BVI Offshore Business: Grey Area

Former partner of auditing firm Arthur Andersen & Co claimed that Tan Sri Kasitah Gaddam, former member of Malaysian Cabinet of Ministers, instructed a partner of an accountancy firm to prepare an agreement for the sale of shares in order to avoid declaring his assets. Vincent Chia Ka Soon said that Kasitah ordered him to prepare the agreement for the sale of his Intra Oil Supplies Bhd shares to an offshore company. The agreement was dated August 11, 1997.

Answering the question of Malaysian General Prosecutor Mohd Hanafiah Zakaria, Chia said the agreement was for the sale of two million shares to Arkwell Enterprises Ltd, which is company registered in the British Virgin Islands. By his words, Kasitah also requested Chia to prepare the subsequent agreement, as the former minister wanted to amend “some figures and clauses” in the document, and to prepare several letters regarding the Intra Oil Supplies shares, which were meant to be “cover-ups”.

Chia also said a letter was prepared to Kasitah because Arkwell did not have funds to take it up then. He stated that the BVI offshore company did not receive any dividends for the shares, but there is a letter where it is said that Kasitah received the dividends on behalf of. Arkwell.

Kasitah, a former Land and Cooperatives Development Minister of Malaysia, claimed trial to charges of corrupt practice and cheating.

Elland Road, the home stadium of the football team Leeds United, was sold to the little-known company Teak Trading Corporation, registered in the British Virgin Islands. Now the story received its continuation: Leeds United asked Leeds City Council to help them buy back the stadium, as well as their Thorp Arch training ground. Club’s chairman Ken Bates made the reacquisition of both assets one of his main objectives.

There is some kind of secrecy about who owns Leeds United’s ground, since it was sold to Teak Commercial Limited. Elland Road Stadium was sold to BVI company for just less than £8m in March 2005, by Manchester businessman Jacob Adler, which, in his turn, had bought the ground from the club in November 2004. The change of owner did not become known until the end of last year. Football team’s side has received a 25-year lease and pays £1.5m a year to a BVI-based Teak Trading Corporation, for playing at Elland Road. However, Leeds has a right of buying the stadium back for £13m (€19m), and for £5m (€7.3m) on Thorp Arch which was sold to avoid administration.

The Club’s chief executive Shaun Harvey said in his comments: “ The club does not know who owns Teak Commercial Limited but our contact with them is still Jacob Adler so we have no reason to believe it is anyone but him.” He also stated that Mr Bates had no connection with Teak.

Documents passed in the UK Land Registry give BVI company’s address as a post office box number in Road Town, the capital of the British Virgin Islands. It should be noted that companies based in the territory of BVI are not required to file public accounts or disclose details of their directors. BVI Financial Services Commission failed to respond to an information request about Teak Trading Corporation.

The New York District Attorney charged Brazilian congressman with stealing and moving millions of dollars through a Manhattan bank. These amounts are said to be placed into BVI shell companies’ and Channel Islands bank accounts.

Former governor and mayor of Sao Paulo state and municipality Paulo Maluf is alleged of having moved 140 million US dollars offshore, however the amount that can be proved at trial is defined as 11.6 million USD. Local authorities in Jersey have frozen 26 million USD.

The final cost of the public works project Avenida Agua Espraiada made 600 million USD, while initially it was estimated at  200 million. The contractors are charged of using inflated invoices and returning back, to Paulo Maluf and other defendants, 20% of their corrupt earnings. This money was passed through Safra National Bank in New York, and then transferred to bank accounts held by four British Virgin Islands companies. The New York District Attorney alleges these BVI companies - Durant International Corp., Sun Diamond Ltd., Kildare Finance Ltd. and Macdoel Investments Ltd., - to be controlled by Maluf. However, only one of these companies has been named in the indictment.

The funds layered into the BVI companies’ Jersey bank accounts were used mainly for Maluf’s personal needs, including financing political campaigns in Brazil and purchasing items at New York auction.

The full name of the main defendant is Paulo Salim Maluf, born 3 September, 1931, he is currently serving as a federal deputy on the lower house of the National Congress of Brazil. The other defendants named include also Maluf’s son, but all of them are considered to be living in Brazil, which does not extradite its citizens. For Maluf, any future international travel could result in arrest in countries which do have extradition.

The only company managed by Myanmar nationals and developing the biggest natural gas reserves in Southeast Asia is domiciled in BVI and run by Myanmar oilman Moe Myint. In the end of January his BVI company MPRL E & P Ltd, having overcome their international competitors, signed a deal for the rights to explore oil and gas off Myanmar’s western coast.

Oil companies started to express interest in Myanmar’s natural gas coast, after the South Korea’s consortium Daewoo announced that it had discovered and certified at least seven trillion cubic feet of natural gas in an offshore area it was exploring.

Several international companies from India, Thailand and Malaysia also wanted to receive the rights to explore the Myanmar region that included potentially vast oil and gas reserves. India has also been negotiating to build its own pipeline to Myanmar, but this remained on the level of talks.

The BVI-registered MPRL E, run by Moe Myint, has been given a six-month study period to review existing data on the Block A-6 on the Rakhine coast. Then, by the terms of the contract signed between MPRL E and the state company Myanmar Oil and Gas Enterprise, the company should pay two million dollars for proceeding with exploration in the block.

Moe Myint registered his company MPRL E in the British Virgin Islands in 1996, and partnered with partners from the United States, Japan and Singapore, on a project to enhance production of oil and gas in central Myanmar. These partners pulled out three years later, and MPRL E took over the entire project. The new exploration contract with Myanmar government was a big step forward for the BVI company, which now employs 3 000 people and has opened regional office in Singapore.

BVI company’s owner Moe Myint believes such contracts are good for the country and its people over the long term, regardless of who is running the Myanmar government. However the financial and investment boom, in which the exploration contracts with BVI companies MPRL E and P Ltd are also included, has arisen criticism from activists who have protested the deals supporting military-rule regime which has run Burma since 1962.

On March 7, 2007, a federal judge in Washington froze a USD 3 million trading account at a Raleigh securities brokerage that appeared to be involved in a 2-year inquiry into online stock manipulation. According to the Securities and Exchange Commission (SEC), a court order freezing the assets of the account was obtained as it was opened by a European crime ring at Pinnacle Capital Markets in Raleigh. So, trading for 35 companies was suspended.

The crime ring’s members lived in the British Virgin Islands or Europe. From December 2005 to December 2006, they netted USD 733 000 or more in a complicated scheme. Purportedly, the criminal scheme combined hacking with traditional “pump-and-dump” market manipulation. It should be noted here that stock price manipulation goes back to Wall Street’s early days.

The ring’s members allegedly used a technique which is becoming more and more popular with cybercriminals – according to the SEC, the hackers cloaked their electronic footprints by hijacking the Internet protocol addresses of unrelated 3rd parties all over the USA. According to the SEC, these cyberthieves extracted funds from online stock accounts at 7 prominent online brokerage firms.

The money is in 75 accounts kept by Pinnacle using the name of a Latvian bank, JSC Parex Bank. The above-mentioned USD 3 million seems to be the profit the hackers made and the brokerages’ loss to compensate clients.

Chief of the SEC’s Office of Internet Enforcement, John Stark, said the investigation is continuing and the SEC has not talked to any officials at Pinnacle yet.

In the end of January, 2007 it was stated in the official newspaper of Myanmar that a British Virgin Islands company Rimbunan Petrogas Ltd, together with another BVI-registered and Singapore-based oil company - the MRPLE and P Pte Ltd – have signed a production sharing contracts with the state Myanmar Oil and Gas Enterprise (MOGE).  The companies are planning to explore oil and natural gas fields in western offshore areas of Myanmar.

In response to this, the human rights group Burma Campaign UK, based in London, has called on the British Government to endorse a ban on new investments in military-rule Burma. The human rights fighters launched a campaign for letters to be written to the British foreign minister, urging a ban on new investments in Burma’s economy. In the Burma Campaign-UK report, it is stated: “The regime in Burma has used foreign investment to double the size of the army, reinforcing its grip on power, while ordinary people have become poorer”.

The human rights activists stated that already for ten years the UK government had been refusing to ban new investments in Burma, despite repeated requests from many organizations, including Burma’s democracy movement. Great Britain has also been one of the largest investors in Burma since 1968, mainly because many foreign companies used jurisdictions like the British Virgin Islands to channel their investment to Burma.

The Burma Campaign UK is the only national organisation in the UK struggling and campaigning for human rights and democracy in Burma.