Sanction-busting UK shell company exported coal from North Korea
British shell corporations are regularly identified as at risk of money laundering, asset secrecy and corruption - but reform is still yet to appear
A British shell corporation was used to export North Korean coal, breaking United Nations sanctions, openDemocracy can reveal.
The firm, a limited liability partnership called Solgan Invest, shipped three consignments of anthracite, also known as hard coal, from the pariah state toRussia.
The anthracite was seized by customs officials on the far-eastern Russian island of Sakhalin in September 2017 – weeks after the UN imposed a trade ban on North Korean exports of coal, iron, lead and seafood.
The role of Solgan Invest has emerged only after a long civil litigation between the port where the coal was landed and Russian federal authorities over who was responsible for the cost of storing the confiscated fuel.
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However, revelations of a British corporate entity buying North Korean coal will ring alarm bells among UK officials.
Experts are increasingly concerned that throwaway British shell corporations – already linked to corruption and money-laundering around the world – may be used to finance the spread of weapons of mass destruction.
Tom Keatinge, of defence think tank Royal United Services Institute (RUSI), told openDemocracy that reforming Britain’s corporate system should be a “domestic and foreign policy priority”.
In 2019, The Times revealed that four ships entering North Korean harbours to get coal, which had been spotted on satellite, were owned by UK-registered corporate entities.
North Korea has rich reserves of anthracite, which it is widely suspected of mining with forced labour.
The country was banned from selling coal – previously one of its biggest exports – in August 2017 under UN Resolution 2371, which was introduced in response to missile tests carried out earlier that summer.
Diplomats fear the anthracite was being sold to pay for nuclear weapons and missiles programmes.
Since the ban, some coal has still been exported from North Korea, usually thanks to complex ship-to-ship transfers. This trade remains hidden and is carried out through front companies and ships that chop and change their “flags of convenience” – whereby ships fly flags of countries other than where their company is registered.
However, the Sakhalin case involving Solgan Invest dates from the very beginning of the outright prohibition of coal sales in August 2017. There had previously been severe restrictions on the trade.
According to Russian civil court papers, Solgan Invest was the official recipient of around 10,000 tonnes of anthracite shipped from Taean near Pyongyang, North Korea’s capital, to Kholmsk on the west coast of Sakhalin.
The coal was to be imported under a contract signed in June 2017, but its delivery was made illegal by Resolution 2371.
Because the coal had been shipped in breach of sanctions it was seized and stored at the port, which sued Russian federal authorities for incurred costs.
However, successive Russian courts found Solgan Invest, not the government, responsible for picking up the bill for storing the fuel.
A final legal bid by Kholmsk Port’s operating company for state cash failed on 25 December 2019, when Russia’s Fifth Arbitration Appellate Court upheld previous decisions.
By then Solgan Invest had been dissolved by compulsory strike-off in the UK, after being deemed inactive due to it not filing any annual accounts, without it or its beneficiaries facing any criminal charges.
Too little, too late?
Solgan Invest was set up in 2012 and registered at a virtual office in Birmingham’s Jewellery Quarter. Its two nominal partners were opaque shell corporations based in the Marshall Islands in the Pacific Ocean. While the company did file some accounts, these were only basic.
In the year that it imported the Korean coal, the British limited liability partnership (LLP) claimed a loss of little over £600 and said it had no income. Its filing suggested it was involved in the shipping and transportation business,
The partnership did, however, name a person of significant control, an Ivan Pivnev, of the same Birmingham address, whose country of residence was listed as Russia.
According to local media reports, there is a shipping entrepreneur called Ivan Pivnev based in Sakhalin. However, openDemocracy was unable to reach this man to ask if he is the same Ivan Pivnev who controlled Solgan Invest.
British and other international shell firms are ubiquitous in Russian shipping.
Such opaque corporate entities have previously been used to bypass Ukrainian sanctions on trade with Crimea and Donbas, respectively seized by Russia and Russian-backed separatists in 2014. UK firms, for example, have imported anthracite coal from Donbas.
The UK government has announced plans to reform partnership law – LLPs as well as the more notoriously abused Scottish limited partnerships (SLPs).
It also says it wants to beef up the ability of Companies House, the UK’s corporate registry, to check filings and investigate companies.
Some critics believe this is too little, too late. Others say it is a start.
Concerns about abuse of UK shell firms come from within the government too. In September of this year, Whitehall’s own national risk assessment on Proliferation Financing, or PF – how rogue states and terror groups get access to weapons of mass distruction – flagged the issue.
The same factors that make Britain’s open registry successful, the assessment said, also make it “attractive to exploitation”.
“UK Companies House has been linked to a number of PF cases and may be exploited similarly in the future,” it continued. “For example, in December 2020, the US Treasury sanctioned a number of UK-based entities that had been used to own vessels trading North Korean coal in violation of United Nations Security Council (UNSC) resolutions.”
It added: “In some cases, shell companies have been set up and used in the UK by one of China’s largest North Korean cross-border traders who had acted on behalf of sanctioned North Korean proliferators and had helped them procure items for their weapons programme while laundering tens of millions of dollars on their behalf.”
Asked to comment on Solgan Invest, a spokesperson for the Foreign, Commonwealth and Development Office, told openDemocracy: “The UK implements all international sanctions on North Korea. We work with the relevant authorities to fully investigate UK-registered companies who breach these sanctions and we take action where necessary.”
Keatinge, who is director of the Centre for Financial Crime and Security Studies at RUSI, questioned the ability of UK authorities to scrutinise what shell firms do.
“No company, whether registered in the UK or anywhere else, should be engaged in the North Korea coal trade,” he said. “The next question is: what capacity does Companies House have to identify such abuse of UK companies?
“UK companies are widely abused for criminal activity given the lack of verification undertaken at Companies House.
“We are all waiting for the long-promised reform of Companies House which would introduce the beginnings of a proper verification requirement.
“But until that happens, Companies House seems powerless to act against the abuse of UK company structures.”
The Department of Business, Energy and Industrial Strategy recently called shell firm abuse “appalling”. In 2020, the Department announced wide-ranging reforms to the powers and role of Companies House, but is yet to table draft legislation.
“We consulted on the details of our plans for Companies House reform earlier this year, and will bring forward legislation when parliamentary time allows," a BEIS spokesperson said.
“Investment in new capabilities at Companies House is already underway, with £20 million being invested this financial year and a further £63 million announced at the Spending Review.”
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