BVI Offshore Business: Grey Area

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.

Y2K Finance Inc., the flagship hedge fund of Wharton Asset Management, has announced that it will halt redemptions until at least December 2007. The fund, which is based in the British Virgin Islands and managed from Bermudas, said in its statement that it stops calculating net asset value because of credit market turbulence.

Wharton Asset Management, based in London, specialises in investing in asset-backed securities. The company joined at least 10 other investment managers that were forced to suspend client redemptions, to even shut down funds, since July 2007.

Wharton Asset Management was founded in 1993 by Maurice Salem who is still running the firm. The Y2K fund was established in 1999. Now the BVI fund dropped 7.31% in June 2007, a year loss made made 5.24%. Wharton’s Trio Finance Ltd. fund, which invests in real estate asset-backed securities, this year has fallen 46%.

Hedge funds are largely private and unregulated pools of capital whose managers can buy or sell any assets, participating substantially in the profits from money invested.

In the beginning of September, the research of the deals of BVI companies belonging to Thaksin Shinawatra, which was initiated more than a year ago,  received its continuation. Thai investigators have found that, contrary to his claim that he had transferred his interest in Ample Rich Investments to his two children in 2000, Thaksin Shinawatra still remained the beneficial owner of this BVI company at least until June 2005.

Based on the information that Ample Rich had been transferred to Thaksin’s children right before  ex-prime minister entered politics in 2000, they were ordered to pay taxes on the deals of their BVI company. However, recent documents proved that Thaksin’s children became directors of Ample Rich with full authority on June 29, 2005.

It is known that Ample Rich held a 10% stake in Shin Corp., a company whose share transfers over the past 10 years are to be traced in a search for all possible cases of tax evasion. The BVI company was suspected of being set up for minimization of tax liabilities for the Shinawatra family, who founded Shin Corp.

Having admitted that he owned Ample Rich, Thaksin denied any involvement with Win Mark. However, the Department of Investigation has brought charges against Thaksin that he was using Win Mark, which has the same address in the British Virgin Islands as Ample Rich, as a nominee for concealing overseas assets. This BVI company was holding only about 1% in Shin Corp.; its role probably was to help the Shinawatra family to maintain at least 51% of Shin Corp. to assure management control.

Shin Corp. actually is the parent company of several affiliated companies that have concessions with the government, while Thai law requires public office holders to hold shares in companies amounting to less than 5% of the total share capital, and not in those companies that have gained concessions or monoply businesses from the government. The Assets Examination Committee has already frozen large amount of Thaksin’s assets, and continues working on cases against Thaksin, to prove that in his being a prime minister he implemented several policy measures to benefit Shin Corp owned by him. If the state wins these cases, Thaksin’s assets will be confiscated.

The audit results reported in January 2007 showed once again the scale of bribery in Siemens. Investigators from the Munich public prosecutors office examined the highly confidential document from the auditing firm KPMG named “SAS 99 Audit Procedures — Summary of Results.”

The document, which was finished in November 2006, lists suspicious payments made to external consultants of Siemens corporation. The inability to identify who received them and for what kind of services led German investigators to the conclusion that Siemens engaged in a massive scale bribery. KPMG auditors named more than 20 recipients from many jurisdictions of the world.

Millions of dollars were transferred to accounts in the UAE, Indonesia and Sudan. Three particular recipients whose names appear in the KPMG report looked especially mysterious for investigators. One of them was BVI registered and Hong Kong-based Swede Max R. A subsidiary of his BVI-based holding company received €4.74 million from Siemens, for sth unknown. Meanwhile, some years before that he helped Siemens, Deutsche Telekom and a Chinese bank with a major mobile communications contract in China.

The KPMG still cannot answer if Siemens executives really did not know anything. The final version of the above-named report, that has become an important document for investigators, was delivered to Siemens’s offices only on November 17, 2006.

As the investigation continued, it showed more details. The complicated system of letterbox companies names Khroma Handels GmbH in Austria, PromExport LLC, Weavind LLC and BFA Global Advisor in the USA as companies that have received high amounts of money for bogus consulting services for years. From there the money was transferred to three companies domiciled in the British Virgin Islands -  Tamarind Group, Eagle Invest and Finance, and Electronic Technology.

These BVI companies then handed the money on to accounts in Liechtenstein and Switzerland. The assets on these accounts were available to certain Siemens employees for bribery applications in several countries – Russia, Nigeria, Greece, Hungary, Italy, Saudi Arabia and Indonesia.

For example, one of the witnesses of prosecution, Mr. Siekaczek, who worked at Siemens for four decades, said in his witness statement that he was asked to set up slash funds for bribes in 1999 or 2000. In one case, he signed a consulting contract with Khroma Handels GmbH related to a project with Saudi Telecom. Siemens paid 4 million euros to Khroma, which took a 60,000 euros commission before wiring the rest to a BVI company controlled by Mr. Siekaczek.

In the end of August, the U.S. Securities and Exchange Commission (SEC), the Federal Bureau of Investigation and the Justice Department met with the prosecutors of Munich regarding the case with the illicit slush-fund in the amount of 1.3 billion dollars that was operated by Siemens. The German multinational technology company stands accused of hording this amount used to pay bribes, in order to secure lucrative contracts. There were some “letterbox” companies in the USA and the Virgin Islands that have been involved in the bribery scandal, and Siemens shares are traded at U.S. stock exchanges, so SEC launched its own investigation. The result can be enormous fines, or even revocation of Siemens’ listing in the U.S.

Then, the US investigators are going to visit Luxembourg, to seek information from Clearstream – the international financial clearing house, to know the way how Siemens transferred money, and where they went. In 2001, Clearstream was charged of operating a large system of “unpublished” accounts that were not reflected in the public books. Some of the Siemens accounts also were of this kind.

According to investigators  from Munich, Siemens bribe money was transferred through a network of companies, most of which were in offshore jurisdictions of Liechtenstein, Switzerland, the British Virgin Islands, and Dubai in the United Arab Emirates. The money probably was transferred there through ‘onshore’ banks in Germany or other countries where Siemens worked.

Another tie between Siemens and Clearstream is Andrew Wang, who is wanted in Taiwan for managing and laundering payoffs for the French company Thomson (Thalès) for sales of six frigates to Taipei in the early 1990s. Wang became the agent of Siemens in 1967, while Cedel was founded in 1971. If Wang used Clearstream to transfer the frigates money, that would have showed his acquaintancy with the system that worked in Siemens.  Now Wang lives in London and has access to his money through secret accounts in British offshore dependencies such as BVI.

Five companies, one of which is domiciled in BVI, have now become the subject of an investigation in connection with pension-fund fees received by the top political consultant to former Albany state Comptroller Alan Hevesi.

Hank Morris listed the five companies on his report filed with the Financial Industry Regulatory Authority; four of these companies were registered on the address of Morris home in East Hampton. The fifth company, Athena Capitol Advisors Ltd., has its registered address in Tortola, British Virgin Islands. Concerning this BVI company, Morris listed himself as a 50% owner, vice president, and treasurer.

Each of the five Morris’ firms is said to have received placement fees from companies that won pension-fund business during Hevesi’s four years in office.

The investigators think that another firm that employed Morris – Searle & Co. - received between $13 million and $18 million from firms that made business with the state pension fund. The major part of this money was kept by Morris. Also, Searle & Co. recently amended its latest filings with the Security Exchange Commission, to show that it took in $7.7 million in placement fees in 2005-2006, and paid out $7.3 million in placement-fee expenses.

Now the investigation is focused on the fact whether firms looking to do business with the pension fund were somehow improperly tied to Morris, and whether Searle and Morris did anything for the fees they received.

Kludjeson International Limited (KIL) has issued a legal suit at the High Court against a Hong Kong-based Hutchison Telecommunication Limited, accusing it of fraud.

Hutchison Telecom supposedly holds shares in “Kasapa Telecom”. Other company involved in the suit is British Virgin Islands-registered Certwell Limited, a completely owned subsidiary of Kuwata Limited, which is also based in the BVI, and which also claims to hold shares in “Kasapa Telecom” on behalf of the Hong Kong company.

KIL was the full owner of BVI-based Celltel Limited - the operator of mobile telecommunication services. In its claim KIL has accused Hutchison Telecom of concealing the real identity and status of Certwell Limited, and in the process misled it into transferring 80% of its ownership in Celltel to the HK-based company in March 30, 1998.

Plaintiff was of the view that Hutchison Telecom, by a “Shareholders’ Resolution of June 10, 1998 disclosed that it was nominating the 2nd Defendant (Certwell Limited), which it falsely represented as its wholly owned subsidiary to hold the shares in the company on its behalf.” However, KIL noticed that BVI-based Certwell Limited was not a totally-owned company of Hutchison Telecom, - contrary to what was articulated by the Hong Kong company. So, it is the defendant is alleged of misrepresentation on the part of Hutchison Telecom, regarding the identity and status of Certwell that KIL indicated that the two foreign companies had defrauded it.

Now KIL seeks from defendants, among other reliefs and court order, to call up the Share Purchase Agreement signed on March 10, 1998 between KIL and Hutchison Telecom for annulation as a result of fraudulent material disclosure and representation. Additionally, KIL has requested the court order to prohibit Hutchison Telecom and Celltell Limited from positioning themselves as shareholders of “Kasapa Telecom”.

The court ordered each of the defendants to ‘file appearance within 21 days of the service of the processes on it’, however, the defendants are noted to have filed appearance on July 20, 2007.