The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

THE deputy prime minister was “praying to God” that allegations connecting him to unproven claims of tax fraud and a worker’s wrongful dismissal would never emerge in The Bahamas.

K Peter Turnquest, in videotaped evidence given four months after the FNM’s 2017 general election victory, voiced fears that the “sordid detail” surrounding allegations made by a former employee of Fred Kaiser – the man now alleging the deputy prime minister “conspired” to defraud him of nearly $27m via sham loans – could be exploited by political opponents to damage both himself and the Government.

Those fears have now been realised, with details from a 2016 court case initiated by Yvette Bailey, a former senior international buyer for Mr Kaiser’s Alpha Technologies and affiliated companies, claiming that Mr Turnquest played a central role in both her firing and a purported scheme that violated US tax law. Some documents circulated widely on social media at the weekend.

Mr Turnquest, when contacted by The Tribune yesterday, declined to comment further on the allegations made by Mrs Bailey. “That case has been settled by a court of law. I have nothing more to say in respect of it,” he said in a message to this newspaper.

The deputy prime minister is correct in his assertion given that the federal district court in western Washington state, and the US ninth circuit court of appeals, have both dismissed Mrs Bailey’s claim that she was “wrongfully terminated” by Mr Kaiser and his business partner, Grace Borsari, after “she reported to them that they were committing tax fraud” in breach of US law.

Both courts, finding that Mrs Bailey had admitted she had no experience in tax matters, said she had failed to provide sufficient evidence that Alpha Technologies and its affiliates had violated US federal tax laws. And, because she had only reported her concerns to Mr Kaiser and Ms Borsari, rather than going public, she could not invoke the “whistleblower” defence to her dismissal.

However, both courts largely focused on the employment aspects of Mrs Bailey’s claim rather than the alleged tax fraud. Multiple court documents obtained by The Tribune allege that Mr Turnquest and the Bahamas-based Alpha Technologies affiliates, which he managed and ran on Mr Kaiser’s behalf, played a key role in this scheme as well as helping to engineer her dismissal.

In particular, Mrs Bailey claimed that Mr Kaiser and Mrs Borsari terminated her employment after receiving an August 21, 2015, e-mail from Mr Turnquest alleging that she and her husband had publicly bad-mouthed both the deputy prime minister and her employer while visiting Freeport just days before.

The e-mail, which was included in the court files, also claimed that Mrs Bailey and her husband had been asking where they could purchase drugs on Grand Bahama – a claim the former Alpha Technologies employee vehemently denied.

“I have had to count to ten many times before writing this and consider if it’s worth the aggravation, but in the end I must,” Mr Turnquest wrote. “I regret to advise that Yvette and her low-life husband have placed me in the unfortunate and embarrassing position of having to defend our good names, business and character in Freeport.

“It is most unfair that they have come to my home and, in one night, created more personal suspicion and risk to me and you than I have ever experienced; to the extent that even after mentioning our names as being connected to them inquired about where to secure drugs.”

Mr Turnquest, who was then in opposition as east Grand Bahama’s MP, told Mr Kaiser: “My information is that these two country hicks sat at the hotel bar last night getting drunk and making the most outlandish claims and accusations against me and what I do, you and our operation here...

“Fred, I don’t bother much, but these two were completely out of order based upon the level of credible details that were relayed to me... I am very protective of my name, the one thing my father was able to leave us and I am disappointed and resent that these two think that they could just say these very inflammatory things and make the serious accusations they did. It’s more than an insult to me and my family.”

Mrs Bailey, denying the assertions in Mr Turnquest’s e-mail, alleged they were part of a set-up to provide justification for her dismissal after she reported her “tax fraud” concerns to Mr Kaiser and Ms Borsari. The e-mail, and how he came to learn of what Mrs Bailey and her husband had said, were the focus of the September 25, 2017, video-taped deposition the deputy prime minister gave in Miami.

The deposition, the transcript of which has been obtained by The Tribune, revealed that Mr Turnquest was anxious that details about the case not leak out in The Bahamas. Responding to cross-examination by Mrs Bailey’s attorneys, the deputy prime minister said: “We had feared that this whole sordid detail would get out to the public and be used for a political purpose.

“It has not made the local news yet. I’m hoping and praying to God that it doesn’t... Let’s keep it that way. Don’t need that.” Mr Turnquest said he had also made clear he was not interested in testifying at a trial due to his position as deputy prime minister, adding that he had discussed the matter “with the attorney general back home,” meaning Carl Bethel, QC.

The Tribune was unable to obtain an answer from the Prime Minister’s Office yesterday as to whether the Government had been aware of the nature of Mrs Bailey’s case, and the allegations involving Mr Turnquest who – as in the instance of Mr Kaiser’s legal action – was not named as a defendant by the former Alpha Technologies employee or accused of wrongdoing.

In his deposition, though, Mr Turnquest – who confirmed that he still held a majority 70 percent equity stake in Sky Bahamas some four months after the general election – admitted he had heard the claims about what Mrs Bailey said fourth-hand.

He revealed that he was informed of the matter by Captain Randy Butler, Sky Bahamas chief executive and former business partner of both himself and Mr Kaiser. Mr Butler and his companies have been named as defendants in Mr Kaiser’s “bogus loans” writ while Mr Turnquest, despite being central to the allegations, has not.

Mr Turnquest, in turn, said Captain Butler had been informed of the Baileys’ comments by Rex Rolle, head of rival airline, Western Air. Mr Rolle’s informant was his nephew, Harvey Woodside, who worked in the bar/restaurant at the Pelican Bay resort where the Baileys had dinner.

Somewhat ironically, given the nature of Mr Kaiser’s allegations, Mr Turnquest twice stated in his deposition that he was informed Mrs Bailey had said she came to The Bahamas to investigate how Sky Bahamas had been using the Alpha Technologies chief’s money.

“She asked about – she said that she was there to investigate me because Fred had given me a lot of money to support Sky Bahamas, and she was there –- she felt that there was some misappropriation and she was there to protect Fred’s interest and she was doing an investigation on me. That’s the gist of it,” Mr Turnquest said, making his anger plain.

Mr Kaiser founded Alpha Technologies, which makes power products for the cable TV, communications and renewable energy industries, in 1975. The business expanded to offices in eight countries, with more than 2,000 employees worldwide and $500m in annual sales, according to media reports, before the business was sold to EnerSys, a global energy company, for $750m in 2018.

Mrs Bailey’s “tax fraud” claims centred on the practice of transfer pricing, which involves the sale of products or services between two companies that are part of the same corporate group.

This practice has come under increasing scrutiny from global tax authorities, given that large corporate groups and multinationals can use it to engage in artificial or contrived transactions where prices can be manipulated to shift tax liabilities to lower tax jurisdictions such as The Bahamas.

Mrs Bailey alleged that Alpha’s Bahamian subsidiaries, which were run by Mr Turnquest since he and Mr Kaiser first formed their business partnership in 1997, were involved in “reinvoicing” purchases of electrical products and components made by Chinese manufacturers for Alpha and its subsidiaries in a bid to lower the Washington-based company’s US tax liabilities.

Focusing on Alpha’s Bahamian subsidiary, Telecomponent & Supply (TCS), Mrs Bailey claimed: “It appears that defendants (Mr Kaiser, Ms Borsari and their companies) may have created an elaborate artifice to shelter their profits from US income tax. For instance, it appears purchase orders were ‘issued by’ a Bahamian company to a Hong Kong purchasing agent.

“Each of these entities appears to have been under the common control or affiliated with the defendants. This purchasing agent in turn obtained parts from Chinese manufacturers. The purchase orders purportedly issued by these Bahamian and Hong Kong companies were in fact issued by US staff in Bellingham, to the benefit of the foreign affiliates, and ultimately to the detriment of the US employer, in a purposeful effort to artificially reduce US tax burdens.

“Moreover, it appears that the final invoice issued by the defendants’ Bahamian accountants included artificial mark-ups for each international step (with each purported transaction) occurring in a low or zero tax jurisdiction.”

Mrs Bailey claimed that such “sham transactions” resulted “in the US corporation realising artificially low profits, due to massive and unnecessary fees being purposefully directed to various tax havens by the US enterprise”.

She alleged she had been told by Mr Kaiser that TCS’ gross profit margins on components sold to Alpha Technologies and its affiliates should not exceed 20-25 percent, which she interpreted as an instruction designed to ensure the group was not charged “with some form of tax fraud”.

However, in February 2015, Mrs Bailey alleged that profit margins on invoices coming from TCS in The Bahamas “showed high profit margins of between 50 percent to 75 percent”, which she brought to Mr Kaiser’s attention.

After being told not to put anything in writing, Mrs Bailey alleged: “A four-way teleconference was quickly arranged between plaintiff, Mr. Kaiser, Ms Borsari, and Mr Turnquest. The re-invoicing issues were discussed during which Mr Kaiser admonished Mr Turnquest for essentially not being more careful with the re-invoicing he was performing.”

However, a revised price list issued by TCS in July 2015 allegedly included mark-ups as high as 50-60 percent. This led Mr Kaiser telling Mrs Bailey to come to The Bahamas on the fateful trip so that she could meet Mr Turnquest and revise the price list – something she argued was not necessary.

The US courts appear to have not delved too deeply into the “tax fraud” claims beyond saying Mrs Bailey had supplied insufficient evidence. However, the emergence of detail surrounding the case is a further headache for Mr Turnquest as he seeks to ride out the political storm created by Mr Kaiser’s claims against himself and the naming of Captain Butler and Sky Bahamas as defendants.

The Tribune’s sources yesterday said a Cabinet meeting had been called to discuss the situation yesterday, with the Prime Minister having flown back from San Salvador on Sunday morning. The outcome was not disclosed, amid suggestions that Mr Turnquest will stand his ground especially after his defiant statement on Thursday night refuting all Mr Kaiser’s claims.

However, multiple observers, speaking privately yesterday and unwilling to comment publicly, said the nature of the allegations by Mr Kaiser – fraud, financial irregularities and accounting improprieties – would make it increasingly difficult for Mr Turnquest to remain as minister of finance given that they directly impact his credibility as the nation’s chief financial officer and tax enforcer.

While the deputy prime minister has denied the accusations, and is innocent until proven guilty, the same observers said the matter threatens to be a big distraction that will overshadow the Government’s remaining tenure while giving the opposition Progressive Liberal Party (PLP) ample ammunition to use.

They also argued that it could impact The Bahamas’ dealings with the international credit ratings, plus the likes of the International Monetary Fund (IMF), Inter-American Development Bank, European Union and Organisation for Economic Co-Operation and Development (OECD).

“This will hang around like a black pall over the Government until the next election,” one observer said.