Tag UK

Offshore in central London: the curious case of 29 Harley Street

On a central London street renowned for high-class healthcare sits a property that houses 2,159 companies. Why has this prestigious address been used so many times as a centre for elaborate international fraud?

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No 29 Harley Street does not look like a centre of intricate intercontinental fraud. It is a handsome stone-fronted terraced house, a couple of minutes’ walk from the shops and the tourists of Oxford Street. It is five storeys high, with a bay window on the ground floor, an intricate steel balcony at first-floor level, and a stone balustrade just under the roof. Its front door is dark wood, with brass fittings.

As soon as companies were involved in owning other companies, as well as being their directors and secretaries, it became extremely difficult to discover who really controlled them (ie who was the “beneficial owner”, the person who received any benefit from the company). In February 2004, for example, Formations House created three companies: Corporate Nominees, Legal Nominees, and Professional Nominees. The second company owns the other two, while itself being owned by the first company. The third company is secretary for the other two, while its own secretary is the first company. The second company is director of the other two, while its own director is the first company. These three companies then became directors, secretaries and shareholders of other structures, in an increasingly baffling multidimensional web of crisscrossing lines of control. If you looked for the companies’ real owners, the most you could eventually discover was that the original three all owned, controlled and managed each other.

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Tax avoidance takes centre stage in UK election (Part 2)

In late January, this writer was enjoying a drink offered by a large UK-based asset manager during the World Economic Forum in Davos, discussing how this particular group would manage a mooted emerging markets private equity fund, and specifically how it would avoid inadvertently passing money to the cronies of corrupt regimes in its target markets.

Up stepped a well-dressed young man who presented himself as a minister of the UK government, and said corruption was part of his mandate. I asked him whether his government was looking to prevent corruption or facilitate it.

It seemed like a reasonable question, given the current and previous UK governments’ culpable lack of action on the misuse of Limited Liability Partnerships; the current government’s use of PricewaterhouseCoopers as an advisor on the redrafting of UK tax law in 2012 when PwC was already known to have advised countless companies on how best to minimise their UK tax by using pass-through companies in Luxembourg and other artificial structures; and its repeated backtracking on the non-dom issue discussed in Part 1.

Twice during the conversation the minister assured me that his government would ensure LLPs were obliged to have named owners, perhaps even before the end of the current legislation. The minister concerned was asked by email dated March 13 to confirm his Davos comments, but did not reply, presumably being too tied up with his election campaigning. Which is why we have not identified the minister in question…

As noted in Part 1, UK journalist and former tax inspector Richard Brooks documented much of the misuse of UK companies in a 2013 investigation published in the satirical UK fortnightly Private Eye, yet UK business secretary Vince Cable had until recently continued to deny that abuses are facilitated by the fact that offshore companies can be directors or owners of UK LLPs.

The U.S. and UK governments have been aware of the potential misuse of shell companies, often in the form of Limited Liability Partnerships or Companies, for some time. For example, in a November 2006 paper entitled “The Role of Domestic Shell Companies in Financial Crime and Money Laundering: Limited Liability Companies,” the U.S. Department of the Treasury Financial Crimes Enforcement Network noted in a November 2006 paper that:

“By virtue of the ease of formation and the absence of ownership disclosure requirements, shell companies – generally defined as business entities without active business or significant assets – are an attractive vehicle for those seeking to launder money or conduct illicit activity.”

“While business entities generally, and shell companies specifically, have legitimate commercial uses, this lack of transparency in the formation process poses vulnerabilities both domestically and internationally,” the paper said. The U.S. has however backpedalled on curbing any such abuse when it comes to, for example, companies registered in the state of Delaware, a tax haven to all intents and purposes.

The UK’s role in international crime

Similarly, UK-mandated Limited Liabilities Partnerships are open to all kinds of abuse, according to an article, “Where there’s muck… there’s brass plates” by Richard Brooks and Andrew Bousfield, published by UK satirical magazine Private Eye in May 2013.

Notes the article, “the world’s most corrupt, least transparent companies are not located in fragile states or faraway tax havens. They are to be found here, in offices across the UK from Clapham to Cardiff, facilitating the most serious international crimes while the government ignores one of Britain’s few growth industries: corporate corruption services.”

The journalists cite “the historic relaxation of British company law, and almost non-existent regulation and financial policing that has turned Britain into a capital of international organised crime.”

UK legislation allowing Limited Liability Partnerships was passed in 2000 and came into effect in 2001, at more or less the same time that the backlash from the Enron scandal definitively knocked out accountancy firm Arthur Anderson, reducing the big five accountants to the big four of KPMG, PricewaterhouseCoopers, Deloitte & Touche and Ernst & Young.

One of the effects of the legislation was to circumscribe the liabilities of single partnerships within services companies like international law or accountancy firms, in order to ensure that such groups cannot be destroyed by the misbehaviour, however egregious, of a single subsidiary.

This protects the central brand, making each subsidiary responsible for its own actions, but it can also have the effect of diluting corporate culture, as some subsidiaries may take decisions that run counter to the corporation’s stated rules because there is a strong business case for doing so.

HSBC has recently used a variation on this theme to argue that the parent company is in no way responsible for the misdeeds of its small Swiss banking subsidiary, and that the company’s top executives were unaware that its Swiss arm was engaged in facilitating massive tax avoidance. This was despite the subsidiary being credited with a huge chunk of the group profits prior to the financial crisis, when the bulk of the misbehaviour is supposed to have taken place.

Proposals for a register of who actually owns LLPs may go some way to resolving the problem, but here too, there are pitfalls.

“First, [beneficial ownership] covers companies, but not all trusts, so the easiest way to avoid disclosure would be to use one of those trusts which fall outside the scope, instead of companies,” says Andres Knobel, a freelance researcher at the Tax Justice Network.

Furthermore, “the definition of beneficial owner is based on FATF’s (the Financial Action Task Force) recommendations on Anti-Money Laundering, which refer to the individual holding more than 25% of ownership… which is a really high threshold.”

A further issue is that companies can continue to act as directors of UK LLPs. That is problematic, because if these corporate directors are incorporated in, say, the BVI, Gibraltar or Belize and their directors are not named individuals – and they are not required to be in many such jurisdictions – then the question of ultimate ownership remains open, as the true owners can continue to hide behind opaque corporations.

Limited Liability Partnership legislation combined with the UK’s hands-off corporate tax regulation produces a financial environment which is almost impossible to monitor, and has made the UK the jurisdiction of choice for criminal enterprises all over the world.

Sources close to international tax matters have said that in recent weeks and months the government has attempted to burnish its anti-tax evasion and money laundering credentials as tax issues in particular come into focus in the run up to the UK election. To this end they have been quietly lobbying former UK territories such as British Virgin Islands and the Caymans to tighten up local legislation that currently facilitates tax evaders and money launderers.

Specifically, it has asked for companies registered in these protectorates to provide the names of the actual company owners. As things stand, it can be virtually impossible for the authorities to establish who really owns companies set up in these jurisdictions, which can in turn be owned by a series of trusts or companies set up in other jurisdictions where legislation is equally opaque, making them a vehicle of choice for tax evaders, corrupt politicians and criminals alike.

But so far, sources say, the protectorates are refusing to play ball.

From the mouths of ministers 

In March 2015, as the United States and the European Union crossed swords with Russia over the latter’s intervention in the Ukraine conflict, UK Foreign secretary Philip Hammond said he could cause Russian leader Vladimir Putin “strategic embarrassment” by revealing the extent to which his oligarch cronies had siphoned off the country’s wealth and stashed it in the UK.

Underlying Hammond’s threat was the suggestion that corrupt Russians have parked much of their ill-gotten gains in London’s real estate market, sending skywards prices that were already far beyond the reach of most Londoners.

But such revelations are a much bigger indictment on a UK government which, far from cracking down on abuse of the UK’s light tough regulatory environment, seems to have done little to prevent such abuse, and on occasion has made it even easier.

In recent times Russian oligarchs like Oleg Deripaska, Roman Abramovic and the now deceased Boris Berezovsky have turned London courtrooms into battlegrounds where they fight over their stealthily accumulated billions, while a conviction and prison sentence for Nigerian politician and professional conman James Ibori shed some light on the extent to which the world’s corrupt and criminal have turned London’s booming property and financial markets into their own personalised money laundry.

Hermitage Fund manager Bill Browder has seen first hand how lax UK company oversight has made life easy for financial criminals. Browder has since 2009 been campaigning for justice for his accountant Sergei Magnitsky. Magnitsky was arrested and ultimately died in a Russian prison after accusing Moscow tax officials of massive fraud. Browder’s researchers have painstakingly documented how money wrongly appropriated by these officials was spirited out of Russia through Austrian, Swiss and other banks, with LLCs providing the money with a thin shroud of respectability which allowed the money to be fed through the banking system with few questions asked.

With the issue now turning mainstream given the increasing budgetary pressure in the UK, the main political parties are beginning to voice their own proposals for combatting abuse of the UK’s burgeoning financial markets.

But given all that the main political parties – the Conservative, Labour and the Liberal Democrats – have been happy to feed at the trough of undeclared, non-dom money, even when proven to have been criminally acquired, it remains to be seen what they will do if returned to power.

Tax avoidance takes centre stage in UK Election (part 1)

With the UK elections less than two weeks away, the awkward subject of taxation and those privileged few who are allowed to avoid it has taken centre stage, with both main parties vowing to do more to tighten up the UK tax system and ensure everyone pays their fair share.

Labour leader Ed Milliband threw down the gauntlet by saying he would abolish the non-dom loophole – a proposal which was received with overwhelming public support, forcing the Conservatives, who have avoided addressing this issue in five years of coalition government, to offer vague promises of tightening up UK tax law if they are elected.

So-called non-doms are people who may spend most or all of their time in Britain, do most of their business in Britain and have their family homes in Britain, but are not considered British for tax purposes, thereby avoiding a large chunk of tax on their worldwide income.

Yet the incumbent Conservative-Liberal coalition government and the preceding labour government did little to address the phenomenon of tax avoidance, which a Tax Research LLP report said cost the UK £19.1 billion in the 2013-2014 tax year. The report, commissioned by the Public and Commercial Services Union, put the cost of tax evasion – which, unlike avoidance, is unlawful – at £73.4 billion, more than three times government estimates.

Even at the height of the financial crisis, the main political parties appeared loathe to address the issue – perhaps because both received large amounts of money from “non-doms”.

Former Conservative party deputy chairman Lord Ashcroft remained a non-dom for ten years after being made a Lord, his large donations to the party outweighing any concerns about his non-domiciled status. Lord Rothermere, the non-dom owner of the Daily Mail, uses his paper to push such public policy as cracking down on benefit fraud, yet sees no reason to become a UK resident and pay his full share of UK tax. Likewise the Barclay twins, owners of the daily Telegraph.

Successive governments have fretted that if they were to change the status of non-doms – these “wealth creators” so important to the UK economy – and subject them to the full weight of UK taxation, they would simply leave the country, taking their money with them and causing an economic meltdown in the City of London.

But if the richest Americans are for the most part American citizens and pay their taxes in the United States, and the richest Germans likewise – unless they can hide income in offshore banks or Delaware corporations – how is it acceptable for a large chunk of the UK’s richest residents to sidestep UK taxation by simply declaring they are not from the UK at all, at least for tax purposes?

The attitude of the UK government also implies that such wealth creators are an endangered species, limited in number, and need special rules to ensure they keep on creating this wealth. And if they left, there would be no one capable of taking their place. Perhaps the rest of the UK’s citizens should just tug their forelocks and keep quiet.

Successive UK governments have put very little into tackling tax evasion and avoidance, despite the massive cost to the economy. At the same time they have made massive resources available for cracking down on benefit fraud which costs UK taxpayers a much smaller £4 billion per year.

Meanwhile, in a lengthy saga extensively documented by UK satirical magazine Private Eye, the UK tax office under its former head David Hartnett – now, incidentally, working for HSBC, which is embroiled in a tax avoidance scandal of its very own – let telecoms giant Vodafone off the hook for more than £4.5 billion, reportedly over a series of lavish lunches.

Intriguingly, when the Public Accounts Committee under Margaret Hodge asked whether lawyers had been present when the deal to slash Vodafone’s tax bill was struck, he answered in the affirmative. However the PAC failed to ask whether the lawyers represented the UK tax office, nor to ascertain whether Hartnett was acting in accordance with the legal advice he had received.

UK Foreign secretary Philip Hammond caused mild uproar in March 2015 when he threatened to cause Russian leader Vladimir Putin “strategic embarrassment” by revealing the extent to which his oligarch cronies had siphoned off the country’s wealth and stashed it in the UK.

Underlying the threat was the suggestion that corrupt Russians have parked much of their ill-gotten gains in London’s real estate market, sending skywards prices that were already far beyond the reach of most Londoners.

Such a revelation should surely cause more embarrassment to a UK government which, far from cracking down on abuse of the UK’s light tough regulatory environment, seems to have done everything in its power to facilitate such abuse.

UK journalist and former tax inspector Richard Brooks documented much of the misuse of UK companies in a 2013 investigation published in the satirical UK fortnightly Private Eye, yet UK business secretary Vince Cable continues to deny that evasion is facilitated by the fact that offshore companies can be directors or owners of UK LLPs.

A further issue is that companies can continue to act as directors of UK LLPs. That is problematic, because if these corporate directors are incorporated in, say, the BVI, Gibraltar or Belize and their directors are not named individuals – and they are not required to be in many such jurisdictions – then the question of ultimate ownership remains open, as the true owners can continue to hide behind opaque corporations.

But that is another story. (to be continued)

The respectable façade of modern shell companies

Tropical island’s and Alpine town’s offshore tax havens have more and more competion in Britain, the US and few European countries. Anonymous shell companies are behind so many crimes and misdemeanours that eliminating them should probably be “a no-brainer”, but today the OECD’s “white list” facilitates the money laundering industry to paint their facades with a new image. It is so easy to set up a company with hidden ownership in Britain and the US that even a dead man can do it: The great thing is that they look more respectable.

Criminals and corrupt politicians have found in offshore havens a tool so perfect that it has permanently changed how business is done in the region. By using offshore laws that stress secrecy over everything else including crime prevention, they have been able to set up networks of offshore companies where they can hide their assets from police, launder their money and evade taxes all at the same time. According to the Tax Justice Network, more than $250 billion is lost each year in tax revenues from wealthy individuals and criminals who hide their money in offshore accounts. That is money that by rights should be going toward better education, health care and infrastructure. On top of that, around $1 trillion — often money that corrupt leaders have stolen — flows out of developing countries into offshore accounts and wealthy banking centres.

Offshore registry firms are one-stop shops that for a fee will do everything from filing tax and annual reports to acting as the director of a client’s company. They often work with a registration firm in the offshore country with connections to local government officials. They may provide proxies to serve as directors. They will help a client issue shares and can find proxy shareholders. They might set up bank accounts. If law enforcement or journalists come sniffing around, the trail often ends with them. They will also help set up companies in other countries that will own, be owned by or work with the client’s company. In this way they set up a network of companies that are seemingly independent — but owned by the same person. This confusing arrangement more thoroughly hides ownership and thwarts accountability. They usually do this over the Internet and within a matter of hours or days and without a question. If they ask for identification, they will almost never verify the information they are given.

Offshore tax havens bring to mind tropical islands or Alpine towns. Today, England, the US and some European countries are replacing the more exotic Caribbean or Indian Ocean Islands as the tax havens of choice. On the Tax Secrecy index, the US state of Delaware is listed as the No. 1 offender by the Tax Justice Network. Delaware earns $700 million per year in company registration fees, a significant part of its budget.

Delaware is becoming the preferred location for organized crime figures and corrupt politicians worldwide. Despite complaints from federal law enforcement officials, congressional testimony, and reports from the Government Accountability Office, procedures in Delaware – and similar processes in other states – still let criminal groups infiltrate the corporate system. Professor Jason Sharman, an expert in offshore havens for the Centre for Governance and Public Policy at Griffith University in Australia agrees: “The US has been pretty robust in making sure that other countries live up to these standards, but they have been lax about applying the same degree of rigor to themselves. It’s nowhere near what the US has signed on to do,” he said. Delaware requires no information on actual ownership when companies fill out incorporating documents. Federal law enforcement agencies complain that this lack of identification makes it difficult at best for investigating suspected wrong-doing.

Criminals simply do not fear a legal crackdown. Hampered by offshore secrecy law enforcement especially in Eastern Europe has no talent working across international boundaries figuring out the real owners of companies cloaked in proxies.

Governments scrutinize the offshore industry and blame it for aiding criminals, but do little about fixing the problem. Organized crime has found common cause with business organizations to squash any efforts to radically change offshore laws. Some countries only pay lip service to efforts to provide greater transparency. Some keep on promising important actions and nothing else.

Numerous companies registered in Delaware by offshore businesses controlled by persons accused of organized criminal activities. For example:

  • Serbian fugitive Stanko Subotic registered the planes in Delaware that Italian prosecutors said were used to ferry stacks of illegally earned cash to banks in Cyprus and Liechtenstein. The money was earned, prosecutors say, from tobacco smuggling between the Montenegrin government and the Italian Sacra Corona Unita mafia group.
  • Fugitive Serbian drug lord Darko Saric, who allegedly tried to move 2.1 tons of cocaine from South America to Montenegro last year, registered many of his companies in Delaware where they are still active.
  • Marian Iancu, a Romanian businessmen charged with organizing a criminal group by Romania prosecutors, used Delaware based companies in his takeover of a state oil refinery through an alleged corrupt privatization and in its eventual resale to controversial Russian businessman Mikhail Chernoy.
  • And romanian offshore consultant Laszlo Gyorgy Kiss used Delaware companies to bill Petrom Service in consulting contracts for work that was never done.

Anonymous shell companies are behind so many crimes and misdemeanours that eliminating them should probably be “a no-brainer,” as a US district attorney recently put it. International law enforcement, justice officials and academics agree that knowing who really is reaping the benefits of offshore shell firms is crucial. Jurisdictions must have a way to find out who the really owns companies and a method to close loopholes that make shells operate, such as use of proxies or bearer shares. A major selling point of offshore registry companies, in fact, it that police can’t identify owners. Authorities basically have to ask information from the very people hiding it.We’re operating in this 19th Century manner, yet the money is moving in seconds. It’s long gone. Griffith University Professor Jason Sharman, who last year used Google and $20,000 to find and pay agents to set up anonymous shell companies in 17 jurisdictions, suggested regulating those agents. Sharman recommended that the US and Britain stipulate that agents not be allowed to set up companies unless they themselves know the actual owner and they keep records of that information. Sharman also suggested that the UK and US restrict non-residents from forming shell companies in their countries. “The most acute problem is non-residents setting up ostensibly respectable companies in these jurisdictions and doing crime around the world,” he said. “The great thing about US and British companies is that they look more respectable, and they’re more secret, so you get the best of both worlds. It might raise eyebrows to have a company from any small obscure island, but New York is respectable.” In fact, urisdictions such as Bermuda and the Cayman Islands require far more certified ID from anyone wanting to establish a company or bank account there than do the US states of Nevada and Wyoming, which at the time require no certified ID documents at all. Member countries of the Organization for Economic Co-Operation and Development (OECD), an international organization that has tried to push for laws to reduce the worst abuses of offshores, should get their own houses in order before pointing fingers at other countries. The OECD’s “white list” is maybe problematic?

 

Erik Vanagels™ – the extent of a money laundering supermarket

The full extent of the money laundering international Vanagels Connection, reported in a previous story, is not known at present day. But according to our experience, Erik Vanagels – together with some colleagues such as Stan Gorin, Juri Vitman, Elmar Zallapa, Danny Banger, Lana Zamba and Inta Bilder – preside over a sprawling network of companies with Baltic bank accounts (mostly at Trasta Komercbank, Rietumu Bank, Parex Banka, Regional Investment Bank JSG) and banks in Moscow and Cyprus. They have extensive dealings with several East European countries like Ukraine, Moldavia, Romania and Russia, covering everything from illicit arms exports, internet piracy, oil/gas/electricity related corruption, financial frauds, counterfeit pharmaceutical products, massive cyber criminality, drug dealing… Some of their customers are also overseas like the Asiatic Hoa Le Duc’s Mafia or the Mexicam Sinaloa Drug Cartel.

The Vanagels Connection

The organizations operates as a full service provider of off-shore companies: Its modus operandi is systematically based on the simple concept of forging beneficial owner identity documents and signatures (for example the real Erik Vanagels, is a simple homeless in Riga) to nominate fictive directors in off-shore companies in UK, Cyprus, Panama, Hong-Kong, New Zeeland… and opening respective bank accounts in Latvia, Cyprus or Russia. Sometimes, the same forged identity is used in multiple variations: for example Erik Vanagels (the most famous one) can occur in the following aliases: Eric Vanagelom, Erik Vanahels, Erik Vanagele, Erik Vallaste, … It is already like a Trademark: a symbol of quality and price in the money laundering industry. But the same is also valid, for example, for the proxy names of Juri Vitman (alias Juri Wittmann), Stan Gorin (alias Staņislavs Gorins, in reality he is a simple insurance broker in Riga), Lana Zamba (in reality she is a yoga trainer in Limassol) or Danny Banger (alias Daniel Banger)… For more information about the identity of these mythical persons see “A Farm Of Directors” by Inga Springe and Graham Stack.

The network is organized with several hubs of off-shores supermarkets in Riga, London, Limassol, Kiev and Moscow (with some supect also in Sotschi, to stay olympic). For excample….

XXXXXX CENSURED XXXXXXXXXXXXXXXXXXX
XXXXXX this part of the XXXXXXXXXXXX
XXXXXX arthicle has XXXXXXXXXXXXXXXX
XXXXXX been censured XXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX

In Cyprus at the villa near the cemetery of Limassol in KIMONOS STREET or at the suites of PTOLEMAION 55 also in Limassol. Their customers are segmented as following: oligarchs, organized criminal groups, rebels/terrorist groups, simple individuals with the need of laundering money for business purposes. The latter is the less evident, but it covers the majority of the hidden cases: it is used for systematic commercial bribery or frauds. The access to the services of this network is exclusively based on recommendations of existing customers.

The Vanagels connectio’s role is only coming to light recently as the Latvian and Ukraine local press starts digging out more and more information. The network’s activity can be traced back over a decade to the establishment in the mid-1990s. Evidence suggests this connection laundered money for an amount of 10 to 100 billion $ around the world and those media information are only the ones that have come to light so far. This will catapult the value of the Erik Vanagels™ tradmark higher than the one of Apple! The Vanagels connection has been recently quoted in the media related to the following major allegued criminal cases:

  1. The Faina vessel Case – Ukraine / Sudan – Illicit Arm Trading
  2. The Chernomoreneftegas Case – Ukraine – Gov. Corruption
  3. The flu vaccines Case – Ukraine – Gov. Corruption
  4. The Ukrspetseksport Case – Ukraine – Illicit Arm Trading
  5. The Rockford Funding Case – Latvia – Financial Fraud
  6. The Moldavian Cases – Moldavia / Romania – Gov. Corruption / Fraud
  7. The Hermitage Capital Management Case – Russia / Switzerland – Massive Money Laundering
  8. The Trade Construction Company LLC Case – Russia – Financial Fraud
  9. Hoa Le Duc’s Mafia Case – Romania / Vietnam / China – Organized Crime
  10. The EURO 2012 Case – Ukraine – Corruption
  11. The Mexicam Sinaloa Drug Cartel Case – Mexico – Organized Crime / Drug
  12. The GT Group Case – North Korea / Iran – Illicit Arm Trading / Terrorism financing
  13. The ex.ua file-exchange Case – Ukraine – Massive Internet Piracy
  14. The forextime.com Case – Russia / New Zeeland / Nigeria – Money Laundering / Financial Fraud

 

(Dr. Andrea Galli, Scalaris AG)