In 2015 Arron Banks’s insurance business was bailed out. The source of the rescue money is unclear – but a group of accountants who specialise in offshore ‘wealth preservation’ may hold the key

On 19 October 2017, Alan Kentish was arrested.

The chief executive officer of STM Group, which specialises in offshore “wealth preservation”, was detained by the Royal Gibraltar Police under the Proceeds of Crime Act. They were investigating whether he had failed to notify the authorities of potential money-laundering by one of STM’s clients.

Following his arrest, Kentish, who was released on police bail but remains a suspect in Gibraltar, resigned his directorships of two companies linked to multimillionaire Brexit donor Arron Banks.

Closely associated with Banks for more than a decade, Kentish and STM have drawn attention from authorities in several of the offshore tax havens where they operate. Kentish is appealing a directorship ban in Malta, while regulators in Jersey censured STM after probing its efforts to procure a St Kitts and Nevis passport for a Ukrainian politician on Interpol’s wanted list.

Now an investigation by SourceMaterial reveals that Kentish and other STM-linked directors were key figures in a bailout of Banks’s Gibraltar-based insurance business Southern Rock that began in 2015, just months before Banks began bankrolling the Leave.EU referendum campaign.

The mystery cash injection was critical to the survival of Banks’s insurance empire, the foundation of his wealth. Without it, it is hard to see how he could have funded his political donations while keeping the business afloat.

Banks has declined to answer questions about the origin of the bailout funds, while a spokesman for STM said the company did not supply the money or have any direct connection with the rescue.

As the Electoral Commission examines the source of Banks’s £8.4 million in donations to the Leave campaign, the role of Kentish and other STM-linked figures—who presided over the bailout and were in a position to know where the money came from—may offer new clues to how Brexit was financed.

Andrew Wigmore, a spokesman for Banks, said our emailed questions were “baseless” and evidence of a “biased hatchet job” but declined to go into further detail. He said in an interview with Byline in March that Banks paid for his Brexit campaign with proceeds of the sale of NewLaw Group, a law firm Banks partly owned. Wigmore did not elaborate on how Banks was able to bail out Southern Rock.

STM has said the Gibraltar investigation relates to a client company of STM and it expects Kentish to be exonerated.

Mister Big

Banks, the man behind the GoSkippy car insurance brand, has never been shy about his wealth, often using an internet chatroom to brag about racehorses, diamond mines and jet-setting holidays. His user name: Mister Big.

“When I last looked I had”—reads a typical post from April 2014—“a direct insurance group, a gold mining operation in Ghana, four diamond mines in Kimberley (one in Lesotho), a country park complete with beautiful wedding venue, classic car collection, numerous land holdings (including building land acquired at the bottom of the market), a modest art collection and horrendous insomnia brought on by too much port, cigar and a seafood salad last night.”

But much of the image was a mirage. As he lavished cash on Brexit, a series of offshore manoeuvres was underway to save a key company in his empire, Southern Rock Insurance, from bankruptcy.

In 2014, when a spectacular £1 million pledge to Ukip signalled his arrival in British politics, Banks was already firmly on the radar of authorities in Gibraltar. Finances at his Southern Rock Insurance Company had been shaky for years and now regulators feared a meltdown.

As the underwriter for policies sold by Banks’s UK insurance broker Eldon, Southern Rock was the cornerstone of his insurance empire. If it folded, Eldon would be crippled too, leaving hundreds of thousands of UK customers with car insurance not worth the paper it was written on.

Southern Rock’s accounts from as far back as 2011 had warned that it was “technically insolvent” and by the following year it was in such dire straits that Banks had pledged land and sold shares to shore up its capital. The company’s own auditors made clear in 2013 that it was dependent on the mercy of the watchdog for survival.

Meanwhile, the regulators made Southern Rock promise not to make any payments to Banks without their prior written consent and hired accountants PwC to assess the company’s vulnerability to shocks.

When in 2014 PwC’s findings confirmed their fears about Southern Rock’s fragility, Banks was pushed to resign as chief executive officer, along with another director and longstanding associate—Alan Kentish.

Dramatic rescue

By 2015, as the Brexit referendum neared and Banks’ political fortunes went from strength to strength, Southern Rock was teetering on the edge. The rescue, when it came, was dramatic.

ICS Risk Solutions, a holding company on the Isle of Man, agreed to pump £77.7 million into Southern Rock to save it from collapse. In return, ICS would take a slice of the Gibraltar company’s future income.

The capital injection allowed the loss-making Southern Rock to meet new EU solvency regulations for insurance companies, described by Banks as “a good example of something no one really wants” being imposed by Brussels.

Because Banks owned both ICS and Southern Rock, it is not clear where the new money came from. But the arrival of the funds coincided with changes to the management of ICS.

Corporate records show that in April 2015, the day before the initial rescue deal, Louise Kentish, the wife of STM’s boss, joined the ICS board. On 24 June 2016, the day after the referendum, Alan Kentish followed, along with two other new directors—the former and current chairmen of STM.

Banks’s ties to Kentish and STM go back to at least 2004, when Kentish became a founding director of Southern Rock. Banks in turn invested in STM and was its largest shareholder before selling his stake in early 2015. More recently, Kentish, Banks and another STM founder co-invested in Legal Protection Group, a broker of insurance for lawyers and doctors that operates from Banks’s Bristol headquarters.

The arrival of Banks’s longstanding STM contacts at ICS at the time it found the money to save Southern Rock suggests they may hold the secret to the real source of the bailout funds that ensured Bank’s financial survival as he pumped millions into Leave.EU.

Public records suggest there may be an undeclared shareholder in ICS. Banks has said he owns 90 per cent of the company, with management and staff holding the rest. But the filings state he owns less—between 50 per cent and 75 per cent—with no information on the remainder. Banks declined to answer questions about the holdings.

SourceMaterial understands that Gibraltar’s Financial Services Commission is closely monitoring the arrangement between ICS and Southern Rock.

STM’s spokesman, who also responded on behalf of Kentish and the other STM directors, said the rescue “did not involve STM in any way”. He also suggested the bailout was spread over several years to mend the balance sheet without a single large cash injection. He did not address the origin of the funds.

Offshore controversies

Kentish and STM specialise in keeping secrets. A core line of STM’s business is setting up offshore trusts, opaque financial structures that make it difficult to trace who ultimately owns the assets in them.

In 2002 STM was sued by the UK tax authorities after it set up a trust for an alleged fraudster suspected of masterminding a £100 million VAT scam. Kentish’s arrest in Gibraltar, after which he resigned as a director of Legal Protection Group and ICS, is one of several subsequent brushes with the authorities.

Early in 2017, STM’s Gibraltar offices received a visit from local regulators, who didn’t like what they saw. Later that year they told STM they were “fundamentally concerned” about its compliance with anti-money-laundering rules, according to Gibraltar court filings. STM tried to block publication of the proceedings, the documents show.

Particularly worrying to the regulators was the use of STM services to invest pension savings in the Trafalgar Multi Asset Fund, which collapsed in 2016 and is now under investigation by the UK’s Serious Fraud Office.

Angie Brooks, a director of Pension Life, an advocacy group for pension holders, said that STM should have spotted the red flags in the pension debacle. “It was the most toxic mix imaginable. Everything that could go wrong did go wrong and it should have been prevented.”

STM denies any wrongdoing and is not under investigation itself. Liquidators are attempting to salvage the funds but savers have potentially lost millions.

Ukrainian politician

It wasn’t just Gibraltar. In 2015, STM became the first company in Jersey to be prosecuted for money-laundering compliance failures.

STM was managing operations for Henley & Partners, whose business includes helping rich foreign nationals acquire citizenship of tax havens in return for investment—and whose chairman reportedly has ties to Cambridge Analytica, the election advisor accused of misusing Facebook data and entrapping politicians to skew elections around the world.

In 2010, STM had used its Henley business to help a Ukrainian politician apply for a passport in St Kitts and Nevis. Viacheslav Suprunenko, son-in-law of the mayor of Kiev and brother of a senior figure in the Moscow-backed Party of Regions, was at the time wanted by Interpol for assault during armed robbery to recover documents in a business dispute. (No charges have been brought.)

When Suprunenko asked STM to route his payments through offshore vehicles apparently unconnected to him, the company was suspicious enough to refuse the transactions—but failed to report them to the authorities.

A Henley spokeswoman told SourceMaterial that the company ended its relationship with STM in 2012. “When it comes to politically-exposed figures, we start from the position that any such person automatically requires even greater diligence including a thorough and independent review of friends and family,” she said. “If any criminal activity is suspected, we will immediately decline the applicant.”

Money-laundering risk

It was just one of a string of incidents in which STM turned a blind eye to money-laundering risks.

In a period of less than 18 months, junior STM staff filed internal suspicious activity reports on 19 individuals or entities. Only three of these were acknowledged by STM’s compliance officer and none was passed to the island’s financial crimes unit.

While STM was eventually acquitted in the money-laundering prosecution, it received an official order from Jersey’s financial regulator to clean up its behaviour. Its money-laundering compliance officer was banned from holding a regulated position in Jersey.

In another offshore haven, Malta, the story was much the same.

Twice in the last two years STM has been fined and officially rebuked, while Kentish was temporarily banned from holding management jobs for failing to inform the regulator when he was forced by the Gibraltar regulator to resign his directorship of Banks’s Southern Rock. STM is appealing the ban.

“STM and its officers ensure a strong culture of corporate governance and compliance with industry regulation,” the company’s spokesman said. “This extends across internal and external relationships ensuring that risks to the business are minimised and that products and services are delivered appropriately.”

Picture: by Michal Mrozek on Unsplash