Tortoise has received leaked documents that reveal more of the country’s position in international laundering networks. At the same time, the government is trying to loosen financial regulations
A lane in Elstree village, Hertfordshire, runs under laurel trees and past a church dedicated to St Nicholas, patron of repentant thieves, to a small building called The Studio.
Suite 1 in The Studio was the official home of hundreds of UK-registered companies. Many were set up to siphon billions of dollars in criminal proceeds out of Russia in a way that makes the money almost impossible to trace.
The companies were part of what journalists called the Russian Laundromat, a global money laundering scheme. Money entered the laundromat through a set of shell companies in offshore havens, moving through increasingly respectable jurisdictions like Britain, going from dirty to clean.
Company-formation agents like the one at The Studio earn small fees from setting up each company. They can set one up in a few hours for under £50.
Transparency campaigners have been calling on the government to end this practice for years, but the likelihood of tighter regulations is fast diminishing.
The Treasury is currently engaged in a wide-ranging review of Britain’s post-Brexit financial regulatory framework that seeks to prioritise “agility and flexibility” – even though the country’s financial regulations were already lax.
A new leak of banking documents received by Tortoise shows the UK’s role in the Russian Laundromat was much greater than previously known. The leak adds another 45 British companies and $106 million in transactions to the global money laundering scheme.
Unbeknown to the parishioners of St Nicholas in Elstree, one company at The Studio, Lindmark Resources, made $178,000 a day between 2013 and 2014, a level of income that would grow the size of the village’s economy by 50 per cent.
Lindmark’s income, received in a bank account in Latvia, wasn’t provided on its filings at Companies House, the business registry. The filings said it made around £16,600 as a “trade agent for textiles” over the same period.
The filings are all false, a criminal offence that has only been prosecuted once before. The offender, in that case, turned out to be a transparency campaigner who was trying to demonstrate how easy it is to file false information at the registry.
“It’s no coincidence that UK companies come up in all of the big corruption and money laundering scandals,” Ava Lee, senior anti-corruption campaigner at Global Witness, says. “As criminals and the corrupt know all too well, no one’s really keeping an eye on what they’re up to.”
The scheme was intentionally opaque. Over half of the leak’s 45 new British companies are limited liability partnerships, a British corporate structure with very limited reporting requirements.
There are no requirements for LLPs to convene board or general meetings or to file articles of association. Neither are LLPs liable for UK taxes. But their strongest attraction to money launderers is that their owners can be shell companies, allowing criminals to move money anonymously.
One of the owners is required to sign off the LLP’s accounts at Companies House, but the signatures are usually forged and rarely checked.
Lindmark’s accounts were signed by the director of a company registered at a PO box in Ajeltake, a town in the Marshall Islands over 8,000 miles away from Elstree and with a population a third of its size. The director is one Ali Moulaye, a fifty-something-year-old Latvian dentist.
Moulaye’s signature appeared on hundreds of Companies House filings after he lent his passport to “good friends” in Latvia. “I have been used,” he told journalists who tracked him down to Brussels. “They abused me.”
The leak’s British companies all banked at ABLV in Riga which, unlike banks in the UK, was allowed to open accounts for anonymous shell companies.
The money arrived in Lindmark’s account – number 0103 3911 1 – in a repeated series of transfers that hovered just below $500,000. Graham Barrow, an anti-money laundering expert, suspects ABLV had a “monitoring figure” at that level, which would have triggered automatic alerts.
The same pattern can be seen in almost all the other companies’ accounts. “ABLV was, at best, negligent,” Barrow says, “and, at worst, complicit.”
While the bank didn’t require evidence of Lindmark’s ultimate beneficial ownership, it did conduct due diligence on the source of its funds. It was supplied with a contract Lindmark signed on 12 July 2013 in Moscow to sell $73.9 million worth of “textile production”.
The accompanying invoice lists 30 different types of fabric, including “knitwear” and “costume dress”, each one with an order of precisely 500,000 units. Payment was to be made in advance.
The buyer was a shell company called PR-VERT SYSTEM Ltd, a central node in the Laundromat. It was registered at a suite in Cornwall Buildings, an office block in Birmingham.
The same building was home to nine different LLPs in the leak, five of which were registered to the same suite – 330. Two of them signed a contract to trade $97.3 million worth of “construction materials.”
Experts say the contracts and invoices should have raised eyebrows. “A banker should at least ask for supporting evidence that exceeds the fabricated contracts and invoices,” Floris Alexander, a lawyer who represents small ABLV depositors, says. “It appears that having some basic paperwork on file satisfied regulators.”
Not all regulators. ABLV collapsed after the US Treasury published a notice in February 2018 that described it as a “bank of primary money laundering concern”. The Latvian parliament then voted – 57 in favour and 17, all from the pro-Russian party, against – to ban banks from dealing with shell companies that can’t prove they’re legitimate businesses.
Presented with findings from the leak, Latvia’s anti-money laundering authority declined to comment on “any specific cases or on any potential evidence”, but says it has “already frozen considerable assets belonging to ABLV customers”.
Progress has been slower in Britain. A National Economic Crime Centre spokesperson says it welcomes “any new information” as it “continues to develop a picture” of “Russians laundering through Latvia”.
But Suite 1 at The Studio in Elstree shows the laundering is happening through the UK, which shows no sign of tightening its regulatory environment.
When the government consulted on Companies House reform in May 2019, it gave the registry new rules, but no means of enforcing them. Another consultation “to clamp down on fraud” closed in February, but its results remain unknown.
While the Treasury’s review of Britain’s post-Brexit financial regulation is ongoing, its aim to make regulations more agile, flexible, and competitive has angered campaigners.
“The fact that so many UK-based companies have been involved in these types of suspicious transactions and there has never been any legal consequences for the people who set them up is a travesty,” says Bill Browder, an anti-money laundering campaigner and investor whose lawyer, Sergei Magnitsky, was killed after exposing a $230 million fraud facilitated by one of the UK companies in the leak.
“It doesn’t bode well for the future if the regulatory environment here will continue to be so forgiving.”