IN EARLY 2011 two men walked in to a bank in Riga, Latvia, and set up a company.
One of the men was a sales rep for a Finnish technology company. The other was a bank official in Belarus who signed off on tech purchases. Their new firm was Scottish. Its business was corruption.
Both men were jailed earlier this year after major bribery trial. The rep, Nikita Melnikov, was found guilty in a Belarussian court of paying the official, Gennadiy Zubarev, around £2 million.
That is close to record-breaking graft for the former Soviet republic. And all thanks to an obscure bit of old Scots law which allowed them to create an Edinburgh business called a limited partnership or SLP, effectively anonymously, and then open up a Latvian bank account.
READ MORE: Scots law firm axes SLP mailbox business
Their story could not be more relevant this weekend. That is because authorities in both Latvia and the UK, where Westminster is responsible for Scots company law, have signalled they have had enough of SLPs.
Local news media in Belarus, citing law enforcement sources, said Melnikov paid Zubarev some 2.2 million euros through accounts held by ITI Corporation in Latvia and Cyprus.
A court in Minsk heard Melnikov took Zubarev to Riga, the Latvian capital, in early 2011. An official at an unnamed bank helped Zubarev to set up the SLP, ITI Corporation, which was based at flat in Montgomery Street where there are thousands of shell firms.
Zubarev was given a round stamp for the firm which enabled him to open a bank account and receive payments for “consulting services”.
These services, court documents cited in the Belarusian media suggested, could be worth up to 20 per cent of the value of orders placed with Zubarev.
A newspaper, BelGazeta, said Zubarev, who has also been convicted, used the money to buy a home in Hungary near Lake Balaton. The banking official, local media, told detectives interviewing him that he had been made an offer in early 2010 and that “unfortunately, I agreed”. He was said to have added that he was seduced by the prospect of money.
Melnikov worked for Tieto Latvija, a subsidiary of the Finnish business Tieto, and specialised in marketing banking technology, such as smart cards, in the former Soviet Union markets such as Belarus and Uzbekistan.
The Finnish firm did not respond to requests for comment from The Herald. It was reported by news media in both Latvia and Belarus as having said Melnikov was no longer an employee.
ITI Corporation was set up in late 2010 by the Dublin-based company formation agency Trinity Services. Its partners are two entirely opaque businesses based in Belize.
It was dissolved in November 2017 never having filed any accounts or complying with UK rules under which it had until last August to name its beneficial owner or “person of significant control”.
The mailbox address where ITI Corporation was based
The Herald has revealed discovered several hundred SLPs involved in criminality, corruption, tax-avoidance or money-laundering in the former Soviet Union or Latin America.
Earlier this year we revealed that a man running a pyramid scheme in Belarus through an SLP had been jailed. And last year we revealed that an allegedly corrupt official at a wood-processing plant was under investigation by the Belarusian KGB for using a Scottish firm to take a personal cut on contracts.
READ MORE: Scots law firm axes SLP mailbox business
The UK Government has said it is poised to act on SLPs amid concerns they were being used to launder money by oligarchs and state entities.
But authorities in Latvia – where so many of the Scottish firms were used to open what amounted to anonymous bank accounts for Russians, Ukrainians and other eastern Europeans – is acting faster. The country, under pressure from the US and EU, is outlawing accounts for so-called shell firms, including British ones. It might just be cleaning up a very British mess.
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