#29Leaks: A Vehicle for Fraud
Anuška Delić, Matej Zwitter, Maja Čakarić, Mašenjka Bačić
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How a car smuggling ring in Slovenia and Croatia allegedly used a UK company to cheat taxpayers out of millions.
Illustrator: Svetlana Tiourina
“Oliver Hartmann” received an urgent request in July 2016: an existing client wanted him to set up a new company within three days.
Hartmann was really Syed Rizwan Ahmed, a business development director working for London-based Formations House, but out of its little-known Pakistan back office. The firm he created is now part of an investigation into a luxury car import and tax-evasion scheme in Slovenia and Croatia.
The email from Hartmann’s client contained warning signs.
“I am sending you [a] copy of passport and invoice,” wrote Marko Hribovšek on behalf of Matija Iskra, a Slovenian businessman with a dubious reputation.
The invoice, meant to be proof of address, was from the lawyer representing Iskra in an ongoing criminal trial for business fraud.
The case involved office equipment that Iskra allegedly acquired from a supplier through an unfulfilled leasing agreement, according to court documents. His conviction was later overturned and the case referred to civil court.
Formations House was not under any legal obligation to refuse service to Iskra, or to report him, but “in an ideal world,'' firms would look into the background of prospective clients and consider any reputational risks the association may bring, said Ray Blake, a London-based financial compliance expert.
“You might conclude that Formations House has a very substantial risk appetite, which is their prerogative, although that would appear now to be having predictable consequences for their reputation,” Blake added.
The email exchange between Hartmann and Iskra’s business representative is among a trove of Formations House files obtained by anti-secrecy group Distributed Denial of Secrets and shared with OCCRP, its Slovenian member centre Oštro, and other media. The project known as #29Leaks was revealed on 4 December in media around the world.
In an emailed statement to journalists, the company’s current owner, Charlotte Pawar, said the leaked data has been reported as stolen, and that the firm has faced extortion attempts. She did not provide evidence to support these claims despite several inquiries from reporters.
The company that Formations House set up for Iskra, called SAPP UK Limited, was used to take over another company that is now at the center of ongoing investigations in Slovenia and Croatia.
Iskra was a ringleader of the operation, which cost Croatia at least $2.5 million in unpaid taxes over two years, according to a written decision to investigate by the Croatian State Prosecutor's Office for the Suppression of Corruption and Organized Crime (USKOK), which was obtained by Oštro.si. Authorities shut down the scheme and arrested suspects in January 2019. Slovenian authorities are also investigating.
The group brought most of the 86 luxury cars into Croatia via Slovenia, according to prosecutors.
The business fraud case, for which Iskra was on trial when he submitted his lawyer’s invoice through Hribovšek to Formations House, eventually resulted in a conviction that was later overturned by a judge, who instructed the claimant to file a civil suit instead.
Due diligence by Formations House would have turned up more warning signs.
Hribovšek, who sent the email asking Hartmann to set up the new firm for Iskra, had been named repeatedly in Slovenian media since 2014 as a member of a group of “company gravediggers” – people who helped bury companies facing financial problems by subsuming them under a series of firms in several countries. Creditors could no longer find the troubled firms, leaving their debts unpaid. Reporters were unable to reach Hribovšek.
Iskra’s then-lawyer, Boštjan Penko, was also a publicly-known figure.
The former Slovenian state prosecutor had been dismissed for allegedly mishandling a case against Orion LTD, d.o.o. The company’s senior managers were accused of providing loans to borrowers who would sign documents that were presented as mortgage papers, but were actually purchase agreements. The borrowers often lost their houses and were expected to buy them back from Orion.
Penko dropped the case citing lack of proof, according to media reports at the time.
The Orion Network
The Orion Network, or “orionovci,” was dubbed so by Slovenian daily Delo in 2013, as some of the group’s main operatives who ran the “company gravedigging” scheme were key former employees of the company Orion LTD, d.o.o.
Gravediggers would take a company that had been doing legitimate business, but was facing financial or legal issues, and bury it in a pile of paperwork. The firm would be mixed into a string of shell companies that reporters traced to Slovenia, Slovakia, the UK, and the U.S. state of Delaware, which is notorious for its lack of corporate transparency.
In the end, official company liquidators would be unable to track down the firm, and its debts would remain unpaid.
Over the past seven years, reporters have documented several cases in which the orionovci were allegedly involved in business fraud, including company gravedigging, which resulted in major losses to institutions including Slovenia’s tax office, state-owned companies and banks. Some cases have gone to trial.
Slovenian state prosecutors started investigating Orion LTD in 2004, and the liquidation of the company began the following year. The process lasted until 2017.
As in the luxury car scheme allegedly run by Matija Iskra, the gravediggers often used Croatians as proxy directors, or shareholders, of firms they controlled. Marko Hribovšek – the man who had Formations House set up SAPP UK – has come up repeatedly in reporting on company gravedigging.
Regardless, Hartmann opened the company within two days, no questions asked. In a July 19, 2016, email to Hribovšek, Hartmann provided account details for payment of services and wrote simply: “Please transfer 425 GBP.”
Formations House owner, Pawar, told reporters that she could not “comment on the acts of a former employee or email correspondence.”
Five months after Iskra got his company, the UK’s revenue and customs authority warned Formations House that it was failing in its customer due diligence requirements, and could even face criminal prosecution if it did not put proper procedures in place to assess clients.
Formations House says it has since stepped up its compliance, but evidence from the leaked emails shows it has continued to take on risky clients with questionable pasts.
Experts have long warned that the UK’s anti-money laundering and due diligence checks for registration agents are notoriously lax, and enforcement is minimal.
Registered address of Formations House at 29 Harley Street in London. Photo: Daniel Costantini/Dagens Nyheter
Formations House Responds
The current owner of Formations House, Charlotte Pawar, provided general responses to journalists’ questions about the company’s due diligence standards and about the origin and nature of the data used in this investigation. They are included below:
“AC Online Ltd T/A Formations House carries out the required Due diligence practises under the HMRC MLR guidance 2017. Formations House as a trading name has been trading for more than 15 years and 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.
“Currently as a formation agent we perform more due diligence and AMLR [anti-money laundering regulation] checks than are required by Companies House (the UK governments) own online company formation process. Just as Companies House have no control over the many thousands of companies that have been formed directly via the Companies House online portal and have gone on to commit fraud, we additionally cannot control or directly monitor their company’s activities."
"All companies Formations House has incorporated have been done so with the required due diligence," she added.
Pawar also claimed that the leaked data had been reported stolen and that the company has faced extortion attempts. She did not provide supporting evidence for those claims, despite repeated requests from journalists.
Analysis of leaked emails between Formations House employees and clients reveals that a copy of a personal identification document and a utility bill were often enough to establish a new company, with no apparent effort to implement enhanced due diligence for high-risk clients.
When interviewed by OCCRP partner The News in Pakistan, Hartmann said due diligence was not part of his job, but that he checked basic documents as required. Hartmann claimed he received no training on this front, and that he “never came across a suspicious client.”
Proxies and Payments
Just one month after it was formed, SAPP UK became the sole shareholder of AL-CAP 1000, d.o.o., which is registered in the Croatian capital of Zagreb. In their written decision to investigate, Croatian prosecutors identified AL-CAP as one of five companies that played a central role in the luxury car tax evasion scheme.
Prosecutors say the scheme began in December 2016, days before Hribovšek made another urgent request to Hartmann at Formations House. On Tuesday Dec. 13, 2016, Hribovšek wrote: “Is it possible to make a miracle and arrange apostille scan till Friday?”
The email to Hartmann did not specify the purpose of the documents Hribovšek was asking to be apostilled, a process that would certify them for legal purposes in other countries. But Croatian prosecutors say the luxury car-import and tax evasion scheme ran on fraudulent paperwork and numerous bank accounts.
Prosecutors also allege that Iskra and his fellow ringleader, Slovenian businessman Tomaž Stopar, used a group of companies in Slovenia and Croatia including AL-CAP – the firm owned by SAPP UK – to run the scam that relied on proxies.
Penko, who is Tomaž Stopar’s lawyer, said he could not comment. Iskra also declined to comment, according to the lawyer representing him in luxury vehicle case.
The scheme involved more than a dozen co-conspirators in Slovenia, Croatia and Serbia, according to the investigation. The proxies were paid between 50 and 300 euros to open and close bank accounts, sign the loans, get documents notarized and to activate internet and phone accounts. They would open companies and act as formal owners or directors on paper.
Phone calls tapped by Croation investigators reveal that the proxies sometimes created problems for the leaders of the operation.
“You might conclude that Formations House has a very substantial risk appetite, which is their prerogative, although that would appear now to be having predictable consequences for their reputation.”
In one case, Iskra and a co-conspirator, Viđan Akalović, discussed a proxy director who withdrew 51,000 Croatian kuna ($8,413) from the account of the company he was in charge of. In a recorded phone call, Iskra used an expression that included the term “raščetvoriti”, or dismemberment, according to prosecutors, and told Akalović to find a way to get the money back quickly before the man could gamble it away. If the proxy lost the money, they would have no option but to kill him, Iskra said, according to prosecutors.
Attempts to contact Akalović through family members were unsuccessful. His lawyer did not answer calls or reply to an email.
Another proxy from Serbia “ran a company” in Croatia, despite being unable to enter the country. He was turned away at the border when he tried to visit Croatia, prosecutors said without providing more detail.
Some proxies, like Željko Malić, were "of poor financial standing," according to prosecutors.
Malić’s personal bank accounts have been blocked since 2013 by the Croatian authorities for unpaid debt. But on paper, Malić was the sole shareholder of AL-CAP until August 2016. That’s when SAPP UK took over the company. In June 2018, Malić was registered as SAPP UK director – while collecting state welfare support in Croatia.
Reporters were unable to track down Malić.
Despite his meager personal finances, reporters from Oštro and OCCRP have connected Malić to two more Croatian companies that have not been named in the ongoing investigation. Those companies – officially involved in real estate – are also linked to Iskra or other named co-conspirators.
Croatian authorities suspect the proceeds of the car trafficking and tax evasion ring were invested in real estate.
Paper Trail
Companies like those run nominally by Malić were used to purchase cars within the EU. The companies would issue fraudulent invoices to conduct banking transactions and create a paper trail, according to prosecutors who carried out the investigation.
The smokescreen allowed the luxury cars to be brought into Slovenia and placed in auto salons and other sales facilities where they waited to be taken to Croatia, the prosecutors said.
A car that was confiscated by Croatian authorities during January 2019 arrests. Photo: Zagreb Police Deparrtment
Reporters found that the group then advertised the cars on web sites, sometimes under the sales motto: "We have the best cars!"
Their sales pitch said the price of the car, which was substantially lower than elsewhere at the time, included Value Added Tax (VAT). In reality, the VAT was never paid and the alleged masterminds kept the proceeds.
Most cases described by Croatian prosecutors began with Iskra purchasing a vehicle, usually in Germany, but also in Slovenia, Italy or Austria. The cars were mostly used, but they were always luxury models by manufacturers such as Porsche, BMW, Audi, and Mercedes.
Often the vehicles were sold by the car manufacturers, but sometimes by smaller companies or individuals. Once Stopar and a third suspect, Mario Čabraja, allegedly found buyers for the cars, the vehicles were brought to Slovenia and stored in Brežice, near the border with Croatia. Companies involved in the scheme would then produce false invoices showing that the cars were imported from Slovenia into Croatia.
The purchases were made in the name and under the power of attorney of the companies involved in the scheme.
In order to transport the cars to the final buyer, prosecutors allege, Čabraja would install invalid Slovenian and other country registration plates and drive them to Zagreb. There, the vehicles would be registered in Croatia for the first time using faked purchase agreements and invoices.
Forged Croatian tax office declarations were used to show payment of motor vehicle tax. The conspirators would also use a fake document confirming payment of an eco-tax, which is administered by a state fund tasked with environmental protection.
In every case, prosecutors said, documents showing taxes were paid were forged by Igor Pintarič, a stamp maker in Slovenia’s capital, Ljubljana.
Pintarič did not respond to a request for comment. Čabraja declined to comment.
The documents created an illusion of a normal business, using a paper trail that allowed the amount that would have been paid in taxes to Croatia and Slovenia to be siphoned off by the ringleaders.
The scheme brought in $7 million for AL-CAP, which was owned by SAPP UK, the firm created by Formations House. While the firm was on paper directed by Malić, the Croatian welfare recipient, prosecutors noted it was clearly controlled by Iskra, who withdrew at least 15,000 euros (just over $17,000) from the company account, and registered a car in Malić’s name.
In Slovenia, another welfare recipient, Joško Javornik, was nominally the director of Dora 10 Prom, d.o.o., which amassed around $4 million in proceeds from car sales in the first nine months of 2018. To help Javornik sign all the necessary documents, prosecutors say Akalović – the man recorded speaking to Iskra on the phone – drove him to Zagreb more than 17 times.
Javornik is registered at the address of the government’s Social Services Care Center in Ljubljana, a sign he is officially homeless. Yet, locals from Velike Lašče, a small town near the capital where he spends time, say that a car with Croatian plates often picks him up and whisks him away to sign documents.
Located by reporters, Javornik said he’s received confusing calls from a man he doesn’t know, but that he has not received any money or been to a notary.
The locals say Javornik is known as “Director.”
Umar Cheema contributed reporting from Pakistan.
