What impact will the UK vote to leave the EU have on the UK’s Overseas Territories? While there is unlikely to be any change to legislation or political stability in the BVI as a result of Brexit, the loss of status as an EU Overseas Country and Territory (OCT) together with loss of influence of the UK could impact its future relationship with the EU.
What are the key concerns for OCTs in light of the EU referendum result?
Bermuda, the BVI and the Cayman Islands, as Overseas Territories of the UK, are each OCTs of the EU under the Treaty of Rome and successive EC/EU treaties. OCT status has been recently reviewed and is now governed by the Overseas Association Decision of 2013 (the OAD).
The OCTs have diverse economies and their concerns are not all the same. The OAD provides for preferential trading rights for, in practice, less developed OCTs. Bermuda, the BVI and the Cayman Islands, having some of the highest GDP per capita in the world, have not historically looked to benefit extensively from these rights, although this will be a major concern for other OCTs. We do not expect that cessation of OCT status will materially impact on the scope or viability of the financial services industry located in any of Bermuda, the BVI and the Cayman Islands. Nevertheless, their relationship with the EU will technically change in future in light of the referendum result, as they will cease to be OCTs following Brexit.
One knock-on impact is on the likely process of the EU in creating what is pithily being referred to as its ‘common EU list of problematic tax jurisdictions’ by the end of 2017. Unlike the similar G20 exercise, which is more likely to be based on objective criteria such as transparency (on which the Crown Dependencies and Overseas Territories score highly), the political element of this is extremely high and the probable absence of the UK as an influential voice increases the likelihood that this becomes simply an attack on low tax rates. This obviously has implications for Bermuda, the BVI and the Cayman Islands, notwithstanding their full compliance with the transparency requirements of the Organisation for Economic Co-operation and Development (OECD).
Although EU regulation is not usually implemented in Bermuda, the BVI and the Cayman Islands, as all are outside the EU, the referendum result may impact foreign policy, including economic and financial sanctions and restrictive measures, where the UK’s membership of the EU does make a tangible difference. Currently, in rare applications of its reserve powers, the UK directly applies EU-origin sanctions to its Overseas Territories (including Bermuda, the BVI and the Cayman Islands). Following the referendum and a subsequent Brexit, UK foreign policy will, almost certainly and over time, start to differ from the EU’s policy, including in the way it deals with countries currently subject to sanctions. How it will differ and what (if any) impact that change will have is speculation at this time.
Bermuda, the BVI and the Cayman Islands have separate legal systems and we expect that there will be no other direct impact on their existing legislation or stability following the referendum result. These jurisdictions are not members of the EU and EU law does not apply directly to them. We also expect that the relationship between Bermuda, the BVI and the Cayman Islands, on the one hand, and the UK, on the other, will remain the same following the referendum result and any UK exit from the EU.
To what extent, if any, has the relationship of the BVI with the EU differed from that of the UK as a whole?
As the BVI is not a member of the EU, its relationship with the EU is via the BVI’s status as an OCT. The BVI is currently co-chair with the European Commission of the OCT-EU Financial Services Partnership Working Party, which discusses financial services issues.
The UK is currently a full member of the EU, with the direct rights and obligations that involves.
What role would the BVI seek to play in any negotiations concerning the UK's future relationship with the EU?
Former UK Prime Minister David Cameron confirmed that the UK will consult the Crown Dependencies and Overseas Territories when preparing for negotiations with the EU, to ensure that the interests of all parts of the UK are protected and advanced. Since the appointment of new Prime Minister, Theresa May, the Minister of State at the Foreign and Commonwealth Office, Baroness Anelay of St Johns, DBE, PC, FRSA, has been in contact with the government of the BVI. The BVI is currently compiling a paper to present to the UK setting out the BVI’s priorities in relation to the negotiations.
Premier Dr Orlando Smith OBE also confirmed in his statement on 30 June 2016 that the government of the BVI will be working to persuade the UK that the BVI and other Overseas Territories should be directly involved in the UK’s negotiations with the EU, not just consulted.
Premier Smith also attended the UK Overseas Territories Heads of Government Pre-Joint Ministerial Council meeting held in the Turks and Caicos on 20-21 July 2016. It was acknowledged at the meeting that the consultation process with the UK should be held collectively with the Overseas Territories, but it seems likely that individual Overseas Territories may become directly involved in negotiations on specific matters of concern to them, even though this is not the UK’s preferred approach.
Has the Government of the BVI taken any position on the form of relationship it would like to see the UK adopt with the EU?
The Government of the BVI has not taken any position on the form of relationship it would like to see between the UK and the EU.
Are there any issues you think lawyers who deal with the BVI should consider at this stage?
BVI law remains unchanged as a result of the EU referendum result. We do not expect there will be any significant impact on BVI’s existing legislation or stability following a UK exit from the EU, as EU law does not apply directly in the BVI.
To the extent that BVI entities have entered into contractual arrangements which include references to EU regulations or are governed by non-BVI law, such as finance agreements governed by English law, there may be implications for their lawyers to consider with relevant onshore counsel.