Seychelles: the ex-billionaire and the captured state

We’ve never laid down hard and fast definitions of the terms ‘tax haven’ or ‘secrecy jurisdiction’ because there’s so much to say about what makes these places tick, and no short definition captures the whole picture. But we offer this way of thinking about these places.  Among other things, it says:

“Secrecy jurisdictions tend to be ‘captured states’, where offshore financial services tends to be deliberately insulated from any domestic political opposition, and relevant laws and approaches to the industry are instead created by small numbers of professional insiders in the jurisdiction in collaboration with offshore financial services interests from elsewhere.”

A series of histories of tax havens we’ll be publishing on November 2, with our forthcoming 2015 Financial Secrecy Index, reveal how central this phenomenon is in the offshore world.

Now The Daily Beast in the U.S. is running a really good story entitled A $200 Million Dollar Shell Game in Seychelles. It’s a story about an Indian-born former billionaire, Chinnakannan Sivasankaran, who went bankrupt and was being pursued by angry creditors. (A lot of information on him has already been published by the NGO GRAIN, with help from TJN-supported Finance Uncovered, and it is fascinating.) 

Anyway,Sivasankaran lost a civil case in the British High Court and it was decided he owed one creditor US$212m. Straight away, the evasive manoeuvres began:

“Even before the trial began, the oligarch used his Seychellois citizenship to arrange a swift legal split from his wife, to whom he then transferred at least $95 million in assets—39 plots of land, one island and numerous corporate holdings registered in Seychelles and the British Virgin Islands, including those that owned even more real estate—as part of the divorce settlement.”

So far, so dodgy. Now in theory Siva’s creditor, Batelco, should have been able to get hold of the $212m anyway: there are laws to stop this kind of nonsense. But this is where it gets interesting.

Siva had moved to Seychelles in the mid-2000s, amid severe economic crisis there, and had used his money to wield influence locally. A U.S. Wikileaks cable from 2008 quoted a local official as alleging that he was part of a Seychellois “business mafia” and noted that he had been appointed “Ambassador-at-Large” for the Seychelles. Then:

“about a year after Siva lost his case in Britain, the island nation “reformed” its bankruptcy statute, first introduced by Seychelles Finance Minister Jean Paul Adam, thereby shortening the timespan of official bankruptcy from three years to one and also making it more difficult for creditors to collect from the new owners of transferred assets.

That change occurred mere weeks before Siva became the first person in the history of Seychelles to file for bankruptcy. To date, he is also the only person to have done so, before or after the law changed. He hasn’t paid Batelco a cent and his actual financial relationship with his former wife remains a mystery.”

This looks like the classic captured state, in action. And, for context:

“Seychelles has been called the “world’s first socialist tax haven,” with a post-colonial history tethered closely to the Italian mafia and South African apartheid, according to reports. With a population of a mere 89,000—smaller than that of Flint, Michigan—Seychelles has adopted an ask-no-questions economic policy catering to a jet-set, billionaire class of foreigner who travels there not to luxuriate in the tropical paradise where Kate and Wills honeymooned, but to set up companies for the purposes of moving GDP-sized amounts of money around the world.”

The rest of the Daily Beast story is full of fascinating details.

For anyone who hasn’t seen this superb Al-Jazeera video about Seychelles’ offshore sector, now is a good time.