The Times: Formations House leak shows need for reforms on creating companies, says anti-corruption chief

Boris Johnson’s anti-corruption champion has said that the UK must “clamp down harder” on corruption after an investigation revealed how a British company registered a global web of businesses linked to international crime gangs.

John Penrose, who co-ordinates the response to corruption, said that Britain’s reputation for integrity was vital to secure trade deals after Brexit as all three main parties agreed to introduce tougher regulations after the election.

An investigation by an international consortium, including The Times and Finance Uncovered, and co-ordinated by the Organised Crime and Corruption Reporting Project, found that companies created by Formations House, which is based in London, were later used by criminals to carry out scams worth more than £300 million.

Leaked documents today show that Formations House planned to help to create a tax haven in southern Europe which legal experts said was at risk of becoming “a haven for dirty money”.

Mr Penrose said that Britain must introduce tougher regulations on creating new companies.

“Britain’s reputation as a clean, safe place to do business and invest will be absolutely vital for all those post-Brexit trade deals we want to do,” he said. “Reputations take years to earn but can be lost in an instant, so we simply can’t let kleptocrats or crime lords channel dirty money through Britain’s system.”

Mr Penrose said that a draft was ready to go through parliament “which will make Britain’s rules for registering new companies cleaner and safer, so we can clamp down harder where it’s needed”.

Sir Ed Davey, the Liberal Democrat deputy leader, said: “The rules for company formation agents need an urgent rethink, coupled with a stronger Companies House, to ensure that unscrupulous companies can’t exploit the rules.”

John McDonnell, the shadow chancellor, has pledged to “provide greater powers and resources to tackle the scale of abuse” following the Formations House revelations.

Formations House papers linked the company to Viktor Yanukovych, a former Ukrainian president who is accused of embezzling $1.5 billion.

In 2008 it created the company that owned Mr Yanukovych’s country mansion set within 350 acres on the banks of the Dnieper river near Kiev, and became a symbol of the 2014 revolution. The Ukrainian government later seized the property.

The leaked database reveals that Charlotte Pawar, the boss of Formations House, drew up plans for a secretive new tax haven in North Macedonia. Its marketing presentation promised: “Total anonymity provided, with no visibility to US or international institutions.”

Nikola Gruevski, then the country’s prime minister, began railroading plans through parliament to create a tax-free financial zone in 2014. Ms Pawar, 39, then went on multiple trips to Macedonia, along with her half-brother Darius Khan, 28, where they met Mr Gruevski, the finance minister and the minister of information, society and administration to discuss the plans and other opportunities for business development.

The Venice Commission, an advisory body on constitutional law for the Council of Europe, warned that the zone could become “a sort of a ‘state within a state’ separate from the existing constitutional structure” and “a haven for ‘dirty money’”.

A series of corruption scandals surrounding the government led to massive street protests and the European Union was forced to intervene and brokered new elections in 2016. Mr Gruevski has been convicted of corruption but has fled to Hungary.

Zoran Zaev, the North Macedonian prime minister, said that he had been concerned about the previous administration’s plans for Formations House’s tax-free zone. “It seemed very bold in the given state of affairs to go and say, ‘Oh we [the state] want to make an offshore zone right here guys, what do you say about it?’ I was astonished,” he recalled.

Ms Pawar said in a statement: “Like all other formation agents in our industry, we have no control over the actions of companies and their directors after we have provided our formation service.”

In relation to the North Macedonia proposals, she added: “We have had multiple invitations to present project opportunities in many countries. The projects in their entirety address steps to aid governments to tackle illicit distribution of assets.

“The projects clearly state that they will assist the country to surpass many other jurisdictions for compliance and ranking with the World Bank.”