Dirty money: 19 UK firms alleged ‘complicit’ in $20bn laundering scam

Some 19 British firms are at the center of an investigation into in a mammoth global money-laundering operation. The scheme was allegedly contrived to make $20bn (£12.5bn) worth of ill-gotten gains appear legitimate.

The illicit funds are thought to have originated from criminal gangs and corrupt officials across the globe, attempting to make their dirty money appear 'clean' so it can be spent free of suspicion.

An investigation carried out by The Independent and UK NGO the Organised Crime and Corruption Reporting Project (OCCRP) uncovered a complex international web of companies, which are implicated in the scheme. As part of the probe, a minimum of 19 UK firms are currently under investigation, it emerged on Thursday.

The criminal operation highlights how Britain’s lax regulatory architecture has made the UK a particularly alluring destination for global organized crime syndicates looking to launder ill-gotten gains. Because directors of British firms are afforded a high degree of financial secrecy under UK law, the identities of the scam's primary architects are extremely difficult to determine.

The cross-border money laundering scheme was in operation for four years before it was uncovered in May by criminal investigators in Moldova. In tandem with Britain, the former Soviet republic was one of the scam's core focal points.

Vasile Sarco, an officer at the center of the Moldovan investigation, told The Independent the tainted money was originally channeled from Russia, but that UK firms were vital to its re-routing and ‘cleaning’. Sarco sought assistance from UK police to help decipher the operation's British dimension.

Vital to the process of money laundering, is the creation of an impression the funds have been earned legitimately. As a result, criminals often work to cultivate documentation that indicates their tainted funds stem from honourable origins.

In past cases, criminals have often taken over legitimate firms for the purpose of laundering dirty money. But when illicit funds generated from criminal activity amount to billions, such straightforward schemes become impractical, and more complex laundering operations are required.

The British launderette

In the scam, uncovered by the Independent and OCCRP, front companies were created in Britain which conducted fake and fraudulent business deals amongst one another. These ‘shell companies’ subsequently sued one another in Moldovan courts, demanding they be repaid loans amounting to hundreds of millions of pounds.

As part of the scam, a Moldovan judge would issue a ruling in favor of the claimant firm, which subsequently received a large payment from the opposing company. Related judgments resulted in the creation of court documents that legitimised such transactions.

But rather than flow from one UK firm to another, the funds were channeled from Russia – an international money laundering hot spot, which attracts gangs and corrupt officials from across the globe looking to ‘clean’ ill-gotten gains. Generally such dirty money stems from political corruption, white collar crime, human trafficking, drug dealing and prostitution.

Once the illicit funds arrived in the accounts of UK front companies in Moldova, the money was funneled into a bank in Latvia. Latvia’s banking system is integrated with the EU, and considerably well regulated. As a result, this final phase of the operation bolstered the tainted funds' apparent legitimacy.

Financial secrecy

Because of its lax financial regulation, Britain has become a focal point for money laundering schemes. Front companies can be set up on British soil with little oversight.

Multiple money laundering operations, involving swathes of UK companies, are thought to be used by criminal gangs and corrupt officials from places as far-flung as Syria, Japan, and South America.

The launderers behind this latest scam were able to shift the jurisdiction of their lawsuits to Moldova by employing Moldovan citizens as guarantors in their fraudulent business deals. The false debts central to the operation were also guaranteed by Russian firms.

The UK firms under investigation were registered at regular office buildings in London, Belfast, Edinburgh, Glasgow and Birmingham, according to the Independent.

However, their true ownership is obscured by a web of shell companies and nominee directors in offshore tax havens, such as the Seychelles, the Bahamas and the Marshall Islands.

Nominee directors are third party individuals officially registered as administrators of offshore companies. This allows true benefactors or managers to remain entirely anonymous. They are often central to aggressive, yet legal, tax avoidance schemes.

Follow the money

One UK firm under suspicion for involvement in the scam has listed its shareholders as two untraceable firms in Panama and Belize. Another firm, Westburn Enterprises, succeeded in claiming half a billion US dollars from a guarantor in Russia through Moldovan courts.

Despite allegedly conducting such vast transactions, the firm is registered as a small accountancy company in Edinburgh called Axiano. Although Westburn Enterprises claims its director is Marios Papntoniou, he is merely the boss of the Edinburgh-based accountancy firm.

Axiano is not implicated in any criminality, and ultimately has nothing to do with Westburn’s operations. Rather, the accountancy outfit is but one of many UK firms that legally sets up offshore companies, which are shrouded in secrecy to guarantee their anonymity.

When probed by the Independent, Marios Papntoniou declined to comment on Westburn Enterprises’ activities on the grounds of client confidentially. Papntoniou said he could not speak on behalf of his client unless asked to do so by police officials.

Another UK firm, allegedly being probed, is London-registered Valemont Properties. The address of its director, Damian James Calderbank, is listed in two Dubai office blocks and a London-based office. Calderbank is thought to be a nominee director, and utterly unaware of the firm’s activities.

But Valemont Properties' director reportedly holds an additional 21 UK directorships in Britain, has resigned from 333 such positions, and was formally the director of 227 UK firms that have been dissolved. He is also a director of multiple other offshore firms, the Independent’s investigation reveals.

Meanwhile, Valemont Properties’ specially appointed company secretary cannot be questioned about the firm’s suspicious activities because it happens to be a financial vehicle located in the Bahamas, under the name Hextable Limited.

Two other UK firms under investigation are allegedly registered at addresses that correspond to PO Boxes in Edinburgh, Shepherd Market and London.

A further three firms are registered to a space in a Birmingham building, which is estimated to house approximately 1,300 firms. Documents supplied by Moldova’s Ministry of Justice reveal one of these Birmingham firms was awarded half a billion dollars in a single court decision.

'Silver platter to the villains'

According to financial regulation experts and campaigners, Britain has long been a favored destination for foreign fraudsters and criminals to hide their ill-gotten cash. Systemic failures make it impossible to pursue the billions laundered directly into onshore British financial organizations.

In 2013, Britain’s former chief anti-money laundering officer, David Thomas, cautioned that many investigations into such scams fail to gain momentum. Thomas said the Home Office is to blame for its inadequate responses to foreign requests to track illicit funds.

While Britain’s Department for Business, Innovation and Skills has pledged to tackle financial secrecy in the UK by forcing firms to disclose the identities of corporate staff that hold over 25 percent of any company’s shares, a definitive regulatory shift is yet to emerge.

Such a move would enable UK authorities to tackle tax evasion and money laundering more effectively. David Clarke, a counter fraud expert and former chief of Britain’s fraud squad, stresses more stringent regulation is vital.

“We need a proper, concerted effort between law enforcement and Companies House, because at the moment we’re still handing it on a silver platter to the villains,” Clarke recently told the Independent.