BRITISH BROADCASTING CORPORATION RADIO 4

TRANSCRIPT OF “FILE ON 4” – “DIRTY MONEY UK”

CURRENT AFFAIRS GROUP

TRANSMISSION: Tuesday 6th

October 2015 2000 – 2040

REPEAT: Sunday 11th

October 2015 1700 - 1740

REPORTER: Tim Whewell

PRODUCER: Simon Maybin

EDITOR: David Ross

PROGRAMME NUMBER: PMR540/15VQ5732

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THE ATTACHED TRANSCRIPT WAS TYPED FROM A RECORDING AND NOT

COPIED FROM AN ORIGINAL SCRIPT. BECAUSE OF THE RISK OF MISHEARING

AND THE DIFFICULTY IN SOME CASES OF IDENTIFYING INDIVIDUAL

SPEAKERS, THE BBC CANNOT VOUCH FOR ITS COMPLETE ACCURACY.

“FILE ON 4”

Transmission: Tuesday 6th

October 2015

Repeat: Sunday 11th

October 2015

Producer: Simon Maybin

Reporter: Tim Whewell

Editor: David Ross

ACTUALITY OF PROTEST

WHEWELL: In the small former Soviet republic of Moldova,

they’re demanding the return of a billion dollars that's unaccountably gone missing from

some of their main banks. The result, it’s believed, of a mind-bogglingly elaborate fraud.

Moldova’s the poorest country in Europe and a billion dollars is an eighth of their entire

GDP. The money’s said to have gone from their now very angry capital, Chisinau, to calmer,

statelier Riga, in Latvia ….

ACTUALITY OF BELLS

WHEWELL: Via a massive detour ….

SEYCHELLES MUSIC

WHEWELL: To the palm-fringed beaches of the Seychelles.

And, perhaps most surprisingly ….

BORN SLIPPY MUSIC

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WHEWELL: The Edinburgh housing estate where Trainspotting, the

novel about heroin addicts, was set. In File on 4 tonight, I’m entering the weird parallel

universe of shell companies and corporate service providers, where a former Scottish council

flat becomes a portal to the Indian Ocean and beyond. David Cameron has made fighting

corruption a personal priority. He’s leading an international push on company transparency.

But File on 4 has followed a trail that shows how the UK has become a world hub for dirty

money.

SIGNATURE TUNE

ACTUALITY IN EDINBURGH

WHEWELL: Well, this is a fairly smart address in Edinburgh’s New

Town. Quite a nice four-storey townhouse. We’re going to see what we can find.

This is a long way from Eastern Europe, but it’s where four firms, Scottish firms, said to be

involved in the billion-dollar fraud in Moldova are based. From Companies House, I’ve been

able to find out very little about them except the address, so I decided just to come and knock

on the door.

ACTUALITY OF KNOCKING

WHEWELL: It’s a rather scruffy door and all the paint’s been kicked

off it, two motorcycles outside.

Hello, sorry to bother you. I wonder if you can help. Do you live here?

MAN: Who are you?

WHEWELL: We’re from the BBC, we’re making a programme

about the Moldovan fraud.

MAN: Sorry, I don’t have time…

ACTUALITY OF DOOR SHUTTING

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WHEWELL: Couldn’t you just talk to us for a moment because ...

Well, the door slammed straight in my face there. There was a man with a large beard said we

don’t have time. Can we try once more?

ACTUALITY OF KNOCKING

WHEWELL cont: We really would like to talk to you if we could.

No, I don’t think they’re going to come out again.

I had so many questions. Who owned the companies registered there, why had they acquired

stakes in Moldovan banks. Questions prompted by a document that casts a rare shaft of light,

though still a dim one, on the shadowiest of worlds - the networks that conceal the origin and

ownership of huge quantities of money as they pass from corruption-ridden post-Soviet states

into the European Union. In scam after scam, British companies, shell companies, are used

to play a key role, and the leaked document suggests that they have in the Moldovan fraud

too.

ACTUALITY WITH REPORT

WHEWELL: So if you go through the report that was

commissioned from the private investigative agency Kroll, by the Central Bank of Moldova

into what happened, it’s a report of about eighty pages and there are many British UK

registered companies named here - 48, I’ve counted, UK-registered companies. Now finding

out about these companies isn’t easy, but one man who’s been doing a lot of work on this is

Richard Smith.

SMITH: Yes, I have. I used to be a database specialist. I used

to work in the London capital markets.

WHEWELL: And you’ve actually spent years, haven’t you,

investigating these kind of companies? This is a very strange world you’re in, isn’t it?

SMITH: Yes, it’s a hall of mirrors.

WHEWELL: It’s a hall of mirrors?

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SMITH: Yeah, and there’s a kind of dreary fun in working out

who’s trying to pull the wool over your eyes. A shell company is basically one that doesn’t

do any meaningful business. It’s not a dentist or a lawyer or an accountant. Its main role is

to either hold property or assets or to operate a bank account and that’s really all it does.

WHEWELL: So effectively it’s a kind of channel for funds to pass

through?

SMITH: Yes, yes - funds or assets, yes. There’s quite a big

business in setting these up. Company agents, you contact an agent, ask him to register it for

you and off you go.

WHEWELL: So let’s go on, back to the Kroll Report. The whole

thing ends with one company, which is said now theoretically to be owed all the money, the

billion dollars that disappeared in the Moldovan fraud and it’s called Fortuna United. That’s

what appears on one of the last page of the Kroll Report. Let’s look them up.

ACTUALITY ON COMPUTER

WHEWELL: So this is the Companies House website and obviously

Companies House is the central registry of all companies in Britain.

SMITH: Here we go.

WHEWELL: So this is the registration document of Fortuna United

LP.

SMITH: OK, well here it is. The general nature of the business

is general trading.

WHEWELL: General trading. Which really does not go much

further.

SMITH: Whatever the hell that is.

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WHEWELL: So the principal place of business stated to be Royston

Mains Street, Edinburgh, and there’s more useful information at the bottom, because it’s got

presenter information, meaning ...

SMITH: That’s the person who actually lobbed in the form to

Companies House …

WHEWELL: Okay.

SMITH: And it’s Mr Mikalauskas, Royston Business

Consultancy Ltd …

WHEWELL: And - another clue - Royston Business Consultancy

is also based at the same address in north Edinburgh. So they’ve not only registered Fortuna

United, they’ve also provided it with a home. And a very simple Companies House search

reveals that, in addition, they’re accommodating more than five hundred other active

companies. You might think they’d need a lot of room but you’d be wrong.

ACTUALITY IN CAR

WHEWELL: Well, we’ve left behind the grand fashionable parts of

Edinburgh the tall, elegant, grey stone townhouses of the New Town, the plane trees and the

wrought-iron balconies and we’re going down now, downhill towards the sea, towards an

altogether grittier part of town. In fact towards Pilton, where Trainspotting, the novel about

heroin addicts, was set. This is an area of very plain, pebble-dash, 1950s, semi-detached

houses and some council estates thrown around in between.

ACTUALITY AT DOOR

WHEWELL: There’s an entry phone here.

ACTUALITY OF BEEPING

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WHEWELL: The door is answered by a young woman called

Viktorija Zirnelyte. But first she has to check with her business partner, Remigijus

Mikalauskas, the man whose name appeared on the Companies House register - whether it’s

okay to talk to us.

ACTUALITY IN HALLWAY

WHEWELL: Well, we’re waiting now in the entrance. It’s a very

bare, rather dirty entrance, there’s a bike parked here, some old crates and boxes at the back.

People think about shell companies and brass plates, there’s certainly no brass plates on the

door here, really weird to think that this tiny flat with a communal entrance – basically I think

there’s four or six flats off this bare staircase, just extraordinary. The idea that one of these

companies has supposedly got the collection rights and therefore ultimately owns nearly a

billion dollars. You really wouldn’t think it from looking around.

Eventually, with her colleague’s approval, Viktorija Zirnelyte lets us into her small homely

office, which is simply the front room of the flat, a row of ring-binders on the shelves among

some photos and ornaments, looking out on a privet hedge. She’s a 36 year old Lithuanian,

trained as an accountant, who moved to Britain in 2004 and did a series of odd jobs before

she started this factory for companies.

Just roughly give me an idea of who your customers are?

ZIRNELYTE: They’re overseas clients. Mostly Latvia, Estonia,

Lithuania, Russia, Ukraine, Moldova.

WHEWELL: And they come to you and, just give me an idea - what

do they ask for?

ZIRNELYTE: What do they ask for? For the company.

WHEWELL: Your partner is called Remigijus, yeah? He’s

Remigijus Mikalauskus, yeah?

ZIRNELYTE: Yes.

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WHEWELL: So he signed the papers for Fortuna United, is that

right?

ZIRNELYTE: Fortuna United, we just incorporated it. All we

signed, it was just corporate documents.

WHEWELL: That’s the company it’s said now to have kind of

become the legal possessor or ultimately the legal owner of, you know, nearly a billion

dollars. So do you know who owns Fortuna?

ZIRNELYTE: Erm ...

WHEWELL: Do you know? Go on. Did you ask?

ZIRNELYTE: I will not comment on this.

WHEWELL: Of course, I’ve overstepped the mark. As far as she’s

concerned, this is commercial confidentiality. But whether or not she’ll tell me, Viktorija

Zirnelyte is herself legally obliged under the UK’s money laundering regulations to know the

beneficial owner of her clients. That’s to say, who has real control of their assets and this

isn’t just any client. The people behind Fortuna United apparently robbed Europe’s poorest

country of a huge chunk of its GDP. So does Zirnelyte’s firm, Royston Business

Consultancy, check that its customers aren’t setting up companies for illicit purposes?

How many kind of questions do you ask them about their business? I mean, what do you

need to find out?

ZIRNELYTE: We don’t ask details about the business. This is our

agent’s, intermediary agent job to do that. They also have to obtain all the due diligence

documents and keep it on their files. They are more close with their clients. All we need is

just to have the documents of the beneficial owner and that’s it, we don’t really need to know

much.

WHEWELL: And who is the agent then? Who is the person that

does the due diligence?

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ZIRNELYTE: Another company, intermediary. Professional

intermediary agents like us, but they are in different jurisdiction.

WHEWELL: Are they mainly in, like, in the Baltic? In Latvia?

ZIRNELYTE: Yeah.

WHEWELL: So these intermediaries in Latvia or wherever, do you

think they do do the due diligence?

ZIRNELYTE: Yeah.

WHEWELL: What do they find out? Do you know?

ZIRNELYTE: No. Obviously, one of the companies which we

registered was used in the structure for money-laundering, but really we don’t know anything

about it.

WHEWELL: But are you, are you worried now?

ZIRNELYTE: To be honest, I don’t have nothing. I don’t have

anything to worry about. I didn’t commit fraud myself or my partner didn’t do it. We

comply with all the regulations, so I … Find the people who made this fraud and convict

them, we’re nothing to do with this.

WHEWELL: Three-quarters of all the companies in Britain - and

there are now a staggering three and a half million of them, are set up through a professional

intermediary, like Viktorija Zirnelyte, known as a company formation agent or corporate

service provider. There are estimated to be about 2,600 of them - in addition to legal and

accountancy firms who offer the same services. It’s very simple to set up a company in

Britain. Agents offer to do it in an hour, for as little as £25. But the agents are supposed to

be registered with the tax authorities, HMRC, because they’re gatekeepers, the people who

should satisfy themselves that their clients aren’t involved in illicit activities. But how many

questions should they ask? The money-laundering regulations are lengthy and confusing.

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WHEWELL cont: But Jonathan Fisher QC, an expert in this area of law,

thinks the basic requirements are clear enough.

FISHER: The whole process is predicated on what is known as

risk assessment and therefore the amount of due diligence you do is going to be variable

depending on the factual circumstance of each case. Why does the client want this company

established? Why does the client want it established in this way? Why does the client want

the company to be based in a particular place, etc. There’s going to be a big difference

between, let us say, setting up a company where all the activities are taking place in a highly

regulated country, let’s take some other part of old Europe, and a situation where the money

is coming in from a new accession state and where the activities are taking place there, the

degree of comfort that the corporate service provider would want is going to be quite

different for obvious reasons, because the risk of criminality is perceived to be higher in

certain areas.

WHEWELL: Even if corporate service providers are outsourcing

their due diligence to an intermediary, as Royston Business Consultancy says it does, they

still have to question that intermediary to make sure it’s been done properly. It’s not enough

just to have the beneficial owner’s ID. And in the case of Fortuna United – which,

remember, has the rights to Moldova’s missing billion - you might have thought that such

questions would certainly be asked. HMRC lists a series of red flags that should prompt

suspicion, including "customers not local to the business" and "complex ownership structures

with the potential to conceal underlying beneficiaries". Well, Fortuna is a limited partnership

of two companies, both based in the Seychelles, a tax haven which prides itself on

confidentiality – in other words, as complex and opaque a structure as you could wish for.

How suspicious should that look to me?

FISHER: I think it should look suspicious. The test of suspicion

in law is whether a person that recognises or appreciates there is a possibility which is more

than fanciful that proceeds of crime are involved. Possibility more than fanciful: it’s an

incredibly low threshold, so from the corporate service provider’s perspective, he forms

suspicion on surprisingly little information. He should do.

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WHEWELL: But Viktorija Zirnelyte’s firm, Royston Business

Consultancy, didn’t apparently ask many questions about Fortuna United. Perhaps because,

as I gradually found out, they didn’t just register it, didn’t just provide it with an address,

they are also the directors of its constituent companies. Zirnelyte herself is sole director of

one of the two partners, Trafford United Limited. Her business partner, Remigijus

Mikalauskas, is sole director of the other, Brixton Ventures Limited. Legally, they are

Fortuna United, the people who on paper at least have the rights to all of Moldova’s looted

billion. But hang on a minute, you might say - isn’t Fortuna United a Seychelles company?

And aren’t Zirnelyte and Mikalauskas in Edinburgh? Yes, but Seychelles directors don’t

have to be in the Seychelles. Zirnelyte told me that she and Mikalauskas have never walked

its coral beaches and the company stamps weren’t flown out from its colonial-era capital,

Victoria. She got them on eBay. So it looks as though the Seychelles, Scotland, they’re just

staging-posts on a trail of obfuscation. But what Zirnelyte is certain is that the mysterious

people who’ve put her and her partner in nominal charge haven’t given them control or

responsibility. She says they are just nominees, just as Remigijus Mikalauskas is also

nominee director of another company implicated in the Moldova fraud. I asked her about his

role there.

ZIRNELYTE: He is a representative, but he’s not involved in any

day-to-day activities of the company. We don’t know what is going on in that company. We

don’t have access to any bank accounts, we don’t do anything for this company.

WHEWELL: But technically he is the director?

ZIRNELYTE: Nominee director, yeah.

WHEWELL: Nominee director?

ZIRNELYTE: Yes.

WHEWELL: Is there a difference between director and nominee

director?

ZIRNELYTE: Well, yes.

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WHEWELL: What is the difference?

ZIRNELYTE: Nominee director is just an official representative for

the authorities and he is not involved in anything.

WHEWELL: So what’s Jonathan Fisher QC’s legal opinion of

that?

FISHER: I would say its rubbish. I would say its nonsense. A

director has responsibility for the management of the company, whether he is a non-executive

director, an executive director or a nominee director; he is still a director, and so all that a

nominee director really means is that that person who is holding the position as director has

been nominated to hold that position as a director on behalf of somebody else, and in

performing his role as a director he has to understand what the company is doing, he has to be

involved in the management of the company, he has to ensure that the shareholders are

having their interests properly served.

WHEWELL: So equally responsible at law for any wrongdoing

effectively?

FISHER: Yes.

WHEWELL: And all that’s true under Seychelles law too. Zirnelyte

said that Mikalauskas was unavailable to speak to us. But it’s only because of a rare piece of

investigative luck - his unusually legible signature on the registration documents, and her

subsequent candour - that we know about their role in Fortuna United at all. It’s a limited

partnership, which doesn’t need to have a named individual behind it. And so, it turns out,

are most of the British firms implicated in the Moldova scam. In fact, in an intriguing sub-

plot to this story, most of them are Scottish limited partnerships, which explains the

Edinburgh connection. Scottish limited partnerships are a distinct and, until recently, very

obscure company vehicle. But now, financial researcher Richard Smith - the man whose idea

of fun is going through Companies House records - has devised special software to try to

understand what’s going on.

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SMITH: Scottish limited partnerships have been around

since 1907, when the law creating them was passed. For the first hundred years of their

existence nothing much happened. There were a few registered every year. Then in 2008 it

goes completely mad. Since 2008, something like ten thousand of them have been registered,

maybe fifteen thousand. When you go and put together the information from the last

eighteen months, which covers about six thousand Scottish limited partnerships, 90% of them

have corporate directors that are in tax havens overseas - like the Seychelles that we just

looked at, or Belize, or the Marshall Islands, or Panama, or the British Virgin Islands.

They’re all places where it’s pretty hard to find out who actually controls the companies, and

so what you’ve done, in effect, is import all that murkiness from offshore into Scottish

limited partnerships.

WHEWELL: In fact, the only difference between Scottish limited

partnerships and those in the rest of the UK is that Scottish ones have a separate legal

personality. That’s useful for some rather limited tax avoidance purposes. But to find out

why they’re booming, you have to explore the websites of overseas corporate service

providers - the kind of business introducers who supply Scottish-based agents like Viktoriya

Zirnelyte with many of their clients.

READER IN STUDIO: Scottish LP is by all means the bestseller of the last

three years. It looks like it will be a hit for more years to come.

WHEWELL: Says one firm that Zirnelyte told us she worked with.

READER IN STUDIO: A Scottish limited partnership became our top-selling

product.

WHEWELL: Another site says.

READER IN STUDIO: Scottish partnership is an ideal tool for those who are

not undertaking activities inside of the UK.

WHEWELL: The English in these adverts is good, but

not quite perfect. The Russian versions, by contrast - and these sites nearly all have Russian

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WHEWELL cont: versions - are clearly written by native speakers. The

two I just quoted are from firms apparently based in Latvia, targeting principally Russian

businessmen, and they’ve decided that Scottish LPs are the most confidential vehicles in all

of Europe. So if they’re the ones that really know the customers, I’d better go and find them

- in the Latvian capital, Riga.

ACTUALITY IN STREET, BELLS RINGING

WHEWELL: This is one of the medieval cobbled squares at the heart

of Riga’s old town, dominated by a magnificent 14th century red brick church. There are lots

of tourists from all over Western Europe in the cafes and the European Union flag is flying

here too. But you can also hear plenty of people talking Russian. It’s the native language of

more than a third of the population of Latvia. There are many corporate service providers

based here in Latvia, all boasting about how they can set up companies in just 24 hours and

extolling the virtues of doing business through Latvia, particularly for clients from Russia and

other post-Soviet states. They advertise Latvia as the ideal gateway for money from those

countries to enter the EU.

I’m going to visit one of those firms that described Scottish partnerships so gushingly on its

website.

ACTUALITY OF FOOTSTEPS AND DOOR CLOSING

WHEWELL: Well, the young man I met in that office refused to

give an interview on the record, but it was really very interesting. Of course, he says, the

whole trend, the fashion - as he put it - for Scottish Limited Partnerships, it’s driven

by people like me. And we advise them to take it, the single biggest reason we’re interested,

he said, is because the UK, of all the countries in the world, is the easiest and cheapest place

where you can establish a company.

It’s firms like his, as we’ve heard, that some Scottish agents - Royston Business

Consultancy and another larger one I spoke to - say they rely on for due diligence. But the

young man said his firm didn’t do any, beyond as usual asking for an ID. He passed the buck

to the customers’ banks - banks with branches in Latvia and Russia. But the Latvian banking

sector has been criticised in the past by both the European Commission and the US

authorities for being too open to the risk of money-laundering. So what of Privatbank, the

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WHEWELL cont: bank in Riga used by British partnerships through

which all the Moldovan money is said to have passed? What do they really know about their

customers?

ACTUALITY AT PRIVATBANK

WHEWELL: The clue to how this bank normally operates is in its

name, Privatbank, and I’m amazed that they’ve actually agreed to meet me. But the member

of the bank’s board who received me, Ivetta Kerpa, wasn’t giving too much away.

Privatbank is mentioned in connection with the disappearance of money from Moldova. What

was your reaction to that?

KERPA: This information provided by public sources is

incorrect and misrepresented. Privatbank has no relation to the missing billions of Moldova.

WHEWELL: Really?

KERPA: Really.

WHEWELL: But I mean, but I’ve got the report here, from Kroll,

which is based on information from the Central Bank of Moldova. That’s got the actual

account numbers in this bank.

KERPA: Regarding our bank, it is provided incorrectly and

misrepresented, yes.

WHEWELL: So, what are you saying? That those individual

companies, they do not have accounts in this bank?

KERPA: These customers, they had accounts with our banks,

but ….

WHEWELL: So those customers had accounts here?

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KERPA: Yes.

WHEWELL: But they don’t have accounts here any longer?

KERPA: No comment.

WHEWELL: But that’s what you said, you said they had accounts

here.

KERPA: Yes, I said.

WHEWELL: But the accounts they had were...

KERPA: No comment further about this.

WHEWELL: So let me ask you then about your procedures. So if a

company comes to you and says, we’d like to open an account, this is the account in the name

of a limited partnership, itself controlled or owned by two other companies, which let’s say

are based in a famous secrecy jurisdiction, you know …

KERPA: We don’t deal with these far, far jurisdictions.

WHEWELL: But in practice these clients that we’re talking about,

it’s a UK company but that in turn is owned by another company in these faraway

jurisdictions.

KERPA: Oh no, our legislation ….

WHEWELL: You can’t find some of these …

KERPA: …. requests to receive information about ultimate

beneficiary. If we can’t find this, we refuse.

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WHEWELL: But in practice, these clients that we’re talking about,

this is the case. That’s the most suspicious thing - a company with unclear ownership that

suddenly does a huge one-off transaction.

KERPA: I think that we can’t call some companies guilty unless

some formal trial or something will be happen.

WHEWELL: In Latvia, it’s not just banks that like to be enigmatic.

So too does the state regulator. So when, two years ago, he fined a bank for its part in

another massive international scam that also involved British shell companies. The scam

uncovered by the Russian whistleblower, Sergei Magnitsky, which defrauded the Russian

treasury of $230 million - he refused to name it, to protect its reputation. But piecing

together various clues, the Latvian investigative journalism centre, ReBaltica, concluded it

must have been Privatbank. So, what does the bank say about that? Were they caught

money-laundering?

KERPA: They asked questions regarding this, but there are no

connections or no evidence of this.

WHEWELL: But what was the sanction for then? What was the fine

for?

KERPA: Oh, banks in their activity can receive sanctions for

anything.

WHEWELL: But what was the sanction for in this case?

KERPA: Oh, let’s call this, like some minuses in internal

controlling system.

WHEWELL: So, we’re none the wiser. But the refusal to be open,

even after an apparent breach of the rules, casts further doubt on Latvia’s commitment to

stamp out money laundering. And if we’re not sure about the banks, or the company agents,

- 17 -

WHEWELL cont: in Britain or Latvia, you have to ask:

has anyone, anywhere along this chain, really done due diligence on the source of

the Moldovan money?

EXTRACT FROM DAVID CAMERON SPEECH APPLAUSE

WHEWELL: But it’s Britain, not Latvia, that’s taken to the

international stage in the global fight against money-launderers.

EXTRACT FROM DAVID CAMERON SPEECH

CAMERON: We are one of the most open and welcoming

economies anywhere in the world and I want Britain to be that country. But I want to ensure

that all this money is clean money. There is no place for dirty money in Britain.

WHEWELL: David Cameron speaking in Singapore in July. It’s a

message he repeats with increasing frequency. But can Britain really crack down on dirty

money while still making it as easy as possible for anyone to open a company here? A new

law that takes effect next year will require firms to disclose their beneficial owners. Britain

will be the first country in the world to adopt such legislation. But who’ll check that the

information put down is correct or honest? Currently there are no such checks when firms

register at Companies House, as its Chief Executive Tim Moss told me.

The perception in many cases will be people can put down whatever they like and no one’s

going to actually catch up in most cases.

MOSS: I think the wider principle here is what sort of

registration system should the UK have? Now the system that’s set up within UK law works

on the premise that the vast majority of people are good people who give you good

information and that’s put on the register and that’s done there to support the economy, and

we have one of the best and easiest places in the UK to set up a business and get trading and

carrying out that, and that’s a real benefit to UK plc. Could that system be abused? Yes,

there are things in there where that system could be abused. What we do not do and cannot

do - that’s not our remit - is to look at the sort of the pinpoint accuracy of that information.

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MOSS cont: Our role is to accept the information from a company

and then ensure it meets with compliance with the Act.

WHEWELL: So you can’t vouchsafe for the fact that it’s accurate?

MOSS: No, we can’t, and that’s not the role that we’re asked to

perform in legislation.

WHEWELL: So you check whether they report when they’re

supposed to report but - just to emphasise - you can’t know whether what they report is true?

MOSS: We don’t know the absolute accuracy of the

information that they supply to us, no.

WHEWELL: So, Companies House isn’t supposed to check,

corporate service providers are, but sometimes don’t. What then about the people who check

on the checkers, the regulator, HMRC? Critics say it has little interest in investigating due

diligence around firms like those in the Moldovan case, because they don’t actually do any

business in this country, so there’d be no tax to collect anyway. That’s the problem the

investment fund director Bill Browder - former boss of the Russian whistleblower, Sergei

Magnitsky - says he found. Magnitsky later died in a Moscow prison and Browder has

campaigned for years to expose the scam. But he says HMRC did nothing with the evidence

he gave them.

BROWDER: What’s interesting is that if you go and investigate

these crimes, you’ll see the same names, the same corporate service providers showing up

time and time and time again. And what’s even more interesting is that when we’ve pointed

out to the HMRC, they’re just not interested. They don’t care. They don’t care that this is

going on. We’ve given them a lock solid case to say this company should have its licence

withdrawn and they’ve refused to investigate.

WHEWELL: HMRC declined to be interviewed for this programme.

But they told us they use a wide range of enforcement actions, including unannounced visits

to suspect businesses, to target the small number of firms that flout the money laundering

- 19 -

WHEWELL cont: regulations. But if you look at the number

of prosecutions of British company agents for failing to comply with the rules, you’ll find

they can be counted on the fingers of one hand. Bill Browder thinks that’s just part of a

wider problem. There’s been legal action over the Magnitsky case, he says, in most of the 14

countries that proceeds of the fraud have been traced to, but not in Britain.

BROWDER: It’s remarkable and I can’t quite explain why it is that

the law enforcement authorities here refuse to open criminal cases, but they do - and what

that does is it puts a big welcome sign right out for every bad guy in the world to come in and

set up their operations, money laundering operations here, and so Britain has now, from what

I can tell, become the money laundering hub of the world.

WHEWELL: So what does the man now effectively in charge of

Britain’s fight against dirty money - Donald Toon, Head of the Economic Crime Command at

the National Crime Agency - think of that? How worried is he, in particular, by the role of

corporate service providers?

TOON: The short answer is, very worried. Trust and company

service providers, company formation agents, those professions cause us real concern. The

skills in those areas are essential to the type of money laundering we’re talking about. It

doesn’t take 1% or anything like that of people in those businesses to be problematic to cause

the UK a real problem. So are we worried? Yes. Are we focusing effort on this? Yes. And

we’re doing quite a lot of work with colleagues in HMRC, for example, to identify the

problematic and high risk company service providers and seek to take action against them.

WHEWELL: But in a situation where even you, as a police

authority, have difficulty working out what’s at the end of these chains. How can you expect

a simple company service provider sitting alone in an office without these kind of skills even

conscientiously to know they’ve got to the end of the chain and therefore provide the right

answer?

TOON: You can expect them to take reasonable steps. I’m not

sure I would recognise the simple company service provider working alone, as exactly

- 20 -

TOON cont: representative of the industry. The vast majority of

companies tend not to be created through that sort of mechanism.

WHEWELL: But we, for example, have been to a former council

house, just a simple flat in Edinburgh, where there’s four hundred companies registered. I

mean, that really is a single company service provider, or maybe there’s two of them, you

know, sitting on their own in the front room of a flat, creating companies. Are they going to

find out who the beneficial owner is?

TOON: If they aren’t, if they aren’t, then they are exposing

themselves to problems. That is an issue for, absolutely for the regulator. Frankly, I don’t

think the system works as effectively as it should. I think the regulatory landscape is

cluttered. There is a need to develop a much more consistent approach to reporting across the

different sectors. I think that there are issues about the way the suspicious activity reporting

regime currently operates.

WHEWELL: Suspicious activity reports, or SARs, are supposed to

be filed to his agency by anyone in the financial sector - banks, lawyers, estate agents, as well

as corporate service providers - if they think there’s anything fishy about a client.

TOON: What worries me, we got over 350,000 SARs into the

UK financial intelligence unit in the last reporting year. A very, very small proportion of

those came from company service providers. 177 out of 354,000, or 0.05% if you want to do

the arithmetic. What worries me is partly that we are identifying casework around company

structures where clearly the persons responsible for the formation of the company have

questions to answer, about their due diligence and their lack of reporting at the very least.

The regime itself, as I said, has difficulties within it. We’ve certainly been engaged with

Home Office and with others about potential changes to that regime, but ultimately that is a

matter for Home Office/Government to decide. The ultimate risk from a UK perspective, of

course, is our international reputation.

WHEWELL: Whitehall officials are now discussing tightening the

due diligence requirements for corporate service providers - another sign that the Government

- 21 -

WHEWELL cont: is now taking the threat of money laundering more

seriously. Donald Toon says he’s very concerned about what File on 4 has discovered.

ACTUALITY OF PROTEST IN MOLDOVA

WHEWELL: But what of Moldova? Donald Toon won’t discuss

that - though I understand that Britain has received a request for help from the authorities

there. But what’s still a largely unknown scandal here is tearing Moldova apart - thousands

of campaigners now occupying a central square week after week, demanding the return of

their billion. No-one knows where the money is now; almost certainly in neither Britain nor

Latvia. But Britain’s part in the story gives investigator Richard Smith no rest.

You stay up late night after night going through these kinds of records, looking at registration

document after registration document, compiling analyses. What drives you to do all this?

It’s very, very exhausting work. What drives you?

SMITH: Well, I think it’s the sheer, it’s the size of the

consequences, really. You go from a duff registration form in Companies House. At the other

end of it you’ve got, you know, a massive uproar in Moldova, where they haven’t got a very

vigorous economy and it’s just been wrecked by this bank fraud, and it’s all because we’re

just so sloppy about how we allow these things to be created and I just think that’s wrong. In

the end, the Moldovans are out a billion bucks. It makes me very angry.

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