Lax UBO rules aid huge laundering scheme


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More than $20 billion appears to have been pushed through a complex money-laundering operation that relied on front businesses in the UK and on the court system in Moldova, a former Soviet republic.

The British newspaper The Independent reported yesterday that at least 19 front businesses in England and Scotland are under investigation as part of a four-year-old scheme to launder billions of dollars of criminal cash from Russia and elsewhere.

According to early details of the investigation, organizers of the operation created numerous front businesses in the UK, businesses which then carried out contrived transactions among each other and then filed lawsuits against each other in the Moldovan courts, “demanding the repayment of hundreds of millions of pounds of loans,” according to reporter Jim Armitage.

Manipulation of the Moldovan legal system resulted in repeated judgments in favor of the claimants, who then would receive massive cash payments from the defendant front firm, resulting in cash receipts that appeared above board due to the official Moldovan court document ordering payment. Authorities believe that the front companies would deposit the proceeds of the judgments in Moldovan accounts and then transfer them to Latvian accounts in order to have the money in EU-regulated banks, which would complete the laundering process.

According to the Independent, the UK’s lax regulations on the formation of corporations, including the lack of transparency of ultimate beneficial owners, makes the UK a preferred location for front companies in laundering schemes run by organized crime around the world. And the front companies were able to get their contrived lawsuits into the Moldovan court system by “employing citizens there as guarantors in the fake business transactions,” which also involved debt guarantees by Russian companies who supplied the cash to be laundered.

According to Armitage, UK laws provide for companies to “obscure the identity of their owners by using ‘nominee’ directors—people who lend their names to a company without actually having anything to do with them. They can also lend their names to shareholdings in companies to mask who owns them.”

Armitage shared an example in which a nominee director for an alleged front company holds 21 UK directorships and had resigned from 333 other directorships and was also a director for 227 UK companies that have since dissolved.

The identification of ultimate beneficial owners is central to effective customer due diligence and to successful CDD (KYC) solutions. Advocacy groups have been pushing for more regulations requiring greater transparency of UBOs and more corporate transparency to combat the formation of front companies in the UK and money laundering worldwide.