Pandora Papers: How can Ireland be a large source of foreign investment in Uzbekistan?

Two Irish entities are the controlling interests behind the largest foreign investment in the cotton industry in Uzbekistan, according to documents lodged with the UK’s Companies House in Cardiff.

Intrus Alliance LP and Galor Trade LP, both with an address at Office 115, Commerce House, 14 Washington Street West, Cork, are linked to a $168 million investment in the Uzbek cotton sector, according to the UK filings.

In reality, the Cork address is that of an outlet in the global Mail Boxes Etc franchise and, according to the operator of the outlet, the mailbox is being used without his permission, by persons unknown.

However, nominally, the declaration “makes Ireland one of the top-ten sources of foreign direct investment into Uzbekistan, outside of the hydrocarbon sector,” according to Kristian Lasslett, a professor of criminology with the University of Ulster.

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Lasslett investigates non-transparent transactions in Uzbekistan, which regularly ranks as one of the most corrupt countries in the world, as part of his work with a Berlin-based NGO, the Uzbek Forum for Human Rights.

The involvement of the two Irish limited partnerships (LPs) seems to have first emerged in 2017 after the UK introduced reforms aimed at preventing the misuse of a similar type of corporate structure known as Scottish limited partnerships. Scottish LPs had become a popular vehicle for persons and businesses in Russia and other former Soviet republics who wished to use western registered entities that would allow them to operate with complete secrecy.

Thousands of Scottish LPs have been registered prior to 2017 with partners that are based in offshore jurisdictions. These partners were acting as nominees or proxies for the true controllers of the partnerships, whose identities remained unknown.

The 2017 reforms obliged Scottish LPs to disclose the names of the entities or persons who had significant control of the partnership. The law – known as the entity of significant interest rule – stipulated that the declared entities of significant control could not themselves be “secretly owned companies”, according to Scottish National Party MP Alison Thewliss.

Two partnerships called Trontex LP and Gratum LP had been registered in Scotland in 2016 at the request of a company services business called Global Advisors, with an address at Office 7, 196 Rose Street, Edinburgh, Scotland. The address is that of another Mail Boxes Etc outlet. The partners in the two Scottish partnerships were companies based in Belize.

Trontex and Gratum were cited in a presidential decree in Uzbekistan in 2017. They were stated to be behind a $168 million investment in the textile and cotton sector, a huge foreign investment for the central Asian country.

Forced labour

Local media reports at the time interpreted the decree as involving an investment by British business in the modernisation of the Uzbek cotton sector, which traditionally has been mired in accusations of forced labour.

A year after the entity of significant interest rule was introduced by the UK government, Global Advisors submitted forms to UK Companies House stating that Trontex and Gratum were, respectively, controlled by Intrus Alliance LP and Galor Trade LP, both with an address at Office 115, Commerce House, 14 Washington Street West, Cork.

The owner of the Cork franchise outlet at this address said it was not until he was contacted by The Irish Times that he learned that the Office 115 mail box was being used for the registration of multiple Irish LPs, including Intrus Alliance and Galor Trade.

Filings in the Companies Registration Office show that the partners in both Intrus Alliance and Galor Trade were Daniel Milchev Petkov (41), with an address in Pleven, Bulgaria; and Zerar Goren (41), with an address in Tallinn, Estonia.

The filings in relation to the two Cork partnerships were made by Global Advisors, of 33 Bachelors Walk, Dublin 1. This now vacant building, which changed ownership earlier this year, is the registered address of 34 Irish LPs, according to the Department of Enterprise, Trade and Employment.

A spokesperson for Global Advisors said Petkov and Goren were acting as nominee partners of the two Irish LPs and that the LPs were named as the entities with significant control over the Scottish entities “following instructions received from our clients”.

The spokesperson, who did not comment about the use of the Dublin and Cork addresses, said limited partnerships were offered to clients as a “secure tool for business”.

The cotton deal that the Cork partnerships are linked to involves an Uzbek company, Mirzaobod Universal Trade Cluster LLC, that is 87.4 per cent owned by a senior Uzbek politician called Ulugbek Sotiboldiev.

“There was no tender, and the company was given tax and customs exemptions,” said Lasslett, who has investigated the Mirzaobod cotton deal for the Uzbek Forum for Human Rights.

In a report last year for the NGO, Lasslett said the use of the Scottish and Irish LPs in the deal did not mean there was “improper activity” but did constitute a “red flag from a risk perspective”, given the partnerships’ opaque ownership and Sotiboldiev qualifying as a politically exposed person.

Documents in the Pandora Papers, a huge cache of offshore documents leaked to the International Consortium of Investigative Journalists and shared by it with its media partners, including The Irish Times, shows that one of Uzbekistan’s wealthiest business figures is the owner of an Irish LP with an address in Dublin.

Oybek Umarov (35) is the brother of the son-in-law of the Uzbek president, Shavkat Mirziyoyev.

Uzbek conglomerate

As well as being married to the president’s daughter, Umarov’s brother, Otabek, is also the deputy head of the president’s personal security service.

In another report for the Uzbek Forum, published last month, Lasslett showed that Oybek Umarov is a major shareholder in an Uzbek conglomerate called the Orient Group.

The group has tripled in size since president Mirziyoyev came to power in late 2016 and, according to Lasslett’s report, has been the recipient of investments totalling $187 million from the Uzbek Oman Investment Company, a sovereign wealth fund associated with the two countries.

Among the major shareholders in the group are eight Scottish LPs, all of which have ownership structures that do not reveal who the true controlling parties are.

In his report, Lasslett said it did not follow from what he had disclosed that anything unlawful had occurred in relation to Orient, but he did argue that “serious risk factors” had been identified.

The Pandora Papers show Umarov declared himself to be the owner of Hyper Partners LP, an Irish LP with an address at Office 29, Clifton House, Lower Fitzwilliam Street.

This address is associated with a London company services business, Las International, that has been involved in the registration of thousands of UK and Irish limited partnerships over recent years on behalf of its clients, which include major offshore service providers.

A spokeswoman for Las International has said it is not involved in, and has no knowledge of, the business activities of the companies that use its formation and registered address services.

The Pandora Papers do not disclose what use, if any, Umarov made of the Dublin-based partnership. It was registered in November 2017 and dissolved a year later.

‘Offshore’ concept

The use of Scottish and Irish LPs “creates the appearance of a diverse range of foreign investors taking an interest in the economy of Uzbekistan whereas in actual fact in most instances they are vehicles being used by the political regime and its clients”, Lasslett told The Irish Times.

“People in the UK and Ireland might think of offshore being the Cayman Islands, but people in Uzbekistan think of offshore as being Ireland and Scotland.”

The legal regimes in the UK and Ireland “are hospitable to these activities, and the regulatory regimes are not enforced with adequate strength and resources”.

There are a number of other Irish LPs in the Pandora Papers that the leaked documents show are owned by people in Uzbekistan.

World Bank records show that in 2016 and 2017 three school projects in Uzbekistan, including one for the provision of books for pre-school libraries, were awarded backing totalling $494,902.

The project applications came from Windfield Trading LP, of Office 7, Rose Street, Edinburgh,the address used by Global Advisors.

In December 2017, Global Advisors, Edinburgh, filed a statement in the UK saying Umada Projects LP, registered at the Washington Street mailbox in Cork, was the legal entity with significant control over Windfield.

Umada was registered in Ireland in December 2017, the same month the declaration of significant control over Windfield was sent to Companies House in the UK.

The Irish registration was sought by Global Advisors, Bachelors Walk, Dublin, and the partners in Umada were stated to be Daniel Petkov Milchev, with an address in Belize, and a Belize company called Parecisia Capital Ltd.

Goren signed on behalf of Parecisia. Windfield is no longer registered in Scotland, but Umada remains on the Irish register.

Irish limited partnerships: What are they and what is the problem?

Irish limited partnerships are entities provided for under the 1907 Limited Partnership Act that allow people to invest in a business venture while limiting their exposure to the size of their investment.

Classically they were used in ventures such as farms where the farm owner, the general partner, could have the benefit of an investment in the farm by a limited partner, with the latter knowing that the risk he or she was taking was limited to the amount of money they were putting into the farming venture.

These days limited partnerships play a huge role in the venture capital sector, where investors can put money into funds that have a particular purpose, knowing that the risk they are taking is limited.

The structure is also used in property investments, stallion syndicates, and family investment structures.

Limited partnerships are not taxed because any profits that arise from the business they are engaged in are (theoretically) taxed at the partner level. The profits flow through the partnership, so to speak.

The problem that has arisen, firstly in the UK and now apparently in this jurisdiction too, is that the use of proxy partners and partners based in offshore or secrecy jurisdictions, can bring about a situation where you have a legal entity registered in a first-world economy which is untaxed, and the ownership of which is totally obscure.

You end up with a de-facto offshore entity, with an address in Dublin, Cork, London or Edinburgh.

Because of this, the UK government has over recent years introduced some reforms, and is continuing to examine the possibility of further changes to its regime, while being careful not to do any harm to its venture capital sector.

In this jurisdiction the Department of Enterprise, Trade and Employment sought submissions in 2019 on reforming the 1907 law. The heads of a Bill are currently in preparation.