BVI Offshore Business: Grey Area

John Finnin, former chief executive of the failed fuel technology company Firepower Operations Pty Ltd, an Australian branch of the BVI-registered Firepower Holdings Group Ltd., has told creditors in the British Virgin Islands that a $38 mln fortune has disappeared from the bank accounts of Tim Johnston. Johnston was the discredited director of the Australian-based Firepower Operations, and the director and executive chairman of the parent company Firepower BVI, based in the British Virgin Islalnds. Now he could not be reached for comments.

The information about the money that was found in offshore accounts some weeks ago and now is missing was confirmed by Firepower liquidator Bryan Hughes. Mr Finnin informed him that in the last weeks the money has been moved into other accounts that could not be traced. The Australian Securities and Investments Commission has commenced action against Mr Johnston who is now thought to be residing in the UK, and some other businessmen including property developer Warren Anderson, the previous director of Firepower Holdings Group Limited.

Mr Hughes said he had no power to order an arrest warrant for Mr Johnston, because the shares he sold to members of the public were routed through the second BVI company controlled by him. He assumed that people who thought they were investing directly in Firepower were actually buying Mr Johnston’s own shares, and then, through a complicated network of overseas-registered entities, Mr Johnston hide the money trail. Mr Hughes said that the lost amount might have ended up in secret Swiss bank accounts but all of them might also have disappeared. From some credible sources he knew that Tim Johnston had $6 million in a Swiss bank account in his own name, and now probably it has disappeared.

Those who are alleged to have sold shares in the company, including Mr Johnston, have faced Federal Court charges. The court will consider actions against Mr Johnston for insolvent trading, and that, by his expectations, there would be petitions for his bankruptcy.

Firepower, which has 1,208 Australian shareholders who invested between $80 and $100 mln, was wound up in August in the Federal Court. Among its creditors there are the Western Force rugby team and the now defunct Sydney Kings basketball team.

On Monday, October 27, the Omsk Appeal Arbitration Court froze stakes in VimpelCom belonging to the largest shareholder - Telenor East Invest of Norwegian telecoms company Telenor, and Altimo, the telecoms arm of Russian tycoon Mikhail Fridman’s Alfa Group. Telenor owns 29.9% of VimpelCom’s voting stock, while Altimo controls 44%. The Russian mobile company is also partially controlled by British Virgin Islands-registered Farimex Products. The Omsk Appeal Arbitration Court satisfied claim filed by Farimex, having frozen the stakes held by Telenor and Altimo.

Some months ago the court of Khanty-Mansiysk issued a decision in favor of  VimpelCom, on the lawsuit filed by this company against the Norwegian Telenor, and decided that Telenor is liable for $2.8 billion in damages. The Norwegian company filed an appeal to the Omsk Court which is to be heard on November 18.

Despite the fact that the case has not come to its end yet, VimpelCom announced on Monday that it had acquired a 49.9% stake in Euroset for around $226 million. After this the Omsk Appeal Arbitration Court decided to prohibit all actions, direct or otherwise directed towards the acquisition of the assets. The BVI company Farimex said the latest court order would prevent Altimo and Telenor from disposing of VimpelCom’s shares until a settlement is reached on the August court decision.

Alfa-controlled Altimo did not give any comments on the decision, just confirming the fact that the shares in Vimpelcom have been frozen.

The British defence company and arms manufacturer BAE Systems, which is under investigation in several countries for alleged bribery, using secret payments system and running the funds through the BVI offshore companies, paid at least £20mln to a company which is linked to a Zimbabwean arms trader close to President Robert Mugabe.  The documents reported by the Financial Times concern John Bredenkamp known for his controversial career. British properties of Bredenkamp were raided by the Serious Fraud Office almost two years ago as part of an ongoing investigation into BAE’s arms deal with Saudi Arabia, when several African National Congress officials allegedly received bribes. Currently discovered payment of at least £20m is the most significant evidence of a financial relationship between Bredenkamp and BAE.

The payments linked to Bredenkamp were made in the period between 2003 and 2005 by Red Diamond Trading, a British Virgin Islands-registered subsidiary of BAE Systems, from a London-based Lloyds TSB account. The money was transferred to another BVI company Kayswell Services, owned by Bredenkamp (he is the beneficiary of the company).

BVI company Red Diamond Trading was liquidated on May 30 last year, and now BAE’s ethical conduct and compliance with anti corruption rules are conducted. BAE, Bredenkamp and BVI company Kayswell’s representatives declined to confirm the payments or comment on what the money was for. In his turn, Bredenkamp claimed his compliance with EU arms sanctions, which ban the provision of financial related to military activities, and are in force against Zimbabwe since 2002. He also denied any involvement in the South African sale.

The British Virgin Islands-registered Platte International Ltd, formerly known as Micro Bill Systems (MBS), is known as a company with an unusual business model, which already seems to cause some problems to its customers in the UK. People go to websites that use its software, click an agreement offering a free trial and download software to their computer. Then, if customers do not actively end the trial by paying the subscription, they start to see popup windows that appear more and more often, making it harder to use the computer. By complaints of the customers, most of them say they had nothing to do with the company called Platte Media, the popup notices demand payment in the amount of £29.99. For those who do not pay, Platte Media BVI sends letters threatening legal action at the small claims court. For those who do not see the forgery, the letter is included which appears to be from “Issuing Court Northampton County Court”, but in reality it does not.

Some consumers claim only to see a popup bill demanding £29.99 for a 30-day subscription, but in a number of cases it just means that they are not willing to admit their signing up on the family PC for company’s services meaning signing up for free trial to watch pornographic films.

Platte International Ltd BVI has already attracted attention for having stills from mainstream films on a website when in reality it was offering thousands of pornofilms. Another questionable thing about the company is its ability to obtain personal details about the customers. It was suggested by some people that Platte International uses IP addresses to ask internet service providers, because when installing of software does not demand any personal details. However Stanly Hiwat, the chief executive officer of Platte International Ltd BVI, informed that the only situation where the company would get an individual’s address is when a court grants an Order requiring the Internet Service Provider to disclose it.

And the last question about the BVI company, which is also the most tricky, is about whether it is registered for VAT, and if yes, then in what jurisdiction. One of the customers, having paid for the subscription, asked for a VAT receipt, but the receipt arrived without a VAT number, and he was informed that any payment made to Platte Media was to Platte International in the British Virgin Islands, and as such was not subject to VAT.

This fact became the focus of the interest of HM Revenue and Customs, which was asked whether really the company registered offshore and providing services to customers in the UK, is  not liable to VAT. HMRC answered that non-EU suppliers providing “electronically supplied services to UK consumers” were required to register for VAT in case if the VAT threshold is exceeded.

The BVI company claims that it does not exceed the VAT threshold, which makes £67,000 in a year, but it seems that it does. Hiwat, the CEO of BVI-based Platte International Ltd, who is located in Brazil, did not answer any detailed questions about VAT, having said just some common phrases. However, it is suggested that there are between 40,500 and 64,500 downloads per month on company’s websites, and this makes the company to exceed the limit to a large extent, assuming that large part of subscriptions comes from the UK.

Mike Bailey of accountancy firm PricewaterhouseCoopers (www.pwc.com/) commented that it is a real problem for non-EU companies supplying electronic services to be enforced for VAT registration, because it is very difficult to find out which non-EU companies should have registered on their income.

HMRC is more determined: if it becomes aware that an overseas trading company (including BVI-based Platte) is liable to register in the UK, it can compulsorily register them and issue an assessment of any tax due. If appropriate, a civil evasion or belated notification penalty can also be issued.

Premier and Minister of Finance Hon. Ralph T. O’ Neal, has made an announcement in the beginning of October concerning the BVI government plans to launch a transparent investigation into the issue of the disbursement of more than US$45 million between a Bermuda-registered IPOC International Growth Fund Ltd, and the British Virgin Islands. This amount was confiscated by the BVI court some months ago, after the 17 month investigating period carried out by authorities of the British Virgin Islands and Bermuda, and after the BVI- and Bermuda-based companies pleaded guilty to providing false information and perverting justice course. It was found out that in 2004-2005 the IPOC group lied about the source of $40 million that was lodged with the court of a separate civil matter.

The three BVI companies - Albany Invest Limited, Lapal Limited and Mercury Limited, - were also ordered to pay a total of $2.2 mln in costs and $300,000 in fines for their part in the offences. All the defendants including BVI companies are within the IPOC group.

In the centre of the case there was a long dispute between IPOC and Alpha Group which is the owner of the BVI-registered  LV Finance Group Limited; it is suggested that the $45 mln amount plus was transferred and divided in half between the BVI and Bermuda without the awareness of the BVI government.

Premier O’Neal said that the BVI government was not aware of the disbursement seized by the BVI High Court from a Bermuda company, and announced that the government will be launching a transparent investigation into the issue.

The dispute between the French Group Danone and China-based joint venture Wahaha Group which is already continuing for one-and-a-half year long has finished with Danone paying 570 million yuan to the Chinese company, and its high-profile legal actions worldwide have been questioned by shareholders.

In June 2007, Danone filed a complaint against the BVI company Ever Maple Trading Ltd., which, by its words, has the controlling stock of Hangzhou Hongsheng Beverage Co Ltd. - the parent company of Danone’s joint venture partner, Hangzhou Wahaha Food and Beverage Sales Co. Later on, the counter-claim of the Chinese Group has followed, which sued Danone for conducting its business illegally.

In November 2007, the High Court of the BVI brought several BVI firms registered under Wahaha Group into receivership, and froze their assets until further decision. An international auditing firm KPMG, which had been appointed the receiver of each of the BVI companies, became also involved in the dispute between the companies. One month later, Danone filed the case against the parent of the BVI company in Samoa, again applying for appointment of KPMG as the receiver. Danone alleged that the non-joint ventures impaired its interests, while Wahaha claimed the ventures have nothing to do with Danone.

Now, Wahaha sent a petition to the court, accusing KPMG of violating Chinese laws, and affecting its normal production and operation for which the company asked for compensation and a public apology from the auditing firm. KPMG is said to have violated China’s judicial sovereignty by sending BVI and Samoa court orders, because foreign institutions and individuals are not allowed to deliver documents and conduct  investigations in China without permission from relevant Chinese authorities.

Also, according to the laws of BVI and Samoa, a company shall not be ordered to be taken over unless its property is really threatened, and it is suspected of non-normal operation. Danone, however, is still normally operating investment company, as well as the non-joint ventures of Wahaha invested by Danone. British Virgin Islands is the most popular offshore jurisdiction in the world, but it has only one judge. It can be said that Danone cheated the BVI court when applying for arbitration in the event that the BVI company was absent, according to a source at the BVI company.

Recently the prosecutors at Taiwan Supreme Prosecutors Office’s Special Investigation Group (SIG), were looking into claims that former First Lady Wu Shu-jen had established a shell company in the British Virgin Islands called Armando Holding. They received information from Singapore which reportedly included details about five accounts, three of them registered by Wu Ching-mao and two by Huang Jui-Ching. The BVI company was reportedly set up to manage overseas funds.

It was found out by SIG that the BVI-registered Armando Company had opened an account in Singapore, with relatively small amount of money. Its president was listed as Wu Ching-mao, the brother of the former First Lady of Taiwan, and main beneficiaries were Wu Shu-chen and her two children, Chen Hsiung-yu and Chen Chih-chung. All these persons will be probably summoned to the court investigation. It was said in the unconfirmed media reports that at least two prominent Taiwanese businessmen might have wired funds into the account.

The report about the BVI holding company follows reports mentioning similar offshore companies for the former First Family based in the Cayman Islands, Belize, Mauritius, and on the British Channel Island of Jersey. SIG’s spokesperson Chen Yun-nan did not confirm or deny the reports about Armando Holding, saying investigators were still looking into the reports.