Deutsche Bank and a $10Bn Money Laundering Nightmare: More Context Than You Can Shake a Stick at

Philip Burwell…set up many offshore companies for a customer called International Offshore Services Group (IOS)…

Irish Times

There is no Sandford Road in Dublin, Virginia.

The Organised Crime and Corruption Reporting Project

By Richard Smith, who cautions that this is a long and demanding read, but offers something for anyone with a spare hour and a bit of stamina.

In its recent long read, The New Yorker chronicles the management failures behind Deutsche Bank’s money laundering of around $10Bn via its Moscow office. This wheeze operated via so-called mirror trades: buy stock in DB Moscow for roubles; sell the same stock in London for dollars. One result is lots of nice dollars, not in Russia any more, but in London.

This seems to have gone on for years without anyone really noticing, except for bank analysts Oliver Harvey and Robin Winkler:

There is strong evidence that a considerable chunk of the UK’s £133bn of hidden capital inflows is related to Russian capital flight.

In a nice stroke of dramatic irony, those analysts work for Deutsche Bank.

Readers will observe the massive difference between $10Bn and £133Bn, and wonder how the rest of the money makes it to London. I imagine Deutsche Bank execs will be hoping fervently that the answer doesn’t turn out to be “also via Deutsche Bank”. So far, nobody really knows, one way or the other.

Some details of the Deutsche Bank £10Bn story are still pretty hazy, though. For instance, Matt Levine asks an interesting question: where’s the stock?

…if you do the accounting it would seem that they’d also be building up a large stock position in Russia and an offsetting short position in London. I’m a little curious how they closed out their short positions in London. Did they, like, fly bags of stock certificates from Moscow? Doing the mirror trades solves the problem of moving cash from Moscow to London, but would seem to leave a residual problem of moving stock.

Is that a glimpse of another titanic oversight failure? I daresay that will all come out in due course, but for the moment, only Matt Levine cares about the stock.

Another neglected aspect of the Deutsche Bank story is the shell companies involved. Many writers have covered their spectacular back story before, including me, but, since no-one’s spotted the wider connections of the Deutsche story, they clearly still don’t have the exposure they need. So here’s another shot.

The back story will bring us to a connection to the US presidential election, to cockups by a journalist and a blogger that muff key leads, to a vista of global money laundering-related horror, to more US connections, including a spot of torture, the DC lobby, and a dead lobbiyist, and to a whole other set of oversight failures, in the UK this time.

Let’s start somewhere near Washington, DC, with the help of the Organised Crime and Corruption Reporting Project, reporting on International Overseas Services (IOS), sometimes also known as International Offshore Services (IOS), and mentioned in our epigraph:

International Overseas Services is a Virginia private corporation founded in 1996, which owns subsidiaries in Riga, Kiev and Moscow that sell offshore companies. Latvian company records list Philip Burwell, or in Irish, Pilip Boireil, as the company’s representative in Latvia.  The corporation originally listed as its address Sandford Road in Dublin, Ireland but in 2007 changed it to the same address in Dublin, Virginia in the United States. There is no Sandford Road in Dublin, Virginia.

…suitably mysterious, or slapdash, or cynical…but on we go:

Burwell is registered with the Irish Ministry of Justice as a company services provider, trading as PB Consult, although IOS itself is not registered in Ireland at all. In an interview in Dublin, Burwell… denied that he currently has any connection either to the proxies or to the company IOS as of 2003.

However, documents show that Burwell signed as president of the Virginia corporation International Overseas Services in 2010.

Invoices obtained by the reporters show that Burwell administers two platform companies … Milltown Corporate Services and Ireland and Overseas Acquisitions, the directors of which are [Erik] Vanagels and [Stan] Gorin. Companies with these names and directors have registered successively in Ireland, the British Virgin Islands and Belize…

The invoices show a local company services provider, Desmond Kearney, billed Burwell (identified by his email) for Kearney’s having administered 17 British companies for Burwell in 2010. The invoices are made out to the IOS Panamanian branch, IOSG Secretaries.

According to the UK company register, all seventeen companies on the invoices have as owners and directors Milltown Corporate Services and Ireland and Overseas Acquisitions, which have Vanagels and Gorin as officers.

The main things to remember from all that are the IOS directors, Gorin and Vanagels, the IOS shell companies, Milltown Corporate Services and Ireland and Overseas Acquisitions, and the IOS Panamanian branch, IOSG Secretaries. Via those names, one can identify other IOS shells: for instance Intrahold AG, Monohold AG, Tallberg Ltd and Uniwell, Inc, here. There are many, many more, but let’s restrict ourselves to IOS vehicles Kenmark Inc, here (connected to nearly a thousand companies in the UK and Panama), and Ostberg Ltd, here (with an even bigger footprint in the UK and Panama).

Now for two key UK vehicles mentioned in The New Yorker’s Deutsche Bank piece. I have added helpful hyperlinks, from which it is obvious, via the connections to Kenmark, Inc and Ostberg Ltd, that the two Deutsche Bank megamoneylaundering vehicles are also from the IOS stable:

According to public documents, Chadborg Trade LLP, which was based in the U.K., wholly owned Lotus Capital, which was based in Russia. Another British mirror-trades entity, ErgoInvest, was registered in the same office in Hertfordshire where Chadborg was registered.

Here’s a little tip: if AML execs at Deutsche Bank or any other banks are wondering how on earth to spot a big fat money laundering flag, they might want to take a quick look at their books to see if they have any clients that are

  • UK Limited Partnerships or Limited Liability Partnerships (like Chadborg Trade LLP or ErgoInvest LLP), and
  • with partners, or “designated members”, that are companies registered in tax havens (such as Dominica, the domicile of Kenmark Inc and Ostberg Ltd).

Those are useful signs that further investigation might be required. It happens that the UK’s FCA is well aware of the problem with UK Limited Partnerships, and instructs financial services companies to perform labour-intensive “enhanced due diligence” when opening accounts for them. The same goes, I hope, for LLPs with the same attributes.

So much for Deutsche Bank and Moscow, for the moment. Next up: the Trump presidential campaign, recently maimed a bit more by the resignation of Paul Manafort, and Ukraine:

KIEV, Ukraine — On a leafy side street off Independence Square in Kiev is an office used for years by Donald J. Trump’s campaign chairman, Paul Manafort, when he consulted for Ukraine’s ruling political party. His furniture and personal items were still there as recently as May.

And Mr. Manafort’s presence remains elsewhere here in the capital, where government investigators examining secret records have found his name, as well as companies he sought business with, as they try to untangle a corrupt network they say was used to loot Ukrainian assets and influence elections during the administration of Mr. Manafort’s main client, former President Viktor F. Yanukovych.

Handwritten ledgers show $12.7 million in undisclosed cash payments designated for Mr. Manafort from Mr. Yanukovych’s pro-Russian political party from 2007 to 2012, according to Ukraine’s newly formed National Anti-Corruption Bureau. Investigators assert that the disbursements were part of an illegal off-the-books system whose recipients also included election officials.

While working in Ukraine, Mr. Manafort had also positioned himself to profit from business deals that benefited from connections he had gained through his political consulting. One of them, according to court filings, involved a network of offshore companies that government investigators and independent journalists in Ukraine have said was used to launder public money and assets purportedly stolen by cronies of the government.

The network comprised shell companies whose ultimate owners were shielded by the secrecy laws of the offshore jurisdictions where they were registered, including the British Virgin Islands, Belize and the Seychelles.

In a recent interview, Serhiy V. Gorbatyuk, Ukraine’s special prosecutor for high-level corruption cases, pointed to an open file on his desk containing paperwork for one of the shell companies, Milltown Corporate Services Ltd., which played a central role in the state’s purchase of two oil derricks for $785 million, or about double what they were said to be worth.

“This,” he said, “was an offshore used often by Mr. Yanukovych’s entourage.”

Cool: IOS companies are components of the Deutsche Bank scandal (Chadborg Trade and Ergoinvest) and the Manafort scandal (Milltown Corporate Services).

At this point, we need to clear away a couple of red herrings. First, in The Guardian, where Luke Harding misinforms us that the Manafort money trail:

…wound through other opaque shell firms, including Cascado AG, set up by the Panamanian law firm Mossack Fonseca.

A search of the Panama Papers leak gives a few details.

Well, no: a look at the Panamanian registry entry for Cascado AG, via the convenient OpenCorporates, shows its agent to be Cambra La Duke; Mossack Fonseca is nowhere to be seen. One has a horrible feeling that Harding may have been bamboozled by the ICIJ Panama database’s generously inclusive query, which, if you input Cascado AG, returns any entity with the string “AG” in its name, of which there are rather a lot. Inputting just “Cascado” gets you a more useful data item, Cascado AG’s registered address, at 50th Street Global Plaza Tower 19th Floor Suite H Panama City, which is not Mossack Fonseca’s address, but, to emphasize the point, Cambra La Duke’s.

We recall also that IOSG Secretaries Inc, IOS’s Panamanian branch, has the same company agent, Ricardo Cambra La Duke, on its board, though there’s no sign of Philip Burwell there. Since Burwell is the guy that pays the invoices and liaises with the suppliers, one can hazard a guess that Cambra La Duke is a proxy for Burwell. It wouldn’t exactly be the first time Cambra La Duke filled that role, and very clearly he’s linked to IOS, too: a proxy, for a proxy (Burwell), for a whole warehouse of proxies (IOS).

The real reason that Cascado AG turns up in the Mossack Fonseca “Panama” leaks of 2016 is probably the same reason that it turns up long before too, in the Trident Trust Offshore leaks of 2010: Cascado’s global footprint is vast, and shy offshore clients do deals with each other. Touch points naturally develop with other offshore structures set up by other agents, and turn up in leaks.

The upshot is that Harding doesn’t quite nail the Manafort connection to IOS.

The second red herring is at this blog, which completely arses up the history of Milltown. As the blog states, the name “Milltown Corporate Services” did indeed first manifest itself as an Irish company created by Mr Burwell, but dissolved as long ago as 2005. However, the name promptly reappeared in the British Virgin Islands (PDF Link), only to vanish again from that jurisdiction too, soon after. Since 2005 at the latest, it has also sometimes adorned a Belizean entity. The Milltown that’s relevant to Manafort, and much other skulduggery that I will highlight in a moment, is just a name for three different entities, one of which has been alive and kicking, as far as we can tell, since 2005. The blog relies on the apparent fact that Milltown is defunct to support its allegation of NYT reporting bias, but Milltown lives on.

Mind you, the blogger’s final complaint, about the exclusively Ukrainian slant of the NYT story, might still stand up well, for other reasons. Certainlly,  Milltown and IOS did lots of work for Yanukovych and friends. For example, check out the UK Limited Liability Partnerships mentioned in the Independent’s 2014 article on the Yanukovych money trail: all are IOS creations. All the same, don’t run away with the impression that “Yanukovych’s entourage”, in the NYT’s phrasing, are the only users of IOS’s services; far from it.

The Organised Crime and Corruption Reporting Project (OCCRP), who’ve been on this beat a long time, put it better, in a story about, of all things, Italian football coach Fabio Capello’s contract with the Russian national team. IOS is one of the chief creators of what the OOCRP call the “Proxy Platform”:

The Proxy Platform was a set of offshore companies which provided money-laundering services for criminals all over the world including Mexican drug cartels, Asian Triads, Russian and Moldovan organized crime and state companies and officials in Russia and Ukraine during the reign of Viktor Yanukovych. Some of the money stolen from the Russian treasury in the Sergey Magnitsky case used the Proxy Platform.

To further widen the context, beyond Russia, Ukraine, Moldova and Chinese triads, let’s add some more IOS connections, to an alleged $1.5Bn fraud conducted against the sovereign wealth fund of Ras-Al-Khaima (“RAK”, one of the United Arab Emirates), in Georgia:

A Georgian judge ruled in the civil case of Rakeen Uptown Development LLC – a subsidiary of the RAK government-backed Rakeen Development PJSC – vs Gela Mikadze, former CEO of the company and Ras Al Khaimah Investment Authority (Rakia) in Georgia, and Tecberg Projects LLP, also an entity associated with Mikadze, an associate of Khater Massaad, the top ex-Rakia official. He is facing criminal charges by the RAK government for allegedly embezzling and mismanaging funds valued at approximately $1.5 billion.

Mikadze and Tecberg were ordered to jointly pay Rakeen Uptown Development $1,736,000 court fee against claims of breach of duties as director, embezzlement and fraud. Mikadze was appointed by and closely associated with Massaad.

Mikadze admitted to wide scale fraud by misappropriating shares in Rakeen Development, Rakia, and Rakia Georgia Free Industrial Zone. The multi-million valued shares were transferred to Mikadze’s account for a symbolic price and with approval for Massaad, acting without any authority.

Khater Massaad refutes charges

On August 1, the government of Ras Al Khaimah said it would file criminal charges against Dr Khater Massaad, head of Star Industrial Holding Limited, in connection with the $1.5 billion amount. They went on to say that Massaad had already been tried and convicted by UAE criminal courts for corruption and fraud, embezzled and misappropriated government assets while heading Rakia, and continued to operate global businesses despite his reputation and activities that has affected many countries.

Tecberg Projects LLP, mentioned in that report, is another one with Milltown Corporate Services among its past members. Indeed, UK court records of RAK’s attempts last year to freeze Mr Mikadze’s assets contain allegations that he is the beneficiary of another thirteen UK LLPs,  all with an IOS pedigree, at various addresses. Six of them, Sonland Transit,  Worldfound Universal, Bellcrown Alliance, Montbury, The Sollutions Alliance and Luxtron Worldwide, are at the very same address as Deutsche Bank’s money laundering shells.

Correctly, the judge jibs at concluding that Mr Mikadze is a beneficiary of the entire fleet of LLPs:

The Applicants rely on the shared registered addresses, shared designated members and shared accounts signatory (Mr Moulaye) as showing that if Mr Mikadze accepts that he beneficially owns Bestfort and Manline then he is likely to own the others too. The difficulty with this is that Mr Mikadze’s evidence is that he acquired Bestfort and Manline from Hornberg which runs a business of providing LLPs for a small fee and then providing the service of making sure that the LLP files whatever documents are needed each year to maintain the LLP in being on the register. The other LLPs might simply be others that have been set up and run by Hornberg or a similar service provider in which case it is not surprising that they have the same registered addresses and same members and same person signing their accounts. There is no evidence from Ms Black about what business is run from the Potters Bar and Elstree addresses – there may be many hundreds of LLPs registered there.

The judge’s guess (or Google) about the real number of LLPs is in fact dead right (see the table further down this post). It is probably just as well that the plaintiff’s lawyer didn’t carry the point. Otherwise, depending on what else turns out to have been going on with that cluster of dubious LLPs,  the embattled Mr Mikadze might have had scads of other non-Georgian nefariousness unfairly attributed to him.

Next, the judge does what he can to identify the LLPs that really do look as if Mr Mikadze has something to do with them, but ends up finding more mysteries:

As regards Bellcrown, Labbey, Tecberg, Montbury, Raystar, Worldfound and Luxtron, they are entities which have some involvement with the events giving rise to the claims. In the case of some of them, an important aspect of the claim against Mr Mikadze is that the payment to the relevant LLP was improper because it was his creature.

As regards the Sollutions Alliance, QB Enterprises LLP and Sonland there is some additional evidence showing a connection with Mr Mikadze. As regards Hornberg and Bontrade, the most that can be said of them is that they have the same structure as the others – though that may be a structure shared by many other LLPs – and some shared features. However, I accept Mr Moverley-Smith’s points that (i) if Hornberg really is simply a third party service provider based in England then is it surprising that its only members are companies based in the Marshall Islands and that its only apparent asset is a bank account in Latvia; and (ii) if these LLPs were really unconnected with Mr Mikadze, it is also surprising that no one has come forward to assert that fact on their behalf in answer to these proceedings. Mr Goguadze, who Mr Mikadze says is now the owner of Labbey, Worldfound and Luxtron has not come forward, nor has anyone who runs Hornberg done so.

What an absurdity this is: we have a completely untraceable opaque offshore company agent, Hornberg LLP, selling on indistinguishably opaque UK LLPs, that in fact all look just like Hornberg LLP itself, and all are apparently created by the almost equally untraceable hydra-headed offshore agent IOS. One very obvious conclusion follows from this nested opacity: in the UK, and elsewhere, there is no reliable accountability mechanism for company agents whatsoever. They are operating a black market.

One might also conclude from the Georgia case that corporate entities capable of attaining this level of opacity aren’t especially useful as vehicles for international business. Even if you don’t think it’s a fraud, but a mere dispute, consider the complexity (and expense) of just the London suit, in which the judgment went against RAK.

Company agents and LLPs need reform. In the mean time, UK company law and oversight must be looking pretty stupid to the UAE.

Courtesy of the ICIJ, there’s plenty more IOS. First up, Kazakhstan, with an entry fit to stand alongside the Deutsche Bank exploit:

The ICIJ documents show the names Gorin and Vanagels were used to set up a series of offshore entities linked to Mukhtar Ablyazov, the former head of Kazakhstan bank BTA.

Some of the entities were incorporated through Commonwealth Trust by Ablyazov’s business associate Paul Kythreotis and Ablyazov’s brother-in-law, Syrym Shalabeyev.

Ablyazov stands accused in his home country of embezzling up to $5 billion from BTA in what British media describe as one of the biggest frauds in history.

Next, in case you think this is all only about the former Soviet Union, we have the CIA:

… a Panamanian entity linked to Gorin, Star Group Finance and Holdings, was used to register an entity in Washington, D.C., called Elite LLC.

The CIA later used Elite LLC to buy a former horse-riding academy outside Vilnius, Lithuania, in March 2004. The U.S. agency flew in prefabricated elements to build a secret prison there. It opened in September 2004 and was later the subject of a European Parliament inquiry after ABC News reported that it was used to covertly and harshly interrogate suspected al-Qaeda terrorists.

That horse-riding-academy-cum-torture-house has an afterlife: it can be glimpsed through the trees here, and features in a sort of scrapbook of rendition artefacts, available here.

And finally, we have Kaalbye Shipping, a Ukrainian company (but with major, major US connections), for which IOS has done various small services (here, here and here, that Irish address again), and some larger ones:

Then there was the case of the MV Faina, a merchant vessel captured by pirates en route from Ukraine to Kenya in September 2008.

International concern at the time focused both on the plight of the crew and on the cargo: 33 Soviet-made T-72 tanks, plus grenade launchers and small arms ammunition, destined for the rebel government of South Sudan, then under a United Nations arms embargo.

An anonymous Panamanian company, Waterlux AG, officially owned the ship. But behind Waterlux AG were two other Panamanian companies, Systemo AG and Cascado AG — both of which were fronted by Gorin and Vanagels.

Just like Yanukovych, Kaalbye Shipping has links to big-time US lobbyists. In 2014, the DC think-tank C4ADS produced a study (outline; full works, including repeated appearances by IOS companies and Latvian banks in connection with various arms smuggling trips) suggesting that Kaalbye were smuggling Russian arms to Syria and elsewhere.

Kaalbye pushed back, and The Washington Post, which had republished the gist of the C4ADS story, quickly put up some corrections. This was not enough for Kaalbye, who sued C4ADS. As a bonus, ancient lobbyist Peter Hannaford, a member of the hawkish and decidedly antique Committee on the Present Danger, piped up on Kaalbye’s behalf in the Washington Times.

Vocativ (registration required) promptly detected a wee problem with Hannaford’s positioning of his ‘opinion’ pieces:

What Hannaford neglected to mention in either of his columns is that he is a senior consultant for the Global Strategic Communications Group, the same PR firm hired by Kaalbye. So was Hannaford writing in his capacity as an academic expert, or as a paid consultant? He declined to comment on this story, citing C4ADS’ ongoing lawsuit.

This is a reference to C4ADS’s countersuit, an anti-SLAPP lawsuit alleging tortuous interference and implicating another DC lobbying firm, the disintegrating Patton Boggs, led by former Senator Trent Lott and now unfortunately resuscitated as Squire Patton Boggs. According to Vocativ, C4ADS had some difficulty serving that suit:

On April 14, C4ADS sent a messenger to GSCG’s listed offices at 1776 I Street in D.C. The security guard in the building’s lobby told the messenger that GSCG was located on the ninth floor of the building. But when a process server showed up at the same address two days later to present the lawsuit, the ninth floor receptionist said she didn’t have a listing for that company. Over the next week, C4ADS tried to serve GSCG with papers twice more, but could not locate the office on the premises. GSCG had literally disappeared, along with the company’s website. It’s now marked as under construction, but archives of the site list the company’s full staff, including Hannaford.

C4ADS won their case in April 2015, and Hannaford was untroubled by any further awkward questions, dying in his sleep in November 2015. As far as I know, Kaalbye Shipping, Russian/Ukrainian arms shipper, still has its deal with the United States Navy’s Military Sealift Command. All’s well that ends well, eh?

Somehow we have got back to Washington again, with a glimpse of the inner workings of DC.

Time for a huge British footnote: let’s revert to Deutsche Bank’s two cataclysmic UK shells, Chadborg Trade LLP and ErgoInvest LLP, for a spot of original analysis.

According to Opencorporates, the Hertfordshire maildrop that hosts Chadborg Trade LLP and ErgoInvest LLP is home to another 1,233 anonymous LLPs formed by IOS, of which 476 were active the last time I looked. The Deutsche Bank precedent (five billion bucks per LLP) implies that those 476 LLPs represent potential aggregate money laundering capacity close to $5 trillion, over a 5-year lifetime, let’s say. A trillion dollars a year seems to be plenty: UK GDP is about $2.5 trillion.

Admittedly, your wannabe money launderer, kitted out with some untraceably purchased LPs or LLPs, still needs to find a dreadful international bank willing to avert its eyes, but that’s not a big ask.

Furthermore, if a trillion dollars a year is not enough, Potter’s Bar is not the only address in the UK that, from time to time, has hosted partnerships mass-produced by IOS and controlled by opaque offshore entities. Here’s a longer list, that’s still not guaranteed to be complete. There will be ordinary old limited companies at these addresses too, with ordinary old stooge directors overseas, but let’s not complicate the story still more. The counts of LPs and LLPs at these addresses do slowly drift over time, but for a while, they’ll give a rough idea of what’s going on.

For the English LLPs, I’ve included hyperlinks (accessible if you have an OpenCorporates account) to any available  “control statements”. This is a new British initiative that is supposed to document who’s really in control of private companies. The requirement for control statements took full effect on June 30th, 2016. Two months or so into the programme, you’d expect about 1 in 6 control statements to contain useful info. So far it isn’t working out like that at all, with these particular LLPs. By early September, just a handful had got around to naming anyone at all in control. Here’s hoping they catch up. One also hopes that the doughty 84 year old Ukrainian lady, who purportedly runs one of these LLPs from her flat in Odessa, will soon be able to contemplate retirement.

Type LLPs LPs  Address
English 280 0 Cornwall Buildings 45-51 Newhall Street Office 330, Birmingham, B3 3QR
English 490 119 Unit 5, Olympia Industrial Estate Coburg Road, London, N22 6TZ
English 476 0 175 Darkes Lane Suite B, 2nd Floor, Potters Bar, Hertfordshire, EN6 1BW
English 352 1 Suite B, 11 Churchill Court 58 Station Road, North Harrow, Middlesex, HA2 7SA
English 240 0 Suite 1 The Studio St Nicholas Close, Elstree, Hertfordshire, WD6 3EW
English 145 0 3rd Floor 49 Farringdon Road, London, EC1M 3JP
English 37 0 Suite 1 Level 14 The Broadgate Tower 20 Primrose Street, London, EC2A 2EW
English 29 0 Suite 48 88-90 Hatton Garden, London, EC1N 8PN
English 14 0 48 Queen Anne Street, London W1G 9JJ
English 2 0 Enterprise House 82 Whitchurch Road, Cardiff, CF14 3LX
Scottish 0 76 Office 7, 196 Rose Street Edinburgh
Scottish 5 2,425 44 Main Street, Douglas
Scottish 4 1,974 Suite 1 78 Montgomery Street, Edinburgh, EH7 5JA
Total 2,074 4,595

Some of those addresses are notorious already: along with Potter’s Bar of the Deutsche Bank billions, we have the Cardiff address, home of Loginex Projects LLP, one of a number of companies which allegedly laundered $1Bn of the $5Bn defrauded from BTA Bank, and of Highway Investment Processing LLP, involved in a Ukrainian state purchasing scam, in which someone bought a $250Mn oil rig for $400Mn in an auction carefully rigged by someone, and someone trousered the difference. Cardiff guy used to host nearly 1,000 LLPs; now he’s down to just two, one of which, Raystar Trade, still manages to crop up in the Georgia/RAK story, for a last hurrah.

IOS maildrop providers are sometimes complete innocents. Whatever the impression given by headlines such as Locals baffled by revelation that firm based in sleepy Scottish village are at centre of major organised crime probe over arms deals, it’s pretty obvious that the two Lanarkshire ladies at the centre of the story really are small-town accountants, not master criminals. Innocent or not,  IOS maildrop providers do get a lot of hassle, eventually: reporters on their doorsteps, official visits, neighbours talking. So maybe that’s why some of them pack it in.

The Elstree address is the latest home of Milton Benefits LLP, part of the relatively tiny Rockford Funding scam which, according to the SEC,

…used cold calling and a Web site to raise at least $11 million from more than 200 investors in 41 different states and Canada since March 2009

…’twas a Ponzi…

…dividend payments made to investors have been funded by other investors’ contributions, and Rockford Group transferred most of the money collected from investors to banks in Latvia and Hong Kong.

Before pitching up at Elstree, Milton Benefits was based at an Earl’s Court address, which used to host another 500 companies, including more from the Rockford Funding scam. All of them have now been dissolved, or relocated,

Then there’s Montgomery Street, Edinburgh, home of several of a large number of Limited Partnerships and other UK shells that were used to siphon $1bn out of three Moldovan banks in late 2014.

Zooming out still further from the IOS shells, and bringing in other company agents besides IOS, we can identify a total of 7,000 Limited Liability Partnerships (mostly English, numbers slowly decreasing) and 17,000 Limited Partnerships (mostly Scottish, numbers growing very fast), all with the same hallmarks: they are controlled by opaque offshore vehicles. The last time I wrote about this, last year, I found 20,000. The LLP phenomenon may be past its peak, but when you consider LPs too, another version of the same wheeze, it’s getting worse.

Thanks to the OOCRP, Graham Stack, and Private Eye’s Richard Brooks in particular, this whole mess has been well and truly public since 2013 at the very latest (free short video, cheap detailed report). It is past time the UK Parliament took notice and undertook some effective reforms, last muffed in 2015 by the new Small Business Act. A Scottish MP, Treasury spokesman Roger Mullin, is taking up the cudgels on Scotland’s behalf, but he has no English allies yet. Even UK Treasury thinks the current UK controls aren’t up to snuff, so maybe Mullin will not be alone, down south.

The UK will make the same discovery as the maildrop providers: it all comes back to bite, eventually.

First, there’s a domestic dimension: you won’t be surprised to hear that at least some, and possibly rather a lot, of the Russian/Ukrainian online fraud about which the City of London Police commissioner was moaning last week, is facilitated by opaque UK companies, including LPs and LLPs.

Second, there’s an international dimension. Eastern Europe and Eurasia states are being bled white by fraud and corruption; plenty of it, as we see, is facilitated by UK-registered companies. Those Eastern European and Eurasian citizens have smelt a rat; here’s Ben Judah in American Prospect :

The conventional wisdom is that ordinary citizens of these states—feudally ruled, politically pillaged—will become obsessed about corruption. So far, so good: You cannot talk about politics in Russia, Ukraine, Azerbaijan, and the rest without talking about corruption. But beyond this, the conventional wisdom—that the middle classes, the young, or the globally connected will then demand a new, Western-style government—breaks down.

The reason this logic doesn’t hold is that East European corruption fighters are discovering that Western countries and their systems of offshore economies have enabled the colossal theft of their countries’ resources. Bubbling up from beneath the surface of both the Russian opposition and the Ukrainian Maidan is a new sense of disdain for the West.

That’s not just embarrassing, but pernicious for international relations: perhaps it’s as well that Trump, with his vague Russian connections, is looking more and more like the runner-up in the presidential race (pending the next round of polls, anyway). How wonderfully fortunate it is that there is another US presidential candidate who, according to some recent reports, doesn’t show any sign whatsoever of having the sort of offshore links that could blow up nastily.

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  1. I Have Strange Dreams

    Great reporting, but no surprises. A friend of mine who worked in banking in London during the 90s called it a “sewer”. He told me stories of accepting sports-bags full of cash with obvious traces of blood – self regulated, so nothing suspicious to report.

  2. DJG

    The details make the mind boggle, and the concluding paragraphs are bracing. This article also shows where the U.K. is headed after Brexit: Cayman Islands but with bangers and mash. If we go with the Rodrick trilemma, the country can be thoroughly globalized financially, with the City of London as a clearinghouse for corruption. And there go sovereignty and democratic forms. (Who knows if democracy survives even now?)

  3. Hayek's Heelbiter

    Once again, all roads lead back to the culture created by former DB CEO Herr Josef Ackermann (“ackermannes” has become a German slang eponym for “banksters”).

    And once again, Herr Josef will skate free while perhaps one or two minor underlings will have their feet placed to the fire.

  4. Ignacio

    I think that if the UK pushes hard against those money laundering entities they will move their operation centers to other places around the world. And I believe that any other country is ill-prepared even to identify those.

    It’s been a rather educative post for me.

    1. JEHR

      The world seems awash with corruption and money laundering. Once banks and other organizations (LLPs) realize that no bankers are going to jail for fraud, then it’s a free-for-all with other people’s money. We are doomed.

      I feel sad for small countries like Latvia whose wealth is being stolen by criminals.

      The Great Recession lesson to criminals: go ahead; be corrupt; there is no penalty.

      1. TMc

        Nailed it. We seem helpless as a species to overcome exploitation even though we see it plainly in front of our eyes. How far do we go down this road before we reach Peak Corruption? I shudder to think.

        1. readerOfTeaLeaves

          This post strikes me as evidence for the apotheosis of the erroneous belief that ‘capital’ lies at the core of wealth creation. Following from this erroneous assumption, ‘capital’ is privileged above all other economic factors and imbued with mystique.

          These errors lead to financializing all assets and inventing newer, even more convoluted shell games.

          Nevertheless, it seems that the sewage is finally leaking out of the house so badly, having rotted the foundations, that even us rubes are catching on.

    2. TheCatSaid

      “if the UK pushes hard against those money laundering entities they will move their operation centers to other places around the world”

      Exactly. I remember an amazing interview with economist Michael Hudson on The Real News Network. He describes how when he was young working for one of the major US banking institutions, this very topic came up. essentially the US government came asked his group/department to develop a way so that the money from criminals / money launderers could come to the US and not all go to tax havens of other countries. They came up with a way so that the USA could compete for the money of all the criminals in the world.

      Think tax havens like Delaware, that have zero transparency. And this is why he doesn’t ever expect to see meaningful reform of the system; the USA would experience too much capital flight. The USA is supporting the crooks as much as all the other offshore locations where banking can be done in the shadows.

      Earlier in that same interview (or maybe it was a series of interviews) Hudson describes how at that early job he was looking at the annual financial reports of one of the biggest oil companies, and he was trying to figure out where all the money had gone. He couldn’t see it. Then his boss explained it was under an item called “International”–that how the US oil company avoided taxes was that it set up offshore branches that did all the shipping/distribution. The US company sold its oil for almost 0 profit to these offshore branches/shipping companies. The offshore branches shipped the oil, making a huge profit (untaxed) This is where the massive oil revenues were “hidden”. The US-based oil companies actually selling had had to pay the shipping company high prices, with room for only miniscule profit margins, so there was very little taxable income on the P&L.

      I wish I had the link–it was an amazing interview. Hudson has probably written about this in his books–the interview mentioned his book Killing the Host IIRC. What was so powerful was that he had first-hand personal knowledge of these schemes.

  5. Chauncey Gardiner

    Wow!… the convoluted structures Richard Smith described here made my head spin! …”Where’s Waldo, er, the stocks (and the money) indeed?”

    Governments, central banks, national and supranational regulatory and law enforcement agencies, and national tax authorities clearly need to coordinate and implement policies and systems to criminally prosecute transnational money laundering of proceeds from activities that are recognized as criminal behavior most everywhere. Absent such criminal prosecutions, this behavior appears to be worsening and has penetrated even formerly respected large banking institutions.

    It has been said that a fish rots from the head down. As Richard Smith alluded to at the end of his post, it’s unfortunate that neither of the two U.S. legacy political party candidates for the presidency increase confidence these issues will soon be addressed in any meaningful way.

    1. steelhead23

      I would be very surprised in the U.S. CIA is not a player here. Remember Iran Contra? Somebody had to launder the drug money. A point I take from this – how high does corruption go? Ans: All the way.

      Richard – be aware, you are pulling back the drapes covering some very dangerous people. Don’t accept any tea from an acquaintance.

      1. TheCatSaid

        You’re right. The post mentions CIA. Here’s that section:

        Next, in case you think this is all only about the former Soviet Union, we have the CIA:

        … a Panamanian entity linked to Gorin, Star Group Finance and Holdings, was used to register an entity in Washington, D.C., called Elite LLC.

        The CIA later used Elite LLC to buy a former horse-riding academy outside Vilnius, Lithuania, in March 2004. The U.S. agency flew in prefabricated elements to build a secret prison there. It opened in September 2004 and was later the subject of a European Parliament inquiry after ABC News reported that it was used to covertly and harshly interrogate suspected al-Qaeda terrorists.

        That horse-riding-academy-cum-torture-house has an afterlife: it can be glimpsed through the trees here, and features in a sort of scrapbook of rendition artefacts, available here.

  6. Oguk

    I just started reading this and was thinking IOS, IOS… that sounds familiar… Oh yes, Investors Overseas Service (google it) run by Bernie Cornfeld in the 60’s and documented in Hot Money by R.T. Naylor, which I’m slowly reading. How coincidental.

  7. TheCatSaid

    What a tour de force. Thanks you for this remarkable expose of the reality behind the global financial services sector, and behind governments, criminals and “enterprising organizations” around the world. The one scam to rule them all?

    There is the stuff of a hundred documentaries in this single post.

    Richard Smith you are an extraordinary investigator, and a great writer for being able to tie all these strands together and communicate it both clearly and with style. Thank you for sharing this information and the wealth of documentation.

    Aside: Has anyone hunted down Philip Burwell / Pilip Boireil? Do they know about this guy in Ireland? Does he have a secure bunker in the IFSC?

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