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Tuesday, March 19, 2013

Offshore Financing – a clear warning.

For the last two seasons Everton has borrowed money from an offshore source. Nothing wrong with that you may say, nothing wrong particularly when the Premier League approve these loans and Everton provide information that the money, used to alleviate potential cashflow problems, has been secured at a lower interest rate than that for previous facilities.

These were provided by mainstream lenders, Barclays and Investec; that such borrowing is claimed to be, to use that dreaded phrase, “standard business practice” and is a mechanism that is widely used by many clubs and not just Everton is, frankly, neither here nor there.

Let’s clear something up once and for all, business finance is a fact of life, but if we’re going to talk about standard business practice let’s be honest on the subject; standard practice is for owners to invest in their businesses, but our owners, our board, have never invested a single penny in their business whatsoever and whilst it is true that other clubs do employ what is essentially a form of factoring or confidential invoice discounting, that is to say, bringing guaranteed money forward in the cashflow cycle, at an additional cost, Everton has pioneered the practice of not just factoring the current season’s income but the next season as well, a practice viewed as extremely dangerous by UEFA president Michel Platini.

The company Everton has borrowed tens of millions of pounds from, and in the course of repaying the money pay millions of pounds in interest, is the Vibrac Corporation whose registered office is at Vanterpool Plaza, Wickhams Cay 1, Road Town, Tortola, BVI. A familiar address to the discerning Evertonian, this is little more than an accommodation address for a firm of lawyers specialising in company formation, management of those companies in offshore havens and the operation of trusts. Their name is ICAZA, GONZALEZ-RUIZ & ALEMAN and a quick look through their BVI brochure confirms a couple of things that we should all be concerned about, “No public record is kept, of the identity of shareholders or directors.” and that “Directors have power to protect the assets of the company by transferring them to trustees, another company or legal entities for the benefit of the BVI Business Company, its beneficial owners or creditors.”

What does this mean? Essentially, unlike with the banksters behind Barclays and Investec, it’s impossible to ascertain who the true owners are, yet the Premier League has approved these loans, the Premier League has accepted what they’ve been told when, unlike under UK law, there is no legal requirement to reveal the ultimate owners and therefore no sanction if they fail to reveal the corporate governance structure correctly; an anonymity which is why they’re attractive to the characters who use offshore accounts in the first place.

Of course smug people who sit there talking about “standard business practices”, this happy breed, the type of people who if they had dynamite for brains wouldn’t have enough to blow their hat off, won’t see anything wrong with this, they never do, so allow us to elucidate.

One scenario, the most likely scenario, is that a management company, with access to high net worth individuals, possibly already involved in the football industry, and who offer advise on “tax efficient” investment schemes, has set up a fund in the BVI and are lending money to the very companies who are struggling to pay their clients exorbitant salaries in the first place, truly both cause and effect.

Another scenario could see a hypothetical company whose operation in the UK generates billions of pounds but manages to avoid paying UK tax by routing the dividends through a series of offshore accounts which ultimately lead to a BVI company which, because they’re operating effectively on tax free income, are able to offer more competitive interest rates than the High St banksters. Morally contemptible certainly, but perfectly legal in a Jimmy Carr kind of manner.

Now imagine a third hypothetical scenario, a far more sinister scenario involving an offshore company whose ultimate directors and sources of funding are completely unknown but turn out to be involved in drug and people trafficking, prostitution and illegal gambling. Far fetched? For more information read here. Individuals involved in illegal practices have a need to launder the proceeds from their activities and what better way than to earn a profit in the process.

Unlikely? We’d like to give that a definite yes, a definite yes if the Premier League could give a cast iron guarantee that they’re completely aware of the origins of the hundreds of millions of funding that’s being provided through these offshore schemes which is being returned, with interest, from a legitimate source, football income. On the basis that a director of an offshore company once informed us of an irrevocable cheque that didn’t exist we’ll play safe and give it a definite maybe.

With three clubs involved in this financing solution, and possibly another three joining them, there is a clear duty of care owed by the Premier League; not just to the clubs but to the fans through ensuring that the owners of clubs are who they say they are and have sufficient resources to operate them, alleviating the need for this form of factoring. The only way to be certain is to make sure everything and everyone is clear, clean and 100% transparent.


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