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Gerard Ryle, Stefan Candea05 Apr 2013 00:00
The Cook Islands. (Alex Shprintsen)
On November 14, 2006, a man going by the name Paul William Hampel was arrested at a Canadian airport on charges of being a Russian spy.
Hampel's carefully constructed identity portrayed him as a successful businessman, yet for a decade his company did no business.
Only months before his capture, the same apparatus used to create his alias was also employed by a very different spy agency – the US Central Intelligence Agency to build a secret prison in Lithuania, where US agents interrogated suspected al-Qaeda terrorists.
Earlier again, it was used by the regime of former Iraqi dictator Saddam Hussein to cheat the Oil for Food program.
All three deceptions employed a common subterfuge: far-flung corporate entities used as anonymous fronts, with "executives" who lacked knowledge of what the firms were up to.
The activities of these so-called nominee directors are a little noticed part of the world of secretive offshore finance that's grown so vast that it touches more than 170 of the globe's 206 countries, but it's one that's often drenched in intrigue.
For a fee as low as $90, men and women who often appear to have little or no formal business qualifications lend their names as directors to enterprises they later can claim to know nothing about – even after those enterprises are linked to everything from stock fraud to money laundering.
As one Panama-based offshore financial services firm tells clients, "It doesn't matter who the front man for your corporation is, as long as it's not you." The firm promises that the nominee directors it supplies will be "completely ignorant to the happenings of your corporation."
The service the nominee directors provide is, in itself, not illegal. They generally say they are helping owners of companies preserve legitimate privacy.
But the scale and the organisation of their networks became vivid as the International Consortium of Investigative Journalists (ICIJ) scoured millions of secret files from the offshore world.
The documents are client records and internal emails largely associated with two firms – Commonwealth Trust and Portcullis TrustNet – that form offshore entities for a range of other middlemen and have offices in many offshore havens.
The documents lay bare complex interrelationships the two financial service providers – and there are many more like them, found largely on tropical islands – have with the nominee directors and hundreds of tax agents, banks and law firms scattered around the world.
It's a secrecy system on a gigantic scale that obscures ownership of billions of often-untraceable dollars that flow through those entities every year, adding to a global flood that exceeds $1 trillion and has grown so large that it can distort and even destabilise the global economy.
What emerges is that drug cartels, arms dealers and rogue nations take advantage of the same system as the covert arms of the Russian and US governments.
Uncovering the secrets
Most offshore companies and nominee directors are up to "pretty boring things," says Jason Sharman, a scholar at Australia's Griffith University who studies offshore secrecy, but "you're certainly going to be using a nominee director if you're doing anything bad."
A 2011 World Bank and United Nations study co-authored by Sharman found that nominee directors regularly emerge in what it calls "grand corruption" scandals around the globe.
The study says the complexity of the relationships in the offshore world often produces a maze that can sometimes discourage investigators, regulators, lawyers and others who are trying to track corruption, money laundering and other misconduct.
"Offshore jurisdictions take a relaxed view of the duties of nominee directors, particularly if the director is in another jurisdiction," Sharman explains. "Onshore authorities are very unlikely to go through all the effort of an extradition to get some foreign nominee director." Law enforcement work across borders, he says, "is a major pain."
Few nominee directors personify this better than Stan Gorin and Erik Vanagels.
From a base in Latvia, a tiny nation in the Baltics, their names have been attached to hundreds of corporations around the world, some of which can be linked to "grand corruptions."
Gorin and Vanagels have proved so good at acting as straw men that questions have arisen about whether or not they even exist.
A Ukrainian journalist working for television station TVi sought to track down the pair in 2011 , and discovered the real live Gorin was an insurance broker in the Latvian capital, Riga, who denied all knowledge of his alleged work around the globe.
In a follow-up report, the same journalist failed to find Vanagels, who was described by a woman who said she knew him as a half-blind vagrant, living on the city's streets.
The ICIJ could not locate him either.
Litany of intrigue
What is undeniable, according to the documents obtained by ICIJ, public records searches and the findings of other journalists, is the litany of intrigue that can be tied to the two identities.
The ICIJ documents show the names Gorin and Vanagels were used to set up a series of offshore entities linked to Mukhtar Ablyazov, the former head of Kazakhstan bank BTA.
Some of the entities were incorporated through Commonwealth Trust by Ablyazov's business associate Paul Kythreotis and Ablyazov's brother-in-law, Syrym Shalabeyev.
Ablyazov stands accused in his home country of embezzling up to $5-billion from BTA in what British media describe as one of the biggest frauds in history. He fled Britain last year, where he had been living, shortly before being sentenced there to 22 months in jail for failing to disclose full details about his wealth, leaving behind a string of luxury homes financed allegedly using fake loans, backdated documents and offshore accounts.
Then there was the case of the MV Faina, a merchant vessel captured by pirates en route from Ukraine to Kenya in September 2008.
International concern at the time focused both on the plight of the crew and on the cargo: 33 Soviet-made T-72 tanks, plus grenade launchers and small arms ammunition, destined for the rebel government of South Sudan, then under a United Nations arms embargo.
An anonymous Panamanian company, Waterlux AG, officially owned the ship . But behind Waterlux AG were two other Panamanian companies, Systemo AG and Cascado AG – both of which were fronted by Gorin and Vanagels.
A very different but equally eye-popping event dates to July 9, 2003, when a Panamanian entity linked to Gorin, Star Group Finance and Holdings, was used to register an entity in Washington, D.C., called Elite LLC.
The CIA later used Elite LLC to buy a former horse-riding academy outside Vilnius, Lithuania, in March 2004. The US agency flew in prefabricated elements to build a secret prison there. It opened in September 2004 and was later the subject of a European Parliament inquiry after ABC News reported that it was used to covertly and harshly interrogate suspected al-Qaeda terrorists.
ABC quoted a human rights researcher who claimed that prisoners suffered "various forms of torture, including sleep deprivation, forced standing, painful stress positions."
No persuasive reasons
A report released in January by the nongovernmental European Network on Debt and Development, "Secret Structures, Hidden Crimes," finds that opaque legal structures
are one of the key ways to hide the real ownership of entities that can sometimes facilitate tax evasion, corruption and related crimes.
"Using nominees is a key way of hiding the real owners," says the report's author, Alex Marriage. Investigators, he says, have "found no persuasive reasons for nominee shareholders."
"There may be very special circumstance where a nominee director is needed," he adds, citing the example of two international corporations needing neutral territory to conduct business, "but small changes in the law would make this unnecessary."
A June 2012 report from the U.K.-based advocacy group Global Witness points out that one of the problems is that legal authorities in the United States, United Kingdom and many other countries don't hold nominee directors responsible for the conduct of the companies they front.
In addition, documents setting up offshore companies often include clauses that shield nominees from financial liability if the companies get sued.
"It is perfectly legal in many countries to avoid having your name appear as the director or owner of a company by employing the services of a nominee, whose name appears instead," the Global Witness report states.
"Nominees are, in essence, renting out their name, and in doing so, providing the anonymity that corrupt officials, tax evaders and other criminals require to move dirty money around the world."
Gorin and Vanagels are far from lone players in this regulatory wilderness.
The group of 28
The ICIJ, working with The Guardian newspaper in England and the BBC's Panorama program, identified a group of 28 other nominee directors who have represented more than 21 000 companies between them, with individual nominees representing as many as 4 000 companies.
For example, Jesse Grant Hester – a nominee director based on the English Channel island of Sark and later the Indian Ocean tax haven of Mauritius – was the director for an Irish entity Candonly Limited, which an official inquiry later found was used by the regime of Iraqi dictator Saddam Hussein to cheat the United Nations' Oil for Food Program.
Hester, who did not respond to a request for comment, has been listed as a director for at least 1,500 other companies in the British Virgin Islands, Britain, Ireland and New Zealand, according to the ICIJ analysis.
Until the practice was stamped out in the late 1990s, it was common for Sark residents like Hester to lend their names as directors to businesses around the world wanting anonymity.
At the height of what became known as the "Sark Lark" the BBC reported, the 600 inhabitants of the island held 15,000 directorships between them, some of which later led to controversy.
One extreme example was a resident John Donnelly who lent his name as director to an Isle of Man company, Mil-Tec Corporation Ltd., which shipped rifles, rockets, mortar bombs and ammunition to Rwanda that were used in the 1994 genocide.
After a crackdown by the British government, many nominee directors from Sark relocated to other jurisdictions like Cyprus, the United Arab Emirates, Mauritius and Ireland and, as the secret documents obtained by ICIJ show, they simply resumed operations.
The ICIJ documents identify three other former Sark islanders who formed parts of the mysterious backstory of Hampel, the alleged spy for Russia arrested in Canada.
According to the National Post, Hampel had established a corporate presence in Ireland from July 1997, two years after he received his first Canadian passport using a fraudulent Ontario birth certificate.
Corporate documents described the Irish entity, Emerging Markets Research & Consulting Ltd, as a tourism venture – and Hampel as a travel consultant. But the National Post reported that the company's annual accounts showed it didn't do any business and that it appeared to be merely a cover for his spying activities.
Though he denied the allegation made in court that he was a member of the Sluzhba Vneshney Razvedki, the successor to the infamous KGB, Hampel was eventually deported to Russia after admitting to being in Canada illegally.
Appearing as nominee directors in Hampel's Irish entity at various times were Sean Lee Hogan, Simon Ashley Couldridge and Michael Andrew Gray, who each show up over and over in the documents obtained by ICIJ. Each declined emailed requests for comment.
Among Hogan's many other directorships – including nearly 100 in the British Virgin Islands, 743 U.K. companies and dozens in the US, Panama, Austria, Ireland and New Zealand – are companies linked to a Norwegian professor, the Russian gas and oil giant Gazprom and a music publishing company, Plaza Mayor, whose website claims that they represent the work of Julio Iglesias, Ricky Martin and Placido Domingo.
Couldridge, who recently put up his Sark home for sale for nearly £5-million, is publicly listed as a director of more than 1 000 companies in Ireland.
Gray runs the Alterego Group, a Cyprus company that boasts in one email obtained by ICIJ: "We at Alterego Management are the visible other self. … The desire to obtain complete privacy, often bordering on total anonymity, is a major reason why so many professional firms do use our services."
In an example of how much the players in the offshore world overlap, the data obtained by ICIJ reveals that one of Gray's other clients was Roger Alberto Santamaria del Cid.
In October 2010, Santamaria was named in press reports as the Panamanian contact for an Internet investment scam, Imperia Invest IBC, which defrauded 14 000 investors worldwide of about $7 million. They included about 6 000 deaf people from the US states of Utah, Maine, Wisconsin and Texas.
The US Securities and Exchange Commission, the Monetary Authority of Singapore, the Swedish Financial Supervisory Authority and the Swiss Financial Market Supervisory Authority all issued alerts regarding Imperia.
There is no suggestion that Gray was in any way involved in Imperia, and the data obtained by ICIJ and searches of public company registers indicate that Santamaria was a nominee director himself. Santamaria could not be contacted for comment.
His fellow officials in one Panamanian entity? Gorin and Vanagels.
Gerard Ryle is the director of the International Consortium of Investigative Journalists. Stefan Candea is an ICIJ member and co-founder of the Romanian Center for Investigative Journalism.
Arta Giga from the Baltic Center for Investigative Journalism in Latvia contributed to this story.
The International Consortium of Investigative Journalists is an independent network of reporters in more than 60 countries who collaborate on cross-border investigations. It is a project of the Washington-based Center for Public Integrity.
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