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Old 10-08-2018, 03:00 PM
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Mary Pat Campbell
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Default Denmark's $2 billion tax fraud?

https://www.nytimes.com/2018/10/05/b...x-scandal.html

Quote:
Where in the World Is Denmark’s $2 Billion?

Spoiler:
As large as it is, the building would be easy to miss. Plain, gray and near a McDonald’s, it’s part of a generic office complex surrounded by a vast parking lot in a suburb of Copenhagen. “Danish Tax Agency” is stenciled in both English and Danish on a glass front door.

This outpost of SKAT, as the I.R.S. in Denmark is known, seems an improbable setting for what the authorities call one of the great financial crimes in the country’s history. For three years, starting in 2012, so much money gushed from an office here that it was as though the state had sprung a gigantic leak.

Prosecutors in Copenhagen say it was an elaborate ruse, one that ultimately cost taxpayers more than $2 billion — a spectacular sum for Denmark, the equivalent of a $110 billion loss in the far larger American economy.

The country had fallen victim to a dubious financial maneuver at the intersection of the tax system and capital markets, a dizzyingly complex transaction known as a “cum-ex” trade.

The trade is focused on one of the dullest, most overlooked acts in any financial system — the request for refunds on taxes withheld on dividends. Under Danish law, the government automatically collects taxes on dividends paid out by companies to their shareholders. If the shareholders live in the United States, they are eligible for a refund on some or all of those taxes.

A tiny department in SKAT, run by one man, approved thousands of applications for refunds. Most of the applications were filed by self-directed pension plans in the United States, a type of retirement account for individuals.

But experts and lawyers familiar with the scheme say those people were fronts for cum-ex trades. Deploying a kind of financial sleight of hand, the trades made it appear as if the pension plans had purchased shares of Danish companies and paid taxes on the dividends. Neither was true.

To the Danes, it was a fraud, one executed and conceived by Sanjay Shah, a 48-year-old, London-born financier. With an assist from employees, he found the Americans, helped facilitate the applications and ended up with much of the money.

Mr. Shah denies any wrongdoing and through a publicist says he merely took advantage of a loophole. He now lives in Dubai, where he owns a $1.3 million yacht and a 10,000-square-foot villa with access to the beach. He has become Denmark’s national villain.

“You have this guy, living off fraud, it’s infuriating,” said Joachim B. Olsen, a member of the Danish Parliament and chairman of its Finance Committee. “The expectation of the Danish people is that we will go after him, no matter the cost.”

Since May, the cost has included hiring an American law firm to sue 277 of the self-directed pension plans and their owners who applied for all those tax refunds. But the true toll of this scandal can’t be measured in kroner. It has undermined trust in Danish politics and it has severely dented the country’s self-image as a bastion of honest, efficient government. An unfolding $230 billion money-laundering fiasco at Danske Bank, the country’s largest lender, has only deepened the gloom.

What has made the dividend debacle even more painful is that many here believe it was an inside job. The lone employee approving those tax refunds was a lifelong civil servant named Sven Nielsen. After a lengthy investigation, the police learned that Mr. Nielsen had spent a few boozy and convivial evenings with an employee of Mr. Shah’s, although they found no evidence that he had colluded or profited in any way.

Instead, they discovered evidence that years ago, Mr. Nielsen had helped an old friend bilk SKAT in a relatively small scam. Through his lawyer, Mr. Nielsen declined to comment — from prison, where he is now serving a six-year sentence for criminal fraud in that case.

So, Danes are left with a mystery that belongs in a Nordic noir, one with elements of farce and filled with enraging twists. Is Mr. Nielsen a co-conspirator, or a dupe? Is he a criminal or a man so flattered by attention that his critical faculties abandoned him?

The other mystery concerns Mr. Shah, who is now rebranding himself as a philanthropist, raising money for autism research by promoting concerts with performers like Flo Rida and Lenny Kravitz. He has been formally termed a suspect by Danish authorities, but to the collective amazement of the Danes no criminal charges have been filed against him.

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A spokesman for the State Prosecutor for Serious Economic and International Crime would not say why. Instead, with impeccable Scandinavian restraint he said only that the case involves people “who seem to have used a very crafty setup.”

Finding His Calling
Mr. Shah declined to be interviewed for this article. To offer his version of events, he provided through his publicist a 14-page handwritten letter that outlined his career. And for added personal details, there is a series of autobiographical videos that he posted two years ago on YouTube, titled “I Am Sanjay Shah.”

In each, he sits in a spacious living room in a house in Dubai and muses about his life and business philosophy, omitting any hint of controversy. He comes across as an upbeat, middle-aged expat with an abiding fondness for music. After a midlife crisis, he founded Autism Rocks and became a part-time concert promoter, at one point booking his personal favorite, Prince. Mr. Shah also has a taste for the extravagant. In one video, he said that sports cars parked outside the office at Merrill Lynch, where he worked early on, inspired him to consider a new career.

“I said to my boss, ‘Who drives these cars?’” he recalled in the video. “And he said the traders do on the fifth floor. So then I decided that I wanted to be one of those people.”

Mr. Shah was raised in London by parents of Indian ancestry who had immigrated from Kenya. He dropped out of college in 1992, citing a lack of motivation, and worked at a number of large financial firms. In 2007, he landed a job at the London office of Rabobank, a Dutch company, on the dividend arbitrage desk.

There he learned about cum-ex trades. The term is Latin for “with-without” and refers to the status of shares before and after a dividend is issued. Cum-ex trades would quickly become the focus of Mr. Shah’s professional life.

Around the time of the global financial crisis, Rabobank closed its dividend arbitrage desk. While former colleagues scrambled to look for careers in other fields, Mr. Shah boldly opened his own firm, Solo Capital, with an office of eight employees. At the same time, he did something unusual for a man starting a business in London. He and his family moved to Dubai, “mainly for the weather and the lifestyle,” he explained in a video.

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As economies around the globe reeled, Mr. Shah found himself in one of the few growth segments in banking. Cum-ex trades are made possible by tax treaties between countries, agreements that are intended to prevent double taxation. Denmark has such a treaty with the United States.

Image

This outpost of SKAT, as the I.R.S. in Denmark is known, seems an improbable setting for what the authorities call one of the great financial crimes in the country’s history.CreditCarsten Snejbjerg for The New York Times
What government regulators throughout Europe failed to foresee was that foreign dividend tax refunds could yield immense and dubious profits. After the financial meltdown, dozens of German banks desperate for a new source of profits eagerly facilitated cum-ex trades, fueled by capital from all over the world.

Traders made off with more than $11 billion, according to officials there. Cum-ex would reap fortunes from the governments in Austria, Belgium and Switzerland, too.

It took years for the German authorities, who banned the practice in 2012, to figure out what had hit them. The first cum-ex indictments in the country were filed in May.

“It turned out to be one of the biggest financial scandals that Europe has ever seen,” said Bastian Finkel, a tax lawyer at BLD, a law firm in Cologne, “and all the more painful because it’s public money.”

In the wake of their losses, the authorities in Germany didn’t bother to alert other countries, and speculators moved elsewhere. The biggest target, it turned out, was Denmark.

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Under the terms of an American-Danish tax agreement, Americans who own shares in, for instance, Carlsberg can get a full or partial refund on the 27 percent withheld for tax on dividends. Retirement accounts get the best deal of all. They get all 27 percent of the tax back.

To scale up his cum-ex trade, Mr. Shah needed individuals in the United States with self-directed pension plans, a type of retirement account that allows owners to invest in a wide range of financial instruments. By 2012, he had found more than a dozen of them — which turned out to be plenty.

A Man With 44 Pension Plans
The names of these Americans who owned the self-directed pension plans became public this summer, when Danish authorities sued them, hoping to recover lost funds. Exactly how these people linked up with Solo Capital is unknown. Mr. Shah’s publicist would say only that they came via wealth management advisory firms.

There are demographic patterns. Most live on the East Coast, with clusters in New York, New Jersey and Florida. At least five different plans used the same mailing address, 425 West 23rd Street, Apartment 7B, New York, N.Y. The current tenant there had never heard of the Danish lawsuits, but said he had received mail for one of the defendants, Gavin Crescenzo, a previous occupant.

Nearly all the defendants have jobs in finance, though one, Michael Ben-Jacob, is a partner at a prestigious law firm, Arnold & Porter. He declined to discuss the case and a spokeswoman at the firm said it did not comment on litigation in progress.

Many people have their names attached to dozens of pension plans, which is why there are 277 suits and roughly 17 defendants. A 30-year-old named Roger Lehman, for instance, opened 44 plans in a handful of states, with names such as the Ludlow Holdings 401K Plan and the Hotel Fromance Pension Plan.

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Mr. Shah said through his spokesman that Solo Capital worked with 200 of these pension plans. He declined to identify which ones.

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John Hanamirian, a plaintiffs attorney in New Jersey. Until mid-July, he represented defendants in more than 50 cases — then suddenly filed legal papers withdrawing from all but a few of them.CreditMichelle Gustafson for The New York Times
None of the defendants responded to requests for comment. In July, though, an email response came instead, unbidden, from a law firm in Luxembourg called Schaffelhuber Müller & Kollegen. A partner there named Helene Schwiering stated that her clients, whom she did not name, would appreciate it “if you henceforth refrain from attempting to contact them.”

On paper, the owners of the plans pocketed most of SKAT’s $2 billion. In reality, these people probably wound up with little or none of the money.

That, at least, is the impression of John Hanamirian, a plaintiffs attorney in New Jersey. Until mid-July, he represented defendants in more than 50 cases, then he suddenly filed legal papers withdrawing from all but a few of them.

The withdrawal filings were revealing. They stated that Mr. Hanamirian was not paid by defendants named in the lawsuits. Rather, his bills were paid by what he described only as a “Luxembourg law firm.” And that law firm would not provide needed files about his defendants, “despite repeated requests,” he wrote.

In an interview, Mr. Hanamirian elaborated. The firm was the one in Luxembourg that sent that out-of-the-blue email asking that defendants in the cases be left alone.

“I needed documents surrounding their involvement, whatever that is — bank statements, investment statements, communications,” Mr. Hanamirian said. “The firm wouldn’t do it. They said, ‘We’ll meet you in advance, the day of the proceedings.’ I said that’s unacceptable.”

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Before exiting the cases, Mr. Hanamirian spoke to a handful of clients who told him that money went in and then was immediately moved out of their accounts. Whether the defendants earned a fee of some kind is unknown to Mr. Hanamirian, as is the ultimate destination of the funds.

“I don’t want any of this to reflect on my former clients,” he said. “But the whole thing was definitely odd.”

$3 Million, Every Hour
In 2013, all that stood between Solo Capital and Denmark’s treasury was the bespectacled, gray-haired veteran of SKAT, Sven Nielsen. After two colleagues retired, he was the last person in the Dividend Department. Complicating matters, he lacked the tools to perform the most basic due diligence when reviewing refund applications.

The agency was in the midst of a yearslong and often disastrous overhaul, meant to digitize the system and reduce head count. The priority was helping Danish taxpayers, not foreign shareholders. Mr. Nielsen didn’t even have a database to check whether an individual pension plan actually owned the shares it claimed, said Lisbeth Romer, who was Mr. Nielsen’s boss until she retired in 2013.

“Sven’s job was reduced to bookkeeping, essentially, checking if a form was filled out properly,” she said. “A monkey could do it.”

There was another problem that nobody knew about then: Mr. Nielsen could be persuaded to break the law. When the Danish police searched his home after the Solo Capital revelations, they found a letter showing that in 2007, he helped an old friend illegally secure $5.7 million from SKAT. (The two men knew each other from the days when Mr. Nielsen moonlighted with a job delivering newspapers.) Last December, prosecutors convicted Mr. Nielsen of fraud for taking a kickback, the equivalent of $315,000, for his efforts.

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A restaurant in downtown Copenhagen where Mr. Nielsen was said to have been taken.CreditCarsten Snejbjerg for The New York Times
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Defenders of Mr. Nielsen maintain that he is a fundamentally decent guy who made a serious mistake under the suasion of a pal. True or not, Mr. Nielsen had a new pal in 2014, just as the SKAT payouts soared.

His name was Camilo Vargas. He worked in London at one of a small number of “payment agents,” niche companies that handle the array of paperwork submitted to foreign tax authorities for refunds. Mr. Vargas had just founded his own payment agent firm, which he called Syntax GIS. Soon after Syntax began operations, it started working with Sanjay Shah, who eventually bought the company.

During the first of several trips to Copenhagen, Mr. Vargas sought out Mr. Nielsen, asking for guidance on how to fill out Danish tax refund applications. What is known about those meetings comes from the one interview Mr. Nielsen has ever given, in a 2016 documentary that ran on DR, Denmark’s version of the BBC. Mr. Nielsen appeared to be flattered by the attention and happy to provide advice.

He just as gladly accepted invitations to dinner. Mr. Nielsen described in the interview a lively evening drinking beer with Mr. Vargas in a popular downtown area in Copenhagen.

“We walked down Stroget,” he said, referring to a famous pedestrian street, “and made several pit stops.”

The friendship was fantastically lucrative. In 2014, more than $590 million was paid on 1,500 refund applications. Danish authorities believe most of them came from Solo Capital clients. In the first seven months of 2015, the figures soared to roughly $1.2 billion, paid to more than 2,500 applications — about 16 applications every working day.

It apparently never occurred to Mr. Nielsen that Camilo Vargas was playing him.

“At no point did I get the impression that he wanted to trick me or cheat in any way,” Mr. Nielsen said in the documentary, sounding bereft. “But that’s what it could appear like today.”

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Mr. Vargas could not be located for comment. The producers at DR hired a researcher to find him, to no avail.

In the summer of 2015, the pace of applications made one final surge. In July alone, $500 million in refunds was disbursed — about $25 million per working day, $3 million every hour.

Mr. Shah may have had a hunch that the Danish tax refund machine was about to stop working. In May 2015, he met in London with his then-new compliance officer at Solo Capital, Navin Khokhrai. As Mr. Shah put it in the handwritten letter provided by his publicist, Mr. Khokhrai expressed profound reservations about Solo Capital’s business, telling his boss that he was unsure “whether the company was processing the trades correctly.” Mr. Shah assured him that he’d obtained all necessary legal clearances.

Mr. Khokhrai was apparently not convinced. He resigned soon after and Mr. Shah stated in the same handwritten letter that his former employee “submitted a whistle-blower letter to HMRC” — Her Majesty’s Revenue and Customs — “alleging that Solo had created fictitious client accounts and trading records in order to defraud the tax authorities in Denmark and Belgium.”

In August 2015, the dividends stopped flowing out of SKAT, though not because of sirens set off by anyone inside the agency. Rather, it took a tip from the British government to end the scheme, several Danish politicians said. The London offices of Solo Capital were later raided by Britain’s National Crime Agency and by July 2016 Solo Capital closed.

Image

Lisbeth Romer, who was Mr. Nielsen’s boss until she retired in 2013. “Sven’s job was reduced to bookkeeping, essentially, checking if a form was filled out properly,” she said. “A monkey could do it.”CreditCarsten Snejbjerg for The New York Times
At the time, Mr. Shah said he had done nothing improper. “Had they accused a large bank like Goldman Sachs the bank would have kicked back with a large team of lawyers,” he told Borsen, a Danish newspaper. “It’s easier to target a single individual.”

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‘This Was Fraud’
Danish authorities have been trying to unravel Mr. Shah’s handiwork for over three years. Much of his modus operandi was revealed, experts believe, in 2017 when police in Germany, who were acting at the behest of the Danes, used a search warrant to sift through the records of North Channel Bank, a small bank in Mainz, a city outside Frankfurt. A team of 60 investigators found that the bank was used by 27 of the American pension plans, which were ultimately paid a total of about $168 million by SKAT.

What investigators found is that the accounts didn’t actually own any shares of Danish companies, said Prof. Christoph Spengel, who served as an adviser to Germany’s Parliament during an inquiry into the questionable trades. He studied the results of the North Channel investigation, issued in a report by a German district attorney. He said that the 27 plans primarily traded with one another. One would place an order to short a chunk of shares of Danish stock — essentially, a promise to buy the shares once they dipped below a certain price.

Soon after, an order was placed by another of the 27 plans to buy the order for the shorted shares. That open buy order — essentially, a promise to purchase shares that the other plan still didn’t own — was proof enough for SKAT to approve a refund. Once the refund was issued, the buy order was canceled.

“This wasn’t a transaction, this wasn’t tax planning,” Professor Spengel said. “This was fraud.”

A spokeswoman for North Channel said the bank was cooperating with the authorities and had no comment.

After funds were wired to North Bank, Professor Spengel said, they were shunted to two banks, first in London, then another in Germany. Finally, he said, they were sent to accounts controlled by Mr. Shah and his wife, Usha.

Jack Irvine, Mr. Shah’s spokesman, said none of this was true.

“Neither Solo nor Sanjay have had anything to do with North Channel Bank,” he wrote in an email, “so there appears to be confusion, which is not unusual in this case.”

There has been outrage in Denmark over the SKAT scandal but so far the repercussions have been surprisingly limited. No ministers have been fired. The director of SKAT was laid off in August 2016, though Mr. Shah’s machinations were among several causes. A new investigation into the cum-ex disaster was ordered by the justice minister in February, which could last years. For now, politicians here seem to emphasize pragmatism over finger-pointing.

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“In the past, governments have fallen because of investigations like this,” said Jesper Petersen, a member of the opposition Social Democratic Party. “But we have yet to find any minister who saw evidence of this problem and ignored it.”

Sanjay Shah is preoccupied with his own troubles. In mid-September, a High Court of Justice judge in London entered a $1.3 billion default judgment against Solo Capital and a company it owned, Elysium Global, in a case filed by SKAT alleging fraud. Mr. Shah’s spokesman said his client didn’t respond to the lawsuit because both companies are now controlled by liquidators.

He also said that at the prodding of Danish officials, Britain, Germany and the United Arab Emirates have all frozen, though not confiscated, $660 million in assets belonging to Mr. Shah. The financial pinch is enough that Mr. Shah has been forced to put his house up for sale, the publicist added. Out of caution, the publicist said, Mr. Shah does not travel.

Fears of arrest and extradition are justified, said Henning Sorensen, an associate law professor at the University of Southern Denmark.

“Shah is free as long as he stays in Dubai,” he said. “He is like a bird living in a golden cage.”

Correction: October 5, 2018
An earlier version of the article included a picture that misidentified the person shown. It was Thomas G. Svaneborg, not Sven Nielsen, a Danish civil servant who was being interviewed by Mr. Svaneborg in a documentary that was the source of the picture.

Correction: October 7, 2018
An earlier version of this article misstated the place where Lenny Kravitz performed a concert. It was in London, not Dubai.


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Old 11-05-2018, 03:22 PM
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Wow, just saw this, what a great article. Could take a political angle and think through the implications of this type of fraud slipping past people who create SarBox-type laws, but more just amazing the brazenness of those willing to commit financial frauds.
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Old 11-05-2018, 04:48 PM
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This story popped up in my usual pension feed, and it obviously didn't belong in one of the pension threads.

Some financial shenanigans are truly mind-blowing, though not all are outright fraud (per se). This one, though...

I can see why people have problems with being able to tell the difference between complicated financial deals that fell apart/were surprisingly lucrative, and out-and-out fraud.
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Old 07-05-2019, 11:44 AM
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https://www.theguardian.com/world/20...m_medium=email


Quote:
How Britain can help you get away with stealing millions: a five-step guide
Illustration: Leon Edler/The Guardian
Dirty money needs laundering if it’s to be of any use – and the UK is the best place in the world to do it. By Oliver Bullough


Spoiler:
leptocrats, fraudsters and crooks steal hundreds of billions of pounds, dollars and euros from the rest of us every year, but that gives them a problem: how can they stop the rest of us knowing what they’ve done with the proceeds? They have to stop their haul looking suspicious, to cleanse it of any criminal taint, or face losing their hard-stolen cash.

Money laundering, as this process is known, is notoriously difficult to uncover, investigate and prosecute. Occasionally, however, an insider breaks cover – someone such as Howard Wilkinson, who blew the whistle on perhaps the largest money-laundering scheme in history, the movement of €200bn of suspect funds through the Estonian branch of Denmark’s biggest bank between 2007 and 2015, most of it earned in the dodgier corners of the former Soviet Union, some perhaps belonging to Vladimir Putin himself.


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“No one really knows where this money went,” Wilkinson, a former Danske Bank employee, told Denmark’s parliament last year. Once the money had got into the global financial system, “it was clean, it was free.”

Britain’s most famous money launderer is HSBC, thanks to its systematic cleansing of the earnings of the Latin American drug cartels over the second half of the last decade, for which it was fined $1.9bn by the US government in 2012. But that was a tiny operation compared to the Danske Bank scandal. If gathered together, the suspect funds moved through the bank’s Estonian outpost could buy HSBC, with more than enough left over to buy Danske Bank too.

The scandal has been big news in Denmark and Estonia, but barely grazed public consciousness in the UK. This is strange, because Britain played a key role. All of the owners of the bank accounts that first aroused Wilkinson’s suspicions had their identity hidden behind corporate structures registered in the UK – including Lantana Trade LLP, the one that may have been connected to Putin. That means this is not just a Russian, Estonian or Danish scandal, but something far closer to home. In November, Wilkinson told a European parliament committee that the countries hosting these companies are just as culpable. “Worst of all is the United Kingdom,” he said. “The United Kingdom is an absolute disgrace.”

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The British government is supposedly committed to tackling grand corruption and financial crime, yet Britain’s involvement in this mega-scandal has never been mentioned in parliament, or been addressed by ministers. It is far from the first time that British companies have been involved in high-profile money-laundering. Among the characters who have used British shell companies to hide their money are Paul Manafort, disgraced former chairman of Donald Trump’s election campaign, and Viktor Yanukovich, overthrown president of Ukraine, among thousands of lower-profile opportunists.

It is increasingly hard to avoid the conclusion that Britain tolerates this kind of behaviour deliberately, because of the money it brings into to our economy.

That being so, why should hardened criminals be the only ones getting rich off Britain’s lax enforcement? Here’s how you too can use British shell companies to cleanse your dirty money – in five easy steps.

businessman on desert island dreaming of Big Ben/UK
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Illustration: Leon Edler/The Guardian
Step 1: Forget what you think you know
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If you have ambitions to steal a lot of money, forget about using cash. Cash is cumbersome, risky and highly limiting. Even if Danske Bank had used the highest denomination banknotes available to it, that €200bn would have weighed 400 tonnes, an amount four times heavier than a blue whale. Just moving it would have been a serious logistical challenge, let alone hiding it. It would have been a magnet for thieves, and would have attracted some unwelcome questions at customs.

If you want to commit significant financial crime, therefore, you need a bank account, because electronic cash weighs nothing, no matter how much of it there is. But that causes a new problem: the bank account will have your name on it, which will alert the authorities to your identity if they come looking.

This is where shell companies come in. Without a company, you have to act in person, which means your involvement is obvious and overt: the bank account is in your name. But using a company to own that bank account is like robbing a house with gloves on – it leaves no fingerprints, as long as the company’s ownership information is hidden from the authorities. This is why all sensible crooks do it.

The next question is what jurisdiction you will choose to register your shell company in. If you Google “offshore finance”, you’ll see photos of tropical islands with palm trees, white sands and turquoise waters. These represent the kind of jurisdictions – “sunny places for shady people” – where we expect to find shell companies. For decades, places such as Anguilla, the British Virgin Islands, Gibraltar and others sold the companies that people hide behind when committing their crimes. But in recent years, the world has changed – those jurisdictions have been cajoled, bullied and persuaded to keep good records of company ownership, and to reveal those records when police officers come looking. They are no longer as useful as they used to be.

So where is? This is where the UK comes in. When it comes to financial crime, Britain is your best friend.

Here is the secret you need to know to get started in the shell company game: the British company registration system contains a giant loophole – the kind of loophole you can drive a billion euros through without touching the sides. That is why UK shell companies have enabled financial crime all over the world, from giant acts of kleptocratic plunder to sad and squalid frauds that rob pensioners of their retirement savings.

So, step one: forget what you think you know about offshore finance. The true image associated with “shell companies” these days should not be an exotic island redolent of the sound of the sea and the smell of rum cocktails, but a damp-stained office block in an unfashionable London suburb, or a nondescript street in a northern city. If you want to set up in the money-laundering business, you don’t need to move to the Caribbean: you’d be far better off doing it from the comfort of your own home.

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Illustration: Leon Edler/The Guardian
Step 2: Set up a company
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The second step is easy, and involves creating a company on the Companies House website. Companies House maintains the UK’s registry of corporate structures and publishes information on shareholders, directors, accounts, partners and so on, so anyone can check up on their bona fides.

Setting up a company costs £12 and takes less than 24 hours. According to the World Bank’s annual Doing Business report, the UK is one of the easiest places anywhere to create a company, so you’ll find the process pretty straightforward.

This is another reason not to bother with places like the British Virgin Islands: setting up a company there will cost you £1,000, and you’ll have to go through an agent who will insist on checking your identity before doing business with you. Global agreements now require agents to verify their clients’ identity, to conduct the same kind of “due diligence” process demanded when opening a bank account. Almost all the traditional tax havens have been forced to comply with the rules, or face being blacklisted by the world’s major economies.

This means there are now few jurisdictions left where you can create a genuinely anonymous shell company – and those that remain look so dodgy that your company will practically scream “Beware! Fraudster!” to anyone you try to do business with.

But Britain is an exception. While it has bullied the tax havens into checking up on their customers, Britain itself doesn’t bother with all those tiresome and expensive “due diligence” formalities. It is true that, while registering your company on the Companies House website, you will find that it asks for information such as your name and address. On the face of it, that might look worrying. If you have to declare your name and address, then how will your company successfully shield your identity when you engage in industrial-scale fraud?

Do not be concerned, just read on.

Leon Edler
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Illustration: Leon Edler/The Guardian
Step 3: Make stuff up
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This third step may be the hardest to really take in, because it seems too simple. Since 2016, the UK government has made it compulsory for anyone setting up a company to name the individual who actually owns it: “the person with significant control”, or PSC. Before this reform it was possible to own a company with another company and, if that company was not British, the actual owner could hide their identity.

In theory, the introduction of the PSC rule should have prevented the use of a British shell company to anonymously commit financial crime. Don’t worry though, because it didn’t. Here is the secret: no one checks the accuracy of the information you provide when you register with Companies House. You can say pretty much anything and Companies House will accept it.

So this is step three: when you’re entering the information to create your company, make mistakes. Suspicious typos are everywhere once you start delving into the Companies House database. For instance, many money-laundering investigations involving the former USSR eventually bump against a Belgian-based dentist, whose signature adorns the accounts of hundreds, if not thousands, of different companies, including Lantana Trade LLP. When he was tracked down to his home address in Belgium last year, the dentist claimed that his signature had been forged and that he had no connection to the companies. Whoever was filing the documents was remarkably imaginative when it came to spelling his name. Every document filed with the UK registry has the same signature, but his name is spelt in at least eight different ways: Ali Moulaye, Alli Moulaye, Aly Moulaye, Ali Moyllae, Ali Moulae, Ali Moullaye, Aly Moullaye and, oddly, Ian Virel.

With such boundless opportunities for creativity, why not have fun? Recently, while messing about on the Companies House website, I came across a PSC named Mr Xxx Stalin, who is apparently a Frenchman resident in east London. It is perhaps technically possible that Xxx is a genuine name given to Mr Stalin by eccentric parents – but, if so, such eccentric parents are remarkably widespread.

Xxx Stalin led me to a PSC of a different company, who was named Mr Kwan Xxx, a Kazakh citizen, resident in Germany; then to Xxx Raven; to Miss Tracy Dean Xxx; to Jet Xxx; and finally to (their distant cousin?) Mr Xxxx Xxx. These rabbitholes are curiously engrossing, and before long I’d found Mr Mmmmmmm Yyyyyyyyyyyyyyyyyy, and Mr Mmmmmm Xxxxxxxxxxx (correspondence address: Mmmmmmm, Mmmmmm, Mmm, MMM), at which point I decided to stop.

As trolling goes, it is quite funny, but the implications are also very serious, if you think about what companies are supposed to be for. Limited companies and partnerships have their liability for debts limited, which means that if they go bust, their investors are not personally bankrupted. It’s a form of insurance – society as a whole is accepting responsibility for entrepreneurs’ debts, because we want to encourage entrepreneurial behaviour. In return, entrepreneurs agree to publish details about their companies so we can all check what they are up to, and to make sure they’re not abusing our trust.

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The whole point of the PSC registry was to stop fraudsters obscuring their identities behind shell companies, and yet, thanks to Companies House’s failure to check the information provided to it and thus to enforce the rules, they are still doing so. How exactly could society find someone who gives their identity as Mr Xxxxxxxxxxx, and their address as the chorus of a Crash Test Dummies song?

Even when the company documents provide an actual name, rather than a random selection of letters, the information is often very hard to believe. For example, in September, Companies House registered Atlas Integrate Services LLP, which declared a PSC with a date of birth that showed her to be just two months old at the time. In her two months of life, she had not only found time to get started in business, but also apparently to get married, since she was listed as “Mrs”. The LLP’s incorporation document states: “This person holds the right, directly or indirectly, to appoint or remove a majority of the persons who are entitled to take part in the management of the LLP”. It does not explain how exactly a babe in arms would achieve this.

This is not a one-off. The anti-corruption campaign group Global Witness looked into PSCs last year, and found 4,000 of them were under the age of two. One hadn’t even been born yet. At the opposite end of the spectrum, its researchers found five individuals who each controlled more than 6,000 companies. There are more than 4m companies at Companies House, which is a very large haystack to hide needles in.

You don’t actually even need to list a person as your company’s PSC. It’s permissible to say that your company doesn’t know who owns it (no, you’re not misunderstanding; that just doesn’t make sense), or simply to tie the system up in knots by listing multiple companies in multiple jurisdictions that no investigator without the time and resources of the FBI could ever properly check.

This is why step three is such an important one in the five-step pathway to creating a British shell company. If you can invent enough information when filing company accounts, then the calculation that underpins the whole idea of a company goes out of the window: you gain the protection from legal action, without giving up anything in return. It’s brilliant.

But don’t dive in just yet; there are two more steps to follow before you can be confident of doing it properly.

Leon Edler
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Illustration: Leon Edler/The Guardian
Step 4: Lie – but do so cleverly
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Most of the daft examples earlier (Mmmmmmm, Mmmmmm, Mmm, MMM) would not be useful for committing fraud, since anyone looking at them can tell they’re not serious. Cumberland Capital Ltd, however, was a different matter. It looked completely legitimate.

It controlled a company called Tropical Trade, which, in October 2016, cold-called a 63-year-old retired postal worker in Wisconsin identified in court filings as “MJ”. On the phone, a salesman offered her an investment product, which – he said – would make returns of 81%. He chatted about his wife and family and came across as “kind and trustworthy”, MJ later told police. “During two weeks in November of 2016, she allowed Tropical Trade to charge $34,500 on her Mastercard and Visa credit cards,” the filing states. When she tried to get her money back, her emails and calls were ignored, and she never saw it again.

She had fallen victim to the global epidemic of binary-options fraud. Binary options are a form of betting on the stock market that are now banned in many countries – including Israel, where much of the industry was based – since fraudsters used the idea to fix odds, keep winnings and target the vulnerable. According to the FBI, taken as a whole, these fraudsters may have been fleecing their marks of up to $10bn a year.

When US police came looking for the people behind Cumberland Capital Ltd, they searched the Companies House website and found that its director was an Australian citizen called Manford Martin Mponda. Anyone researching binary-options fraud might quickly conclude that Mponda was a kingpin. He was a serial company director, with some 80 directorships in UK-registered companies to his name, and features in dozens of complaints.

It already looked like a major scandal that British regulation was so lax that Mponda could have been allowed to conduct a global fraud epidemic behind the screen of UK-registered companies, but the reality was even more remarkable: Mponda had nothing to do with it. He was a victim, too.

Police officers suspect that, after Mponda submitted his details to join a binary-options website, his identity was stolen so it could be used to register him as a director of dozens of UK companies. The scheme was only exposed after complaints to consumer protection bodies were passed onto the City of London police, who then asked their Australian colleagues to investigate.

Companies House has since deleted Mponda’s name from documents related to dozens of other companies, but it was too late for “MJ” and thousands of other victims. A small number of the binary-options masterminds have been caught, but the money they stole has vanished into the labyrinth of interlocking shell companies, and the individuals behind Cumberland Capital have not been identified.

“Most of the binary-options firms claimed to be in the UK. People are more likely to deal with a UK company than a company in Israel, as it has a better reputation when it comes to finances,” said DS Alex Eristavi of the City of London Police’s investment fraud team. “Companies House records are provided in good faith. There’s not so much scrutiny as goes on in, say, Italy or Spain, where you have to go through the lawyers and do it properly. Here the information is submitted voluntarily. People don’t realise that, they take it as being carved in stone.”

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So here is step four: don’t just lie, lie cleverly. British companies look legitimate, so look legitimate yourself. Steal a real person’s name, and put that on the company documents. Don’t put your own address on the documents, rent a serviced office to take your post: Paul Manafort used one in Finchley, the binary options fraudsters went to Liverpool, and Lantana Trade was based in the London suburb of Harrow.

The financial documents you file look better if they’ve been audited by an accountant, so file genuine-looking accounts, and claim they’ve been audited by a proper accountancy firm. That isn’t checked either, so just find an accountant online and claim you’ve employed them. Accountants quite regularly find themselves contacted about accounts they have never seen before, and make the unwelcome discovery they have been personally named as having approved them.

Steps 1-4: A brief recap
So, to summarise the tricks so far, if you want to create an impenetrable weapon for committing fraud: first, forget about the supposed offshore centres and come to the UK; then take advantage of the super-easy Companies House web portal; then enter false information; and finally make sure that information is plausible enough to deceive a casual observer.

We’re nearly there. It’s time for the final step.

Leon Edler
Illustration: Leon Edler/The Guardian
Step 5: Don’t worry about it
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I know what you’re thinking: it cannot be this easy. Surely you’ll be arrested, tried and jailed if you try to follow this five-step process. But if you look at what British officials do, rather than at what they say, you’ll begin to feel a lot more secure. The Business Department has repeatedly been warned that the UK is facilitating this kind of financial crime for the best part of a decade, and is yet to take any substantive action to stop it. (Though, to be fair, it did recently launch a “consultation”.)

Before 2011, only registered company-formation businesses could access Companies House’s web portal, which meant there was a clear connection between an actual verified individual and companies being created, since you could see who had created them. There was still fraud, of course, but it was relatively easy to understand who was responsible.

In 2011, then-business secretary and Liberal Democrat MP Vince Cable decided to open up Companies House, and everything changed. After Cable’s reform, anyone with an internet connection, anywhere in the world, could create a UK company in about as much time as it takes to order a couple of pizzas, and for approximately the same amount of money. The checks were gone; there was no longer any connection to a verifiably existing person; it was as easy to create a UK company as it was to set up a Twitter account. The rationale was that this would unleash the latent entrepreneurship within the British nation by making it easy to turn business ideas into thriving concerns.

Instead of unchaining a new generation of British businesspeople, however, Cable let slip the dogs of fraud. At first, this rather technical modification to an obscure corner of the British machinery of state did not garner much attention, but for people who understood what it meant it was alarming. One such person was Kevin Brewer, a Warwickshire businessman who had been in the company forming business for decades, and who attempted to warn Cable of the potential risks inherent in the new policy.

The method Brewer chose to make his warning was perhaps slightly unwise. He registered a company – John Vincent Cable Services Ltd – with Vince Cable listed as the sole shareholder, then wrote to the business secretary to explain what he had done. It was intended as a demonstration of how easy it is to file unverified information with Companies House, but it failed to focus attention in the way he had hoped. Jo Swinson MP, who worked with Cable, wrote Brewer a stern letter, telling him he should not have done what he did, and assured him that the new system was very good. Brewer concluded that the coalition government was not going to take his concerns seriously.

In 2015, there was a general election, Cable lost his seat, the Conservatives formed a majority government, and Brewer decided to try again with the same stunt. He created Cleverly Clogs Ltd, a company apparently owned by three people: James Cleverly MP, Baroness Neville-Rolfe, who was a minister in the business department, and a fictional Israeli called Ibrahim Aman. Brewer was no more successful in persuading Tories than he had been at persuading Liberal Democrats, however. At that point, he gave up on his attempt to show the government it was enabling limitless opportunities for fraud.

There is, it turns out, a simple explanation for why successive governments have failed to do anything about it. Last year, when challenged in the House of Commons, Treasury minister John Glen stated that Companies House simply couldn’t afford to check the information filed with it, since that would cost the UK economy hundreds of millions of pounds a year. This is almost certainly an exaggeration. Anti-corruption activists who have looked at the data say the cost would in fact be far less than that, but the key point is that the reform would pay for itself. As Brewer has pointed out, “the burden of cost is one thing. But the cost of fraud is far greater.”

VAT fraud alone costs the UK more than £1bn a year, while the National Crime Agency estimates the cost of all fraud to the UK economy to be £190bn. The cost to the rest of the world of the money laundering enabled by UK corporate entities is almost certainly far higher. Spending hundreds of millions of pounds to prevent hundreds of billions’ worth of crime looks like a sensible investment, however you look at the data, particularly since the remedy – obliging Companies House to check the accuracy of the information filed on its registry – would be so simple. (When I put this to Companies House, they provided the following statement: “We do not have the statutory power or capability to verify the accuracy of the information that companies provide. However, tackling abuse of the register is a key priority and that’s why we work closely with law enforcement partners to assist their investigations into suspected cases of economic crime and other offences.”)

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That is not to say that the government has taken no action. It is illegal to deliberately file false information in registering a company, and punishable by up to two years in prison. In late 2017, Companies House at last alerted prosecutors to the activities of one persistent offender. The target of the prosecution was Kevin Brewer, for the crime of trying to inform politicians about how easy it is to create fake companies.

He was summonsed to appear at Redditch magistrates’ court and, on legal advice, pleaded guilty in March 2018. After adding together his fine, and the government’s costs, he is £23,324 the poorer – quite a high price to pay for blowing the whistle. He is paying it off at £1,000 a month, and remains the only person ever convicted of spoofing the UK’s corporate registry, which is quite a remarkable demonstration of Companies House’s failure to do its job.


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Following his conviction, Brewer’s company National Business Register was removed from the list that Companies House publishes of company formation agents, which had been a key source of new business for him. “There are company formation agents on that list who have permitted huge amounts of fraud, and I’ve been excluded for trying to expose it. I find it incredible that they should turn a blind eye,” he told me. “Is it deliberate? Are they actually trying to get this money into the UK? I don’t want to believe it, but I can’t explain it any other way.”

We don’t know the answer to that, but it does give us lesson number five: don’t worry about it. Commit as much fraud as you like, fill your boots, the only reason anyone would care is if you kick up a fuss. And what sensible fraudster is going to do that?


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