More than two months after the United Kingdom's decision to leave the European Union, predictions about what the United Kingdom's exit will look like remain speculative. Notwithstanding the current period of uncertainty, it is worth considering what the implications of Brexit could be for the British Virgin Islands.
Nothing will change for the British Virgin Islands until the United Kingdom invokes Article 50 of the Treaty on the Functioning of the European Union. When it does, the separation process is likely to take at least two years. Once the United Kingdom has left the European Union, the British Virgin Islands will cease to be one of the European Union's overseas countries and territories. However, the British Virgin Island's relationship with the United Kingdom will not change, and its relationship with other UK crown dependencies and overseas territories that have strong financial services sectors is expected to remain strong.
EU legislation does not apply to the British Virgin Islands directly, so there are unlikely to be any significant legal or constitutional changes to BVI law. However, once the United Kingdom leaves the European Union, its foreign policy and the economic and financial sanctions it chooses to apply will likely start to differ from those of the European Union. This may have a knock-on effect on the financial and economic sanctions which apply in the British Virgin Islands and the countries with which it is able to do business. Exactly what the differences will be and what impact this will have is pure speculation at this stage.
The good news for the British Virgin Islands is that it has carefully drafted legislation and a stable legal system, so the consequences of Brexit will be minor from a legal and constitutional perspective ? it will essentially be business as usual.
One key concern for the British Virgin Islands ? particularly its funds industry ? is the loss of the United Kingdom's influence in developing EU regulation and legislation affecting the financial services industry.
Another aspect of concern stemming from this loss of influence is the European Union's exercise to create a list by the end of 2017 of what is being referred to as its 'common EU list of problematic tax jurisdictions'. A similar exercise is being conducted by the Organisation for Economic Cooperation and Development (OECD) based on objective criteria, including compliance with the OECD's standards for exchange of tax information – on which the British Virgin Is;amds and other UK crown dependencies and overseas territories rank highly. In contrast, the EU process is highly political. With the United Kingdom absent or marginalised in negotiations, there is a real risk that this list may become primarily an attack on low-tax jurisdictions. This could be problematic for the British Virgin Islands despite its full compliance with OECD transparency requirements and the Financial Action Task Force anti-money laundering and terrorist financing standards.
Uncertainty is the biggest immediate consequence of the Brexit decision. On the one hand, this will stall economic activity as businesses delay investment and expansion decisions and investors stall or lose confidence and pull out; indeed, a number of UK real estate funds have had to suspend redemptions due to liquidity pressures. On the other hand, fund managers and other businesses that thrive on market volatility may do very well as a consequence of this uncertainty.
While the British Virgin Islands has strong constitutional and economic ties to London, its outlook is global and its vehicles are used extensively throughout the United States, Asia, Africa and South America. Any slowdown in work originating from the United Kingdom and the rest of Europe is unlikely to have a lasting or significant effect on the British Virgin Island's financial services industry.
For further information on this topic please contact Oliver Bell at Harney Westwood & Riegels by telephone (+1 284 494 2233) or email (firstname.lastname@example.org). The Harney Westwood & Riegels website can be accessed at www.harneys.com.
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