Inside the shell: drugs, arms and tax scams

On December 11, 2009, a former Soviet air force transport plane flying from North Korea to Iran stopped to refuel in Bangkok. The flight listed its cargo as spare parts for oil-drilling equipment. Instead police found 30 tonnes of explosives, rocket-propelled grenades and components for surface-to-air missiles, all being transported in breach of United Nations sanctions.

Three months later in a Miami courtroom, the United States Department of Justice revealed the country's largest money-laundering scheme involving billions of dollars from Mexican drug lords.

Thai security personnel surround the cargo plane loaded with smuggled weapons at Bangkok airport on December 12, 2009. Photo: Reuters

Then, late last month, documents emerged in London concerning Russia's largest tax fraud, an alleged $US230 million heist that led to the untimely deaths of four people and threatens to damage the Russian government.

The story behind the three events is many degrees stranger than fiction, but it includes one common element - a number of shell companies associated with 68-year-old Queensland businessman Geoffrey Taylor or members of his family.

Man of many hats ... Taylor in academic garb for a Southern Pacific University graduation ceremony.

Shell companies - that is, corporations with no apparent operations, no apparent employees and no apparent physical assets - are used by those who register them for a range of nefarious activities around the world.

Thanks to loose laws of incorporation in many jurisdictions, it's easy for offenders to remain anonymous. And the entities can often be formed in less than 24 hours using online facilities. It is not just criminals that take advantage. The Tax Justice Network, an international group of individuals opposed to tax havens, estimates that about $11.5 trillion worth of assets are held offshore and are therefore beyond the reach of effective policing. It claims this represents about a third of total global wealth.

Within this context, Taylor has led an astonishing double life. Publicly, he has served as a company director and chairman of sharemarket-listed companies both here and in New Zealand. Privately, his shell company structures are used by those behind them in a vast and covert game of hide-and-seek, through his clients' incorporation of thousands of entities, some of which later became involved in the international movement of oil, guns and money.

And, perhaps most extraordinarily, he seems to have done it without breaching the law.

"Russian Watergate" ... Sergei Magnitski.

Taylor states he is now retired; he did not respond to repeated attempts for comment for this article. But he continues to go by several aliases and titles - Professor Geoffrey Taylor, Sir Geoffrey Taylor, Lord Stubbington and as high representative to Vanuatu. In the photo on his personal website his hands remain busy, projecting the cerebral intensity of a dinner-suited trusted elder. It is only by reading on that you get an inkling of his oddball self-confidence. ''Geoff Taylor is well respected as an innovator … He is not afraid of you viewing his personal website, because he has much to be proud of.''

Taylor writes, in the third person, of how in his native Britain he attended grammar school and achieved top-of-the class status, ''which was an indication of things to come''. He tells of his migration to New Zealand in 1964 and how he studied part-time to gain two degrees and a PhD.

But the degrees he boldly displays are from a discredited internet-based university registered in the US tax-haven state of Delaware. The doctorate is from Southern Pacific University, another net university headed by Geoffrey Taylor himself. By his own admission on the university's website, this is the origin of his professorship.

In 2003, the same year Taylor graduated and shortly before he was appointed as its president, Southern Pacific University was closed by a US court order after it was found to be operating illegally out of Hawaii. It is now based in the tax haven of Saint Kitts and Nevis, the smallest nation in the Americas, and in the tiny Central American tax haven of Belize, and offers degree programs for about $3750 and doctorates for $7500.

Taylor's immersion in and knowledge of the world of tax havens appears to stem from his many years working in Vanuatu, a small, earthquake-prone, tax-haven island in the south Pacific Ocean, about 1750 kilometres from Australia. Taylor operated from the capital, Port Vila, which put in its proper perspective is about the same size as Goulburn.

From 1997 until 2002 Taylor served as vice-president of European Bank, a Vanuatu-based company that was no stranger to controversy. In 1999, US authorities accused the bank of accepting millions of dollars in deposits that turned out to be the proceeds of a massive credit card fraud.

In a separate action, a former director of the bank, Robert Bohn, was later convicted of racketeering in the US for his part in an alleged $US100 million lottery scam that included Australians among its victims. Though there is no suggestion Taylor was involved in any illegality, throughout 2000 he was busy offering his services to sharemarket-listed firms in Australia in preparation for his eventual relocation to Southport in Queensland.

''Would you like to add stature and credibility to your company by appointing someone with both an English title and substantial qualifications to your board? Lord Stubbington is available,'' reads a letter circulated by Taylor's wife, Priscila Lustre Taylor.

His claimed mark of esteem - Lord of the Manor of Stubbington - is the sort of feudal title that can be bought in Britain, The Sydney Morning Herald reported at the time. Nevertheless, Taylor joined the board of the sharemarket-listed Australian property development firm Sabina Corporation Limited. He served two separate terms as a director, the second in 2006.

The origins of Taylor's knighthood and his diplomatic career as high representative to Vanuatu lie in Hutt River Province, the third place where his university was, until recently, registered. Hutt River, population 30, is little more than a tourist curiosity sprawling over 75 square kilometres of farmland in a remote part of Western Australia.

Forty-one years ago, the owner, a sheep and wheat farmer called Leonard Casley, declared the land independent from the rest of Australia. Since then, Hutt River has issued its own fantasy passports, currency and stamps, featuring portraits of Casley and his wife Shirley. As head of the so-called principality, Casley is known formally as His Majesty Prince Leonard I of Hutt and he bestows knighthoods on loyal subjects, some of whom - like Taylor - claim to act as his diplomatic envoys.

From as early as 2004, Taylor - with the Australian Prudential Regulation Authority monitoring him but unable to detect anything illegal - began promoting Hutt River as Australia's very own tax haven, drafting a set of commercial and banking laws for the make-believe nation. He offered to incorporate international business companies in Hutt River and to sell banking licences and gambling rights to offshore internet companies that wished to base their virtual casinos, lotteries and sports betting operations there.

''Few people are aware of the existence of HRP Principality, but this independent sovereign state is the size of Honk Kong [sic],'' read a press release issued by Taylor's Vanuatu-based GT Group. ''Maximum tax for 20 years is fixed at only 100 Euros per annum … Best possible privacy is assured.''

Casley says Taylor has since been stripped of his knighthood, his diplomatic position and his Hutt River citizenship. ''There was no one incident at all - just general things that he was doing,'' Casley explained. ''I don't wish to go into it deeper.''

But until the planeload of arms was intercepted in Bangkok, the joke was firmly on international authorities who, hindered by weak legislation and the problems caused by multiple jurisdictions, failed to take the activities of Taylor seriously.

By then Taylor's name, and the names of family members and associates, began to appear in hundreds and possibly thousands of companies that were formed around the world, mostly centred on tax havens. Their vast empire of directorships spread across Panama, New Zealand, Vanuatu, Britain, Hong Kong, China, Canada, Belize, Samoa, the Cook Islands, and the US, among others.

In many cases, the nominal ownership could be linked back to Taylor's Vanuatu-based GT Group, the origin of whose name can be found in his initials.

''GT Group of Companies is dedicated to providing an extensive range of offshore company services for privacy, legal tax avoidance, asset protection, financial independence and freedom,'' it advertised. ''Even where there is no legal obligation on you to maintain full accounting records, or have your accounts audited, we find some clients prefer these to add credibility to their activities.''

In Australia, Taylor formed a number of companies, including Fin Net Pty Ltd in 2006. It offered a range of financial services from ''highly ethical, skilled and experienced professionals''. One of the founding partners in the Fin Net enterprise was Colin Roderick McAskill. Three years earlier, McAskill had been sentenced to six months' jail in the Melbourne County Court after being charged by the Australian Securities and Investments Commission over several failed ostrich, beef and educational investment schemes that cost investors more than $6 million.

Though there is no suggestion of illegality on his part, what Taylor had discovered was the ability of the offshore financial system to deliver almost absolute discretion to his clients, and the inability of law-enforcement agencies to prosecute those who take advantage of that weakness.

The global arms-smuggling network feeds on this frailty, just as it feeds on the cast-off planes and pilots of the former Soviet Union. Adding to the intrigue over the seized flight 4L-AWA in Bangkok was that the Ilyushin-76 transport plane once belonged to a number of notorious international weapons dealers, including Viktor Bout - the so-called ''merchant of death'' and inspiration for the 2005 Hollywood movie Lord of War. The plane's current owner was an entity with headquarters in the United Arab Emirates but operated by Air West Ltd, based in Georgia. Air West had leased the aircraft to a New Zealand firm called SP Trading through a series of bank accounts in Estonia and New York.

SP Trading had been incorporated only months earlier, on July 22, 2009, by Taylor's son, Michael Taylor, and appeared to have no other purpose. Its only shareholder was VicAm (Auckland), which shared an address with SP Trading at a rented Salvation Army-owned building in Auckland.

SP Trading's sole director was a rather naive employee of a Burger King fast-food restaurant, a Chinese national called Lu Zhang.

Lu was the wife of an accountant who worked for the Taylors. She held the position of director in at least 50 other companies, many of them registered to the same Salvation Army-owned building at Level 5, 369 Queen Street, Auckland. She later told New Zealand media she had accepted about $NZ20 ($14.80) for each of her many directorships.

It further emerged that VicAm (Auckland) - in which Geoffrey Taylor was the controlling shareholder until September 2009 - was also the sole nominal shareholder for more than 1000 other companies formed by the Taylor family in New Zealand.

Among these, Sumato Energy Group had appeared from nowhere in late 2008 to win a contract to ship 1 million barrels of Azerbaijani crude oil, worth $US75 million. Another New Zealand firm, also with no history of doing such business, won a lucrative public service contract in Romania.

After the plane was seized, the captain and his crew, four Kazakhs and one Belarusian, were arrested and charged. But the men pleaded their innocence and were eventually deported.

The Taylors, too, said they were blameless. In a press release issued in New Zealand by Ian Taylor - another of Geoffrey's sons - he explained GT Group's role was simply to incorporate and to act as a registered agent for SP Trading ''at the request of one of our professional clients based in the United Kingdom''. It was not responsible for and had no knowledge of what the company got up to.

As no law was broken, the authorities had no choice but to agree.

There was little they could do, either, when only weeks later the GT Group was linked to the biggest money-laundering operation in US history.

Wachovia Bank - now a subsidiary of the global financial giant Wells Fargo - was fined $US160 million for helping to disguise the illegal origins of up to $US378 billion for Mexican drug lords.

The penalty was the result of a long US Drug Enforcement Administration investigation that uncovered multimillion-dollar transfers from Mexican currency exchange houses to the Wachovia sub-branch in Miami - money that was used to buy planes for cocaine shipments. Much of the money originated from the Sinaloa cartel, the fiercest protagonists in the Mexican drug war in which more than 28,000 people have been killed since 2007.

Last year police intelligence sources told Fairfax newspapers and the ABC's 7.30 Report that about half the cocaine now entering Australia was being sent from Mexico, and that the Sinaloa cartel was behind many of the shipments.

During the court proceedings it was alleged that four New Zealand firms registered by the GT Group - Keronol Ltd, Melide Ltd, Tormex Ltd, and Dorio (NZ) Ltd - helped launder about $40 million of the proceeds using Latvian bank accounts and Wachovia's London branch.

The US investigation provided a suggestion that the Taylor name was linked to an infinitely wider and more complex global network.

The sole director of each of the NZ firms was Stella Port-Louis, who has an address in the Seychelles. She appears as the director of more than 300 other New Zealand companies, many of them registered by one of the Taylors at Queen Street in Auckland.

In 2007, Port-Louis was singled out by US President Barack Obama - then a senator - for the way she headed up at least 100 companies in the US state of Wyoming when he warned of ''serious problems confronting law enforcement as a result of minimal company ownership information requirements''.

Though the Taylor family was again found to have broken no laws, the matters drew attention to at least one of their other businesses.

Geoffrey Taylor was the founding chairman - and he and his family were major shareholders - of Sunseeker Energy (Australasia), a solar energy company that traded on the secondary sharemarket in New Zealand. At its height, the company - whose chief executive was McAskill, the Melbourne businessman sentenced to six months' jail in 2003 - was valued at $NZ18 million and it had a number of related entities. They included Sunseeker Energy (Australia) that operated from Melbourne and the Swiss-registered Sunseeker Energy Holding AG that operated out of Hong Kong, but was listed on the Frankfurt stock exchange in 2009 at a purported 1 billion euros.

In April last year, New Zealand authorities cancelled the public listing of Sunseeker Energy (Australasia) for what it described as ''repeated infringement of the rules'', its ''failure to provide any information to the NZAX market regarding its business or operations'' and the firm's ''own admission … that it is insolvent''.

Geoffrey Taylor has recently changed his personal website to reflect the claim that he is now retired. The Australian-registered Global Finnet Pty Ltd - a continuation of the original Fin Net - has also posted a notice saying it would soon have new owners.

But the firm that carries Taylor's initials - the GT Group - continues to advertise its wares out of Vanuatu and continues to attract controversy.

The business magazine Barron's reported that late last month documents emerged out of London that linked a shell company called Bristoll Export, registered in New Zealand by GT Group, to a scandal that some commentators claim has the potential to be Russia's Watergate.

It centres on Russia's largest tax fraud, which occurred on Christmas Eve, 2007, when Moscow tax officials approved a same-day refund of $US230 million to a gang masquerading as representatives of Hermitage Capital, once the largest portfolio investor in Russia.

The money was funnelled through accounts at Citibank, JPMorgan Chase and Credit Suisse via a series of shell companies, one of which was allegedly Bristoll Export.

Four of the six people said by police to have pulled off the fraud are now dead. One had a fatal heart attack. A second fell from his balcony. The third plummeted out of a penthouse window.

The fourth was Sergei Magnitsky, a 37-year-old lawyer for Hermitage Capital who died in prison after he provided evidence that the money had been stolen by a ring of corrupt tax officials, police and career criminals.

But instead of prosecuting those Magnitsky accused, Russia's interior ministry charged him with the crime and exonerated the cops and the tax officials.

The case may have ended there, but Hermitage's London-based chief Bill Browder devoted himself to pursuing those he holds responsible for the original crime and Magnitsky's death. In English and Russian website campaigns, Browder has presented evidence that he says proves the tax heist was an inside job.

The case has become one of the biggest headaches faced by Russia's government because it is said to have the potential implicate many of those in authority. A recent commission, appointed by Russian President Dmitry Medvedev, found that police fabricated charges against Magnitsky.

New Zealand company records show that snuggled up inside Bristoll Export is yet another shell company that can be traced via Panama to an unrelated offshore banking firm in Cyprus operated by a former Russian diplomat.

Further evidence, perhaps, of an even more impenetrable labyrinth.

Investigative reporter and author Gerard Ryle is deputy editor of The Canberra Times.

gerardryle@gmail.com