BVI Under Fire As Tax Haven
Is The British Virgin Islands A Tax Haven?
British Virgin Islands Firm Kept Doing Business With Shady Characters Even As Regulators Prodded It To Obey Anti-Money Laundering-Laws
The Achilleas Kallakis case is a graphic demonstration of the way in which the British Virgin Island's regime of offshore secrecy has served to facilitate fraud. Kallakis, a crook with a criminal record operating under an assumed name, was able to cite forged accounts from two BVI companies he controlled, the Oregon Finance Corporation and Causeway Capital, as apparent evidence that he had billions in shipping assets and the discreet support of a major Chinese property company. The Allied Irish bank lent him an almost unbelievable £740m as a result. He used anonymous BVI companies to buy a Challenger private jet and a yacht, the Mercator II, the last coming courtesy of another loan from the Bank of Scotland. His spread of prominent London property purchases were conducted through a separate batch of at least 100 anonymous BVI vehicles. One of them, Zirfin Investments, was able to borrow £18m from Barclays bank in 2004 to buy a sumptuous residence at 31 Brompton Square, Knightsbridge. Many of the tax-free offshore firms were set up by Kuzniecky & Co, a so-called introducer based in the central American tax haven of Panama, and administered by an incorporation agency, Commonwealth Trust. The only company director they were informed of was frequently Kallakis's Swiss lawyer, Michael Becker, alleged by the crown during the Kallakis trial to be a co-conspirator. At trial, Kallakis's central defence was that the complex web of offshore firms that had received the loans were wned by the Hermitage Syndicated Trust, to which he was only a humble adviser. While he received a considerable salary from the trust and the beneficiaries were his children, it was Becker, the trustee, who called the shots. This kind of family trust structure is a common arrangement for internationally wealthy London-based tycoons. Not only does it provide a convenient tax shelter, but also it can allow super-rich investors to distance themselves from controversial deals should they need to. The authorities in Tortola, the capital of the British Virgin Islands, allow offshore companies to be set up and maintained without possessing any information as to their true beneficial ownership. The companies are allowed to operate through nominee fronts without registering any accounts or details of true directors or owners. Although in recent years the use of free-floating bearer shares, the most obvious vehicle for fraud, has been curtailed, the island authorities still fail to demand sight of any due-diligence documentation before granting company status. Even if direct evidence of crime is supplied to the BVI Financial Services Commission by overseas authorities, they can generally do no more than request information from the local agent. The agent in turn will refer inquiries to the introducer who dealt with the original customer, who is generally based in yet another jurisdiction. The BVI's system of offshore secrecy is underwritten by the UK government, which ultimately controls the behaviour of the Caribbean islands. It is popular among property firms in the City of London, which are allowed by the British government's Department for Business, Innovation & Skills to conceal the identities of owners on the UK's public Land Registry, by putting premises in the name of such BVI vehicles. More than 1m BVI companies have now been incorporated since the launch of their offshore system in the 1980s, according to the latest figures, and it is the world's biggest provider of offshore entities. A Guardian investigation into the BVI last year revealed that the territory depends heavily on collecting revenue from offshore companies, some of which may be fraudulent or dodging taxes. Last year, the BVI, presided over by a British governor, Boyd McCleary, collected $180m (£112m) from registration fees, more than 60% of the administration's total revenue. |
Michael Foot, a former Bank of England official and Financial Services Authority managing director, reported to the then Labour chancellor, Alistair Darling, in a Treasury paper published in 2009, that to abolish the BVI's secrecy regime "would be likely to result in a loss of business". Despite the protests of concerned NGOs that corporate secrecy could lead to crime and tax evasion, he rejected transparency, although he conceded it was "attractive in principle". He said the UK should merely "press for improvements" in disclosure by all overseas tax havens simultaneously, at unspecified future international discussions. This was seen by critics as a classic recipe for inaction. The diplomat Sir Edward Clay, who won plaudits for crusading against corruption in Kenya, wrote in September last year of the BVI's secrecy jurisdiction: "The money held in such places comes from all over the world and probably doesn't bear examination– which is why it doesn't get much. "But it conveniently looks after our payments deficit, and saves us the cost of running our small dependencies … The cost and damage inflicted on other countries by our louche regime at home and abroad makes us vulnerable to charges of hypocrisy and worse." Living it up in Las Vegas and Monte Carlo In the early hours of a Las Vegas morning in May 2003, most spectators at the World Series of Poker had sloped off to the gambling tables rather than watch Achilleas Kallakis take on the former world champion, Phil Hellmuth Jr. Hellmuth sensed he could knock this rookie out of the tournament, only for Kallakis to cockily call the professional's $3,000 (£1,900) bet. Hellmuth was holding ace-jack against Kallakis' pair of kings, so when the dealer flipped out another king, Kallakis had three of a kind – plus a stack of chips that once belonged to the former champion. This was my introduction to a man we now know was one of Britain's most audacious conmen, a man who had just paid $10,000 for his seat alongside the world's top poker players while claiming he had never played the game in his life. Whether that was another bluff or not, nobody really cared. It was a cracking yarn made more intriguing by the fact that Kallakis could actually play. Out of almost 840 entries in the main event that year, the "beginner" finished narrowly outside the top 100. He threw money around everywhere that week – once handing a flunky a $100 bill to pay drinkers in an ostentatious Bellagio hotel bar to move out of his favoured seat. Similarly, he was revelling in his own largesse when competing in the world backgammon championships in Monte Carlo later that year, where he fell out with the chef of an upmarket restaurant after insisting on having his meat well-done. At that same dinner, he launched into a tirade about an impertinent media invading the privacy of the world's elite (despite possessing a penchant for hinting at society sex scandals himself). All of which added up to an odd package that many found hard to trust, unless you worked at Allied Irish Banks that is. |
High-ranking United Kingdom officials are concerned that the British Virgin Islands has been named in a recent report as facilitating financing from Zimbabwe blood diamond trade through a locally registered company. Human rights group, Global Witness says blood diamond money is being siphoned to finance Zimbabwe President Robert Mugabe and his secret Police. Alistair Burt, Parliamentary Under Secretary of State (Afghanistan/South Asia, counter terrorism/proliferation, North America, Middle East and North Africa), Foreign and Commonwealth Office raised some concerns during the debate about 'Zimbabwe Blood Diamonds' in the Commons last Tuesday, July 17. He said that the question of governance and transparency in diamond revenue flows remains genuinely difficult to answer, but it is clear that although there is still an important role for the international community, the UK has discussed with partners solutions that will have to be found inside Zimbabwe in light of lack of international unity. "We have raised concerns about the handling of diamond finance with the British Virgin Islands. We will continue to work with international partners to support Zimbabwe, but our focus is increasingly on helping to improve conditions for effective regulation of the industry. We are, therefore, supporting initiatives by the World Bank and International Monetary Fund in the mining sector. We will also bring the new Global Witness report allegations on Anjin to the attention of the Chinese," Burt stated. During the special debate, Peter Hain a former cabinet minister urged the current British government to keep measures already in place and to add more names, including those named in the new Global Witness report, to the list of individuals and entities subject to sanctions. The Global Witness entitled "Financing a Parallel Government?" pointed to devastating evidence on Zimbabwe´s blood diamond trade. During the Commons debate, it was pointed out that in Zimbabwe, mineral rights are vested not in the state, but with the President, who has granted a series of mining concessions - one was to Canadile, a company that has since collapsed amid allegations of corruption, including against Obert Mpofu, the ZANU-PF Minister of Mines. Hain described Mpofu as a man on a £1,200 monthly salary, who is now rich enough to spend over £13 million buying a bank. Another mining concession was to Mbada Diamonds, who Hain said is run by chief executive officer, Robert Mhlanga, a Mugabe crony, who is developing a £20-million mansion in Ballito, KwaZulu-Natal. Behind Mbada Diamonds and up to its neck in its shady start-up, is a South African scrap metal company, New Reclamation, and its former chief executive officer, South African business man, David Kassell. According to reports, in 2011, 25% of the shares of Mbada were transferred to a mysterious network of shell companies based in Mauritius, Hong Kong and the BVI. According to Hain, those companies are connected to Robert Mhlanga, a retired air vice-marshal in the Zimbabwean air force. "The use of secrecy jurisdictions and tax havens should raise a red flag for any legitimate businesses trading with Mbada. They should be asking the question, who are the real beneficial owners of Mbada? We have seen with Libya´s Colonel Gaddafi how banks, lawyers and businesses colluded in illicit financial outflows of national wealth. I fear that that is being repeated in Zimbabwe," Hain stated during the debate. |
He pointed out that a third mining concession was to Sino Zimbabwe Development and a fourth to Anjin Investments. It was noted that Sino Zimbabwe Development purports to be a joint venture between the state-owned Zimbabwe minerals development corporation and an investor, Sam Pa-a businessman from the Queensway syndicate, a network of companies based in Hong Kong, Singapore and Angola. Hain said several sources suggest that Sam Pa gave the secret police-the CIO-a large sum of money, which one CIO document places at $100 million, and over 200 Nissan pick-up trucks. In return for that apparent assistance, Sino Zimbabwe Development was granted opportunities in Zimbabwe´s diamond and cotton sectors. Sino Zimbabwe Development was set up and registered in Zimbabwe and Singapore. According Hain, The Singaporean company is in turn part-owned by Strong Achieve Holdings, a company registered in the British Virgin Islands and controlled by someone believed to be a member of the Zimbabwean secret Police. "That, again, illustrates the highly disreputable role of the British Virgin Islands in facilitating such murky dealings," Hain stated. The current UK Government recently shared that responsibility for the regulation of financial services has been devolved to the Government of the British Virgin Islands. Therefore, the local authorities in British Virgin Islands are responsible for the regulation, supervision and inspection of financial services business carried out in or from within the Territory. Smuggling Concerns In 2006, diamonds were found in the Marange fields in eastern Zimbabwe. The area holds one of the world´s richest deposits of alluvial diamonds. The gems lie close to the surface of the ground, making them easy to collect by hand. During 2008, the military deployed soldiers and helicopter gunships during the clearance of thousands of small-scale miners from the Marange diamond fields, killing and wounding many people in the process. Hain shared that nearly every soldier in Marange is involved in one way or another in illegal mining. Soldiers have formed syndicates of diamond panners, whom they protect and escort. Many of the diamonds are smuggled to the town of Vila de Manica, in Mozambique, only 12 miles from the Zimbabwe border. "It is crawling with illegal dealers from countries such as Lebanon, Sierra Leone, Guinea, the Democratic Republic of the Congo, Nigeria and Israel, most living in smart houses, bristling with barbed wire and CCTV cameras, and guarded by armed men, admitting they do so with the help of army syndicates and senior ZANU-PF politicians," Hain stated. There are concerns that the financing from the sale of diamonds is helping to keep the current Zimbabwe regime in power and offer an unfair advantage ahead of elections due next June. PUBLISHED JULY 23RD 2012 |
The British Virgin Islands (BVI) is a micro-state whose national anthem is God Save the Queen. It consists of little more than a few stretches of tropical beach, with a population about the same size as that of the Berkshire town of Windsor.
British lawyers first realised during the 1980s that they could make money by selling financial secrecy there. Margaret Thatcher's abolition of exchange controls allowed British capital to move around freely. When Panama, the traditional location for obscure offshore entities, was disrupted by the 1990 US invasion, worldwide demand for the corporate anonymity on offer from the BVI took off. More than 1m BVI companies have now been incorporated, according to the latest figures, and it is the world's biggest provider of offshore entities. The secrecy that is the BVI's stock-in-trade operates at multiple levels. The BVI government normally has no idea who actually owns the tax-free companies or what they do. The only significant information supplied to the official registry is the name of the company's agent –one of the local firms who arrange incorporations and collect the hefty annual fees. The agents will rigidly refuse to release further facts to anyone. There is only one narrow legal gateway through which it is sometimes possible to squeeze. If shown definite pre-existing evidence of criminal fraud, rather than tax-dodging, the BVI courts will sometimes order a local agent to disclose what it knows. Even such a rare courtroom victory can be illusory, however. The agents may even then only produce the names of sham nominee directors or shareholders, based in Nevis or Vanuatu or Dubai, where the British legal system is powerless. The agents may also claim they have no knowledge of the real buyer of the company, because they took all their instructions from a so-called "introducer" based in yet another country, such as Cyprus or Panama. The paperchase can often be costly and almost endless, giving suspects time to empty their accounts and cover their tracks. British-based offshoring agencies heavily market BVI secrecy. It is not illegal for them to do so, and all insist they never knowingly assist wrongdoing. A typical sales pitch comes from Pendragon Management in London, with an office address in Regent Street. Pendragon is run by a Dutch lawyer, Gerard Kelderman, who has provided Dutch, Belgian and Russian clients with BVI companies through London. He advertises: "You need to find a tax haven with a good record in … financial privacy." The legend on his website reads: "I want to be invisible." |
One of the bigger British agencies is the Stanley Davis Group, a family firm with offices behind Euston station, London. It, too, offers BVI secrecy: their services include "nominee officers and shareholders when confidentiality is a key issue".
Another is Fletcher Kennedy, run by Charles Fletcher from Haslemere, Surrey. He promises potential BVI customers: "The names of directors and shareholders do not appear on any public documents." Johnsons, an accountants' firm in west London owned by Shaukat Murad, is one of the most frank. BVI companies, he claims, provide "Maximum confidentiality and anonymity … Unlike many other jurisdictions, there are no disclosure requirements." Injections of offshore cash have become a drug on which the BVI is hooked. Last year the territory, presided over by a British governor, Boyd McCleary, collected $180m (£112m) from registration fees, more than 60% of total revenue. The BVI's Its current prosperity depends utterly on the money. The UK government refuses to step in and make reforms. One reason was candidly spelled out by Michael Foot, a former Bank of England official and Financial Services Authority managing director. He reported to the then Labour chancellor, Alistair Darling, in a Treasury paper published in 2009, saying that to abolish the BVI's secrecy regime "would be likely to result in a loss of business". Despite the protests of concerned NGOs that corporate secrecy could lead to crime and tax evasion, he rejected transparency, although he conceded it was "attractive in principle". He said the UK should merely "press for improvements" in disclosure by all overseas tax havens simultaneously, at unspecified future international discussions. This was seen by critics as a classic recipe for inaction. The diplomat Sir Edward Clay, who won plaudits for crusading against corruption in Kenya, gave his opinion to the Times in September about the BVI's secrecy jurisdiction: "The money held in such places comes from all over the world and probably doesn't bear examination– which is why it doesn't get much. "But it conveniently looks after our payments deficit, and saves us the cost of running our small dependencies … The cost and damage inflicted on other countries by our louche regime at home and abroad makes us vulnerable to charges of hypocrisy and worse." David Leigh, Harold Frayman and James Ball The Guardian, Sunday 25 November 2012 |
British Crown dependencies, such as the Cayman Islands and British Virgin Islands, are in line for a tax clampdown.
Finance ministers from the Group of 20 advanced and emerging market countries have urged the territories to bring an end to their tax free status that is undermining the ability of advanced nations to capture revenue vitally needed to reduce fiscal deficits. Chancellor George Osborne is encouraging them to come into line as soon as is practical. If these countries want to retain their status as British Crown territories, and the benefits that brings, they will have to conform. The Government has already been successful in persuading territories closer to home–including Jersey, Guernsey and the Isle of Man – to comply with international regulations put in place by the OECD. In its communique the G20 urged ‘all jurisdictions to quickly implement recommendations made where the legal framework fails to comply with the standard.’ The Caymans and BVI have become regarded as notorious territories where the super-rich and corporations can hide their affairs from the tax authorities. |
We’re delighted that George Osborne is committed to bringing tax havens to heel –now he needs to do the hard work to get British overseas territories and Crown Dependencies signed up without delay,’Emma Seery, Oxfam’s head of development finance said.
‘If the G20’s words are turned into action it would be a massive step towards eliminating a major source of tax-dodging that costs the UK and poor countries countless billions. ‘This is money that should be creating jobs and opportunities in the UK, and providing life-saving medicines for children in Africa, rather than sitting offshore idle and hidden,’ Oxfam said. The HMRC estimates that tax avoidance could be costing the Exchequer up to £30bn a year. But Osborne’s clampdown on tax avoidance by the super-wealthy in Britain is starting to make an impact The HMRC’s‘high net worth unit’ brought in£220m last year, a rise of 10pc. Previously this money went uncollected, meaning it adds to the taxes already paid by the same individuals. The search for missing revenues – together with anger in Britain about tax avoidance by big multinationals such as Starbucks and Google – is galvanising finance ministers from the richest nations to stamp out bad behaviour. |
Secret offshore havens 'stain face of Britain', says Lib Dem peer, as evidence grows over sham directors and hidden cash
The prime minister has come under pressure to act against Britain's secretive offshore industry at June's G8 summit, as leaked evidence continued to mount that politicians and tycoons from all over the world have used the British Virgin Islands to hide funds. The premier of Georgia, Bidzina Ivanishvili, was the latest to be named, along with prominent Pakistani, Indian, Thai and Indonesian figures – while there was fresh evidence of Britons acting as front directors for companies based in offshore havens such as the BVI. A senior Liberal Democrat figure said the leaks showed the secret haven of the BVI "stains the face of Britain", as anti-corruption campaigners called for action. Lord Oakeshott, the Lib Dem peer and a former Treasury spokesman, said: "How can David Cameron keep a straight face calling for the G8 to make big business pay tax when we let the BVI use British law and British protection to suck in billions in dirty money?" He asked: "How much British aid paid to corrupt countries like Pakistan ends up behind a BVI brass plate?" Despite mounting evidence that British sham directors are selling their names as fronts for offshore secrecy, the UK's Department for Business, Innovation and Skills (BIS) signalled that politicians are reluctant to move against them. A report on the sham directors scandal has already been sent to ministers by the BIS deputy head of corporate governance, Jo Shanmugalingam. This followed a Guardian-BBC investigation last year into the leaked data which revealed that two dozen Britons, giving obscure offshore addresses, were purporting to control thousands of companies. The latest example, which emerged on Thursday, is of a "general builder", Kevin Gaitely. He gives an address in south London and is registered as the director of Tamalaris Consolidated, a company blacklisted by the UK and US as a front for Iran. He is recorded as a director of a variety of other UK and BVI companies. Ministers insist they are not ready to act. The BIS issued a statement on Thursday night saying: "The vast majority of companies and directors do comply with the law and they should not be unfairly burdened, so we will focus our attention on those who deliberately seek to break the law." It is not illegal as such for Britons to rent out their names on behalf of offshore companies, so the BIS statement appears to be a recipe for inaction. Meanwhile MPs criticised tax avoidance in Pakistan in a report issued on Thursday by the UK Commons committee on overseas aid. It said: "We cannot expect people in the UK to pay taxes to improve education and health in Pakistan if the Pakistani elite does not pay meaningful amounts of income tax." |
Robert Palmer of the campaign group Global Witness repeated the call for Cameron to act, saying: "The massive cache of leaked documents demonstrates how hidden ownership of shell companies facilitates corruption, tax dodging and other crimes."
He said: "The time to deal with this issue is now. Given that he has pledged to tackle these secretive shell companies at this year's G8 summit in Northern Ireland, he and his fellow leaders must commit to publishing information on the people who ultimately control and own companies." The names of thousands of owners of secret offshore companies are currently being published by the Washington-based International Consortium of Investigative Journalists (ICIJ), in collaboration with the Guardian and other international media. This follows the leak to ICIJ of a hard drive containing 200GB of internal files of offshore incorporation agencies in the BVI, Singapore and the Cook Islands. A spokesman for the Georgian prime minister, who had set up a BVI company called Bosherston Overseas Corp, said he had done everything in accordance with the law: "For the reporting period of 2011-12, prime minister Ivanishvili had no interest in the company … and therefore there was no obligation to report it in his [financial] declaration." In India, an MP from the ruling Congress party, Gaddam Vivekanand, said after an offshore company, Belrose Universal, was revealed to have been listed in his name: "I do not remember being involved with such a company and have no connection with it.'' A spokeswoman for Stephen Riady, who heads one of Indonesia's richest families, said there was "nothing illegal or improper in protecting the privacy of one's own information" after the leaked files revealed that his family's Lippo Group conglomerate controlled a number of offshore entities. The incorporation firm, TrustNet, refers to them as "Client A", noting "client does not want to be seen dealing offshore". Their agent, Gary Phair, instructed TrustNet staff to "delete any reference to 'C/- [Care of] Lippo". Thai MP Nalinee Taveesin, currently an official trade representative and previously blacklisted by the US for allegedly helping Robert Mugabe avoid sanctions, denied knowing about the offshore company Hall Kingston International, listed in her name. Her secretary said: "The information about her being [a company] shareholder is incorrect." In Pakistan, Moonis Elahi, a politician from a prominent Punjab dynasty who was acquitted in a Pakistan court in 2011 of receiving payments in a corruption scandal, said he did not own offshore company Olive Grove Assets, listed to his name at the family residence in Lahore. He did not state whether he had previously owned the firm. |