BVI Offshore Business: Grey Area

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.

The State Customs Service of Ukraine reported that in 2008, a total amount of UAH 3.64 billion (USD 1 - UAH 7.79) has passed through offshore jurisdictions. 262 companies from Ukraine were involved in the export transactions, and the biggest volumes of the exported goods were addressed to companies registered in the British Virgin Islands (UAH 3.47bn), Gibraltar (UAH 106.7mn), Belize (UAH 25.7mln), the Bahama Islands (UAH 7mln). After reviewing copies of the customs freight declarations, in these operations actual non-resident receiver is mainly other country than the one which a Ukrainian company had contract with.

It was also revealed that, since the beginning of the year, 68 companies registered in Ukraine have performed import transactions via companies registered in offshore countries – to the total amount of UAH 64 million. Basic suppliers of goods from offshore countries are Liberian offshore companies (UAH 41.8mln); among other major importers, there are the Bahama Islands (UAH 7.65mln), Belize (UAH 4.96mln), the British Virgin Islands (UAH 2.78mln), Bahrain (UAH 2.12mln).

The special taxation system in Ukraine extends only to import operations with offshore jurisdictions – only 85% of charges for paying goods, works and services imported from offshores are included in gross expenditures of Ukrainian companies.

The Finance Minister of Uganda, Dr Ezra Suruma, in the documents submitted to investigating House committee stated that country’s President Yoweri Museveni oversaw the sale of Uganda Telecom Limited’s (UTL) shares to Libya in 2006, at a price below market value. For this reason, on February 26, 2006 the President met the Chief Executive of Ucom – a company incorporated in the British Virgin Islands and holding 51% of UTL.

In the written document submitted to the Parliamentary Public Accounts Committee (PAC)  on November 18, 2008, Dr Suruma tried to distance himself from the deal; he also insisted that President Museveni discussed the sale of UTL with the BVI-registered company. Dr Suruma named the President as one of the persons involved in the deal after he was asked by the Committee to explain the sale of UTL’s shares for Shs25 billion.

In October 2007, PAC Chairman applied to Dr Suruma, asking why UTL’s shares were divested without advertisement and without independent valuations, so without enough transparency. Dr Suruma answered that the transaction was not a sale but a dilution of shares which arose from a capital call. He also said that during the State House meeting, it was decided that government should give priority to investments in the energy sector which needs it, and so it was not possible to raise resources for the telecommunications.

However, the PAC Chairman said that “As a minister, Dr Suruma should have advised the President on technical and policy matters of UTL sale without clear valuation…. we are not happy with this State House meeting and Dr Suruma should have known what to do before selling UTL to Libyans at a give-away price.”

The Ugandan public’s majority stake in the formerly wholly government-owned telecommunications firm UTL was acquired by the Libyan company Greencom through Libya Africa Investment Portfolio (LAP) agency – a billion dollar Libyan government instrument through which the government is spreading investments and influence across Africa. Greencom took over UTL in 2006 after acquiring the BVI-registered Ucom. Under the terms of the arrangement, the Libyan company would take over 69% of UTL, only 31% to be sold by the government on the stock exchange.

Dr Suruma told PAC that despite significant portfolio of UTL, the firm had reached a critical stage where it needed further substantial investments of approximately $86 mln to enhance its operations, so the shareholders approved raising of additional $26.4 mln from equity “in equal proportion to the shareholding (Ucom) raises $13.5 mln and government of Uganda $12.9 mln. The balance of $10 mln is supplier credit.”

Under the current law of UK, overseas businessmen can contribute quite legitimately to the British politics by making donations through their UK-registered parties. The Times has recently  discovered series of donations to the Tories party, in the amounts of £50,000 and £100,000, paid legally by UK companies which are probably controlled by offshore entities.

According to the Times publication, £100,000 was given by CVS Management, - the management consulting firm based in Hertfordshire but being a subsidiary of a British Virgin Islands-registered and Swiss-based investment management company Corvus Capital. The person who is guiding the BVI company is Andrew Regan, a financier who was cleared of stealing £2.4 million from the food company where he was chief executive, and who now lives in Switzerland. Last time he himself appeared on the electoral roll in 2004.

It was confirmed by the office of Mr Regan that he travelled from Geneva to attend one Conservative meeting. As the person controlling the BVI-based Corvus Capital, Mr Regan is one of offshore businessmen whose companies appear to be bankrolling Conservatives. Among other companies there are Markland Holdings (UK), as part of an organisation owned by two Irish property tycoons who gave £100,000 to the Tories; Sleepwell Hotels UK, owned by a trust in the Isle of Man; BSN Capital Partners, based in London and controlled by the Cayman Islands company hedge fund ; the British business Venson Automotive Solutions, which gave £50,000, and Swiss-based Star Reefers UK, which also gave £50,000 to the Conservatives, while having recorded £394,000 losses last year.

The Party funding by overseas companies has become publicly discussed after a letter to The Times from Nat Rotschild, concerning George Osborne and the Russian oligarch. Foreign donations were planned to have been abolished when Tony Blair introduced the antisleaze Political Parties, Elections and Referendums Act in 2000, in accordance to which the parties became responsible by law for proving that they were sponsored only by eligible donors.

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.

The British defence company and arms manufacturer BAE Systems, which is under investigation in several countries for alleged bribery, using secret payments system and running the funds through the BVI offshore companies, paid at least £20mln to a company which is linked to a Zimbabwean arms trader close to President Robert Mugabe.  The documents reported by the Financial Times concern John Bredenkamp known for his controversial career. British properties of Bredenkamp were raided by the Serious Fraud Office almost two years ago as part of an ongoing investigation into BAE’s arms deal with Saudi Arabia, when several African National Congress officials allegedly received bribes. Currently discovered payment of at least £20m is the most significant evidence of a financial relationship between Bredenkamp and BAE.

The payments linked to Bredenkamp were made in the period between 2003 and 2005 by Red Diamond Trading, a British Virgin Islands-registered subsidiary of BAE Systems, from a London-based Lloyds TSB account. The money was transferred to another BVI company Kayswell Services, owned by Bredenkamp (he is the beneficiary of the company).

BVI company Red Diamond Trading was liquidated on May 30 last year, and now BAE’s ethical conduct and compliance with anti corruption rules are conducted. BAE, Bredenkamp and BVI company Kayswell’s representatives declined to confirm the payments or comment on what the money was for. In his turn, Bredenkamp claimed his compliance with EU arms sanctions, which ban the provision of financial related to military activities, and are in force against Zimbabwe since 2002. He also denied any involvement in the South African sale.

Recently the prosecutors at Taiwan Supreme Prosecutors Office’s Special Investigation Group (SIG), were looking into claims that former First Lady Wu Shu-jen had established a shell company in the British Virgin Islands called Armando Holding. They received information from Singapore which reportedly included details about five accounts, three of them registered by Wu Ching-mao and two by Huang Jui-Ching. The BVI company was reportedly set up to manage overseas funds.

It was found out by SIG that the BVI-registered Armando Company had opened an account in Singapore, with relatively small amount of money. Its president was listed as Wu Ching-mao, the brother of the former First Lady of Taiwan, and main beneficiaries were Wu Shu-chen and her two children, Chen Hsiung-yu and Chen Chih-chung. All these persons will be probably summoned to the court investigation. It was said in the unconfirmed media reports that at least two prominent Taiwanese businessmen might have wired funds into the account.

The report about the BVI holding company follows reports mentioning similar offshore companies for the former First Family based in the Cayman Islands, Belize, Mauritius, and on the British Channel Island of Jersey. SIG’s spokesperson Chen Yun-nan did not confirm or deny the reports about Armando Holding, saying investigators were still looking into the reports.

The Prospect Reef Vacation Club (PRVC) is going to file a lawsuit against the British Virgin Islands government in the U.S. Federal Court, for an estimated sum of US$4-8 mln. The international group is alleging that the BVI government illegally deprived owners of their property rights when it decided not to follow prior contracts after buying the resort in 2005. After this decision, there were years of negotiations which finally broke down this year.

According to PRVC timeshare members, the vacation club was established in 1999. For an initial down payment and annual maintenance fees, club members could buy the timeshare for one week per year, for 70 years use. In 2005 PRVC was bought by the BVI government, and vacation club members lost access to the property and did not receive remuneration from either the government or former property holders – the Romney Group. Answering the complaints of the club members, the BVI government stated that, as purchasers, they were not responsible for agreements entered into by previous landowners or operators.

Dr. Orlando Smith, which was the BVI Chief Minister at that time, told the press that these issues “are not a problem between the government and timeshare holders”, but rather - “a matter between timeshare holders and the person or persons with whom they entered into timeshare agreements.”

The solution was not reached, but in March 2007 BVI government officials promised club members they will help the situation. After the Virgin Islands Party won general elections in August 2007, Timeshare owners applied to the new government headed by Ralph O’Neal, but, in their words, they received no response.

Susan Eisenhut, the communication co-ordinator of Prospect Reef Vacation Club, wrote that club’s members are protected by the Hague Treaty, which “says that U.S. citizens have the right to sue another government in U.S. Federal Court when that government takes our property, as did the BVI government when they acquired Prospect Reef.”

This year July, the Ukrainian prime minister Yuliya Tymoshenko made efforts to stop what she called the shadowy privatization of the Odessa-Brody oil pipeline (OBP), from Ukraine’s Black Sea coast to country’s border with Poland, based on the fact that corruption and political problems in Ukraine are to choke off the expansion of oil exports from Azerbaijan and Kazakhstan to Europe. Her promise at a July 30 press conference to halt the “shadowy privatization  of the oil pipeline through offshore companies” was referred to the British Virgin Islands company Milbert Ventures, which is linked to the Pryvat Group headquartered in the Ukraine city of Dnipropetrovsk, and headed by Ukrainian tycoon Ihor Kolomoysky.

The contracts with these companies were prepared by the office of Ukrainian President Viktor Yuschenko. Now Tymoshenko alleges that these contracts would give to the BVI company the authority to decide unilaterally on the direction of the oil running through the pipeline, and to extend the term of the contract, while not providing any guarantee that oil would ever actually fill the pipeline in any direction.

By words of Tymoshenko, these attempts to register Odessa-Brody pipeline in offshore zones like BVI, sell technical oil that goes through this pipeline, and leave Ukraine with nothing are to fail.  In her opinion, this is the corruption scheme that would have given the Odessa-Brody pipeline over to Pryvat Group via Milbert Ventures, for closing it down after making it empty.

Bohdan Sokolovsky, Yuschenko’s representative for international energy affairs, contests the allegation, identifying two refineries in western Ukraine controlled by BVI-linked Pryvat group that were to have been destinations for contracted Caspian oil from Azerbaijan. Last month, Yuschenko agreed with the President of Azerbaijan Ilham Aliev to fill the OBP with technical oil for testing, to put it into operation later on.

On May 2, the son of the President of Tajikistan Imomali Rahmon, Rustam, reportedly shot his uncle Hassan Sadullayev. According to the report distributed by Tajikistan news website, Sadullayev was taken for medical treatment to Germany, but he died on May 8.

Sadullayev was probably shot in connection with a struggle for control of Orienbank - one of the leading financial institutions of Tajikistan. Sadullayev was the head of the bank, but during the last months one of the president’s daughters, Takhmina, who owns one of Dushanbe’s major construction firms, tried to get control of the bank from her uncle. However, when negotiations failed to yield an agreement, Rustam Rahmon apparently decided to help his sister resolve the dispute in more extreme way.

Prior to this incident, Sadullayev was considered one of the most powerful personalities in Tajikistan, almost with the same authority as the President; the capital assets of Orienbank are reported to be about US$47 mln. Sadullayev was also involved in a court case involving fraud at the Tajikistan Aluminium Plant, one of the country’s key economic assets, being the top official in a British Virgin Islands company CDH Investments, and responsible for trading large part of Tajikistan’s aluminium output.

The court case with the money that were taken from Tajikistan Aluminium Plant, and the BVI-registered CDH, linked to it and charged with unlawful conspiracy and theft, has arisen controversy in Tajikistan after the public disclosure of the fact that Rahmon’s administration has paid $US120 million in legal fees to British lawyers. Tajikistan in the poorest country in Central Asia, and this is an amount equivalent to about 5% of country’s GDP.