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.

Cool-er device of the British Virgin Islands-registered company Interead, which has received a winding up order a month ago by the high court in Liverpool, UK, is still sold by companies Argos and Tesco. The businessman behind the company Neil Jones is running Coolerbooks.com, which sells e-books from the Cool-er and other electronic readers, but is owned by a separate company, registered in the British Virgin Islands and called Interead.com. This firm was put into liquidation on June 8, however, the companies Argos and Tesco are continuing to sell the device, and the customers are not informed about the problems in the firm.

According to Argos, they took a commercial decision to phase out this product range, because they no longer have active working relationship with this supplier and were unaware of the suggested recent developments in this business.

The Guardian claims that the founder of the BVI company Neil Jones has “told friends he is the firm’s biggest creditor, claiming to have put about $1m (£660,000) into the business”.

Also, Interead has not filed any accounts and is being wound up following an outstanding claim from public relations advisers.

Two oil blocks in eastern Democratic Republic of Congo (DRC), located on the border with Uganda , were sold to the companies registered in the British Virgin Islands and owned by relative of country’s president. The presidential decree, according to which the blocks were awarded to companies Caprikat and Foxwhelp, was published on June 22, 2010. 

However, previously the DRC had signed contracts with two other companies to develop the blocks. After the contracts were awarded to the two new companies, one of the previous companies having contract with DRC, Tullow Oil, has not received presidential decree to begin exploration of its blocks and now is considering to start legal action.

Another company, Divine Inspiration Group (DIG), registered in South Africa, signed a competing contract for block 1 in 2008, and spent about US$4 million in signing bonuses and fees to secure the block. Andrea Brown, the executive director of DIG, said that “the developments with respect to the block 1 contract are not in line with principles of transparency and due process”. This company is going to appeal for compensation, looking forward to constructive engagement with the government on this matter.

The oil blocks have an estimated 2 billion barrels of reserves that have already been discovered. According to the DRC, exploration is to begin in the near future.

Jamoliddin Nuraliev, the Tajik government official and Son-In-Law of country’s president, has denied any ties to a British Virgin Islands-registered firm Innovative Road Solutions, which is operating the toll road on Dushanbe-Chanak highway, - one of the main roads in Tajikistan.  According to Deputy Finance Minister Nuraliev, they are not providing any funds for BVI company’s activities in Tajikistan.  He also said that a government commission recently audited the activities of the company and did not discover anything illegal about them.

At the same time, it is reported by media that Innovative Road Solutions was registered in the BVI by a person named Jamoliddin Nuraliev.

The head of Tajikistan’s Antimonopoly Committee Amonulloh Ashur, who had  already questioned company’s right to operate the only toll road in the country, said that the most important thing is that the company did not  coordinate its pricing policy with the Committee.

In the opinion of Tajik economists, company’s registration in the BVI makes it difficult to follow its activities. Also, for some reasons the company was exempted from paying more than a dozen different taxes.

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.

The head of Tajikistan’s Antimonopoly Committee announced that the Innovative Road Solutions (IRS), incorporated in the British Virgin Islands, has no more right to operate the toll road on the 350-kilometer-long Dushanbe-Chanak highway. According to Amonulloh Ashur, the BVI company was permitted to operate the toll road at previously agreed prices for one month, in April, so its operation since May 1 is illegal. The agreement between the IRS and the government stated that after April the company had to co-ordinate its pricing policy with the Antimonopoly Committee.

Ashur said this was not done, and then the Committee sent a letter to IRS, the Communication and Transport Ministry, and the administration of one of the districts in Dushanbe to request that drivers not be charged for using any part of the highway.

Recently, the highway was upgraded for a US$280 million loan from China. The Tajik government announced that in order to repay the loan the highway would become a toll road.  In April, small cars and microbuses have paid about 7 cents for every kilometer of this highway, since May 1 they have started to pay three times less.  Nevertheless, drivers and those who had to use the road protest against the toll road, they have even sent a petition to the President of Tajikistan for its abolition.

It is considered by some analysts that the way in which the BVI company received the tender for work was not fair enough. However, Tajik Communication and Transport Minister rejected this. Technical Director of IRS said that no tender was held to gain the contract to operate the toll road, but the government of Tajikistan gave the concession to IRS and after several years the highway will be returned to the government.

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 former North Las Vegas mayor Mike Montandon, who is now the governor candidate of Nevada from Republicans, last year received a $10,000 campaign contribution from the British Virgin Islands-registered company Forich Group Ltd. This BVI company is an affiliate of Runvee Inc., a development firm having real estate interests in North Las Vegas.

Meanwhile, foreign nationals and foreign corporations are not allowed by federal election law to donate to Americal political campaigns. Montandon says he will return an illegal contribution from the BVI company. By his words, accepting the donation was a simple mistake.

The owner of Runvee Inc. is the Shaw family of Hong Kong who contributed another $40,000 to Montandon’s gubernatorial campaign. The candidate says this family has permanent resident status in the US, this fact providing legal status to their donations.

FGX International Holdings Limited, located on the British Virgin Islands, is subject to investigation which was commenced in connection with potential breaches of fiduciary duty and other violations of state law by the Board of Directors of the company. The investigation was initiated by the current shareholders of the BVI holding, who purchased the FGXI shares before December 16, 2009, over the attempt of the Board of Directors to sell FGX International to the French subsidiary of Essilor International.

On December 16, FGX International announced that it has signed a definitive agreement to merge with a subsidiary of Essilor International, under the terms of which BVI holding’s shareholders would receive $19.75 per share in cash, for an aggregate value of approximately $565 million, including the assumption of FGX debt of $100 million. The agreement includes termination fee of approximately $18.3 million. Upon completion of the merger, FGX International would become a wholly owned subsidiary of Essilor.

According to the investigation by a law firm,  this transaction is unfair to current investors of the BVI holding, and “the offer to purchase FGX International Holdings Limited appears opportunistically timed to take advantage of the current economic downturn”. The matter is whether the Board of Directors of the company broke their fiduciary duty to FGXI shareholders by agreeing to sell it at an unfair price thereby “harming FGX International Holdings Limited and its shareholders”, and whether, pursuant to this proposed transaction, the subsidiary of Essilor International may be underpaying for the BVI company.

According to FGX, the Boards of Directors of both companies have approved the merger agreement, and principal shareholders have agreed to vote their shares in favor of the transaction.

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.