Dark Money Investigations: Investigation

The Northern Irish ghost companies that mask crime worldwide

Exploitation of workers, corruption and money-laundering, all kept in the shadows by lax regulation. Could Northern Ireland become “the new Panama”?

david and sarah.JPG Peter Geoghegan RS pic.jpg
David Leask Peter Geoghegan Richard Smith
26 March 2020
German Chancellor Angela Merkel (R) and Ukrainian prime minister Yulia Tymoshenko
Secretive Northern Irish firms have funded political lobbying for former Ukrainian leader Yulia Tymoshenko, amongst others
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Peer Grimm/DPA/PA Images. All rights reserved.

Nikolai Sukhanov is used to flags of convenience. The flags of many nations flutter from the stern of ships on the docks and quays of Nakhodka in Russia’s far east. Owners often register their vessels thousands of miles from home, in countries with far looser regulations and restrictions than their own.

Sukhanov, a veteran trade union organiser, spends his days clambering onto ships berthed in the Pacific port, checking that sailors are treated well and paid properly. They very often are not.

That is not just because they sail under flags of convenience. It is also because they work for ‘firms of convenience’: shell companies, ghost entities, corporate ciphers which conceal ownership and frustrate accountability.

The former Soviet Union is awash with such paper businesses. Many are registered in the most shadowy corners of the UK’s financial industry.

Sukhanov, however, has stumbled upon a company from a UK jurisdiction which has until now somehow avoided attention as a secrecy haven: Northern Ireland.

Late last year Sukhanov uncovered what he called “unacceptable” terms and conditions for seventeen Russian sailors serving on a freighter, the Winner, docked at Nakhodka. The men, who earn just $350 a month, have no collective agreement with their employer.

Sukhanov wanted to talk to the firm that hired the seamen to improve their conditions. His Seafarers’ Union of Russia – an affiliate of the International Transport Workers’ Federation – said the way its members on the Winner were hired, which involved an unregistered crewing firm, was “obvious unlawful activity”.

But there was a problem. He couldn’t identify who the sailors actually worked for.

The men had been hired by a firm called Emerald Invest, whose only trace is an anonymous company registration thousands of miles away in the town of Newry, County Down.

Speaking by telephone from his office in Nakhodka, Sukhanov told openDemocracy story after story about shipping tycoons who use flags – or firms – of convenience to disguise their identity. He talked of shipowners registered in fields outside Ulaan Baator, the capital of landlocked Mongolia, or in warehouses in Vancouver. Northern Ireland, for him, is just another jurisdiction that can be used to avoid scrutiny.

“Of course, it’s strange,” said Sukhanov. He added: “We are used to this kind of thing. It’s when an unscrupulous Russian ship owner opens a PO box in Northern Ireland and hides behind it. In reality, it’s all Russia.”

The Winner | http://www.xn--l1afcf.xn--p1ai/ru/news

Emerald Invest is a Northern Irish limited partnership (NILP), a kind of corporate entity that was rare until a few years ago. Now NILPs, which are cheap to set up, are openly advertised in the former Soviet Union as a way of paying no taxes, filing no accounts and allowing owners to be anonymous.

The registration of NILPs has boomed in recent years, from none in 2013 to 289 in 2017. This rapid increase followed attempts to limit the use of Scottish limited partnerships, which had become notorious as the secrecy vehicle of choice in money-laundering scandals around the world.

The number of new Northern Irish firms has dropped since 2017, but many of the NILPs created in the boom have facilitated money laundering, labour abuses and corruption around the world – and continue to do so.

Scandals, crimes and controversies

Few in Northern Ireland even know these firms exist. Speaking from his South Antrim constituency, the leader of the Ulster Unionist Party, Steve Aiken MLA, described openDemocracy’s findings as “extraordinary”. He said that local politicians need to have the power to shut down legal loopholes that allow NILPs to be created at the stroke of a keyboard thousands of miles away.

“That these NILPs are being used to launder funds of highly dubious origin fundamentally undermines Northern Ireland’s reputation as a place to do business,” said Aiken, who chairs the Northern Ireland Assembly’s Finance Committee.

We must urgently seek assurance from the appropriate UK authorities to allow us to shut these loopholes – and to do it fast

Steve Aiken, Ulster Unionist Party leader

There are signs that Northern Ireland’s role in far-flung fraud and corruption is being noticed elsewhere. In January, the Police Service of Northern Ireland raided more than a dozen addresses in connection with international money-laundering schemes worth approximately £215 million.

Claire Hanna, Social Democratic and Labour Party MP for South Belfast, where many of the NILPs are based, told us that without “urgent action” and “meaningful regulation” Northern Ireland “could become, like Panama, a jurisdiction where blind eyes are turned to money from shady places”.

Corporate squatters

Emerald Invest’s official home in Margaret Street, Newry, a few miles from the Irish border, does not look or feel very Russian. It is an office above a cafe in the middle of town, next door to Newry’s august local newspaper.

Google Street View of Margaret Street, Newry
Google Street View of Margaret Street, Newry | Google

This is the Hub Newry, a group of three addresses offered by a tax advisor and his wife in the town as a virtual office. The Hub’s owners have nothing to do with Emerald Invest, other than providing a registration address for the firm. In all, nearly 400 NILPs are registered to the Hub’s address. (There is no allegation of serious wrong-doing against Emerald Invest.)

The owner of Hub Newry, Patrick Murdock, expressed surprise when we contacted him with our findings. Murdock said that he had no association with any of the enterprises registered at his addresses and that some of these firms are “squatting” without permission. He subsequently wrote to the Northern Ireland Executive in Stormont calling for action.

One challenge is that as Northern Ireland limited partnerships can easily be created thousands of miles away, nobody in the country itself even needs to be involved. They are sold ‘off the shelf’ online as ‘offshore companies’. Marketing material makes it bluntly clear that these firms can be used to hide identities and avoid tax.

One such online shop for NILPs, Dan Business Consulting of Ukraine, boasts that an NILP is an “absolutely tax-free structure”. How? Well, the agency explains that such a partnership need not pay tax if it does not trade in the UK. Its partners, however, are liable. But they are responsible for tax where they are registered.

Screenshot 2020-03-25 at 14.25.44.png

Dan Business Consulting – which is not known to be linked to any of the companies mentioned in this article – is also pretty frank about keeping the name of real owners out of official documents.

In a paragraph entitled ‘Confidentiality’, the agency writes: “In some circumstances, when the identification of the beneficiary could bring negative consequences, it is important to maintain anonymous ownership. This is achieved by the means of a nominee service.”

Lobbying and laundromats

Northern Ireland limited partnerships have been used in secretive transactions around the world. One NILP featured in a secret lobbying row in Ukraine where a former prime minister, Yulia Tymoshenko, used it to fund an influence operation in the US.

Ukrainian investigators have also looked into an embezzlement and tax evasion scheme reported to have defrauded local farmers of $200 million-worth of produce. The scheme was allegedly run by an executive working for the Ukrainian subsidiary of US grain-trading giant Bunge. Last year a Newry-registered firm called Norinvest Universal was named in connection with the investigation alongside other shell companies, including Scottish limited partnerships.

Another NILP, the now dissolved Jasterport, was named alongside other Northern Irish, Scottish, English and international entities in a report into a massive theft of government funds in Moldova. Independent investigators Kroll were hired by the Moldovan parliament to examine how three banks in Moldova stole around $1 billion, around 12% of the nation’s GDP. The theft crippled the nation. Its repercussions continue.

Kroll said Jasterport, which was registered in Newry, received suspicious funds out of Moldova. So too did two Northern Irish limited liability partnerships. LLPs are a far more common corporate structure, and are found across the UK.

Kroll found that Spectra Ventures and Vercell Solutions, both registered in Belfast’s leafy Botanics Avenue, had received Moldovan funds. Kroll identified €140 million euros at the latter LLP.

Another Northern Irish LLP, Drayscott Overseas, also turned up in the Kroll’s Moldova report. This firm, also registered on Botanic Avenue, has since dissolved. But not before being named in yet another major investigation, this time by the Organized Crime and Corruption Reporting Project (OCCRP).

Drayscott received at least £145 million in money through what the OCCRP dubbed the Russian Laundromat, one of the biggest schemes to clean dirty money ever identified.

OCCRP stresses that receiving money is not evidence of criminality. Drayscott, as an LLP rather than a NILP, should have filed accounts. But it did not last long enough to do so.

Boom in registrations

In recent years the UK has increasingly come under fire for providing a steady supply of off-the-shelf shell companies which are exploited globally for everything from illegal arms deals and internet scams, to grand corruption and multi-billion-dollar money-laundering schemes, to cleaning dirty money coming out of the former Soviet Union.

Northern Irish limited partnerships are very similar to the now-notorious Scottish limited partnership. In recent years, attempts have been made to limit the use of Scottish limited partnerships by unscrupulous businesses around the world to secretly launder money and run fraudulent businesses.

Between 2016 and 2017, the number of registrations of new Scottish limited partnerships nearly halved, falling from 5,215 to 2,841. In the same years, the number of new NILPs rose more than five-fold.

NILP.png

The uptick in NILP registrations came after the UK government – which has gradually been improving corporate transparency – ordered Scottish limited partnerships to name their beneficiaries or ‘persons of significant control’.

NILPs immediately popped up as the person of significant control of Scottish limited partnerships, adding a layer of opacity to the Scottish firms and effectively neutering attempts to provide transparency.

Ghost corporations such as Scottish limited partnerships and NILPs had been routinely marketed along with a bank account in Latvia. The boom in registration of NILPs came to an end in 2018 after authorities in the Baltic state moved to stop British and other shell firms being used to open what were effectively anonymous bank accounts.

The entities, however, remain registered and continue to shield the identity of their owners. And that means controversies continue, sparking political fears of damage to Northern Ireland’s business reputation.

“It’s bizarre and in fact shameful that companies registered in NI are linked to so much wrongdoing, ranging from non transparency to causing real harm and financial hardship to people,” said SDLP MP Claire Hanna.

‘We are a serious business’

Northern Ireland limited partnerships are often used precisely because a British or an Irish company – this distinction is not always as obvious in the former Sovet Union as it is closer to home – sounds like it comes from a safe jurisdiction with the rule of law and a good reputation for fair trade.

Some NILPs in eastern Europe move to capitalise on this image of UK or EU probity.

Take Capital Gold. This NILP shared an address in Newry with our shipowner Emerald Invest. Its business was gold, online. Capital Gold promised returns on investment of 220% in 20 days when it launched last summer. Its website – in English and Russian – has now disappeared.

Capital Gold’s UK registration, it declared, “means we are a serious business”. Financial bloggers such as Bezobmana (“Without cons”) and Viktoria Sandi have red-flagged the firm’s website as a scam and warned there is no way to contact its owners. It is still active. We are not aware of any specific complaints against it.

Another NILP to make waves in the former Soviet Union is AviaTrade Corp. The Belfast-registered entity was last year announced as the minority 49% shareholder of an airline in Kyrgyzstan called Air Manas. Like all other airlines in the Central Asian nation, it is banned from flying to the European Union.

An NILP set up with two or more partners based in a traditional secrecy jurisdiction such as Panama or Belize enjoys the status of a UK firm, but the properties of an offshore tax haven business. These structures are pretty familiar to the small bank of forensic investigators who try to track the use and abuse of British shell companies.

It can cost as little as £20 to register a NILP. However, it costs around eighty times as much to purchase a ready-made one off the shelf, complete with legal documents that enable people to run the NILP through 'phantom' partners in tax havens. Last year, 45 new NILPs were registered.

Some NILPs cease trading after months. Others continue to operate shrouded in secrecy. But by a quirk of corporate law, even when their partners dissolve NILPs, the companies remain on the register. They are sometimes reanimated. That means officials cannot even be sure how many of them are active.

Like Scottish limited partnerships and limited liability partnerships, a kind of firm found across the UK, NILPs have legitimate uses. For example, they sometimes crop up in tax-efficient equity investment vehicles.

But money-laundering expert Graham Barrow reckons NILPs are a symptom of a combination of soft-touch corporate regulation and high prestige that makes the UK an attractive place to set up a ghost firm.

“NILPs are effectively just a different flavour of UK entity but not intrinsically different from the many other varieties which have been put to nefarious use.

“Ultimately, all sorts of UK companies are found in laundromats both large and small, mainly because of their ease of formation, lack of verification and their appearance of being low risk.”

Too lax?

UK authorities are currently considering further reforms of UK partnership law. Some opposition politicians and government backbenchers have argued that British corporate law is too lax and not properly enforced. They warn the current regime is effectively enabling unethical or criminal behaviours – including schemes spiriting billions out of countries like Russia and Ukraine.

Rachel Davies, head of advocacy at Transparency International UK, believes that there is still a lot to be done to stop the abuse of British corporate entities, on both sides of the Irish Sea.

She said: “As other types of UK company have been required to reveal the real people that own them, Northern Irish Limited Partnerships remain an alternative UK secrecy vehicle.”

Davies believes that it is “now vital that the government introduces more transparency to limited partnerships in addition to wider reforms denying criminals access to all forms of UK corporate entities”.

As other types of UK company have been required to reveal the real people that own them, Northern Irish Limited Partnerships remain an alternative UK secrecy vehicle

Rachel Davies, Transparency International UK

UK partnership law is reserved to Westminster, which means that local politicians in Northern Ireland’s Stormont assembly cannot change it. But senior Northern Irish politicians have called for action in the wake of openDemocracy’s findings.

For Ulster Unionist leader Steve Aiken, this “extraordinary story linking Newry and Botanic Avenue with Russia and the former Soviet Union” showed that a “lack of governance” was allowing “shady oligarchs to exploit our lax and opaque company law structure.

“It is doubtful that the Northern Ireland government has the ‘bandwidth’ or even understanding to do this; we must urgently seek assurance from the appropriate UK authorities to allow us to shut these loopholes – and to do it fast,” he said.

The SDLP’s Claire Hanna fears that rather than loopholes being closed, Northern Ireland could become prey to even more “unscrupulous people”.

“It's not hard to see how complex post-Brexit regulations risk attracting even more unscrupulous types and undermining legitimate local business further,” the South Belfast MP said.

Back in Newry, Patrick Murdock, the owner of Hub Newry, wants to see reforms that would end anonymity. “NILPs should be required to make public ownership details in Northern Ireland and I would urge Northern Irish politicians to act immediately and ensure these necessary legislative changes are made.”

Murdock referred all queries about Newry NILPs to his client, UK-based company formations agency ComForm Solutions.

This firm is a prolific creator of corporate entities, some of which were used in the ‘laundromats’ uncovered by OCCRP, although there is no suggestion that ComForm was involved in any wrong-doing. Company formation agencies are not responsible for the conduct of firms they create.

Daniel O’Donoghue of ComForm warned openDemocracy “not to hold its breath” in waiting for a response from the beneficiaries of NILPs or LLPs named in this story.

O’Donoghue stressed his business had no political view on reform of NILPs. He said: “On corporate transparency more generally – we remain agnostic. Improvement to transparency roughly equates to weakening of privacy, as well as lowering the competitiveness of the jurisdiction overall. We are not placed to weigh the benefits and drawbacks of any given measure in that regard.”

The UK Department of Business, Energy and Industrial Strategy set out proposals to reform limited partnerships, including those in Northern Ireland, back in 2018. These include tighter registration requirements, such as demanding that a partnership demonstrates a firmer connection to the UK and shows greater transparency.

A BEIS spokesperson said: “Abuse of limited partnerships is unacceptable and we intend to stamp it out altogether. That is why we are reforming partnership law, which will include tougher registration requirements, increased transparency requirements and new powers to remove limited partnerships from the register.”

However, the department, which has still to bring forward legislation on its proposals, does not regard Northern Ireland and English limited partnerships as legal entities that need to declare beneficiaries. This is because in theory, unlike Scottish limited partnerships, NILPs are merely mechanisms for sharing profits. They should not, therefore, possess assets in their own name or act for themselves in courts.

However, as Nikolai Sukhanov discovered in Nakhodka’s docks, such legal niceties do not seem to prevent a NILP owning a ship which plies the sea.

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