Fraud trial heard how a crook under an assumed name was able to cite forged accounts from two BVI companies he controlled
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 owned 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.