How to get away with stealing a small fortune (or even a large one)
“You no longer have to fly to the traditional tropical island with palm trees,
white sands and turquoise waters”
From petty crooks to drugs cartels, many of the world’s criminals have one thing in common – their dirty money is laundered
using a loophole in UK law that makes Britain the best friend of financial fraud. Why not join them, asks Oliver Bullough
Kleptocrats, 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 to 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 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 s200bn of suspect funds through the Estonian branch of Denmark’s biggest bank between 2007 and 2015, most of it earned in dodgy corners of the former Soviet Union, some perhaps belonging to Vladimir Putin himself. “No one really knows where this money went,” Wilkinson, a former Danske Bank employee, told Denmark’s parliament last year. Once it had got into the global financial system, “it was clean, 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 enough left to buy Danske too.
The scandal has been big news in Denmark and Estonia, but barely grazed public consciousness here. Which 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 hearing that the states hosting these companies are just as culpable. “Worst of all is the UK,” he said. “The role of the UK is an absolute disgrace.”
The British Government is supposedly committed to tackling financial crime, yet Britain’s involvement in this mega-scandal has never been addressed by ministers. It is far from the first time that British companies have been involved in high-profile moneylaundering. Among the thousands who have used British shell companies to hide their money are Paul Manafort, the disgraced former chairman of Donald Trump’s election campaign, and Viktor Yanukovych, the overthrown president of Ukraine.
It is hard to avoid concluding that Britain tolerates such behaviour deliberately, because of its benefits. That being so, why should criminals be the only ones getting rich off our lax enforcement? Here’s how you too can use British shell companies to cleanse your dirty money – in five easy steps.
Step 1: forget what you think you know
If you plan to steal a lot of money, forget about using cash. Cash is cumbersome, risky and highly limiting. Instead, you need a bank account – because electronic cash weighs nothing, no matter how much you have. That’s where shell companies come in. Without a company, you have to act in person, which means a bank account 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 details are hidden from the authorities.
And to do that, you no longer have to fly to the traditional tropical island with palm trees, white sands and turquoise waters. For decades, places such as Anguilla and the British Virgin Islands sold the companies that people hid behind when committing fraud. But a loophole in the UK company registration system means that when it comes to financial crime, Britain is now your best friend. In recent years, British shell companies have enabled financial crime all over the world, from giant acts of kleptocratic plunder to squalid frauds robbing pensioners of their savings. So, step one: forget what you think you know about offshore finance. If you want to set up in the money-laundering business, you don’t need to move to the Caribbean: you’re better off doing it at home.
Step 2: set up a company
The second step is easy, and involves creating a company on the Companies House website, where anyone can check its bona fides. To do this costs £12, and takes around 24 hours. According to the World Bank, the UK is one of the easiest places to create a company, so you should find the process straightforward: that’s another reason not to bother with places like the British Virgin Islands, where setting up a company will these days cost you £1,000, and you’ll have to go through an agent who will insist on checking your identity. Britain itself doesn’t bother with all those tiresome and expensive “due diligence” formalities. It is true that,
while registering your company, you’ll find the Companies House website asks for your name and address. On the face of it, that might look worrying. If you have to declare personal details, then how can you successfully shield your identity when you engage in industrial-scale fraud? But don’t be concerned: read on.
Step 3: make stuff up
This step may be the hardest to 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. 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, 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 London. Before long I also found Mr Mmmmmm Yyyyyyyyyyyy, and Mr Mmmmmm Xxxxxxxxxxx (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 have their liability for debts limited, which means that if they go bust, investors are not personally bankrupted. 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 information provided to it, they are still doing so.
Even when company documents provide an actual name, the information is often hard to believe. When the campaign group Global Witness looked into PSCs last year, it found 4,000 of them were apparently aged under two. At the other end of the scale, it also found five individuals who each controlled more than 6,000 companies. With more than four million companies at Companies House, it’s clearly a very large haystack to hide needles in.
Step 4: lie – but do so cleverly
Many of the examples I’ve cited would not be useful to fraudsters, since anyone looking could tell they’re fake. By contrast, most British companies look legitimate – so look legitimate yourself. Steal a real person’s name, and put that on the forms. Don’t put your own address on the documents, rent a serviced office to take your post. The financial documents you file will also look better if they’ve been audited by an accountant, so file genuine-looking accounts, and claim they’ve been audited by a proper firm. That isn’t checked either, so just find an accountant online and claim you’ve employed them. When the information you’ve amassed looks reasonably plausible, it’s time for the final step.
Step 5: don’t worry about it
I know what you’re thinking: it cannot be this easy. Surely you’ll be arrested if you follow this process. But if you look at what British officials actually do, you’ll feel a lot more secure. The Department for Business has 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. Since 2011 – when then-business secretary Vince Cable decided to encourage entrepreneurship by opening up Companies House – anyone with an internet connection has been able to create a UK company for the cost of a couple of pizzas. At first, the change did not garner much attention, but for people who understood what it meant, it was alarming. One such person was Kevin Brewer, a businessman with long experience of forming companies, who attempted to warn Cable of the risks of 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’d done. It was intended to show how easy it is to file unverified information with Companies House, but all it elicited was a stern letter assuring him of the new system’s merits. Brewer concluded that the coalition government was not going to take him 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. But Brewer was no more successful in persuading Tories than he had been at persuading Liberal Democrats. At that point, he gave up.
So why have successive governments failed to remove the loophole? It turns out there’s a simple explanation. When challenged in the Commons last year, Treasury Minister John Glen said that Companies House simply couldn’t afford to check the information filed with it, since it would cost hundreds of millions of pounds a year. That is almost certainly an exaggeration – but even if not, the point is the reform would pay for itself. VAT fraud alone costs the UK more than £1bn a year, while the cost of all fraud to the UK economy is estimated 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 to prevent hundreds of billions’ worth of crime looks a sensible investment.
That’s not to say the Government has taken no action. It is illegal to deliberately file false information in registering a company, and punishable by two years in prison. In 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. Summonsed to appear at Redditch magistrates’ court, he pleaded guilty on legal advice 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.
We don’t know why the authorities went after the man who tried to tell the Government it was enabling limitless opportunities for fraud – or whether they are deliberately turning a blind eye to the activities of others. But Brewer’s case 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?
A longer version of this article appeared in The Guardian. © Guardian News & Media 2019.
“The Companies House website lists one company controlled by Mr Xxx Stalin and another by Mr Mmmmmm Yyyyyyyyyyyy”