An investigation by French authorities has identified a suspected international money laundering operation through the mobile virtual network operator (MVNO) group Lycamobile. Described as "worryingly characteristic of money laundering" by former UK Director of Public Prosecutions Lord MacDonald, shell companies allegedly were used as fronts to transfer large cash deposits from various networks to launder the proceeds of crime.
Nineteen employees of multinational telecommunications company Lycamobile have been arrested by French police in Paris following an investigation into a suspected multi-million pound money laundering operation.
General Manager for Lycamobile in France, Alain Jochimek, was arrested along with cash collectors and officers of smaller companies alleged to have made illegal payments to Lycamobile accounts. All of the company's French bank accounts have been frozen and almost €1 million was seized by police during the raid on the company's Paris headquarters and a number of associated addresses in the city.
Spotlight on hidden beneficial ownership
The investigation comes just two months after the leak of more than 11 million documents from Panama law firm Mossack Fonseca in April 2016, which reignited global focus on the use of tax havens and complex webs of secret companies to conceal the real identities behind undeclared and potentially illegally obtained money.
UK Prime Minister David Cameron was the subject of national media focus after it was revealed that one of the companies included in the Panama Papers leak was set up by his father to reduce tax obligations.
Lycamobile is one of the Conservative party's biggest corporate donors. The Conservative party has accepted donations of more than £2.2 million from Lycamobile, including £500,000 in 2015 alone.
Internal emails from the Conservative party's fundraising department from Lycamobile released during the course of the investigation show the party accepted donations shortly after being warned by its own compliance team that Lycamobile had repeatedly filed its accounts late and was at risk of being struck off.
Bags of cash and shell corporations
Online news outlet BuzzFeed, which initiated the investigation, reported large cash deposits of more than £100,000 being delivered to post offices around London in unmarked vans twice a day. Former Director of Public Prosecutions for Britain, Lord MacDonald, called the practice "deeply suspicious" and "worryingly characteristic of money laundering".
Investigators have stated that the company's French operation received more than €75 million from a complex network of shell companies with hidden beneficial ownership. The companies are suspected of being fronts for laundering money that was then transferred into Lycamobile's offshore network via a London bank account.
Perfectly geared to avoid tax
The Lycamobile global corporate operation is complex web of more than 60 entities in 19 countries. The corporate structure has been described as 'perfectly geared to avoid tax' in the UK, as the company moves the majority of its revenue offshore to Madeira.
Journalists from BuzzFeed visited 19 of the entities suspected of being central to the money laundering operation in France. 18 were registered at PO boxes, vacant offices, derelict buildings, or a construction site and none sold any Lycamobile products.
An international solution to a global problem
UK tax authorities are reviewing Lycamobile's finances after the National Crime Agency received information about the company's financial management. While moving money to offshore accounts is not technically illegal in the UK, the practice can be exploited for money laundering and tax avoidance. Despite being the only G20 country issued with a 'very strong framework' rating in a recent Transparency International (TI) report into beneficial ownership transparency, the organisation has repeatedly stated that tens of billions of pounds of corrupt money are being laundered through the UK each year.
When the Organisation for Economic Co-operation and Development (OECD) reviewed more than 400 bribery cases across 41 countries for a report in 2014, one in four were found to have involved illicit money channelled through secret companies with hidden beneficial owners.
The Hidden World of Beneficial Ownership
As the investigation into Lycamobile shows, ensuring a comprehensive due diligence process is in place is crucial for any company, particularly those involved in the transfer or facilitation of large sums of money.
Individual countries such as the France and the UK are making significant progress with the issue of tax avoidance and money laundering through hidden beneficial ownership, but until a global standard is adopted businesses need to ensure compliance with best practice to minimise the reputational, financial and regulatory risk of being involved in global corruption scandals.
Lexis Nexis Business Information Solutions (BIS) has released a whitepaper – The Hidden World of Beneficial Ownership – offering insights and advice to businesses on conducting due diligence to support investigations into beneficial ownership and minimise the risk of third party money laundering and bribery and corruption.
- Will Brexit affect UK's approach to tackling financial crime?
- The EU Referendum: three weeks out and everything to play for
- EU Referendum: Tracking update
- Tracking social buzz of the EU Referendum
ps 3 ways you can apply this information right now to…
- To protect your business and reputation you need to better understand your customers, employees and vendors. Lexis Diligence brings together all the intelligence you need in one place to conduct consistent due diligence and comply with anti-money laundering and anti-bribery regulatory requirements.
- Keep up to speed on developing news and expert opinion with our regular posts on Anti-Bribery & Corruption and Anti Money Laundering.
- Subscribe to our blog to have updates delivered directly to your inbox.