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 my startup YAYWORLD, ended up in the Panama Papers database.
We lived in Paris, and when my husband and I divorced in 1997, I had to quickly come up with a business plan to support my young family. One day I read about something called the ‘Internet’. It was my solution to working from home to take care of my two toddlers, so I promptly signed up with 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 a user of Michelin and Relais & Châteaux guides, creating an online guide of French hotels seemed a no-brainer. So I got together a group of local mums 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 quite exist yet, so I found a company in the US that could send the reservation details submitted via the website as a fax to the hotel. The website was subscription based and hotels paid an annual fee.
France was not 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 work from anywhere in the world, I looked at other 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 and walking with lions. So, we moved to Cape Town, where I founded a company called Internet Hotel Guides and launched a second website called SouthAfricanHotels.com.
The three big search engines at the time were Lycos, Yahoo and AltaVista. Keyword heavy urls dominated search results, ensuring my two websites ranked #1 for matching search queries. This caught the attention of a California startup called Worldres. They had developed an online booking engine and wanted me to join as an affiliate. Partnering with Worldres 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
In 2002, I also partnered with Sabre and Amadeus, two of the biggest global distribution systems in the travel, and WorldChoice Travel (later acquired by Travelocity). Users could now book cars and flights on our websites, 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 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 it on our websites. I needed skilled programmers to develop the application, but qualified programmers in South Africa were in high demand and working full time for larger companies. The only solution was to work remotely with developers outside of South Africa.
Online banking was in its infancy, and traditional 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.
Was I 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 money to overseas is required to provide justification for the transfer, and back then could only transfer money with prior approval from the South African Reserve Bank (SARB) – no matter how small the amount.
In 1999, Mandela stepped down as President and in the years that followed, government regulations grew more and more complicated. The new ANC leadership intensified bureaucracy and local authorities became increasingly corrupt. Crime was growing. It was time to leave.
Following the growing Asian tiger
In 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, and South Korea was still known for eating dogs! That left Thailand. Crime was low, foreign exchange regulations seemed simple enough, and there were lots of international IB schools to choose from. So we moved to Chiang Mai in northern Thailand.
When politics turns everything upside down
I registered OTG Limited in Bangkok 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 roots in 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 very difficult and uneconomical for small travel websites like mine to compete. It was time to look at other business models.
When my son graduated from college, some of his US classmates came to stay with us in Thailand. For most it was their first trip outside of the USA. 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 BVI 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 choose the right business structure for your company. Today, YAYWORLD is an American company operating out of the USA.