BVI Offshore Business: Grey Area

The lists of tax havens published by the Organisation for Economic Co-operation and Development () (OECD), – especially the so called “grey list” – became the cause of hard battle for business between international financial centres. This competition will probably intensify during this month.

OECD grey list, which includes jurisdictions not fully compliant with international standards on tax transparency, has a sub-division into tax havens and other financial centres. This list is regularly revised, but the only jurisdiction which was moved from the “grey” to the “white list” at this moment is Bermuda. The BVI, the Cayman Islands and Bahrain are, in their turn, very close to meeting the OECD requirement of 12 tax information exchange agreements signed. However, this might be not enough: for example, Cayman will also need to undergo peer review before it can move to the white list.

The Channel Islands, the Isle of Man, Cyprus, the Seychelles are already on the white list, and some of these financial centres are making heavy promotion of their services based on the fact they are identified as top quality and regulatory compliant jurisdictions. For example, the Channel Islands have been lobbying for companies based in grey list centres, like Cayman and BVI, to move to their corporate registry.

The OECD list was requested by the G20 group of large states; all jurisdictions included on both lists will be reviewed at the November meeting of the organisation. The countries which do not comply with the strict requirements by that time will face stringent fiscal sanctions that could harm the economies of some of them.

This month, after the end of the Ukrainian-Russian gas conflict, deliveries of gas were restored to Bulgaria, and Bulgarian officials announced that they would still try to remove two middleman companies -  Overgas, Inc., and Wintershall Erdgas Handelshaus Zug AG (WIEE) – from the gas supply chain between Russia and Bulgaria. Their purpose is to deal directly with Gazprom Export, a fully owned subsidiary of Gazprom. Formerly, the head of Gazprom Export argued that these companies were not middlemen but suppliers.

Wintershall has been a close partner of Gazprom for many years. Overgas, Inc., however, is a more complex structure. According to the Overgas Annual Report for 2007,   Gazprom owns 0.49 percent of the company, Gazprom Export 49.51 percent, and the London-based Overgas Holdings, Ltd, 50 percent. The chairman of the board of Overgas, Inc., is Alexander Medvedev who is also the head of Gazprom Export, the company that technically sells Gazprom’s gas to Overgas. Bulgarian law apparently does not regard this as a conflict of interest.

Overgas Holdings, Ltd, known as DDI Holdings, Ltd, the 50% owner of Overgas, Inc., was first registered in 1999 under the name Energy Consultants, Ltd, according to the registration certificate. The shareholders of DDI Holdings are now listed as British Virgin Islands-registered corporation South Eastern European Energy, Limited. It was impossible however to identify the names of company’s principles due to BVI confidentiality laws. According to an Internet search report dated February 5, 2008, the ultimate holding company of DDI Holdings, Ltd is another company, DDI Management, JSC, based in Bulgaria. There is the possibility that this complex web of holding companies and BVI-registered corporations with nominal directors may be used by Overgas, Inc. to hide the identities of the real beneficiaries of the company.

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.

According to a Senate Report issued to pierce the secrecy surrounding offshore bank accounts, the big Swiss bank UBS and Liechtenstein Global Trust (LGT), which is run by the royal family of Liechtenstein, might help wealthy individuals avoid paying taxes in the United States.

The report consists of 115 pages and describes the way 8 persons used offshore accounts in order to evade taxes. These individuals include Harvey Greenfield, the owner of the Commonwealth Toy and Novelty Company, which sells Beverly Hills Pups; Frank Lowy, the Australian billionaire who runs the Westfield Group; and the world’s largest owner of shopping centers; Richard M. Chong, a venture capitalist.

The report says that that Prince Phillipp of Liechtenstein courted clients for LGT. In March 2001, he met with members of the Greenfield family in Vaduz, the capital of Liechtenstein, in order to persuade them to move a USD 30 million offshore trust held at another bank to LGT. By 2001 LGT had established a Liechtenstein foundation for the Greenfields that used two companies incorporated in the British Virgin Islands corporations with a view to transfer at least USD 2.2 million.

Also, the report issued by the Senate details the marketing efforts made by UBS in order to win new clients in the US. It is worth noting that UBS is cooperating with authorities in the investigation and does not comment the situation.

This week, the Julius Baer bank in Zurich, Switzerland, successfully initiated new censorship blow against the internet – so, those who tried to reach wikileaks.org, a global website devoted to publishing leaked documents, failed to do it.

Wikileaks, the website that is managed by the group of people who wish to provide what they call an “untraceable and uncensorable” leaking machine to be used by dissidents worldwide, involves Tibetan, Chinese and Thai political campaigners, an Australian hacking author and many other ambiguous personalities. Not being the only site of this kind, it has however an impressive record since its launch in 2006.

Now, after all its loud publications including the 238-page manual Standard Operating Procedures used in the controversial prison of Guantánamo, and a secret 110-page draft report by the international investigators Kroll, which revealed allegations of massive corruption in Kenya, Wikileaks enraged the Julius Baer bank with posting the details of the bankers’ most secret trade information – the way how they hide the funds of their richest international clients in offshore trusts. This kind of information is very actual and very “hot”: in Germany, the federal intelligence service recently paid almost £4m for a disc containing similar details from the bank in Liechtenstein. After that, there were tax raids on hundreds of suspected persons, the disgrace of prominent businessmen, and a diplomatic collision with the Cayman Islands offshore jurisdiction.

The published files of the swiss bank, among other records, contain information on an anonymous British Virgin Islands company run by the Baer bank and called Seneford Investments. Nominee director of the BVI company was based in the Cayman Islands. In 1998, the swiss bank’s documents listed six bank accounts for the company, in Switzerland and in other jurisdictions, accounting in total $113m.

t is claimed that the real owner of BVI-domiciled Seneford Investments, who allegedly salted away more than $100m (£50m), is Lawrence Kadoorie’s family trust. Late Kadoorie is a Hong Kong millionaire, who received peer’s title from Margaret Thatcher in 1981. He made family’s fortunes through China Light and Power, which provides Hong Kong with electricity, and through a chain of hotels. Kadoorie’s son, Sir Michael, who still has major interests in the Hong Kong companies, did not respond to invitations to comment.

The federal judge Jeffrey White in San Francisco ordered removal of the domain name, and banned further cicrulation of the documents. However, all the documents reappeared on Wikileak’s “mirror” sites, or even might be accessed by using the IP number instead the domain name. Further hearings on February 29 may fully change the original decision.