20 things I learned from #29 Leaks
I’ve compiled this post to keep track of the stories breaking from a dump of information dubbed #29 Leaks. Formations House is a London shop with a prestigious address specialising in creating companies to ease the international movement of money. Fifteen years’ worth of their company’s files, including faxes, bank transfers and audio of phone calls, was sent to transparency collective Distributed Denial of Secrets (correctly shortened as DDoSecrets or DDOS) by a source we’ve called Babylon. The data is now public.
To help parse the large trove of data, for four months journalists from 20+ countries were given early access to the leak. Their collaboration produced a volume of interlinking stories, published to coincide with the public release of the data. As an editor for DDoSecrets, I see the value in having a summary overview of the coverage from these partner publications, supplemented with our insight into the source material.
Here are some threads we followed from the global effort to cover Formations House. Or: 20 things I learned from #29 Leaks.
1.) The system is broken.
As an introduction, this four minute video by one of the publication partners is as good a place to start as any. Companies that make a business of registering other companies are not ipso facto breaking the law.
However, companies that study the holes in regulations across jurisdictions, in order to assist clients who want to clean their money, may be catering to criminals. Setting up shell companies to market them to customers without due diligence can help someone like the boss of the Swedish Hell’s Angels hop jurisdictions and hide dirty money, which is against the law or at least the social contract.
2.) The cops won’t fix it
When they aren’t directly complicit in criminality, police forces would seem to turn a blind eye to the activities of ‘fraud factories’ like Formations House. Police are either unwilling or incapable of investigating complicated cross-border financial services. From the Organized Crime and Corruption Reporting Project:
“Even as firms registered by Formations House got involved in high-profile scams around the world, UK authorities failed to take action … the founder of Formations House was investigated by British police for serious financial crimes and the UK’s top anti-money laundering regulator warned the company that it could face prosecution for its failure to comply with regulations. But Formations House is still doing business today. Meanwhile, authorities have done nothing to disrupt the broader British company formation industry — in which negligent companies churn out thousands more, and sell them to just about anyone.”
3.) There are 1000 different ways to do tax crime
A Croatian prosecutor investigating just one scheme by a FoHo client estimated the loss to the state at $2.5 million over two years. That’s just from one client. Here’s how that luxury car smuggling scam worked, as reported by Ostro:
Companies like those run nominally by Malić were used to purchase cars within the EU. The companies would issue fraudulent invoices to conduct banking transactions and create a paper trail …
The smokescreen allowed the luxury cars to be brought into Slovenia and placed in auto salons and other sales facilities where they waited to be taken to Croatia, prosecutors said.
Reporters found that the group then advertised the cars on web sites … Their sales pitch said the price of the car, which was substantially lower than elsewhere at the time, included Value Added Tax (VAT). In reality, the VAT was never paid and the alleged masterminds kept the proceeds.
The stolen money then was laundered in the UK via Formations House.
4.) The British empire lingers
Formations House schemes often involve Commonwealth countries or former British colonies, and seem to continue a long history of colonial expropriation. In Africa, Gambia and Cameroon emerged as favorite destinations for FoHo.
Cameroon’s president since 1981 has been Paul Biya. In a slide presentation from #29 Leaks, Formations House explains why the country with the longest-ruling leader in Africa is perfect for their purposes:
Projects in remote countries with weak institutions like Cameroon would be beyond the reach of international regulators and law enforcement.
The is evidence of two trips that Charlotte Pewar, the FoHo heiress, took to Cameroon. Pewar took over management of Formations House after her father-in-law Nadeem Khan died in 2015. Around that time, Pewar posted to social media a satellite image of land next to a wildlife preserve, and the caption “I have now been to the rainforest of Cameroon to see all that I own”. Large payments to the sum of $300,000 were made to a mayor in Prime Minister Paul Biya’s home town, and Bulu indigenous people were convinced to bulldoze parts of their rainforest and carve out a road to nowhere. FoHo extracted investments from clients and kicked-in some cash themselves, to supposedly farm cannabis. The plan fell through and the people in Cameroon were left wondering about the 15,000 promised jobs and billions’ worth of foreign direct investment? (NBC, South China Morning Post and OCCRP all posted their own versions of this story)
5.) Fake it ’til you make it
Formations House doesn’t just sell pre-formed business papers to clients to conceal the owners of a new venture. FoHo also forged identities for their own employees. Shell humans selling shell companies. One Indian news organization estimates that FoHo at one point had 150 employees in Karachi. The alias “Oliver Hartmann” was used by Syed Rizwan Ahmed from Lahore, to better sell the fantasy to customers of doing business in central London.
6.) Sanctions are made to be broken
One thing to be admired about FoHo is their tolerance for difference. They won’t pick a side. As long was money is to be made, they are open for business. Why let something temporary like international sanctions come in the way?
A November 2014 update to UK sanctions declared a freeze of assets belonging to Iranian billionaire Babak Zanjani for assisting the National Iranian Oil Company in its efforts to evade EU sanctions and transferring “oil-related funds through Naftiran Intertrade Company (NICO).” It listed both NICO’s Jersey address and another in Tehran.
Less than two weeks after that update, on Nov. 25, the Dutch agent Vermeulen wrote to Formations House’s Oliver Hartmann/Ahmed asking if a re-domiciliation of one of his clients to Gambia would be a problem since his client had “a director from Iran.”
Spoiler: it was not a problem. McClatchy makes a Panama Papers connection here, as “documents in the Panama Papers show (NICO) actually resigned from some of Iran’s oil-related shell companies as early as 2010 — before global sanctions took effect in 2012 — the Formations House documents suggest a hand-off of sorts.”
edit Jan 11: U.S. and EU sanctions against Russia were ignored, too.
7.) Crime doesn’t always pay
One of the characters laundering Iranian money despite the sanctions was Miami real estate mogul Vincent Ghahremani. An Iranian with a Norwegian passport, contracted Formations House for a wide range of services according to the Miami Herald. At one point Ghahremani was suggested a scheme to use shell companies to help Iranians obtain British citizenship. In a plot twist, Ghahremani is now in prison in the US, after trying to buy Russian anti-tank weapons on behalf of what he thought was a Mexican drug cartel, during a DEA sting. (McClatchy)
8.) Governments might want to look into this
Some early reports of government members making inquiries about #29 Leaks came from Australia, where media outlets Crikey, INQ and Michael West investigations covered how taxpayer spending on lucrative Defense military contracts was paid to a Russian entity through shell companies. Yet another tax evasion strategy emerged: sue, then settle for cash:
Sham litigation had become a popular tool for money launderers. In one scenario, an overseas litigant prepays their legal fees. Shortly after, there is a surprise turnaround, the litigant advises that the case has been settled and requests the return of the fees.
In another scenario, companies engage in a sham dispute over, for example, a fictitious loan. This leads to money being paid in to court, and later paid out with an authentic court order attached. In either scenario the money is now “clean”.
There was also an indication EU finance ministers “agreed this week to take the first steps towards the creation of a unit to tackle money laundering.” (Times, paywalled)
9.) Civil society has a voice
An attitude prevalent in Reddit commentary on #29 Leaks was: didn’t the Panama Papers already teach us that the rich can and will make their own rules and hide their money? Isn’t this old news? However, experts have found enough new information in the #29 Leaks to earn some headlines. In response to the Times coverage, Duncan Hames, Director of Policy at Transparency International UK released a statement:
“Our research identifies unscrupulous formation agents as a major money laundering risk that deserves much closer scrutiny. Selling shell companies with false accounts is conduct that can result in criminal prosecution, yet little action appears to be taken by the regulators. The authorities need to clamp down on this rogue behaviour urgently if there is any hope of tackling the UK’s £100billion a year dirty money problem.”
100 billion is a lot of 0s. Maybe worth not giving-up yet on the idea of getting some back?
10.) All the money comes from somewhere
Fraud is not a victimless crime. The money laundered in London gets squeezed out of systems like health care, education, infrastructure, and from social security.
One of the documents that Formations House kept was a list of Politically Exposed Persons in their client list. PEPs can extract money, by corruption, from their home jurisdictions, then park a nest egg safely via London. One of #29’s clients was a Mexican politician who at one point was a director for the Mexican Social Security agency. This client indicated in a FoHo document he was not a PEP, though he was. Director in a public social service agency doesn’t sound like the kind of job after which one would start a company on paper with capital worth £1,000,000, registered in the Seychelles, and with a bank account in Latvia. But that’s what Israel Raymundo Gallardo Sevilla of the PAN political organization did. (Aristegui Noticias)
11.) Small countries can hide big paper trails
Gambia is the smallest country on mainland Africa. Formations House used its smallness to their advantage, flattering its strongman president and even going so far as to fabricate a Gambian business registry to mass manufacture fake companies and fake banks, to sell to their clients. One of their agents “is still selling Gambian banks to this day, using the fraudulent structure created by Formations House, despite Gambian officials’ protestations that the (registry) is unsanctioned and illegal.”
Gambian officials investigated the fake registry and tried to shut it down, but their efforts were stymied for a simple reason: The heart of the operation was nowhere near Africa. Since the Gambian zone, and the companies within it, were invented by British people in the middle of London — and sold online, often via email — it could only effectively be shut down by UK authorities.
The Gambian story includes unfulfilled promises to the tune of $546 million worth of annual revenues, and a business park FoHo sales agents touted as the next Silicon Valley, in reality an empty field. As the Gambian fraud turned sour, there is evidence FoHo considered running the same scam in Gabon or Cape Verde. (OCCRP)
12.) Major players facilitated FoHo’s operations
Swedish media partner Dagens Nyheter dug into how the fake Gambian banks concocted by Formations House managed to get issued non-connected BICs.
Every day, $300 billion is sent around the world with the help of the international banking system SWIFT. The co-operative based in Belgium, is owned by its members and the service is in short to act as a secure messaging service for financial information.
SWIFT issues two kinds of numbers: connected BICs, for transferring money; and non-connected BICs, which are simply identifiers.
In a statement to DDoS, SWIFT has clarified that “some market participants perceive non-connected BICs to be more than they actually are: reference codes. SWIFT is committed to upholding the integrity of the global financial system and, as such, has been enhancing the review process for non-connected BICs.” SWIFT says the Gambian constructs only ever had non-connected BICs.
SWIFT knew that FoHo’s banks were fake in 2016, but still issued 14 of them the non-connected BICs, which FoHo clients used to give the appearance of an ability to access the SWIFT network.
A handful were able to get registered or even licensed in countries that supposedly have rigorous oversight, including Sweden and the UK. (OCCRP)
Since the story broke, SWIFT have begun to reassess their processes: “ Our customer security and operations teams are also reviewing further measures to ensure the veracity of organisations allocated a non-connected BIC,” their statement says.
13.) Patterns begin to emerge in the data
When a scam worked in one place, or if it failed but showed potential, FoHo would franchise the idea and export it, somewhere new.
For the OCCRP’s research, the Gambia idea was tested on Namibia:
In 2016, a Formations House-linked company put together a business proposal for a “Financial Innovation Zone” in Namibia, which they said would generate $15 million of revenue in a year and raise the country’s World Bank ranking “by at least 50 places.”
By 2017, the Namibia project cooled. They tried it in Mozambique:
A Formations House-linked company proposed a 500-hectare “Finance and Commerce Innovation Zone” near Mozambiques capital, Maputo, in 2016. The plan promised to generate $280 million in government revenue in the first year and to create 3,500 jobs.
And Cameroon’s cannabis farm was almost tried in Tunisia:
In 2015, a Formations House-linked company planned a private offshore register for Tunisia, and an agriculture zone to cultivate medicinal cannabis and other crops. The company’s presentation promised the zone would create 15,000 jobs in three years, and $178 million in revenue for the government.
As long as the fraud kept moving, it was difficult for the chain of broken promises to be pinned to one entity. #29 Leaks has cast light on the transborder nature of tax frauds.
14.) Only a few banks in Europe still take cash
Large cash transactions can lead to money laundering, Charlotte Pewar of Formations House explains to someone posing as a new client. The client was actually a Times reporter, recording an undercover sting with a hidden camera. The banks in Europe that still will take cash are in Italy near the Swiss border, one in Poland, and Rietumu Bank in Latvia, which Pewar says they know from experience.
15.) If you don’t succeed, try and try again
The FoHo idea of a special trade zone, had an early start in North Macedonia. Charlotte Pewar and her brother Darius Khan hosted North Macedonian political figures in London and also visited the Balkan state multiple times, to push for the creation of a business park where they could operate with impunity.
Creating the trade park required an amendment to the North Macedonian constitution, because of the “nearly total exclusion of this zone from the legal order of the state.”
Then, perversely, the government proposing this impunity zone, tried to obfuscate by going after queer people as a cover.
The government simultaneously suggested a separate — and distracting — amendment: restricting the constitutional definition of marriage to between one man and one woman… paving the way to outlaw same-sex unions.
The proposed amendment seemed to come out of nowhere, recalled Liljana Popovska, a member of parliament from the Green Party.
“They wanted to use the controversy and the debate that the marriage thing would spark,” she said. But the smokescreen failed to detract the public’s attention.
“All eyes were turned to the sick plan of making an offshore in an already troubled Balkan country that is on the route of every single organized crime group in the Balkans, and has weak institutions and highly corrupt government.”
Even though the Macedonian politicians that FoHo courted are now out of government, the technology business park idea seems to have been adopted by their successors, who insist their plan is different and will follow the laws of the land.
16.) Paywalls may be a problem
This is meta. In the agreement that DDoSecrets asked journalists to sign to share access to the data ahead of Dec. 4, there was no clause requiring stories built off of the soon-to-be public data to be published without a paywall. This may be a consideration worth having for future releases. Here is a list of some of #29 Leaks behind paywalls:
Gambia and the fake banks (Süddeutsche Zeitung)
Criminal organizations don’t need to go to tax havens, Europe is enough! (La Stampa)
The Times view on Formations House: Dirty Laundry (Times) Pictured below:
Former Hells Angels chief ‘used London firm to set up a company’ (Times)
British firm ‘aided blacklisted Iranian oil arm into secret tax haven’ (Times)
Mafia family looks to London and Formations House to set up enterprise (Times)
The story behind the #29Leaks data dump (Crikey)
Swiss authority falls for African fake bank (Basler Zeitung)
Unflattering Portrait of an English Trustee (Le Soir)
17.) The fraud was so large it could be seen from space
Some of the paywalls were easy to skip: hit the X to ‘stop loading this page’ and one can read most of the stories about Swiss entrepreneur Pascal Jaussi and his adventure to send satellites into space.
Jaussi started a company called Swiss Space Systems (S3), even getting a blessing from the first Swiss astronaut Claude Nicollier. S3’s bold new idea was to strap a space shuttle to the roof of an airplane, and launch satellites into orbit from the roof of their special drone plane.
The con was almost up by 2016, but thanks to a CHF30 million promise from one of Formations House’s fake Gambian banks, S3 were able to re-capitalize with new investment and put-off declaring bankruptcy until 2017. That year, Jaussi was also charged with staging his own brutal assault and kidnapping, as well as doing some light forgery and arson.
(Tages Anzeiger; Swiss Info; 24 heures; Tribune de Genève)
18. ) Formations House seemed to want criminals as clients
A notorious last name and Mafia parents did not disqualify potential clients from accessing their services.
From the OCCRP:
Formations House’s business with family members and affiliates of the Cosa Nostra and the Camorra organized crime groups is the latest detail to emerge.
Maria Concetta Riina’s father was in the Cosa Nostra, and “orchestrated a bloody reign of terror across Italy in the 1980s and 1990s as head of the Sicilian mafia.” In the 2000s, Riina’s businesses had a nasty habit of getting confiscated by the Italian state. Enter: Formations House and offshoring to the UK.
Riina’s business associate in T&T Corporation, Katia La Placa, was also targeted by Italian law enforcement for her mafia ties. In 2014, authorities confiscated her two villas — one on the southern island of Sicily, and the other in Lombardy, in northern Italy — and other assets worth some 11 million euros ($12 million).
Despite the Riina family’s legal troubles in Italy, which were widely reported in the press, Formations House was willing to help them set up Corleone Caffe with a proxy secretary and a UK business address in July 2015, while the T&T trial was ongoing.
Antonio Righi, a.k.a. “Tonino The Blond,” was listed as a director of three businesses registered by FoHo. Righi was “given a 16-year sentence in 2017 for money laundering and having ties to the Camorra, a Neapolitan organized crime group.” FoHo helped him do $18 million worth of business between 2010 and 2013.
Another client of FoHo was the Swedish president of the Hell’s Angels (Dagens Nyheter, paywalled)
19.) We may have just scratched the surface
More stories and details are sure to come out, as FoHo’s client list includes fraudsters with global ambitions. OCCRP’s story Road to Nowhere:
By the time he began trying to set up a Gambian bank in 2017, Arun Panchariya had already been sanctioned in his native India for market manipulation, banned for a decade from dealing with securities or accessing the capital market there, and fined in Dubai for lying to financial regulators.
And in Serbia, a major highway construction project was delayed for almost three years after Panchariya reneged on an agreement with the Serbian government to provide a feasibility study and disappeared.
The highway was a $27.3 million project to connect Romania and Ukraine with the Adriatic Sea, and Panchariya even brought a supposed UAE sheikh to some meetings with ministers in Serbia, to sell the idea of wealthy Arab investment backing his plan.
In Spain, fake Gambian banks set up by FoHo were used to try to buy an airport and a football club, according to an investigation by El Confidencial.
20.) None of this may be news to regulators
One television programme ran a #29 Leaks story long before the DDoSecrets embargo ended on Dec. 4, which may have been due to a miscommunication with the programme, TV3’s “Nothing Personal”.
The Latvian bank that Charlotte Pewar mentions to the undercover Times reporter, Rietumu Bank, started doing business with FoHo in 2012. Reitumu was fined by the local regulating Financial and Capital Market Commission three years later.
In 2015, the FCMC fined Rietumu Bank for inadequate customer due diligence and transaction monitoring, and one month later the bank terminated its contract with British agents, Formations House, announcing that it would no longer accept documents approved by the firm.
Whether they actually cut ties, is called into question now if Pewar is still recommending them by name to FoHo’s potential clients.
New headlines continue to emerge from the data since this post was published. Some further reading about #29 Leaks includes but is not limited to:
Added 20 Jan 2020:
- A financial treasure trove for tax evaders and criminals in the heart of London (La Stampa longread and visualization)
Added 10 Jan 2020:
- There is evidence in #29 Leaks of continued links between a Deutsche Bank branch and a sanctioned Russian state bank VTB, that according to one whistleblower, underwrote many of Donald Trump’s business loans. (Forensic News)
- Isle of Man Courier connects the dots to the Grand Cayman data.
Added 23 Dec 2019 :
- The Belgian tax authority is looking at any Belgians in #29 Leaks as well as in our data from Grand Cayman National Bank. (Brussels Times, De Tidj and Knack)
- One Russian aviation tycoon appears to have pocketed almost $1.3 million buying an old helicopter from Bulgaria, selling it in Moldova, and undervaluing the purchases with the dodgy accounting provided by Formations House (OCCRP with Bivol)
- One of Prime Minister Boris Johnson’s appointees dealing with corruption said the UK needs a reputation for “clean, honest business” to sign post-Brexit trade deals. “So we can’t let crime lords launder dirty cash through our country.” (The Times and Michael West)
- Guernsey offered to assist the UK with that, if they struggle with the task.
- Finance Uncovered reckons they found alleged fraud totalling £315 million linked to shell companies registered by Formations House. (FU)
- Religious tax-exempt status didn’t stop Archbishop Timothy Paul, the senior pastor of the Christian Cathedral in Springfield, Mass., from going Biblical and picking the name for his offshore entity from the book of Genesis. (McClatchy)
Lorax B. Horne was recently named editor-in-chief for the Distributed Denial of Secrets collective. The #29 Leaks data is available in the Corporations section of their website.
