After Hurricane Ivan ravaged the Cayman Islands on Sept. 11-12, questions persisted for days about whether the island’s financial services industry would also be devastated.
“Would the fifth largest banking center in the world be able to recover?” states a Sept. 24, 2004 article in the Cayman Compass. “A worldwide rumor mill began turning and by the end of that fateful weekend, many thought they had heard the last of the small, affluent island.”
Luckily for the territory, business was largely restored within weeks, with many industry practitioners touching it out and working in their air condition-less offices, and others working from abroad. Now, Cayman regularly sets new records for employment totals, population, and other economic indicators.
Roughly 1,100 miles east, another Caribbean offshore financial jurisdiction faces a similar question as what was posed to Cayman 13 years ago: Will the British Virgin Islands, which was devastated by Hurricane Irma, be able to maintain its position as one of the world’s major offshore financial centers?
According to industry professionals, some factors such as technological advances are working in the BVI’s favor, while other factors such as the severity of infrastructure and housing damage are working against it.
Better record-keeping systems is one major advantage firms have now that they did not in 2004.
When Baker Tilly insolvency lawyer Hadley Chilton arrived in Cayman in Oct. 2005, he said he heard stories about paralegals microwaving water-logged documents in order to save them from being destroyed. Kevin Butler, a partner at the Cayman office of Conyers Dill & Pearman, said that in 2004 his firm’s records were backed up on tapes, which had to be transferred to its Bermuda offices a week after Ivan in order to recover the Cayman records.
With more advanced electronic record-keeping systems, the risk of losing corporate and legal records should not be an issue for BVI firms, said Butler.
Enhanced information technology has also allowed BVI company formations – the territory’s primary financial service – to continue largely uninterrupted. Within days of Irma, the BVI Financial Services Commission announced that its online portal was back up and running, allowing firms to incorporate companies and make regulatory filings.
“Our financial services business was built to allow people to do BVI business from anywhere in the world, and to continue business regardless of the physical conditions in this jurisdiction,” stated a Sept. 11 announcement from Elise Donovan, the head of the Hong Kong-based BVI House Asia. “BVI has proven success with, and continues to be the go-to jurisdiction for, Asian and Chinese foreign direct investment. More than 40 percent of BVI corporate vehicles are owned and used successfully by Asian business leaders and high net worth individuals.”
Contrast that quick recovery with Cayman’s Companies Registry, which was offline for weeks after Ivan. By Sept. 24, 2004, government announced that the Registry was in service “for new companies only.”
“The Registry team intends to work on the weekends to deal with the backlogs of registrations interrupted by Hurricane Ivan,” states a Compass article from the time. “Further information will be provided as the service capability of the Registry expands to pre-interruption levels.”
Being able to do business remotely is essential for the BVI, as nearly a quarter of its population has been displaced and more than 4,000 homes destroyed.
Cayman was more fortunate, according to Mr. Butler, who said that most Conyers employees remained on island in 2004.
Similarly, BDO Managing Partner Glen Trenouth spent about three weeks in the BVI before returning to Cayman. His employees soon followed him, he said.
“Not only are many of them staying on island, but they have opened the doors of their offices to house outside corporate peers,” states an Oct. 1, 2004 Compass article. “Maples is accommodating two other law firms and a bank… [Then-Deputy Financial Secretary Ken] Jefferson said the search is ongoing for similar arrangements for other government departments.”
When the hundreds of industry practitioners who left the BVI could return depends on how quickly the territory can rebuild its thousands of flattened homes, repair its infrastructure, and restore other essential services.
To that end, BVI officials have been working furiously to return the territory to normalcy.
The most vital social service – law and order – has been restored, with BVI police, U.K. military, and a group of 16 Cayman police officers helping round up the roughly 140 escaped prisoners and arresting people who looted after the storm.
School also resumed on Oct. 2, and internet has been restored on much of the island. Government is aiming to have power back up throughout the territory by mid-December at an estimated cost of US$48 million.
Still, commercial airlift remains limited, with no flights taking place during the night, and the BVI Commercial Court is expected to be located in St. Lucia until at least mid-December.
Mr. Butler said it could be six months or more until Conyers’ BVI employees return. He added that Conyers’ BVI office is relatively unscathed compared to other firms, but is currently being used to house U.K. military personnel.
Policies that could speed up the rebuild include implementing tariff reductions, streamlining work permit and business licensing processes, and instituting prohibitions against price gouging, Mr. Butler said.
On Sept. 21, the BVI government took one of those steps, waving duties for building materials, food and water, generators, pharmaceuticals, and furniture and other household goods.
Mr. Chilton, who lived in Cayman from 2005-2008 and is now based in the BVI, added that government is reviewing its immigration policies to make it cheap and easy for incoming construction laborers and other workers to obtain temporary work permits.
The BVI would be best served to emulate other Cayman policies that make it relatively easier for non-citizens to obtain permanent residency and open businesses, he added.
“There are people who’ve lived here for 10 to 20 years and still aren’t permanent residents,” he said. “We might want to revisit that.”
But even if the BVI does everything properly, its financial sector will still be largely dependent on the performance of the global economy, he said. That could be bad news for a territory that has seen new lows in incorporation rates since over the last year, and has had the number of companies registered there roughly cut in half since the 2008 financial crisis, from around 800,000 to less than 400,000 at the end of the second quarter of 2017.
“Cayman had momentum. Ivan was three years before the 2008 blowup,” he said, adding, “I think it’s a bit too early to tell [for the BVI]. We definitely don’t have booming economies around the world.”