BVI Offshore Business: Grey Area

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.

According to Indian press, the person accused of the so called Satyam scam, B. Ramalinga Raju, had moved Rs 26 crore to around six companies in the British Virgin Islands. The Central Bureau of Investigation (CBI) that has found this has sent a rogatory letter to the BVI, and is now waiting a reply. One of  CBI officials said that they are to find out why this money was sent to the offshore tax haven.

Upon getting a reply from the British Virgin Islands, CBI will decide on filing a chargesheet regarding fund diversion.

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.

The panel that was set up in March 2010 by Nigerian President to probe the most prospective purchasers of former Nigerian state telecommunications monopolist Nitel, has submitted its report on these two companies to the president and is waiting for further directions.

There were some doubts about the financial backers of a US$2.5 million preferred bid approved by the Bureau for Public Enterprises (BPE) – this was five times more than some industry analysts said it was worth. This bid was done by the New Generation consortium including China Unicom, China’s second-biggest carrier, Dubai company Minerva and local firm GiCell. Another company investigated was British Virgin Islands-registered consortium Omen International – a reserved bidder with a US$956 million offer.

In case the probe of the BVI and Chinese consortia would show the two bidders were unable to stump up the funds for their offer prices. BPE spokesman Chukwuma Nwoko said that there were issues arising from both of the bidders sharing the same technical partner. 

According to some sources, there were two options in the panel’s report – the first that New Generation be allowed to pay a US$750 million deposit in the next 10 days, the second that negotiations should take place with the second and third reserve bidders (including the BVI company).

Flavio Briatore, an Italian businessman known as former Renault team principal, is under investigation, being alleged of tax evasion concerning a yacht “Force Blu” rented by him. The yacht is owned by the British Virgin Islands-registered company Autumn Sailing Ltd.; according to news reports, it is also under investigation. 
 
According to Italian tax police, the investigation concerned the unpaid Value Added Tax (VAT) for the yacht and fuel, in the amount of US$6 million (4.8 million Euro). The allegations of businessman are based on the fact that, under Italian tax regulations, if a European Union citizen uses foreign-owned and foreign-flagged vessel in EU waters, he should pay VAT.

The investors in the ARP Growth fund formally received a nil valuation of their investments, and now the losses from the fund’s manager Trio Capital Limited are to exceed US$180mln.

The administrators of Trio Capital Limited, the accounting group PPB, were investigating company’s managed investment schemes, and in a meeting in Sydney on May 23 informed that they were unable to value the main investment vehicle of the ARP fund, British Virgin Islands-registered Professional Pensions ARP Ltd (PPARP), through which more than US$52mln were invested. By words of unit holder, Mr. Terry Gammell, the delay in finding any value in PPARP meant the ASIC should examine the disappearance of the money.

The nil valuation of PPARP adds to the disappearance of US$123mln invested by another fund managed by Trio Capital, Astarra Strategic. This investment, made through another BVI company EMA International, brought likely losses from Trio Capital to more than US$180mln. By order of NSW Supreme Court, five Trio Capital funds, including ARP Growth and Astarra Strategic, were winded up. The judge found that Astarra Strategic had signs of a “fraudulent scam”, and he also said there were “inherent vices” in Trio Capital’s business model.

The administrators are awaiting the appointment of a liquidator in the British Virgin Islands, PricewaterhouseCoopers, to attempt to recover some value from the PPARP investment, which was held through a complicated structure, using also a HK-based Empyreal Holdings as funds manager.

Fuqi International, Inc., a Chinese designer of precious metal jewelry, selling a wide range of products in the Chinese luxury goods market, and having a British Virgin Islands-registered subsidiary Fuqi International Holdings Co., Ltd., has been filed additional lawsuit. Murray, Frank & Sailer LLP is now investigating federal securities claims against Fuqi International, on behalf of all investors who purchased Fuqi common stock in connection with the company’s second public offering on or about July 22, 2009 through early August 2009. In this offering, Fuqi International sold over 5 million shares at US$21.50 per share.

The  investigation concerns violations of certain sections under the Securities Act of 1933 through the issuance of materially false and misleading registration statements, prospectus, and other documents which failed to disclose that the company’s wholesale business was slowing. As a result of company’s actions, its financial statements were materially false and misleading at all relevant times.

Murray, Frank & Sailer LLP has already filed the class action against Fuqi International, Inc. in the US  District Court for the Southern District of New York, on behalf of all individuals and institutions who purchased publicly traded securities during the period between May 15, 2009 and March 16, 2010, alleging violations of the Securities Exchange Act of 1934.

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 Revenue Department is planning to claim up to 16 billion baht of taxes from the family of ex-Prime Minister of Thailand Thaksin Shinawatra in a tax case related to the 2006 sale of its holdings in BVI-owned company Shin Corp.

The tax bill came after the Supreme Court last month ordered the seizure of 46 billion baht in assets from former premier Thaksin Shinawatra’s family on corruption reasons. Immediately after this, the Revenue Department moved to place a hold on the 30 billion baht in assets returned to the Prime Minister’s family. Now the case is examined before the Tax Court.

The Minister’s family sold its 49% share in Shin Corp to Singapore company Temasek Holdings for 73.3 billion baht, and to facilitate the share sale, BVI-registered offshore holding company Ample Rich, set up by Thaksin, sold 329.2 million shares of Shin Corp to his two children at one baht each. Immediately after this, they sold the shares to Temasek through the Stock Exchange of Thailand for 49.25 baht per share. It was stated by the Revenue Department that this transaction was liable to tax for the realised gain, including penalties and interest charges dating back to the original transaction. The Revenue Department’s position is that the transaction involved shares of a Thai company and thus is subject to local taxation. Also, they say that Ample Rich was established solely as a securities holding vehicle rather than for business purposes.

The tax case is based on the assumption that Shinawatra’s family members were the actual owners of the Shin shares. But the Supreme Court said in its ruling that the Shin shares, held through Ample Rich, actually belonged to Thaksin during his being at the post of prime minister, and thus represented a personal conflict of interest. If the Tax Court follows a similar line of reasoning, the transaction between the holding company and the two Shinawatra children must not be classified as a taxable transaction.