What do Emma Watson, Jackie Chan, Simon Cowell & 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 my startup YAYWORLD, ended up in the Panama Papers database.
When my husband and I divorced in 1996, I had to quickly come up with a business to support my young family. One day I read about something called the ‘Internet’. I knew immediately this was the solution I needed to be able to work from home so I could take care of my two toddlers, then aged 18 and 36 months. We lived in Paris, so I promptly signed up with WorldNet, the only public 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 loyal user of Michelin and Relais & Châteaux guides, creating an online guide of French hotels seemed a good idea. So I got together a group of stay at home mothers, who I provided with a database and hotel guides from which they captured each hotel’s address, number of rooms, star category and prices. I then leased a dedicated server in the US, hired a local web designer, and launched my first website, Frenchhotels.com.
Our database grew to 6,000 hotels. Online booking engines didn’t exist back then, so I found a company in the US that could convert and send an email containing reservation details from Frenchhotels.com to the hotel as a fax. The website was subscription based and hotels paid an annual fee to be listed.
Unfortunately, France wasn't very entrepreneur friendly, and the fact I didn’t write French well (raised in the UK) didn’t help. Fed up with the bureaucracy and knowing I could now work anywhere in the world, I started looking at English speaking countries.
South Africa was a growing tourist destination. Nelson Mandela was president, the economy was stable, and I had dreams of my boys growing up outdoors, surfing the ocean, rock climbing mountains and walking with lions. So, in 1998 we moved to Cape Town, where I founded a company called Internet Hotel Guides and launched a second website called SouthAfricanHotels.com.
The two dominant search engines at the time (Google was in its infancy) were Lycos, a spin-off that began as a university research project at Carnegie Mellon, and AltaVista, later purchased by Yahoo. Keyword heavy urls dominated search results and my two websites ranked #1 for matching search queries. This caught the attention of a small California startup called Worldres. They had developed an online booking engine and wanted me to join as an affiliate. Our partnership meant I could stop paying a fortune for faxes and provide clients instant and secure online booking.
The complications associated with doing business in an emerging market country
Despite the dot com collapse in 2001, online travel continued to grow. By 2002, I had also partnered with Sabre and Amadeus, two of the biggest global distribution systems in the travel, and WorldChoice Travel, acquired by Travelocity the following year. Managing multiple databases containing thousands of hotels was laborious because each database inevitably contained duplicate hotels found in the other databases. However, it's thanks to those duplicate listings that I noticed hotels were charging different room rates depending on which booking engine they listed. So, I designed an application to query all four databases in real time, select the lowest room rate and display that rate on our websites. I needed skilled freelance programmers to develop the application, but most qualified programmers were already hired and working full time for larger South African companies. The only solution was to contract developers in the USA and work remotely.
Partnering with GDS brands meant users could now also book cars and flights on the websites. In 2002, I changed the company name to Online Travel Group and registered the business as OTG Limited.
Online banking was in its infancy, and traditional wire transfer was the method of choice for international payments, so I didn't foresee any issue paying US developers from South Africa.
I was wrong. The movement of money from South Africa to another country was (and still is) strictly regulated by the Exchange Controls Regulations. The sender of any money to overseas was required to provide justification for the transfer, and could only transfer money with prior approval from the South African Reserve Bank (SARB) – no matter how small the amount. It was a frustrating, bureaucratic, time-wasting necessity.
In 1999, Mandela stepped down as President. In the years that followed, government regulations grew more and more complicated. The new ANC leadership intensified bureaucracy. Local authorities became increasingly corrupt. Crime was growing. It was time to leave.
Following the growing Asian tiger
Although the world economy hadn’t quite recovered from the 2001 slowdown, it was now 2004 and Southern and Eastern Asia 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 either Singapore or Hong Kong wasn’t an option. Both countries had strict animal importation restrictions and pets relocated from Africa were held in quarantine for 6 months upon arrival. Meanwhile, Vietnam and China were Communist making it impossible to form a company as a foreign national. Malaysia and Indonesia were managing their own political scandals, and South Korea was still known for eating dogs!! That left Thailand. Crime was low, foreign exchange regulations appeared simple enough, and there was an extensive selection of international IB schools to choose from. So, we moved from Cape Town to Chiang Mai in northern Thailand.
When politics turns everything upside down
I registered OTG Limited in Bangkok in accordance with regulations of the 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. Then a series of events occurred in 2005, that would lead the following year to a military coup and the eventual overthrow of the Thai government. Coalitions in Thailand wanted Thaksin Shinawatra, a Thai businessman who was democratically elected in 2001, to step down. Other proposed changes included 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 set up in a new 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 considered the tax implications and how each offshore jurisdiction varied, and chose to register OTG Limited in the British Virgin Islands because of my connection to the United Kingdom, which would make banking easier and because annual taxes were lower. Two years later I partnered with Booking.com, added new websites to my network and rebranded the company YayHotels.com.
Google’s Penguin & Panda algorithm updates in 2011/13, along with the huge advertising budgets of well-known brands in the travel industry, resulted in those big brands (TripAdvisor, Booking.com) crowding out smaller players, making it very difficult and uneconomical for small travel websites like mine to compete. It was the right time to consider other business opportunities.
When my son graduated from college in the USA, a few of his classmates came to stay with us in Thailand. For most, it was their first trip outside of the US. As I watched them posting and blogging about their travel experience, I discovered that none had secured jobs and that all were struggling with college debt. And that’s when I came up with the idea for YAYWORLD - a place where young people can monetize their creative skills by creating content for local businesses.
Knowing this was a good time to get out of the online travel market, I changed the name of the BVI company from YayHotels.com to YAYWORLD. Unfortunately, the shortage of IT skills in Southeast Asia, meant I had to again search for developers overseas. I chose a team of Drupal experts based in Russia and in 2016 was granted a Russian business visa, that allowed me to go work alongside them during the early stages of development.
This long 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 legal proceedings. 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. They all provide attractive tax structures designed specifically to attract businesses.