The Billion-Dollar Moldovan Bank Scam, Scottish Limited Partnerships, and the UK’s Anti-Money-Laundering Mess

Back in June, the BBC World Service covered the ruinous bank fraud in Moldova, a staggeringly complex affair in which a billion dollars, amounting to 12% of GDP, was removed from the heavily-manipulated Moldovan interbank lending system, plonked into Latvian banks, and whisked away to destinations unknown. The scam was years in the making, but reached its fruition in November 2014. Three bust banks were left behind in Moldova, and economic and political uproar ensued.

File on Four, UK national radio’s premier investigative programme, has just broadcast a follow-up piece on the role of UK companies and partnerships in the Moldovan fraud. Your humble and now audibly British blogger puts in a couple of diffident appearances. Hello, acoustic world!

But for a quirk of Moldovan politics, we wouldn’t even know that British companies were involved. They’re written up in a confidential report by Kroll Investigations, who were engaged by the Moldovan government to trace the funds. In April, for political or other reasons, the Speaker of the Moldovan Parliament, Andrian Candu, decided that Kroll wouldn’t mind a bit if the report’s confidentiality was breached, and leaked it on his web site.

As one delves into the report, a huge network of shell companies emerges, dozens registered in Moldova itself, and 48 in the UK. Along with plain vanilla UK Limited companies, and a sprinkling of the new-fangled Limited Liability Partnerships, a surprising number (21) of the UK companies are Scottish Limited Partnerships (SLPs).

SLPs are a remarkably obscure form of business vehicle: a mere 5,000 SLPs survive from the century between 1907, when their governing law was passed, and 2007. By way of indicative contrast, some three and a half million plain vanilla Limited Companies are currently active in the UK.

Since 2007, though, there’s been something of a boom in SLPs: the other 15,000 or so that are extant have all been created since 2008, and they are currently being registered at a rate of 3-400 per month. Clearly someone’s recently noticed something very special about SLPs, and given their predominance in the Kroll report, it must be something that crooks rather like. The programme explains what it is.

Ian Fraser and I wrote some of this up in pieces at the Scottish Herald (variant with pictures here) and some of the boom in SLP registration at Naked Capitalism. There’s more from the Herald here. The SLP phenomenon also caught the eye of Business New Europe’s indefatigable Graham Stack, a veteran investigator of FSU fraud and money laundering shenanigans.

But even after all that coverage, there was clearly plenty more to do, and it was great to see the BBC step into the fray again. This blogger, desperately eager for tips on how to make company registration a less boring subject, was also intrigued to see how the BBC could possibly turn the story into compelling radio.

One takes one’s hat off, then, to the BBC’s Tim Whewell and Simon Maybin, for concentrating largely on just one nasty-looking SLP, one surprisingly candid UK Company Agent, and one nasty-looking Latvian bank. That focus turned a profusion of leads, a positive fiesta of speculative doorstepping in Scotland and Latvia, stonewalling by all sorts of potential sources, and some unpredictable burblings by me, into 40 minutes of crisp and vividly illustrated narrative. There’s some very illuminating commentary by a battery of proper experts, too. The piece does give a nuts-and-bolts and rather sinister idea of why SLPs are having such a boom: as business vehicles, they have a set of characteristics that are uniquely suited for nefarious purposes.

I commend the story to NC readers who want to learn more. The radio piece is here in MP3 format if you want to catch up. There is a new text piece to go with it, too, with extra details.

Meanwhile in Moldova, nearly a year after the fraud was completed, the consequences continue to ramify. Inflation surged after the government funded the urgent bank bailout via money printing. By September this year, the resulting economic hardship had led to renewed street protests, in which those Moldovans who tend to favour Russian affiliations pointed the finger at the corruption and ineptitude of the narrowly-elected pro-Europe government. It’s all pretty toxic, and on some kind of a knife edge. What a shame it is that UK companies and laws have had such a major role in this imbroglio, which may yet get much worse, given the regional politics.

Back to the radio piece: a lot ended up on the BBC’s cutting room floor, as was inevitable, leaving a nagging feeling that British legal and operational frameworks, that helped facilitate the mess in Moldova, might still be worth some more detailed scrutiny. That feeling is bolstered by a 10,000-row Excel spreadsheet and a 20-page Word table, both compiled from a variety of not-always-high-quality data sources during the research for the File On Four piece. Those documents aren’t what you could call ideal broadcast material, but they do prompt one or two little extra observations that are suitable for blog posts.

So there’s more from me in the pipeline: a series of posts, in fact. Since the story is really all about money laundering, I’ll be starting with a look at the UK’s Anti-Money-Laundering framework, which is quite a comic spectacle, if you like your comedy black.

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  1. vlade

    UK’s AML has all the characteristics of a law/procedure that is there just to be there. I.e. it’s long, hard to understand, generates a lot of work etc. etc., but if you look at it closely, it’s clear it’s not to stop AML, but to say “but we have AML laws in place!”.

    1. Clive

      Oh, you are so right there vlade. It is tickbox-ification at its worst. A bug or a feature though? Not sure what Richard thinks, I genuinely can’t decide.

  2. TheCatSaid

    Richard, thanks for illuminating these shady aspects of company UK company formation. The BBC program is very good–those on-the-spot interviews make for great radio. I look forward to the next installments.

    Do the people in Moldova realize the role played by UK/Scottish companies in the disappearance of their money? Is your work making through to the media there? Moldovan media should be interviewing you.

  3. Pepsi

    The money quote comes late in the BBC radio piece, around 30 minutes in. The UK won’t investigate money laundering.

    1. sam s smith

      London real estate would crater if the British investigated money laundering.

      I imagine the same would happen in NYC if the Feds ever started putting people in jail for money laundering.

  4. Richard Smith Post author

    Dear Jimmy, I am very keen to make contact. Give it some thought. I didn’t get where I am today by giving up my sources, so I would respect your confidentiality requirements.

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