BVI Offshore Business: Grey Area

Tax authority of Denmark has charged Jensby, the former board chairman of bankrupt IT Factory, as well as his wife, with tax evasion. Company’s CEO Stein Bagger fled from authorities in 2008, after it became known that the company received huge profits as a result of a Ponzi scheme. The former chairman has never been accused with regard to the fraud, but Skat now considers that he owes about 440,000 kroner of profits earned from the business and hidden with the British Virgin Islands-registered company.

Jensby reportedly sent money he earned in IT Factory and as head of JMI Invest to his own company Troya Private Equities Inc., based in the British Virgin Islands. Commenting this fact, Jensby said he had possibly been the victim of identity theft. Jensby admitted that Skat was pursuing a case against him, but would not provide any further comments. However, he could not agree with Skat’s interpretation of the issue.

On Tuesday, charges were filed by the state Attorney General’s Office, Pennsilvania, against Brian J. Murray, CEO of the defunct  Murray Insurance Agency and three other persons. They are alleged of insurance pyramid scheme, the accusations against them include criminal conspiracy, money laundering, theft, insurance fraud, forgery, participation in a corrupt organization, tampering with evidence, obstructing law enforcement and tax crimes. Attorney General’s office also filed charges against the Gaffer Insurance Co. Ltd. based in the British Virgin Islands, The Murray Insurance Agency and The Mallow Holding Co.

According to authorities’ investigation, the alleged persons are connected to the fraud and theft of more than US$7.5 million over 1o years. They are said to have been using British Virgin Islands-registered business to hide more than US$10 million in income from Pennsylvania tax authorities.

It is said that various municipal organizations and educational institutions have become victims of the above-named persons and entities, among them the University of Scranton, Marywood University, Mount Airy Casino Resort, Phoenixville Borough and the Lackawanna County Multi-Purpose Stadium.

Vancouver-based copper miner First Quantum Minerals Ltd. is planning to put the issue on one of the worst expropriations in the Canadian mining sector on the agenda to be discussed at the upcoming G20 summit. Its US$765mln Kolwezi Tailing project in the Democratic Republic of the Congo was sealed off, after the government of CDR claimed that there was violation of Congolese law. There was no explanation provided on this matter. Also other assets of the company in Congo, the Frontier and Lonshi mines, are now under threat.
 
Instead of negotiating the contract with the Canadian company, the Congolese government signed a joint-venture agreement that gave the rights on the Kolwezi project to the British Virgin Islands-incorporated Highwind Properties Ltd., which is actually not mining company. According to First Quantum president, they were aware of this fact, but they were not aware of the process that was conducted for awarding the contract, or of any tender involving the project.

Sources said that passing the rights to the BVI company is part of a “grab-and-flip” strategy by the government, in which the rights are later sold to a third party, and insiders get profit. Highwind is mentioned in connection with an Israeli businessman Dan Gertler, who conducts business in the Congo. He is famous for his top-level government ties, and is known to control a large number of  companies.

First Quantum not only lost the project, it was also ordered to pay a US$12-billion fine by a DRC court. Investors now place almost no value on the company’s Congo assets. The Canadian company has taken the case to international arbitration court.

In the case of an Australian actor Paul Hogan, who had already been accused of defrauding the tax office by establishing loan scheme with an offshore company GB Film Finance registered in the British Virgin Islands, new allegations appeared against him and his advisers who “had the intention of breaching tax laws.” According to documents that were made public by the High Court, Hogan and his advisers concealed information from the tax office, failed to declare income and misled tax officials about his residence. The documents containing allegations and made by the Australian Crime Commission are to be used in a case against Hogan.

The documents include detailed tax advice from Ernst & Young on how the actor could minimize tax by moving tens of millions of dollars between companies and family trusts in US and Australia. The ACC alleges that Hogan’s advisers, on his behalf, “concealed relevant matters” from the Australian Tax Office, including the fact that Hogan was half-owner of the British Virgin Islands-registered offshore companies GB Film and Trelene Investments. According to the ACC, he failed to tell the taxman about a $US5 mln payment from Trelene; also, he avoided tax by failing to declare as income a $US4mln loan from GB Film. The ACC alleges that he even claimed a tax deduction on the US$910,000 in interest he paid the company.

It became known that the Premier League has used corporate investigators to unravel the ownership and control structure of the Portsmouth City Football club. In particular, the League tried to reveal the inside of the transactions in the course of which the Saudi businessman Ali Al Farai purchased the controlling stake of the club through the BVI company Falcondrone Ltd., and later on lost his ownership over the club.

According to some sources, to investigate the processes in the club, the League used Kroll, which is the world’s leading global corporate investigative, screening and intelligence firm.

The Portsmouth club was put for sale last summer. In February the club was repurchased from the BVI company, and Hong Kong businessman Balram Chainrai became its owner. Because of the sad financial situation in the club, the new owners entered administration. Andrew Andronikou, Michael Kiely and Peter Kubik were appointed joint administrators on February 26, 2010, acting as agents, managing affairs, business and property of the company.

Now Andronikou is to meet Portsmouth’s creditors and within a week to 10 days he will make a formal offer to them, connected with the plans for taking the club out of administration. Within 28 days of that offer, creditors will vote on this offer.

Two more arrests were made in connection with investigation of K1 Group’s activities. According to Dietrich Geuder, the spokesman for the Wuerzburg Prosecutors’ Office, the managing director of the British Virgin Islands-based hedge funds K1 Global Ltd. and K1 Invest Ltd., as well as the managing director of a trustee company were arrested.
Mr. Geuder said that the German investigation has shown that these BVI companies were Ponzi schemes which were not intended to make profits, but through which, as prosecutors suspect, investors lost more than 90 million euros.
The assets of K1 Invest Ltd., one of the two BVI funds believed to be used in a network of investment firms to transfer the money received from reputable banks including  Barclays Plc, JPMorgan Chase & Co. and BNP Paribas SA, were frozen in the end of 2009. Both K1 Invest and K1 Global filed for liquidation.
For some months, K1 Group is at the center of an international criminal probe. European and U.S. authorities are seeking information about whether K1 founder Helmut Kiener, who also managed the funds of the BVI hedge funds, used his business relations to the above-named banks to channel their money to K1 Invest and K1 Global through a net of funds and sham companies.

The credit card processing firm E-Clear, whose chief executive Elias Elia was named as the person controlling BVI-registered company Allbury Ltd., collapsed a month after the collapse of Flyglobespan, after it was pursued through the courts by PricewaterhouseCoopers administrators.

Mr. Elias, who actually is at the heart of controversy surrounding the collapse of Globespan airlines, has claimed that E-Clear owes him £25m. The firm also faced a bill for up to £35m from Globespan administrators PWC, and bills from a number of other creditors. PWC blamed most of Globespan’s demise on an alleged failure by E-Clear to pass on this sum which was taken from the airline’s customers.

Globespan’s financial position worsening, Elia had agreed companies linked to him would make a rescue investment, subject to regulatory approval, but no funds were actually invested. In the beginning of the year, the information was revealed that the Serious Fraud Office had started gathering materials on E-Clear, without formal investigation. Elia had denied any problems.

A sworn statement of affairs document, produced by Elia for E-Clear’s appointed administrators, claims the firm had assets with a book value of £46.7m, but concedes few of them can be realised for unsecured creditors. The multimillion-pound interest in Allbury Travel Group, a Hertfordshire travel agency controlled by Elia through  British Virgin Islands company Allbury Ltd., is among the assets listed by Elia. Allbury collapsed in January 2010, leaving creditors without possibility to recover any part of assets.

Upon investigation made into the network of BAE Systems companies, the U.S. State Department has placed a “temporary administrative hold” on weapons export licenses of BAE Systems or companies using BAE Systems’ products. This came when the BAE pleaded guilty on March 1 to accusations that it conspired to defraud the U.S., and agreed to pay a $400 million fine in a complicated case involving allegations of mysterious payments paid to a Saudi Arabian official, offshore “shell companies”(including BVI companies) set up by BAE to get weapons contracts, and providing false information about this to the U.S. government.

According to the Justice Department, the company paid 135 million pounds and more than $14 million to a shell company registered in the British Virgin Islands, “even though in some situations the company was aware there was a high probability that part of the payments would be used to ensure that BAE was favored in foreign government decisions regarding the purchase of defense articles.”Also, according to the U.S. arms trade experts, the BAE payments apparently undermined the competitive ability of U.S. companies.

Justice Department lawyers said that none of the company’s criminal conduct involved BAE Systems Inc., which is the U.S. division of the defense company. However, the temporary hold applies both to BAE Systems, Inc. and to BAE Systems PLC, while the department studies the guilty plea and determines whether additional action should be taken against the company.

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.

Ali Al Faraj, the owner of the Portsmouth club affected by crisis, had cancelled his plans to appear in the UK for the first time since the takeover which took place in October 2009.

The Portsmouth club is challenging the winding-up order served on it by HM Revenue and Customs in the end of December, and now is to argue in a High Court battle that the VAT portion of their massive tax debt is too high by ?7.5 million. In case the club wins, it will receive ?500,000 from the tax services, and not pay more taxes.

However, if they lose the case, the winding-up petition will be heard on February 10. It became known that Al Faraj and the British Virgin Islands-registered company Falcondrone, through which he bought a controlling 90% stake of the club, did not have the resources to save the club on their own.

The day after completion of his takeover through the BVI company, the club mortgaged Fratton Park from another BVI company, controlled by Hong Kong-based businessman Balram Chainrai, in return for a ?17million loan from Portpin. It was revealed by media that previous month he together with his business partner successfully sued Arkadi Gaydamak, father of former Pompey owner, for ?16.5 million, and had been part of the Al Faraj consortium only for Gaydamak Jnr to sell to Al Fahim.

So, almost everyone who has come out of the woodwork has a link to, and in most cases brought a legal case against Gaydamak Snr. The motives and ambitions of everyone involved in the case are not clear. Both HMRC and Portsmouth refused to comment the situation.