Offshore secrets revealed: the shadowy side of a booming industry

A worldwide research effort in collaboration with BBC Panorama and the ICIJ reveals the people behind these anonymous companies

• David Leigh, Harold Frayman and James Ball
• The Guardian, Sunday 25 November 2012 20.00 GMT

The existence of an extraordinary global network of sham company directors, most of them British, can be revealed.

The UK government claims such abuses were stamped out long ago, but a worldwide joint investigation by the Guardian, the BBC's Panorama and the Washington-based International Consortium of Investigative Journalists (ICIJ) has uncovered a booming offshore industry that leaves the way open for both tax avoidance and the concealment of assets.

More than 21,500 companies have been identified using this group of 28 so-called nominee directors. The nominees play a key role in keeping secret hundreds of thousands of commercial transactions. They do so by selling their names for use on official company documents, using addresses in obscure locations all over the world.

This is not illegal under UK law, and sometimes nominee directors have a legitimate role. But our evidence suggests this particular group of directors only pretend to control the companies they put their names to.

The companies themselves are often registered anonymously offshore in the British Virgin Islands (BVI), but also in Ireland, New Zealand, Belize and the UK itself. More than a score of UK agencies sell offshore companies, several of which also help supply sham directors.

One British couple, Sarah and Edward Petre-Mears, who migrated from Sark in the Channel Islands to the Caribbean island of Nevis, have sold their services to more than 2,000 entities, with their names appearing on activities ranging from Russian luxury property purchases to pornography and casino sites.

In 1999, the government claimed Britain's sham director industry had been "effectively outlawed" after a judge, Mr Justice Blackburne, said the court would not tolerate "the situation where someone takes on the directorship of so many companies and then totally abrogates responsibility". But our findings show this has failed to be policed.

These nominee fronts conceal a wide variety of real owners, including those that are perfectly legal, from Russian oligarchs to discreet speculators in the British property market. Their only common factor is the wish for secrecy. Some of the owners we have identified include:

• Vladimir Antonov, the London-based billionaire Russian purchaser of Portsmouth FC, who is currently fighting an extradition request from Lithuania, where he controlled a bank. He denies wrongdoing.

• Yair Spitzer, a north London software engineer who bought and sold London flats. He said: "We were advised by UK accountants that this structure … was perfectly legal."

• The Hackmeys, a wealthy Israeli family, one of whom used a BVI company to buy a £26m London office block. Their spokesman said: "The deal was introduced by a [confidential] joint venture partner who set up the deal and structure."

• Nicholas Joannou, whose Armstrong Group sold shares from an address in Berkeley Square, central London. The Guardian was unable to contact him.

• SP Trading, which was linked in 2009 to a Kazakh businessman and an arms to Iran scandal. The nominee directors in Vanuatu turned out to have no knowledge of the company's true activities. They told us there were "very few cases of misuse by clients".

In a parallel investigation Monday's Panorama on BBC1 is due to show a company formation agent offering to assist its undercover reporter to escape tax. The agent, James Turner, of Turner Little in York, offers nominee directors in Belize and says: "They won't even know that they were a director, they just get paid."

A representative of a second company, Atlas Corporate Services, is asked for maximum confidentiality. He explains that many of its nominees are not even aware of how their names are being used. Jesse Hester, who runs Atlas Corporate Services from Mauritius, is seen assuring a potential client that the UK is unlikely to catch up with him. "Tax authorities don't have the resources to chase everybody down … They reckon it's probably the same rough odds as probably winning the lottery," he says.

The revelations launch a week-long series onthe Guardian site designed to strip away anonymity from offshore companies, the most shadowy aspect of the UK's financial industry. The British Virgin Islands are a particularly successful hideaway, thanks to the exceptional secrecy on offer. This Caribbean territory, which is ultimately controlled by the UK, has sold more than a million anonymously-owned offshore entities since launching itself in 1984 as a tax haven.

The purchasers are often people who, for a variety of reasons, some perfectly legitimate, do not wish to advertise what they are doing with their wealth.

But a worldwide research effort has been launched this year by the ICIJ. It aims to identify, country by country, thousands of the true owners.

The Guardian has collaborated with the ICIJ, a non-profit organisation, to analyse many gigabytes of the British data. This week we intend to reveal the names of more owners. We do not suggest criminal wrongdoing by them. Among those we have contacted, not all go so far as to employ nominee directors. Some insist they have done nothing improper, and are merely taking advantage of legitimate tax breaks or the opportunity for privacy. Critics say, however, that the islands' system can be open to abuse because of its lack of transparency.

Gerard Ryle, the director of the ICIJ, said: "We are applying specialist software to crunch through literally hundreds of thousands of offshore entities to look for patterns. We are marrying our findings with old-fashioned shoe leather and interviews from key insiders who can provide further context on this little known and loosely regulated world. We are satisfied that the information we have is authentic."

Ryle believes the ICIJ's global project, when it is completed next year, will haul into the open a shadowy financial system estimated to conceal the movement around the world of trillions of dollars.

Offshore secrets

Guardian team: David Leigh, Harold Frayman and James Ball.

The project is a collaboration between the Guardian and the International Consortium of Investigative Journalists (ICIJ) headed by Gerard Ryle in Washington DC. Guardian investigations editor David Leigh is a member of ICIJ, a global network of reporters in more than 60 countries who collaborate on in-depth investigative stories that cross national boundaries. The ICIJ was founded in 1997 as a project of the Center for Public Integrity, a Washington DC-based non-profit.

George Osborne's 'Austerity begins at home' example

George Osborne raises standard in first-class train row

Treasury account of chancellor's aide finding ticket inspector to pay for upgrade on Virgin train contradicts reporter's version

• Robert Booth, Lizzy Davies and Rajeev Syal
• The Guardian, Friday 19 October 2012 20.36 BST

George Osborne is accused of 'great train snobbery' after journalist says aide told ticket inspector the chancellor 'could not possibly' sit in standard class but could not pay any extra.

George Osborne's face was fixed in a thin grin as he was jostled across platform two at Euston last night, but inside he must have known that a political bomblet had just gone off. Shortly after 5.17pm, as the chancellor alighted from the busy Virgin Pendolino train from Wilmslow, Cheshire, in his Tatton constituency, the reality of what had already been labelled Plebgate 2 became clear.

As Osborne's train rattled through the countryside an hour and a half earlier, a tale of apparent fare dodging by the chancellor – estimated to have a personal wealth of £4m – had emerged through Twitter.

Rachel Townsend, a correspondent for ITV's Granada Reports programme, had been travelling on the same train and tweeted: "Very interesting train journey to Euston. Chancellor George Osborne just got on at Wilmslow with a standard ticket and he has sat in first. His aide tells ticket collector he cannot possibly move and sit with the likes of us in standard class and requests he is allowed to remain in First Class. Ticket collector refuses."

Was it true? Had Osborne, moments before the Tory chief whip, Andrew Mitchell, was forced to resign for reportedly calling a policeman a pleb, really refused to sit in standard, triggering a story that was quickly labelled The Great Train Snobbery?

Virgin, which in August had to swallow the government's decision to remove its franchise for the west coast mainline, which Osborne had just used, confirmed that he had travelled in first class on a standard class ticket, initially at least.

"The chancellor, who was travelling in first class accommodation, held a standard class ticket," a spokesman for Virgin said. "As soon as the train left Wilmslow, an aide went to find the train manager to explain the situation and arrange to pay for an upgrade. It was agreed that the chancellor would remain in first class and an amount of £189.50 was paid by the aide to cover the upgrade for Mr Osborne and his PA. The situation was dealt with amicably between the train manager and George Osborne's aide. At no time was there a disagreement or a refusal to pay for the upgrade. Nor was there any discussion between the train manager and Mr Osborne."

It chimed with the Treasury's account. "The chancellor got a different train than planned due to diary change following a series of meetings in his constituency," a spokesman said. "As he had no seat reservation on the new train, which was crowded, he decided to upgrade – and obviously intended and was happy to pay. An aide sought out the train manager and paid the ticket upgrade."

But that clashed with what Townsend said. She told ITV: "Then his aide approached the ticket collector right next to me. He said he is travelling with George and he has a standard ticket but can he remain in first class? The guard said no. The aide said Osborne couldn't possibly sit in standard class. The guard replied saying if he wants to stay it's £160. The aide said he couldn't pay and he couldn't really sit in standard. The guard refused to budge. The guard went on gathering tickets and later told me Osborne had agreed to cough up the £160."

Fellow passengers were unimpressed with the reports. "Fair's fair. He should be saving the taxpayer money but definitely he shouldn't be sitting in first," said Justin Bateman, 34, a civil servant from Manchester. Keith Young, 60, a doctor from London, agreed. "Standard was busy and the chancellor would not have been able to sit alongside his aides, but he would have been able to occupy a single seat alongside the other passengers." He added: "It's one rule for them and one rule for us. He had no right to make a stand against paying an upgrade."

But even as the facts were still settling, Labour seized on the tale.

"Another day, another demonstration of how out of touch this government is," said Michael Dugher, the shadow Cabinet Office minister. "Just like Andrew Mitchell, George Osborne obviously thinks that it is one rule for him and another for the plebs he is so keen to sit apart from. So much for 'we are all in it together'."

As with Mitchell's rant at the Downing Street police, the spirit of Boris Johnson loomed. In Mitchell's case it was quickly pointed out that the mayor of London had once called for people who swear at police to be jailed. Now memories turned to the Tory darling's scathing attack last year on what he called the "parasitic scourge" of fare dodgers in London.

At a teeming rush-hour Euston, as Osborne's train was due to arrive in London, a feverish posse including Labour activists, the president and vice-president of the National Union of Students and assorted press were waiting to pounce. Officers from the Metropolitan police's specialist response unit pored over train timetables to try to work out which service the chancellor was on to make sure he was spirited away in safety.

"Are you embarrassed Mr Osborne?" shouted an anti-government activist who had rushed to the station after hearing the rumour about the chancellor.

As he was ushered across the platform by aides and security, the chancellor had very little to say. "I'm sure it will be, um …" was all he could tell the Guardian as he was shepherded through a security gate and past the bins towards a waiting government car.

Rail is a gigantic scam for siphoning off public money

Branson and FirstGroup have both gamed a disastrous privatisation. The case for public ownership is compelling

• 
• • Seumas Milne
  • guardian.co.uk, Tuesday 28 August 2012 22.20 BST

'Nearly 20 years after John Major’s disastrous privatisation, this is the reality of Britain’s railway: a byword for bewildering fragmentation, unreliability and exorbitant cost.' Illustration by Belle Mellor

Barely a month since the private security firm G4S crashed and burned in the runup to the London Olympics, we're back in outsourcing la-la land again. This time the battle is over the monopoly franchise to run passenger trains on Britain's most lucrative rail route, the west coast mainline.

Ministers have given the 15-year contract to the privatised bus operator FirstGroup, with a licence to increase fares by up to 11% a year, reduce services, downgrade catering and close ticket offices. Richard Branson, whose Virgin Trains has had the franchise since the 90s, is crying foul, and on Tuesday launched a legal action to halt the handover.

Labour wants MPs to be able to scrutinise the deal. But the transport secretary, Justine Greening, is determined to plough ahead regardless, potentially tying the hands of government for the next three parliaments. And the controversy follows uproar over plans for an average 6.2% rise in rail fares from January.

Commuters now routinely spend 15% of their income travelling to work on what is now the most expensive rail network in Europe. No wonder coalition MPs are lobbying for some relief from the drive to load more of the costs on to passengers: it is now cheaper to fly on half the popular routes around Britain than travel by more environmentally friendly rail.

The heavily subsidised rail privateers, whose top five executives paid themselves an average of £1m last year, are also supposed to cough up a bigger share. But there's little sign of that happening – and the west coast mainline deal helps explain why.

Forget the special pleading by Branson, who's made over £200m from rail privatisation. Virgin's own record is poor. But his accusation that FirstGroup is gaming the system is widely shared by industry analysts and insiders.

Greening claims FirstGroup offers the best deal for taxpayers. In reality it's based on heroic growth expectations of 10.6% a year and payments to government that are heavily loaded on to the contract's last few years. The company in fact has an incentive to dump the franchise as those payments come due, because they dwarf the cost of the bond penalty.

If FirstGroup – which is walking away from the Great Western franchise – defaults, it wouldn't be the first time. That's what happened with Bermuda-based Sea Containers and National Express, who had the contract for the east coast mainline before the last government was forced to take it over. But by then, both ministers and corporate executives would likely be long gone.

Nearly 20 years after John Major's disastrous privatisation, this is the reality of Britain's railway: a byword for bewildering fragmentation, unreliability and exorbitant cost – and a gigantic scam for siphoning off public money into the pockets of monopoly contractors.

Branson has raged at the government's "insanity" in awarding the west coast mainline franchise to FirstGroup. But it is the system itself that is irrational. Privatisation was supposed to cut public subsidy by boosting competition, investment and innovation.

In fact, it has done the opposite. Government funding has at least doubled in real terms, while fares have also increased, largely because of privatisation – including the costs of fragmentation and duplication; dividend payments to investors; contractors' profit margins; debt write-offs; and higher interest payments to keep Network Rail's debts off the government's balance sheet.

Taken together, those privatisation costs amount to around £1.2bn a year, according to a new thinktank report (Transport for Quality of Life's Rebuilding Rail), while genuine private investment is estimated at barely 1% of the total funding of the railway. It's hardly surprising that the mainly publicly owned rail systems in the rest of Europe – several of which now run bits of Britain's privatised rail – are cheaper.

The solution could not be more obvious. It's to rebuild a publicly owned and integrated railway. That can be done at zero or minimal cost, by bringing back each franchise into public ownership as the contracts expire. Freight apart, it can also be done under EU law, and with built-in local control. And saving the £1.2bn-a-year costs of privatisation over time would be the equivalent of an across-the-board cut in fares of 18%.

Rail renationalisation has long commanded large majorities in opinion polls. So you might imagine politicians would fall over themselves to sign up to a policy that's popular and saves money. The fact that they don't says something about the continuing grip of discredited ideology and corporate interests on Britain's political culture. Even a respected public transport pressure group like the Campaign for Better Transport, which now relies on funding from privatised transport companies, shies away from campaigning on the issue.

Labour is at last inching in the right direction. Its transport spokesperson Maria Eagle has floated the possibility of extending public ownership to rail services, and this week called for the east coast mainline to be kept in public hands. But with Tory defence secretary Phillip Hammond declaring the Olympics has changed his mind about privatisation and Liberal Democrat Vince Cable pressing the case for the outright nationalisation of banks, Ed Miliband can afford to be a bit braver. Last year he called for a break with the neoliberal model. Rail could be the place to start.

The billionaire Virgin boss Richard Branson is no radical, he's no entrepreneur, he's just a plain old-fashioned carpetbagger

Last week, you, me and every other taxpayer in Britain each handed £13 to the billionaire Richard Branson. Not that we were told about this national whip-round. Instead, George Osborne claimed the heavily discounted sale of Northern Rock to the Virgin boss and a few of his chums represented "value for money". That's a funny way to describe a deal where taxpayers come out at least £400m poorer, but at least we now have an answer to that perennial pre-Christmas question of what to give the man who has everything.




And what do Team Branson plan to do with the Rock? Listen to Virgin Money chairman David Clementi's talk of creating "a significant banking competitor" and you'd have come away with wholesome impressions of commitment and investment. If you'd leafed through the FT this weekend, though, you'd have read about how the Virgin consortium will raid the business of its own cash to pay for the purchase – and then, as the chief investor, American financier Wilbur Ross, puts it: "We would hope to sell out a few years down the road." In other words, the business plan is to buy it cheap, strip it of assets – then flog it dear.



Hang on, you're probably thinking. Is this the same Branson who had those record shops? Who always pops up in the papers dressed as a woman or riding in a hot air balloon? Sir Richard of the Beard and the Overbite?



And the answer is: yes. Sure, Branson would like you to believe that he's the greatest iconoclast since John Calvin, leading a Reformation of established business. And if you won't buy that, he'll settle for being cast as a public-school Don Quixote for ever tilting at insiders and interest groups. Yes, the entrepreneur screws up – as with cars, cola, cosmetics and all those other discarded Virgins – but he takes risks.



The more prosaic truth is that the Virgin boss keeps himself in homes in Holland Park and Necker Island by taking taxpayer subsidies and operating heavily protected businesses. After all, you don't get much safer than a small mortgage lender that's had all its rubbish assets taken off it by the Treasury, in a market where the big banks are keeping their eyes down and their fingers crossed.



Think about the great Branson triumphs and you'll see what I mean. Virgin Rail? A monopoly on the West Coast main line, complete with initial subsidies worth hundreds of millions. Virgin Radio and Virgin Mobile? Both granted government licences to operate in a heavily restricted market. Virgin Airlines? The beneficiary of regulators' decision to strip British Airways of landing slots between London and New York and award them to the number two player. Again, a closed market where Branson has tried to keep the door shut tight against further competition.



Despite all the awards and the cosy relationships with whoever's in Downing Street, the Virgin boss neither makes anything, nor changes anything. He's no radical. The Northern Rock purchase is typical of his style: he fronts up a deal where the real money tends to come from someone else (in this case, an American and an Abu Dhabi investment firm), slaps the Virgin name everywhere and then cashes out as soon as possible. Branson isn't an entrepreneur; he's a carpetbagger.



Early in Tom Bower's splendid biography of Branson, there is a scene in which he is giving a Millennium Lecture at Oxford University in November 1999. The "lighthouse for enterprise" is asked what his great hope is for the new century, and a hush falls over the audience. What might he say? Were this Bill Gates, a picture would be painted of a software revolution. The head of Nissan might summon up a vision of Africans and Asians gaily pootling about in cheap new hatchbacks. What does the bearded visionary have in mind? "To run the national lottery."



Of course he does: a government-gifted licence to get his brand name plastered everywhere – the sort of thing Branson is always after.



But here's the thing: in his desire for sheltered money-makers, the Virgin boss differs from the rest of British business only in his desire for publicity. Look at our household names: take out retail, banks and commodities and the things you're left with bear names such as Wessex Water or Centrica or Arriva. In other words, they do things the public sector used to do – pump water or pipe gas or lay on public transport. Alternatively, they're outfits such as Serco, or Capita and they're bidding for contracts from the government; or they're engineers bidding for PFI projects. Now look at the big names in America or Germany: there are firms such as Google or Siemens.



Over here much of the private sector isn't adding anything or innovating – indeed, it's tricky to do that when you're running an administrative office or supplying water. They're simply taking contracts and cutting staffing costs.



This is a picture of lazy British business, either seeking business from the state or the protection of sheltered industries. And yet if you listen to the Conservatives, the problem with the economy is that the labour markets are too heavily regulated. No 10 lets it be known that it's taking seriously ideas to scrap laws around unfair dismissal, so that employees can be sacked without explanation.



The implication of all this is that Cameron and Osborne think the workers are to blame for the malaise of the British economy. Look at the Northern Rock deal, however, or flick through the business pages, and the opposite appears to be the case: it's business that needs to be prodded into working harder.