Tuesday, April 30, 2013

Russian Money Laundering in London - A Modern Morality Tale

Last night, the BBC's Panorama programme showed a programme outlining a modern morality tale. The case involves a number of Russian businessmen who have fallen out with each other and are busily trying to play 'catch-up' over who owes what to whom and who is going to pay. It is a modern version of 'last man standing'. and it is being fought out with the bodies left lying on the leafy roads of St George's Hills and in London streets.

This blog is not the place to dissect the rights and wrongs of this convoluted case which involves the usual detritus of Russian billionaires, former State assets, stolen companies, allegedly fraudulent tax rebates, money laundering, investment companies, Swiss bank accounts, etc, etc.

However, what this case does offer is a very useful case study and cautionary tale as to the present state of money laundering compliance in the UK today, and who is pulling the strings of State!

We are caught on the horns of a dilemma. 

On the one hand, the Coalition Government and its toadying ministers and opportunist fellow-travellers, are all busily making London the home of choice for every foreign crook, wiseguy, mafiosi, and biznizmenii! 

Our political masters are desperate to encourage any wealthy foreign sleazebag who wants to relocate to London to do so. The red carpet will be rolled out for them, HM.R&C will fall over backwards to carve out a sweetheart deal for them, (a £4.5 billion sweetheart deal announced today - how much should it really have been? ), potless football clubs will queue up to offer their near-bankrupt stock for investment and money laundering purposes, and every conceivable opportunity will be made to make them feel welcome.

If they want to sue each other, why not come to London and do it here! That at least is Boris Johnson's call to arms.

Bo-Jo, never one to miss a cheap trick has urged Russia's oligarchs to sue each other in the London courts, in direct contradiction of the government's policy of discouraging "libel tourism".

"If one oligarch feels defamed by another oligarch, it is London's lawyers who apply the necessary balm to the ego," Johnson told a conference in London.

"I have no shame in saying to the injured spouses of the world's billionaires: if you want to take him to the cleaners, take him to the cleaners in London, because London cleaners will be grateful for your business."

Johnson, who clearly still believes in the value of the now-denounced 'trickle-down' economics, has argued that such cases, with the associated legal fees, are welcome. As usual, he has said the money would go "into the pockets of chefs and waiters and doormen and janitors and nannies and tutors and actors and aromatherapists - and keep the wheels of the economy turning, and put bread on the tables of some of the poorest and hardest-working families".

This is to ignore the army of greasy fat-cat lawyers whose trousers will bulge even more agape at the fees their putative Russian litigators will stuff into their pockets!

On the other hand, inviting the wealthy Russians to come and live here in the UK is to hold out a hostage to fortune. 

Russia is a quasi-criminal state, a semi-licensed kleptocracy, in which the rich, who have grown very wealthy indeed from the looting of the State, maintain their position by paying tribute in the form of modern Danegeld to whomsoever is designated as the recipient of such payments, prior to finding their way into the accounts of the politicians and other organised criminals who control them.

It has been like this since Brezhnev first did his dubious deals with the 'Vory v zhakony' the 'thieves in law', back in the bad old days when the underground black market was really the only remaining means of exchange alive in Russia. In return for a percentage of the take, made payable to selected KGB front operations, the Government permitted the crooks to operate the black market without interference. Without it, huge numbers of people would have faced slow starvation. The men, and their descendents, who ran these fronts, those that survived the constant internecine struggles, are now beyond the reach of the ordinary law and semi-respectable, insofar as it is ever possible to achieve that status in Russia.

The Russian Government is willing to play along with these Oligarchs, just so long as they do not seek to involve themselves with the political process. However, if they do interfere, they can quickly find themselves on the wrong end of the strong arm of the Russian State.

Much safer then to get out, while you can, and seek a safer haven elsewhere, somewhere with all the facilities a recently wealthy Russian might enjoy, with good schools, and all the business facilities that the modern kleptocrat needs, in fact somewhere very much like London.

Now, this is where the dilemma begins to become more acute.

In the UK we have stringent laws to prevent the proceeds of criminality from being laundered through our financial institutions. Last night's Panorama programme demonstrated vast sums of fraudulent tax evasion being laundered through the international banking process, and at one important stage, being moved through the bank accounts of an English company.

The programme presenter entertained a degree of purported shock and concern that a UK company might have been involved in helping to launder the criminal proceeds of what is, by any standards, a significant fraud allegation!

The truth is much more prosaic. UK companies have been routinely used to launder criminal money out of Russia and the former old Com-bloc countries for many years.

The architects of these schemes make use of a little-known phenomenon which is that where a UK company is not carrying on any business or if the Registrar of Companies has reason to believe that a company is not carrying on business or is not in operation, its name may be struck off the register and dissolved without going through liquidation or any other kind of investigation.

This is a fantastic facility of which much use is made by professional launderers, and it works like this.

The person creating the laundering chain, does not want to leave behind any unnecessary avenues for further investigation. So, he will create a UK limited company as part of the process, the aim being to obtain a UK bank account.

It is widely recognised and believed among foreign investigatory agencies that the UK has an enviable anti-money laundering investigative process, so it is a widely-held fiction that if there is a UK company involved in a financial transaction, little additional work needs to be done because the very existence of a UK company, gives the whole scheme credibility. 

Once the bank account has been acquired, the dubious transaction is carried out, the money paid through the account of the UK company and then moved on again as part of the laundering process. It is highly unlikely that the UK bank will have done anything about the payment, indeed, it is unlikely that they will have picked it up as there is usually only one transaction, and most banks' compliance monitoring software is not calibrated to understand this feature.

Then, all the launderer needs to do is to wait, because if the UK company submits no annual returns to the Registrar of Companies, the Registrar will later assume that the company is not trading or carrying out any business, and conveniently wind it up, and remove its name from the Register of Companies. This trick has been used countless times by criminals to create structures to commit fraud and money laundering, indeed HMRC have in the past uncovered evidence of literally thousands of such companies lying idly around waiting to be struck off.

This is what has happened in the case that Panorama were reporting, and it comes as no surprise to learn that yet again, London had become the focal point for the laundering of this allegedly fraudulent money, paid into the account of the UK company from somewhere in Latvia. The Latvian connection should have been more than enough to set the laundering alarm bells ringing, the Russians have used the services of the many Latvian enterprises for many years to move their klepto-funds around the world! But London remains the true focal point for every Russian wise-guy!

This is because we are offering these services to all these foreign crooks and we do so openly. Our banks offer secure money laundering facilities, and even, as HSBC have so amply demonstrated, will act as principals in the laundering process themselves!

We have all the professional service firms any foreign tax fugitive could need. I would not be at all surprised if the corporate structure set up to meet the needs of these alleged criminals was created by an American law firm, either here in London or in Moscow.

That is because for many years US law firms operating in foreign jurisdictions were not subject to suspicion-reporting requirements under US law, and conveniently ignored their legal obligations under the laws of the host country. One US-based law firm I once had dealings with organised a significant level of fugitive tax-structures for their Russian clients, and by being present in London, were able to make significant use of the availability of the global offshore facilities available here.

This is the final key to the conundrum and one which is now in danger of taking the solutions out of the hands of those who would seek to use them for legitimate means!

In a superb article entitled;

 "...Austerity exposes the global threat from tax havens..." by Jeffrey Sachs, the contemporary criminogenic status of the world's tax havens is defined!

"...Week after week, Americans and Europeans worn down by budget austerity have learnt about the secret accounts of their politicians, tax evasion by leading companies and hot money destabilising the world economy. The darker truth is that these havens are not gaps in the world’s financial system; they are the system...

"...There are thousands more like them working with the tax authorities to keep their money out of reach. Banks such as HSBC and UBS have been caught in the money laundering that facilitates this process...

"...How much tax revenue is lost to the global havens? Here, too, we can only guess but the numbers are likely to be vast. Recent estimates by the Tax Justice Network suggest that deposits are in the range of $21tn...

"...The havens serve countless purposes, yet not one is for the social good. They support massive tax evasion. They underpin a global system of bribery to corrupt officials. They service the accounts of drug runners, arms traders and terrorist groups. The prime movers of the world’s tax-havens are the US, Switzerland and the UK. Indeed, many of the leading havens, including the British Virgin Islands, Cayman and Bermuda, are British Overseas Territories. 

"...The public’s animus was greatly accelerated by the Cyprus crisis. The island has for many years been a notorious secrecy-and-tax haven, especially for Russian money. Yet this was winked at rather than controlled. Then Cyprus blew up – a reminder of how an unregulated financial centre can quickly turn into a mortal threat to the world economy..."

The bottom line for us in the UK is that the Coalition Government, together with the shadow army of semi-official specialist advisers, apparatchiks, private sector modernisers, security consultants, former special forces close-protection providers, ex-chief constables, superannuated and paid-off spooks, Foreign Office clowns and Security Service groupies, have become an alternative Executive Control mechanism, ready and willing to provide whatever services the Russian kleptocrats, and indeed, any other wealthy foreign wise-guy demands, because for them and their 'pragmatic' friends, the Offshore sector now is where the real money operates and resides, and they want to maintain their hegemony in these regions and its control, so if doing deals with dirty rotten foreign scoundrels is part of that price, then so be it! 

Just as in the 19th Century when Palmerston would send a gun-boat if any part of the British Empire was threatened by Johnny Foreigner, today, the need is to protect the autonomy and the independence of the Secret Offshore Sector, owing allegiance, as four-fifths of it still does to the old country back in Blighty!  

This is why the UK Government will never truly impose proper anti-money laundering controls, because to do so would be to undermine the system which keeps foreigners' dirty and criminal money from travelling through the City of London, and enables Cameron and Osborne's school and University chums to wax fat on the proceeds, whether from legal fees, accounting services, banking advice, or just plain old-fashioned relocation services!

They will never really force the banks to get their laundering compliance into sensible shape, because to do so would be to impose intolerable pressure on the offshore sector which would mean that the UK miss out on vast sources of interesting money which the chaps in Threadneedle Street would rather like to have a sniff at!

The financial regulators will never pay anything more than lip-service to dealing with the criminality of the UK banking sector, because we want to be able to offer these financial services to foreign rotters, and we cannot give them the full service provision in return if we are complying in full with some EU regulation!

The shadowy men and women in the big banks, law firms and consulting companies who service the needs of the global crooks and wideboys, realise that these are now the players with access to the real money. That money is tucked away in the offshore sector and protected day and night by secrecy facilities. So if their Corporate Partners harbour any ambitions of maintaining their million pound drawings, then they way forward is to make sure that the offshore sector continues to be protected and cushioned. 

These are the same men and women who provide the Coalition Government with their services free to reconstruct the tax-treatment of the corporate sector, on the understanding that they can take their valuable knowledge and sell it to their dodgy foreign clients to keep their money coming in to the UK place!

The on-shore banking sector is finished, the banks saw to that, siphoning the money they stole, off balance sheet, and into the secrecy sector! The real money is now in the hands of international organised criminals, and they are willing to pay to keep it that way. And that is why Russians and the other crooks will always be welcome in London, let us not have any illusions!


Jason said...

A great glimpse into how these setups work, thanks.

The Russian Government is willing to play along with these Oligarchs, just so long as they do not seek to involve themselves with the political process. However, if they do interfere, they can quickly find themselves on the wrong end of the strong arm of the Russian State.

Indeed -- and even after they’ve left.

You might be as interested as I was in Judy Bachrach’s article here:

Kremlin Critics Not Safe in UK

Is it my imagination, or did we British not once understand justice a little better than this? As she points out, Berezovsky was probably a hit, like Litvinenko his friend, and several others. None of the cases has been solved. If you want to kill a political enemy, do it in Britain. Arrangements can be made.

It’s not just financial policing that is being heavily traduced, is it now?

AbogadoNZ said...

The whole ghastly financial edifice exposed. Thank you Rowan. There will no doubt be many people who, were they aware, would simply dismiss this along the lines of; "it doesn't affect me, so why should I worry?" To them I say it does affect you if you live within 70 miles of London as house prices have become distorted and the proportion of your income going on mortgages even at current low rates is way too high. As and when the rates return to the long term normal of 7% there will be chaos and then it will be too late.

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