BVI Offshore Business: Grey Area

The Prospect Reef Vacation Club (PRVC) is going to file a lawsuit against the British Virgin Islands government in the U.S. Federal Court, for an estimated sum of US$4-8 mln. The international group is alleging that the BVI government illegally deprived owners of their property rights when it decided not to follow prior contracts after buying the resort in 2005. After this decision, there were years of negotiations which finally broke down this year.

According to PRVC timeshare members, the vacation club was established in 1999. For an initial down payment and annual maintenance fees, club members could buy the timeshare for one week per year, for 70 years use. In 2005 PRVC was bought by the BVI government, and vacation club members lost access to the property and did not receive remuneration from either the government or former property holders – the Romney Group. Answering the complaints of the club members, the BVI government stated that, as purchasers, they were not responsible for agreements entered into by previous landowners or operators.

Dr. Orlando Smith, which was the BVI Chief Minister at that time, told the press that these issues “are not a problem between the government and timeshare holders”, but rather - “a matter between timeshare holders and the person or persons with whom they entered into timeshare agreements.”

The solution was not reached, but in March 2007 BVI government officials promised club members they will help the situation. After the Virgin Islands Party won general elections in August 2007, Timeshare owners applied to the new government headed by Ralph O’Neal, but, in their words, they received no response.

Susan Eisenhut, the communication co-ordinator of Prospect Reef Vacation Club, wrote that club’s members are protected by the Hague Treaty, which “says that U.S. citizens have the right to sue another government in U.S. Federal Court when that government takes our property, as did the BVI government when they acquired Prospect Reef.”

The U.S. Commodity Futures Trading Commission (CFTC) announced that it obtained orders imposing more than US$2.9 mln in sanctions against Foreign Fund and some other defendants, including two individuals and a Tennessee Corporation, for violations of the anti-fraud provisions of the Commodity Exchange Act. The CFTC action alleged that Foreign Fund, which was an Internet entity operating exclusively from a website in Ukraine and maintaining bank accounts in Nashville, Tennessee (U.S.), defrauded thousands of customers worldwide out of more than US$3 mln, by offering illegal off-exchange futures contracts. Two defendants were charged with misappropriation in connection with their handling of customer funds.

Relief defendants, – British Virgin Islands company Star Connection Inc. and Deana Whitely of Olds, Alberta, - were ordered to turn over more than US$658,000 and US$245,424.24 of ill-gotten foreign fund customer money, in Foreign Fund customer funds to which they were not entitled.

The Commission also issued orders that bar Foreign Fund and other defendants from any activities bringing profit. One of them, MW First Trustees Inc., was deprived of all funds and assets that were in its custody. The Commission orders also require Foreign Fund to pay restitution in the amount of US$1,216,463 and a $1,216,463 civil monetary penalty.

Foreign Fund attracted customers by falsely representing that it was generating monthly profits of up to 100% through foreign currency futures trading, whereas in reality it engaged in a Ponzi scheme, using funds from new customers to pay previous customers, and misappropriating other customer funds.

Asif Ali Zardari, the controversial politician who took over the leadership of the party of his murdered wife Benazir Bhutto, spent more than eleven years in jail, being charged with corruption. Now, when he has been elected the new president of Pakistan.

Benazir Bhutto who came to power in 1988 was swept out from her post after two years, on allegations of incompetence and corruption. Most of these charges were directed against her husband Zardari, who was jailed, but came from prison directly into the office of minister of investment when his wife was reelected in 1993. Her government fell again in 1996, and he was rearrested being charged of murder. This remained unproven, but he stayed in prison until 2004 due to a range of other charges, including money laundering.

Money laundering cases included revelations of more than a dozen bank accounts in London and Swiss banks, and various properties in the UK, US, France and Dubai. The trail lead to offshore jurisdictions from Liechtenstein to the British Virgin Islands, but all the charges tumbled because of the lack of evidence. It was said by judge Lawrence Collins that, although there was “no direct evidence”, the government of Pakistan had a “reasonable prospect” of proving corruption in a civil case. Now it is unlikely to be pursued.

Paul Hogan, an Australian actor known in the world as the Crocodile Dundee star has been accused of defrauding the tax office, by borrowing money from one of his offshore companies and then claiming a tax deduction of almost $1 million on the loan. The documents revealing this information have been kept in secret until this moment.

The documents concerning the loan scheme between Hogan and a company called GB Film Finance and registered in the British Virgin Islands detail for the first time some of the allegations made against Mr. Hogan by the Australian Crime Commission, taking him as part of Australia’s largest tax fraud inquiry, the $305 million tax haven probe, Operation Wickenby. The loan scheme of BVI company and Hogan is part of a “criminal investigation” according to an affidavit by crime commission investigator Ian Andrew.

GB Film Finance, registered in BVI, is owned 50/50 by Hogan and his fellow investor John Cornell. It is claimed that in July 2000 Hogan borrowed $4 mln from the film finance company, and created a fictitious dispute between his US lawyer and the company over early repayment of the loan. Hogan allegedly “settled” the loan in the same fictitious way, by repaying it with $600,000 interest through one of his offshore trusts, the Quatre Saison Trust, and claiming 910,884 Australian dollars as a tax deduction in his 2004 Australian income tax return.

The 68-year old Hogan is also accused of dodging tax in some periods when he was resident in neither Australia nor the US, and therefore not liable to pay tax in any of these countries. He himself denied that he committed any kind of crime, and said he has paid more taxes than it was needed.

The businessman Mr Ung Yoke Hooi, who owns business dealing in scrap metal and industrial waste, was deprived of access to nearly US$500,000 in his Singapore bank accounts for almost two years. This money was frozen by authorities because of long-time case with Ng Teck Lee, ex-boss of the company Citiraya, who left the town with US$51 million. The fugitive had promised to pay US$ 4 mln to Mr Ung, for his 29% stake in one of Citiraya subsidiaries, and the money frozen in the account was part of this sum.

The accounts of Mr Ung were frozen in November 2006 by the Corrupt Practices Investigation Bureau (CPIB), which alleges that Ng had used ill-gotten money to pay Mr Ung. Meanwhile, investigations showed that the money that Ng paid to Mr Ung had come from Pan Asset International, a company registered in the British Virgin Islands. CPIB says that Ng is the owner of this BVI company, and used it to receive the proceeds from his scam.

Mr Ung considered it was unreasonable of the CPIB to froze his money, as he was not charged of anything, and sought the court to provide an order to unlock his accounts. However, his request was turned down by the judge. The CPIB insisted that Mr Ung’s frozen money was connected to Ng’s misdeeds, and argued that his accounts would no longer be frozen when Ng is brought back to Singapore.

The lawyer of Mr Ung, Mr Singa Retnam, argued that the CPIB had not prove the money in the frozen accounts to have come from the BVI-registered Pan Asset International. However, it was said by the Justice that it was the onus of Mr Ung to prove that the money on his accounts were not ill-gotten gains.

Justice Tay also considers that there is no unnecessary delay in the release of the accounts, as Ng’s disappearance meant that the CPIB had to investigate the scam without his assistance.

Bryan Hughes, the liquidator of the failed fuel technology company Firepower Operations Pty Ltd, an Australian branch of the BVI-registered Firepower Holdings Group Ltd., has called an informal meeting of shareholders to look into suggestions that company’s previous directors are spending BVI group’s money, setting up a new company called Greenpower. He said he had seen documents showing  that money was transferred to a new business as late as July. The liquidator is not sure about the jurisdiction they have registered in, but he has information that they have been operating out of London, making efforts to acquire  the stock of Firepower.

At meetings across Australia, Mr. Hughes told that Firepower shareholders would get no return on the millions of dollars they invested into the fuel technology company without taking legal action. By his words, Firepower’s secret accounts showed losses of over $40 million in the past three years. Also, Mr. Hughes had information that there were offshore bank accounts containing significant amounts, and the BVI group itself had no assets and no patents; he said at the meeting that about $80 million to $100 million had been invested in Firepower, but much of the money “had gone straight to other companies through a complex offshore web.”

The company Firepower Operations is to be liquidated with debts of almost $10 million, and corporate regulators from the Australian Securities and Investments Commission are taking new steps against the BVI company and its associated companies.

Firepower has about 1,200 shareholders who have invested up to $100 million. The company owes millions of dollars to creditors, including the Western Force rugby team and Sydney Kings basketball team. Mr Hughes is the official liquidator of the Firepower Group’s British Virgin Islands-based parent company, and he is seeking to have Firepower BVI wound up. Tim Johnston, the sole director of the Australian-based Firepower Operations, who was also the director and executive chairman of the parent company Firepower BVI, could not be reached for comments.

Mr Hughes revealed at the meeting that he would consider actions against Mr Johnston for insolvent trading, and that, by his expectations, there would be petitions for his bankruptcy.