A Latvian financier linked to the mass production of Scottish shell companies has denied to bne IntelliNews any involvement in the $1bn Moldovan bank fraud that has caused a major scandal in Europe and brought down the government there.

İn November 2014, Moldova’s banking system was subject to fraud on a massive scale as around $1bn in funds were funnelled out of the tiny, poor country’s savings bank and two smaller banks – Banca de Economii, Banca Sociala and Unibank – via a group of UK shell companies that banked with Latvian lenders.

One year on and the fallout from the scandal is still being felt: on October 29, Moldova’s pro-EU government collapsed following the arrest earlier in the month of Vlad Filat, an ex-prime minister, who is accused of accepting bribes worth $260mn to facilitate the fraud. He denies the accusations.

The indignity for a country once hyped as poster boy for the EU’s Eastern Partnership has also started a conversation in Europe about Latvia’s offshore banks, which happily processed the $1bn stolen from Moldova, and probably sped the money on its way to Alpine or Anglo-Saxon bank accounts. It has also sparked an awareness in Scotland of the snowballing abuse of the liberal incorporation climate to set up limited partnership (LP) shell companies for Eastern European money launderers.

Understanding about the fraud has been advanced by the leaking of the first instalment of a probe by corporate investigators Kroll to the press. But the Kroll report left many questions unanswered, not least who in the EU facilitated the fraud – organising the routes by which the funds left Moldova and were cleared into the global financial system, and linking Moldova with Latvian banks and Scottish shell companies.

Savoir faire

At least one man ticks these boxes, but denies vehemently he had anything to do with the Moldovan fraud: 37-year-old Latvian Vitalijs Savlovs runs the Scotland-based ‘Arran’ group of business introducers for Latvian banks and other international banks – business introducers being outfits that set up corporate vehicles for clients while opening bank accounts for the new firms. The Arran companies appear to be named after the Scotland’s picturesque West Coast holiday island.

The Arran company service providers in the UK share addresses, and have provided nominee directors, to a number of firms with links to Moldova’s financial sector, including some firms used in the fraud. At the same time, the Arran group advertise in Russian-speaking countries as providers of offshore and shell companies together with bank accounts, acting as business introducers for Latvian and other offshore banks.

According to researcher Richard Smith, who specialises in the analysis of the UK company database, around 2,200 firms and LPs linked to the Arran companies north and south of the border have been established over the last decade. Overall, since 2008 nearly 16,000 Scottish LPs have been registered, whereas before that date only a few hundred were incorporated per year.

Savlovs-directed business incorporation firms Arran Business Services, and the linked Arran Secretaries, were first registered in 2008 at Edinburgh’s 16/5 Pilton Rise (a sketchy part of town), and have been registered at a number of different Scottish addresses – all of which feature as addresses of mass registration of shell companies, usually with accounts at Latvian banks in the few cases where details are available. Over 300 firms have been registered at the 16/5 West Pilton Rise address since 2008, according to Smith.

As early as 2009, a company registered at the 16/5 Pilton Rise featured in a controversial episode: Performance Global Limited, with a Latvian bank account, was linked to a breach of UN arms sanctions imposed on Cote d’Ivoire by Eastern Europeans, according to a 2012 UN Security Council Report. This is in no way implies Savlovs’ personal connection to the affair.

In 2011, a disputed share packet in Moldova’s second largest bank, Victoria Bank was acquired by Maxpower Invest, which is also currently registered at the 16/5 Pilton Rise address.

Arran Business Services was then registered consecutively at Glasgow’s 48 Carnarvon Drive and Aberdeen’s 9 Clashmach Drive. Lectom Limited, a firm that as of 2011 held a disputed share packet in Moldova’s Banca de Economii – one of the Moldovan banks involved in the massive $1bn scam – was registered at these addresses consecutively, at the same time as Arran Business Services.

Savlovs also set up ArranConsult Ltd at an address in the English city of Bristol, where Lerson Ltd was registered. Lerson held a 4.95% stake in Moldova’s Banca Sociala, another bank implicated in the Moldovan fraud, according to the Kroll report.

In April 2014, Arran Business Services in Scotland then moved its official address to 18/2 Royston Mains Street in Edinburgh, an address close by the 16/5 Pilton Rise address. 18/2 Royston Mains St is the address of another company that acquired 4.95% in Banca Sociala, Novland Ltd. It is also the address of Fortuna Ltd, the firm that ended up holding the around $1bn in funds owed to Banca Sociala and Banca de Economii.

18/2 Royston Mains St is also the home address of a Lithuanian professional nominee director Viktoria Zirnelyte, partnered with a co-national nominee director, Remigijus Mikalauskas. Zirnelyte in turn is a former employee of Marios Papantoniou, according to Scotland’s Sunday Herald. Papantoniou is a longstanding company service provider in Edinburgh under the brand ‘Axiano’. Axiano’s offices in Edinburgh’s Duke Street, and addresses linked in the Scottish Property Register to Papantoniou’s in-laws, the Turnbull family, in Edinburgh’s Brunswick and Buchanan streets, feature as addresses of hundreds of further firms, including firms listed in the Kroll Report as involved in the Moldovan fraud.

Zirnelyte sometimes lists the Duke Street and Brunswick Street addresses as her home address, while Axiano Business LP and Axiano Trading LP are registered at Zirneleyte’s and Arran Business Services’ Royston Main St address. Closing the circle, Asten Technologies Ltd, the oldest firm to featuring one of the Arran group among its nominee directors, since 2008 was incorporated by Axiano’s predecessor firm.

This all suggests an interlinked cluster of company providers. But none of this means that these company service providers knew that the firms incorporated or served in as nominees were being used in the fraud that Kroll investigators allege took place – and the Kroll allegations themselves have not yet been proved in a court of law.

Riga redux

In an interview with the BBC, Zirnleyte said that the firms she incorporated were processed by “[a]nother company, intermediary” in Latvia who are “more close with their clients”. Are Savlovs’ Arran companies the Latvian intermediary company that Zirnleyte was referring to?

A bne IntelliNews reporter visited Savlovs’ well-concealed offices in Riga. From the outside, nothing would indicate any sort of business being conducted at Exporta Iela 3, on the edge of Riga’s beautiful old town, which is also the seat of the country’s offshore banking sector. But the door of a ground floor flat in a residential housing block opens to reveal a Tardis-like apartment containing what appears to be an outpost of Austria’s Meinl Bank: a large office with a number of computer terminals, over the door to which hangs a neon ‘Meinl Bank’ sign.

Meinl Bank is a private bank that specialises in servicing Eastern European clients. Arran Consult’s website says the company is a registered agent for Meinl Bank. “Mr Shavlov [sic] does not have the function of a Meinl Bank representative,” a Meinl Bank spokesman tells bne IntelliNews, spelling Savlovs name the Russian way and adding that Meinl does not comment on its business partners and clients.

Only one employee is present on a weekday afternoon – together with the director and owner Vitalijs Savlovs, whose name is emblazoned in Russian on his office door.

The name of the office WiFi network, TaxDNet, seems to refer to website taxduty.net, set up in 2005-2006, which references Arran Consult. The website offers Russian-speaking clients offshore firms and bank accounts, and appears linked to Baltikums Trust Management, according to webpage headers and content. Baltikums Trust Management is a former affiliate of Riga private bank Baltikums Bank, owned by brothers Alekandr and Sergei Peskovs, Latvia’s second richest family, according to journalists Lato Lapsa and Kristine Jancevska.

Baltikums Bank was not one of the Latvian banks to which funds were in the Moldovan fraud. Baltikums has no connection to Savlovs, the Arran firms or Taxduty, the bank tells bne IntelliNews.

Cover-up

Savlovs is a suave, well-groomed 30s-something, but he is clearly angry at a previous article referring to him in bne IntelliNews, and often interrupts questions with his own harangues. His excitement may have worsened his English; some of what he said during the interview remains elusive, even on repeat hearing.

Savlovs vigorously denies having any connection to the firms used in the Moldovan fraud. He also denies some details contained in public documents – that an Arran Consult employee established Lerson Ltd, according to the Kroll report; that according to a London High Court decision of February 2014 he ‘introduced’ offshore vehicles to culprits in Russia’s $183mn Otkrytie warrant fraud; or that he was a board member of another affiliate of Baltikums Bank, BB Trust Consultancy, according to Latvia’s company register, which suggests he is well connected in Latvia’s murky offshore banking world.

Savlovs sees the blame attributed to Eastern European involvement in the Moldovan $1bn fraud as part of an EU conspiracy to cover up the final destination of the money. “Why has no one been able to find this money yet?” he asks rhetorically, suggesting that the EU is in on the fraud, and blaming Eastern Europeans is part of the cover-up. “Because nobody in the EU wants to find this money. Moldova is a big hole for Europe to clean money, that’s my opinion.”

According to Savlovs, such a scheme is also at work in Latvia. “Huge money flows from EU to Latvia in subsidies, but if you take a car and drive, where do you see the fields [being worked] and the factories? They pay subsidies to close factories in Latvia, they don’t do this in UK, France or Germany, where production costs more money, so you should be asking questions of other people.”

Calming down, Savlovs acknowledges acting as business introducer for foreigners to Latvian offshore banks, but denies he moved to Scotland to launch a conveyor belt of shell companies for Latvian bank clients. He also claims there is not much to his business; he earns a tiny fee per company and incorporates just over 100 firms per year for clients. As he points out, it takes only 15 minutes to incorporate a UK company online. “But many business people in post-Soviet countries don’t know English, and we help them,” he says. “Apart from this, we don’t do anything.”

Savlovs also says that he sees all his clients face-to-face, travelling to their home counties to do so. He checks their identification, and says the customer ID is checked again by the banks. “If a passport turns out later to have been forged, this is a job for the police, not for me,” he says. According to Savlovs, he has received no police requests to check his customer files.

“I don’t know why banks use [business introducers],” he tells bne IntelliNews. “I think it is a cheap way for them to expand their network… Introducers just set up companies and check ID – they are not responsible for what happens with the company afterwards. What happened in Moldova is the banks’ fault,” he emphasises.

Savlovs’ patience with the bne IntelliNews reporter finally runs out when his photo is taken, at which he covers his face with his hands, demands the photo be deleted, and calls the police to complain. “I am fed up with talking now,” he says, escorting the reporter to the door.