BVI Offshore Business: Grey Area

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.

The director of Firepower Operations Pty Ltd, who also took the positions of the director and executive chairman of its parent company Firepower BVI, is giving his evidence at the liquidators’ hearing of the Firepower’s case.

The Federal Court examination of the collapse of Firepower, which raised about $100 million from its shareholders, continues and includes more and more details. Mr Johnston did not specify any reasons why he agreed to increase a multi-million dollar 2007 Supreme Court settlement by $2 million and millions of shares following a dispute with the former chief executive of Firepower Trevor Nairn and his wife Rhonda. The Perth court was told that the original deed of settlement had given $1.5 million in 2007, and one million shares of Mrs. Nairn.  Mr Nairn’s company Bikpela Investments received another $2.5 million and 19 million shares.  So, by February 2009 the settlement made $3 million and 7,425,000 shares for Ms Nairn and $3 million and 18 million shares for his company.

Mr. Nairns and his wife had an interest in the Cayman Islands-based Firepower Holdings Group, from which Mr Johnston transferred intellectual property rights for Firepower products. The transfer followed the setting up of another Firepower umbrella company in the British Virgin Islands, Firepower Holdings Group Ltd. 

During the liquidators’ hearing, ex-director of the company did not reveal information about how the operations between his own company, Firepower Operations, and the BVI- and CI-based companies were coordinated. Mr. Johnston has claimed that in 2006 and 2007 he gave $11 million to Owston Nominees, the company of Warren Anderson, saying that he was under threat from Mr. Anderson. The property developer Warren Anderson was the previous director of the BVI-registered holding of Firepower Holdings Group Limited. Now he is alleged by Mr. Johnston of intimidating him.

Lawyers for the liquidator agreed to Mr. Johnston writing the names down to avoid them becoming public. Richard Douglas, the barrister for the liquidator, asked for the allegations in writing. Mr. Johston said he would not object to make the names public.

The Swiss bank UBS AG was summoned before the court in connection with the case of Bernard Madoff. This was done by the initiative of the bankruptcy trustee Irving Picard, liquidating Bernard L.Madoff Investment Securities LLC. There were already two lawsuits against UBS AG lost by French bank BNP Paribas SA, which tried to force the bank to release 2.5 mln euros ($3.1 mln) invested with two Madoff-linked funds.

Currently, the bankruptcy trustee seeks information about the accounts of the arrested manager at UBS, as well as information about UBS accounts held by several Madoff feeder funds (some of them registered in the British Virgin Islands), and banks. The representatives of the Swiss bank complied with the third-party lawsuit. The subpoena for documents to UBS was issued March 17, just some days after Madoff pleaded guilty. One of companies in the UBS subpoena is British Virgin Islands company Plaza Investments International Ltd.; according to its investor, the BVI entity placed money with Madoff company.

By the prosecutors’ information, $170 billion moved through Madoff’s company since the fraud began in the 1980s. So far, there are more than $1 billion of assets recovered by the NY lawyer Picard who is conducting thorough investigation to find assets.

Besides the liquidator’s subpoena, U.S. tax authorities are seeking the identities of 52,000 UBS customers - Americans who evaded paying taxes placing their money in Swiss accounts. UBS avoided U.S. prosecution by paying $780 mln in penalties, and also admitted that in 2000 - 2007 Swiss private bankers helped Americans evade U.S. taxes through offshore companies in the British Virgin Islands, Panama, HK and other jurisdictions.

From the documents received two weeks ago concerning the failed fuel technology company Firepower Operations Pty Ltd 2004-2005 and 2005-2006 profit and loss figures, it became clear that its director Tim Johnston, who was also the director and executive chairman of the parent company Firepower BVI, has spent incredible sums for the personal needs and the needs of his family. There was a huge rise in spending, particularly in the amounts spent on travel, hotel accommodation and phone bills.

This information revealed in documents obtained this week is related to the two years period before the company’s collapse, and includes, among others, the following facts:

Company’s expenditure on international flights rose from $157,062 in 2004 – 2005 to $1.1 million just one year later. In the same way, mobile phone bills of Mr Johnston and his family were all paid by Firepower investors. Hotel bills jumped dramatically from $37,292.61 in 2004-05 to $322,962.55 in 2005-06.

According to Firepower liquidator Bryan Hughes, Mr Johnston would claim the expenses were incurred “running round the world”, to firm up contracts for the sale of stock, which would be used to underpin an international stock exchange listing. In the opinion of Mr. Hughes, however, stock exchange listing was impossible for Firepower due to fatal flaws and misrepresentation related to the company’s property, of which its director should have known.

Last year, before his company collapsed, Mr Johnston and his family led a luxury life, using millions raised from investors. Almost $100 million was raised for Firepower, and its director faces charges brought by the Australian Securities and Investments Commission in the Federal Court that relate to the sale of shares without a prospectus, but ASIC has no power to force Mr Johnston to return to Australia.
Before any extradition application could be made, Firepower would have to be charged with a criminal offence.

The businessman Mr Ung Yoke Hooi, who owns business dealing in scrap metal and industrial waste, was deprived of access to nearly US$500,000 in his Singapore bank accounts for almost two years. This money was frozen by authorities because of long-time case with Ng Teck Lee, ex-boss of the company Citiraya, who left the town with US$51 million. The fugitive had promised to pay US$ 4 mln to Mr Ung, for his 29% stake in one of Citiraya subsidiaries, and the money frozen in the account was part of this sum.

The accounts of Mr Ung were frozen in November 2006 by the Corrupt Practices Investigation Bureau (CPIB), which alleges that Ng had used ill-gotten money to pay Mr Ung. Meanwhile, investigations showed that the money that Ng paid to Mr Ung had come from Pan Asset International, a company registered in the British Virgin Islands. CPIB says that Ng is the owner of this BVI company, and used it to receive the proceeds from his scam.

Mr Ung considered it was unreasonable of the CPIB to froze his money, as he was not charged of anything, and sought the court to provide an order to unlock his accounts. However, his request was turned down by the judge. The CPIB insisted that Mr Ung’s frozen money was connected to Ng’s misdeeds, and argued that his accounts would no longer be frozen when Ng is brought back to Singapore.

The lawyer of Mr Ung, Mr Singa Retnam, argued that the CPIB had not prove the money in the frozen accounts to have come from the BVI-registered Pan Asset International. However, it was said by the Justice that it was the onus of Mr Ung to prove that the money on his accounts were not ill-gotten gains.

Justice Tay also considers that there is no unnecessary delay in the release of the accounts, as Ng’s disappearance meant that the CPIB had to investigate the scam without his assistance.

BVI offshore business related news sources have many times discussed the so-called 809 long distance code scam (BVI), which is usually and mistakenly related to the British Virgin Islands. All the case was about people receiving urgent messages in which they were asked to call a phone number with area code 809 (or some other, but 809 is the most popular one). If they called to this number, which is similar to the 900 numbers in the US, they received much higher charges - sometimes they reached $2,500 per minute.

The story did not finish as in the beginning of this year Federal Trade Commission (FTC) again issued warning that some  U.S. residents have been contacted by “809” phone scams originating in the foreign country, in the Caribbean or Canada. The Commission also informed on the steps that the residents can make to minimize the risks of becoming victim to this scam.

The scheme of the fraud is the same as described above. By words of Mike Diekmann, of the Cass County Sheriff’s Office, it results in consumers inadvertently receiving extremely high charges for long distance phone calls on their phone bills; and, again, the costs could be several thousands USD. It starts with the consumer getting an e-mail, voicemail or page, where he is asked to call a phone number with a 809, 284, 276 or other three-digit area code, and to receive money prize, or some other kind of attraction. The consumer assumes he is making a domestic long distance call, since the three-digit area codes used appear to be typical three-digit codes for the United States. However, by this number he is actually connected to a phone number outside the US, and is charged correspondingly.

Originally, 809 was the code for the BVI, later on for many other countries of the Caribbean region, but the original calling code might have associations with the BVI territory. Currently, 809 is the area code for the Dominican Republic, 284 is the code for the British Virgin Islands, 876 is for Jamaica.

In the beginning of this week, the Securities and Exchange Commission (SEC) said it had found fraud, and other violations of securities laws committed by Philippine-registered trading firm PIPC Corp., its officers and agents.

The Singaporean owner of parent company of PIPC Corp., - Performance Investment Products Corp. (PIPC) is registered in the British Virgin Islands, - reportedly vanished with at least $250 million of investors’ money. Both Philippines trading firm and its BVI parent company were also charged in August by the National Bureau of Investigation with syndicated fraud, along with 32 officers, incorporators and employees.

In the complaint filed with the Department of Justice, the SEC found that the Philippines company was liable for fraudulent transactions and violation of provisions of the Securities Regulation Code (SRC), concerning the illegal sale of unregistered securities, registering brokers and agents to solicit investments. The Commission said that the fraud, “chicanery” and other violations of securities laws were “orchestrated and executed by the officers and agents of PIPC Corp. against their unsuspecting investors.

The allegations are based on the fact that neither PIPC Corp. nor its officers, employees and agents were registered as brokers or dealers, so they made their transactions of offering and selling securities to the public a “violation of the provisions of the SRC.” The illegal offer or sale of securities in the form of a “Portfollio Management Partnership Agreement” to the public was continuing for nine years, masked by a supposed offshore foreign currency trading scheme promising profits at an annual rate of 12 - 18%.

According to SEC documents, while PIPC Corp. was registered with the commission, the solicitation and sale of securities was contrary to the purpose for which it was established – just a financial research.

There were 32 complaint-affidavits filed with the SEC, with total investments amounting to roughly $3.8 mln. SEC violations are punishable by a fine of between P50,000 and P5 million or imprisonment of between 7 and 21 years.

Financial scam, which was allegedly organized by the BVI-registered Performance Investment Products Corp. in Philippines, and started to be investigated by NBI, this month is still in the centre of public attention. The Senate Committee on Trade has conducted an inquiry on the reported $250-millions of investments in PIPC Corp., which is the local subsidiary of Performance Investments. These money now seem to have been stolen, after Michael H.K. Liew, the Singaporean owner of the BVI company, disappeared, and investors found their bank accounts emptied and closed. Also, Being registered in the time when Mr. Liew needed to incorporate in Philippines, PIPC Corp. was registered as a research company, which was not authorised to sell investment products.

In his press release concerning the inquiry of the Trade Committee, its chairman Senator Mar Roxas called for strict government action to punish scam perpetrators. The Committee will be tackling two Senate resolutions on the matter; the Senate Committee on Banks will also be included in the inquiry.