BVI Offshore Business: Grey Area

The U.S. Court of Appeals for the District of Columbia Circuit announced about a week ago that Walter Anderson, telecommunications entrepreneur who admitted hiding hundreds of millions of dollars from the International Revenue Service (IRS) and tax collectors of the District of Columbia, may be obliged to pay more than $200 million in restitution.

Federal appellate judges overturned a ruling that said that a Justice Department mistake made the repayment impossible. The U.S. Court also upheld the nine-year sentence for the millionaire.

The case goes back to Friedman to allow him to order restitution. Anderson started a long-distance business in the 1980s, in the period when the  telecommunications industry was being deregulated. When his first company, Mid-Atlantic Telecom, merged with another company in 1992, Anderson registered companies in the British Virgin Islands to hide the income. It was said by the prosecutors that Anderson used other offshore corporations (including BVI) to disguise his ownership in other telecommunications companies while their earnings were more than $450 million between 1995 and 1999. He allegedly did not file federal income tax returns from 1987 to 1993.

The U.S. District Judge Paul Friedman ordered Anderson to repay about $23 million to the city. He said however that he could not order Anderson to repay the federal government because Justice Department’s binding plea agreement with Anderson listed the wrong statute. Appeals Court judges disagreed.

N.J. Hochman, assistant attorney general of the Justice Department’s tax division, said they were pleased with the decision. By his words, “justice in this case requires not only a prison term, but also full restitution, which the court’s ruling now permits.”

A six-storey townhouse in Mayfair, which costs £6.25 million and which can take pride of having one of London’s most exclusive addresses by the Upper Grosvenor Street, several weeks ago has been occupied by eight squatters who now plan to leave it only being evicted. According to the Land Registry, the building is held on long lease by the British Virgin Islands-registered Deltaland Resources Ltd, which leases it from the Duke of Westminster’s Grosvenor estate. A spokeswoman for the property company of the Duke of Westminster confirmed company’s awareness of the squatters and said the problem will be solved by the BVI company as the leaseholder.

Deltaland, in its turn, does not come in touch with the group of artists who had settled in the house and redesignated it as a “live-in art installation”. The BVI company  has employed Macfarlands, a City law firm, to deal with this issue.

Meanwhile, the multimillion-pound building has become one of the whole range of central London properties occupied by the group of teenagers and artists, including the addresses on Kensington High Street, in Tottenham Court Road and the former Iraqi consulate. They have changed the locks, reconnected the utilities and say they are going to pay bills. The squatters also insist that they are not making criminal offence, and that they even improve the building, which has been empty since 2005, noting that “the building is listed so English Heritage might be interested to see how the owners have let it disintegrate.”

In the beginning of this month, the Securities and Futures Commission (SFC) of Hong Kong appealed to the Court of Appeal against the High Court decision to discharge an interim injunction obtained to prevent dissipation of assets in the continuing investigation on insider dealing. The Commission also obtained orders from the High Court and the Court of Appeal for stay of execution of the order to discharge the interim injunction until the determination of the appeal or further court order. By the interim injunction, disposal of up to $43 million was frozen, based on evidence and suspicions that “C”, a person whose identity is the subject of a suppression order, was involved in insider trading of Asia Telemedia shares.

By the decision of the High Court, the interim injunction was discharged against “C” and two British Virgin Islands companies controlled by this person, on the principal ground that the High Court does not have jurisdiction to order injunctions under the Securities and Futures Ordinance in cases when the defendant and the assets to be frozen exist outside the HK Special Administrative Region. The person “C” is residing (or appears to) mainly in Beijing, and the assets are in other offshore jurisdictions (British Virgin Islands).

The SFC’s executive Director of Enforcement, Mr Mark Steward, said that they are eager to resolve this case in the Court of Appeal, as it “raises a serious and important issue about the enforcement of HK’s securities laws against persons who are outside the jurisdiction, and the prevention of misconduct by such persons.”

After an eight-day trial at the UK Portsmouth Crown Court, an Island businessman of Sudan origin Mohamed Ahmed Elobeid is found guilty of not paying the largest part of taxes from his £400,000 profit, by setting up BVI offshore trust and bank accounts. He was accused of having cheated HM Revenue and Customs of the amount more than £196,000 over eight years, by having his income lodged overseas and withdrawing it in cash.

Elobeid had denied the fact that he avoided paying income tax and National Insurance relating to his company, Sayf International Aviation Services, and that he tried to cover up bank accounts during a Revenue investigation, by not including them on tax forms.

In the eight years ending in 2004, Elobeid declared an income of £35,713 when reconstruction of his dealings by a financial expert showed it should have been £435,180. When he was living in St Helens, he organized the following scheme: through the Dominion Trust in Guernsey he set up the trust in a third tax haven, the British Virgin Islands. Customers paid into the trust while he instructed the trust to pay money into Jersey bank accounts. Also, large cash sums were drawn by him from British branches of the bank.

The businessman had told the court he believed his actions were legitimate. The case was adjourned for sentencing until December 5. Elobeid was granted unconditional bail.

Under the current law of UK, overseas businessmen can contribute quite legitimately to the British politics by making donations through their UK-registered parties. The Times has recently  discovered series of donations to the Tories party, in the amounts of £50,000 and £100,000, paid legally by UK companies which are probably controlled by offshore entities.

According to the Times publication, £100,000 was given by CVS Management, - the management consulting firm based in Hertfordshire but being a subsidiary of a British Virgin Islands-registered and Swiss-based investment management company Corvus Capital. The person who is guiding the BVI company is Andrew Regan, a financier who was cleared of stealing £2.4 million from the food company where he was chief executive, and who now lives in Switzerland. Last time he himself appeared on the electoral roll in 2004.

It was confirmed by the office of Mr Regan that he travelled from Geneva to attend one Conservative meeting. As the person controlling the BVI-based Corvus Capital, Mr Regan is one of offshore businessmen whose companies appear to be bankrolling Conservatives. Among other companies there are Markland Holdings (UK), as part of an organisation owned by two Irish property tycoons who gave £100,000 to the Tories; Sleepwell Hotels UK, owned by a trust in the Isle of Man; BSN Capital Partners, based in London and controlled by the Cayman Islands company hedge fund ; the British business Venson Automotive Solutions, which gave £50,000, and Swiss-based Star Reefers UK, which also gave £50,000 to the Conservatives, while having recorded £394,000 losses last year.

The Party funding by overseas companies has become publicly discussed after a letter to The Times from Nat Rotschild, concerning George Osborne and the Russian oligarch. Foreign donations were planned to have been abolished when Tony Blair introduced the antisleaze Political Parties, Elections and Referendums Act in 2000, in accordance to which the parties became responsible by law for proving that they were sponsored only by eligible donors.

On November 4, the elections are held in the United States. It is unknown yet who is to be elected as the next president, but it is clear that in any case he will have major impact on global issues. Some persons take a view that a Senator Barack Obama victory could be a particular threat to offshore centres, including the British Virgin Islands, because he made certain efforts to shut them down.

Almost a year ago, in February 2007, Obama co-sponsored the ‘Stop Tax Haven Abuse Act’, which was introduced by Senator Carl Levin. The provisions of this Bill outline a series of measures to crack down on offshore jurisdictions. The Bill is targeting “offshore secrecy jurisdictions”, defined as countries having ‘corporate, business, bank, or tax secrecy rules and practices which… unreasonably restrict the ability of the United States to obtain information relevant to enforcement’. The list of 34 countries is included which will be considered as such upon enactment of the act, including, among others, British Virgin Islands, Cayman Islands, Dominica, Grenada, Bahamas, St Kitts and Nevis, Turks and Caicos Islands.

In his speech in Wisconsin on September 22, Obama spoke on this Act saying: “We lose $100 billion every year because corporations get to set up mailboxes offshore so that they can avoid paying a dime of taxes in America. Imagine if you got to do that… I will shut down those offshore tax havens and corporate loopholes as President, because you shouldn’t have to pay higher taxes because some big corporation cut corners to avoid paying theirs.”

The Bill is thought to reduce the incidence of tax evasion in the US, but there is also an opinion that it will go too far and prevent legitimate individuals from using legitimate financial services, and that the purpose of the document is not to stop the abuse of offshore financial services but exercise control over large pools of development capital.