What do Simon Cowell, Jackie Chan, Donald and YAYWORLD have in common? Panama Papers.
How a small startup managed to get listed in the Panama Papers, along with Jackie Chan, Simon Cowell, U.K. Prime Minister David Cameron, and the Duchess of York.
The Panama Papers, which lists individuals that over the years have formed offshore companies, is still one of the biggest data leaks of all time. In 2015/16, a collection of 11.5 million documents containing details of about 214,488 offshore entities were leaked from the Mossack Fonseca & Co. head office in Panama, to the International Consortium of Investigative Journalists. The ICIJ, an independent international network based in Washington, D.C., is made up of over 200 investigative journalists and media organizations across 70 countries.
Organizations and individuals listed in the Panama Papers include the NYU School of Medicine; the trustees of Columbia University; the founders of Linksys; golfer Tiger Woods; chess grand master Bobby Fischer; actors Jackie Chan, Emilio Estevez and Emma Watson; filmmaker Stanley Kubrick; Simon Cowell of America's Got Talent; the Duchess of York, former wife of Prince Andrew. And me, Colette Bellier.
As you enter the Panama Papers website, the ICIJ is quick to state that there are legitimate uses for offshore companies and trusts, and not all companies in the database have broken the law or acted improperly.
Creating hotel websites when there are no hotel booking engines
My husband and I separated in 1996. We lived in Paris at the time, and I now had to find work in order to support my two young sons. I'm French by birth, but was raised and educated in the UK, and so don't read and write French proficiently enough to be employable in France.
Then one day in 1997, I read an article in Time about something called the ‘Internet’ - and new technology that was taking off in the USA. The 'Internet' meant I could not only work in English, but also work from home while taking care of my young children. It was the solution I had been looking for.
Before marrying I had traveled extensively, which resulted in an impressive collection of hotel and travel guide books, including the entire Lonely Planet collection, Frommer's Guides, Rough Guides and my personal favorites, Insight Guides. With so many resources at hand, creating an 'online' guide of French hotels seemed a no-brainer. So I hired a small group of local mothers to enter the names, addresses and descriptions of over 6,000 hotels into a database. I then leased a server in the US, hired a web designer in Paris, a developer in the USA, and in June 1997 launched the website Frenchhotels.com.
The business was subscription based. Hotels paid an annual fee to be listed on the website, and receive reservation from browsing customers. Online booking engines didn't exist yet, so I hired a company in the US that could convert emails containing booking queries and reservation details submitted by customers via the website into faxes that were then transmitted to the hotel.
The Minitel was still a big hit in France, and as France Telecom didn't believe the internet would take off in Europe, it didn't invest in Internet development for years to come. France is also not very entrepreneur friendly. Compared to the UK and USA, the French tax system is heavy, and the country is renowned for its unforgiving and burdensome bureaucracy, which is notoriously difficult for small businesses to navigate. It was time to look at other countries to live, work, and raise my children.
The birth of a new democracy - the South African 'miracle'
Thanks to Nelson Mandela, and the peaceful political transition from apartheid to an inclusive democracy in 1994, South Africa was now perceived as an economic miracle. Mandela's wisdom and compassion won the respect of leaders and people worldwide. South Africa was transitioning into an exciting travel destination and interesting investment opportunity.
I envisioned my boys growing up outdoors, surfing the ocean, climbing mountains and walking with lions. OK - maybe I watched too many Disney movies with the kids, but it did seem a wonderful place to raise two little boys. And so in 1997 I moved with my two sons to Cape Town, where I founded a company called Internet Hotel Guides and launched a second website called SouthAfricanHotels.com.
Google hadn't launched yet (probably still a conversation over lunch at the Stanford cafeteria). The only search engines were Lycos, Yahoo and AltaVista, and their simple algorithms ensured keyword heavy urls like mine dominated search results. My two websites ranked #1 for matching search queries, which caught the attention of a small Los Angeles based startup. Worldres had just developed one of the first online hotel booking engines, and they invited me to join as an affiliate, the objective being that they would benefit from my traffic. In return, I could stop paying a fortune for faxes, provide users instant secure online bookings, and earn a commission for every booking made through my website. It was a win-win collaboration.
The complications associated with doing business from an emerging market country
In 2002, I also partnered with Sabre and Amadeus, the two largest global distribution systems in the travel industry, and WorldChoice Travel, which was later acquired by Travelocity. Users could now also book cars and flights on my websites, and so I changed the company name to Online Travel Group and registered the business as OTG Limited.
The databases provided by the above companies each contained thousands of hotels. And because hotels didn't register with just one booking engine, each database inevitably contained duplicate properties. That's when I noticed hotels charged different room rates depending on which booking engine they registered with. So I designed an application to query all four databases (Worldres, Sabre, Amadeus and Travelocity) in real time, select the lowest room rate and display that rate on the websites. I needed skilled programmers to develop the application, but there were very few in South Africa. Those who were skilled, worked full time for larger companies. The only solution was to hire developers outside of South Africa, namely the USA, and work with them remotely. Unfortunately, neither Elance or oDesk existed yet, so hiring was via word of mouth or recommendation.
Online banking hadn't been developed yet, and wire transfer from one bank to another, which was done via SWIFT since the 70s, was the only option for making international payments. And so I naively didn't foresee any issue paying US developers from South Africa.
In 1999, Nelson Mandela retired as President. Worried that money would now leave the country, the South African government set out to discourage businesses from leaving South Africa by expanding banking regulations. The movement of money from South Africa to another country became strictly regulated by exchange control regulations. Money could now only be sent overseas with prior approval from the South African Reserve Bank (SARB) – no matter how small the amount. Delays and corruption within the SARB administration resulted in a lot of extra paperwork, delayed payments, and massive banking fraud. To complicate matters, South Africa was growing increasingly corrupt and violent crime was on the rise. It was time to leave.
Following the growing Asian tiger
In 2004, Asian economies were growing at a record pace. More importantly, they were among the safest countries on the planet. Low crime and strong traditional family values were exactly what I was looking for.
We now had four dogs and a cat, so moving to Singapore or Hong Kong wasn’t an option as both countries had strict animal importation restrictions, and pets relocated from Africa were held in quarantine for 12 months upon arrival. Vietnam and China were Communist so forming a company as a foreign national was impossible. Malaysia and Indonesia were managing their own political scandals. That left Thailand. Crime was low, foreign exchange banking regulations seemed simple enough, and there were lots of International Baccalaureate schools to choose from. So we moved - with our four dogs and cat, to Chiang Mai in northern Thailand.
When politics turns everything upside down
I registered OTG Limited as a Thai company, in accordance with regulations of the Thai Foreign Business Act - a law that limited foreign ownership of service businesses, and required companies to be majority owned by Thais. However, the same regulations did not prohibit foreigners from being the majority on a board of directors and didn’t prohibit differing voting rights - a loophole that allowed thousands of foreign-controlled businesses like mine to operate in Thailand.
A series of events in 2005 lead to a military coup in 2006 that overthrew the Thai government and its democratically elected leader, Prime Minister Thaksin Shinawatra. The new coalitions were quick to propose changes to government, including the redrafting of the Foreign Business Act to limit foreign owned businesses in Thailand.
I consulted with three international tax firms and all advised the same thing - protect your company by moving it to an offshore jurisdiction, or leave Thailand and move to another country. The latter wasn't an option. I couldn’t pull my boys out of school in the middle of the school year and relocate them again.
I was referred to Steve Wagner, an American lawyer in Bangkok, and Managing Director of Mossack Fonseca & Co., an international legal firm head-quartered in Panama. Steve explained how moving my business to an offshore jurisdiction would protect the company in the event the Thai Government rewrote or changed the Foreign Business Act. In other words, the government couldn't take my business away from me, and my children and I could remain in Thailand until the end of their school year.
I opted to register OTG Limited in the British Virgin Islands, a British overseas territory, because of my ties to the United Kingdom. Plus my UK bank had a branch there, so it would be just like doing business in the UK. Two years later I partnered with Booking.com, added new websites to my network and rebranded the company YayHotels.com.
Be flexible, creative and diversify when faced with challenges
The Google Penguin and Panda algorithm updates of 2011-2013, plus the huge advertising budgets of TripAdvisor and Booking.com, resulted in big brands crowding out smaller players like myself, making it difficult and uneconomical for small travel websites like mine to compete. It was time to come up with another business.
Both my sons went to university in the USA. When my eldest graduated, his classmates came to stay with us in Thailand. For most, this was their first trip outside of the US, and every day they sat around our dining table posting stories about their travel experiences. Then I discovered none of them had secured jobs and all were struggling with college debt, and that’s when I came up with the idea for YAYWORLD. A marketplace where young people could monetize their creative skills by creating content for small local businesses.
In 2016, again, with the help of Mossack & Fonseca, I changed the name of my offshore company to YAYWORLD Inc. But unknown to me, my little offshore company was now registered in a database that would shortly be leaked to the ICIJ. A database leak that would become known as the Panama Papers.
The above is simply to explain that not all companies listed in the Panama Papers are conducting inappropriate or illegal business. Those that are will hide the names of the directors and owners in order to avoid paying taxes. Registering a company offshore is no different to registering a company under a specific structure in Ireland, the Netherlands or the United Kingdom. In fact, in the USA, states like Delaware, Nevada and Wyoming operate similarly to a classic offshore center. What's important is that you do your homework and choose the right business structure for your company. And keep away from shady lawyers!
Today, YAYWORLD is a California based LLC, registered in the state of Delaware, USA.