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.

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.

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.

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.

Ali Al Faraj, the owner of the Portsmouth club affected by crisis, had cancelled his plans to appear in the UK for the first time since the takeover which took place in October 2009.

The Portsmouth club is challenging the winding-up order served on it by HM Revenue and Customs in the end of December, and now is to argue in a High Court battle that the VAT portion of their massive tax debt is too high by ?7.5 million. In case the club wins, it will receive ?500,000 from the tax services, and not pay more taxes.

However, if they lose the case, the winding-up petition will be heard on February 10. It became known that Al Faraj and the British Virgin Islands-registered company Falcondrone, through which he bought a controlling 90% stake of the club, did not have the resources to save the club on their own.

The day after completion of his takeover through the BVI company, the club mortgaged Fratton Park from another BVI company, controlled by Hong Kong-based businessman Balram Chainrai, in return for a ?17million loan from Portpin. It was revealed by media that previous month he together with his business partner successfully sued Arkadi Gaydamak, father of former Pompey owner, for ?16.5 million, and had been part of the Al Faraj consortium only for Gaydamak Jnr to sell to Al Fahim.

So, almost everyone who has come out of the woodwork has a link to, and in most cases brought a legal case against Gaydamak Snr. The motives and ambitions of everyone involved in the case are not clear. Both HMRC and Portsmouth refused to comment the situation.

The Duke of York has provoked crytics and even indignation after he urged the UK Government to preserve a controversial loophole that allows Britain’s wealthy residents to avoid paying millions of pounds in tax each year. Now he is condemned for supporting wealthy foreigners and their tax advisers who are interested in protection of the ‘non-domicile’ loophole.

The political debates started when UK Premier Gordon Brown has proposed to toughen the rules allowing wealthy ‘non-domiciled’ foreigners living in Britain to escape UK tax on foreign earnings which they keep abroad.

The main reason why the comments of the Duke of York sounded controversial, was his friendship with affluent tycoons who could incur losses from any rule change. One of the close friends of Prince Andrew, who would benefit from the present tax regime is Goga Ashkhenazi, a 29-year-old businesswoman. She is registered at companies House as a Russian citizen, but is in Britain for many years, being listed as living in a £3million apartment in Belgravia, Central London. The British Virgin Islands-incorporated company owns the leasehold of this property.

However, in the opinion of the Buckingham Palace, the proposed change to the non-domicile tax rules is “something that many overseas companies raise with His Royal Highness as an issue that may impact on their future plans to invest in this country,” and it is his duty to inform the Government about these concerns.

The Australian Securities and Investments Commission issued an urgent interim stop order to Trio Capital (also known as Astarra Capital) to remove the product disclosure statements for the funds it manages from its website.  The order followed charges filed last week by ASIC against Astarra managers Mr Richard and Mr Liu. Information about filing the case in the New South Wales Supreme Court was not publicly disclosed. 

The Astarra funds were among the top-performing funds during the financial crisis at the end of 2008. One of the funds, the Alpha Strategic Fund, delivered 11.67 per cent over three years to November 2008. This fund, later renamed into Astarra Strategic Fund, was founded in Sydney by Mr Richard and Mr Liu. It is a $118 million hedge fund that operated under a structure that held its assets through the British Virgin Islands entity EMA International.

The Government’s Transaction Reports and Analysis Centre had granted the investment management company run by the managers of the Astarra funds an exemption from all sections of the Anti-Money Laundering and Counter-Terrorism Financing Act, meaning the company did not verify the identity of its customers or report certain transactions. The Strategic Fund allowed retail investors with just $1000 to invest in the complex hedge fund-of-funds product, which had reported only three months of negative returns since its inception in 2005.

Earlier this year, the custody of the Strategic Fund was transferred from ANZ to NAB’s National Australia Trustees (NAT) unit. The Hong Kong branch of Standard Chartered is said to be the custodian of the assets in the British Virgin Islands, but it would not confirm or deny this. Also, unlike other Astarra Funds, the Strategic Fund had not updated its performance since the end of June 2009.

The unusual structure of the Strategic Fund, including the so-called “deferred purchase agreement”,   was said to have tax purposes. The Strategic Fund did not provide information on who provides guarantees for the agreement, just noted that the BVI company EMA International was a special-purpose vehicle, and there was counter-party risk in case of its insolvency or failure to comply with the obligations of the agreement. Court hearing of Astarra managers’ case is scheduled for November 9.

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.

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.

The BVI-registered billing company Platte International Ltd (earlier known as Micro Bill Systems Ltd), which has attracted attention after consumer complaints about pop-up bills for pornographic websites, has stopped trading in the UK. Its management company Platte International (UK) Ltd has shut down, without explaining the reason. The announcement of this fact came through the written answer in parliament informing the Office of Fair Trading that “Platte would cease trading from 25 February 2009 and Platte International Ltd (British Virgin Islands) ceased marketing to the UK from 2 February 2009. “

Platte International BVI has stopped buying sponsored links on search engines, so UK consumers will not be led to sites that install its software, but its decision to stop operations in the UK became a surprise. Stanly Hiwat, the Brazil-based CEO of the BVI company, did not answer any questions on this matter. However, he confirmed that he had cancelled his “management contract” with Platte International (UK) Ltd - the company run by Ashley Bateup, the founder of MBS, - and the fact of closing the UK company, “as a direct result of that decision.”

Another question not answered by Hiwat concerns VAT unpaid by Platte International (BVI), which is a company registered offshore. The BVI company claimed it did not exceed the VAT threshold, which makes £67,000 a year for delivering electronic services to UK consumers from outside the EU, but probably it did.  And finally, the most current issue is that people have received payment demands from a debt collection company Oriel Collections, on behalf of Platte International (BVI).

Many computer owners in the UK actually suffered from the pop-up billing system of MBS and its successor, Platte International Ltd., but the Office of Fair Trading declined to ban it. Some victims of the pop-up billing system have the opinion that the OFT failed to act in time, and now they ask them to outlaw all such systems in the UK.