COVID-19 and Cross-Border Insolvencies

Brazil’s health minister has predicted that the spread of COVID-19 would reach its peak between April and June and has warned that Brazil’s health system could reach saturation by the end of April.

As the novel coronavirus has been spreading throughout the region, Sequor Law has monitored its impact across Latin America. Brazil confirmed its first COVID-19 case, the first in Latin America, from a traveler who had visited Northern Italy before arriving in Sao Paulo, a city of approximately 20 million people with the largest urban population in the Americas. It is also the country’s financial center and a business hub representing one of Latin America’s largest economies. The news, which arrived after a long weekend of Carnival celebrations, brought with it a deep and almost immediate dive in the Ibovespa stock index similar to the losses that have been seen elsewhere around the globe. Most recently, Brazil closed its border to eight neighboring countries, banned travel from Europe and Asia, and closed schools, colleges, courts, and commercial business in its largest cities. Brazil’s top soccer teams have handed stadiums over to health authorities to turn them into field hospitals and clinics in the fight against the COVID-19 pandemic.

Brazil’s health minister has predicted that the spread of COVID-19 would reach its peak between April and June and has warned that Brazil’s health system could reach saturation by the end of April. At present, the country has over 4,600 confirmed cases, 165 deaths and reports indicate that the number of new cases is steadily growing. With various government officials testing positive for COVID-19, including 14 who accompanied its president, Jair Bolsonaro, to Florida a few weeks ago, the federal government has declared a national emergency in Brazil allowing the government to free up budget resources and announcing an economic stimulus package of approximately $40 billion euros. Notwithstanding all of these measures, Brazil’s currency recently hit an all-time low of R $5.2 per dollar before its Central Bank helped pare losses by cutting its benchmark interest rate to an all-time low of 3.75%, pledging to deploy financial stability policies to fight the crisis. Like the United States, closures of commercial establishments and travel bans have hit Brazil’s retail, entertainment and aviation sectors hard.

Like Brazil, nations throughout the region are in a race to “flatten” the exponential spread of COVID-19. Recent reports have stated that every country in Latin America and the Caribbean now have confirmed cases of COVID-19. Argentina is on total lockdown. In Chile—a country that already faced a political crisis prior to the coronavirus pandemic—restricted freedom of movement has postponed its April referendum for a new Constitution. Examples of such “social distancing”-inspired policies are ubiquitous. Efforts to get ahead of the most horrific potential consequences of COVID-19, however, have begun to exact a hefty price, as large sectors of the regional economy have all but shut down. Even in these early days, we have already begun to see an impact in U.S. bankruptcies, as distressed companies in pending reorganization proceedings are losing their exit financing and private equity investors are lowering or pulling bids to acquire the assets of bankrupt companies due to market volatility caused by the pandemic. Unfortunately, with no clear medical solution on the horizon and talk of increasing infection rates impacting the region, it appears likely that the situation will get worse before it gets better.

On March 27, the managing director of the International Monetary Fund, Kristalina Georgieva, said that the global economy has now entered a recession that could be as bad as or worse than the financial crisis in 2009. Although Georgieva noted that the world economy could experience a “sizeable rebound” in 2021 if nations are successful in containing the pandemic, she stressed that “a key concern about a long-lasting impact of the sudden stop of the world economy is the risk of a wave of bankruptcies and layoffs that not only can undermine the recovery but erode the fabric of our societies.” These statements capture the reality that, unlike other recent recessions, it is difficult to identify sectors of the economy that will not be impacted by the current crisis. The extent of the crisis is perhaps most poignantly captured by the report that more than 6.6 million workers filed claims for unemployment in the United States this week—a number that shattered all prior records for such filings.

Although the most widely publicized effects of the worldwide shutdown have been seen in the aviation, cruise, hospitality (restaurant and hotel) and retail sectors, this crisis will undoubtedly result in a sharp increase in both domestic bankruptcy cases, and cross-border insolvency matters across all sectors where foreign companies and liquidators may seek U.S. assistance to obtain relief from creditors (such as by obtaining a stay of collection actions), to protect assets located in the United States or to obtain information or directly enforce rights against third parties in furtherance of a foreign bankruptcy proceeding. Certainly, our years of experience as bankruptcy specialists tell us that the rise of domestic bankruptcy cases for small businesses and the sectors of the economy hardest hit by the shutdowns are inescapable, as many businesses cannot withstand the strain of even a temporary closure without revenue combined with continuing obligations to pay fixed costs. It is likely that a similar dynamic will play out in national economies around the globe, including Brazil and other Latin American countries.

Countries are already responding to the anticipated surge in insolvencies. In the United States, the recently enacted stimulus bill dramatically expands access to the simplified and expedited procedures that apply to small business bankruptcies, such that relief may temporarily be accessed to reorganize debts up to $7,5 million  (up from $2,725,625) through Dec. 31, 2020, and extending payment plans under Chapter 13 up to seven years due to financial consequences stemming from COVID-19. Similarly, in Brazil, the Chamber of Deputies approved new preventive restructuring measures to enable companies facing financial difficulties to continue their operations including a special recovery plan for micro and small companies, allowing the extension of payment terms, reduction of interest and fines relating to tax debts, allowing more flexibility in relation to the possibility of negotiation of the parties in structuring a recovery plan and simplification of judicial procedures.

In addition to the potential for increased bankruptcy filings, our experience in cross-border fraud suggests that widespread financial distress (such as that seen during the last financial crisis) and the ensuing insolvency proceedings that follow, bring increased oversight, investigations, and, potentially, the discovery of financial frauds (like Madoff or, more recently, the “Operação Lava Jato” or “Car Wash” scandal in Brazil) that may have previously been overlooked. The discovery of improper transfers and fraud, which are more likely to come to light during a downturn, and certainly in bankruptcy, may result in the filing of cross-border insolvency proceedings under Chapter 15 of the Bankruptcy Code, where administrators and trustees search for offshore assets and information that will facilitate recovery for their creditors.

Even if the United States is fortunate enough to avoid the worst potential outcomes of this pandemic (most critically as it relates to the loss of human life), it appears inescapable that the ongoing shutdown of the global economy will result in increasing insolvency proceedings in all economic sectors (both in the United States and abroad). As numerous international businesses have substantial ties and interests in the United States (particularly, in South Florida), this drastic increase in foreign insolvency proceedings will inevitably translate to increasing numbers of cross-border insolvency proceedings in the United States.

Leyza F. Blanco and Fernando J. Menendez are shareholders at Sequor Law in Miami. The firm specializes in hidden asset recovery, notably Brazil-linked Chapter 15 cross-border cases.

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Asset recovery column: emerging minority view on delivery of subpoenas under FRCP 45

Sequor Law shareholder Leyza Blanco and attorney Daniel Coyle in Miami discuss the emerging trend in US federal and bankruptcy courts regarding service of subpoenas under rule 45(b)(1) of the Federal Rules of Civil Procedure (FRCP).

The language of rule 45(b) establishes the method for serving a subpoena upon the subpoena target. Previously, despite differences in the text between rule 45(b) and rule 4, governing service of original process, courts required subpoenas to be served on the subpoena target exclusively by hand delivery under the methods specified in rule 4. However, rule 45(b) jurisprudence is evolving to a more liberal standard that is both more in line with the text of rule 45(b) and more advantageous to the asset recovery practitioner, and client, seeking third-party discovery – especially from discovery targets in cross-border cases who maintain multiple residences or a more transient presence in the United States.

Service of a subpoena versus service of process— what is the difference and why is there a difference?

First and foremost, service of a subpoena under rule 45 is accomplished by “delivery”, and specifically, “delivering a copy [of the subpoena] to the named person”.

Juxtapose this language with the text of rule 4, specifically subsections “e” and “f” specifying the method for service of process of natural persons, which is also applicable for service of process of artificial persons, in and outside of the US and it is clear that the standards are notably different.

Noticeably absent from the text of rule 45 are the words “personally”; “hand” delivery; or “abode” service. References to rule 4, and state rules of service of process are also missing. Thus, based upon a plain meaning of the rules, the method of service of a subpoena is not the same as service of process. In the bankruptcy context, construing rule 45 to require personal service or even abode service of a subpoena leads to an even more bizarre result since, under rule 7004(b), service of process of an adversary proceeding may be validly accomplished by first class mail.

The distinction between the method of service of a subpoena and service of process was crucial to  Judge A. Jay Cristol’s reasoned opinion in the 2008 case of Falcon Air Exp. Falcon is not the only case to analyse the distinctions between rule 45(b) and rule (4), but it provides an insightful exposition of several cases from various courts as well as an insightful analysis of the language of both rules to explain why the method of accomplishing service under each rule is different.

Judge Cristol analysed several judicial decisions from both inside and outside Florida, each of which determined that service of a subpoena upon the recipient by a means other than personal service was valid. Moving to a statutory construction analysis, Judge Cristol determined that the term “delivering” was ambiguous and should be considered in the context of other parts of rule 45, “as well as other federal rules.” Judge Cristol stated that a reading of rule 45(b)(1) as requiring the subpoena to be personally served, would render the language of rule 45(b)(4) regarding the “manner of service”, and the language of rule 4(e)(2)(A) and 4(f)(2)(C)(i) requiring the process be delivered “personally”, as “superfluous” and “pure surplusage.” Construing rule 45(b) to require personal service would thus run afoul of the Surplusage Canon (verba cum effectu sunt accipienda).  Dubbing this approach the “better-reasoned, modern, emerging minority position,” Judge Cristol applied it to the facts of the case before him.

Other factors are also germane to determining that service is valid. The public policy underlying the service requirement is ensuring the receipt of the subpoena so that the subpoena target has notice of both the subpoena, and what is required/requested from the subpoena target. Thus, the purpose of the service requirement is actual receipt, which the courts accord significant weight to.

Courts also focus on equitable considerations when determining validity, such as attempts by subpoena targets to subvert the purpose of the rules by hyper-technically construing them as an artifice to evade service. For instance, in the 2000 case of Cordius Trust v. Kummerfeld, the US Bankruptcy Court for the Southern District of New York found rule 45 allows for service of a subpoena by certified mail on a deponent who rebuffed attempts at personal service and whose doorman restricted a process server’s access to a deponent’s apartment.

What is “delivery” and what constitutes “delivery” under the emerging minority position?

Delivery under this approach was defined in King v Crown Plastering Corp as serving the subpoena in a manner that reasonably insures actual receipt of the subpoena by the witness.  Some courts, adopting the emerging minority position, have fleshed out this standard by providing that service may be accomplished by mailing the subpoena to the subpoena target’s known address in the US or abroad. Other courts have established that sending the subpoena by common carrier is sufficient. In the Falcon case, the court determined that substitute service on another member of the household constitutes valid service, even though the subpoena target did not reside at the address where the subpoena was delivered. At least one court has ruled that delivering the subpoena to the subpoena target’s agent is sufficient, and other courts have upheld service on domestic workers.  Indeed, in a recent ruling in the case of Viacao Itpemirim in the US Bankruptcy Court for the Southern District of Florida, Judge Robert Mark held that service of the subpoena by delivering it to a non-resident domestic worker at the address where the subpoena target’s family lived was sufficient.

The emerging minority position should continue to gain adherents and traction

The so-called emerging minority position is consistent with the text of rule 45(b) and consistent with the canons of statutory construction.  It is also consistent with the policy aims of the service rule: ensuring actual receipt. The emerging minority position also establishes a more liberal standard that serves another laudable public policy goal: easing the discovery of information that will increase the likelihood of recovering assets while simultaneously discouraging the corruption of the rules of civil procedure by swindlers as a ruse to avoid valid service and valid discovery.  The advantage of this more liberal standard for the asset-recovery attorney seeking discovery from discovery-targets in cross-border cases is clear.  A lower threshold for effecting service eases the burden of attempting to serve discovery-targets who maintain a presence both inside and outside of the United States and lowers the likelihood of having to pursue discovery in foreign jurisdictions under the slow and cumbersome procedures of the Hague Convention or through a letter rogatory in a non-member state.

References

Federal Rules of Civil Procedure, rule 45(b)

Federal Rules of Civil Procedure, rule 4

Bland v. Fairfax County, Va., 275 F.R.D. 466, 469–70 (E.D. Va. 2011)

In re Falcon Air Exp., Inc., 2008 WL 2038799

Doe v. Hersemann, 155 F.R.D. 630, 631 (N.D. Ind. 1994)

Hall v. Sullivan, 229 F.R.D. 501, 504 (D. Md. 2005)

Codrington v. Anheuser-Busch, Inc., No. 98-2417-CIV-T-26F, 1999 WL 1043861

TracFone Wireless, Inc. v. Does, 11-CV-21871-MGC, 2011 WL 4711458

S.E.C. v. Rex Venture Group, LLC, 5:13-MC-004-WTH-PRL, 2013 WL 1278088

In re MTS Bank, 17-21545-MC, 2018 WL 1718685

Bozo v. Bozo, Case No. 12-CV-24174-WILLIAMS, 2013 WL 12128680

In re Viacao Itapemirim, S.A., 18-24871-BKC-RAM, 2019 WL 5419550

Cordius Trust v. Kummerfeld, No. 99 CIV. 3200 (DLC), 2000 WL 10268

King v Crown Plastering Corp, 170 F.R.D. 355, 356 (E.D.N.Y. 1997).

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University of Miami names Sequor of counsel as first bankruptcy chair

A lawyer at Sequor Law will be the first to hold a new bankruptcy chair donated to the University of Miami by the Southern District of Florida bankruptcy court’s Chief Judge Emeritus Jay Cristol.

Of counsel Andrew Dawson will be awarded the Judge A Cristol Endowed Chair in Bankruptcy at a ceremony on 6 March, which will take place at the university where he is already a professor and a vice dean.

Judge Cristol, a University of Miami School of Law alumni himself, created the bankruptcy chair in 2016 to recognise faculty members for achievements in bankruptcy law.

In a statement, Sequor Law called Dawson a “leader” and highlighted his research focus in cross-border insolvency and labour law.

“Drew is truly deserving of this award and we are honoured to count his expertise among our ranks at Sequor Law. He is an outstanding example of our firm’s unsurpassed leadership in the practice, and demonstrates a relentless pursuit of success through his many invaluable contributions on behalf of our clients,” founding shareholder Ed Davis said in the statement.

Dawson has worked at the University of Miami as a professor of law for the past nine years and currently also holds the title of vice dean of academic affairs.

He regularly appears as a presenter and a panellist at conferences held by the Southeastern Association of Law Schools, the Hispanic National Bar Association and the American Bankruptcy Institute (ABI), taking part in the latter’s Commission to Study the Reform of Chapter 11 between 2012 and 2014.

Dawson has also contributed to the study of cross-border insolvency under the UNCITRAL Model Law. He lays claim to producing the first empirical study of Chapter 15 following its adoption in 2005. The study, entitled “Offshore Bankruptcies”, was published in Nebraska Law Review in 2009.

His most recent publication in the Chicago-Kent Law Review hones in on the topic of modularity in understanding how to apply the UNCITRAL Model Law, according to his resume. The concept – which suggests the Model Law should be understood as a “modular” system that divides complex cases into a hierarchy of components – was intended to resolve questions over the cross-border recognition of judgments following the UK Supreme Court’s 2012 Rubin decision, where it refused to enforce a US bankruptcy court’s ruling against a person who had not submitted to UK courts.

Dawson received his BA from Massachusetts-based Williams College and completed his JD at Harvard Law School. While at Harvard, he received an ABI Medal of Excellence, awarded to the student with the highest grade on a participating law school bankruptcy course.

Early in his career, Dawson clerked for Judge Jane Roth at the US Court of Appeals for the Third Circuit and for Judge Peter Walsh at the US Bankruptcy Court for the District of Delaware.

His first role in academia was at Harvard as a Kauffman Legal Fellow, awarded for research on the public sector, during which he researched bankruptcy law and corporate reoganisations. During the fellowship he had the opportunity to edit Chapter 11-related research by former Harvard bankruptcy professor turned-senator and US Presidential hopeful Elizabeth Warren.

The bankruptcy chair is Judge Cristol’s second major donation to the University of Miami. In 2012, he named the school’s pro bono bankruptcy clinic after his late wife Eleanor.

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Turkish Brothers’ $388M Award Fight Sent Back To State Court

By Kelly Zegers

Law360 (February 11, 2020, 7:37 PM EST) — A Florida federal judge has let a Turkish company go back to state court as it seeks to enforce a $338 million arbitral award, finding that two Turkish businessmen’s removal to federal court last year was untimely.

U.S. District Judge Rodney Smith said brothers Mustafa and Sefa Çevik’s time-barred removal of the case was an attempt to seek a different ruling after a Florida state court confirmed the arbitral award that stemmed from a soured chromium ore mining license deal with the company, Turchrome Krom Madencili Sanay Ve Dis Ticaret Ltd. Sirketi Turkey.

In determining the Çevik brothers’ removal was untimely and granting the company’s motion to remand, the judge applied a previous court’s ruling on an international arbitral awards convention that found a party couldn’t willingly proceed with discovery and trial in state court only to remove “when the first bite of what appears to be a ripe apple turns extremely sour.”

In this case, the brothers were trying to take a “second bite at the apple,” Judge Smith said.

“It could not be clearer from defendants’ motions filed in the instant case that this is exactly what defendants are trying to do; after receiving an adverse ruling from the state court when the state court confirmed the arbitral award, defendants are now trying to obtain a different ruling in this court — first through removal and then through their motions to dismiss,” the judge said.

The award in question had been issued to Turchrome in arbitration against Mustafa Çevik, which Turchrome initiated after yields at chromium ore sites failed to meet expectations. The arbitration took place in Paris under the auspices of the International Chamber of Commerce.

The suit, which accuses Mustafa Çevik of fraudulently transferring certain real estate to Sefa in an effort to avoid paying the award, claims the two brothers have numerous assets in South Florida that could be used to enforce the award, including real estate, at least one business, and a Mercedes and a Range Rover.

The federal judge’s ruling was in step with Turchrome’s contention that the Turkish businessmen failed to remove the case because the convention’s phrase “before the trial thereof” meant that trial begins when both sides present an argument on an issue of law or fact, according to court documents.

The brothers called that interpretation “aggressive,” arguing that removal is timely as long as it happens before the state court has adjudicated on the merits of all of a plaintiff’s claims or dismissed the entire suit, the judge said.

The judge acknowledged the businessmen’s reading of the existing case law on “before the trial” wasn’t unreasonable because there’s not a lot of case law on it.

The Florida state court confirmed the arbitral award in May last year, according to court records. The brothers had moved to dismiss Turchrome’s motion to confirm the award.

“The unfavorable ruling was not on just any claim; it was on the l[i]nchpin claim because the fraudulent transfer claims are dependent on confirmation of the arbitral award,” the judge said.

Because of his finding on the timeliness issue, the federal judge said the court wouldn’t address Turchrome’s waiver argument. Turchrome had asserted the businessmen waived their rights to remove by litigating the case in state court before removal.

The judge denied Turchrome’s motion for costs, according to the order.

Representatives for the parties did not immediately respond to requests for comment Tuesday.

Turchrome Krom Madencili Sanay Ve Dis Ticaret Ltd. Sirketi Turkey is represented in state court by Leyza F. Blanco, Bruno de Camargo and Edward H. Davis Jr. of Sequor Law PA and Matthew D. McGill of Gibson Dunn & Crutcher LLP.

Mustafa Çevik, Sefa Çevik and Charisma Marble LLC are represented by Aliette D. Rodz and Kristin Drecktrah Paz of Shutts & Bowen LLP.

The case was Turchrome Krom Madencili Sanay Ve Dis Ticaret Ltd. Sirketi Turkey v. Cevik et al., case number 1:19-cv-22910, in the U.S. District Court for the Southern District of Florida.

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February 2020 Quarterly Newsletter

Miami’s Specialist in Brazilian Chapter 15 Cases

When the foreign representative of defunct Brazilian limestone mining company Brasagro Fertilizantes Minerais Ltda. in October sought to investigate and recover alleged improper transfers of the company’s assets to the U.S., its advisers made a popular choice for the firm to handle the needed Chapter 15 petition: Miami-based Sequor Law PA.

Sequor also in October handled a Chapter 15 petition for Brazilian media company Minuano Comunicações e Produções Editorias Ltda., which sought recognition of its involuntary insolvency case in Brazil as it worked to recover assets that might have been diverted to banks in Miami and New York.

The fledgling law firm, which former shareholders of Astigarraga Davis Mullins & Grossman PA formed in April 2017 after that firm split in two, has quickly grown into the favored counsel of many Brazilian companies, financial institutions, sovereign entities and state-owned enterprises seeking representation for insolvency, financial services litigation, financial fraud and asset recovery.

Sequor, which on its website says its name in Latin means “to pursue, to chase, to attain,” has been involved in 13 Brazilian insolvency cases since 2017, according to shareholder Leyza F. Blanco. About 60% of Sequor’s total business focuses on Chapter 15 cases, and 80% of those filings are for Brazilian insolvency cases, said Blanco, who joined the firm in June 2018 from Orlando, Fla.-based GrayRobinson PA.

In addition to Minuano and Brasagro, the firm has represented sugar and ethanol producer São Fernando Açúcar e Álcool Ltda. (Aug. 22), construction company Knijnik Participações SA (July 24), securities holder Schahin Holdings SA (July 26), process control equipment maker Smar Equipamentos Industrias Ltda. (Feb. 28) and rubber tire product maker Marangoni Tread Latino America Indústria e Comércio de Artefatos de Borracha Ltda. (Feb. 15) in Chapter 15 cases in 2019.

The “Southern District of Miami is a popular court for Brazilian filings because of their many connections to Miami,” Blanco said. “It’s the gateway to the Americas and home to a great deal of Brazilian offshore business. It is a natural conclusion that in looking to track offshore transactions from Brazil that Miami would be a likely first place to look.”

Sequor’s Chapter 15 roots also go deep, with founding shareholder Gregory S. Grossman filing the first Chapter 15 case in Florida, for a Barbadian financial institution while he was at Astigarraga Davis. The predecessor firm handled a fair amount of Brazilian Chapter 15 proceedings, and there have been more to go around lately.

Blanco pointed to an apparent rise in fraud-related cases that require investigation as the root of an increase in Chapter 15 filings. In addition, she said more Brazilian insolvency advisers are familiar with Chapter 15 as a tool to assist that country’s bankruptcy courts in investigating and obtaining assets that may have been transferred outside the country to defraud creditors.

The Operação Lava Jato, or Operation Car Wash, criminal investigation that began in 2014 ultimately embroiled state-controlled Petróleo Brasileiro SA and construction company Odebrecht SA and led to indictments and convictions of politicians and professionals as it probed alleged money laundering, corruption, embezzlement and bribery. Among the politicians indicted and jailed were former Brazilian presidents Fernando Collor de Mello, Michel Temer and Luiz Inácio Lula da Silva. Odebrecht CEO Marcelo Odebrecht also was sentenced to prison.

Bribes and improper conduct by defendants caused a domino effect with insolvencies and liquidations of companies, Blanco said.

Companies or individuals moving company assets offshore and outside Brazil led to many Chapter 15 filings, Blanco asserted. Brazil’s recession and severe economic crisis, which began in 2014, also contributed to the financial distress that has led to more filings, she added.

“Sequor was formed to offer clients the relentless global pursuit to recover assets lost to bad actors,” said Blanco, who has been working on bankruptcy, restructuring, insolvency and Chapter 15 cases since 1997. “That pursuit often occurs through the use of Chapter 15 cross-border insolvency cases and other asset recovery tools.”

The law firm employs 15 full-time attorneys and one of counsel. All of the multilingual firm’s attorneys focus on asset recovery, and seven attorneys have substantial bankruptcy experience, Blanco said.

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A church, its shell companies and a plan to have rapper Flo Rida plug high-end bubbly

The middleman was ecstatic. An American archbishop was not only looking to move some money offshore, he was looking to move all his finances abroad.

“He says he feels he can swing his council or synod to establishing his whole banking empire as he envisions it and he wants to set up also an insurance company, various offshore companies,” wrote Michael O’Mara in a Sept. 8. 2015, email to a London-based offshore services provider. “I am trying also to sell him some of the recent companies you sent me with bank accounts to act as his holding companies.”

It’s not every day that a church, enjoying tax-exempt status in the United States, is seen as a viable candidate to buy offshore shell companies with their own bank accounts, which can give the appearance of a longstanding business.

The COO of one of those church-affiliated offshore businesses at one time had reached out to none other than Flo Rida, the Miami-born rap artist, trying to swing a deal to have him invest in a brand of high-end champagne called Billionaires Row. Flo Rida’s lawyer said no and the plan fizzled. But more on that in a bit.

The email about the archbishop’s offshore shell companies is part of a giant leak of more than a million documents from Formations House, a London-based financial services firm with clients across the globe, including some in the United States.

Other leaked documents show that Archbishop Timothy Paul, the senior pastor of the Christian Cathedral in Springfield, Mass., purchased an official-looking insurance company, a Swedish investment trust and even a faux bank — one in name only — in Gambia.

In interviews, he acknowledged spending tens of thousands of church dollars on offshore companies — but says he never used the shell companies.

Emails show O’Mara, who works out of an English seaside hotel room on behalf of Mediterranean Corporate Services, tried to sell the archbishop on religious-sounding names for his offshore entities — names like Alliance Parish Banking Ltd. or Alliance Congregational Bank & Trust Co.

But the archbishop settled on Dominion Global Investment Capital Trust, serving as its president and taking the name, he said, from the book of Genesis.

Dominion Global had a COO, William Benson, a brash New Yorker with a love of the limelight and a trail of unhappy business associates. They describe Benson as a frequent name-dropper, who boasted of his relationship with an archbishop, with Flo Rida and with the socialite Paris Hilton.

Dominion Global wasn’t a bank of the conventional sort, with checking accounts, tellers and the like. Nor did it grant commercial loans to real-estate developers.

When McClatchy and the Miami Herald called to check its operational hours, the call was put through to a man with a thick New York accent who said it wasn’t “that kind of bank.” Anyways, he said, the bank itself is in London.

When a reporter visited the bank’s listed address in lower Manhattan, in a swank high-rise glass tower at 17 State Street, Suite 4000, on the Hudson River, that suite wasn’t an actual bank either.

The guard there pulled out clipped-together paperwork listing hundreds of companies that together share the suite’s office space under a flat monthly fee.

Two young women answer the phones, the guard offered, but there isn’t anyone else there. It was a virtual office, a fancy address that gives the aura of a real brick-and-mortar company.

PIERCING THE VEIL

The archbishop’s offshore business was among the intriguing narratives found in 10 years worth of Formations House records obtained by the anti-secrecy group Distributed Denial of Secrets and shared with investigative journalists, including those at McClatchy and the Miami Herald.

Journalists collaborated for months and on Dec. 4 began publishing under the #29Leaks hashtag, a reference to Formation House’s tony address at 29 Harley Street in London. Reporters found Iranian oil companies dodging sanctions, a Miami resident busted in a DEA sting and a plan for industrial-scale cannabis farming in Cameroon.

Formations House chief Charlotte Pawar said in emailed responses to questions that the leaked records were stolen and that she was subjected to extortion but did not provide evidence of that.

The leak, combined with the recent Panama Papers and Paradise Papers leaks, gives added momentum to legislation now in the U.S. Senate that would end anonymity by requiring greater disclosure of the true ownership of shell companies in the United States.

“99.99 percent of Americans don’t own offshore companies but the few that do try to tell you how legitimate it is,” said Edward H. Davis Jr., an asset-recovery lawyer with Sequor Law in Miami. “The reality is the entire offshore system is designed to avoid detection of the existence and movement of wealth.”

The Formations House leak adds a new wrinkle to the global debate, in part because it was based in London, not Panama or the faraway Seychelles, another haven for companies seeking tax avoidance. And it went beyond offering shell companies, but also faux banks that mimicked financial institutions but weren’t regulated or required to have a minimum amount of cash on hand.

These bank-named shells can issue loans, mortgages to their members and even credit cards as if they were a normal bank, according to promotional materials.

The Formations House documents provide insight into how these financial instruments are used. One email referenced a giant global gemstone wholesaler “sitting on a huge pile”, who sought three “banks” for internal operations, insisting on the humorous names Tightwad International Bank Ltd., Tightwad Bank International Co. Ltd. and Tightwad Global Bank Ltd.

SHELL COMPANIES FOR GOD

Archbishop Paul is not an archbishop in the Roman Catholic Church or the Anglican Church, the common associations with that rank of clergy. Paul said that 20 years ago he adopted the name of St. Paul when he was consecrated as an archbishop.

He leads a freestanding Christian denomination that voted him archbishop and patriarch of the International Holy Communion of Churches, which he said involves roughly 700 churches that together count 4.6 million followers. Like the Russian or Greek orthodox churches, he said, the denomination follows the original interpretations of the early apostles.

“We brought orthodoxy to African Americans,” he explained.

Until recently, Paul was also president of Epiphany Development Corp., which converted a historic Springfield building into a Holiday Inn Express.

Paul, 53, insisted there was nothing untoward about his church having offshore companies.

“We wanted to fund missions and do things,” he said, noting he hoped to expand the reach of his church. “They sell offshore banks, so we thought this was a legitimate means to have an offshore bank for our ministries that we were going to be project-funding for.”

The interest in going offshore began with an email solicitation, he said, and eventually the representative from Mediterranean Corporate Services came across the Atlantic to see him.

Paul said he has foreign outreach in Gambia, India, Kenya and Zambia. His church website makes no mention of this. Asked about specific projects, he offered that the Swedish investment trust was established for that purpose but has yet to invest in projects.

“That would be for the real-estate projects we’re going to do,” he said, suggesting they were raising capital to build a foreign supermarket. “It’s almost like a real-estate trust.”

The Swedish daily Dagens Nyheter, a #29Leaks partner, reported that Russian middlemen and Swedish offshore services providers had discovered and exploited a loophole in Sweden’s banking laws that gave the appearance that bank-named trusts were regulated when in fact those belonging to non-Swedes are not.

Swedish documents shared with McClatchy and the Miami Herald show Paul signing the trust registration on Feb. 20, 2017. He said he used another consultant called Global Money Consultants to create that company.

Paul also purchased a “bank” in Gambia, the smallest country on the African mainland but one with a large corruption problem, for years run by dictator Yahya Jammeh.

Formations House chief Charlotte Pawar’s late father, Nadeem Khan, had convinced Jammeh to create an enterprise zone, which allowed the London firm to fashion a line of business registering offshore companies there.

In an email to #29Leaks partners, O’Mara said he’d created more than 150 such banks in the Gambian offshore zone since 2013 for “wealthy families who want to handle their own finances.” The church doesn’t fit that description but O’Mara declined to discuss Paul’s offshore entities. Even though the Gambian enterprise zone was never fully authorized by the legislature there, banks sold for about $33,000 apiece today’s exchange rates, a price Paul didn’t dispute.

Archbishop Paul created Global Dominion, but insisted the related “bank,” Dominion Bank & Trust Company Ltd., was never used.

“We haven’t even operated from the Mediterranean Gambian license,” he said. “We paid a lot of money for it, but it was not something we used.”

He later established Dominion Bank and Trust Company in the tax haven of the Comoros Islands in the Indian Ocean between Mozambique and Madagascar. It too hasn’t been used, he said.

Paul purchased from Formations House a pre-existing shell company called Global Mortgages Ltd. British corporate registration documents show Paul as the main shareholder in 2017 but in 2018 and 2019 the company was threatened with dissolution.

Global Mortgages Ltd. was going to be used as a vehicle to purchase real estate in Africa, he said, but the shell company was abandoned.

“It was an idea that was kicked around” but never got off the ground, Paul said.

Also registered under Paul’s name in Gambia was Dominion International Insurance Company. The idea, he said, was to create a captive insurer ⁠— an insurance company controlled by the insured.

For larger companies, these are used to reduce costs by self-insuring a project while enjoying some tax breaks.

But the IRS last year warned taxpayers about so-called micro-captive structures, popular with wealth planners and offshore services providers that “lack many of the attributes of genuine insurance.”

Paul said his insurance company, referenced in the Swedish trust documents that he signed, was also never put into function.

“Since we didn’t use the bank, we didn’t need that,” he said.

BOLD CLAIMS

Paul’s public profile isn’t — or wasn’t — completely accurate. In a LinkedIn page, he claims to have a Ph.D in education from American University. The school has no record of that.

“My Ph.D is in street-ology,” he quipped when asked about the degree.

Why was it on his LinkedIn profile? Someone else did the page for him, he said, “when you become the patriarch, things like that happen.”

The LinkedIn references to a Ph.D in education and American University were subsequently removed.

On his relationship with William Benson, Paul said he tapped Benson for his expertise and insight, well after the efforts had begun to expand church operations abroad. They were introduced through a friend working on a project involving Liberia, he said.

Benson, 34, runs Billionaires Row, a champagne company that touts the high life. A seemingly strange bedfellow for an archbishop, Benson marketed a playboy image, boasted of his friendship with Hilton and associates say he claimed to have worked for Goldman Sachs. The investment bank has no record of Benson having worked there.

“We don’t have any involvement. I want to make that very clear. We don’t engage in any of those secular or non-humanitarian projects,” Paul said during a first interview together with Benson.

Speaking of Benson, Paul added, “His primary role with the trust was to offer his expertise and help us obtain the necessary funding.”

Funding that apparently did not happen, for use in offshore vehicles that were never actually used.

In a subsequent interview without Benson, Paul acknowledged that he was aware of complaints against Benson.

“We found that he didn’t work for Goldman Sachs. We found [that] he did not have the knowledge that he professed,” Paul said, adding that “we were the cleanest vehicle for him to attach himself.”

ENTER FLO RIDA

Flo Rida attorney Reginald Mathis confirmed that in November 2014 Benson and his Billionaires Row offered a deal. An ex-business associate familiar with the deal said it involved Flo Rida mentioning the imported champagne in a song and doing a promotional tour.

“Things just never seemed to check out,” said Mathis, adding that, “he tried to put something together in 2015 with the Super Bowl, which never materialized. Flo advised that he was given product at some point, but he hasn’t had contact with Benson in years.”

In an interview, Benson denied ever having extended a contract offer to Flo Rida or any other celebrity.

“We don’t need any artist to do a song. We have many celebrities that promote the brand for free,” he said, adding that no celebrity “has invested a dime in the company.”

The archbishop said he’d never heard of Flo Rida, whose real name is Tramar Lacel Dillard. The pitch to Flo Rida came before Benson got involved with Dominion. Paul said that he was unaware of Benson’s actions or his alleged outside sales pitches on behalf of Dominion to would-be investors.

But on July 17, the website www.bankdominion.com issued a warning that Benson had no authority to “represent or bind” Dominion Bank and Trust, Ltd.

“William Benson does not have authority to enter into contracts that bind the Dominion Bank and Trust, Ltd or create obligations on the part of the Dominion Bank and Trust, Ltd. without final approval of our compliance department,” read a notice on the home page. That page today is password protected.

Benson said in the interview that it was he who ended ties with Paul after first getting offered the job of CEO of Dominion Bank.

“I saw things that I didn’t want to be part of, so I stepped back,” he said, noting he broke with the archbishop last April or May. He declined to discuss what he saw that was worrisome and added he worked with Paul just for eight months and after the offshore entities were created. He also denied saying he worked at Goldman Sachs, noting he had worked at a division that was purchased by the giant bank.

Several people claim Benson ripped them off.

“He took $15,000 from me promising he could provide a lot of funding,” said Joseph Clarke, a real-estate investor and entrepreneur in Louisville, Kentucky, who hoped to develop a beachfront project in Honduras and mostly got a website and press release out of the effort.

That money, which he said disappeared in 2014, was part of a wrongful death settlement after the death of his son, Clarke said.

“It really left a bad taste in my mouth,” he said, adding, “I really wanted to see him fry.”

Benson denied anything improper, saying that “I sent him an invoice and he paid it. I don’t work for free.”

Jeremiah Patterson was stationed at Patrick Air Force Base near Cocoa Beach, Florida, when he was approached by Benson in 2013, who offered to invest in his prototype touch-screen technology.

“He made it sound like he was a big tycoon,” said Patterson, noting that “he did mention offshore accounting and how he was looking to be part of an international banking corporation.”

Patterson gave him a stake in the company, Taptl, in exchange for marketing and fundraising, and gave him a corporate American Express card. Soon afterward, Benson ran up the bills, he said, failing to even pay the card’s initiation fee.

“I didn’t end up losing as much money as some other folks but it did set my business back by a year and a half,” said Patterson, now stationed in Georgia. “Keep in mind, I am a psychological specialist for the Air Force. I put him through the ringers and he had me convinced. That’s not an easy thing to do.”

Benson denied running up credit card bills and provided an October 2014 Ohio court injunction against Patterson that prevented further disparagement. Patterson said his start-up couldn’t afford to appeal.

A South Florida man who fell out with Benson shared a 15-page application for a corporate account with Bank Dominion and an unsigned letter of credit from Dominion Global, with its London address, promising $1.5 million with a lending rate of 4 percent.

The man recalled briefly being introduced by phone to the archbishop in the middle of 2018, something Paul steadfastly denied.

“He hopped on one call, said ‘hi’ for a moment,’ he said. “When they said archbishop, I assumed they meant the Catholic Church.”

Emails viewed by McClatchy and the Herald show a New York FBI agent was made aware last summer of several complaints about Benson. An FBI spokesman in New York City declined to comment.

Told about that, Benson provided what he said was a video of a recently videotaped conversation with former U.N. Ambassador Nikki Haley at the United Nations, and said it showed he was not under a legal cloud.

To view the original article, click here.

Pooled BVI liquidations seek US recognition

The liquidators of three British Virgin Islands companies tied up in an alleged US$200 million fraud conducted by a former mayor of São Paulo have filed for US recognition, days after a local court authorised the pooling of their liquidations.

Grant Thornton director Matthew Richardson, who is joint liquidator alongside partner Kevin Hellard of BVI companies Durant International, Kildare Finance, and MacDoel Investment, filed for recognition of the three companies’ liquidations before the US Bankruptcy Court for the Southern District of Florida on 11 December.

Kildare and Durant have been in liquidation in the BVI since November 2017, and MacDoel since April of this year. The BVI High Court ordered the liquidations to be pooled on 5 December after finding the movement of monies between the three of them “would have no practical advantage”, in the first written ruling of its kind in the jurisdiction.

Richardson told the Florida court that the three companies had “no legitimate purpose” and were nothing more than vehicles to launder the proceeds of “wide-scale frauds” allegedly committed against the city of São Paulo by their controller, the city’s former mayor Paulo Maluf and members of his family.

Maluf, a right-wing populist and member of Brazil’s Progessives party, served as mayor from 1969 to 1971 and 1993 to 1997. He is now under house arrest after being convicted of fraud in 2017 and sentenced to seven years’ imprisonment.

It is alleged that during his latter term around US$200 million was misappropriated from public funds through “bribes, secret commissions and other fraudulent payments” in connection with the construction of the city’s Avenida Agua Espraiada, which divides the districts of Itaim Bibi and Campo Belo. The boulevard is now known as Avenida Jornalista Roberto Marinho following a 2003 renaming.

Richardson says Brazilian authorities became aware of the fraud in 1999 when they received inquiries from police in Jersey after the submission of a suspicious transaction report to the island territory’s money laundering authorities.

The governments of Brazil and São Paulo sought to prove the fraud in the Jersey courts by reference to a month’s sample of transactions flowing through Kildare and Durant. Based on those samples the Royal Court of Jersey found a constructive trust for US$10.5 million against the companies in 2012, and then the following year gave judgment against them for US$28.3 million in favour of the governments.

Although the governments recovered US$3.44 million from Kildare and Durant’s Jersey accounts, the companies made no attempt to pay the balance, leading the governments to seek the appointment of liquidators in the BVI.

Richardson said MacDoel had also played a role in the fraud as a conduit for funds, identifying just over US$4 million in Kildare’s books that it had paid to the company without consideration or evidence of repayment. The pair obtained MacDoel’s liquidation after it failed to pay a statutory demand for that amount in April.

But Richardson said the money from the Jersey judgment “represents only a very small part of the total funds derived from the fraud”, because the judgment reflected only one month’s worth of transactions. He said the total amount of money derived from the frauds was “in the region of US$200 million” and claims against the three estates amount to at least US$172 million.

He said he was as yet unable to determine the total value or location of the companies’ assets, but said he had learned they “may be concealed in the United States” and foreign tax havens, under the names of Maluf’s relatives.

Richardson said he hopes to make recoveries by asserting proprietary claims in the US and possibly by bringing tracing claims against third parties.

In the US Bankruptcy Court for the Southern District of Florida

In re Durant International Corp (19-26542)

In re Kildare Finance Ltd (19-26545)

In re MacDoel Investment Ltd (19-26547)

Counsel to Grant Thornton

  • Sequor Law

Partner Gregory Grossman in Miami

In the High Court of Justice of the British Virgin Islands, Commercial Division

In the matter of Durant International Corp (in liquidation); and in the matter of Kildare Finance Ltd (in liquidation); and in the matter of MacDoel Investment Ltd (in liquidation)

• Justice Adrian Jack

Joint liquidators of Durant, Kildare and MacDoel

• Grant Thornton

Partner Kevin Hellard in London and director Matthew Richardson in the British Virgin Islands

Counsel to the joint liquidators

• Maples and Calder

Partner Alex Hall Taylor, of counsel David Welford and associate Scott Tolliss in the British Virgin Islands

To view the original article, click here.