Career of Shell-Company Creator Points to Banks as Culprits

US senators Carl Levin and Chuck Grassley introduced the “Incorporation Transparency and Law Enforcement Assistance Act” in the US Senate on August 3, which is intended to close down the US as a jurisdiction used by unscrupulous businessmen, often of Eastern European origin, to set up shell companies. "Our states don't require anyone to name the owners of the corporations being formed under their laws, practically inviting people to misuse our corporations," Levin said, introducing the bill.

That move comes after June's G8 summit at Lough Erne, Northern Ireland, where leaders, including US President Barack Obama, resolved to legislate so that, "Companies should know who really owns them and tax collectors and law enforcers should be able to obtain this information easily.”

British Prime Minister David Cameron has subsequently launched moves to creating a national register of beneficial ownership, intended to eradicate widespread use of the UK to set up shell companies.

The prospects for the Levin-Grassley's bill may be less rosy than Cameron's initiative. But support from Obama is a given – he was one of four senators who introduced the Transparency bill first time round in 2007 – making the Lough Erne G8 declaration something of a return to his roots.

A shell in every Port-Louis

Stella Port Louis

However, the recent moves by the US and UK will probably raise false hopes that merely closing loopholes in corporate law will combat money laundering; experts say governments need to tackle the banks that generate such shell companies in order to shift funds around for their secretive clients.

Tellingly, Obama's original letter of 2007 picked out Seychelles-based nominee director Stella Port-Louis as a flagrant example of corporate abuse. Obama pointed to how Port-Louis featured as director of over 100 companies alone in tiny Wyoming. It was later revealed that she was also director of hundreds of shell companies in New Zealand. Port-Louis was the employee of a company incorporation firm located in the Seychelles called Lotus Holding Company.

Obama then seemed remarkably prescient when, in early 2010, Port-Louis featured as director of four New Zealand companies that were named as laundering funds from Mexico's Sinaloa narcotics cartel via Wachovia Bank. The story then grew wings after a plane stuffed with anti-aircraft missiles was intercepted in Bangkok, en route from North Korea to Iran – and it transpired the plane had been leased by another New Zealand company, SP Trading, which was set up by the same service provider.

Later, in 2010, following the death of Russian whistleblower Sergei Magnitsky in detention in Moscow, details emerged of how a massive fraudulent tax rebate had been siphoned out of Russia via shell companies, including by New Zealand companies featuring Port-Louis as director.

Journalists had a field day exploring the connections, and pinned the blame on the company service provider Geoffrey Taylor, eccentric founder of the GT Group, that had set up the New Zealand companies. The story of the colourful, but allegedly criminal, South Sea self-styled lord produced great copy, but dodged the question of how Australia-based Taylor sourced his secrecy-obsessed clients from the northern hemisphere.

That question was then answered when a massive leaked database of British Virgin Island databases, obtained and made available online in 2013 by the International Consortium of Investigative Journalists, pointed to a different story about Obama's favourite nominee director, Stella Port-Louis – a story connected not to the South Seas and eccentric colonials, but to the Baltics and murky banks.

Rigged in Riga

The leaked database showed nearly 1,500 British Virgin Island (BVI) firms that had been set up by Port-Louis' Seychelles employer Lotus Holding Company, and featuring her as nominee director, were all listed at the Riga address of a Latvian incorporation company called Financial Group Omega.

According to the Latvian company database, Omega was owned and headed by Latvian citizen Marks Rečkins, who is also listed in online sources as head of the Seychelles company Lotus Holding. Riga-based Omega offers customers shell companies with nominees in a range of jurisdictions, in combination with bank accounts at Latvian banks.

No surprise then that the criminal New Zealand companies that hit the headlines in 2010 later proved to all have bank accounts in the Baltics. For all the media brouhaha, the leaked BVI database indicates Taylor may have been merely the supplier of New Zealand companies and some nominee directors to Rečkin's Riga-based head operation, which worked directly for the Baltic banks and their clients.

According to Latvia's regulator, Financial and Capital Market Commission, around 23% of the Latvian banking sector's non-resident deposits are incorporated in the BVI, 14% in the UK, and single figures for Cyprus, Belize, New Zealand , Panama, Seychelles, the US and Russia – pointing to huge demand for shell companies on the part of the banks' clients.

"I have no interest in talking to journalists," Reckins confides to bne, answering a Latvian mobile number. Reckins apparently closed Omega in Riga in 2010, and Port-Louis was struck off as a Seychelles director. But she was later reinstated on appeal, and Rečkins now operates as Lotus Corporate Services in BVI, whose address of 3A Little Denmark Complex scores nearly 20,000 Google hits, many for dodgy business such as online pyramid investment scams – and, where visible, with Latvian bank accounts.

Alpine scamming

bne traced Rečkins' activities and discovered they extend to another famous banking secrecy region besides the Baltics – to the Alpine countries, where shell companies are also de rigueur for clients, among whom are many wealthy businesspeople and officials from the former Soviet states.

In 2009, Rečkins registered a Swiss company called Lotus Corporate Services at Ville delle Scuele 34, Lugano. That was also the address of a tiny new bank called Aston Bank, founded in 2007. In December 2009, Aston Bank was raided by armed police, and the manager-shareholders bundled handcuffed into vans. In January 2010, its licence was withdrawn. Swiss financial regulators found CHF20m was missing from the bank's capital, and tens of millions of Swiss francs of client funds had also apparently vanished. News magazine L'Hebdo established the funds belonged to Russian-Israeli oligarch Vitaly Malkin, apparently managed for him by Luxemburg banker Pierre Grotz.

In 2010, Rečkins joined the advisory board of another freshly minted bank – Valartis Bank in Liechtenstein, acquired and rebranded by the Swiss Valartis group in 2009, and headed by Gustav Stenbolt, a former fund manager in Russia. According to its annual reports, Valartis "specialised in providing advice for high net-worth families and institutional investors… from Russia to Turkey, the Middle East and the Far East."

Andreas Insam, board member of Valartis Liechtenstein, tells bne that the advisory board, on which Rečkins serves for free, is "only a marketing tool to get closer to the bank’s markets," and that the bank has no relationship to Rečkins' Lotus Corporate Services.

In early August, documents linked to a Liechtenstein money-laundering investigation were leaked to Maltese paper Il-Torca. The Liechtenstein investigation traced assets at Valartis that were linked to exiled Kazakh oligarch Rakhat Aliev, former son-in-law of Kazakh President Nursultan Nazarbayev, who was accused in Kazkhstan of abducting two bank managers in 2007 before fleeing into exile. According to documents seen by bne, just under €10m in cash was anonymously paid into the Valartis account of Aliev's Panama offshore called Plotin Associated on it being opened in late 2007. According to sources cited by Maltese paper Il-Torca, which originally obtained the documents, the account swelled to around €212m before Plotin Associated was dissolved in 2012. Valartis said it could not comment on any client.

In early August, documents linked to a Liechtenstein money-laundering investigation were leaked to Maltese paper Il-Torca. The Liechtenstein investigation traced assets at Valartis that were linked to exiled Kazakh oligarch Rakhat Aliev, former son-in-law of Kazakh President Nursultan Nazarbayev, who was accused in Kazkhstan of abducting two bank managers in 2007 before fleeing into exile. He has never resurfaced, and was sentenced to 20 years in absentia and his property confiscated. According to documents seen by bne, just under €10m in cash was paid into the Valartis account of Aliev's Panama offshore Plotin Associated anonymously, on it being opened in late 2007. According to sources cited by Maltese paper Il-Torca, which originally obtained the documents, the account swelled to around €212m before Plotin Associated was dissolved in 2012. Valartis said it could not comment on any client.

Next generation

Underscoring the central role of banks and their agents in generating demand for mass-produced shell companies, a leaked audit of stricken Cyprus banks in April estimated that a whopping 75% of all accounts at the banks had been opened at the bank by "introducer structures", ie. company service providers like Rečkins, who set up offshores together with bank accounts, on behalf of clients. Such introducer structures conduct customer due diligence in lieu of the banks – one reason why banks love them. As a result, "customer business profiles are generally not properly established by Cypriot banks," found auditors Deloitte and Europe's anti-money laundering body Moneyval.

Thus the secretive bank-client relationship in countries like Latvia, Switzerland and Cyprus seems the real motor behind the creation of shell companies around the world. Tightening up laws in UK and US, as Cameron and Obama propose, may simply prompt a search for fresh fields – and there are many. "Untraceable shell companies are in practice widely available," says Griffith University expert Jason Sharman.

Offshore incorporators – including those who are agents for Latvian banks – are increasingly offering South African, Scottish and Canadian shell companies, and the cases of such companies implicated in East European dubious dealings are proliferating.

Even squeaky-clean Denmark could become the "new New Zealand", according to market sources. In particular, the Danish equivalent of the UK's notorious Limited Liability Partnership (LP) – the kommanditselskab, or K/S – is being touted as the next hot thing, potentially providing anonymity and tax exemption in a jurisdiction with spotless reputation.

Jan Breum Eriksen, Danish representative of offshore incorporator Sovereign Group, pitching to Moscow businessmen, even points to loopholes he claims can make a K/S completely invisible to law enforcement – meaning corporate rot could soon become a depressing feature in the state of Denmark.

Graham Stack in Berlin
August 15, 2013

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