Catch and Release

At a Glance

Metadata	Details
Publication Date	2015-03-01
Journal	World Policy Journal
Authors	Khadija Sharife

Abstract

London—James Carter, an investor who sank over $100,000 in several distressed ‘‘assets’’—carbon credits, land, palm oil—believes the companies had at least the appearance of legitimacy, or so the brokers of these deals assured him. Not far away from the pub in the well-heeled neighborhood of Mayfair where he’s sitting are the offices of several of these companies trading in lucrative investments, such as the Sierra Leone-based palm oil project. Well, so-called. Many are either virtual offices, or do not exist at all. These companies are shells, used merely as props, manned by nominee directors. Many have been dissolved or are inactive. Their websites are vague, providing no real detail. The companies have no bank accounts. The lease for the palm oil project is neither legally registered nor valid. Indeed, no palm oil plantation has ever existed at all.But it was a lucrative investment for the network that ran the scam, made up of over 30 entities trading in multiple commodities—gold, platinum, voiceover internet protocols (VOIP), land, agriculture, property, storage, carbon credits, palm oil, diamonds—all investment scams connected to a small group of people who used multiple shell entities, tax havens, and fictitious alternative investment projects. Each was peddled to clients on multiple “sucker lists,” largely retirees. The network is estimated to have generated over $180 million in turnover over a period of five years. “I assumed,” says Carter, “that I was protected, that it was regulated.”At the table behind Carter in this Mayfair pub is a taxi driver who has lost over $30,250—loans from friends, families, and the bank. Like Carter, he invested in a Ponzi scheme. The brokers, “who wore dapper suits, real professional looking folks in a top office,’’ have disappeared without a trace. He questions whether they even gave their real names. The phone service is now disconnected. The offices were short-term leases. His friend, silent save for sympathetic grunts and pats-on-the-back, buys him a beer. Like Carter, he despairs. He knows he will never get his money back. “What’s a man to do,” he says sorrowfully.Without a doubt, Ponzi schemes are as old as the creation of money itself—and greedy, gullible investors looking for a quick buck. But with the commodification of vast stretches of land in regions of the world like the interior of Africa, difficult to access yet holding promises of vast wealth, there are more vulnerable victims—the people of these nations eager for jobs and livelihoods promised by scammers more interested in prying tens or even hundreds of thousands out of the hands of innocents in the West than in satisfying the aspirations of remote African villagers.It is the role of regulators in the developed democracies to make sure that such projects are held in check and their authors prosecuted to the fullest extent of the law. But regulators can only run so fast. The use of tax havens, shell entities, and softly or utterly unregulated investments, enables fraudsters to continue preying on victims and the victimized in both developed and developing countries alike. Few of these individuals had the means, or even the greed, of the victims of a Bernard Madoff, for instance. But those who were wounded in this scheme that I will outline had little or nothing to fall back on, once good faith and trust were breached in the interest of illicit and unchecked profit.London, said George Orwell, is a deeply civilized and useless place. Orwell was speaking of Dickensian London, the center of the earth in the same sense that the belly is the center of the body—a city of consumers. He may just as well have been speaking of London—and the City of London, Britain’s Wall Street circa 2014—a global finance center that, for ten centuries at least, has prided itself on upholding the form and substance of a corporation renowned for legal and financial secrecy. In fact, according to the Serious Fraud Office (SFO), London also acts as head office or central core to a significant network of global tax havens, from the British Virgin Islands and the Cayman Islands, to Bermuda and Gibraltar, while also shaping tax havens that were former colonies, such as Hong Kong and Singapore. These days, over 40 percent of the world’s financial assets are divided among the territories of Britain’s second financial empire, still the one over which the sun never sets. More than 80 percent of international finance activities are conducted through these offshore financial markets, most of them linked directly or indirectly to U.K.-connected tax haven economies.Part of this dominance is related to the specialization of London, prior to today’s modern technology, and its ties to former colonies from Latin American to Africa and across Asia and the Middle East. London’s commercial entities became the vehicle through which investment in, or about, developing countries, would be realized. The combination of tax havens and technology, from faxes to smartphones, allowed capital to become both secretive and hyper-mobile, aided by the deregulation of financial markets.In defiance of conventional wisdom, this did not take place on Wall Street, manipulated by the brilliant young quants who flocked to investment banks and trading rooms there in the booming last decades of the 20th century, but rather by virtue of the City of London’s push to create the Eurodollar market—capturing dollar-denominated deposits escaping regulation of the U.S. Federal Reserve Board—in fact, escaping regulation in nearly every sense. In the push to create a pan-European economy and a currency, the Bank of England agreed that non-residents routing transactions through London would not be regulated by Britain, or indeed any other authority, provided the transaction was denominated in a currency other than the British pound sterling, such as the dollar or eventually that artificial construct, the euro, which the United Kingdom declined to adopt. Overseas territories, dependencies and former colonies, allowed Britain to shift the appearance of tax havenry to other locales, perceived as independent, while maintaining control of the process. The decades-old creation of the now clearly deeply flawed Euromarket incentivized the race to the bottom. Governments deregulated domestic economies, resigned to the reality that markets were deregulated anyway. London was subsequently ranked the world’s leading international finance center. Finance could move through a non-regulated parallel market that was perfectly legal. Lo and behold, the offshore was born, but in reality it was onshore—all around us.London’s role as parent to its legal and financial secrecy jurisdiction subsidiaries takes many shapes and forms. One is the Alternative Investment Market (AIM), a sub-market of the London Stock Exchange (LSE). Unlike big brother, the AIM—rightly characterized as highly risky—is almost wholly unregulated, designed to remove barriers so that small entities might flourish and grow. The issuers of securities in these companies are advised by “nominated private parties” (or NOMADs), paid for by the companies themselves to act as regulators. But the requirements are very light. In effect, this model removes regulation from the public to the same private sector it was intended to regulate. In practice, studies have shown that AIM firms, controlling for factors such as size, leverage, industry, and growth opportunities, perform poorly by almost every standard.But there exists a more opaque market, if only because it isn’t even on the listed radar—over the counter (OTC) type products like alternative investments that take place entirely outside of exchanges and markets, in the dark. The Britain’s Financial Conduct Authority (FCA) does not even regulate businesses backed by physical commodities or alternative investments, unless they are collective investments schemes (CIS). It’s as easy as creating some shell entities, a few fake websites, and glossy brochures. And finding a few suckers willing to bet their fortunes, or pennies, on an often utterly rigged wheel.Jason Thompson invested his $50,000 in Sierra Leone’s palm oil via a broker, London-based Capital Alternatives (CA), whose business is promoting a myriad of lucrative commodities based all over the world from a boiler room located in Sophia House in London.“I was approached by Capital Alternatives who sold me the palm oil production scheme at a value of over $50,470 for 15 acres,” Thompson stated in an e-mail. CA lured him with a positive African growth story. Communities would retain control of their land; a 12.5 percent fixed return ($430 in year one with an annual 5 percent increase); a minimum 120 percent return in five years; and guaranteed buy-back of the land in the fifth year, via the regulated fund, Global Agricultural Fund (GAF).Fast forward to December 2014, somewhere in Dubai. Able Alternatives, with offices in London, Hong Kong, and Australia, is pitching 77 acres of palm at $263,240 to another prospective client, Alan Johnson. By this time, the minimum $32,000 was increased to $65,000 for 20 acres. Around the world other companies had begun promoting the same palm oil project: Premier Alternatives, based in the British Virgin Islands (BVI), Australia-based Velvet Assets, and Sterling and Bond in Hong Kong—all seemingly different entities.“It was junk,” said Thompson referring to what brokers would later call a “distressed” asset. The distressing part was that neither the project nor the asset ever existed.These companies form part of a corporate network, the Capital Organization, a group of 30 or so known shell entities, headed by a U.K.-based disqualified director, Renwick Haddow. Formerly an accountant who played the AIM, Haddow was banned from acting as a director or in the capacity of a director from 2008 for the period of eight years, after he was found to have been misleading investors. A graduate of Thames Valley University with a degree in accounting studies, Haddow’s Catalyst Investment was responsible for redirecting $11.5 million in investors’ funds to brokers—a pattern that would be repeated at the Capital Organization. Though his involvement in companies is secretively guarded, Haddow was listed as a director for more than 75 corporations, most with a dire failure rate.The organization’s scheme siphoned a conservative estimate of $180 million using a number of fabricated alternative investments. These companies operated within, or via, tax havens such as Cyprus, the British Virgin Islands, Dubai, Hong Kong, Anguilla, and London. Haddow ran the show along with his right hand, Marcia Hargous, an Australian-born lawyer and Haddow’s former partner who handled finance and acted as a nominee director on various related companies following his disqualification. Also by his side was Kristan Gander, a wheeler-dealer who helped put various pieces of the puzzle in place, from hiring fixers to brokering products. Eventually, over 30 companies were actively involved in the scheme.The organization prefers a certain type of character to help recruit, lead, and shape young scammers: James Brown, who headed Able Alternatives, recently sentenced to prison for tricking investors out of $600,000 in fake land schemes; Keith Milhench, who arrived at Premier fresh from prison for a U.K. lottery fraud scheme; and Mark Ayres, a disqualified director working with Capital Carbon Credits, who under the name Heavers was convicted for arranging the murder of a boxer. A host of “minute men” manned the organization. Small, passive partners included Geoff Woodcock, formerly a sales agent at Capital Alternatives turned director of Velvet Assets, and Weihahn Gerber, another broker used to set up Lakewood Asset Management. Significant chunks of investor funds would be split 50-50 with key partners like Robert McKendrick. Nominees like David Waygood—who Emma Glanfield of The Daily Mail alleges committed suicide after jumping in front of a train during the FCA proceedings—and Richard Henstock would be used as straw men directors placed in key positions controlled by Haddow. Based in a run-down boiler room-type scene at London’s Sophia House, a building filled with short-term temporary office space, recruits could earn anywhere from $7,500 to $38,000 per month off a set of client, or sucker, lists.“All the projects were fabricated,” says Robert Conroy, a former senior high-level manager based at Capital Alternatives, the primary sales agent. “Between all the companies, about $3 million per month was easily generated in turnover. No monies were actually invested in projects. That’s why senior sales agents could earn such high commissions.”Investment schemes were conceived as close replicas of other legitimate investment companies, sometimes down to the very logo and company names. So Agri Capital (U.S.) became Agri Capital (U.K.), Carbon Capital Credit turned into Capital Carbon Credit. Each company was presented as distinct and separate. Funds from myriad investments—diamonds, gold, land, carbon credit, palm oil—were all pooled into two financial entities, Capital Secretarial and MH Trustees, both based at Sophia House, via the primary sales agent, Capital Alternatives. When investors were paid, the funds came not from actual returns on investments, but from new investors’ funds. In short, a classical Ponzi scheme—on a global basis.“The managers were called into the office to discuss the client returns depending on the initial investment,” Conroy said. “Big clients paid more for obvious reasons.”Conroy, who was able to earn as much as $91,000 per month after joining the company in 2011, finally left after it became clear that the projects were fraudulent. But the process would continue, and the primary culprits continued to show no remorse. “Staff turnover was very high because nobody wanted to work for these kinds of schemes,” Conroy says. “This suited the main crew just fine. I wanted to actually be part of a company that operated honestly and paid its investors from returns.”Throughout the process, Haddow, forbidden by law to control or direct a company, remained CEO of all companies within the organization. “Haddow had complete control at all times of all the subsidiaries within the Organization,” says Conroy. Capital Alternatives, the main broker, would receive between 25 percent and 40 percent of all investor funds. Fictitious projects would use Australia and the Middle East as investment landscapes. But Africa was the easiest sell.“They told me I was helping to save the planet and that they were ethical investments helping Africans,” says Grace White, a pensioner from Britain, who lost over $80,000. People speak anonymously on forums, she said, but are ashamed to come forward by name due to the stigma of having being duped. “I received cold calls, aggressive, out of the blue. We had invested before but always in legitimate schemes. They got our names from investor databases. The sheer pressure of being harassed by very slick agents is probably why myself and lots of others invested. You’re just sold before you know it.”“We never knew how much money palm oil made,” says Conroy, “but it was a lot. No returns were ever paid to existing clients or new clients. The investment pay-outs were designed to fall outside of this three-to-five year time period by which time all clients’ money would never be able to be found.”Outside of Haddow, with 58 dissolved entities and some 20 retired directorships to his credit and his partner Hargous, who acted as his nominee on several companies (over 25 dissolved or closed) following his disqualification, nobody knows just how much cash it accumulated. But Africa was easily presented as a place where money grows on trees for those imbued with the right kind of work ethic—as in a was good to the palm oil, the did But not to it good to be it The Financial regulated would back the palm oil asset after five years, could at any The project was by and in Sierra Leone’s West African the had at least acres under in West Asset was ranked as a in The was with of the Able Alternatives for Australia that of Velvet in London, it that of several virtual in Hong Kong, it was by Sterling and and In Dubai, Able Alternatives have a to Sterling and Bond registered in Dubai, off listed as an itself was a company that But the company to for the Capital brokers in London, as well as in and Hong I was never placed anywhere says one former senior sales manager from Capital Alternatives, who was later to several other it was a legitimate I knew of the companies, save for had a to act as brokers of alternative investments. But did one obvious to one sales broker, working for had the offices in for tax The far the U.K. is a place, got a or investment fund, get up there and name on the front much only an The main come from in the the for corporate is about the Global Agricultural Fund he the is registered in Anguilla, good having paid all also in the same that he knows nothing about the substance of the companies, by there isn’t a for a to He that is a tax but he says it all. do not know who a company on business just that it is by the and of he of and the under the is is that a company called Fund was never registered in Anguilla, nor its subsequently which is because at of that had indeed operated as a company, the company operated a of the is to He the but that he it as it listed in the public is not to that are but to use public only that are designed to no to the of may just percent of the world’s offshore financial market and some part of its market but for U.K. who are its and in the West a a virtual company with no known or is to the investment at no than percent of capital with which only a virtual physical is on as is with Able Alternatives, providing only the nominee office of a in Anguilla, to Financial a nominee month in 2014, through a to the Financial Conduct Authority referring to its activities and the company as In Anguilla, a tax haven that on offshore to the you the it out that also involved in the organization’s related scams such as the by an and former was just the of the in Sierra according to the investment is often sold for per percent than The law among other that a and land lease before they are into the land The land lease same listed in the as by by a company listed as head and of the in the the land, had a 25 year with via The did not receive a legal number nor was it into Sierra Leone’s land The land was and The also did not for to such as investors in the in to as the in the and would The process was and When the of the he said, “I have never even the land lease with this company The had never of Capital Alternatives, or any other one of the listed of the stated there was no palm oil and that he had been to Robert and for a time but had nothing from A check in for the name of who did not to businesses such as a and listed under his name in the an he ties with as as he it was fraudulent. did he any of the other corporate entities in the listed as the and only name I is Asset of London. We had been approached some to of to the company in London and to a palm oil plantation and he says. made many promises but never or any direct to our or into any The and came through a in did not any that ties had been He not to know Haddow at all. But an to by an investor referring the investor to key broker in Dubai, of Global Carbon did not to from the Finance the company was not registered as a service has never any palm or other in Sierra has no offices or any business in Sierra as far as are says He to have the project once he that was offices to be during multiple The logo was from an American company he from or for a and that to his they were funds in Dubai. offices were also in did not to any land nor was the company involved in any palm oil percent in before was of and for in or a in Sierra Like Capital another part of the Capital network, to be a shell company of The Capital also in via registered in was by the same company used for more than a few of the also used for and other Capital network such as Premier Alternatives. The organization often the of another company called which any into the or Keith based at House, where Haddow an for all the Capital is also a listed director for Premier Alternatives, registered as did not to of and have no palm oil business in the of Sierra In any he the lease would be after if was not of the promised for would be eventually got into a as he was palm oil land he did not one The lease was a and the of the were in in to between Gander, Haddow’s right in the and director of another shell in 2014, Haddow’s vehicle would the lease with front companies it on his is the only of direct investment in palm oil for the private the with a asset value by the direct of and the of a a to the offices, listed on its as Bond Street, no such did any of the on the The included Alan Bond the and that said they had ever of the One they could be under a to such as that of Capital Alternatives, the physical was listed as the Bond Street shift money corporate and in tax havens, such as or the British Virgin Islands, are And these to have been were several an but or company, under nominee director was connected to percent by an based in to Haddow. based in in around the time the FCA Capital Organization. company listed as its primary form of business with an bank percent was linked to investment scams such as to the Capital network is outside of by of Capital Alternatives, acting as 25 percent of the company that is now in for investors. Capital to nominee such as and back to a company, that provided for Capital Alternatives, which also the same names as dissolved in and by had to Haddow. and directors would be listed as entities under the nominee by based in the British Virgin Investment entities registered in Britain would often have entities registered in tax havens, sometimes the same names. and provided or and other and legal acted as the of the Capital (U.K.), such entities as Capital Cyprus, to Haddow that the British and Capital Organization. with British Virgin all provided a of from assets not in the names. was never in the fabricated to investors would use this to a who helped sales for Capital Alternatives, money was being to tax haven entities in of $7,500 to to like high investment In an Haddow neither nor

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DOI: https://doi.org/10.1177/0740277515578628