A thick green binder sits on the edge of the mahogany table. It is bound in leather and the gold lettering on the spine has begun to flake. Inside this binder is the register of members for a company incorporated in Tortola. People see a binder like this and they think of silence and they think of hidden things.
They are wrong and the binder is the proof that they are wrong. This binder holds the names of every person who owns a piece of the business and those names are also stored in a secure digital vault accessible by the authorities. The binder is old but the rules inside it are new and they are more demanding than the rules in the city outside the window.
The Transparency Paradox
The binder is a physical record of a digital, globally-accessible truth.
The Lingering Silence
Camila sits across from an associate from a venture capital firm. They are in the middle of a due diligence call for a Series A round. The associate is young and he wears a crisp shirt and he scrolls through a cap table on his laptop. He stops on one line and he looks up. He sees the name of a British Virgin Islands entity.
He pauses and the pause lasts longer than it should. Camila knows this pause and she has felt it before. The associate asks about the entity and his voice is careful. He wants to know why the structure exists and he wants to know if it is a risk. He uses the word offshore and the word hangs in the air like smoke.
The associate does not know that the word changed in . He still uses the vocabulary of the nineties and he thinks he is being diligent. Camila has the substance filing and she has the register extract and she has the joint venture agreement.
She has spent the last maintaining this structure and she has filed more reports for this entity than she has for her domestic operating company. She explains the Indonesian partner and she explains the neutral ground of the BVI and she explains the tax information exchange agreements. The associate listens but the word offshore has already done its work. It has made him sit back in his chair and it has made him look for a problem that is not there.
This is the linguistic lag of global finance. A word can survive long after the reality it describes has died and the lag is never neutral. It creates a friction that costs time and it creates a suspicion that costs money. In the rules for economic substance were enacted in the British Virgin Islands and the Cayman Islands and the Seychelles.
These rules required companies to prove they had real activity and real people and real costs in the jurisdiction. It was the end of the old way and it was the beginning of the new transparency. The world moved on and the regulators moved on but the vocabulary stayed behind.
The Inverse Reality of Compliance
The received belief is that these structures trade transparency for an advantage but the reality is the inverse. A BVI business company today carries an annual substance reporting requirement and a register maintenance requirement that a private company in a domestic jurisdiction does not face.
Onshore Domestic
Often no requirement to declare ultimate beneficial ownership to a central register.
Modern "Offshore"
Mandatory UBO declaration, annual substance reporting, and rigorous register maintenance.
If you own a small company in a major onshore city you might never have to declare your ultimate beneficial ownership to a central register. If you own a company in the BVI you must do it or you will face the law. The compliance burden moved to the places people call offshore and the reputation stayed in the places they call home.
Camila watches the associate. She thinks about the many hours she spent with her advisors at Encor Group to ensure every filing was perfect. She remembers the stress of the first economic substance declaration and the way they mapped the relevant activities to ensure the company was compliant.
They worked through the classification of the joint venture and they documented the board meetings and they proved the management and control was where it said it was. It was a rigorous process and it was a transparent process. It was the opposite of what the associate thinks it was.
The Tyranny of the Word
The frustration is not just about the paperwork. The frustration is that a word can govern behavior more efficiently than a statute. A statute requires a budget and it requires enforcement and it requires a court. A word only requires a listener.
When the associate hears the word offshore he activates a mental model that is thirty years old. He thinks of suitcases and he thinks of secret accounts and he thinks of shadows. He does not think of the Common Reporting Standard or the Automatic Exchange of Information. He does not think of the four regional hubs and the specialists who track regulatory change across ten markets. He thinks of a movie he saw once.
We use the word offshore to describe a geography but it has become a description of a character. If a structure is domestic it is assumed to be honest until it is proven otherwise. If a structure is offshore it is assumed to be a character flaw until it is explained away.
This is a tax on the documented. It is a penalty for those who choose a structure for its legal efficiency and its neutral ground and then submit themselves to a level of scrutiny that the domestic world avoids.
The associate asks about the beneficial ownership and Camila opens a file. She shows him the BOSS system filing. She explains how the British Virgin Islands authorities can share this information with global law enforcement in minutes. She shows him the tax residency certificates. She shows him that the structure is a glass house and that there are no curtains.
The associate nods and he writes a note on his laptop. He is satisfied but the they spent on this are they did not spend on the product or the customers or the growth.
This happens in boardrooms and it happens at dinner tables. A co-founder's mother asks about the company and she hears the name of a Caribbean island and she worries for her son. A journalist writes a story about a leak and he groups a legitimate joint venture with a criminal enterprise because they share a common postcode. They use the word as a weapon because the word is easier to understand than the law.
The Stapler Strategy
I have seen this happen many times and I have made the mistake of being defensive. When you are defensive you validate the suspicion. When you explain the rules you become a teacher and the teacher is never the suspect.
"The moment you try to justify your existence you have already lost the room. You must state the fact as if it is as boring as a grocery list. You must treat the BVI company like a stapler. It is a tool and it has a function and it is on the table."
- Carter A.-M., Executive Coach
The binder on the table is not a secret. It is a record. The companies that survived the shift are the companies that embraced the record. They are the companies that realized that transparency is the only way to maintain the advantage of a cross-border structure.
They pay for the audits and they pay for the secretarial services and they pay for the specialist advice because they know the cost of being misunderstood is higher.
The Honest Thing in the Room
The geography of capital has changed but the map in our heads is still old. We look at a list of jurisdictions and we see colors that represent risk and we do not see the infrastructure that has been built beneath them. We do not see the thousands of compliance officers and the millions of lines of code that ensure the money is clean and the owners are known. We only see the palm trees and we hear the word.
Camila closes the file and she looks at the associate. The call is almost over. They have talked about the revenue and they have talked about the churn and they have talked about the BVI. The associate says he will talk to his partners and he says he thinks things look good.
He closes his laptop and he stands up. He looks at the green binder one last time. He does not know that the binder is the most honest thing in the room. He only knows that it looks like something he should be careful with.
The binder holds the names but the word holds the suspicion.
We need a new vocabulary for the way the world works now. We need words that describe the difference between a structure that hides and a structure that organizes. We need to stop using a word from to describe a reality from .
Until we do we will keep spending of every hour defending the documented and ignoring the domestic. We will keep letting the vocabulary govern the behavior and we will keep paying the price for the linguistic lag.
Camila walks out of the room and she leaves the binder on the table. She knows it is all there. She just wishes she didn't have to say the word.