BVI Offshore Business: Grey Area

InterBill Ltd., a company domiciled in the British Virgin Islands and operating in Las Vegas, is accused of fraudulently debiting funds from thousands of consumers’ bank accounts. Last week the Federal Trade Commission filed suit against the BVI company, for facilitating a fake online company’s fraudulent scheme with purpose to collect consumer bank account numbers and debit $139 from each, not providing any service or seeking authorization from customers.

The BVI online company based in Las Vegas tried to collect $9.9 million in a three-month period in 2004. The information about the consumers was collected by Pharmacycards.com, from its Web site, which purportedly sold discount prescription cards. According to the information provided by Federal Trade Commission, in most cases the company attempted to debit the funds without any communication with consumers, but sometimes the consumers received direct mail solicitations as if their checking accounts were debited through InterBill’s payment processing operation.

By the claim of FTC, InterBill could use customer bank accounts to create demand drafts or electronic checks, and submit them for deposit into its Wells Fargo Bank account. About 70% of the consumers defrauded by InterBill, however, were able to contest their charges, according to the government’s complaint. Despite the contested charges, InterBill was still able to deposit 30% of the funds and so earn $2.38 million.

According to the FTC complaint, Pharmacycards.com was operating with a London post office box as an address, and conducted all of its business through pre-paid cellular phones, free e-mail and free facsimile accounts. Resident Agent Wells knew that he was dealing with a shady company, revealing in communications to Pharmacycards operators that many of their transactions would be reversed. Currently FTC is sekking to receive incjunctions and financial relief from the BVI company and Agent Wells. Meanwhile, InterBill is still listed with the Nevada Secretary of State’s office as an active foreign corporation cundicting business in the state.

When the Serious Fraud Office has started its two-year corruption inquiry into BAE Systems, nobody could know that the money trail would be much more sizeable, and would lead much further. The initial investigation concerned only the allegations of a £60m slush fund, but in the course of the whole case the Serious Fraud Office has found much more things about BAE – before the SFO was taken off the case on 14 December. The SFO has discovered that in recent years an enormous sum of more than £1bn had been secretly shuffled through BAE’s accounts.

The amount was passed through two anonymous offshore companies, registered by BAE in the offshore jurisdiction of the British Virgin Islands. One BVI company was incorporated in 1997 under the name Red Diamond, and the other BVI company was set up in 1999 and called Poseidon Trading Investments. BAE refuses to give any comments or explanations on the purpose of these BVI companies, also their existence was not disclosed in BAE’s published accounts.

The flow of these money was made through another anonymously owned company of BAE, incorporated in Switzerland. The secret commission agreements of BAE with agents around the world were kept in the custody of Geneva lawyers.

In the previous blog it was mentioned that the BVI-domiciled company Gem Diamond Mining Company of Africa Limited is in the list of companies involved in legal proceeding with Letseng Diamonds. However, there are more positive news concerning these companies. For example, it would be interesting to know that Letseng diamond mine, which is actually the world’s highest-altitude (3.1km) diamond mine, is famous for having the highest percentage of huge diamonds produced (more than 10 carats), with the highest dollar ratio per carat among all the rest diamond mines. The world average is about US$70/carat, while the average in Letseng was over US$1,000/carat during 2004.

The latest find, named the “Lesotho Promise”, is a 603 carat diamond stone of exceptional colour. It was unearthed on 22 August 2006 in the mine, which was recently acquired by the BVI company Gem Diamond Mining Company of Africa Ltd., and is partially owned by the Lesotho government. The find was reported on the 4th of October 2006, as the largest diamond stone of this century and the 15th largest diamond ever found. The rate of the stone is ‘D’ – the top colour band for diamonds.

Clifford Elphick, CEO of the BVI company, described the discovery of a 603 carat diamond at the firm’s Letseng mine in Lesotho as “a fantastic jewell”. The diamond has been put up to sale for US$12.4 million, through a private tender at an auction which took place on 9th October 2006 in Antwerp, Belgium. The South African Diamond Corporation is planning to sell the diamond for more than 20 million dollars after it is cut.

Fortunate BVI-registered diamond mining company is expecting to list on the London Stock Exchange before the end of the year, however litigation with Letseng Diamonds is not expected to come to its end so quickly. It was noted by Elphick that capital raised to finance the company, including its R900m to R1 billion acquisition of Letseng was raised in London and shareholders preferred the company to be listed there. There were no plans to list in Johannesburg, partly for the reason that the company’s operations were restricted to Lesotho.

The company Letseng Diamonds (also known as Letseng Guernsey) was formed to exploit diamond mine at Letseng, South Africa, which has very mixed and turbulent history , including abandonment by two big mining companies – RTZ (Rio Tinto) and De Beers. Currently Letseng Diamonds, represented by London-based lawyer and investor Montague Koppel, is involved in the litigation regarding the Investec Loan Agreement (ILA), embedded in JCI Limited (previously Johannesburg Consolidated Investment Company Limited - a public company incorporated in South Africa in the 19th century with registration number 1894/000854/06).

Until recently JCI held a stake in Letseng. Currently 20% of JCI is effectively controlled by Koppel, through Letseng Diamonds (8.7% of JCI voting shares)  and Hawkhurst Investments Limited (10.4% of JCI voting shares). On 28 September 2006 Letseng Diamonds brought an application against:
- JCI Limited,
- Investec Bank Limited (a public company incorporated in South Africa with registration number 1969/004763/06),
- JCI Investment Finance (formerly Lexshell 658 Investments (Proprietary) Limited), private company incorporated in South Africa as a wholly-owned subsidiary of JCI with registration number 2005/021440/07),
- the JSE Limited (previously the Johannesburg Securities Exchange, the largest stock exchange in Africa),
- and Gem Diamond Mining Company of Africa Limited – an entity registered in the British Virgin Islands with registration number 66975, and controlled by Clifford Elphick.

The company objected against the way how Investec hoped to earn the profit share fee from JCI. The Hight Court of South Africa granted an interdict against the Investec Loan Agreement being voted on at a JCI shareholder meeting.

However, JCI shareholders decided to sell the company’s stake in Letseng Investment Holdings South Africa (Proprietary) Limited (LIH) (a private company incorporated in South Africa with registration No. 1998/023466/07), which held an adjusted 70% of the Letseng mine itself. The purchaser of the stake for R880m in cash was BVI-based Gem Diamond, the deal was effective on 1 July 2006.

The 70% stock of the mine was 50% held by JSE-listed Matodzi Resources Limited (a company incorporated in South Africa and a 58% subsidiary of JCI, registration No. 1933/004523/06), 40% by JCI (suspended from the JSE on 1 August 2005), and 10% by Koppel. The Lesotho government owns an adjusted balance of 30% (previously 24%). The recent ownership structure can be traced to 1996, when Letseng Diamonds hit the scene.

BVI company MLA Investments Inc. was recently identified as one of five entities which form part of the financial network controlled by the powerful Colombian drug cartel North Valle and its leaders Raul Grajales and Beto Renteria. The press release informing on this matter was issued by the US Treasury department’s Office of Foreign Asset Controls (OFAC) on last Tuesday.

The report includes data on 22 companies identified as “specially designated narcotic traffickers” controlled by Grajales and Renteria. Their financial network includes entities incorporated in the British Virgin Islands, Barbados, Panama and the Cayman Islands. Besides MLA Investments Inc. in the BVI, other companies targeted in the sweep are Brunello Ltd and Jamce Investments Ltd in Grand Cayman, and Villarosa Investments Corporation in Panama City.

The assets of the offshore companies included in the network are frozen by the US Treasury Department. The US Treasury Department not only seizes the US-based assets of Grajales, Renteria and other known associates, but also prohibits all financial and commercial transactions between any American persons and those individuals.

Moscow’s Arbitration Court will examine claims against Russian oil giant Yukos that were submitted by several companies and the Federal Bailiff Service of Russia. The companies submitted claims worth approximately USD 7.54 billion for putting them on Yukos’s creditors’ list.

One of the claims comes from a British Virgin Islands-registered company Glendale Group and is worth about USD 2.47billion. Other claims that will be reviewed during the bankruptcy proceedings are from Yukos Capital S.A.R.L. worth approximately USD 4.83 billion, from the Federal Bailiff Service worth about USD 814.1 million and from Trust Investment Bank worth approximately USD 115 million. All these claims were submitted before the creditors’ list was closed (October 12, 2006).

The largest sums are owed by Yukos to the Federal Tax Service and RosNeft. As of November 2006, Yukos’s total recognized debt to its 55 creditors exceeds USD 22.62 billion.

Once Russia’s largest and most successful oil conglomerate, Yukos oil company has been recently declared bankrupt. However, oil prices were getting very high and the company had potential to increase its revenue, the creditors voted that Yukos would not continue as a going concern and pay its debts. So, the creditors asked the court to declare Yukos bankrupt. In August 2006, Moscow judge declared the oil company bankrupt, paving the way for its liquidation.

Yukos’ liquidation is the final stage of the play that began about 3 years ago with the arrest of Mikhail B. Khodorkovsky. Khodorkovsky, Yukos’s billionaire founder, was arrested by law enforcement officers. Last year, he was convicted of tax evasion and other crimes, and now he is serving a term in a Siberian labor camp.

Former chairman and chief executive of the Versailles Group and a British national, Carlton Cushnie, who was convicted of defrauding investors in Versailles Traders Ltd and Trading Partners Ltd (BVI) in 2004, has paid over GBP 10 million in compansation in one of the largest criminal confiscation orders ever satisfied.

Carlton Cushnie (56) was sentenced in June 2004 at Southwark Crown Court to 6 years in prison for taking part in the conspiration to defraud private investors who provided money to a UK-incorporated Versailles Traders Ltd and a British Virgin Islands-incorporated Trading Partners Ltd. Cushnie was also disqualified from being a company director for 10 years.

In June 2005, a confiscation order of more than GBP 10 million was made against him and in November 2006 this sum was received by Her Majesty’s Court Service (HMCS).

The extent of benefit from crime and the identifying of assets realised in the confiscation order against Cushnie were traced by SFO investigators with the help of the London Regional Asset Recovery Team. The order was largely satisfied by the sale of Cushnie’s villa near Saint Tropez, registered on the name of his French holding company. The sale of the villa was arranged by his lawyers in October 2006.

The confiscated amount will be paid out as compensation to the victims of the fraud.

On November 28, 2006, the financial challenges facing Labour before the May elections were revealed when it was disclosured that the party must return almost GBP 17 million of debts within just a year.

About GBP 5.5 million of loans are to be repaid by the end of next December, while the rest more than GBP 11 million by November 2007.

A Welsh businessman Sir Christopher Evans, who last year lent the party GBP 1 million expected his cash back in just some months.

The police investigation of possible connections between loans and peerages will end in January 2007.

The Tories need to return almost GBP 20 million by July 2007. Three of their loans came from overseas. One of the overseas loans comes from a British Virgin Islands-registered company Lanners Services Ltd and accounts for GBP 3.6 million.

In accordance with the Electoral Commission data, the loan has been charged at 6.75%.

So, the funding of British political parties is quite messy as the main political parties leap on each other’s financial problems quickly.

On November 28, 2006, Nam Tai Electronics, Inc. announced that the Lords of the Judicial Committee of the Privy Council of the UK rendered a judgment on November 20, 2006 as well as declared that the redemptions by Nam Tai of Nam Tai shares owned by Tele-Art Inc. on January 22, 1999 and August 12, 2002 were nonentities. The Privy Council announced that the register of members of Nam Tai should be rectified in order to reinstate the redeemed shares and any other shares accrued by means of exchange or dividend.

In accordance with the judgement, the Bank of China (BOC) should be registered as owner of the reinstated shares. Nam Tai was ordered to pay the costs before the Privy Council.

The Privy Council upheld the right of Nam Tai to amend its Articles of Association in order to effect the redemptions – which were the basis on which the BOC and Tele-Art’s liquidator had been contesting the redemption before the British Virgin Islands courts. However, the Privy Council suggested that the redemptions were a nullity as far as Tele-Art was in liquidation, therefore, the redeemed shares could not be applied to satisfy the debt of Tele-Art’s to Nam Tai.

Before the Privy Counci, the BOC informed that its secured debt (from advances allegedly made to Tele-Art’s subsidiary) as of April 13, 2005 was about USD 3.8 million with interests and costs accruing. What Nam Tai has disputed were both the validity and the amount of the debt allegedly owed by Tele-Art to the BOC.

The proceedings before the Privy Council were the final forum for appeal of Nam Tai’ from the proceedings in the British Virgin Islands. When the Privy Councils finalizes the judgement, Nam Tai is going to comply with the judgement by means of reinstating the redeemed shares and registering them in the name of the Bank of China.

Nam Tai Electronics, Inc.is an electronics manufacturing and design services provider to some of the world’s leading original equipment manufacturers of telecommunications and consumer electronic products.

German law enforcement investigators dealing with alleged bribery activity by Siemens AG employees come to the conclusion that so-called “letterbox companies” in the BVI and the USA might have had connections to the case.

As far as the New York Stock Exchange sells Siemens shares, own probe could be launched by the Securities and Exchange Commission (SEC). In accordance with the German newspaper Süddeutsche Zeitung, the SEC has not launched its own investigation, however, it is monitoring the probe that is being carried out.

Media reports claim that slush money was laundered through a system of letterbox companies.

Purpotedly, the companies Khroma Handels GmbH in Austria and Weavind LLC, PromExport LLC, and BFA Global Advisor in the United States received money for bogus consulting services. Then, the payment were to 3 companies registered in the British Virgin Islands – Eagle Invest and Finance, Tamarind Group, and Electronic Technology. The BVI-registered companies, in their turn, allegedly handed off the money to accounts in Switzerland and Liechtenstein. The assets plasced on these accounts were made available to Siemens employees for alleged bribery activity in some countries. Nigeria, Greece, Russia, Hungary, Saudi Arabia, Italy and Indonesia are listed by the investigation as such countries.

As a result of the scandal probe, Siemens has already suspended several employees. However, Siemens did not specify the number of suspended employees.