BVI Offshore Business: Grey Area

The U.S. Court of Appeals for the District of Columbia Circuit announced about a week ago that Walter Anderson, telecommunications entrepreneur who admitted hiding hundreds of millions of dollars from the International Revenue Service (IRS) and tax collectors of the District of Columbia, may be obliged to pay more than $200 million in restitution.

Federal appellate judges overturned a ruling that said that a Justice Department mistake made the repayment impossible. The U.S. Court also upheld the nine-year sentence for the millionaire.

The case goes back to Friedman to allow him to order restitution. Anderson started a long-distance business in the 1980s, in the period when the  telecommunications industry was being deregulated. When his first company, Mid-Atlantic Telecom, merged with another company in 1992, Anderson registered companies in the British Virgin Islands to hide the income. It was said by the prosecutors that Anderson used other offshore corporations (including BVI) to disguise his ownership in other telecommunications companies while their earnings were more than $450 million between 1995 and 1999. He allegedly did not file federal income tax returns from 1987 to 1993.

The U.S. District Judge Paul Friedman ordered Anderson to repay about $23 million to the city. He said however that he could not order Anderson to repay the federal government because Justice Department’s binding plea agreement with Anderson listed the wrong statute. Appeals Court judges disagreed.

N.J. Hochman, assistant attorney general of the Justice Department’s tax division, said they were pleased with the decision. By his words, “justice in this case requires not only a prison term, but also full restitution, which the court’s ruling now permits.”

After an eight-day trial at the UK Portsmouth Crown Court, an Island businessman of Sudan origin Mohamed Ahmed Elobeid is found guilty of not paying the largest part of taxes from his £400,000 profit, by setting up BVI offshore trust and bank accounts. He was accused of having cheated HM Revenue and Customs of the amount more than £196,000 over eight years, by having his income lodged overseas and withdrawing it in cash.

Elobeid had denied the fact that he avoided paying income tax and National Insurance relating to his company, Sayf International Aviation Services, and that he tried to cover up bank accounts during a Revenue investigation, by not including them on tax forms.

In the eight years ending in 2004, Elobeid declared an income of £35,713 when reconstruction of his dealings by a financial expert showed it should have been £435,180. When he was living in St Helens, he organized the following scheme: through the Dominion Trust in Guernsey he set up the trust in a third tax haven, the British Virgin Islands. Customers paid into the trust while he instructed the trust to pay money into Jersey bank accounts. Also, large cash sums were drawn by him from British branches of the bank.

The businessman had told the court he believed his actions were legitimate. The case was adjourned for sentencing until December 5. Elobeid was granted unconditional bail.

Paul Hogan, an Australian actor known in the world as the Crocodile Dundee star has been accused of defrauding the tax office, by borrowing money from one of his offshore companies and then claiming a tax deduction of almost $1 million on the loan. The documents revealing this information have been kept in secret until this moment.

The documents concerning the loan scheme between Hogan and a company called GB Film Finance and registered in the British Virgin Islands detail for the first time some of the allegations made against Mr. Hogan by the Australian Crime Commission, taking him as part of Australia’s largest tax fraud inquiry, the $305 million tax haven probe, Operation Wickenby. The loan scheme of BVI company and Hogan is part of a “criminal investigation” according to an affidavit by crime commission investigator Ian Andrew.

GB Film Finance, registered in BVI, is owned 50/50 by Hogan and his fellow investor John Cornell. It is claimed that in July 2000 Hogan borrowed $4 mln from the film finance company, and created a fictitious dispute between his US lawyer and the company over early repayment of the loan. Hogan allegedly “settled” the loan in the same fictitious way, by repaying it with $600,000 interest through one of his offshore trusts, the Quatre Saison Trust, and claiming 910,884 Australian dollars as a tax deduction in his 2004 Australian income tax return.

The 68-year old Hogan is also accused of dodging tax in some periods when he was resident in neither Australia nor the US, and therefore not liable to pay tax in any of these countries. He himself denied that he committed any kind of crime, and said he has paid more taxes than it was needed.

The High Court of London has granted the Consent Order to the Assets Recovery Agency (ARA) to recover £5.375 million of criminal assets. This order was the result of an agreed settlement between the Agency and John Szepietowski, Susan Ann Szepietowski both of Ashford House, Four Winds Park, St Georges Hill, Weybridge, Surrey, British Virgin Islands-registered Merchant Taylor Company Limited, Cobham Investments Limited and Cobham Investments Leisure Limited.

Szepietowskis’ are charged of having amassed large property portfolio through fraudulent mortgage claims, and laundering of rental income through the accounts in offshore jurisdictions including BVI. Also, the Agency contended that their lifestyle greatly exceeded their known legitimate income, and they evaded their tax liabilities.

The initial case involved criminal assets held by an offshore Trust and was referred to ARA by the Police of Surrey in October 2004, following its investigation into Mr Szepietowski’s alleged money laundering of the proceeds of drug trafficking. When ARA opened an investigation into the Trust, soon a separate and complicated web of fraud, money laundering and tax evasion was uncovered over a period of 15 years.

In 2005, the Agency was granted an Interim Receiving Order (IRO) freezing the assets held by Mr Szepietowski on behalf of the offshore Trust. Also, based on this additional evidence, in October 2005 the Agency successfully applied for a second Interim Receiving Order freezing the assets held by the Szepietowskis’ and their companies - BVI-based Merchant Taylor Company Limited, Cobham Investments Limited and Cobham Investments Leisure Limited.

The negotiations between the respondents and ARA continued since October 2007, and in the mid of January 2008 all claims of the Agency were settled by agreeing to transfer properties £5.375 mln worth to the Agency. However, the Agency still continues to pursue its civil proceedings against the assets of the original offshore Trust.

Sweden’s tax authority (Skatterverket) claims that online poker site Multipoker.com owes SEK40 million (about USD$6.38 million) in unpaid taxes; the reason is that, according to Skatteverket, Multipoker’s offices in the British Virgin Islands were only a front, but all of the gaming operations were unlawfully conducted in Sweden.

This was found in the course of ongoing investigation into online gaming launched by Skatteverket together with the National Economic Crimes Bureau and the Gaming Board. The investigators have already asked several major companies having interests in the Scandinavian country to provide information, and one of them was Multipoker.com. Being one of the first online poker webistes in Sweden, it had originally been owned and operated by British Virgin Islands-registered EPR Investments. In November 2005, the BVI company sold it for US$14.5 million to PartyGaming Plc, the largest London-listed online gaming company; two years later, in December 2007, this Gibraltar company confirmed the purchase of other gambling sites from BVI-based Empire Online Ltd.

The founders and main shareholders of EPR Investments (BVI) were arrested in May 2007, and a police investigation was launched into allegations of serious tax crimes. Knut Edhborg, tax auditor at Skatteverket, said that according to their investigations all of the business of BVI registered EPR Investments was operated from Sweden, and both the management and board of directors were situated there and not in BVI. Meanwhile, no revenues generated by Multipoker.com prior to its acquisition by PartyGaming were declared in Sweden.

Also, the authorities allege that the US$14.5 million paid for the business ended up with the owners of EPR Investments via bank accounts in Switzerland, again without being declared to the Swedish tax authorities.

Throughout the year, Sweden has been pressured by the EC to end their gambling monopoly. The Swedish government declined further expansion of Svenska Spel gaming monopoly, though has not ended it yet.

Since the British Revenue & Customs Authority started to get from the banks the details of their customers’ accounts in offshore jurisdictions, many offshore schemes have been revealed. Probably these schemes were planned and used illegally to avoid taxation. In the cases with real estate objects registered on offshore companies, mostly based in BVI and Channel Islands, most offences uncovered concerned evasion of inheritance taxes.

One of the last noted stories concerns Bob Geldof, the rock star and Third World debt campaigner, who has been recently accused by newspapers of claiming Irish residency to avoid Inheritance Tax. Bob Geldof is an Irish citizen who is living in two properties in England. One of these properties, a luxury apartment in South London, is reported to be owned by a company called Quiet Ventures, the second one, located in Kent, is owned by Bandol Holdings. Both are offshore companies, registered in the British Virgin Islands but having London contact addresses.

Geldof is accused of avoiding payment of £2.25m, by saying that he lives in Ireland. Geldof being a non-domiciled taxpayer, the houses, which are together worth an estimated £4million, would avoid the normal inheritance tax of 40%, or £1.6million. Geldof himself declined to comment the situation.

It was stated by tax expert Mike Warburton that owning property through companies based in tax havens (namely, in BVI), was a classic scheme that allows non-domiciled citizens to escape taxation. By his words, this provides for non-paying inheritance tax, and avoiding capital gains tax if the owner sells a property where he does not reside. Moreover, stamp duty on purchasing the UK property that costs more than £500,000 can be reduced from 4% to 0.5% by complicated deals between the holding companies.

Revenue & Customs expects to receive back hundreds of millions of pounds from Britain’s wealthy, after banks handed over personal details of 400,000 customers with offshore accounts. By the information received by Revenue & Customs, there are uncovered City bonuses, inheritance windfalls and foreign holiday homes hidden in offshore tax havens such as Jersey, the Isle of Man and the British Virgin Islands. The Revenue’s director-general Dave Hartnett expressed his concern about the way in which offshore schemes in these jurisdictions had been sold by high street banks.

In an interview he gave to the British newspaper The Sunday Times Dave Hartnett said that in most cases the offshore schemes may have been used illegally to avoid tax. In some cases tax evasion continued for many years, and the result was hundreds of millions of unpaid tax. It should be said that the level of offshore tax avoidance among British citizens has never been estimated before, and the number of offshore accounts discovered has surprised even tax professionals.

In April 2007 the Revenue & Customs announced a two-month “amnesty” for people to declare money placed in offshore jurisdictions including British Virgin Islands.  The deadline  to make a declaration is June 22. By words of Harntett, the Revenue had so far been approached by 34,000 people, and 4,000 have confirmed they would be disclosing hidden assets and paying all the taxes.

In the last few months, the high street banks have been forced to hand the Revenue details of their customers’ accounts in offshore jurisdictions.  The investigation may also spark a Financial Services Authority (FSA) probe into the high street banks’ activities. Mike Warburton, a senior tax partner at Grant Thornton, has said that some people applied to him who had been sold offshore tax schemes by banks but claimed to be unaware of the tax situation. Most of the high street banks have set up separate offshore operations with branches in tax havens around the world.

Two children of ex-Prime Minister of Thailand Thaksin Shinawatra have been ordered by anti-graft authorities to pay US$616 million (20 billion baht) in outstanding taxes and fines, from the last year sale of Thaksin’s telecom giant Shin Corp. to Singapore’s government’s Temasek Holdings, for 73.3. billion baht (US$2.3 billion).

The transactions of BVI-owned Shin Corp. have been traced starting from November 2006, when lawyers and taxmen insisted on the taxation of capital gains realized from the sale of company’s shares. These deals connected with Temasek Holdings-Shin Corporation and British Virgin Islands-registered Ample Rich Investments Co Ltd. evoked sharp reaction of the public and investigators.

The sale of Shin Corp. to Temasek, on which the family earned 1.9 billion dollars, was structured to avoid paying any taxes; the ex-Prime minister claimed that the sale was completely legal. However, the corruption investigators ruled that Thaksin’s two children had avoided paying taxes owed by their holding company, BVI-domiciled Ample Rich.

According to the current information provided by the Assets Examination Committee, Pintongta and Phantongtae Shinawatra set up a BVI company as part of the scheme to avoid paying taxes on the sale. They sold the shares of Shin Corp., owned by Ample Rich, to themselves at a price of 1 baht each, before selling their controlling stake in Shin Corp. to Temasek at 49 baht a share.

Actually, only after the deal was finished it was discovered that they were the owners of Ample Rich. AEC decided they should pay the tax because Ample Rich is a foreign company operating in Thailand.

Walter Anderson was the biggest convicted tax cheat in the history of United States. Some months ago he was pleaded guilty to two counts of federal tax evasion, and one count of defrauding the District of Columbia for failing to report about $365 million of personal income on his 1998 and 1999 federal returns.

Another $100 million he earned from other business projects during the 1990s. Anderson avoided paying taxes by using aliases, shell companies and offshore tax jurisdictions, one of them was British Virgin Islands. Walter Anderson started a long-distance telecommunications business in the 1980s. The prosecutors alleged him of registering corporations in BVI to hide the income, when his first company, Mid-Atlantic Telecom, merged with another company in 1992.

In the period of 1992-1996, through several transactions he transferred his ownership interests in three telecommunications companies to other companies, of which he was the main owner. After these transactions the value of each of those corporations increased very much.

After seven years of prosecutorial pursuit, Walter Anderson was sentenced to spend nine years in prison for failing to pay more than $200 million in taxes. He was also ordered to pay about $23 million to District of Columbia tax collectors, but a federal judge ruled that he won’t have to pay the Internal Revenue Service restitution ranging from $100 million to $175 million, because prosecutors listed the wrong statute in Anderson’s plea agreement.

The Tokyo Regional Taxation Bureau has filed a tax evasion compaint with the Tokyo District Public Prosecutors Office against the retired employee in Toshima Ward company. He is accused of stashing cash in Singapore and British Virgin Islands for over two years period, and having evaded about 270 million yen in taxes through his concealment of 760 million yen in income, through his overseas bank account.  The name of the suspected man is not proclaimed to the public.

According to the accused man and other sources, in 2004 he opened an account in a Singapore bank, under his own name. Then he deposited there about 200 million yen he had inherited from his father. Through the bank he set up a paper company in the British Virgin Islands, and opened bank account with this paper company. To this account he wired additional assets of several hundred million yen, that was also part of his inheritance.

The money in the BVI paper company bank account, as well as 200 million yen in Singapore, were invested in various financial products. In the period from 2004 to 2005, the man earned about 270 million yen in his name and about 500 million yen through the BVI paper company. He himself commented on this fact, “As I conducted the trades overseas, I thought the tax authorities would not notice the profits I made. So I didn’t declare them. I regret I failed to declare the profits. As for the profits I made under my own name, I’ve already submitted a revised declaration.”

Concerning the profits made via the British Virgin Islands paper company, he said: “The company is owned by an acquaintance. I only gave advice to the firm. The profits made (through the company) are not mine.”