BVI Offshore Business: Grey Area

The shareholders of St. Petersburg retail chain Lenta August Meyer and Oleg Zherebtsov continue emotional discussions and mutual accusations, trying to force each other out from company’s management. By words of an American shareholder, the subject of conflict and disagreement is about the illegal takeover of Lenta LLC by two of the main shareholders - Oleg Zherebtsov and Vladimir Senkin. Lenta LLC, the retail chain that operates 26 hypermarkets across Russia, is fully owned by Lenta Ltd., registered in the British Virgin Islands, and its takeover was not approved by the majority of BVI company’s board of directors and, actually, by any other Lenta shareholders.

The conflict arose from the dismissal of Lenta LLC’s general director Sergei Yushchenko. After his contract expired, the majority of members of the board voted to appoint Vladimir Senkin to the position of general director. Senkin was proposed by Oleg Zherebtsov, the founder of Lenta who holds 35% stake. Meyer, who is the owner of 36%.4 stake, opposed the decision and held an extraordinary meeting of Lenta Ltd.’s shareholders where elected a new board of directors and voted to retain Yuschenko as general director of Lenta LLC and CEO of the BVI company.

Zherebtsov said that Meyer demanded his resignation from the position of general director of Lenta LLC at the end of 2006, and after this was done he demanded his resignation from the position of chairman of Lenta Ltd. and the sale of his shares, but this was refused. After the refusal of Zherebtsov, Meyer and Yuschenko tried to sell the BVI company to an outside investor, probably to another Russian retail chain.

Alexander Arbouzov, lawyer at Beiten Burkhardt St.Petersburg, indicated that if Lenta Ltd. owns 100% of the shares of Lenta LLC, the board of directors of Lenta LLC should be elected on the BVI where the parent company is incorporated by its shareholders. He could not conclude that one of the shareholders is trying to take over the company. Probably the dispute will be solved with the BVI court.

The economy of Iraq is destroyed by the war which lasts already for 4.5 years, and which took away lives of tens of thousands of civilians.

The war is going in the full scale, with the help of more than 100,000 soldiers. Just the rebuilding of the infrastructure, including restoring basic structures and improving electricity failures, will cost about another 100 billion.

Of course the country with such characterics would not attract investors’ money, but investment professionals that gathered in Helsinki auditorium appeared to think otherwise. This event was part of a ”road show” organised by Confidentia Capital, with the theme of investing in Iraq.

The main speaker came from Sweden – or actually from the British Virgin Islands where the first fund investing in Iraq is located. The portfolio manager of the Babylon Fund Björn Englund saw that Iraq is an excellent target for investment, because of its vast oil resources and the intense flow of foreign aid coming into the country. Iraq’s total oil resources remain unknown, but Englund’s transparencies mentioned the 140 billion barrels, of which only one fifth has been utilised.

Already now, oil income covers 95% of the government’s budget, and is responsible for two thirds of the country’s economy. If output is increased, as much as 3.5 million barrels a day could be produced. At the current price of about 100$ a barrel, this would bring Iraq an annual income of 128 billion, which is more than double the present GDP of Iraq. By words of BVI fund’s manager Björn Englund, such a large amount of money will support the whole national economy, leading to good investment opportunities.

The BVI-based Babylon Fund seeks out these opportunities mainly through the Baghdad Stock Exchange, which is still underdeveloped, with just 40 listed companies and monthly trading volume of about 50 million dollars. Nevertheless, Babylon, with its portfolio of 14 million, generated earnings of 25% for its investors. CEO of Confidentia Capital, Juha Kojonen, said that Finnish investors were among the beneficiaries.

It has already been discussed previously that Norwegian Hydro Aluminium passed money through BVI-based intermediary in its deals with the Tajikistan Aluminium company.

Then, the case of the largest missing aluminium amount in the world was considered in the High Court in London. The loss was estimated at as high as USD 500 million per year. This money disappeared from the Tajikistan Aluminium Plant, whose principal trading partner is Hydro Aluminium, the state-controlled Norwegian aluminium producer.
The prehistory of the agreement between Hydro and Talco, most important industrial and trading enterprise in Tajikistan wholly owned by the Tajik government, has been described previously. Several years ago, Hydro sued Talco and won the case.

Now, Talco and CDH Investments, a company linked to this case and registered in the British Virgin Islands, are charged with unlawful conspiracy and theft. That is why, under the decision of the High Court in London, the case was moved to the British Virgin Islands jurisdiction.

It is also worth mentioning that a press release, issued through the Tajik news agency Asia-Plus on December 21, defends reassigning sales contracts and the tolling operations of the offshore cutout companies.

BVI offshore business related news sources have many times discussed the so-called 809 long distance code scam (BVI), which is usually and mistakenly related to the British Virgin Islands. All the case was about people receiving urgent messages in which they were asked to call a phone number with area code 809 (or some other, but 809 is the most popular one). If they called to this number, which is similar to the 900 numbers in the US, they received much higher charges - sometimes they reached $2,500 per minute.

The story did not finish as in the beginning of this year Federal Trade Commission (FTC) again issued warning that some  U.S. residents have been contacted by “809” phone scams originating in the foreign country, in the Caribbean or Canada. The Commission also informed on the steps that the residents can make to minimize the risks of becoming victim to this scam.

The scheme of the fraud is the same as described above. By words of Mike Diekmann, of the Cass County Sheriff’s Office, it results in consumers inadvertently receiving extremely high charges for long distance phone calls on their phone bills; and, again, the costs could be several thousands USD. It starts with the consumer getting an e-mail, voicemail or page, where he is asked to call a phone number with a 809, 284, 276 or other three-digit area code, and to receive money prize, or some other kind of attraction. The consumer assumes he is making a domestic long distance call, since the three-digit area codes used appear to be typical three-digit codes for the United States. However, by this number he is actually connected to a phone number outside the US, and is charged correspondingly.

Originally, 809 was the code for the BVI, later on for many other countries of the Caribbean region, but the original calling code might have associations with the BVI territory. Currently, 809 is the area code for the Dominican Republic, 284 is the code for the British Virgin Islands, 876 is for Jamaica.

The island state of Taiwan is choosing between the identity politics of the current leadership or the pro-business politics of the opposition Kuomintang (KMT). There are about three months before national elections on Taiwan, and the presidential campaign is extremely intensive.

According to the opinion polls, KMT candidate Ma Ying-jeou takes the substantial lead over Frank Hsieh, the DPP presidential candidate.  Ma presents himself as an alternative to the DPP rule, during which country’s relations with Beijing have become much worse, and thousands of Taiwan firms, including those working in the key high-technology sector, have moved to China and the island has become diplomatically isolated. Hsieh, in his turn, is presenting himself as more pragmatic and cautious version of the current president Chen and someone better able to deal with Beijing and defend the independent status of Taiwan.

Both candidates will try to soften Chen’s hard economic line toward China. Ma says he will relax a cap that limits investment by Taiwan firms in the mainland to 40% of net assets. Hsieh promised that he also would relax the investment ceiling for the firms.

Meanwhile, according to Chinese statistics, Taiwan companies that are unable to raise money in Taiwan and remain below the 40% ceiling, turn to other markets. Taiwan firms have invested US$45 billion in 74,000 enteprises in China; unofficial sources name the figure at US$100 billion. These money, passed via Hong Kong, the British Virgin Islands and the Cayman Islands, make Taiwan mainland’s largest foreign investor.

Now the opposition’s candidate is playing the economic card. By words of one of KMT’s candidates, “We have to find our niche. We are an island economy and must work with the outside world or become isolated. In the election, people stress local themes and talk of things at home. This is against the laws of economics.”