BVI Offshore Business: Grey Area

A six-storey townhouse in Mayfair, which costs £6.25 million and which can take pride of having one of London’s most exclusive addresses by the Upper Grosvenor Street, several weeks ago has been occupied by eight squatters who now plan to leave it only being evicted. According to the Land Registry, the building is held on long lease by the British Virgin Islands-registered Deltaland Resources Ltd, which leases it from the Duke of Westminster’s Grosvenor estate. A spokeswoman for the property company of the Duke of Westminster confirmed company’s awareness of the squatters and said the problem will be solved by the BVI company as the leaseholder.

Deltaland, in its turn, does not come in touch with the group of artists who had settled in the house and redesignated it as a “live-in art installation”. The BVI company  has employed Macfarlands, a City law firm, to deal with this issue.

Meanwhile, the multimillion-pound building has become one of the whole range of central London properties occupied by the group of teenagers and artists, including the addresses on Kensington High Street, in Tottenham Court Road and the former Iraqi consulate. They have changed the locks, reconnected the utilities and say they are going to pay bills. The squatters also insist that they are not making criminal offence, and that they even improve the building, which has been empty since 2005, noting that “the building is listed so English Heritage might be interested to see how the owners have let it disintegrate.”

In the beginning of this month, the Securities and Futures Commission (SFC) of Hong Kong appealed to the Court of Appeal against the High Court decision to discharge an interim injunction obtained to prevent dissipation of assets in the continuing investigation on insider dealing. The Commission also obtained orders from the High Court and the Court of Appeal for stay of execution of the order to discharge the interim injunction until the determination of the appeal or further court order. By the interim injunction, disposal of up to $43 million was frozen, based on evidence and suspicions that “C”, a person whose identity is the subject of a suppression order, was involved in insider trading of Asia Telemedia shares.

By the decision of the High Court, the interim injunction was discharged against “C” and two British Virgin Islands companies controlled by this person, on the principal ground that the High Court does not have jurisdiction to order injunctions under the Securities and Futures Ordinance in cases when the defendant and the assets to be frozen exist outside the HK Special Administrative Region. The person “C” is residing (or appears to) mainly in Beijing, and the assets are in other offshore jurisdictions (British Virgin Islands).

The SFC’s executive Director of Enforcement, Mr Mark Steward, said that they are eager to resolve this case in the Court of Appeal, as it “raises a serious and important issue about the enforcement of HK’s securities laws against persons who are outside the jurisdiction, and the prevention of misconduct by such persons.”

After an eight-day trial at the UK Portsmouth Crown Court, an Island businessman of Sudan origin Mohamed Ahmed Elobeid is found guilty of not paying the largest part of taxes from his £400,000 profit, by setting up BVI offshore trust and bank accounts. He was accused of having cheated HM Revenue and Customs of the amount more than £196,000 over eight years, by having his income lodged overseas and withdrawing it in cash.

Elobeid had denied the fact that he avoided paying income tax and National Insurance relating to his company, Sayf International Aviation Services, and that he tried to cover up bank accounts during a Revenue investigation, by not including them on tax forms.

In the eight years ending in 2004, Elobeid declared an income of £35,713 when reconstruction of his dealings by a financial expert showed it should have been £435,180. When he was living in St Helens, he organized the following scheme: through the Dominion Trust in Guernsey he set up the trust in a third tax haven, the British Virgin Islands. Customers paid into the trust while he instructed the trust to pay money into Jersey bank accounts. Also, large cash sums were drawn by him from British branches of the bank.

The businessman had told the court he believed his actions were legitimate. The case was adjourned for sentencing until December 5. Elobeid was granted unconditional bail.

Under the current law of UK, overseas businessmen can contribute quite legitimately to the British politics by making donations through their UK-registered parties. The Times has recently  discovered series of donations to the Tories party, in the amounts of £50,000 and £100,000, paid legally by UK companies which are probably controlled by offshore entities.

According to the Times publication, £100,000 was given by CVS Management, - the management consulting firm based in Hertfordshire but being a subsidiary of a British Virgin Islands-registered and Swiss-based investment management company Corvus Capital. The person who is guiding the BVI company is Andrew Regan, a financier who was cleared of stealing £2.4 million from the food company where he was chief executive, and who now lives in Switzerland. Last time he himself appeared on the electoral roll in 2004.

It was confirmed by the office of Mr Regan that he travelled from Geneva to attend one Conservative meeting. As the person controlling the BVI-based Corvus Capital, Mr Regan is one of offshore businessmen whose companies appear to be bankrolling Conservatives. Among other companies there are Markland Holdings (UK), as part of an organisation owned by two Irish property tycoons who gave £100,000 to the Tories; Sleepwell Hotels UK, owned by a trust in the Isle of Man; BSN Capital Partners, based in London and controlled by the Cayman Islands company hedge fund ; the British business Venson Automotive Solutions, which gave £50,000, and Swiss-based Star Reefers UK, which also gave £50,000 to the Conservatives, while having recorded £394,000 losses last year.

The Party funding by overseas companies has become publicly discussed after a letter to The Times from Nat Rotschild, concerning George Osborne and the Russian oligarch. Foreign donations were planned to have been abolished when Tony Blair introduced the antisleaze Political Parties, Elections and Referendums Act in 2000, in accordance to which the parties became responsible by law for proving that they were sponsored only by eligible donors.

On November 4, the elections are held in the United States. It is unknown yet who is to be elected as the next president, but it is clear that in any case he will have major impact on global issues. Some persons take a view that a Senator Barack Obama victory could be a particular threat to offshore centres, including the British Virgin Islands, because he made certain efforts to shut them down.

Almost a year ago, in February 2007, Obama co-sponsored the ‘Stop Tax Haven Abuse Act’, which was introduced by Senator Carl Levin. The provisions of this Bill outline a series of measures to crack down on offshore jurisdictions. The Bill is targeting “offshore secrecy jurisdictions”, defined as countries having ‘corporate, business, bank, or tax secrecy rules and practices which… unreasonably restrict the ability of the United States to obtain information relevant to enforcement’. The list of 34 countries is included which will be considered as such upon enactment of the act, including, among others, British Virgin Islands, Cayman Islands, Dominica, Grenada, Bahamas, St Kitts and Nevis, Turks and Caicos Islands.

In his speech in Wisconsin on September 22, Obama spoke on this Act saying: “We lose $100 billion every year because corporations get to set up mailboxes offshore so that they can avoid paying a dime of taxes in America. Imagine if you got to do that… I will shut down those offshore tax havens and corporate loopholes as President, because you shouldn’t have to pay higher taxes because some big corporation cut corners to avoid paying theirs.”

The Bill is thought to reduce the incidence of tax evasion in the US, but there is also an opinion that it will go too far and prevent legitimate individuals from using legitimate financial services, and that the purpose of the document is not to stop the abuse of offshore financial services but exercise control over large pools of development capital.

John Finnin, former chief executive of the failed fuel technology company Firepower Operations Pty Ltd, an Australian branch of the BVI-registered Firepower Holdings Group Ltd., has told creditors in the British Virgin Islands that a $38 mln fortune has disappeared from the bank accounts of Tim Johnston. Johnston was the discredited director of the Australian-based Firepower Operations, and the director and executive chairman of the parent company Firepower BVI, based in the British Virgin Islalnds. Now he could not be reached for comments.

The information about the money that was found in offshore accounts some weeks ago and now is missing was confirmed by Firepower liquidator Bryan Hughes. Mr Finnin informed him that in the last weeks the money has been moved into other accounts that could not be traced. The Australian Securities and Investments Commission has commenced action against Mr Johnston who is now thought to be residing in the UK, and some other businessmen including property developer Warren Anderson, the previous director of Firepower Holdings Group Limited.

Mr Hughes said he had no power to order an arrest warrant for Mr Johnston, because the shares he sold to members of the public were routed through the second BVI company controlled by him. He assumed that people who thought they were investing directly in Firepower were actually buying Mr Johnston’s own shares, and then, through a complicated network of overseas-registered entities, Mr Johnston hide the money trail. Mr Hughes said that the lost amount might have ended up in secret Swiss bank accounts but all of them might also have disappeared. From some credible sources he knew that Tim Johnston had $6 million in a Swiss bank account in his own name, and now probably it has disappeared.

Those who are alleged to have sold shares in the company, including Mr Johnston, have faced Federal Court charges. The court will consider actions against Mr Johnston for insolvent trading, and that, by his expectations, there would be petitions for his bankruptcy.

Firepower, which has 1,208 Australian shareholders who invested between $80 and $100 mln, was wound up in August in the Federal Court. Among its creditors there are the Western Force rugby team and the now defunct Sydney Kings basketball team.

On Monday, October 27, the Omsk Appeal Arbitration Court froze stakes in VimpelCom belonging to the largest shareholder - Telenor East Invest of Norwegian telecoms company Telenor, and Altimo, the telecoms arm of Russian tycoon Mikhail Fridman’s Alfa Group. Telenor owns 29.9% of VimpelCom’s voting stock, while Altimo controls 44%. The Russian mobile company is also partially controlled by British Virgin Islands-registered Farimex Products. The Omsk Appeal Arbitration Court satisfied claim filed by Farimex, having frozen the stakes held by Telenor and Altimo.

Some months ago the court of Khanty-Mansiysk issued a decision in favor of  VimpelCom, on the lawsuit filed by this company against the Norwegian Telenor, and decided that Telenor is liable for $2.8 billion in damages. The Norwegian company filed an appeal to the Omsk Court which is to be heard on November 18.

Despite the fact that the case has not come to its end yet, VimpelCom announced on Monday that it had acquired a 49.9% stake in Euroset for around $226 million. After this the Omsk Appeal Arbitration Court decided to prohibit all actions, direct or otherwise directed towards the acquisition of the assets. The BVI company Farimex said the latest court order would prevent Altimo and Telenor from disposing of VimpelCom’s shares until a settlement is reached on the August court decision.

Alfa-controlled Altimo did not give any comments on the decision, just confirming the fact that the shares in Vimpelcom have been frozen.

The British defence company and arms manufacturer BAE Systems, which is under investigation in several countries for alleged bribery, using secret payments system and running the funds through the BVI offshore companies, paid at least £20mln to a company which is linked to a Zimbabwean arms trader close to President Robert Mugabe.  The documents reported by the Financial Times concern John Bredenkamp known for his controversial career. British properties of Bredenkamp were raided by the Serious Fraud Office almost two years ago as part of an ongoing investigation into BAE’s arms deal with Saudi Arabia, when several African National Congress officials allegedly received bribes. Currently discovered payment of at least £20m is the most significant evidence of a financial relationship between Bredenkamp and BAE.

The payments linked to Bredenkamp were made in the period between 2003 and 2005 by Red Diamond Trading, a British Virgin Islands-registered subsidiary of BAE Systems, from a London-based Lloyds TSB account. The money was transferred to another BVI company Kayswell Services, owned by Bredenkamp (he is the beneficiary of the company).

BVI company Red Diamond Trading was liquidated on May 30 last year, and now BAE’s ethical conduct and compliance with anti corruption rules are conducted. BAE, Bredenkamp and BVI company Kayswell’s representatives declined to confirm the payments or comment on what the money was for. In his turn, Bredenkamp claimed his compliance with EU arms sanctions, which ban the provision of financial related to military activities, and are in force against Zimbabwe since 2002. He also denied any involvement in the South African sale.

The British Virgin Islands-registered Platte International Ltd, formerly known as Micro Bill Systems (MBS), is known as a company with an unusual business model, which already seems to cause some problems to its customers in the UK. People go to websites that use its software, click an agreement offering a free trial and download software to their computer. Then, if customers do not actively end the trial by paying the subscription, they start to see popup windows that appear more and more often, making it harder to use the computer. By complaints of the customers, most of them say they had nothing to do with the company called Platte Media, the popup notices demand payment in the amount of £29.99. For those who do not pay, Platte Media BVI sends letters threatening legal action at the small claims court. For those who do not see the forgery, the letter is included which appears to be from “Issuing Court Northampton County Court”, but in reality it does not.

Some consumers claim only to see a popup bill demanding £29.99 for a 30-day subscription, but in a number of cases it just means that they are not willing to admit their signing up on the family PC for company’s services meaning signing up for free trial to watch pornographic films.

Platte International Ltd BVI has already attracted attention for having stills from mainstream films on a website when in reality it was offering thousands of pornofilms. Another questionable thing about the company is its ability to obtain personal details about the customers. It was suggested by some people that Platte International uses IP addresses to ask internet service providers, because when installing of software does not demand any personal details. However Stanly Hiwat, the chief executive officer of Platte International Ltd BVI, informed that the only situation where the company would get an individual’s address is when a court grants an Order requiring the Internet Service Provider to disclose it.

And the last question about the BVI company, which is also the most tricky, is about whether it is registered for VAT, and if yes, then in what jurisdiction. One of the customers, having paid for the subscription, asked for a VAT receipt, but the receipt arrived without a VAT number, and he was informed that any payment made to Platte Media was to Platte International in the British Virgin Islands, and as such was not subject to VAT.

This fact became the focus of the interest of HM Revenue and Customs, which was asked whether really the company registered offshore and providing services to customers in the UK, is  not liable to VAT. HMRC answered that non-EU suppliers providing “electronically supplied services to UK consumers” were required to register for VAT in case if the VAT threshold is exceeded.

The BVI company claims that it does not exceed the VAT threshold, which makes £67,000 in a year, but it seems that it does. Hiwat, the CEO of BVI-based Platte International Ltd, who is located in Brazil, did not answer any detailed questions about VAT, having said just some common phrases. However, it is suggested that there are between 40,500 and 64,500 downloads per month on company’s websites, and this makes the company to exceed the limit to a large extent, assuming that large part of subscriptions comes from the UK.

Mike Bailey of accountancy firm PricewaterhouseCoopers (www.pwc.com/) commented that it is a real problem for non-EU companies supplying electronic services to be enforced for VAT registration, because it is very difficult to find out which non-EU companies should have registered on their income.

HMRC is more determined: if it becomes aware that an overseas trading company (including BVI-based Platte) is liable to register in the UK, it can compulsorily register them and issue an assessment of any tax due. If appropriate, a civil evasion or belated notification penalty can also be issued.

Premier and Minister of Finance Hon. Ralph T. O’ Neal, has made an announcement in the beginning of October concerning the BVI government plans to launch a transparent investigation into the issue of the disbursement of more than US$45 million between a Bermuda-registered IPOC International Growth Fund Ltd, and the British Virgin Islands. This amount was confiscated by the BVI court some months ago, after the 17 month investigating period carried out by authorities of the British Virgin Islands and Bermuda, and after the BVI- and Bermuda-based companies pleaded guilty to providing false information and perverting justice course. It was found out that in 2004-2005 the IPOC group lied about the source of $40 million that was lodged with the court of a separate civil matter.

The three BVI companies - Albany Invest Limited, Lapal Limited and Mercury Limited, - were also ordered to pay a total of $2.2 mln in costs and $300,000 in fines for their part in the offences. All the defendants including BVI companies are within the IPOC group.

In the centre of the case there was a long dispute between IPOC and Alpha Group which is the owner of the BVI-registered  LV Finance Group Limited; it is suggested that the $45 mln amount plus was transferred and divided in half between the BVI and Bermuda without the awareness of the BVI government.

Premier O’Neal said that the BVI government was not aware of the disbursement seized by the BVI High Court from a Bermuda company, and announced that the government will be launching a transparent investigation into the issue.