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

(19-26542)

 (19-26545)

(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

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

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