BVI Offshore Business: Grey Area

Businessman Dave King failed to postpone a case brought by the South African Revenue Service (SARS), for the right to sell shares in a British Virgin Island company. SARS is trying to receive back taxes allegedly owed by King, and to sell the BVI company shares that are said to be transferred to hide King’s wealth.

It is the last episode in a seven-year war between SARS and King, for tax debts owed by King and his offshore trust Ben Nevis Holdings (also registered in BVI). SARS alleges that Ben Nevis in 2002 transferred all of its South African assets to the offshore company Metlika Trading (BVI), to disturb authorities from looking into BVI trust’s assets. BVI-registered Metlika is the major shareholder in South African companies that own wine farms, game farms and King’s homes.

It is claimed by SARS that Ben Nevis Holdings owes R1,4 billion in debts and penalties, for non-declaring income from the sale of shares in King’s company. SARS says that the money made by Ben Nevis from the sale of shares from Specialised Outsourcing of this company was revenue, so Ben Nevis and Kings are liable to taxes on it. King argues the proceeds have capital nature, so they are not taxable in South Africa.

It was ruled by the court that the case against Ben Nevis and King are to be separated, and the King case would be heard at a later date. This is because King is also facing a criminal case, and any testimony he gives in the tax trial might incriminate him. Also, by the order of the court, King must pay the costs of the two-week application.

King is personally believed to owe SARS R900mln for false declarations in his tax returns for the years 1990-2001. In March of this year, King lost a bid against the UK Fraud Office, to retain all his foreign assets, which probably make the most substantial part of his wealth. It was ruled by the UK court that the restraint order remained in place, but limited it to the UK, Guernsey and Scotland, not extending it worldwide as SARS had hoped.

On May 2, the son of the President of Tajikistan Imomali Rahmon, Rustam, reportedly shot his uncle Hassan Sadullayev. According to the report distributed by Tajikistan news website, Sadullayev was taken for medical treatment to Germany, but he died on May 8.

Sadullayev was probably shot in connection with a struggle for control of Orienbank - one of the leading financial institutions of Tajikistan. Sadullayev was the head of the bank, but during the last months one of the president’s daughters, Takhmina, who owns one of Dushanbe’s major construction firms, tried to get control of the bank from her uncle. However, when negotiations failed to yield an agreement, Rustam Rahmon apparently decided to help his sister resolve the dispute in more extreme way.

Prior to this incident, Sadullayev was considered one of the most powerful personalities in Tajikistan, almost with the same authority as the President; the capital assets of Orienbank are reported to be about US$47 mln. Sadullayev was also involved in a court case involving fraud at the Tajikistan Aluminium Plant, one of the country’s key economic assets, being the top official in a British Virgin Islands company CDH Investments, and responsible for trading large part of Tajikistan’s aluminium output.

The court case with the money that were taken from Tajikistan Aluminium Plant, and the BVI-registered CDH, linked to it and charged with unlawful conspiracy and theft, has arisen controversy in Tajikistan after the public disclosure of the fact that Rahmon’s administration has paid $US120 million in legal fees to British lawyers. Tajikistan in the poorest country in Central Asia, and this is an amount equivalent to about 5% of country’s GDP.

This week, a group of offshore investment funds registered in the British Virgin Islands has received a trading ban from Quebec securities regulators, for soliciting  investors on the Internet. Bureau de décision et de révision en valeurs mobilières issued the order against several BVI funds and their promoter, at the request of the Autorité des Marchés Financiers (AMF).

The funds that are now prohibited from securities operations in Quebec are Future Growth Group Inc. (alleged of having sold units to 165 investors), Future Growth Fund Ltd., Future Growth Global Fund Ltd., Future Growth Market Neutral Equity Fund Ltd., and Future Growth World Fund; their promoter is Adrian Samuel Leemhuis, - an Ontario mutual fund salesman, according to an AMF statement. These BVI funds are not registered in Quebec, and have not issued an approved prospectus in Canada. Leemhuis hasn’t co-operated with investigators from the OSC or  the Mutual Fund Dealers Association of Canada.

The Ontario Securities Commission has frozen about $8 million in assets of BVI-registered Future Growth Global Fund and Future Growth World Fund, and issued a trading ban on the same parties targeted by the Quebec authorities.

In the beginning of May, BVI court confiscated more than US$45 million from a Bermuda-based IPOC International Growth Fund Ltd.  which pleaded guilty of serious frauds. Further on, Justice ordered three other defendants – BVI-registered companies Lapal Limited, Albany Invest Limited, and Mercury Import Limited – to pay a total of $2.2 million in costs and $300,000 in fines for their part in the offences. The court order, which prosecutors say may be the largest court order of its kind ever made in the Commonwealth, came after a 17 month investigation by authorities in the British Virgin Islands and Bermuda, and after the Bermuda- and BVI-based companies pleaded guilty to providing false information and perverting the course of justice. Criminal charges were filed against the four companies on April 21, and the defendants were committed to the High Court on April 25.

It was alleged that between 2004 and 2005, the IPOC group gave wrong information about the source of $40 million which had been lodged with the court as part of a separate, civil matter. At the centre of that legal case there was a long dispute between IPOC and Alpha Group. Through its lawyers in the BVI, Alpha alleged that $40 million in legal costs put up by IPOC were sourced from the proceeds of crime, but it was argued by IPOC that the money originated from consultancy services supplied to a number of companies, including those registered in the U.S. A matter settlement agreement was concluded in the end of November 29 between the IPOC Fund and BVI-registered LV Finance Group Limited, owned by Alpha Group.

The investigation and prosecution of the IPOC case by the BVI authorities was carried out with the co-operation of authorities in Bermuda; a Memorandum of Understanding concerning the IPOC investigation was signed between the two jurisdictions in July 2007. The Bermuda and BVI governments spent a combined $2.3 million on the investigation.