BVI companies in UK Press

Yesterday 3 UK newspapers published political and business news related to British Virgin Islands companies.

The Sunday Times put the post Barclays link in drug cash route that described the investigation related to Barclays Private Bank (BPB) transactions. The British investigators, following the dirty money trail, came to the account of a BPB client Auxerre Ltd. The investigation revealed that in 1997-2001 1.8 million USD had been deposited in Auxerre accounts at Barclays in 53 wire transfers.

Auxerre Ltd. is a British Virgin Islands company. It had tens of millions of dollars in five Barclays accounts. BVI company Auxerre has been owned by an elderly textile magnate Jose Douer-Ambar from Bogota, Colombia. The British investigators examined accounts held by Douer at HSBC in London and ABN Amro in Jersey - 60 wire transfers totalling 5.7 million USD and 2 deposits totalling 4 million USD respectively. The money in the frozen accounts was released back to Douer after he arranged his deal with the US authorities. He has now moved it out of Britain.

The second story was published the same day by The Guardian. It described allegations submitted to the Electoral Commission. It is assumed that the Conservative party used a complex real estate transaction that involved its former London headquarters in order to raise foreign funds, which is unlawful.

The Tories moved out of Smith Square 3 years ago but acquired the freehold on the property and an adjoining building, for 15 million GBP that had previously belonged to a British Virgin Islands company Platinum Overseas Holdings Ltd. One source told the correspondent that BVI company Platinum Overseas Holdings was owned by a group of Middle Eastern businessmen, clients of the Citibank, US. So, the Electoral Commission responsible for monitoring the funding of political parties confirmed the fact of the investigation but did not reveal any details.

Mail on Sunday, again, a UK nespaper, published its story on a wireless service company Hybyte sending unwanted jokes to cell phone users and charging money for that. Companies House informs that shares of private limited company Hybyte are held in the British Virgin Islands.

In spite of the fact that the company has already been fined for the above matter banned for 6 months from offering the service, it still continued to send the unwanted and unordered messages and charge them 1.5 GBP per joke. Some people demand their money back, so Hybyte must refund these people.

To conclude and sum up what was published by UK press this Sunday, this was definitely a "black Sunday" for BVI companies image. However, it is quite likely that this was just a coincidence and no "war" against BVI companies is going to emerge. It goes without saying that many negative information on wherever-based companies is published daily all over the world and the amount of information related with BVI-based companies in the ocean of negative information is really tiny.

Practicing lawyer Dawn Smith appointed as new BVI London Office director

On Thursday, August 17, 2006 BVI Government announced the appointment of practicing lawyer Dawn Smith as the Director of the BVI London Office. Her duties in this post will be connected with representing the Government's interests in London and Europe.

The new Director of BVI European Office is a recognized specialist in the sphere of international business relations. This fact may be important for the successful development of the ongoing strategy of the BVI International Finance Centre, which is based on promoting and marketing the BVI finance sector to the outside world. The strategy of popularizing the BVI offshore and finance sector is executed mainly by the BVI Financial Services Commission and its Chief Executive Officer Robert Mathavious. We already discussed the role of his agency and his personal role in making BVI the leader of offshore industry both in the region and all over the world in the post BVI offshore marketing. The appointment of Dawn Smith may be interpreted as the step towards reinforcement of the promotion strategy.

Smith came to the government post from the offshore law firm of Conyers Dill and Pearman in the BVI, which engaged her as an associate attorney specialising in advising clients in multiple jurisdictions in commercial litigation and corporate law. Before this, she held the position of associate attorney at another BVI legal firm - O'Neal Webster O'Neal Fletcher Myers and Gordon. Her academic qualifications include a bachelor's degree in Liberal Arts from Middlebury College in Vermont, USA; a Bachelor's of Law degree from the University of the West Indies Cave Hill Campus, Barbados; and a Certificate in Legal Education from the Norman Manley Law School in Jamaica. Also, she is a notary public of the British Virgin Islands.

Lorna Smith, the Executive Director of the BVI International Affairs Unit, said that she is delighted that Smith has joined Government as Director of the BVI London Office. She also said that Dawn Smith is a very competent and confident professional whose background in liberal arts and experience in the financial services industry mean that she will not only effectively represent the BVI at the "political" level but also in the field of international business.

Smith's service on a variety of government boards and committees including the Education Advisory Board, the Court Review Board, the Board of Referees for Income Tax, the BVI Bar Association and the Board of Immigration will give her possibility to speak with wide authority on Government's behalf.

China is cutting down already declining FDI growth from BVI and other countries?

Probably, the result of the changes in legislation about acquisition of Chinese companies by foreign investors may be further decline of foreign direct investment (FDI) in China, which is continuing already for several months. In accordance to Ministry of Commerce released statistics on the foreign funds absorbed by China in the first seven months, during the January-July period, a total of 24,652 new foreign-funded enterprises were approved to set up, down 2.02% year on year and growth rate compared to the same period of 2004 fell 15.12 percentage points. Foreign funds in actual use came to 33.09 billion US dollars, down 3.42% year on year and growth rate fell 6.14 percentage points.

Some experts, however, say that this decline does not mean loss of interest towards the country's economy, but just the end of investment rush. Anyway, the amounts of foreign direct investments may continue to fall, and that will refer not only to BVI but also to the other top countries and regions, who are investing in China and whose realized investments account for 86.26% of the country's total.

Currently, in accordance to the last 7 months results, BVI is one of the major FDI sources in China, along with Hong Kong and Japan. You can learn more about recent BVI positions in the market in the posts BVI as the 2nd largest foreign investor in China and BVI is again the 2nd to have invested in China.

New law regulating FDI in China and setting limits to the amount of investments

The government of China has worked out regulations about acquisition of Chinese enterprises by foreign investors. They will come into effect on September, 8. According to these new regulations, domestic enterprises with foreign direct investments making more than 25% of the total share capital, can enjoy preferential treatment as foreign-funded enterprises. Those domestic companies having less than 25% foreign investment share in their total capital, won't have such an advantage.

Another incentive implemented by the regulations sets an upper limit for investors. For companies with registered capital not exceeding 2.1 million US dollars, total investment amount should not exceed 143% of the registered capital. For companies whose registered capital is between 2.1 million and 5 million US dollars, total investment amount should not exceed 200% the amount of the registered capital. For companies with registered capital between 5 million and 12 million US dollars, the investment amount should not exceed 250% the amount of the registered capital. At last, the investment amount for those companies whose registered capital is over 12 million US dollars, should not exceed 300% the amount of registered capital.

The regulations are to certain extent connected with the problem that not all foreign investors in China are really foreign-owned. This issue was already addressed in Offshore Capital coming back & Direct Foreign Investments, and it has not lost its actuality. There was a common practice that many domestic companies registered their names in the British Virgin Islands or some other jurisdiction with favourable legislation for overseas invsetment companies; then they bought their own domestic company in the name of a foreign enterprise and received all the advantages of foreign enterprises.

The BVI companies as well as other foreign companies registered in such a way won't get this preferential treatment. According to the new regulations, the domestic companies under the name of their legal foreign company overseas that have close business relationship or are controlled by the domestic company, will not enjoy the preferential policies for foreign-owned enterprises.

BVI is the second investor in Shanghai's economy

White Paper on the Environment for Foreign Investment in Shanghai, that was released last week, gives some information about the city's main overseas direct investors.

Hong Kong, the leading investor in the economy of the Republic of China, is also investing in the projects of China's largest city Shanghai - the leader of the country by economic growth, with population of about 17,420,000 and GDP increase in the first half of 2006 by 12.6 percent from the same period of last year. The amount of Hong Kong investments into Shanghai's projects is US$3.1 billion, which makes up to 22.6 per cent of the city's total foreign direct investments.

Being the main investor in Shanghai for several years, Hong Kong is traditionally followed by British Virgin Islands, which holds the second position in the list by the amount of direct foreign investments in Shanghai city. Another offshore jurisdiction, Cayman Islands, is in the third place, according to the White Paper. It should be noted that, although BVI is the second by offshore investments into Shanghai city projects, among merely foreign investors it holds the first position, since Hong Kong still retains its status of Special Administrative Region of China.

Hong Kong and British Virgin Islands are both keeping the highest positions by the amount of foreign direct investments not only in the most developed regions, such as Shanghai, but in the whole country. Detailed information on investments of Hong Kong and British Virgin Islands in country's economy is listed in the blog BVI is again the 2nd to have invested in China.

Business transactions of Hamdaan Exports Ltd (BVI) and Indrus (Jersey) published for achieving political goals?

During last days the political struggle in India has become much more intense, and that is connected with information provided by the Justice R. S. Pathak Inquiry Authority, which was created on November 11, 2005 for auditing Paul Volcker's report on UN Oil-For-Food Programme and particularly transactions related to oil contracts bearing number M/9/54 and number M/10/57.

The main pressure is made on former Indian Foreign Minister Natwar Singh who is accused of corruption by his political opponents. The former Indian official conducted a press conference at his New Delhi residence and denied all the accusations; he noticed that the things he was accused of by Pathak Inquiry Authority rather concern the Indian Congress, than him who held the post of Indian Foreign Minister at the moment of these business transactions. He added that "the malicious campaign launched in the last few months against me has questioned my honour, integrity and political and diplomatic credentials acquired over a lifetime."

The accusations are based upon the description of business transactions of British Virgin Islands company Hamdaan Exports Ltd. and Indrus, which was registered in Jersey, the Channel Islands, UK. The BVI company belongs to Delhi based businessman Andaleeb Sehgal, who was introduced by Natwar Singh to Saddam Hussein regime, and Jersey company is a joint venture 50:50 between Andaleeb Sehgal and his business partner Aditya Khanna.

It should be noted that information revealed by investigators shows quite normal business transactions. The oil money was received by BVI company Hamdaan Exports Ltd. (bank account with Jordan National Bank, Cyprus) from reputable Swiss energy trading company Masefield AG (bank account with Chase Manhattan Bank, New York) and paid to State Oil Marketing Company (SOMO) of Iraq. Certain commissions were paid to Aditya Khanna and Andaleeb Sehgal.

BVI keeping strong positions in Vietnam foreign investor’s list

We already discussed Vietnam foreign investment environment and results till March 2006 in the blog BVI foreign investment in Vietnam. Recently Vietnam officials reported on the seven month results that show the BVI keeping very strong positions as a foreign investor in HCM City.

In accordance to the results for the first seven months, the British Virgin Islands are among the first six foreign investors’ countries in HCM City. The largest new foreign investments come from Hong Kong, with two projects which are worth 605 million U$, the Republic of Korea which has invested 44.2 million U$ into 38 projects, Japan with 41.5 million U$ invested into 29 projects, the British Virgin Islands with 36.5 million U$ invested into 7 projects. Also Singapore and Taiwan have invested 11.4 million U$ (15 projects), and 3 million U$ (9 projects) respectively.

As we can see these projects are quite different and Hong Kong having the least number of projects keeps the first position in the average value of the project.

The second by their average value investment projects are held by the BVI investors – in average they make 5.21 million U$ per project. Other investing countries have substantially smaller projects - Japan 1.43 million U$, the Republic of Korea 1.16 million U$, Singapore 0.76 million U$, and Taiwan only 0.33 million U$.

Totally, during these seven months licenses were granted to 155 foreign direct investment projects for HCM City. Compared with the same period last year, the number of new projects in HCM City increased by five. Combined investment capital increased by three and made 780.2 million U$.

The projects of foreign investors in HCM City include 126 those which are wholly foreign owned, worth 719.7 million U$, 27 joint venture projects, worth 47.8 million U$; and two business cooperation contracts, worth 12.7 million U$.

Between tax advisors and tax authorities

continued from US Senate Homeland Security study of offshore tax shelters.

In "IRS Chief Says Offshore Abuses a Problem" publication there are mentioned couple of examples of unprofessional advisers who have invented illegal asset protection and tax planning schemes. In particular, those are mentioned:
1) Quellos Group LLC scheme of capital losses from securities transactions and
2) asset protection advises provided by retired dentist Lawrence Turpen.

Sometimes it is not so easy to distinguish Tax Avoidance from Tax Evasion. Some Tax Evasion method may seem completely legal, but careful look into it may show it is not. There are also situations when the method which was considered to be legal a year ago, cannot be used today because of changes in legislation.

If it is so difficult for specialists to see this difference, then what to say about common client which is seeking tax advisor's service? It must be noted also that in case of tax evasion these are not only providers of non-qualitative tax advise who would suffer but also their clients.
For example, we can observe the publication of Freeman, Haber, Rojas & Stanham, LLP – reputable international firm that consists of a group of attorneys with headquarter in Miami, Florida. Along with other information, it is clearly described here how to reduce the taxes in Florida by:

"1) paying their executives higher salaries and bonuses so that the tax is reduced from the corporate rate of 40% to the individual rate of 31%;
2) work done abroad for a company such as marketing can be paid for and deducted as an expense in the United States; and
3) trips for business are also deductible. Individuals can deduct from their personal income interest on home mortgages, charitable contributions, and a fixed sum for each dependent and medical costs, but receive relatively few other deductions."

Who can guarantee to the client that the advice given to him by law firm or tax advisor will not be put in question by tax authorities later on?

Many multinational corporations have headquarters or daughter companies opened on the British Virgin Islands and other offshore jurisdictions. Also there are many international companies wholly or partially owned by the BVI companies. Some of them are already mentioned in this blog and BVI Company News but there are much more around. Most part of these companies have used services of professionals before setting up business structure; if advisers have done their job professionally, even if put in issue, these taxes should remain as avoided, not evaded.

US Senate Homeland Security study of offshore tax shelters

Belize, the British Virgin Islands, the Cayman Islands, the Isle of Man, Nevis and Panama were among jurisdictions recently examined by Investigative subcommittee of the Senate Homeland Security in their yearlong study of offshore tax shelter. Mary Dalrymple from Associated Press in her yesterday’s publication IRS Chief Says Offshore Abuses a Problem has disclosed some facts, findings and proposed solutions that could have concern to US taxpayers as well as some offshore jurisdictions too.

It is estimated that tax havens allow Americans to avoid paying $40 billion to $70 billion in taxes each year and "an armada" of professional advisers provides all the possibilities for wealthy Americans to find legal or not so legal ways how to minimize their tax burden.

Should these numbers indicate to us that thousands of attorneys and tax advisors providing their services in USA and other countries are doing something illegal or advising their clients to do something illegal?

It is known by term definition that Tax Avoidance is the legal utilization of the tax regime to one's own advantage, in order to reduce the amount of tax that is payable by means that are within the law. In contrast - illegal method of reducing taxes is Tax Evasion. Tax evaded remains due. Tax avoided is not due.

If this term is correctly used by spokesman, then it means that attorneys, law firms and advisers assist wealthy Americans to save 40 - 70 billion US dollars per annum. Sounds like really good advertisement on their efforts to potential clients.

Most likely there should be another number not mentioned in particular report, representing billions of US dollars not paid by the means of tax evasion and this is to much extent the result of the work of unprofessional advisers.

To be continued.