Some £80bn laundered through UK shell companies

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Hundreds of UK shell companies, half of which are registered to just eight addresses, are at the heart of £80bn in cases of corruption, a group campaigning for global financial transparency has found.  

In the media feeding-frenzy that has accompanied the Paradise Papers, attention has been focused on offshore jurisdictions. But as reported in International Investment, a Jersey-based lawyer, while calling for the island to diversify away from financial services, pointed out that there is a “lot of hypocrisy because the biggest repositories of dirty money are really places like London and parts of the United States, which has its own tax havens in places like Delaware”.

Transparency International is a non-governmental organisation that campaigns against corruption and seeks to expose it.

Its latest report, Hiding in Plain Sight, found hundreds of UK registered shell companies at the heart of corruption cases totalling billions of pounds; “At the same time,” it said, “the UK’s system to prevent this abuse is failing.”

The research identified 766 companies registered in the UK that, Transparency said, “have been directly involved in laundering stolen money out of at least 13 countries”.

These companies were effectively shell companies operating as “layers to hide money that would otherwise appear suspicious”.

Being UK-based, as opposed to offshore, meant that they offered those using them illicitly “the added advantage of providing a respectability uniquely associated with being registered in the UK”.

The way that the system works is similar to cases unearthed at Mossack Fonseca and Appleby, the offshore law firms at the centre of the Panama Papers and the Paradise Papers, as revealed by the International Consortium of Investigative Journalists (ICIJ).

In the UK, ICIJ is represented by The Guardian and the BBC.

The UK is home to a network of Trust and Companies Service Providers (TCSP’s) who create these companies on behalf of their clients, such as the Manx leasing company created by Appleby on behalf of Lewis Hamilton, pictured above, to lease a private jet out to its only client – Lewis Hamilton.

There is no suggestion that Hamilton acted unlawfully, having sought professional advice and having acted upon that advice.

But the legality of the structure that was used has been called into question.

The UK-based TCSPs will register these ‘shell’ companies to UK addresses, “often nothing more than mailboxes”, says Transparency.

In fact, TCSP’s can set up companies in the UK even if they are not registered or based here, says Transparency. “This means they avoid being subject to UK regulation, and instead are bound by local laws, which are often unenforced or so weak as to be ineffective,” the organisation points out.

“This has created ‘company factories’, where thousands of companies can be registered to unoccupied buildings with little to suggest any meaningful business occurs,” the organisation added. “We found half of the 766 questionable companies we identified were registered to only 8 separate addresses – in one instance a run-down building, next to a bank on Potters Bar High Street,” an unglamorous suburb in the commuter belt to the north of London.

The system allows the corrupt and the money-launderers to act with impunity, with little resource put into policing, with just six staff in Companies House overseeing four million companies.

TCSPs themselves have a poor track record of identifying and reporting money laundering – only 77 of the 400,000 suspicious activity reports filed last year came from TCSPs.

Transparency International UK director of policy Duncan Hames, pictured left, said: “As fingers point to jurisdictions like Panama and Bermuda, it shames the UK that companies are being set up under our noses, with the sole purpose of laundering illicit wealth; money very often stolen from some of the poorest populations in the world, starving them of vital resources.

“The UK is home to industrious company factories from which unscrupulous individuals provide the corrupt with the means to hide their ill-gotten gains. The UK should recognise it has its own Applebys and Mossack Fonsecas here on our doorstep.”

Hames conceded that the UK has made progress in targeting corrupt money since the Panama Papers.

“But in a complicated and global system,” Hames pointed out, “it’s often the case that as one area of weakness is addressed, more are discovered by those intent on channelling dirty money.

“Approaching Brexit it’s essential that the UK sends a clear signal that it won’t be a laundromat for corrupt individuals from around the world. It could start by ensuring it properly resources those who are meant to be our first line of defence, such as Companies House.”