Tuesday, April 20, 2021

World Bank blacklists Scottish shell firm NovoLine Resources for fraudulent practices

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The World Bank has blacklisted an anonymously owned Scottish shell company after exposing “fraudulent practices” in an emergency medical aid programme.

In the latest blow to British corporate governance, the lender has banned Edinburgh-registered NovoLine Resources LP from bidding in its procurement processes for three and a half years.

The move came after an investigation by the political website Open Democracy into deals the firm won to supply Uzbekistan’s health ministry. The World Bank, which funded the purchases, found NovoLine Resources had submitted fake documents to supply similar kit.

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“It is shocking but perhaps unsurprising to see yet more reports of limited partnerships registered in the UK being used for illicit purposes abroad,” Alison Thewliss, the Glasgow Central MP and SNP shadow chancellor, said. “By continuing to turn a blind eye, the UK government is essentially complicit in this type of activity.”

The ban on NovoLine Resources — formalised at the end of last year — came two years after another global agency, the United Nations Development Programme, disbarred four Scottish shell firms for “fraud” or “fraud and collision” in Uzbekistan aid schemes. Like NovoLine Resources, the four firms blacklisted by the UNDP were Scottish limited partnerships or SLPs.

These once-rare partnerships have been called “Britain’s home-grown secrecy vehicles” by the anti-corruption campaign group Transparency International. There has long been concern about SLPs and other British and international shell firms, especially limited liability partnerships, in Uzbekistan.

Experts believe that such businesses — which can be bought for as little as €1,000 — are a way of hiding beneficial ownership that is more likely to lie in Uzbekistan than Britain.

“UK legal entities are a key feature of the corruption landscape in Uzbekistan,” Kristian Lasslett, professor of criminology at Ulster University, said. “They are used to conceal politically exposed persons, launder money, facilitate bribe payments, organise frauds, and access the global financial system.

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“Medical procurement is an area understood to be controlled by a number of politically exposed families in Uzbekistan. So it is not surprising to see an anonymous Scottish LP being awarded big ticket items”.

In a communiqué last year, senior World Bank officials ruled Novoline Resources had “engaged in fraudulent practices by submitting a set of false financial statements and a false past equipment sales contract in its bid for an anaesthesia and respiratory equipment supply contract in an attempt to mislead the relevant procurement authority”.

Public tender notices show that NovoLine Resources secured $240,000 in orders from Uzbekistan’s health ministry in 2018. Most of this was for “anaesthetic equipment and equipment for intensive care units” — a contract it won by beating offers from firms in Russia, the US, Germany and Japan on price. Other documents show it sold equipment destined for Uzbekistan’s southern Surkhandarya region, through a state body, for more than $300,000.

NovoLine Resources did not defend itself to the World Bank. Officials said they had taken “into account, as an aggravating factor, NovoLine’s repeated pattern of misconduct, noting that NovoLine submitted multiple fraudulent documents”. They also pointed out that the SLP had served a six-month ban. There is no way of knowing who owns NovoLine Resources, or who benefited from profits from the medical aid contracts. The SLP is registered in the same building as a dog-grooming business in Edinburgh’s West End.

The UK government is responsible for Scots’ corporate law. In 2017 the Conservatives ordered all SLPs name a person of significant control, or PSC. Many have never complied.

NovoLine Resources does name a person of significant control. Another SLP created last year called NovoLine Resources Holding LP has two general partners and two limited partners — all opaque offshore enterprises — and declares, legally, that it has no PSC. NovoLine Resources is older than its opaque corporate parent.

Filings at Companies House show NovoLine Resources listed NovoLine Resources Holding as its PSC on August 25, 2020. That was a day after the World Bank formally notified the firm that it faced potential sanctions.

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