Why rich people in need of financial wizardry often flock to the UK and its outposts including British Virgin Islands

Cane Garden Bay, Tortola, British Virgin Islands (BVI). More than two-thirds of the over 900 companies mentioned in the Pandora Papers having links to public officials were based in the BVI.

For those looking to camouflage ill-gotten funds or turn shady money into legitimate wealth, London seems to be the destination of choice.

In recent years, the United Kingdom has come to be described as one of the biggest centres for money-laundering. Running parallel to and at times intermingling with London’s humungous, legitimate and dazzling legal and financial architecture is a complex web of obscure offshore accounts and companies that blight the UK’s image.

Also read: US court dismisses plea filed by Nirav Modi, associates

Crown dependencies of Jersey, Isle of Man, Guernsey and British Virgin Islands have tax regimes that allow minimal taxation and an impenetrable shield to protect the real identity of the owners of the vast array of companies that are registered there. More than two-thirds of the over 900 companies mentioned in the Pandora Papers having links to public officials were based in the British Virgin Islands (BVI).

Also read: Five years since liquor King Vijay Mallya flew to UK: Four mistakes banks made in the Kingfisher case

These crown dependencies and BVI have varying levels of connections with the UK as a legacy of colonialism and the British Empire. Leaving aside the complexity of how to define their exact relationship, the common feature that glues them is their role as London’s outposts allowing people from around the world to escape taxation and moral obligations. With a population of under 40,000, the BVI have more than 400,000 businesses registered.

To give a sample of the phenomenal variety of companies that are registered there, one such company was the recipient of a multi-million dollar deal to construct glitzy shopping malls by demolishing Soviet-era theatres in Russia. Another company registered in BVI, with links to a minister in Bahrain, owned a prime property in central London that former British Prime Minister Tony Blair and his barrister wife Cherie eyed for their offices. In 2017, the Blairs’ UK company bought the BVI company, instead of the London property, thus saving them £312,000 in stamp duty which they would have had to pay on a direct property purchase.

Also read: Vijay Mallya bankrupt, declares London High Court

Several such companies registered in these tax havens are used to buy expensive chunks of British real estate. Buying real estate through offshore firms is not illegal, but the UK government does accept that not knowing the ultimate owners poses a risk. And as the crown dependencies, unlike the UK, do not have to maintain a register of the real owners of companies, it is an open secret that rows of houses in posh neighbourhoods of London owe their inflated price tags to a rich variety of crimes legitimised by financial wizardry.

Vijay Mallya, Nirav Modi, Pramod Mittal, Lalit Modi have added a strong Indian flavour to London as a destination for dubious, failed, problematic business enterprises. They actually represent a rather long line of an earlier generation of Indians like the underworld figure Iqbal Mirchi, hoteliers and idol smugglers Narang brothers, shipping tycoon Dharma Jayanti Teja, and several major and minor princely families for whom Britain was a favourite hunting ground in colonial times.

Also read: Pandora Papers: JCT Chairman holds ownership of BVI firm holding ‘non-promoter’ stake in company

In 2018, Zamira Hajiyeva became the first person to be served with Britain’s Unexplained Wealth Order (UWO) – which is issued when assets are owned in far excess of the disclosed income. Hajiyeva came under the scanner when it emerged that she had blown £16 million at Harrods between 2006 and 2016 using 54 credit cards. Lurid details of her shopping – from expensive undergarments to the much sought after Cartier diamonds – blurred the boundaries between Britain’s tabloids and broadsheets who splashed her items of purchase on the austerity-hit UK public.

Three years after the press frenzy, the Supreme Court in December 2020 refused to overturn the UWO which means that she has to disclose the source of funds which led to the purchase of her £15 million Knightsbridge house and a golf course in Berkshire, on the outskirts of London. Her husband Jahangir is serving jail sentence for defrauding the state-owned bank in Azerbaijan when he was at its helm.

Zamira Hajiyeva got the UK residency rights after she made a seven-figure investment in UK government bonds and the UK courts barred her extradition to Azerbaijan on the ground that she won’t get a fair trial. But all along, it was difficult to reconcile how through sole declared income of interest on bank deposits she could lead the lifestyle she was living. The UWO, as the above case shows, can be effective, but it has now been more than two years since it was invoked in the UK. Due to a variety of reasons, the Nation Crime Agency (NCA) seems to have been unable or reluctant to deploy UWO.

Also read: Indians are using overseas real-estate markets to hide their wealth: GFI director

The vibrant services sector – bankers, solicitors, accountants, investment managers – that offers unprecedented career growth and attracts the best and brightest from British society represents another weak link in the fight against money laundering. A conservative estimate puts the number of these professionals at over 30,000. In 2019-20 only 31 fines averaging £290,000 were issued by UK agencies to such professionals.

The NCA maintains that money laundering has the potential to threaten the UK’s national security, national prosperity and international reputation. “Accounting and legal professionals, and estate agents, can be criminally exploited – this is sometimes complicit, sometimes negligent, and sometimes unwitting – and this small minority of people can pose a very significant threat,” is how the NCA assesses them.

A decade ago, James Ibori, the former governor of the Delta state in Nigeria, was convicted for money-laundering in London after he was extradited from Dubai. Ibori’s wife, mistress, and sister were all convicted along with him, but a key role was played by his solicitor Bhadresh Gohil. Gohil’s industriousness ensured the laundering of money that Ibori stole from Nigeria. Investigators recovered two computer hard drives from the central London office of Gohil which had details of Ibori’s offshore companies. In 2011, Gohil was sentenced to 10 years in prison.

Also read: Nirav Modi extradition: The story so far and what it means for Indian banks

Just like Hajiyeva, Ibori too came under the scanner for his unwillingness to curb extravagant spending – handing out £50 notes to hotel staff and attempting to buy a private jet. But for every Haziyeva and Ibori, there are dozens who know the virtues of staying away from the limelight while continuing to plough the streets of London with seeds acquired through corrupt wealth. Earlier this year, a Manchester-based accountant, Abid Naveed, settled with the NCA by paying £1.9 million after facing allegations of links with a gang which laundered £160 million of drug money.

Since the passage of the Proceeds of Crime Act 2002, any person or entity who deals in criminal property can be prosecuted. These professionals thus are obligated to inform the NCA if they suspect money-laundering or proceeds of criminal activity being used to buy assets. In November 2020, the NCA said that the quality of such information sent by solicitors had ‘got worse’, making it difficult for the NCA to figure out the nature of the suspicion. Although solicitors have overcome notions of adherence to client confidentiality coming in the way of reporting suspicious activities, clearly a lot more needs to be done.

Also read: PNB Scam | Suicide, COVID-19 risks in Mumbai prison focus of Nirav Modi extradition appeal in UK

Britain’s egalitarianism in providing refuge to both those escaping despotic regimes and those seeking sanctuary for their tainted money is heavily prejudiced against the former. But in a country where businessmen can officially buy their way to sharing a meal with the prime minister and senior cabinet ministers, sinister manifestations of access capitalism can hardly come as a surprise.

Read more: Book Excerpt: Why rich Indian fugitives often escape to London