The nomad system creates a close-knit network of companies and advisors, who take advantage of the Alternative Investment Market's light regulation to set up polluting operations in some of the world’s most unstable regions.
Britain is eager to paint itself as a green finance leader in the post-Brexit world. But the government’s reluctance to push for stock market reform means that beneath The City’s green veneer lies some dirty business.
Theresa May told the world in January that she wanted “the Britain of the future to be a truly Global Britain, which is a force for good in the world. Steadfast in upholding our values – not least our fierce commitment to protecting the natural environment.”
Read DeSmog UK’s full series, Empire Oil: London’s Dirty Secret
But London’s junior stock exchange, the Alternative Investment Market (AIM), continues to be mired in scandals, criticised for a lack of transparency that can encourages a “casino” approach to exploiting natural resources in some of the world’s most unstable regions.
A major new investigation published by DeSmog UK shows that until policymakers address AIM’s “light touch” regulation, the government’s pledge to be a post-Brexit environmental and corporate accountability leader will remain little more than an aspiration.
The investigation identified a hub of a dozen companies based around Mayfair, drilling for oil in Africa, and making use of tax-havens in British overseas territories and crown dependencies such as the British Virgin Islands, the Cayman Islands and Jersey.
Many of these companies raise funds through selling shares on AIM. And AIM’s regulatory system and the current laws around transparency in offshore tax havens make it something of a “wild west” for traders operating in frontier markets.
DeSmog UK’s new series, Empire Oil: London’s Dirty Secret, exposes how AIM’s government-endorsed “light touch regulation” and complex offshore company structures create an opaque corporate environment, in which conflicts of interest have been shown to thrive.
At the heart of the issue are nominee advisors, known as ‘nomads’. Nomads are private companies tasked with AIM’s regulatory oversight but can also work as brokers for the same companies they regulate - potentially creating serious conflicts of interest. The nomad system creates a close-knit network of companies and advisors, who take advantage of AIM’s light regulation to set up polluting operations in some of the world’s most unstable regions.
DeSmog UK does not present any evidence of illegal behaviour.
Sirius Petroleum is a case study in how extractive companies operate on AIM. In the summer of 2008 - as the price of oil peaked to a record high - a polar explorer and a group of City bankers decided to turn a former gaming company into an oil and gas investment company targeting one of Africa’s most unstable corners: Nigeria.
Investors were told the new business would find an oil asset in the shallow waters of the Niger Delta with the help of a local prince, partner with a company to extract the oil, and sell it on to an oil major for a profit. To fund this new venture, Sirius Petroleum was listed on AIM, to raise funds by floating shares.
Behind the scheme was millionaire Andrew Regan and his Cayman Islands-registered investment vehicle Corvus Capital. Together with a group of established City operators, Regan reportedly made a fortune on AIM, buying into shell companies and transforming them into lucrative ventures. Sirius appears to be another example of this strategy.
A decade after Sirius was formed (and at time of writing), not a drop of oil has yet been produced, with shareholders – including high street banks and pensions funds such as HSBC, Barclays and Hargreaves Lansdown – still waiting for the promised returns on their investments.
Licensing issues, aborted deals and lengthy funding negotiations were cited by Sirius to explain some of the delays over the development of its oil asset, while thanking shareholders for their “patience”.
Sirius Petroleum did not respond to repeated request to comment on DeSmog UK’s story.
Some progress is being made on wider transparency reforms.
The government was defeated in the UK Parliament earlier this month when MPs voted through a new amendment to the sanctions and anti-money laundering bill which would require 14 British overseas territories to publish registers of beneficial ownership by 2020 or face having them imposed.
And last year, AIM called for submissions around proposed changes to its admission rules. AIM’s discussion paper included “consideration of further supervisory powers and sanctions to ensure consistency of standards across the market”.
Responding to AIM, NGO Rights and Accountability in Development (Raid) called for “urgent action to halt the laundering of assets” and warned that the light regulation system needed to be scrapped in order to stop London attracting “dirty money”.
Raid’s submission, seen by DeSmog UK, stated: “It is highly doubtful that self-regulation, relying on private firms with vested interests as gatekeepers and designed to be ‘light touch’ will ever eliminate or even significantly reduce the use of AIM to launder assets and dirty money through London.”
With MPs and Lords working on the new anti-money laundering bill, Raid’s director Anneke Van Woudenberg said, “the mood in the UK was changing” over tax havens’ and secrecy laws that allow dirty money to be moved around. “AIM needs to respond to these concerns as much as any other British entity.”
Chloe Farand is an investigative reporter who has been published in the Guardian, Independent, i, and New Statesman - twitter: @chloefarand. Mat Hope is editor of DeSmog UK - twitter: @matjhope.