BVI Offshore Business: Grey Area

Kludjeson International Limited (KIL), the company which issued a legal suit against a HK-based Hutchison Telecommunication Limited, accusing it of fraud, is currently in a legal showdown with institutions and personalities to win the ownership dispute of the mobile telecommunication company in the court.

In the ownership struggle over KIL’s subsidiary Celltel Limited, a BVI company which is now conducting business as Kasapa Communications Limited, both companies have descended on the institutions and personalities manning the affairs of the company, and accused them of fraudulent actions. The names mentioned in the joint legal suit of KIL and Kasapa Communication include the Standard Chartered Bank Limited, Pricewater House Coopers, an Accountancy and Management Consultancy firm, Bentsi-Enchil, Lesta and Ankomah, a private partnership company providing legal services and Sudan Telecommunications Limited of Sudan. Among other defendants there are Trustee Services Limited, a company issuing secretarial duties, and its General Manager Philip Dosoo, British Virgin Islands-registered offshore companies Certwell Limited, Kuwata Limited and EGH International Limited, and Expresso Group Limited of United Arab Emirates. Also, the list of defendants includes Emad H. Ahmed, Emad Sukker, both of United Arab Emirates, Ihab Ibrahim Mohammed Osman of Sudan and Lung Hien Ching, a resident of Ghana.

Among other decisions, plaintiffs are seeking a court declaration that BVI companies Certwell Limited, Kuwata Limited and EGH International Limited, as well as some other defendants, are not direct or indirect shareholders of Kasapa Telecommunication Limited, and Emad H. Ahmed, Emad Sukker, Ihab Ibrahim Mohammed Osman and Lung Hien Ching are not and never been directors or alternate directors of the mobile telecommunication. Also, KIL and Kasapa are seeking a restraining order against each of the defendants and their agents apart from Trustee Services Limited and Philip Dosoo, from holding themselves as directors, shareholders, officers and offering and receiving banking services to the telecommunication company.

The Supreme Court of Philippines in its resolution denied the P6.2-billion compromise agreement between government-owned Philippine National Construction Corporation (PNCC) and Radstock Securities, Ltd., a British Virgin Islands-registered firm with HK office address. Under the agreement, PNCC agreed to assign to the BVI company all its rights and interest over a 10-hectare prime property which has transfer value of only P3.82 billion, as well as other prime properties. Also, the agreement binds the PNCC to give up in favor of Radstock 50% of PNCC’s 6% share in the gross revenue of the Manila North Tollways Corporation, with net value of P1.2 billion, and to cede 20% of its outstanding capital stock with the assigned value of shares at P713 million to Radstock.

According to the ruling of the high court as of December 2009,  the contract violates the Section of the Constitution banning the release of public funds without a legislated appropriation. In the 90-page consolidated decision issued last year, the high court pointed out that the compromise agreement would have cost the Philippines government billions in terms of prime real estate properties.

Radstock Securities, Ltd. appealed to the high court saying that the PNCC was still a private corporation even if it was a government-owned or controlled. Radstock denied there was a violation of the constitutional ban. However, the high court threw out BVI company’s appeal, saying no arguments were raised that would warrant a reversal of its earlier decision of December 2009.

The credit obligation of PNCC was assigned on January 10, 2001 by Marubeni Corporation to Radstock, and after the due date demands for payment were made to PNCC by Marubeni and Radstock, PNCC failed and refused to pay the obligation. Then, Radstock filed suit against PNCC for the sum of money and damages.

The process of liquidation and recovery of fees to investors into the BVI-registered Kingate Global Fund Limited and Kingate Euro Fund Limited, which are sued as the funds linked to Madoff Investment Securities LLC, may cause even more problems than it was expected. The dispute between the court-appointed trustee for the liquidation of Madoff’s fund Mr. Irving Picard and the liquidator of the BVI funds Zolfo Cooper may become the reason for the delay of payouts to Madoff investors, and could result in solving the dispute in BVI court.

Last week, Picard had approved payments of $534 million to victims of Madoff’s $65 billion fraud, while there is $4.44 billion in claims that he has deemed valid so far. According to the documents, Picard had claimed about $870 million from the two Kingate funds, including more than $600 million sum that was paid in commissions to the BVI funds by Madoff Investment Securities during the six years to December 2008.

Zolfo Cooper is asking Kingate shareholders to approve a deal in which they would pay the trustee 50 per cent of Kingate’s current assets. The BVI funds would also pay 50 per cent of any additional recoveries to Madoff’s company, and the investors would be allowed full claims in its liquidation. Some investors are not satisfied with this distribution and want to receive any recovered management and performance fees that were paid to Kingate. However, Zolfo Cooper claims that the only alternative to the settlement would be lengthy and costly litigation, because Picard could ask the courts in BVI (where the funds are registered) and in Bermuda (the domicile of the asset manager Kingate Management Ltd) to give him control of any funds recovered there.

Picard is also involved in lawsuits with the liquidators of several other feeder funds in the U.S. and other countries, while Zolfo Cooper has to deal with the claims from  those who subscribed to invest in the Kingate funds after December 2008. Their money (about $12 million only for one of the funds) was never invested, but still it was in the Bank of Bermuda, when Madoff collapsed. In August 2009, the Supreme Court of Bermuda ordered Kingate Global to repay $6 million and $3 million to Knightsbridge Fund Limited and Standard Chartered Bank. This ruling could become a precedent for the return of the rest of money invested after December 2008, but the decision was appealed by the liquidator.

Canada-based Gulfside Minerals Ltd. announced its intention to proceed with its arbitration proceedings in London against the named owner of the shares of ECM LLC, Mangreat Group Ltd., which is a British Virgin Islands company wholly owned by one of ECM partners and held through a private HK company. The BVI-registered Mangreat executed a sales agreement with Gulfside in March 2007, but failed to complete the agreement.

Now the Canadian company, along with its Mongolian legal counsel, is going to determine the next round of legal action against the vendors in Mongolia. It will review all methods available to it to assert its right for additional shares of ECM LLC, the Mongolian company which owns the exploration License to the Erdenetsogt coal project.

Some days ago, the company announced that it has won the final round in its legal suit to acquire 5 per cent of ECM LLC. Previous rounds, the first of which was commenced by the Canadian company in April 2009 to secure its 5% interest in the Erdenetsogt, ended in vendors agreeing to the company expending funds in exploration, in exchange for a share in the property, paying funds to the vendors for an interest in the property, and also agreed to the company acquiring 100% of the project. The vendors however failed to deliver on their commitments, and several times even refused to execute the agreements after all the terms were agreed upon.

Steven Michael Rubinstein, the accountant of wealthy Coral Springs company, became the first U.S. citizen charged in a wide-ranging tax probe of Swiss major bank UBS, based in Zurich. The reason for the criminal charges were the UBS records obtained by the federal government as part of a deferred prosecution agreement with the bank.  

Rubinstein admitted to the felony charge in federal court in Miami. He is alleged of creating a shell corporation in the British Virgin Islands in 2001, named Hybridge International Ltd., to hide money in the UBS account under the name of this BVI corporation. Also, he is accused of having not paid income taxes on these amounts.

The BVI company was used by the accountant to finance construction of a multimillion-dollar Florida home, deposit about $2 million in gold coins, and make different kinds of investments. All in all, Rubinstein is said to have hidden some $6 million with the UBS bank.

It was claimed by the IRS that Rubinstein failed to report UBS income on his returns from 2001 to 2007. Rubinstein agreed to pay a 50 per cent penalty for the year 2004 , which was the year with the highest balance in the account as of June 30.

The UBS representative declined to comment on the case against Rubinstein, who was one of about 300 UBS customers whose account details were turned over to the U.S. authorities as part of the agreement, in a deal that required the Swiss bank to pay $780 million in fines and restitution.

The Russian Bailiff Service prepared documents to auction off a 26.6% stake in Russian mobile operator VimpelCom, which is the subject of a long dispute between its shareholders - Norway’s telecommunications company Telenor and British Virgin Islands-based Farimex. The Norwegian company also claimed that Farimex is linked to Alfa Group - another major shareholder of VimpelCom, and in this case it becomes dispute between Telenor and Alfa Group.

The 26.6% stake currently auctioned was blocked under the court order in March, as part of the dispute. This was done when BVI company filed a lawsuit against Telenor, after which Russian Arbitration Court ordered USD 1.728 billion compensation to be paid by Norwegians, and 26.6 % of its stake in VimpelCom to be frozen. On June 3, Moscow court rejected Telenor’s appeal to suspend the order.

The Moscow Arbitration Court announced this week that it would delay the decision on whether the seizure of 29.9 per cent stock in VimpelCom owned by Norway’s telecommunications company Telenor will be blocked. The hearing is rescheduled to the end of April. Also, the judge asked representatives of VimpelCom to attend it, and this would be the first time when this company being in the middle of the Telenor-VimpelCom case will appear in the court.

Earlier, it was decided by the Omsk court that Telenor is to be deprived of its share in Russia’s mobile operator. Telenor asked the Moscow court to block the seizure of its stake in VimpelCom, after the Norwegian company refused to pay a court-ordered $1.7 billion fine.

In February, the Omsk court ruled in favor of the BVI company Farimex, which brought the suit against Telenor, claiming that it delayed VimpelCom’s entry into Ukraine. Telenor has linked Farimex, which owns a 0.002 per cent stake in VimpelCom, with Alfa Group’s telecoms arm Altimo, the other main shareholder of VimpelCom, and the telecoms arm of Russian tycoon Mikhail Fridman Alfa Group. Alfa denies any connection to the case.

Before the Moscow court hearing, there will be an April 28 hearing in Tyuman, where a court will hear Telenor’s appeal concerning the execution of the Omsk court’s ruling to the BVI company. The appeal of the original case probably will be heard in the end of May.

The case is tied to related suits in Kiev and New York, and it can create the precedent for shareholder rights in Russia. The lawyer of BVI-based Farimex said that the company does not want Telenor to lose its stake. By his words, Farimex is not interested in the shares of the Nordic telecoms company, but rather in compensation for the losses.

Norwegian telecommunications company Telenor is almost sure that their real opponents in the long dispute over control of Russia’s VimpelCom are Alfa Group and its owner Mikhail Friedman. This cannot be proved, and Fridman and Alfa deny this fact.

Telenor is now appealing last week legal decision that is to deprive it of 29.9% share in Russia’s mobile operator, which followed Telenor’s rejection to pay $1.7 billion to VimpelCom. Earlier the company appealed  a decision of the Russian Arbitration Court, which satisfied the claim of the BVI-based Farimex.

The Telenor-VimpelCom case followed Alfa Group’s case with British oil company BP PLC over their TNK-BP joint venture, which was succeeded by the Russian group, and raised doubt that BP would be able to retain control of TNK-BP.

According to the Norway’s company representatives, Farimex Products, a company with a little stake (0.002 per cent) in mobile company VimpelCom, last year initiated a lawsuit against Telenor as part of a wider effort by Alfa to gain control of their joint assets - VimpelCom in Russia, and Kyivstar in Ukraine.

Alfa is said to have 44 percent of VimpelCom’s stock through its Eco Telecom unit. The director of US-based Firebird management fund manager said that Farimex is very transparently a front for Alfa. Alfa itself rejects any ties with BVI-registered Farimex, but the common view of market observers is that Telenor-VimpelCom suit is an Alfa action.

France’s biggest bank, BNP Paribas SA, lost two lawsuits seeking to force UBS AG to release a combined 2.5 million euros ($3.1 million) that had been invested with two funds linked to the arrested manager Bernard Madoff, who is accused of running a $50 billion fraud.

The representative of BNP Paribas in Paris refused to immediately comment this, when reached by phone. Judge said in her ruling that BNP’s requests were “completely inadmissible”. UBS spokeswoman said the bank was “pleased” with the decisions.

A Luxembourg court rejected BNP’s requests in two rulings. BNP had sought the return of money that were held by UBS for separate funds that had invested money with Madoff. The rulings are among those four from Luxembourg courts that ruled that UBS did not have to immediately pay investors’ claims for redemptions from funds linked to Madoff. UBS had argued it cannot make payments on pending requests while investigations into Madoff are continuing.

More than 15 Madoff-related cases have been filed in Luxembourg courts by investors seeking repayments or documents to establish liability, and the majority of the cases are against UBS. In one of the lawsuits, BNP targeted UBS for a payment from an account it holds for the British Virgin Islands-registered Groupement Financier fund. The company sought 1.5 million euros from UBS from the Groupement Financier account, which has about 250,000 euros left.

Telenor plans to appeal a decision of the Omsk Appeal Arbitration Court in Russia, which satisfied the claim of the British Virgin Islands-based company Farimex Products, and said that the Norwegian telecoms operator should pay approximately $1.7bn in damages to Farimex. The court also ruled against Farimex’s attempts to seize Telenor’s Vimpelcom shares.

The BVI corporation had alleged that Telenor’s nominees on Russian mobile operator VimpelCom’s Board delayed VimpelCom’s acquisition of Ukrainian mobile operator Ukrainian Radio Systems, and prevented Vimpelcom from purchasing Ukrainian mobile group Kyivstar. About a year ago, Farimex filed a $3.8bn lawsuit in the Khanty-Mansiysk Autonomous District court, which in its turn ruled that Telenor should pay damages of approximately $2.8bn.

Jan Edvard Thygesen, executive vice president and head of Telenor’s central and eastern European operations, said that the decision of the court was ‘a serious violation of Telenor’s lawful rights and interests as a strategic investor in Russia.’ By his words, Telenor will continue to defend its investment in VimpelCom using all legal means available: ‘Since 1998, Telenor has acted in the interests of VimpelCom, and we have repeatedly pointed out that this suit is an illegal attempt to steal Telenor’s investment in Russia.’