BVI Offshore Business: Grey Area

Last week Fox News Network, sued in a Federal Court by a BVI-based satellite pay television operator, has asked to dismiss the claim against it.

Orbit Communications Co. Ltd., which has its registered address in the British Virgin Islands, sued the Fox News Network, saying it improperly backed out of a contract that gave the company the right to broadcast the channel to customers in the region of Middle East and North Africa.

Fox News attorney Steven G. Mintz said in the court that the network ended the deal when realized that it is in contradiction with another agreement, giving similar distribution rights to Arab Digital Distribution – one of Orbit’s competitors. Also, by words of attorney, company’s contract with Orbit gave Fox the right to terminate the Dec.7, 2004 agreement immediately if the BVI company’s distribution of Fox channel infringed on the legal rights of a third party.

In its turn, Orbit said that it was just two months into its 4-year distribution deal when Fox stopped broadcasting. Company’s subscribers include both Arab-speaking residents of the Middle East as well as a “sizable contingent” of foreign expatriates who are speaking English. Orbit said it sought rights to distribute Fox News Network “to broaden the editorial perspectives available on the Orbit News Channel.” The deal called for the Fox News Channel to be broadcast in an area of Middle East and North Africa, except for Iran, Somalia and Sudan. Orbit filed the lawsuit seeking for compensatory damages and an order forcing Fox News to comply with the terms of the contract.

The BVI-registered Orbit Communications began operations in 1993, and is said to be the first satellite pay television operator in the Middle East. Now it broadcasts its remaining networks – ABC, NBC and MSNBC – in the region from Morocco to Saudi Arabia.

The company Age Limited, registered in Malta, is being accused of a large-scale €20 million fraud, having swindled the European Union. The directors of the Malta company appear in the companies’ registry as Johansen Annmari from Milan, and a British Virgin Islands company Bowey Holdings.

The Italian Guardia di Finanza investigated the fraud for two years, before the network of fraudsters was cought; according to investigators, it was led by Antonino Scimemi who financed the construction of two industrial plants with EU money. In reality, he did non invest anything in the project but instead directed most of the cash to various personal accounts. All these deals were made by him together with Giuseppe Sala De Cesare, a company representative for Energia Pulita Srl, and Sebastiano Cocola, an adiminstrator of Heron Srl.

Antonio Scimemi is said to make use of false fiscal invoices to justify the alleged expenditure on the project. Both companies, Energia and Heron, acquired services from Age Limited, which provided false invoices for work which was never made. Goods and services provided by Age Ltd were invoice at much higher price than their real cost, and there were products and services that were never delivered.

These invoices were to be presented to the financing bank administering the EU funds. After the bank would pay the invoices, Age Ltd would transfer the funds to its BVI-registered shareholder Bowey Holdings, and to Nordheim International and Gaphill Holding in Panama. Then the money would go back to the bank accounts of San Marino, and invested into the companies  SGM Srl and GM Srl, which were both owned by persons in Scimemi’s network.

As the above scheme of the fraud was presumed, the orders for seizures were received by the limited liability companies Energy Pulita, GM, Heron, and SGM.

Australian Securities and Investment Commission regularly publishes the list of unlicensed overseas callers (cold callers) and fake regulators, to protect Australian investors from fraudsters, as well as from companies which are not licensed with Australian Securities and Investments Commission and thus are illegal for Australian investors.

The following BVI registered or BVI located companies are on the list:

- Capital Advisory Corporation

- Global Trade and Transfer Ltd
PO Box 3321, Road Town,
Tortola, British Virgin Islands

- International Currency Advisors
IFS Chambers,
Road Town,
Tortola, BVI

- Pryce Weston Incorporated

- Uni World Global Management Limited
Omar Hodge Building
Wickams Cay Road Town
  Tortola
British Virgin Islands

- Worldleader Investment Insider or Worldleader Investment Ltd
Pasea Estate P.O.Box 3149
Road Town, Tortola
British Virgin Islands

It is not necessarily that all these companies and their offers are fake, but Australian investors cannot legally establish relations and have business with them, and from these companies’ side it is not legal to offer their services to Australian residents. As it is stated by ASIC, the companies published on the list are those that have made unsolicited calls to Australians, and not holding the current licence from the Commission. There are also false international ‘regulators’ present on the list.

By words of ASIC, this list, although including all the businesses that came to their attention in recent times, is not comprehensive, because there are new names coming to their attention all the time. These companies are constantly added by the Commission. First of all, it is checked whether they have ASIC license. If they have no Australian licence, they operate unlawfully, and then ASIC contacts them, and orders them to stop their activities in the country. These companies are then reported to the relevant overseas authorities.

Also, ASIC notifies Australian residents about different scams, including phone investment scams: “Australians have lost at least $400 million to telephone investment fraud. So beware of phone calls out of the blue selling investments, financial advice and financial products. Cold calling about financial products or services is illegal if the caller does not have an Australian financial”.

Some days ago, the directors of two ASX listed companies known as Hallmark Gold (now called Hallmark Consolidated Limited) and Welcome Stranger Mining Company (now called Commsecure Limited), Stuart Adrian Corp. and Brian Millwood Smith, were jailed for taking part in a share warehousing scheme. They were sentenced to three years in prison in the District Court, on a total of 29 charges brought by the Australian Securities and Investments Commission (ASIC).

The ASIC Act charges against these persons were brought from their conduct as directors of these companies. ASIC alleged that Mr Corp. had an undisclosed beneficial interest in shares in Hallmark Gold and Welcome Stranger, which were held through the use of offshore companies registered in the British Virgin Islands and Gibraltar, namely Courtenay Investments Limited, Davenrite Limited, and Happle Limited. ASIC alleged that the shares were used by Mr Corp to vote on related party resolutions at general meetings of Hallmark Gold and Welcome Stranger, which delivered him a benefit. Mr Smith was alleged of warehousing shares in Hallmark Gold and Welcome Stranger, through the use of these offshore companies domiciled in the BVI and Gibraltar.

ASIC also alleged the directors of making false and misleading statements and documents at compulsory ASIC examinations, and therefore obstructing the Commission and destroying documents relating to the ASIC investigation. Jan Redfern, ASIC’s executive director of enforcement, said the market’s integrity relied on directors of listed companies acting honestly and transparently, but the actions of these Mr Corp and Mr Smith undermined confidence in the market and demonstrated a blatant disregard for the law.

This is the first successful prosecution by ASIC relating to the use of offshore companies to avoid disclosure of directors’ interests, and followed a complex investigation by ASIC in Australia and overseas.

The Niobe Corinthian casino ship, which is owned by the BVI company Estrellas Limited and which arose so many controversies, is going to set sail from Bermuda, by the information provided by lawyer llewellyn Peniston, who acts on behalf of the owners of the vessel. Mr. Peniston, being an opponent of Bermuda’s anti-gambling laws, also said that legal loopholes have been found that will allow it to be used as a casino outside the territorial waters of the Island, - despite the recent prosecution of the ship’s captain and general manager.

Casino ship was opposed from the very beginning by Bermuda’s church lobby, which has voiced opposition to the ship in the past. When the first plans to operate from Bermuda appeared in 2004, the Social Action Committee of the AME Church sharply criticised it. Now, some days ago, Rev. Lorne Bean confirmed that the church stance remains unchanged.

During his evidence, the lawyer rejected to identify the individuals behind the BVI-registered Estrellas Limited that owns the ship. However, what he would only describe as “an agreement” was thrashed out between the company and Government regarding the duty the ship must pay each time it arrives back in Bermuda.

In the beginning of September, the financial services group FirstRand was charged of being involved in an illegal scheme that enabled rich South Africans to transfer money into an offshore company to bypass the taxman. FirstRand’s chairman Dippenaar, defending its company, admitted however that First National Bank had used its former private bank, Ansbacher, to create an offshore investment company whose sole purpose would be to warehouse investments of his clients. This setup, actually being quite legal, is commonly known as a loop structure – an investment by South African citizens and residents in offshore trusts that, in turn, reinvest the funds in South African businesses in which the original investors have a stake.

The Jersey-registered Ansbacher Group was acquired by FirstRand in 1992. Now the bank is known as multi-jurisdictional wealth management group, delivering tailored financial solutions internationally. In 1998, the government of South Africa announced the partial lifting of foreign exchange restrictions, which would allow citizens and residents to invest up to R500 000 in offshore structures.

According to Newsweek’s information, in June 1999 Ansbacher incorporated Duisberg Holdings in the British Virgin Islands, with its registered address at the offices of Ansbacher. An Ansbacher client in South Africa who wanted to make use of the new exchange regime, would set up an onshore trust, and Ansbacher would then establish a corresponding offshore trust for the client. Then the client would probably invest R500 000 in the BVI company, which would in turn make an interest-free loan to the offshore trust. This offshore trust would then invest the funds in the South African business in which the original investor had a stake.

It should be said that in July 2004 FirstRand had agreed to dispose of its interest in Ansbacher to Qatar National Bank, listed on the Qatari Stock Exchange, for a sum of £135 million (R2 billion). It said the reason for the sale was that over time Ansbacher had become non-core to the strategic focus of FirstRand.

BAE Systems, the British defence company that was alleged of using a secret payments system and channeling the funds through the BVI offshore companies, now is again in the spotlight in connection with Tanzania radar deal, after Tanzania’s top corruption investigator said he expects to seek criminal charges in relation to the country’s purchase in 2202 of a £28m radar system from the company.

The sale is investigated simultaneously by the UK’s Serious Fraud Office and the institution of Tanzania, the Prevention of Corruption Bureau. The UK SFO already has six continuing investigations into BAE, concerning hundreds of millions of pounds transferred to agents in different countries through the BVI companies Red Diamond Trading and Poseidon Trading Investments. The subject for the last two investigations are payments in the amount of about 30% of the contract’s value, allegedly made by Europe’s largest defence company to a Tanzanian agent.

Also, UK SFO assistant director Helen Garlick said that her agency was co-operating with Tanzanian Bureau to complete investigations into why BAE used a BVI company in connection with the Tanzanian radar deal, to enter into an agreement with a Panamanian company to provide “advice and various services”. By her words, under this agreement BAE made payments in excess of $11 million to Shailesh Vithlani, whose company Merlin International was the agent on the radar deal. Last year SFO investigators visited Dar es Salaam, Tanzania’s capital, and asked some questions to Mr Vithlani and his former business partners.

The Tanzanian radar deal was criticized a lot, arguing that such a sophisticated piece of equipment was too expensive for one of the poorest countries in the world; the World Bank objected to the sale, which came as Tanzania was granted debt relief of $2billion.