similar toll on law firms in the British Virgin Islands (BVI). Fund formation practices have been forced to redirect their efforts towards restructuring and, in some cases, liquidating established funds. "Funds are keeping the lights on for everybody and a bit of financial work beyond that," says one BVI partner.
If there was any doubt beforehand, the past year has confirmed that firms cannot afford to be overly reliant on any one region for their client bases. In the hopes of offsetting dwindling transactions from London and New York, BVI's broader corporate practices have spent the year refocusing themselves on the increasing deal flows originating from BRIC countries and Latin America.
"Emerging markets are faring better than the US and UK in terms of streams of work," says one BVI partner. "During the autumn, when obviously the news agencies were focused on the bailouts in the US and London, under the radar Russian companies benefited from a bailout by the Russian government. We saw a bubble of activity there." Transactions from another Bric member, Brazil, have sustained activity as that country's fledgling private-equity market throws more and more work to offshore centres.
Fallout from Bernard Madoff's Ponzi scheme has roiled investment funds worldwide, adding another segment of work for lawyers in BVI. Since the investigation began into the disappearance of nearly $65 billion invested in Madoff funds, feeder funds have been actively pursuing investments involved with the scheme and kept firms busy with preliminary litigation proceedings. Some fund complexes have been forced to unwind completely.
Fraud accusations abroad have also prompted more involvement from BVI regulators in fund activity. BVI lawyers are still awaiting the passage of the proposed Securities and Investment Business Act, which is slated for enactment in the next year. The new set of regulations would force hedge funds to produce transparency safeguards such as annual audited accounts and to operate under two independent directors. Although it is far from dramatic in its proposals, lawyers here see change to the BVI funds industry as inevitable. "I don't think it can be business as usual anymore," says a BVI partner. "When the market comes back, we're going to have to do business in a different way."
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