Scots shell firms play key role in Latin America's bribery 'mega scandal'

Court papers from Brazil show the Scottish firms - as well as two English ones - are at the centre of one of the world's biggest-ever corruption investigations: the ongoing unravelling of a global web of illicit payments by the construction multi-national Odebrecht.

The Brazilian-based giant has admitted paying bribes but a Who's Who of Latin America politics - including former heads of state in Brazil and Peru - have denied taking them.

The probe into Odebrecht and related scandals - called Operation Car Wash - has already brought a jail term of a decade for the company's chief executive and six years for the former vice president of Ecuador.

Now the investigation has also once again exposed the increasingly controversial role of British - and especially Scottish - corporate entities as the money-laundering vehicles of choice for international criminals.

Court documents directly link an executive who was last year convicted of money-laundering for Odebrecht to three Scottish limited partnerships or SLPs registered next door to the headquarters of the Church of Scotland in George Street, the main shopping zone in Edinburgh's prestigious New Town.

READ MORE: Corruption conviction against former Brazilian president upheld

The latest revelations brought a whole new chorus of demands for action to stop the abuse of SLPs, already dubbed "Britain's home-grown secrecy vehicles" after they were exposed at the heart of successful bids to clean billions of dirty dollars from the former Soviet Union.

The SNP MP Alison Thewliss accused the UK Government of failing to shore up Britain's anti-money-laundering defences, especially on SLPs.

She said: "The longer this government continues to turn a blind eye to unscrupulous practices that are happening right under its nose, the more difficult it will become for them to be seen as anything other than complicit in facilitating them."

Alison Thewliss MP

The three Odebrecht SLPs were controlled by an executive called Olivio Rodrigues Junior, who was one of a slew of figures convicted last summer under Operation Car Wash along with his chief executive Marcelo Odebrecht and former President Lula's chief of staff.

Mr Rodrigues Junior worked for Odebrecht's Division of Structured Operations but nicknamed the "Department of Bribery" by journalists.

His unit bankrolled and bribed politicians of all hues as Odebrecht sought influence and contracts across the Spanish- and Portuguese-speaking world.

The executive controlled some 19 out of more than 40 offshore firms named in published Operation Car Wash witness documents

These included SLPs called Grangemouth Trading Company, Ravenscraig Engineering and Wahlberg Investments Consulting, an English limited liability partnership and an English limited company.

All three SLPs were registered at the base of Jordans Scotland, a specialist corporate law services firm that can trace its roots back to Victorian times.

There is no suggestion Jordans Scotland, which was rebranded from its historic name Oswalds in 2014, had any knowledge of or involvement in the Odebrecht bribery.

The Herald asked Jordans to explain why it offered services to anonymously owned shell firms but we have received no response.

Jordans also failed to comment last year when we revealed that it had also provided an address for an SLP called Rasmus which laundered £53m of mystery money from the oil-rich kleptocracy of Azerbaijan.

Jordans Edinburgh division is led by director Andrew Cockburn, a active member of the Institute of Directors and past president of the Edinburgh City Business Club.

The HQ of Jordans Scotland in Edinburgh

Anti-corruption investigators in Mexico have linked one of the SLPs to payments made to a leading politician and oil executive accused of using Odebrecht bribes to finance the campaign to elect the country's current president, Enrique Pena Nieto.

Mexicans Against Corruption and Impunity, a civil society group, has described Mr Rodrigues Junior as the Odebrecht executive responsible for the the company's campaign to gain influence in their country.

Citing Brazilian documents, they said Grangemouth Trading Company LP was an intermediary for payments totalling $5m to Emilio Lozoya, the former head of the country's nationalised oil concern Pemex.

Mr Lozoya has repeatedly and "categorically" denied claims that he took money from Odebrecht or that he used this money to help finance the 2012 campaign to elect Pena Nieto. Speaking last August, he said: "I conclude that accusation is false."

President Enrique Pena Nieto

Two of the SLPs in Mr Rodrigues Junior's network - Ravenscraig Engineering and Wahlberg Investment Consulting - have been dissolved having never filed any information about their ultimate owners or any accounts.

Grangemouth Trading Company remains listed as a live partnership at Companies House, Britain's corporate registry. It has moved its place of business from Jordans in Edinburgh to a house in East Kilbride and then to a company creation agency in Kent where, like its two sister SLPs, it was first created.

The Herald asked the agency, which is called Vicena International, to comment but it refused to do so.

Grangemouth, meanwhile, like thousands of other SLPs, has failed to comply with anti-money-laundering rules imposed last summer under which it had to name any "person of significant control".

Background: A scandal crossing continents

It was the World Cup that really made Brazilians angry. Many people in the football-mad nation had been all for hosting the 2014 finals. Then they started seeing how much it was all costing. And wondering why that was.

Before the World Cup there were protests. Afterwards there were investigations. Contracts for half of the dozen grounds built for the event were under question.

Scroll forward to 2016 and the whole process was repeated. This time for the Olympics.

Much of the work for both the World Cup and the Olympics was carried out by a single construction company Odebrecht, a firm that had some 180,000 employees and a multi-billion-dollar turnover. It turned out that some of that turnover was crooked and not just in Brazil.

Odebrecht eventually told US authorities that it had paid $800 million in bribes, just under half in Brazil, to secure lucrative contracts. That final figure may have been higher. Just this week Peru, which is investigating two former presidents, alone demanded compensation of $2 billion from the company. 

The chief prosecutor of Venezuela - where politics is bitterly polarised - has fled in to exile after accusing her president, Nicolas Maduro, of blocking an Odebrecht probe.

There are - or have been - investigations in to the company’s admitted bribery in the Dominican Republic, Panama, Angola, Argentina, Ecuador, Peru or Mozambique

Figures under investigation include two ex-presidents of Peru; and senior figures in Argentina, Mexico, Columbia and Panama. A former vice president of Ecuador, Jorge Glas, was jailed in December after prosecutors said he took $13m from Odebrecht.

And yet it is Brazil where the scandal is deepest. A wide corruption investigation, Operation Car War, has fed in to a general political malaise. Bribe-taking allegations hang over the left and the right.

Last week a federal court upheld a 2017 Car Wash conviction for the former socialist president Luiz Inácio Lula da Silva for accepting a beach apartment from a construction firm and extended his jail term from nine years to 12.

Lula - that is how the 2003-2010 president is known - is running for re-election while on bail pending yet another appeal. He is ahead in the polls

Reaction: the Political backlash in Scotland and UK

There are today more pins in the map of the world which shames Scotland.

For three years this newspaper has detailed the mass abuse of anonymously-owned Scottish shell firms to make or hide dirty money.

Until now most of big stories - including three of the biggest money-laundering schemes ever uncovered - have been focused in the former Soviet Union.

Today we reveal that Scottish limited partnerships or SLPs - the most ubiquitous and notoriously shell firms north of the border - are also embroiled in a Latin American bribery scandal.

And not just any scandal, but what the Washington Post calls a “mega scandal”, the historic saga of a single giant construction firm, Odebrecht, which paid perhaps £1 billion in bribes.

The political fall-out from the case in the Americas and Africa is still settling with investigations in some 29 countries.

However, the row over yet another expose of SLPs is just beginning in the UK, not least because it is feared the Scottish structures were used to funnel bribes in to election process in Mexico and, potentially, elsewhere.

There is growing outrage that British corporate structures - not just Scottish ones - remain so easily abused.

Rachel Davies Teka, of anti-corruption campaign Transparency International, said: “Every global corruption case has victims, very often in the poorest parts of the world. With worrying regularity, the UK appears time and again at the heart of these scandals.

“Whether it is the complicity and negligence of our professionals, or the superficial legitimacy provided by UK shell companies, Britain’s dysfunctional money laundering defences have allowed corrupt individuals from around the world to bribe and steal with impunity.

“ As more and more of these cases are exposed, the UK’s hotchpotch and haphazard approach to anti-money laundering supervision becomes ever more indefensible.”

Rachel Davies Teka of Transparency

Ms Davies Teka recognised that the British Government, which has reserved powers over Scots corporate law,  had taken some steps to tighten rules This includes imposing transparency regime on SLPs. But she wants more.

So does the Scottish Government. A  spokesman for Finance Secretary Derek Mackay said his Holyrood administration had  “consistently” urged action from its British counterparts over SLPs.

He said: “We will continue to press the UK Government to act – but frankly they have been dragging their heels. These latest revelations simply underline the fact that the time for firm action is long overdue.”

Mr Mackay’s spokesman raised another growing concern about the abuse of SLPs: that it tarnishes Scotland’s image as a place to do business.

Speaking of Odebrecht scandal, he said: “These allegations are deeply concerning. Scotland has a high international reputation for financial services, and any Scottish firm which is knowingly facilitating business practices which undermine this should hang their heads in shame.”

How  many more Scottish pins will there be in the global map of corruption before Britain's shell firm industry is finally shut down?

Mapped: abuse of Scottish shell firms around the world

Analysis: Richard Smith on why only money-launderers gain from Britain's 'feckless, impotent and disgraceful' policy

DESPOTS, gangsters and crooked foreign banks must be delighted.

Evidence of their mass abuse of British companies has been accumulating for years. And yet little, if anything, has been done to stop them.

First successive governments allowed a laissez-faire system of corporate oversight. Then they failed to react when this system was exploited by criminals.

By 2013 Private Eye had uncovered what it called “epic levels of money laundering, illicit arms dealing, frauds, counterfeiting and government corruption …all thriving on emasculated British company law and political and official indifference.”

A year later there were the first indications that British firms were used in the so-called Russian Laundromat scheme to launder $20bn of dirty money. An ex-policeman said: “We need a proper, concerted effort between law enforcement because at the moment we’re still handing it on a silver platter to the villains.”

Last year this newspaper revealed that Scottish shell firms played a key role in the Russian Laundromat. Many of them were of a kind which The Herald has been investigating since 2015: the Scottish limited partnership or SLP.

First exposed in a billion-dollar bank fraud in poverty-stricken Moldova, these once invisible entities were quickly were dubbed “Britain’s home-grown secrecy vehicle.”

Richard Smith

Their number began rocketing in 2008 but it was only after a series of scandals in The Herald that Westminster’s Department for Business, Energy & Industrial Strategy (BEIS) called for evidence on limited partnership law. It even threatened SLPs with do not disclose who controls them with tough legal penalties, including fines and jail. SLP owners worldwide shrug their shoulders.

There followed more multibillion dollar Laundromat exposés - and no official penalties for the SLPs or other British firms they featured.

So where are we in 2018? Well, that year-old BEIS consultation on limited partnerships has not yet published any findings. No more than 30 per cent of the 20,000 to 30,000 active SLPs have complied with so-called Persons of Significant Control or PSC regulations. It turns out SLP owners were right to ignore the rules: all that talk of fines and jail was bluff, a last resort Tens of thousands of opaque SLPs and other firms still litter the UK’s company register.

It is almost as if criminals and money-launderers are the only intended beneficiaries of a feckless, impotent and disgraceful UK policy. This must change.

Richard Smith is a writer and researcher who specialises in global fraud and money-laundering.

Brazilian court documents citing SLPs and English shell firms