By its own financial filings and company statements, Pacific Andes International Holdings (PAIH) generated some HKD 12.5 billion ($1.61bn) in 2014, making it the world’s 13th largest seafood company by sales.

The problem is, that simply wasn’t true, liquidators who have spent years investigating the group’s internal financial records say.

“All evidence available to us, which is substantial, indicates these trading businesses to have been, largely, if not entirely, fictitious given (among many reasons) there is simply no evidence that any party paid money to any company that could have supplied fish,” representatives of the firm FTI Consulting wrote in a report filed earlier this week to a New York bankruptcy court.

And the results of an extensive trade finance fraud based on a “largely fictitious” contract supply business involving Russian pollock trading that allegedly saw billions in funds borrowed from banks and circulated around through a series of interconnected PAIH subsidiaries and purportedly independent “agent” companies resulted in big benefits to the Hong Kong-based Ng family, PAIH’s owners, the liquidators said.

Specifically, FTI, which has been appointed by a court in the British Virgin Islands (BVI) as the liquidator of 11 PAIH-linked subsidiaries and agents, believes that the Ng family saw at least $158 million in benefits from the extensive trade finance fraud. This included HKD 508m from dividends, HKD 27m in salary in 2017 alone to six family members, an additional HKD 460m to an Ng family affiliate company, Teh Hong Eng, between 2013 and 2015, and the mortgages for the homes of PAIH’s former CEO, Ng Joo Siang, and its chairwoman, Teh Hong Eng.

“We expect there will likely be material other benefits received by the Ng family in addition to those identified above,” the liquidators wrote.

For their part, the Ng family and representatives of PAIH have repeatedly denied allegations that they committed fraud calling them “without merit” and saying they will be “vigorously defended”. PAIH has engaged the firm RSM Corporate Advisory, which recently conducted a forensic review of the company’s finances. A draft of that report has been completed but yet hasn’t been made public or provided to FTI.

“The claims made amount to a series of unproven allegations which are yet to be established before any court,” PAIH said in a statement to Undercurrent. “This is just one more example of the vendetta being conducted against the group by FTI, ever since the Hong Kong High Court dismissed forthwith the appointment of joint provisional liquidators based on a report prepared by FTI in 2014.  The current allegations are similar to those in the 2014 report.”

Alleged fraud

According to the liquidators, though, the alleged fraud involved circular flows of funds in each of the group’s trading and distribution businesses across the group’s three main arms: PAIH, China Fishery Group and Pacific Andes Resources Development.

These businesses, prior to China Fishery’s move into Peruvian anchovy catching and the 2013 acquisition of fishmeal producer Copeinca, provided the bulk of PAIH’s profits on paper, the liquidators said.

The monies provided by creditors to PAIH subsidiaries flowed in a circular pattern between the subsidiaries and purportedly independent “agent” companies that reportedly sold fish to Pacific Andes, the FTI liquidators, which are overseeing 10 British Virgin Islands-registered PAIH subsidiaries and agents, alleged.

“Trade finance raised by PAE and Europaco was paid to the CFGL Trading Companies and CFIL by Solar Fish, Palanga and Perun, whilst the majority of trade finance raised by PAE was circulated back to it, certain of which was paid to Nouvelle in the PAIH Group. As such, cash could be moved around all three parts of the group whilst recording fictitious sales, purchases and assets as a result,” the liquidators said.

Company’s history

For the first several years of its existence, Pacific Andes wasn’t directly in the fishing business itself. The patriarch of the Ng family, Ng Swee Hong, started a seafood trading firm in western Hong Kong in 1986. According to a 2007 Forbes magazine interview with Swee Hong’s son, Joo Siang, the family left their native Malaysia in 1963 for Singapore. There he built a business empire that traded rice, seafood and other commodities and chartered cargo vessels. But the business crashed in the early ’80s leaving the family millions in debt, according to Forbes.

After moving to Hong Kong, the family started Pacific Andes to trade frozen seafood in Asia.

Then it began buying shrimp, squid and scallops from Chinese coastal fishermen and selling them in US and European markets. But shrimp markets were volatile and the Ngs saw another opportunity — supply chain management for Russian fishing companies in the Sea of Okhotsk and the Bering Sea.

In exchange for providing ship repair, oil supply, provisioning and financial services to the Russian vessels, Pacific Andes received a “steady supply” of frozen pollock it could sell in mainland China.

“These irreplaceable relationships continue to grow as proven by our track record over the past seven years,” the company said in a 1996 annual report.

Pollock shift

With its supplies secured, Pacific Andes began developing a processing operation in mainland China and exporting pollock fillets to the US.

As the company grew, it began to raise capital offering shares in the group’s parent company, PAIH on the Hong Kong Stock Exchange in 1994. Two years later, the group’s resource development and trading arm, Pacific Andes Holdings, issued shares on the Singapore Stock Exchange.

The funds fueled expansion both upstream — the trading arm’s HKD 128m capital raise funded the purchase of two deep-sea supertrawlers and two factory vessels to allow for at-sea pollock processing — and downstream by enlarging distribution networks in China and funding the purchase of a 60% stake in Gloucester, Massachusetts distributor National Fish and Seafood, which had experienced financial troubles.

With the purchase of a subsidiary, Sea Glory, and the payment of $5m, the group purchased two 100-meter-long deep sea super trawlers, the Aniva and the Efim Gorbenko, which was renamed the Gloucester. Both vessels were sent down to the South Pacific near New Zealand waters, the group said in the 1996 report. Additionally, the purchase of another subsidiary, Maritime Pacific Investment Group, brought with it two 200-meter factory vessels, one for the North Pacific and one for the southern ocean. Together the vessels added 60,000 metric tons of production capacity to Pacific Andes.

Additionally, the group began boosting its shore processing capacity in a major way with a HKD 273m investment to expand a massive Qingdao, China factory allowing it to process 80,000t of fish annually.

Illegal fishing

Those investments boosted the company’s volumes and revenues. PAIH’s revenues hit HKD 1.18bn in 1996, a figure that would rise to HKD 3.55bn by 2004. Frozen fish trading — predominantly to China — remained the group’s focus aside from a small shipping business, the creation of a food safety lab in China and the purchase of a sideline operation that traded in frozen vegetables.

But questions arose about the group’s possible ties to illegal toothfish harvesting in the Southern Ocean.

On Sept. 30, 2002, the Australian Broadcasting Corporation’s Four Corners, an investigative news program, broadcast “The Toothfish Pirates”, an expose that alleged members of the Ng family were the masterminds of “an international criminal syndicate” that was systematically poaching the fish. The report cited the Australian Navy’s detention of two Russian-flagged boats, Lena and Volga, both which were accused of illegal fishing. Officials seized over 200t of toothfish. Investigators determined that the vessels were receiving services from Sun Hope Investments, an Indonesian-based company that included Ng Joo Siang and Ng Joo Thing — both of who also serve on PAIH’s board — as directors.

The journalists from “Four Corners” asserted that the Lena and Volga belonged to a fleet of illegal vessels dubbed the “Alphabet Boats”, that they said also had links to Sun Hope and the Ngs.

And according to the Coalition of Legal Toothfish Operators, the ownership of the illegal fishing fleet had been shielded from public view using “dummy corporations” in locations such as Belize, Bolivia, Russia and the BVI.

After the toothfish poaching allegations stirred up the significant negative press, Pacific Andes responded in an Oct. 3, 2002 statement asserting that the group neither owned nor operated the Alphabet Boats. All of the fish that the group purchases is bought from captains who have proof of its legality, it said, adding that Pacific Andes had sold off all of the group’s vessels in 1998.

The health of toothfish stocks, however, has rebounded since the crackdown on illegal fishing, which has bolstered prices for legal harvesters.

China Fishery’s rise

Even though Pacific Andes had exited the fishing business by 1998, it said, concentrating instead on seafood trading and processing, by 2003 it was eying a way back in through acquisition. On Jan 7, 2004, Pacific Andes announced that was becoming the 70% owner of a joint venture alongside a subsidiary of CNFC International Fisheries Corporation, a Chinese-government owned fishing company that operated 240 vessels. Armed with $15m, the new venture, Zhonggang Fisheries, was an investment vehicle that two-and-a-half months later would buy a 49.9% stake in China Fishery International, which operated and managed a 35 vessel fishing fleet and had $55m in revenues in 2003.

The common link between CNFC, China Fishery and Pacific Andes was a then-54-year-old Chinese marine engineer named Sung Yu Ching, whose company Jade China originally developed China Fishery. Sung worked aboard cargo vessels and oil tankers for decades before switching to become a manager of fishing operations in the late 1980s, according to a bio offered in a 2006 securities offering made by China Fishery. In the 1990s while working for a Taiwanese company that repaired Russian-owned fishing vessels Sung “established business relationships with fishing vessel owners,” the bio states.

Sung was later asked to become a consultant to develop the state-owned CNFC’s vessel operations off the coast of East Africa. To do that, Sung formed a company, Jade China, which in turn created China Fishery.

Perun and CNFC

The new acquisition brought to Pacific Andes greater access to pollock, herring, squid, hake, halibut and Pacific cod from the North Pacific.

China Fishery didn’t directly own any vessels itself but since 2001, China Fishery had done business with a BVI-registered company Perun, that, according to the 2006 IPO document, was “owned by a group of fishing vessel owners”.  As part of a vessel operating agreement with the company, China Fishery bought the catches from each of Perun’s seven vessels in the North Pacific for $11,000 per day, per vessel and a fifth of the profits.

A separate agreement with a CNFC subsidiary, CIFHK, allowed China Fishery access to another 27 vessels that harvested from the Atlantic and Indian oceans.

China Fishery employed 632 crew and officers aboard the vessels but the crafts themselves and the quotas were owned by its partners. China Fishery relied on the distribution networks controlled by Pacific Andes and CNFC to sell its products.

Perun, the IPO document stated, was a longtime vendor to Pacific Andes, having first sold pollock and other fish to the group in 1998, a sales volume that totaled around $30m annually.

Of China Fishery’s two supply partners, Perun would soon become the more important one due to a sharp rise in the price received for pollock roe, the IPO document states.

Those sales — and massive payments to Perun, as well as a second supply partner, Alatir Limited — would grow over the next decade before grinding unexpectedly to a halt in 2012 amid a bitter dispute with the Russian government.

But by the end of 2004, China Fishery came to a new agreement with Perun. In exchange for the pre-payment of $56m, Perun agreed to deliver fish over a 10-year period, negating the need to pay a per-vessel, per-day fee. Those prepayments would rise substantially even as PAIH would focus its business more and more on Peruvian anchovy catching and processing, a goal furthered by the 2013 purchase of Norway’s Copeinca.

But Perun and Alatir weren’t the only agent companies allegedly involved in the trade finance fraud.

According to FTI, on Jan. 13, 2017, one PAIH subsidiary being liquidating in BVI courts, Pacific Andes Enterprise (PAE), claimed that PAIH and other affiliates, owed it a substantial but unspecified amount of money because PAE raised over $845m to pay three BVI-registered companies Solar Fish, Zolotaya Orda and Palanga in order to buy fish. However, those funds were instead “circulated” back to PAE through a network of affiliated companies to give the appearance of revenues, the FTI liquidators said in January 2017.

In an April 28, 2019, filing they updated the claim to allege that PAE, as well as another PAIH unit, Europaco Limited, also raised trade finance ostensibly in order to buy fish from three other firms — Metro Win, Perun Limited and Alatir Limited. Over $5.3bn, not $845m, was raised in this way, court documents from the liquidators suggest, citing an inquiry that looked at 1,500 transactions.

Solar Fish, the liquidators suggest, was listed as a major customer in the group’s annual reports, but this, they said, is misleading.

“It is highly likely these amounts were recorded as customer receipts from purported (but fake) sales to Solar Fish and simply allowed the group to move cash from one part of the group to another while recording fictitious revenue and profits,” the liquidators wrote in the April 29, 2019, response to the New York bankruptcy court.

As part of the alleged fraud, the cash paid by Solar Fish to Protein Trading and the other group companies was received from trade financing, mainly by PAE and Europaco.

Instead of sourcing fish for supply to the group, “substantial payments” made to Solar Fish by lenders of PAE and other group companies through trade finance facilities were largely paid to another connected company, Hangzhou, rather than to Russian fishing companies as is claimed by the former directors, FTI said. “Hangzhou then on-paid the funds to Parkmond and PAE, Solar Fish appears to be a shell company used to perpetuate the circular transactions that have no commercial merit.”

The former directors and shareholders of Solar Fish, Alexey Sha and Nikita Demine, are also understood to be former employees of Pacific Andes group, the Feb. 13, 2018, investigative report states.

In the amended complaints, FTI said it has “limited information” indicating how these payments might have been recorded in the records of these group companies. However, the entities were described in the Pacific Andes group’s annual reports as being agents for the sales of fish and representatives of the group have indicated Solar Fish to be a “major customer”, FTI claims.

“As such, it is highly likely these amounts were recorded as customer receipts from purported (but fake) sales to Solar Fish and simply allowed the group to move cash from one part of the group to another while recording fictitious revenue and profits,” it’s alleged.

“Substantial interest and other operating costs were incurred in relation to these trade finance facilities, despite no legitimate profit being produced,” FTI claims.

Then, trade finance debts were also then repaid, and new trade finance applications made on a regular basis in order to “continue perpetrating” the fraud. “As such, funds raised through trade finance were circulated in a continuous loop subject to leakages of funds to certain of the Ng family companies, the payment of dividends (which the Ng family benefitted from) and other business costs.”

Back in late 2016, when the FTI liquidators’ initial investigations identified the circular funds flow in relation to PAE, Solar Fish, Hangzhou and Parkmond, they sought explanations from Ng family, the document claims. “These Ng family members indicated via their solicitors that a comprehensive response regarding the funds flow would be provided, but no such explanation has ever been received.”

The FTI executives have also requested that the directors or former directors of the group entities subject to liquidation, who are largely members of the Ng family, provide records as required by British Virgin Islands law, the amended claim states. “Except for one entity, no records have ever been provided. In April 2017, the Ng family indicated through their solicitors that relevant records were being identified, but no records were ever provided and further inquiries on this request were never answered.”

Contact the authors tom.seaman@undercurrentnews.com, jason.smith@undercurrentnews.com

Source: https://www.undercurrentnews.com/2019/05/02/report-amid-allegations-of-massive-fraud-ng-family-received-158m-in-benefits-from-pacific-andes/