What do Emma Watson, Jackie Chan & YAYWORLD have in common?
How a simple, little known startup managed to get listed in the Panama Papers.
They've all been named in the Panama Papers, one of the biggest data leaks of all time that reveals the names of people who have formed offshore companies.
In 2015/16, a collection of 11.5 million documents containing details about 214,488 offshore entities were leaked from Mossack Fonseca, an international legal firm head quartered in Panama. Organizations and individuals listed in the Panama Papers included 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 a little known company called YAYWORLD.
Hold on - not everybody is a bad guy!
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. This story is about how and why my little startup YAYWORLD, ended up in the Panama Papers database.
We were living in Paris when my husband and I separated in 1997 and I needed a steady income to support my young family, but didn't read and write French well enough (raised in the UK) to be employable. Then I heard about something called the ‘Internet’ and quickly realized it was a potential solution for me to be able to work from home while taking care of my two toddlers. So I signed up with the only public internet service provider in France at the time. Receiving their 5” floppy disk connection kit was on a par with opening a box containing the latest iPhone!
As an avid traveler and collector of hotel travel guides, creating an online guide of French hotels seemed a no-brainer. So I put together a group of local mothers to help me enter the details of over 6,000 hotels into a database. Next, I leased a server in the US, hired a web designer, and launched Frenchhotels.com.
Online booking engines didn't exist yet, so I found a company in the US that could send reservation details that were submitted to my website, as a fax to each hotel. The website was subscription based and hotels paid an annual fee.
France was not entrepreneur friendly, and its bureaucracy exhausting. Knowing I could now work from anywhere in the world, I considered moving to other English speaking countries.
It was 1996, and Nelson Mandela was the president of South Africa. His compassion and wisdom was winning the hearts of people around the world, and the country was a fast growing tourist destination. I envisioned my boys growing up outdoors, climbing mountains and walking with lions. (OK - maybe I watched too many Disney movies with the kids!) In late 1997, we moved to Cape Town, where I founded a company called Internet Hotel Guides and launched a second website called SouthAfricanHotels.com.
The only search engines at the time were Lycos, Yahoo and AltaVista and their simple algorithms ensured keyword heavy urls dominated search results, and that my two websites ranked #1 for matching search queries. This caught the attention of a small California startup that had just developed an online hotel booking engine. Worldres invited me to join as an affiliate because they needed to increase website traffic. Partnering with them meant I could stop paying a fortune for faxes and provide clients instant and secure online booking. The result was a win-win collaboration.
The complications associated with doing business in an emerging market country
In 2002, I also partnered with Sabre and Amadeus, two of the biggest global distribution systems in the travel industry, and also with WorldChoice Travel (later acquired by Travelocity). Users were now able to book cars and flights on our websites, and so I changed the company name to Online Travel Group and registered the business as OTG Limited.
Managing multiple databases containing thousands of hotels was laborious, because each database inevitably contained duplicate hotels from the other databases. Then I noticed hotels charged different room rates depending on which booking engine they had listed with. So, I designed an application to query all four databases in real time, select the lowest room rate and display it on our websites. I needed skilled programmers to develop the application, but there were very few qualified programmers in South Africa, and most worked full time for large companies. The only solution was to work remotely with developers in the USA.
Online banking was embryonic, and wire transfer was the method of choice for international payments since decades, so I didn't foresee any issue paying US developers from South Africa.
Boy, was I wrong! After Mandela stepped down as President, banking regulations grew more complicated as the government tried to discourage businesses from leaving the country. The movement of money from South Africa to another country was (and still is) strictly regulated by South African Exchange Controls Regulations. The sender of money was required to provide justification for the transfer overseas, and could only transfer money with prior approval from the South African Reserve Bank (SARB) – regardless of how small the amount.
Meanwhile, the South Africa Government was growing increasingly corrupt, and violent crime was on the rise. It was time to leave.
Following the growing Asian tiger
By 2004, Asian economies were growing at 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 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 regulations seemed simple enough, and there were lots of international IB schools to choose from. So I moved my two sons, four dogs and a 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 law 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 to operate in Thailand.
A series of events in 2005 lead to a military coup the following year that overthrew the Thai government and its democratically elected leader. Coalitions were quick to propose changes to government, including the redrafting of the Foreign Business Act to limit foreign 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 an American lawyer in Bangkok representing an international legal firm called Mossack Fonseca. I looked at the tax implications of each offshore jurisdiction and decided to register OTG Limited in the British Virgin Islands because of my ties to the United Kingdom. Two years later I partnered with Booking.com, added new websites to my network and rebranded the company YayHotels.com.
Google's Penguin and Panda algorithm updates in 2011 and 2013, and the huge advertising budgets of TripAdvisor and Booking.com, resulted in big brands crowding out smaller players, 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, it was their first trip outside of the US and every day they posted stories about their travel experience. 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 can monetize their creative skills by creating content for local businesses. And in 2016, I changed the name of the offshore company to YAYWORLD Inc.
My story 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 or Wyoming operate similarly to a classic offshore center. What's important is to do your homework and choose the right business structure for your company. Today, YAYWORLD is an American company operating in the USA, and living the American dream.