Cryptocurrency and offshore entities in the British Virgin Islands

Overview       

            Cryptocurrency has revolutionized our monetary system since it was first launched in 2009 as the first decentralized currency. The founding father of the crypto currency “bitcoin” was a man under the pseudonym, Satoshi Nakamoto. Nakamoto published his “Proof of concept” whereby he established the mathematical formula that created bitcoin. Cryptocurrency as defined by scholars is a virtual coinage system that functions much like a standard currency, enabling users to provide virtual payment for goods and services free of a central trusted authority. Bitcoin and cryptocurrency in general, do not require a person to be in charge. One simply downloads the software for free and start receiving and sending any cryptocurrency. Further, cryptocurrencies rely on the transmission of digital information, utilizing cryptographic methods to ensure legitimate, unique transactions. Today, if you browse around any financial website, entrepreneurial blog, or social media platform you will likely hear the constant buzz about one thing: cryptocurrency.

Crypo-currency in the BVI

Today, cryptocurrency has become popular in those BVI structures which use an international business company “IBC” as part of it. The structure of the crypto currency must have an initial coin offering (ICO) of crypto currency to structure itself as a financial vehicle. An ICO is the accessibility to third party capital. In an ICO, investors exchange cash or monies for a new crypto currency on a blockchain network. Here, the crypto assets become a credit or token to purchase goods or a service in the application into which the ICO proceeds will be invested. The ICO has an ICO Sponsor or Founder who creates the business plan or “white paper” to detail the fundraising target goals. The ICO Sponsor appoints an ICO Issuer that enhances the funds issuing crypto-currency token on a blockchain network. Typically, the ICO Issuer is an incorporated “IBC” established under the BVI Business Companies Act, 2004.

Currently in the BVI there is no current regulatory framework that prohibits cryptocurrency and blockchain business. The government has embraced the idea of a crypto currency industry and regulation in the future, nevertheless the current scenario allows you to incorporate your company by simply establishing the below:

  1. Filing the incorporation of an International Business Company “IBC” at the Registry of the BVI
  2. Appointing a minimum of one director either corporate or natural person,
  3. Appointing a minimum of one shareholder either corporate or natural person,
  4. Appointing a register agent that has a registered office in the BVI, that will maintain corporate documents.

Once the IBC has been established, the entity must consider the below regulations, in case they may apply to the cryptocurrency activity:

The Securities and Investment Business Act 2010 (“SIBA”)

SIBA forbids any individual or company from carrying out investment business activity without holding a license authorized from the BVI Financial Services Commission (“FSC”).  While the act does not point to cryptocurrencies or any virtual token, it is important to consider the definitions provided in this act.

Anti-Money Laundering Regulations 2008 (“AML”)

AML does not interfere with the launching of cryptocurrency as it is not defined within the act or any relevant business activity. However, it must be considered as speculations indicate the act could be modified in the future to include cryptocurrency. In conclusion, the act must be considered in case it is modified.

BVI Electronic Transaction Act 2001 (“ET”)

ET is relevant when considering a cryptocurrency entity as this act regulates all electronic contracts and records. All electronic contracts and records shall not be denied legal validity in the BVI simply because they are only maintained in electronic format. In essence, the act is relevant as all crypto related transactions will be done electronically.

Beneficial Ownership Secure Search System Act 2017 (“Boss Act”)

The Boss Act requires that resident agents in the BVI record information as to the beneficial ownership of the company on a central government-controlled database. Boss Act defines beneficial ownership as the person, juridical or natural, that holds control over the entity (i.e share ownership, voting rights, the rights to appoint board members and influence and control over a company). As the factor of disclosure is the control of the entity, token holders in a crypto currency would not be recorded as any beneficial owner.

BVI Financial Services Commission (“FSC”)

In 2020, the BVI the Financial Services Commission (FSC) published Guidance on the Regulation of Virtual Assets in the island. The first step is to determine if a license is applicable for any financial services unless they are excluded. To determine whether licensing is required for virtual assets, the following factors must be assessed:

  1. The way the crypto asset is being utilized.
  2. The types of business activities being proposed or conducted.
  3. Whether the business activities are analogous with those conducted through traditional businesses; and
  4. The characteristic and business activities (economic substance)

Once it has been determined that it conducts a regulated activity, a license is required and the entity must comply with the Anti-money Laundering Regulations, 2008, The Regulatory Code, and the Financial Services Commission act, 2001Advantages of Crypto currency in the BVI.

The current laxed regulations regarding crypto currency has made the jurisdiction attractive, as the government has not announced any soon to be future laws.

Some of the advantages are:

  • Tax relief if the entity can demonstrate that all activities are carried outside of the country.  They are not subject to income tax.
  • Annual maintenance is low, as to opposed to other jurisdictions in the Caribbean.
  • “transaction fluency” as a pioneer in the offshore business in the region, the BVI continues with a robust professional service community of lawyers, accountants, and corporate services providers that allow for transactions to become handled with ease.
  • the ICO forms are not subject to additional securities for public offering regulation under the BVI law, as current obligations for companies in the BVI are non-onerous.

Conclusion

 The BVI remains a jurisdiction of opportunities despite the numerous regulations that have been implemented in the last decade. Crypto currency is a new, innovative vehicle that no longer requires the in-person exchange of currency but rather, the wireless communication. The ease of doing business in the BVI remains favorable as the government remains at the forefront of protecting the confidentiality of information and investing resources in the development of platforms that assist the ICOs in a fluent transaction. The government, in addition, seems skeptical in passing regulations that do not permit crypto currency, so for the time being, it will remain as a popular jurisdiction to utilize in crypto currencies.