An offshore bank owned by Tory donor Lord Ashcroft has closed a large number of customer accounts and faced a wave of withdrawal requests after becoming increasingly caught up in a US tax-evasion crackdown, the Guardian has learned.
The value of deposits at Belize Bank International (BBI) shrank by almost three-quarters in the space of just six months, and confidential emails seen by the Guardian suggest some BBI customers have struggled to recover their cash.
So stretched is the position that BBI in April told a court in Belize that it could not pay a $3.3m judgment against it without liquid assets falling below the minimum amount required by law.
Ashcroft, 70, has a fortune estimated at £1.34bn after decades as an investor and deal-maker in businesses ranging from car auctions to cleaning services and offshore banking. Best known in the UK as the former Conservative party deputy chairman who fell out with David Cameron, the peer co-wrote last year a biography of the former prime minister notable for its allegations of debauched student years.
Ashcroft was awarded a peerage in 2000 at the request of the party’s then leader William Hague. It later emerged, however, that a promise he had reportedly given at the time – to relinquish his controversial tax exile arrangements – had not been kept for many years.
Ashcroft resigned from the House of Lords last year, but remains closely involved in British politics through his polling and publishing businesses. Ashcroft also owns the influential Tory website ConservativeHome, where he writes regularly.
Contacted by the Guardian, Ashcroft’s offshore bank BBI denied it was in crisis and said it faced a short-term problem. There is no allegation that BBI evaded tax, or that the bank knowingly helped customers to do so.
However, tough US anti-evasion laws have increased compliance costs for BBI’s partners, prompting Bank of America and Commerzbank to terminate relationships with the bank.
The departure of these partner banks has in many instances left BBI struggling to maintain basic services for account holders.
Adding to BBI’s woes, US tax inspectors revealed last September that they are investigating suspected evasion by some of the bank’s customers. The inquiry comes at an especially unhelpful time for BBI as it attempts to find replacement partner banks.
BBI confirmed that “certain deposits have been returned to customers”, and that the loss of partner banks was “an important development”.
“BBI is strong and very well-capitalised,” a spokesman said, adding that deposit withdrawals had in fact strengthened the balance sheet.
Asked about long delays on withdrawal requests, he said: “The bank is satisfied that it has fulfilled its obligations with expedition, and has done so effectively.”
However, according to documents seen by the Guardian, some customers have had to wait months for their money to be returned.
One was told last June that his account was being terminated and that he should provide final wire transfer instructions within eight days.
Four months later, BBI told the customer there were still “considerable delays” with money transfers because of the loss of partner banks. In March, he was told: “We are currently unable to complete or execute wire transfers … You are … welcome to visit us here in Belize to withdraw the funds in person.”
More recently, BBI has suggested a customer could alternatively reapply for a Visa credit card, which he could then use to withdraw funds in batches from a cash machine.
Another BBI account-holder to have complained of problems with money transfers was the Belizean arm of Mossack Fonseca, the offshore law firm at the centre of the Panama Papers scandal. The Panama Papers, obtained by Süddeutsche Zeitung newspaper, were shared through the International Consortium of Investigative Journalists (ICIJ) with the Guardian and other media.
Leaked emails show Mossack Fonseca sought advice from a local law firm in Belize last August about its BBI bank account.
The law firm replied: “BBI is closing all offshore accounts … It is a shock to us as well especially with the very short time line provided. It is the first time we are experiencing this type of situation …”
A spokesman for BBI said only selected accounts had been closed and this was part of a long-planned strategy.
“Of its own volition, and in common with many other financial institutions, BBI has been engaged in a de-risking programme for several years,” he said. “This has meant that … [certain] depositors’ funds have been repaid.”
In April, BBI bosses told the supreme court of Belize it had received unprecedented withdrawal requests.
Its chairman, Lyndon Guiseppi, explained that, while the bank was financially robust, there was a short-term squeeze on cash meaning it would struggle to pay a $3.3m court judgment.
He said: “If [the bank] has to make payments due under the order this will have serious consequences for the bank, the wider financial sector and the broader economy of Belize.”
Such a payment, Guiseppi added, would “stymie the bank’s ability to make payments to depositors, which the bank … is coming under increasing pressure to do so [sic].”
The crisis is blamed on big overseas banks terminating partnership arrangements, known as “correspondent banking relationships”, with BBI and other banks in Belize.
These relationships provide the means by which Belize’s offshore banks can provide services to its customers around the world.
According to credit ratings agency Moody’s, Bank of America and Commerzbank accounted for 80% of correspondent banking services in Belize until late last year.
Belize’s prime minister, Dean Barrow, has blamed the exodus of correspondent banks on draconian regulations and unsubstantiated smears from Washington.
“Current US policy is proving existentially damaging … to the [Caribbean] sub-region of which Belize is a member,” he has said.
“There are ... continuing statements classifying our jurisdictions as harmful tax havens. This is designed to put our offshore sector out of business.
“It is a kind of damnation by innuendo since no bill of indictment listing any specific instances of violation is ever offered. But the implication that doing business with us is fraught with risk is crippling our jurisdictions.”
Ashcroft, Belize and BBI
Ashcroft’s bank is one of the oldest in Central America, established in 1902 in what was then British Honduras. For 75 years the bank traded as a branch of the Royal Bank of Canada, which – despite its name – had extensive operations around the Caribbean.
In 1987, the branch was bought by Michael Ashcroft, the son of a British colonial administrator who had attended school in Belize before being sent to boarding school in Norwich. In 1990, in part after advice from Ashcroft, Belize passed laws creating an offshore financial centre.
Modelled on legislation in the British Virgin Islands, this was a bold move to attract investment into the country, newly independent but economically weak. At the same time, the government granted Ashcroft’s bank a 30-year special tax break, paving the way for BBI to prosper, catering to customers outside the country.
Since then, Ashcroft’s banking and related Belizean interests have become a mainstay of the tiny economy, in particular its financial services. Belize has a population of 350,000, more than 40% of whom live in poverty.
Ashcroft, who owns a colonial style home on the Caribbean seafront in Belize City, was made the country’s ambassador to the UN, and in 2000 was knighted by the Queen – who remains Belize’s head of state – for services to the local community.
While he is well known for his political donations in the UK, Ashcroft has also taken an active interest in Belizean politics, reportedly contributing financially to both main parties. As in the UK, he has on occasion fallen out with some Belizean politicians on specific issues, including the prime minister.
Together, Ashcroft’s main Belizean business interests are listed on the London stock exchange as Caribbean Investment Holdings (CIH), though three-quarters of shares remain under Ashcroft’s ownership.
In its latest annual report, CIH told investors that at the end of March last year its balance sheet was part-funded by $249m of customer deposits that could be withdrawn on demand. Of that sum, central bank data suggests, $102m was deposited by businesses and individuals with accounts at BBI. Since then, however, BBI deposits have dropped to £31m.
BBI does not disclose how many deposit accounts it provides, or where its overseas customers are based. The vast majority of deposits are thought to have been made in US dollars, with a much smaller amount in sterling and lesser sums in euros and Canadian dollars.
The CIH annual report, published last September, reassured shareholders that past experience suggested that customer deposits would remain “a long-term and stable source of funding”.