Money Laundering and Tax Evasion (Azerbaijan)

Margaret Hodge Excerpts

Thursday 19th October 2017 Commons Chamber

[Dame Margaret Hodge (Barking) (Lab)]

I thank you, Mr Deputy Speaker, for selecting this debate, and I thank the Minister for her attendance. I also thank the people who have helped me to prepare for this debate, particularly at The Guardian, Bellingcat, Transparency International and Global Witness.

We in Britain pride ourselves on our integrity, respectability and trustworthiness. We tell ourselves that this is a country that believes in high ethical standards of behaviour in the way we conduct ourselves as individuals, run our businesses and function as professionals. We preach to developing countries about how to stamp out corruption. We sell Britain to foreign investors by telling them that they can trust us, our laws, and our corporate rules and institutions.

Yet last month yet another bundle of leaked documents from yet another brave whistleblower, this time about Azerbaijan, revealed—yet again—that our self-belief is flawed. Many of the revelations and the allegations of corruption associated with the Azerbaijani ruling elite, as well as much of the evidence of money laundering, organised crime, tax evasion and bribery, come back to and are made possible by how the UK and our overseas territories choose to operate our corporate structures. Our persistent lack of transparency and our appallingly lax regulatory framework have made us the country of choice for every kleptocrat, crook and despot in the world. We have become the safe haven for dirty money. We are allowing money laundering and tax avoidance to take place on an industrial scale.

[Dr Rupa Huq (Ealing Central and Acton) (Lab)]

Two years ago, the then Prime Minister declared that London was not

“a place to stash dodgy cash”.

A year ago, in front of 40 Governments from around the world, the UK committed to a public register of foreign companies owning UK property to prevent those who are corrupt from being able

“to move, launder and hide illicit funds through London’s property market”.

Yet we have seen zero progress on all that. Does my right hon. Friend agree that this is a disgrace, and that with all that has happened since, the need for a public register is stronger than ever?

[Dame Margaret Hodge]

I do, and I will come to that later in my speech.

Our corporate rules and our weak regulatory framework are a gift to villains. Far from being proud, we should be ashamed. Today, I want to try to convince the Minister and the Government to act urgently to destroy the opportunities we are allowing, which are exploited by criminals and make us complicit in their crimes. We can stop this, but at the moment we are choosing not to do so.

Azerbaijan is well-known as a corrupt kleptocracy. It comes 123rd out of the 176 countries assessed on Transparency International’s index of corruption. Heydar Aliyev, the father of the current President, was head of the KGB in Azerbaijan in 1967, when Azerbaijan was part of the Soviet Union, and he became a full member of the Soviet Politburo in 1982. When Russia broke up, he moved seamlessly to become Azerbaijan’s ruling President in 1993, and he cracked down viciously on all opposition voices. He passed the presidency on to his son 10 years later, and Ilham Aliyev then pushed through constitutional changes to abolish the limit on the number of times one person could stand for office and to extend each term of office to seven years.

[Paul Flynn (Newport West) (Lab)]

Will my right hon. Friend send a copy of her speech to all the new delegates to the Council of Europe from this place, because there are examples in the recent past of Members of this House giving tacit support to and acting as apologists for the den of thieves that is Azerbaijan?

[Dame Margaret Hodge]

I welcome that suggestion and will do that.

Ilham Aliyev remains President to this day, and in February this year he appointed his wife Mehriban as First Vice-President, in effect anointing her his successor. According to Human Rights Watch, the ruling élite

“continues to wage a vicious crackdown on critics and dissenting voices”.

But the Azerbaijani Government do want to be respected by the international community, in part because they want to sell us their oil and gas. That is why they worked to become full members of the Council of Europe, why winning the Eurovision song contest mattered and why hosting the European games in Baku was important. The so-called Azerbaijan laundromat that we are discussing today was a scheme designed to launder money out of Azerbaijan—money used to curry influence and bribe European politicians, lobbyists and apologists, and further to line the pockets of the Aliyev family and their cronies.

The scheme was revealed by the Organized Crime and Corruption Reporting Project, working internationally with newspapers, including The Guardian. The leaked documents covered payments over a two-year period from June 2012 until the end of 2014. The payments amounted to €2.9 billion.

[Nick Smith (Blaenau Gwent) (Lab)]

I congratulate my right hon. Friend, who has shown her usual great resilience in identifying financial skulduggery whenever she can; we worked together on looking at financial chicanery as fellow members of the Public Accounts Committee. Does she agree that much more detailed research is needed on this topic so that every angle and element of this huge finagle is properly understood?

[Dame Margaret Hodge]

I completely agree with that important point.

Money came out of Azerbaijan—nearly half from an account held at the International Bank of Azerbaijan through a shell company linked to the Aliyev family. That bank recently filed for bankruptcy. The other main contributors were two offshore companies with direct connections to a regime insider. It is hard to believe that the money was held legitimately in Azerbaijan.

The money was transferred to a small Estonian branch of Denmark’s largest bank, which is where Britain comes in. The money went into the bank accounts in Estonia of four shell companies, all of which were incorporated here in the UK. Our laws that allow such companies to be established were at the heart of this nefarious scheme. Much of the money then went into the pockets of European politicians, journalists, prominent individuals in international organisations and powerful political Azerbaijani families.

The leaked data show, for instance, that Luca Volontè, an Italian politician who led the European People’s Party group in the Council of Europe, received over €2 million. We know that he was instrumental in lobbying to ensure that a report criticising Azerbaijan’s human rights record was rejected by the Council of Europe in 2013. Several months after the country achieved that veneer of respectability from the Council of Europe, the European Commission announced the construction of the controversial gas pipeline from Azerbaijan to Europe. Volontè is now facing charges of corruption and money laundering in Italy.

Eduard Lintner, a former German MP, founded the Society for the Promotion of German-Azerbaijani Relations. That organisation received €819,000 over the two years covered, and Lintner got a €61,000 cash payment two weeks after returning from observing the elections in Azerbaijan and praising them for being up to German standards. The Council of Europe said the elections marked a

“step forward taken by the Republic of Azerbaijan towards free, fair and democratic elections”.

The reality was that the opposition alliance boycotted the elections, there was voter intimidation and the press was gagged. Lintner has denied any wrongdoing.

Kalin Mitrev, a Bulgarian who lives in London, received €390,000 for so-called consultancy for Azerbaijan. He now sits on the board of the European Bank for Reconstruction and Development that only yesterday agreed a loan to the Azerbaijan Government for €500 million to build a gas pipeline. While he recused himself from the decision and has denied any wrongdoing, his presence as a board member having received money from Azerbaijan makes it very murky and uncomfortable. He is being investigated by the Bulgarian authorities. At the same time, his wife, Irina Bokova, is Director-General of UNESCO. She bestowed one of UNESCO’s highest honours, the Mozart medal, on Azerbaijan’s first lady, the wife of the President, for:

“merits in strengthening the intercultural dialogue.”

I suppose that is an innovative way of describing the use of bribes to stifle criticism and secure international support.

Those people were paid from companies incorporated in the UK: Polux Management LP, Hilux Services LP, Metastar Invest LLP and LCM Alliance LLP. All were registered at Companies House. They are shell companies, sometimes incorporated through our tax haven overseas territories, that are deliberately used to disguise the origin of the money they receive. They are set up by shady and unregulated formation agents. They can engage in transactions while hiding the identity of the real beneficial owners of the company, yet because they have the UK stamp on them they command a respectable status. Our lax controls allow them to prosper and our corporate system allows money to be moved around and used without any questions being asked. That is simply shameful and it is taking place right here, right now in our country.

I am particularly concerned by the trend for unscrupulous people to use Scottish Limited Partnerships—SLPs—to launder money, and to evade and avoid tax. SLPs were invented to help agricultural tenancies in Scotland. Creating an SLP allows the partnership to hold property and enter into contracts, because it gives them a legal personality. But SLPs do not need to name any “natural person”—an actual person—as partners. They can just name companies. They have limited reporting requirements —for instance, they do not need to file accounts at Companies House unless one of the partners is a UK limited company, and while they are supposed to file returns with HMRC, they do not need to pay UK tax and they do not need to have a UK bank account. Of course, HMRC does not check whether accounts are filed.

Our laws allow a secret vehicle to be created to smuggle unexplained wealth into the system, money that is then used for a variety of illegitimate as well as legitimate purposes. SLPs have become a byword for corruption, tax evasion and organised crime. Just look at the facts. There was a 430% increase in the creation of SLPs between 2007 and 2016. In 2016 alone—in that one year—more SLPs were registered than had been registered throughout the 100 years after they were introduced. Bellingcat has looked in detail at the 5,214 SLPs registered in 2016. Ninety four per cent. were controlled by corporate partners, not individuals, and 71% of those corporate partners were based in tax havens. Seventy per cent. were registered to just 10 mailbox addresses in Scotland. They are anonymous and untraceable obscured structures linked to corrupt jurisdictions.

[Dr Huq]

Does my right hon. Friend share my concern that since the flourish of the anti-corruption summit—and David Cameron has completely left the crime scene—this seems to have been put in the too-difficult-to-think-about box? If the Government really want a global Britain, they should table the necessary legislation as soon as possible and not use the excuse of Brexit to kick this into the long grass.

[Dame Margaret Hodge]

I agree entirely with my hon. Friend.

The Government recently required SLPs to file statements about the persons with significant control associated with them. Only 23% of those registered in 2016—1,176 SLPs—have done so, and of those 1,176 only 28 are British nationals. In the two SLPs associated with the Azerbaijan story, the records state that the bank accounts and the shareholders were opened by the same man, Maharram Ahmadov. He transferred more than $1.7 billion from those accounts, yet the journalists found that he was a working-class driver living in a modest house in the outskirts of Baku. The companies were registered from the British Virgin Islands.

Money laundered through these structures is being spent here in the UK. We know that $50 million was paid to individuals. For instance, the documents reveal 200 of the payments made to the UK paid for education. Queen Ethelburga’s College, a private school in York, received £89,800. A tuition college, Bellerbys College, and the International School in London also received payments.

Azerbaijan money is also being used to buy property in the UK. Anar Mammadov, the son of Azerbaijan’s Minister for Transport, was just 20 when he bought a £2.75 million mansion in The Bishops Avenue, a house now valued at £7 million. Yunis Abasov, the son of Azerbaijan’s Deputy Prime Minister, was just 21 when he bought a £1.4 million penthouse flat in the Docklands. That is now valued at £3.3 million. In 2012, on reaching the mature age of 27, he bought an even grander property in Kingston upon Thames for £5 million, and he has also been granted British citizenship.

Leyla and Arzu Ilyeva, the daughters of the President of Azerbaijan, used a British Virgin Islands company to buy UK property. Leyla owns a £17 million mansion in Hampstead Lane. The property transaction was undertaken by Child & Child solicitors. It failed to declare that the buyers were politically exposed individuals but has not faced any action, despite having flouted our laws.

In the short time available, I have outlined just a few examples to show how the UK is at the heart of international money laundering, bribery and corruption, tax avoidance and tax evasion. I have described a part of the Azerbaijan story, but the same story could be told from the Panama papers, the Falciani papers, the Moldovan bank robbery and the Russian laundromat. These stories will keep on coming as more and more whistleblowers leak other scandals. The issues will not go away.

I feel deep shame and embarrassment that we in the UK are not just complicit but central to the success of these despicable practices. We seem somehow to believe that dirty money is good for the British economy, but if homes are being bought with laundered money, it just fuels house prices and adds to our housing crisis. In accepting corrupt money, we accept the lawlessness that goes with it. Ministers must act to ensure much greater transparency and to clean up the UK’s corporate structures.

I ask the Minister to address these points. The Government promised us a register of beneficial ownership of property in the UK. We want to know who owns our houses. Consultation on this ended in May and nothing has happened. When will the Minister act to create the register? The Government have yet to commence the legislation on unexplained wealth orders. Why the delay? The Government continue to refuse to use their powers to insist on public registers of beneficial ownership in all our overseas territories, many of them tax havens. Why not act? The Government should properly staff Companies House. At the moment, six individuals are tasked with investigating breaches of company law in a register of 3.5 million corporate structures. Such under-resourcing makes a farce of our commitment to good regulation.

The Government should properly investigate the allegations made publicly in The Guardian and by Transparency International and the others, some of which I have outlined today. If allegations have been made, they must be investigated by the relevant authorities. The Government have a duty to make sure that this happens on our behalf, but it is just not happening.

The Minister should reform our corporate structures to create a more robust and transparent system. Why not ban corporate partners from LLPs and SLPs in all but exceptional circumstances? Why not insist that corporate partners must be UK-based? Why not insist that SLPs must have a natural person? Why not require that the documents of incorporation and the “person with significant control” declarations include the address, date of birth and passport or other identity details of named individuals so that we can trace them? Why not introduce a unique identifier for directors and partners of SLPs? Why not insist that partnerships incorporated in the UK should have a bank account in the UK? Why not set proper standards for the advisers and regulators, so that we can get rid of shady formation agents and reform the anti-money laundering supervisory system to ensure high and consistent standards?

All that is possible if the will to clean up our act on corporate structures is there. At present it seems that Brexit has made us incapable of tackling any wrongdoing for fear of offending some other country in some other part of the world, but Britain will never get rich on dirty money. Allowing it to roam freely will simply infect our institutions, our people and our economy. It is plain wrong that we have allowed ourselves to become the leading facilitator of money-laundering, organised crime and tax evasion. The Government can act to stop this abuse, and they must do so.