Front companies in the UK are at the heart of an investigation into one of Europe's biggest money-laundering operations, allegedly forming part of a conspiracy to make $20bn (£12.5bn) of dirty money look legitimate. The funds are believed to have come from major criminals and corrupt officials around the world wanting to make their ill-gotten cash appear "clean", so they can spend it without suspicion.
At least 19 UK-based front companies are under suspicion. The scandal highlights how lax corporate rules have made this country an attractive destination for global organised crime. The secrecy company directors are entitled to under UK law is also hindering attempts to identify the "Mr Bigs" behind the scam.
An investigation by The Independent and the Organised Crime and Corruption Reporting Project, an NGO, has identified dozens of firms in a global web spreading from Birmingham to Belize.
The scam appears to have gone on for four years before being shut down in May by investigators in another of its main centres - the former Soviet republic of Moldova.
Vasile Sarco, an investigating officer in Moldova, told The Independent: "This money was routed from Russia, but the companies incorporated in Britain were instrumental to transit the funds."
He has sought help from UK organised crime police to help track down the British end of the operation.
Money laundering involves creating the impression that dirty money has been earned through legal means. Criminals need to find ways of coming up with official documentation that testifies to their money's honest origins. Often, they will take over legitimate businesses which they can then push the money through in fake transactions, generating a paper trail of receipts.
However, when the illicit earnings run into the tens of billions of dollars, such small-scale schemes are impractical. Documentation for much larger amounts of cash is needed.
In the scam exposed today, the launderers created front companies in the UK which carried out massive phoney business deals between themselves. These front companies then sued each other in courts in Moldova, demanding the repayment of hundreds of millions of pounds of loans.
A judge in Moldova, a small Eastern European country whose legal system is not considered as robust as those in Western Europe, would rule in favour of the claimant company, which would then receive the cash from the other front firm - with an all-important signed court document ordering the debt to be paid.
But rather than being transferred from one legitimate British company to another, the funds were being routed from Russia, where gangs from around the world go to launder money from corruption, drug dealing, prostitution and people smuggling.
Their tainted money would first be put into the UK front companies' accounts in Moldova before being transferred to another bank in Latvia. As Latvia is in the highly regulated European Union banking system, this final stage adds to the dirty money's "clean" appearance.
Investigators are trying to discover the identities of the criminals whose cash was being laundered. However, this is proving extremely difficult because it is virtually impossible to establish who actually owns the UK front companies - and therefore who ultimately had access to the laundered money.
Investigators said similar laundry systems, often involving UK front companies, were being used by organised crime syndicates and officials as far afield as South America, Syria and Japan. Britain is regularly used in such scams because it is easy to set up front companies here with relatively few, if any, questions asked.
The launderers are able to get the jurisdiction for their legal cases shifted to countries like Moldova, with weaker legal systems, by employing citizens there as guarantors in the fake business transaction. The phoney debts were co-guaranteed by Russian companies, who channelled the cash.
Although the British companies were registered at ordinary-looking office buildings in London, Edinburgh, Belfast, Glasgow and Birmingham, their real ownership is hidden by a web of brass-plate entities and nominee directors in secretive havens like the Seychelles, the Bahamas and the Marshall Islands.
For example, one of the companies based in Edinburgh lists its shareholders as two untraceable companies in Panama and Belize.
Another, Westburn Enterprises, claimed a debt of half-a-billion US dollars from a Russian guarantor through the Moldovan courts. Despite purportedly carrying out such vast transactions, it lists its registered address as that of a small accountancy firm, Axiano, in Edinburgh, which is not involved in any wrongdoing. Westburn states that its sole director is Marios Papantoniou, but he is merely the boss of Axiano, and has nothing to do with Westburn's operations.
Axiano is one of hundreds of British firms which conduct entirely legitimately work as formation agents, setting up companies for clients in a way that allows them to retain their anonymity. When approached by The Independent, Mr Papantoniou explained that he could not answer questions on behalf of his client unless requested to by the police.
Under UK laws, companies can obscure the identity of their owners by using "nominee" directors - people who lend their names to a company without actually having anything to do with them. They can also lend their names to shareholdings in companies to mask who owns them.
Another of the UK businesses alleged to be under investigation is the London-registered Valemont Properties. Its director is Damian James Calderbank, who lists his address (in Companies House filings) variously as being in two Dubai tower blocks and an office building in London. He, too, is thought to be a nominee director and will have been unaware of the company's activities.
Valemont's "company secretary", rather than being a person who could be questioned about its activities, is an outfit called Hextable Limited, based in the Bahamas. Mr Calderbank's filings say he holds 21 UK directorships, has resigned from 333 more and been a director of 227 UK companies now dissolved. He is also a director in many more offshore companies. Accounts for 2011 show him as a shareholder, through a Gibraltar company, in the Moldovan bank Moldindconbank, through which all the laundered money went. That is again likely to be a nominee shareholding in which he had no real involvement. He did not respond to written and emailed requests to comment.
Two of the 19 front companies give as their registered addresses places which turn out to be branches of the PO boxes chain Mailboxes Etc - one in Edinburgh and the other in Shepherd Market, in Mayfair, London. (There is no suggestion of wrongdoing by Mailboxes Etc.) Three more are registered to a room in a Birmingham office building which is home to nearly 1,300 other companies. Documents from the Moldovan Ministry of Justice show one of those Birmingham companies received half-a-billion dollars in one court award. None of the companies responded to written requests for comment.
According to the investigator Mr Sarco, judges in Moldova issued more than 50 court orders in the scam, certifying about $20bn of debts paid. Some of the judges have resigned; others are under investigation. One, interviewed by the OCCRP, said he had ruled correctly on the evidence before him, pointing out that none of his rulings had been overturned.
Mr Sarco said he was close to arresting "four or five" bankers in connection with the alleged scam. He also said the suspect companies had made payments to legitimate British firms from accounts at the Moldovan bank used in the laundry process. The UK bank accounts involved include ones at UBS in London, HSBC, RBS, NatWest and Citibank. The Independent is passing details of the transactions to the banks.
Mr Sarco said: "We hope our colleagues [at Britain's National Crime Agency] will uncover what activity took place in the UK, but our main difficulty is that the relevant authorities in the Russian Federation are being less co-operative." He said he had contacted the Serious Organised Crime Agency (which merged into the NCA last year) with information about the scam. The NCA declined to comment, saying it was unaware of any investigation.
The Russian connection is crucial to the case but the companies there who funnelled the money are proving difficult to penetrate. They appear to have been represented by proxy people in Moldova and Ukraine who were paid small sums to front for the real figures behind the transactions.
One such proxy was a Moldovan citizen listed as the guarantor for a loan made to Valemont Properties - one of the first UK firms used in the alleged scam, back in 2010.
The man, Andrei Abramov, works at Chisinau airport in Moldova. He said he was approached after graduating by a man offering him a job opening a branch of his consultancy in Moldova. When tracked down by reporters from the OCCRP, Mr Abramov claimed he was told he would be the branch manager. "It never happened though. I worked for them for four months and all I got was $100."
The Moldovan judge ordered two Russian firms to pay a combined $408.3m to Valemont. The money was transferred from Russia to the Moldovan bank Moldindconbank, exchanged into pounds and transferred to Valemont's account at Latvia's Trasta Komercbanka. The same route was used for all the alleged transfers. Moldindconbank denied breaking any rules, saying its operations have respected Moldova's legislation and central bank rules. Trasta Komercbanka said in a statement that the case was still under investigation and that neither the bank nor its employees were involved in the alleged laundering.
Mr Sarco, heads of his country's Money Laundering Prevention Unit, claims the rulings from the judiciary which triggered the cash transfers were improper and is investigating the judges, some of whom have denied wrongdoing.
Mr Abramov was not the only Moldovan patsy. Another traced by the OCCRP was a small-time businessman also facing a court case for meat smuggling. A third, Evgheni Viborov (pictured, with gun), is a despatch driver. Despite not even being able to afford his own car, he is listed as a shareholder and director of one of the companies which court documents show paid the British front company Westburn Enterprises $500m.
Money laundering explained - why criminals flock to the UK
One of the biggest problems of being a successful drug dealer is finding a way to make your money look like it's been made honestly.
Key to this is obtaining official documentation or receipts that show the money has been made legally.
There are many ways of doing this, from setting up legitimate businesses that turn over lots of cash, to buying and exchanging travellers' cheques, to corrupting legitimate businessmen to fake transactions to you.
Another way, as this story shows, is to set up front companies and make them look like their money comes from legitimate sources.
Britain is popular for such companies because it is so easy to set up a company here. An industry of company formation agents and their accompanying solicitors and accountants exist to create companies for all-comers, with few questions asked.
An agent at London-based Dudley Miles Company Services - which set up one of the 19 UK companies allegedly used in this scam - said he knew nothing of the client and was under no obligation to do so. A Ukrainian man had ordered the company over the phone, he said. Like the other agents and accountants involved, Dudley Miles has done nothing wrong.
An Eastern European or Cypriot flavour runs through many of Britain's company formation agents. Most are situated in small, fairly dingy offices in central London. Some, such as Albion Business Incorporations, have their website all in Russian.
Another Russian formation agent who declined to give his name explained: "Our clients like to keep their identity hidden for many reasons. Tax avoidance perhaps. They like to come to Britain because it is so much easier and cheaper to set up businesses here."
Vince Cable's Department for Business has announced plans to make companies disclose the identities of business owners holding more than 25 per cent of the shares. The former head of the Fraud Squad, David Clarke, now a private fraud consultant at Today Advisory, applauded the Government's moves, but said: "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."Reuse content