BVI Offshore Business: Grey Area

Last week, the jury in Monterey County, California, convicted UK citizen Michael Vousden of selling fake medical malpractice insurance to women’s clinics across the country – in 36 counts. Vousden was arrested in 2004, convicted of insurance fraud, grand theft, forgery and tax evasion. Now he is to be sentenced on April 4, 2008, and can face 34 years in prison.

The matter is that Vousden has never been licensed in California or in any other part of the United States. He was once licensed to sell insurance in the British Virgin Islands, but the British Virgin Islands government refused to renew his license in 2001. Vousden insisted that his licensing problems arose from the bureaucratic dispute between him and the BVI government. By his words, the difficulties and poor business decisions did not give him any possibility to pay his taxes, although he intended to pay them with late penalties when he was financially stable.

John Barrett, spokesman for the state Franchise Tax Board, said Vousden’s contention that he planned to pay taxes in the future were nonsense. Ronald Smetana who prosecuted the case for the state Attorney General’s Office, said Vousden was never licensed to sell insurance in the United States, and actually he is operating a Ponzi scheme, using premiums from his clients to pay for legal bills and large mansion in Carmel Valley. The scheme was destroyed with a $500,000 judgment against a doctor insured by Vousden at a Texas clinic.

Smetana said he was pleased with the verdict of the jury, but he had not decided how much time he would recommend for sentencing when Vousden goes before Judge Terrance Duncan on April 4. In his turn, Defence attorney Miguel Hernandez said he is planning to appeal for a new trial at the April 4 hearing. He also said Vousden will fight efforts to be deported to Great Britain.

Property magnate Robert Tchenguiz, whose business empire is ultimately controlled by family trusts registered in the British Virgin Islands and Cayman Islands, has got in trouble over the past six months. He has lost hundreds of millions of pounds on the positions in quoted companies, including supermarket chain J Sainsbury and pubs group Mitchells & Butlers.

The result of recent run of stock market losses was speculation about the financial health of the Iranian tycoon who made £850m fortune from the 1990s property boom. However, Tchenguiz denies all the rumours saying he is a long-term holder, and the companies his family invested in have shown “robust growth om tough trading conditions”. Also, his friends note that while the critics focus on Tchenguiz’s positions in Sainsbury’s and M&B, they ignore his successes.

Actually, it seems quite easy for the hedge funds and traders to spread rumours about his financial position, - as a private entrepreneur, it is impossible for Tchenguiz to assemble an accurate picture of  his business empire, which ranges from a stake in supermarket chain Somerfield to a chain of Polish petrol stations.

Tchenguiz is a director of more than 300 UK-registered companies, many of which are used to hold just a single asset. These companies are controlled by BVI- and Cayman Islands-domiciled trusts. The main UK investment vehicle of the entrepreneur, R20 Limited, holds no investments but simply “provides corporate finance and consultancy services”; it employs 16 people, according to the 2006 accounts. R20 Limited is owned by Balmain Properties Limited, registered in the British Virgin Islands, and the ultimate control of the company belongs to the Tchenguiz Discretionary Trust.

Tchenguiz’s investments in quoted companies are publicly disclosed; when shares in Sainsbury’s fell, it was easy for hedge funds and traders to estimate his losses. Thenguiz insists that he is a long-term holder of Sainsbury’s stock, prepared to wait until the market sees the same intrinsic  value that he does.

The adult magazines publishing group founded by Express owner Richard Desmond seeks a listing on the junior Plus Market, and if this will be provided it will be the first listing on the stock market for business working in the adult sphere. Interactive Publishing, a shell group, is floating after a reverse takeover deal with Trojan Publishing, a private business that has a large portfolio of top-shelf titles such as Asian Babes, Forty Plus and New Talent.

After Trojan Publishing Group bought rights to about 30 former Desmond titles last year, in June 2006 it acquired about a dozen mostly adult magazines from British Virgin Islands-registered AML Publishing Trust. Also, in 2006 Trojan signed a deal with Penthouse, licensing rights to Forum - another adult magazine.

A stock market listing for Desmond’s onetime porn titles comes two months after a bankruptcy order was made against Simon Robinson – a former Express journalist who had acquired the titles, trading as Remnant Media, from Desmond in 2004 for £10.8m. Remnant slipped into administration last year only to be snapped up by Trojan, a business at which Robinson had been a director until January 2007.

The Swiss bank UBS AG refused to co-operate with Indian authorities, to unravel a multinational trail of money transfers across Switzerland, New York, the British Virgin Islands and Pune, between Indian stud farm owner Hasan Ali Khan and a fugitive Saudi arms dealer. That not only cost the Swiss bank its deal to buy the Indian mutual fund business of Standard Chartered Bank for $118.2 million, but also the presence in the booming Indian banking market.

It was reported last December that the Reserve Bank of India (RBI) decided to turn down the UBS proposal to acquire Standard Chartered Asset Management Co Pvt Ltd over possible money laundering through UBS by Khan. Standard Chartered, the parent company of Standard Chartered Bank in India, sent a notice to stock exchanges in London and Hong Kong in the end of December, saying it will not proceed with the proposed sale.

The Reserve Bank of India (RBI) put on hold a banking licence to UBS, issued just a year ago and allowing it to open its first branch in Mumbai. Now, by information from unofficial sources, RBI will not release the licence until it gets certain clarifications from UBS. Meanwhile, with this branch licence UBS was ready to commence its banking operations in India. At the moment, the Swiss bank is present in India through its broking and investment banking arm UBS Securities India Pvt Ltd.

From the same sources, it became known that RBI and the Indian government acted in close co-ordination in seeking the UBS plan to buy the mutual fund business of Standard Chartered Bank. The finance ministry had reservations about clearing the mutual fund deal, and it had communicated the same to RBI. The home ministry approval is mandatory for any bank licence, and after the banking regulator approves the entry of a foreign bank in India, it is checked by the ministry for security reasons.

Last week, the troubled poker network Dynamic Gaming Systems (DGS) announced in a press release that it had reached an agreement for the ‘transfer of its network’ with Cintaly Holding Corporation, registered in the British Virgin Islands, but did not name any specific dates. It was stated in the announcement that BVI company’s executives were ‘excited by the opportunity to take over one of the finest poker software networks online’, but nothing was said about serious allegations being made against the Costa Rica-based DGS network by operators, affiliates and players.

It was however claimed in the release that Cintaly Holding Corporation ‘intended to honour all verified existing player balances and licensee agreements’, after getting ‘all remaining players and licensees back operational as fast as possible’.

By the information provided in the numerous reports of DGS members, the network has ceased payouts with many operators, which are looking for co-operation with the fast-growing networks Merge Poker and Dobrosoft’s Gold Chip. So, online poker site G2Gpoker.com, along with LuckyHog.net., announced that it has left DGS and joined Merge.