On September 4th the latest in a series of leaks uncovered by the Organized Crime and Corruption Reporting Project (OCCRP) revealed how the ‘Azerbaijani Laundromat’ – a major money laundering and lobbying scheme involving Azerbaijan’s ruling elite, European politicians, and a network of anonymous British companies – facilitated more than 16,000 covert payments totalling US $2.9bn (£2.2bn). This case points once again to how easy it is for corrupt individuals to gain access to the EU financial system and launder suspect funds using anonymous companies to spend on luxurious lifestyles.
has long been accused of systemic corruption and serious human rights abuses,
including repeated crack downs on civil society and human rights defenders. This
most recent investigation shows how, between 2012 and 2014, Azerbaijan’s ruling
elite secretly paid European politicians to improve their country’s international
standing and laundered money derived from mysterious origins through the global
financial system, paying for luxury goods across Western Europe and private
schools in the UK. As the money arrived via a disguised route, recipients may
have been unaware of the original source of the money.
Suspicions of shady dealings in Azerbaijan are not new. An earlier investigation by the European Stability Initiative in 2012 accused Azerbaijan of “caviar diplomacy”, essentially using cash and gifts to buy influence. An investigation by Global Witness in 2013 titled; ‘Azerbaijan Anonymous’, showed that private companies were benefiting from billions of dollars’ worth of business handling Azerbaijani oil, even though it was not clear why they were involved or who owned them.
The UK companies at the heart of the Azerbaijani Laundromat were all limited partnerships, two of which were Scottish limited partnerships, which at that time were more lightly regulated than other UK companies. These partnerships were made up of anonymous companies from other secretive jurisdictions such as the British Virgin Islands, Seychelles and Belize. This allowed those involved to hide the true owners of the UK companies, many of which remain unknown.
The UK has since introduced a public register of the real owners and controllers of UK companies, known as ‘beneficial owners’, which now includes these kinds of partnerships. However, major gaps remain. The companies involved in the Laundromat provided the UK’s Companies House with proxy or non-existent shareholders to disguise their true origins. If the UK’s beneficial ownership register is to fulfill its potential to help track the money trail, verification of the data submitted to the register is key. Analysis of the UK register by Global Witness and DataKind in November 2016 highlighted some of these gaps.
Yet this problem extends beyond the UK. Before the end of
this year, the EU is expected to finalise its negotiations for the 5th
Anti-Money Laundering Directive, presenting a golden opportunity to prevent
schemes like this from happening across the EU.
The biggest outstanding issue is the extent to which public registers of beneficial owners, like the one in the UK, will be extended across Europe both for companies and for trusts. It is vital that other EU countries follow the UK’s lead and introduce registers for companies. These registers should not only be limited to companies, but also limited partnerships. In particular, Scottish limited partnerships, were previously allowed to hide the identity of their owners while enjoying the benefits of UK registered companies t and presented important money laundering loopholes.
To be effective, the information in these registers must be verified, as the European Parliament has now proposed. Without this, there is the risk that money launderers could provide false information to create the appearance of complying with the registers whilst still hiding their true owners.
When the European Parliament, European
Commission and EU Member States go back to the negotiating table in October,
they should seize this opportunity to ensure beneficial ownership transparency measures
are fit for purpose and tackle the root of the problem of anonymous ownership. Unless
the EU tackles this problem, it is only a matter of time before we see another
major money laundering scandal like the Azerbaijani Laundromat.