Five agencies that specialise in creating shell companies for clients in the former Soviet Union have found a way around Britain’s corporate transparency laws, allowing them to generate legions of anonymous firms in the United Kingdom.

British shell companies created through this loophole include:

• A firm allegedly used by a close confidant of Vladimir Putin to evade US sanctions;
  
• A company of interest to FBI special agents investigating the 2013 Boston marathon bombers.
  
• A company allegedly used by Ukrainian tax officials to receive bribes; and
  
• A firm owned by a Russian businessman who has since gone on the run, facing corruption charges.
  

Over the past six years, a handful of company-formation agencies have created thousands of anonymously owned shell firms, most of which were registered to just 21 addresses in England and Wales — including a barber’s shop in Bristol, an office above a Mexican restaurant in London and a remote farm cottage in Wales.

Huge numbers of shell companies have been formed despite new UK laws in 2016 and 2017 designed both to stamp out anonymously-owned companies and to impose tougher anti money laundering regulations on the agencies that create them.

Politicians and regulators declared the UK’s transparency measures a success. The then prime minister David Cameron said Britain had set an international “gold standard”, and in 2018 international assessors from the Financial Action Task Force said Britain had become “a global leader in promoting corporate transparency.”

Meanwhile, however, several formation agencies had already begun using a legal but an obscure type of British company known as a Limited Partnership formed under the laws of England and Wales, or “ELPs” (English Limited Partnerships). ELPs had suddenly become popular because they were untouched by Cameron’s transparency laws.

In 2017, demand for new ELPs soared after ministers — responding to a string of money laundering scandals — forced Scottish limited partnerships, SLPs, to publish the name of their owners. (Though Scotland is part of the United Kingdom, it has slightly different laws to England and Wales.)

Data analysis by Finance Uncovered and the BBC found that the five busiest formation agencies created at least 447 ELPs in 2017. This accounts for 28% of all ELPs formed in England and Wales that year. Earlier, all five agencies had had thriving operations in Scotland setting up SLPs.

'Alternative solutions'

The corporate secrecy industry’s ability to innovate and stay ahead of creeping transparency regulations was summed up in a Russian-language newsletter circulated to clients by a formation agency called LAS. “[T]here is always a way out,” it said, before explaining how ELPs offered “alternative solutions”.

The newsletter, which has never before been made public, was attached to an email found in the Pandora Papers, a leak of almost 12 million files from the offshore industry obtained by the International Consortium of Investigative Journalists and shared with 150 media outlets around the world, including Finance Uncovered and the BBC.

The LAS’s newsletter said: “[A]s a substitute for Scottish partnerships, we offer the registration of English, Welsh and Irish LP partnerships, which have an identical legal form and similar benefits.”

Spelling out the secrecy benefits of ELPs, it added: “At the moment, the privileges of this type of partnership are that they do not fall and will not fall under the laws on the disclosure of information about controlling persons.”

Rapid adaptation is something the formation agencies were used to. In 2016, they quickly created more SLPs for clients after the UK imposed transparency requirements on other types of British companies — many of which the agencies had routinely fashioned into anonymous shell companies for customers across the former Soviet Union.

From the outset, as government officials had anticipated that formation agencies might use ELPs to circumvent Britain’s corporate transparency laws.

In an April 2014 discussion paper, the Cameron government said it was “particularly important” that plans to force companies to name their ultimate owners should include English Limited Partnerships in order “to ensure that there are no loopholes or unintended consequences”.

Two months later, however, ministers abruptly announced that ELPs would be exempt from upcoming transparency laws. No explanation was given at the time.

A government spokesperson this week told Finance Uncovered and the BBC that it would not be possible to make ELPs subject to ownership transparency requirements because, as a matter of law, this obscure legal form could not have an “owner”, or “own” property, or open a bank account.

In practice, however, leaked documents reviewed by journalists showed that formation agencies were routinely setting up ELPs and issuing clients with documents that declare them the “beneficial owner”.

Other leaked documents also showed many ELPs were easily able to open offshore bank accounts, particularly in the Baltic region and Cyprus.

The UK government said it has not seen any evidence of significant misuse of ELPs. A spokesperson said: “The UK already has some of the strongest controls in the world to combat money laundering, and it’s vital that we continue to upgrade our governance to crack down on criminals abusing UK corporate entities.”

Margaret Hodge, a member of the UK parliament and chair of its all-party anti corruption committee, said investigations by Finance Uncovered and the BBC showed “the [British] government’s absolute failure to close down the loopholes that enable people to use UK infrastructures to embezzle and to launder money.”

She said: “If ministers were warned, back in the day, that ELPs could be exploited by those wanting to launder money, and they failed to take action, that is an outrageous dereliction of duty.”

Hidden customers

Outside observers are rarely able to discover anything at all about shell company ELPs because the formation agencies are able — lawfully — to hide basic information from public documents, including the true place of business, who the managers are and the identity of the owners.

But occasionally the mask slips.

In 2014, the US imposed sanctions on Russian oligarchs, Boris and Arkady Rotenberg — reputedly close friends of president Vladimir Putin — as a response to Moscow's annexation of Crimea in Ukraine. But according to a 2020 US Senate investigation, the brothers used an ELP called Sinara Company LP to pay a front figure in the art industry who allegedly helped them get around the sanctions, buying and selling paintings worth millions of dollars in New York auction houses.

The senators found Sinara Company LP paid Gregory Baltser $133,000, from a bank account it held in Estonia during an 11-month period in 2017 and 2018. Other shell companies were allegedly used to pay him too.

When the senators looked up UK Companies House filings for Sinara Company LP they found little information. It was registered to a London address used by many other anonymous companies and purported to be in the “tourism and ticketing services” business before being dissolved in 2019.

Baltser, a US citizen who lives in Russia, has denied that he took money from the Rotenbergs or that he was involved in helping them evade sanctions.

He said that he maintains a strict compliance programme and has never conducted any transaction prohibited by any sanctions list.

Attempts to reach the Rotenbergs or their representatives were unsuccessful.

Elsewhere, another leaked document from the Pandora Papers describes Russian businessman Gayk Magakelyan, who later became a fugitive running from corruption charges, as “the owner” of an ELP called Cosalima Trade LP.

Mr Magakeylan reportedly went on the run after being accused of helping to embezzle money during construction of a railway project north of Moscow. A Russian court ordered Athena to pay 400 million Rubles — now equivalent to over $3.8 million — for artificially inflating the cost of the project.

Meanwhile, Finance Uncovered found more than 50 ELPs named in a leak of financial intelligence documents from the US Treasury Department. In several cases, these documents — known as suspicious activity reports, or SARs — raised concerns about transactions involving bank accounts held by ELPs in Latvia, Estonia and Czech Republic.

SARs are secret reports that banks are required to submit whenever they are involved helping process wire payments that look like money laundering or other criminality. The leak of SARs, known as the FinCEN Files, was first obtained by BuzzFeed News and shared with other media outlets via the ICIJ.

One ELPs featured in a leaked SAR — Rivelham LP — was described as being of interest to FBI special agents examining the financial activities of Tamerlan and Dzhokhar Tsarnaev, the brothers responsible for the 2013 Boston marathon terrorist attack.

More than $7 million had moved in and out of the ELP’s bank account in Latvia in a four-week period three months before the terror attack that left four dead and hundreds injured.

What connection, if any, Rivelham LP had to the terrorists remains a mystery. The company is now dissolved. The FBI’s investigation into the bombers was wide-ranging and some aspects were never made public. Many observers remain unconvinced by prosecution claims that the brothers had radicalised themselves on the internet before planning and carrying out the attack without outside help.

Finance Uncovered contacted the owner of the UK property where Rivelham LP was registered as well as hired proxies who signed the company’s paperwork and a person who collected its mail. All denied involvement or said they believed Rivelham to have been a “dormant” company.

Hired proxies

Shell company ELPs have no directors, though individuals are required to sign paperwork submitted to Companies House. To fulfil this role, many formation agencies use the services of hired proxies, who for a small fee agree to act as a stand-in, lending their signature to various documents.

These proxies know little or nothing of the ELPs’ business activities but nevertheless sign any paperwork required by Companies House.

One such proxy is Ruth Neidhart, a 71-year-old Swiss national who has lived in Cyprus for many years. She is a ceramic artist, sometimes arranging pottery painting sessions for children’s birthday parties.

Since 2016, she has signed paperwork for 161 ELPs set up by a formation agency called IOS, according to Finance Uncovered’s analysis of Companies House filings.

Elsewhere, leaked documents show Neidhart has been signing documents for IOS since at least as early as 2009. She has been linked to IOS firms in Nevis, the British Virgin Islands, Belize, Panama, Dominica and the Bahamas. And all these offshore firms have been used to form anonymous UK shell companies.

When Finance Uncovered phoned Neidhart, she ended the call abruptly. Asked about IOS, she said: “I have no idea. Listen, I have to go,” and hung up. She did not respond to further attempts to reach her.

There is no suggestion that Neidhart acted improperly or illegally.

Many proxies only scrawl an illegible signature on ELP documents submitted to Companies House and do not print their name. But by scouring the Pandora Papers and other data leaks, journalists were able to find a match for signatures in leaked documents, revealing the identity of the dozens of proxies.

Finance Uncovered and the BBC approached eight proxies with questions about ELPs and their work for various formation agencies. Together, these eight — including Neidhart — signed paperwork for 880 ELPs, our data analysis found.

Alexandru Terna, a 32-year-old Romanian, who lives in a modest house by a busy road junction in West London, was the most prolific, signing papers for 306 ELPs. In addition, he has also signed paperwork for many other other partnerships in the UK and also in Canada.

“We worked only with [LAS],” he said, in an email, written also on behalf of his wife, who acted as a proxy too. “We have never been involved in the management or control of any of these companies or any other company, where we were appointed as signatories.”

Another proxy, who asked not to be named, explained how they had stopped working for the Arran agency after reading reports that some of the companies it helped create had been linked to several scandals.

“We are becoming very concerned that our names are associated with such activities unbeknown to us. We had absolutely no idea this was happening,” the proxy said.

There is nothing unlawful about side agreements, or about corporate secrecy in general. Nevertheless, secrecy is attractive to money launderers and other criminals.

Finance Uncovered and the BBC sent questions to senior figures at the five biggest formation agencies in our study. Those running Arran, Lotus and IOS did not reply, despite repeated efforts to contact them.

A message on IOS’s website, posted in 2017, announced the “step-by-step termination of the business.” Attempts to contact Arvis Šteinbergs, a senior figure at the agency, were unsuccessful.

Separately, journalists for "Kas notiek Latvijā?”, a TV news show in Latvia, last week reported that prosecutors in Riga were bringing charges against Šteinbergs, together with senior figures at collapsed Latvian bank ABLV, who are accused of helping launder €2.1bn in dirty money. The prosecution alleges that the scheme, in part, involved anonymous UK companies. Šteinbergs reportedly denies the charges against him.

In 2017, Šteinbergs wrote an article for the Latvian business newspaper Dienas Bizness in praise of the corporate transparency rules Britain had recently introduced. He said they amounted to “a very well-structured, detailed law”, and suggested other European countries should take similar action.

When Finance Uncovered phoned junior operatives at Lotus, Arran and IOS they declined to answer questions and hung up.

Elena Dovzhik, who heads the LAS agency, said: “Yes, we are aware that many years ago we filed registration documents for some companies that eventually were accused [of] unlawful activities, but such information was not available to us prior registration.”

Dovzhik said that LAS never had a direct relationship with those buying shell companies, rather it only took orders for such firms from lawyers and other intermediaries.

“Information about unlawful activities from some of our clients came to light after [LAS company formation] services were provide and any further services were terminated with immediate effect for such clients,” she said

Dovzhik said those LAS companies responsible for new UK formations stopped doing business last year. She said new firms that had since been registered to an address formerly used by LAS were not created by the agency.

A lawyer for ComForm said: “There is nothing inherent in the use of nominees and proxies to suggest wrongdoing. Of course, there will always be some who exploit the system, but [ComForm] takes all the precautions available to it to ensure that the work it does is lawful and that it is not facilitating money laundering or other financial crimes.”

Drawing on documents from the Pandora Papers, Panama Papers, FinCEN Files and other data leaks, as well as court documents, company records and existing media reports, Finance Uncovered today publishes detailed profiles on these five formation agencies. The profiles include:

• The three former teammates who met on the rugby field at one of the UK’s oldest private schools and now run the ComForm Solutions agency. Companies created by ComForm include a Scottish firm that received $1.6 million for “confectionery” from Turkmenistan’s trade ministry and another at the heart of the Russian Laundromat scandal that pushed more than $2bn through its bank account. There is no suggestion that ComForm had involvement or knowledge of the activities of the companies that it helped form (Read about ComForm in full here.)

• The Latvian and Anglo-Russian businesswomen who made a fortune through their LAS formation agency, despite helping clients set up UK companies allegedly linked to investment scams, mercenary groups, covid vaccine disinformation campaigns and a Russian Bitcoin-based money laundering exchange. The agency, which says it does not accept clients who are politically connected, also played host to a company set up by a cousin of Vladimir Putin, offering international investors “protection” in Russia. There is no suggestion that LAS had involvement or knowledge of the activities of the companies that it helped form. (Read about LAS in full here.)

• The former Latvian banker who, at 28 years old, started the Arran network, which has registered more than 400 companies to a Turkish barber’s shop in Bristol. Companies created by Arran have been linked to controversies such as the illegal software pirating website Kickass Torrent, alleged corruption in Ukraine’s tax administration, and a company of interest to the FBI in the wake of the 2013 terror bomb attack on the Boston marathon. There is no suggestion that Arran had involvement or knowledge of the activities of the companies that it helped form. (Read about Arran in full here.)

• The Lotus formation network, Latvian-run agency which has helped set up UK shell companies used to own a Kiev hotel linked to the sanctioned son of notoriously corrupt former Ukrainian Viktor Yanukovych. Elsewhere anonymous companies set up by Lotus in Wyoming, in the US, were cited by Barack Obama as a money laundering concern while companies Lotus helped set up in New Zealand were involved in money laundering for Mexico’s Sinaloa drugs cartel. There is no suggestion that Lotus had involvement or knowledge of the activities of the companies that it helped form.

• The IOS agency was the first to develop British shell companies for the former Soviet market. It created companies linked to suspected money laundering at Danske Bank’s notorious branch in Estonia and ABLV in Latvia. Companies it created have been linked to a host of scandals from international arms smuggling scandals and illegal bribes and lobbying. There is no suggestion that IOS had involvement or knowledge of the activities of the companies that it helped form. (Read about IOS in full here.)

Switzerland on the Baltic

All five agencies have strong links to Latvia, the small EU country on the Baltic which has been a regional hub for offshore banking, dark money and money laundering for much of the last 15 years.

After declaring independence from the Soviet Union in 1991, Latvia’s first central banker Einars Repše set out to shape the country into a Baltic version of Switzerland, one of the world’s leading hubs for foreign capital and bank secrecy. The resulting boom in offshore banking in the capital, Riga, led to the banks gaining in political and economic importance. Several were eventually acquired by Russian oligarchs — including the Rotenbergs, until they were sanctioned in 2014.

Even though many company formation agencies specialise in setting up anonymous UK shell companies, their key business relationships have historically been with banks Baltic region, where clients typically opened bank accounts in the name of British firms. Latterly, the agencies have also developed relations with banks in other countries, including Austria, Ukraine, the Czech Republic and Cyprus.

Philip Burwell, the founder of IOS, said he dropped out of the agency many years ago after growing uncomfortable about the torrent of Russian money pouring into banks in the Baltic region in the name of anonymous UK companies.

“It was just really a failure of regulation — failure of European regulation,” he told Finance Uncovered. “You’d think the European Central Bank would be keeping their eyes on all these new little banks around Eastern Europe. And they didn’t. They didn’t give a shit.”