BVI Offshore Business: Grey Area

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.

The dispute between the French Group Danone SA  and its Chinese joint venture partner Wahaha Group some months ago resulted in Danone’s filing legal action against British Virgin Islands company Ever Maple Trading Ltd., and later on with the counter-claim of the Chinese Group, which sued Danone for up to 5 billion euros for conducting its business illegally.

Some days ago, French firm confirmed that the dispute between the two partners escalated as assets of 10 overseas-registered companies were frozen at the request of Danone. Last week, the assets of two subsidiaries of China’s largest beverage maker, Mega Source Investments Ltd and Honour Bright Investments Ltd, were frozen and put into receivership under the order of the Supreme Court of Samoa. Also, on November 9, the High Court of the British Virgin Islands placed the other eight firms registered under Wahaha Group into receivership, and froze their assets until further notice. These are BVI-registered companies:

• Golden Dynasty Enterprise Ltd,
• Gold Factory Developments Ltd,
• Platinum Net Ltd.,
• Sunworld Enterprises Ltd,
• Great Bae International Ltd,
• Bountiful Gold Trading Ltd,
• Ever Maple Trading Ltd, and
• Wintell Enterprises Ltd.

Four companies under Danone filed claims against the above-named offshore subsidiaries of Wahaha in the British Virgin Islands and Samoa, as the French food giant confirmed yesterday in a statement.

An international auditing firm KPMG has been appointed the receiver of each of the British Virgin Islands companies, while another receiver was appointed for the two Samoan entities. Under the above-named court orders, the receivers’ primary role will be to identify, locate and secure the assets of these 10 Wahaha companies.

Both Groups declined to comment, but it was said by industry insiders that Danone’s is acting with the purpose to prevent BVI-controlled and Hangzhou-based Wahaha from transferring any assets to foreign countries, while the legal process is not finished yet. Danone sought more than US$100 million for the alleged illegal sales.

Neither Danone Groupe nor Wahaha Group were not immediately available for commenting.

The state-controlled Norwegian metal producer Hydro Aluminium has been called to public account on the terms of contracts the company signed last December with the Tajikistan Aluminium Plant – Talco. By this contract, Hydro announced it had agreed to sell the plant 150,000 tonnes of alumina per annum and purchase up to 200,000 tonnes of aluminium metal produced by the plant. The subject of public concern in Norway is allegations of corruption among Tajik government officials involved in the aluminium business,  and what Hydro knows and is doing about it.

The agreement between Hydro Aluminium and Talco has a long pre-history. The Tajik state-onwed company is currently turning out about 450,000 tonnes of aluminium a year – that is worth about $1.2 billion on the international market. In December 2004, the Tajik government defaulted on sale and purchase agreements with with Hydro. The Norwegians sued for recovery in London, won a $150 million award in compensation for non-delivery of 80,000 tonnes of aluminium.

Now, answering the public concerns, Hydro passed all the responsibility to TML, as in practice it is making all the deals not with Tajikistan but with an intermediary company Talco Management Ltd. (TML), registered in the British Virgin Islands. So, all the corruption problems have no connection to Hydro, but are completely the business of TML, which is 70% owned by the Tajik government, and 30% - by wealthy Tajik individuals. It became known unofficially that, although the Norwegian company has announced direct supply, sale and purchase agreements with Talco, all the cash flows are made through the BVI company.

TML does not respond the publicly listed contact number, and nor does BVI-registered Talco. Hydro’s refusal to answer confirms that the Norwegian company does not know, or does nto want to admit that it has not seen auditor’s report on the cashflow of TML, which was last time made in 2004 by PriceWaterhouseCoopers (PWC). This allows to suggest that Hydro’s money is flowing not through a transparent and audited channel of the Tajik state company, but through the BVI company claiming legal control over 100% of the inputs and outputs of the smelter.

The public prosecutions’ office in the British Virgin Islands has told it has an overwhelming evidence that Russian Telecommunications Minister Leonid Reiman is the main beneficiary of an offshore fund which owns substantial assets in companies regulated by his ministry. Reiman has denied having investments in companies he regulates.

BVI’s director of public prosecution Terrence F.Williams sent a request for legal assistance to the US Justice Department; the letter was dated August 21 and filed in a US district court in Delaware on October 31. He told that he was preparing charges against Jeffrey Galmond, Danish lawyer and close associate of Reiman. The lawyer is accused of allegedly covering up the fact that the Russian minister is the beneficial owner of the Bermuda-based IPOC International Growth Fund Ltd., which is said to hold substantial stakes in Russian telecommunication firms. The BVI prosecutor states that IPOC is owned by Reiman through Jeffrey Galmond.

At the centre of the legal case there is a long dispute between IPOC and Alpha Group, an industrial holding firm owned by the billionaire tycoon M.Fridman, which has investments not only to Russian oil companies but also to Russian telecoms firms. Through its lawyers in the BVI, Alpha is alleging that $40 million in legal costs put up by IPOC were sourced from the proceeds of crime, but IPOC argues that the money originated from consultancy services supplied to a number of companies, including those registered in the U.S. This involvement of some US companies in the three-year investigation in the BVI became also the reason for asking legal assistance from the US Justice Department.

Now BVI prosecutors believe that these consultancy agreements were in fact “shams”. Also, a civil tribunal in Switzerland has concluded that Reiman secretly owns stakes in Russian telecoms through the IPOC fund. This ruling of a Swiss court, in its turn, came as a result of a legal battle between IPOC and LV Finance Group, which was owned by Alpha Group, and probably was a politically-motivated attack against M.Fridman.

Some months ago, we have discussed the case of bankruptcy of deceased stockbroker Rene Rivkin, which was connected with his affairs in the UK and in the British Virgin Islands. The BVI company called Derata was named as the sole director of Jersey-based Thameslink wholly owned by Rivkin. Rivkin’s bankruptcy trustee planned to recover millions of dollars from Jersey bank account. In case of success, the funds were to be distributed to the creditors, the largest of which was the Australian Taxation Office.

Last week, the Swiss lawyer Benno Hafner, who represented Rene Rivkin, launched a legal bid to stop the investigation into Rivkin’s assets. He is believed to have the purpose to prevent Rivkin’s bankruptcy trustee from gaining access to bank records held by a British financial institution and related to Rivkin’s business deals.

The bankruptcy trustee Anthony Warner from Sydney-based CRS Warner Kugel, in his turn, is attempting to obtain the documents concerning Rivkin’s business interests in the jurisdictions other than Australia and Switzerland – that is the UK and the British Virgin Islands. In Federal Court proceedings in Australia, Mr Warner has already uncovered $3 million probably hidden in a Virgin Islands trust linked to Rivkin.

Rivkin’s estate was placed into bankruptcy last year, with $29 million owed to the tax office (later on the bill educed to $20 million). His family co-operates with Mr Warner to recover funds believed to be held in offshore jurisdictions including BVI, by companies ultimately owned by Rivkin.

The UK Guardian has revealed that multinational banana companies are using tax haven jurisdictions to avoid paying tax on their profits in the UK and in developing countries. In the course of international investigation into banana firms, it was found that they established structures to move profits through subsidiaries to offshore jurisdictions such as the Cayman Islands, Bermuda and the British Virgin Islands.

Dole, Chiquita, and Fresh Del Monte, the three companies that control between themselves more than two thirds of the worldwide banana trade, are moving offshore to avoid paying money to tax collectors in the countries where they are producing their goods, and in those countries where they sell the largest part of their products.

To illustrate this fact: in the last five years, the three companies generated over $50 billion of sales and $1.4 bn of global profits. However, the analysis of their financial accounts shows that, over the same period, they paid just $200m in taxes between them – that is just over 14% of profits. In some years, the banana companies have paid an effective tax rate as low as 8%, although the standard rate in the United States where they have their full accounts is 35%.

Fresh Del Monte is registered in the Cayman Islands, which have a zero rate of corporation tax, and has more than 30 Cayman-based subsidiaries. The company also has subsidiaries in other tax havens including the British Virgin Islands, Gibraltar, Bermuda, and the Dutch Antilles. Over the last five years, actual tax paid has been as much as $69m a year - less than tax calculated at the standard US corporation rate. The other two companies, Dole and Chiquita, also pay actual tax below the standard rate, using subsidiary companies in Bermuda, Liberia and Puerto Rico.

The Guardian received comments on its investigation from John Christensen, the director of the campaign group Tax Justice Network, and a former economic adviser to the Jersey government. Speaking about the continuing flight of capital to offshore jurisdictions, he said, “The trend in the last 30 years has been to shift the burden of tax away from companies on to the consumer and labour. Capital is increasingly going untaxed.”

The banana companies are not the only ones to hide taxes using offshore jurisdictions. According to the OECD, about 60% of world trade now consists of internal transfers within transnational companies. The corporations can make little taxable profit in the high-tax countries, moving their real profits towards subsidiaries they have set up in jurisdictions that charge little or no tax.

The Dublin International Arena Limited (Dial) consortium that received the contract to build the €62 mln worth National Aquatic Centre in Dublin now is planning to seek €40 million in compensation from the Ireland government – the amount 4 times greater than the compensation previously claimed by the consortium. It became known from sources close to the Dial consortium that it planned to pursue the case for damages for the allegedly wrongful award of the contract to the Waterworld/Rohcon consortium, comprised of construction firm Rohcon, Dublin Waterworld and Waterworld UK. The last one is said to be just a €4 shelf company owned by the Ealing Trading Corporation, a British Virgin Islands company whose beneficial owners are not known.

In February 2002, CSID awarded the contract to design, build, operate, and manage the centre to the Waterworld/Rohcon consortium, while the Dial consortium’s bid ranked second in the competition organised by CSID.

In May 2002, Dial applied for a judicial review of the decision to award the contract to Waterworld/Rohcon, based on the claim that Waterworld did not meet technical and financial requirements set out in the original tender request. CSID rejected Dial’s claims, but Dial argued that its suspicions are supported by a report published by the former Attorney General, Michael McDowell, in March 2002.

Some days ago, the High Court Justice Susan Denham held that Campus Stadium Ireland (CSID), the state-owned company that commissioned the National Aquatic Centre, had not been entitled to hold the Dial consortium for security of costs. Also, she blamed the state for the delay in bringing the application for security of costs which, as she said, impaired the effective implementation of EU Directives on the award of public contracts.

A trial on the large-scale corruption case took place in the gambling enclave of Macau. Ao Man-long, the secretary of transport and public works whose work was approving land sales to developers, is accused of taking cuts from construction contracts and land sales as well as  development of casinos.  After reading the 76 counts against Ao Man-long, the prosecutors said him to pocket $100 million over seven years. This is a substantial amount even for Macau, which last year surpassed the Las Vegas Strip in gambling revenues.

Prosecutors said they had traced Ao Man-long a web of shell companies based in the British Virgin Islands, to London and on to nearby Hong Kong.

Another person in the focus of investigation is Edmund Ho, the chief executive of Macau who was his patron and probably knew the details of the transactions managed by Ao.

Looking at the problem on the whole: Macau legislator Au Kam-san said that land sales in Macau are in abuse, as of 100 plots put up for sale since 1999, when Macau was turned over to China, only one piece of land was sold by public auction. He noted that the problems are uncontrollable and this has encouraged corruption.

In accordance to information given in the Pakistani press (“The News”), details of the assets $1.5 billion worth (almost Rs 90 billion) supposedly owned by Benazir Bhutto and her family are now under wide circulation through the electronic mail service. It is claimed in the source that the details of the assets are the same as reflected in the record of the National Accountability Bureau (NAB), however, the author of the e-mail containing this information preferred to stay anonymous for some reasons. Nevertheless, a top government official on Wednesday shared these details with media.

Pakistan People’s Party and its top leaders have been constantly denying that Benazir owned assets $1.5 billion worth, insisting that the corruption cases were politically motivated. However, the NAB and its predecessor Ehtesab Bureau have named the figure of $1.5 billion as the looted money.

The lately circulated e-mail, mentioned above, contained the details of the assets of Benazir Bhutto, with their cost value as declared for the assessment year 1999-2000. Among the other, the list included Benazir’s agricultural assets, agricultural assets claimed as exempts; numerous bank accounts in Switzerland, Dubai, United Kingdom and U.S., properties in the UK, U.S. and France.

There are 19 companies registered in the British Virgin Islands that have concern to the $1.5 billion worth assets listed in the e-mail. These are:

• Bomer Finance Inc
• Mariston Secuties Inc
• Marleton Business S A
• Capricorn Trading S A
• Dargal Associated S A
• Fagarita Consulting Inc.
• Marvil Associated Inc
• Penbury Finance Ltd
• Oxton Trading Ltd
• Brinslen Invest, S A
• Climitex Holding, S A
• Elkins Holding, S A
• Minterler Invest Ltd
• Silvernut Investments Inc
• Tacolen Investments Ltd
• Tulerston Invest, S A
• Marledon Invest S A
• Dustan Trading Inc
• Reconstruction and Development Finance Inc

After listing these details, the e-mail message says: “Based on available data the total value of the located assets amount to $1.5 billion approximately, as estimated.”

Haruo Nishida, a stock speculator arrested for alleged market manipulation, has claimed to have been involved in the setting up of the two funds based in the British Virgin Islands, which the ex-president of NOVA Corp. Nozomu Sahashi had been trying to get in order to sustain the failed English conversation school chain.

Nishida was arrested by the Osaka District Public Prosecutors Office, Japan, on October 12 , for stock manipulations with the company A.C. Holdings Co. The day before his arrest, he claimed to have been involved in the issue of NOVA shares and setting the British Virgin Islands funds Rich Peninsula Trading Ltd. and Tower Sky Profits Ltd., that had deals with Sahashi. Meanwhile, the axed president of NOVA Corporation denies all the claims saying he had never heard of Nishida or about his dealing with the BVI funds.

On October 24, 2007 NOVA Corp. issued share warrant stock 70 mln yen (about $610,000) worth that would allow the two funds to purchase up to 200 mln shares in the company. If the funds purchased all the shares, Sahashi hoped it would generate about 6.4 billion yen in cash, and so the company will be rescued. However the plan failed, when NOVA filed for protection from creditors, and Jasdaq annnounced the company would be delisted on November 27.

NOVA Corp.’s receivers said they would have to take legal steps if there were any unfair activities initiated by Sahashi.