At a business conference in the British Virgin Islands in January 2016, Hong Kong-based businessman Carson Wen and his then-partner, Chad Holm, publicly presented for the first time a proposed solution to a problem that has vexed the territory for years: The inability of BVI-registered companies to open bank accounts.
While most major international financial institutions are reluctant to take on the reputational risk of doing business with offshore entities, Wen and Holm said that they were planning to start a bank that would be dedicated to doing just that.
At the time of the presentation on what is now known as the Bank of Asia, the BVI was suffering through years of sluggish incorporation rates, which are seen as a bellwether for the health of the territory’s financial services industry.
But about four months later, those sluggish numbers began to truly nosedive in the wake of the Panama Papers – a trove of more than 11.5 million documents leaked from the Panama-based law firm Mossack Fonseca that allegedly include evidence that Virgin Islands-based companies were used for money laundering and other nefarious activities.
Industry professionals blamed the reputational damage the Panama Papers inflicted on the BVI as the major reason for it suffering the worst year for new company incorporations since at least 2003, when the territory’s financial regulator began releasing quarterly statistics.
But the Panama Papers did more than make companies shy away from incorporating in the BVI; they also exacerbated a problem that has plagued the jurisdiction for years by making international banks even warier to open accounts for entities registered there.
Indeed, months after the Panama Papers stories first broke in April 2016, at least 11 trust firms were notified by three international banks that they would not be able to operate bank accounts with them, according to documents leaked to the BVI press at the time.
Management for those trust firms painted the banks’ decision as a knee-jerk reaction to the Panama Papers, as well as the result of an overall decreased appetite to do business in jurisdictions like the BVI, which are perceived as high-risk.
This growing trend – known as ‘de-risking’ – has left the territory scrambling for a solution to fill the growing void left by the major international banks, and BVI officials are now counting on the Bank of Asia to be that solution.
“There is a long-term retrenchment by Western financial institutions. They are risk adverse, have weak balance sheets, and are hampered by cumbersome regulations. Many see this decline accelerating in coming years… In a fast moving business environment, neither the BVI nor its clients can afford to wait,” said the territory’s Premier, Orlando Smith. “This is where the Bank of Asia can step in and play an important role.”
When the bank was first presented in January 2016, Holm touted it as an institution that could transform the BVI’s financial services industry.
With a BVI-based bank catering to BVI-registered companies, the jurisdiction would transform from a place through which “money just moves from point A to point B and happens to touch, to a financial centre where real deposits stick on the island,” Holm said at the time.
According to Bank of Asia officials, making the BVI a jurisdiction where companies can park their cash would be a value-added service that could help stop the haemorrhaging the territory has experienced since the mid-2000s, when it had around 800,000 companies incorporated there.
“We expect that the number of [business companies] annually will increase to the level of previous years as more new accounts will be opened,” said Bank of Asia President Joycelyn Murraine, a former managing director of Scotiabank’s BVI branch.
Wen told the Cayman Financial Review that he expects the bank to be open by the fourth quarter of this year.
When it launches, Bank of Asia will initially only offer traditional banking services, such as deposit-taking and lending, to the roughly 400,000 companies registered in the BVI – specifically, to about 200,000 companies with ties to Asia, he said.
But eventually, Wen envisions the bank becoming an institution that offers wealth and investment management services.
Unlike typical commercial banks, the Bank of Asia will operate almost exclusively on an online platform, which officials say will keep costs low and allow the employment of “cutting-edge technology” to ensure the bank does business only with legitimate customers.
But the development of this platform has been one of the contributing factors to the delays in opening the institution – the original target launch date was the third quarter of 2016 – according to Bank of Asia officials.
Murraine said IT professionals are putting the finishing touches on the bank’s “proprietary platform,” as well as other technology that will ensure the bank follows know-your-client rules and other regulations.
“Wen is adamant in ensuring that the bank’s compliance and regulatory infrastructure is a robust one, and second to none. Therefore, a lot of time is spent on developing the systems,” said Murraine.
Bank of Asia has also suffered other setbacks, including a falling-out between Wen and Holm – leading to a legal dispute between the former partners in both the Hong Kong High Court and the BVI High Court.
Wen sued Holm and two other businesspeople last October, claiming that they tried to undercut him and set up their own competing bank, according to court documents.
Along with monetary compensation, Wen is seeking an order from the Hong Kong High Court for the defendants to delete any documents and materials relating to Bank of Asia, according to his claim form.
Wen’s claim form contains few details – it makes general allegations that his former partners breached their fiduciary duties, breached their duties of care, and acted in conflict of interest against him – and he has declined to elaborate other than to say that the defendants’ actions contributed to the delays in Bank of Asia’s opening.
Holm, for his part, denies Wen’s allegations against him, and filed a counterclaim in Hong Kong for wrongful termination, seeking more than $25 million in damages.
Holm also filed a lawsuit against Wen in the BVI High Court in January, claiming that Wen breached a contract with him. According to Holm, Wen did not follow through on an agreement to have Holm made a roughly 22 percent shareholder of Bank of Asia.
While both cases are ongoing, Wen called Holm’s lawsuits “frivolous,” and said they will not affect Bank of Asia’s new target date for opening.
The lawsuits did not hamper Wen’s efforts to raise capital for Bank of Asia, with the bank finalizing an agreement in April to sell about 31 percent of its shares to the Bermuda-based firm V1 Group Limited for $30.8 million – after the territory’s financial regulator lowered Bank of Asia’s capital requirement from $100 million to $38 million, which was a precondition for the sale.
The V1 Group’s agreement to purchase the $30.8 million of shares also stipulates that if Bank of Asia does not begin operating by Sept. 27, Wen’s firm Sancus Financial would have to give it another 10 percent stake in the bank at no cost – an event that would give the V1 Group the plurality of shares in the bank.
Officials have not commented on the implications missing the Sept. 27 deadline would have for the bank’s operations, but Wen said he is confident Bank of Asia will have a “soft opening” by then, and will be fully operational in early Q4.
BVI officials are hoping that the bank will open sooner, rather than later, in order to turn around a slide in incorporation rates that has lasted since the 2007 global financial crisis, and has picked up pace over the last year.
“In a fast-moving business environment, neither the BVI nor its clients can afford to wait,” said Smith.