"We are not attractive to the ethically challenged"

British Virgin Islands executive director protests against tax haven image.

"We are not attractive to the ethically challenged," protests Elise Donovan, executive director of the British Virgin Islands’ financial centre. Donovan is saying that everything you think you know about the BVI – banking secrecy, half a million companies for under 25,000 residents – is wrong, or at least good.

"People who have strong business acumen know about the BVI. We have to educate the people don’t know the facts. People who know business know that the BVI is a reputable, above-board jurisdiction… There’s a misconception that we are in some sort of illicit activity, when we are part of the wheels of commerce in the global financial world."

Speaking at BVI House in Mayfair, alongside Dr Orlando Smith OBE, premier of the British Virgin Islands, and financial secretary Neil Smith, Donovan seems to chafe at the BVI’s reputation, not enhanced recently by the revelation in The Guardian of high-profile figures who had offshore accounts there.

Mongolia’s former finance minister and François Hollande’s 2012 election campaign co-treasurer were both fingered (not for illegal activity), as were Scot Young (went to jail rather than reveal assets) and Baroness Carmen Thyssen-Bornemisza (owns her art there).

Perhaps Donovan has a point. As I wrote in April, when the story broke, no-one made the point that there is nothing nefarious about legitimate offshore banking. I also argued that the investigation constitutes invasion of financial confidentiality on an enormous scale – also a point overlooked by many in their fervent tax-haven bashing. (Tax justice campaigner Richard Murphy was one who celebrated the leak.)

How was this information obtained, I ask Premier Smith (pictured left). Given that the BVI pride themselves on their banking confidentiality, the report must have been extremely embarrassing for the island’s IFC as well as off-putting for potential customers.

"[The information] was acquired illegally," Smith says firmly, "but we’re not exactly sure how. We were shocked, but we were comforted by the fact that it did not originate from our regulatory system, from the IFC or from any structures in the BVI."

Just how the data was obtained remains to be discovered, but I wonder if the premier is worried that the BVI will have sustained a reputational hit as a result of its release. He says that customers – both current and potential - needn’t be worried about the IFC’s commitment to confidentiality, despite the report.

People aren’t going to see it like that though. The BVI is not alone here in feeling that it is misunderstood as a "tax haven", in which billions of illegitimately acquired offshore dollars are stored in obscure bank accounts: all IFCs, it seems – and not just those in idyllic, sun-dosed islands – are being tarred with the same brush. As Smith says, "Any jurisdiction that deals with financial services is called a tax haven. That is just a name people use but it’s not what it’s about."

There is a difference, often overlooked, between confidentiality – in which the BVI IFC maintains "very high standards" – and secrecy, which it does not tolerate, says the premier: ‘Secrecy suggests that someone wants to hide something, confidentiality suggests you simply don’t want to have your information public. You wouldn’t want your bank information public, for example.’

I certainly wouldn’t – although I suspect it would be dull enough to avoid serious scrutiny – but some point to other aspects of the BVI to justify their suspicions that a lot of people there are up to no good. They point to the 500,000 active registered companies on the BVI, for example, so I ask financial secretary Neil Smith what they’re actually used for.

His response, at a slight angle to the question, is clearly motivated by frustration with the IFC’s public image: "The biggest misconception for me is that it is not possible to find out who owns a particular company [in the BVI]. Yes, the public won’t know, but if the UK government want to know who owns a particular BVI company then they need only ask, and that information will be provided." The BVI has 24 Tax Information Exchange Agreements in place with other countries, and signed its most recent with Canada on 21 May.

Smith is also annoyed at the idea that billions of dollars are actually stored in the BVI: "We don’t keep money here. It’s true that the BVI owns a lot of assets, but they’re not in the BVI. They may be in London or Hong Kong, but they’re not actually held here."

Even if they were though – assuming they had not been criminally acquired – that would not automatically make the account holders morally suspect. Of course, that’s never going to be the headline.

Neil Smith pleads for a fair go: "It’d be nice if the BVI is recognised for the quality of its IFC. Just put us on a level playing field, and treat us in an objective manner." Whether, in a world where large governments are bullying smaller governments to name names so they can cream off tax (the decimation of banking secrecy is incidental), the BVI will get fairness remains to be seen.

This article first appeared on Spears

Photograph: Getty Images

Mark Nayler is a senior researcher at Spear's magazine.

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We are heading for the next recession – it's crucial the right people are in charge

There is grave economic trouble ahead, and if the Tory right are in power, the consequences could be ghastly.

Well, we were warned. The governor of the Bank of England and the IMF, as well as much of the financial community, were very clear that Brexit would produce a damaging economic shock. It is happening.

Even if we discount George Osborne’s absurd and counterproductive attempts to predict the precise fall in house prices and threaten a deflationary emergency budget, there were sensible and dispassionate warnings of severe trouble ahead. We now need to think through how progressive opponents of this government should respond.

My starting point is a disagreement with my Tory former colleagues in the coalition – from both Remain and Leave – who argue that Britain has a “fundamentally strong economy”. It doesn’t. We have barely recovered from the 2008 crisis, are still on the life-support system of artificially cheap money and have a horribly unbalanced economy. Recovery was happening but fragile.

The first stage in the post-Brexit shock is the predictable turbulence in financial markets as liquid investors jump into safer assets and away from riskier holdings of sterling, UK banks and other shares. This is a very different situation from 2008, which was a financial crisis to which politicians had to respond; this is a political crisis, a huge escalation of political risk, to which markets are responding.

The fall in sterling should not exercise us too much. If devaluation is locked in, it would help rebalancing. The Monetary Policy Committee will surely be sensible and disregard the short-term inflationary consequences, as members did the spike in commodity prices five years ago. If investors move out of UK residential property and precipitate a sustained fall in house prices, that is also to be welcomed. The main casualties of the immediate turbulence are Brexit-voting pensioners whose annuity values crashed with the flight into gilts.

The gravest potential short-term risk was anticipated by the Bank of England when it pumped in £250bn to prevent a drying up of liquidity in the banking system and another credit crunch. The prompt action has clearly reassured markets. However, what may be more serious is the gradual reassessment of risk by bank credit committees leading to restrictions on lending to smaller businesses. That would be disastrous for growth. A pragmatic government should reach for some of the tools created by the coalition, such as the British Business Bank, for sources of business credit.

In the second stage the crisis will migrate from asset markets to the real economy and jobs. The new Tory leader will be praying the time before unemployment kicks in will be long enough to have a general election. By autumn, we shall have a clearer picture of the scale of any slowdown, but I find it difficult to see how we can avert a Brexit recession.

The issue is how to deal with a recession. Monetary stimuli are losing effectiveness. With interest rates close to zero, there isn’t much scope for further cuts and quantitative easing is becoming increasingly problematic. Some in the City will be urging more cuts, worried about Osborne’s plan to eliminate government borrowing by 2019.

There was never a better time for public investment to fill the gap in demand left by private investors. There is a long pipeline of coalition infrastructure projects, including Network Rail’s stalled investment plan, to get on with. But then we encounter the Treasury’s pathological aversion to borrowing to invest. Its deep conservative instincts will be reinforced by our deteriorating credit rating.

Yet the need to confront the structure and balance of the economy transcends the issues of short-term crisis and medium-term macroeconomic management. The financial sector may well take a bad hit with banks migrating to European centres. We should not minimise the costs to individuals and the Exchequer, but it may be no bad thing if the result is some rebalancing. The industrial strategy put in place under the coalition is an ideal vehicle for building confidence in long-term investment in manufacturing and creative industry. Of course, none of this will happen without a speedy confirmation of the UK’s continued role within the single market.

How the economics of this political crisis will be dealt with depends on the parliament that is returned when a new Tory leader calls an election. If the Tory right emerges triumphant, the consequences will be ghastly. If the parties of the centre and left – including disaffected Tory Remainers – can get themselves organised, however, we could see an altogether happier outcome.

This article first appeared in the 30 June 2016 issue of the New Statesman, The Brexit lies