What do Simon Cowell, Jackie Chan and YAYWORLD have in common? The 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 lists individuals who have formed offshore companies, and 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 grandmaster Bobby Fischer; actors Jackie Chan, Emilio Estevez and Emma Watson; filmmaker Stanley Kubrick; Simon Cowell of America's Got Talent; and the Duchess of York, former wife of Prince Andrew. And Colette Bellier, the founder of YAYWORLD.
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
After my husband and I divorced in 1996, I had to find work in order to support my two young sons. We lived in Paris, and although I'm French by birth, I was raised and educated in the UK, and my French wasn't proficient enough to be employable in France.
Then I read about something new called the ‘Internet’. A technology that would not only enable me to work with other English speakers but also meant I could work from home while taking care of my young children. It was a game-changer.
I traveled extensively before getting married, which resulted in an impressive collection of travel guide books, so an 'online' guide to French hotels was a no-brainer. Over the next few months, I hired a group of local mothers to enter the names, addresses, star ratings, and descriptions of over 6,000 French hotels into a database. I then leased a server in the US, hired a web designer in Paris, a developer in Austin, TX, and June 1997 launched Frenchhotels.com.
The business was subscription-based, so hotels paid an annual fee to be listed on the website. As online booking engines didn't exist yet, I hired a US company to convert the booking queries that users submitted to the website, into faxes that were then transmitted to the hotel.
The Minitel was still big in France, and as France Telecom didn't believe the internet would take off in Europe, it didn't invest in Internet development. Compared to the UK and USA, France is not very entrepreneur-friendly. 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 boys.
The birth of a new democracy and the South African miracle
Thanks to South Africa's peaceful political transition from apartheid to an inclusive democracy in 1994, the country was perceived as an economic miracle. Nelson Mandela's wisdom and compassion won the respect of leaders worldwide, and South Africa was becoming an exciting travel destination and an interesting investment opportunity.
I envisioned my boys growing up outdoors, surfing the ocean, climbing mountains, and walking with lions. OK, OK. Maybe I had watched too many Disney movies with the kids, but it did seem like a wonderful place to raise two little boys. And so we moved to Cape Town, where I founded a company called Internet Hotel Guides and launched a second website called SouthAfricanHotels.com.
It was 1997, and Google didn't exist yet. The only search engines were Lycos, Yahoo, and AltaVista, and my two websites ranked #1 for matching search queries on all of them. That soon caught the attention of a small Los Angeles startup called Worldres that had just developed an online hotel booking engine and needed to increase traffic to their platform. So they invited me to join as an affiliate. In return, I could stop paying a fortune for faxes, provide users with a secure online booking system, and earn a commission for every reservation made through my website. It was a win-win collaboration.
Complications associated with doing business in 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 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 from each company 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 had registered with. So I designed an application to query all the databases—Worldres, Sabre, Amadeus, and Travelocity—in real time, select the lowest room rate, and display that rate on my websites. I needed skilled programmers to develop the application, but there were very few in South Africa as most were employed full-time by larger companies. The only solution was to work remotely via Skype with developers in the US. Elance and oDesk (later to merge as Upwork) didn't exist yet, so hiring was primarily via word of mouth or recommendation.
Online banking also hadn't been developed yet, and wire transfers from one bank to another, typically done via SWIFT since the 1970s, were the only option for paying US developers from South Africa.
In 1999, Nelson Mandela retired as president, and worried that money would now leave the country, the South African government expanded banking regulations so that the movement of money from South Africa to another country became strictly controlled by exchange regulations. Money could only be sent overseas with prior approval from the South African Reserve Bank (SARB), no matter how small the amount. The bank was constantly calling about transfers as small as $200, asking what the money was for.
Over time, corruption within the SARB administration resulted in a lot of extra paperwork, delayed payments, and massive banking fraud. 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 countries, so forming a company as a foreign national was impossible, and 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 in 2004, I moved with my two boys, four dogs, and a cat to Chiang Mai, in northern Thailand.
When politics turns everything upside down!
I entered Thailand on a Thai Non-Immigrant investor visa, and registered OTG Limited as a Thai company in accordance with the 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.
In 2006, after a military coup overthrew the Thai government and its democratically elected leader, Prime Minister Thaksin Shinawatra, the new coalition quickly proposed changes to the government, including the redrafting of the Foreign Business Act to limit foreign-owned businesses in Thailand.
I consulted with three international tax firms on how to protect my business, 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 was not 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 and Managing Director of the Bangkok office of Mossack Fonseca & Co., an international legal firm. Steve explained that 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 because it's a British territory and my British 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 200 websites to my network, and changed the company name to YayHotels.com.
Be flexible, creative, and diversify when faced with challenges
The Google Penguin and Panda algorithm updates of 2011–2013 and the huge advertising budgets of TripAdvisor and Booking.com resulted in big brands crowding out smaller players like myself. It was increasingly difficult and uneconomical for small travel websites like mine to compete. It was time to come up with another business.
I sent both of my sons to universities in the USA. When my eldest graduated, his classmates came to stay with us in Thailand. For all of them, it was their first trip outside of the US, and every day they posted 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 to promote small and local businesses.
In 2015, I changed the name of my offshore company to YAYWORLD, Inc. Unknown to me, my little company was now registered in a Mossack Fonseca & Co. database that would shortly be leaked to the ICIJ. A 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 who are doing so will hide the names of the directors and owners in order to avoid paying taxes. Registering a company offshore is no different from 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 classic offshore centers. 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.