FIU probes offshore firms linked to Ukrainian State corruption |12 April 2014

The Seychelles Financial Intelligence Unit (FIU) has confirmed that it is actively conducting an investigation into the alleged use of offshore corporate structures in Seychelles to launder the proceeds of corruption by members of the former Ukrainian government.

These allegations which are internationally tarnishing Seychelles’ reputation have appeared in well known international media sources such as The Economist, The Independent and the BBC, among others. Seychelles has been cited as one of several small offshore jurisdictions used by the Ukrainian ousted President Viktor Yanukovych and members of his regime to conceal monies siphoned off from State assets and contracts.

According to these sources, a transnational hierarchy of companies and bank accounts spread across a number of offshore jurisdictions was established through a UK company ‘front’ structure known as a limited liability company to facilitate the defrauded millions flowing out of Ukraine.  This shows how companies in larger jurisdictions can use smaller ones to launder their ‘dirty money’. In the UK journalists are focused on the UK firm Darton Management Limited Liability Partnership (LLP) which has also been identified by investigators in Russia as being a front for corrupt Ukrainian public contracts such as the substantial Ukrainian wheat market.

Media reports have claimed that hundreds of millions of dollars of Ukrainian state assets have been funnelled by Mr Yanukovych and his circle through London into more opaque offshore locations. Russian newspaper Novaya Gazeta has also identified a number of offshore companies registered in Belize, Panama, Cyprus and Seychelles which were set up through Darton Management LLP and a number of other UK LLPs.

The two Seychelles registered International Business Companies (IBCs) which have been mentioned in the international media as having an affiliation with the Yanukovych’s government are Intrahold AG and Monohold AG. Investigators alleged that these companies control firms owning properties in the Crimea for members of the Yanukovych family. Open sources have linked the Seychelles firms to an address at Dekk House, Zippora Street, Providence Industrial Estate.

Reliable sources indicate that the companies were incorporated in Seychelles at the request of a London based intermediary and the named directors and shareholders are Eastern European and Cypriot based in Nicosia, the main business centre on the Mediterranean island. The beneficial owner appears to be one of the Cypriot Directors who is also the director of dozens of other companies based in the Cyprus, the UK and New Zealand.

The Cypriot financial services sector has been subjected to intense scrutiny and criticism in recent years as a result of allegations of widespread abuse of the sector by Russian and Eastern European organised crime.

The Seychelles FIU has been actively investigating the matter in conjunction with a number of international partners. The FIU has also had contact from the Washington-based Stolen Assets Recovery (StAR) Program.  The StAR Program is run by the World Bank Group and supports international efforts to end safe havens for corrupt funds. StAR works with developing countries and financial centres to prevent the laundering of the proceeds of corruption and to ease more systematic and timely return of stolen assets. Switzerland, Austria and Liechtenstein have already frozen assets and bank accounts of up to twenty Ukrainians including that of Mr Yanukovych and his son, pending a money laundering investigation of them. While no assets have yet been located in Seychelles, the fact that these companies were incorporated here and the opaque circumstances of their corporate structures (namely the use of the London-based intermediary, the Cyprus-based directors and the placement of bank accounts in yet other jurisdictions) is a clear example of how the Seychelles IBCs are being used to facilitate corruption and criminality. Over the last three years, a number of journalistic interest groups focusing on the use of offshore companies for organised crime and tax fraud are claiming that a small coterie of offshore jurisdictions offer high corporate secrecy making them perfect for money launderers to hide the proceeds of their crime.

A StAR team visited Seychelles earlier this year at the invitation of the government to see how they can help to tackle the misuse of legal structures to conceal proceeds of corruption. StAR, along with the G8 and G20, as well as other leading international policy and standard-setting bodies such as the Financial Action Task Force (FATF) are committed to placing transparency and beneficial ownership on the centre stage of international affairs.

In the meantime the Seychelles FIU is appealing to company service providers to increase vigilance and due diligence in order to identify as a risk those who would tend to use our company formation services and banking system to conceal and launder criminal proceeds.

Each year, the Supreme Court of Seychelles orders the freezing and forfeiture of millions of dollars in criminal proceeds from offshore-related crime as a result of investigations conducted by the FIU and represented by attorneys from the Attorney General’s office. In addition to the action taken by the FIU against proceeds derived from domestic criminal conduct, mainly drug trafficking, the Supreme Court has made a considerable number of freezing and forfeiture orders amounting to millions of dollars in criminal proceeds from offshore related crime as a result of investigations and international cooperation.