Network of Leicester garment factories involved in money laundering
13 Oct 2020
A network of garment factories in Leicester, some of which have supplied retailers Boohoo and Select Fashion, have been involved in a money laundering and VAT fraud scandal, according to an investigation by BBC Radio 4.
The activity was brought to light by a civil court case between the bosses of two clothing wholesalers.
Leicester-based company director Rostum Nagra was accused of stealing a firm belonging to a business associate and then transferring all its assets to his own company, Rocco Fashion Ltd.
He also took over the relationship with the company’s biggest customer, British retailer Select Fashion, which has around 170 stores across the UK.
According to Nagra's business records noted in a “cash book” he carried around with him, over a period of months from October 2014 he arranged for false invoices to be produced as part of a scheme involving a network of companies with addresses in Leicester. Most of these were “shell” or fake companies.
How the scheme worked
According to the BBC, when Nagra took orders from Select Fashion he would send the garments to be made cheaply by a so-called “cut, make and trim” (CMT) supplier. He would pay in cash so there were no official records of the deal. Select Fashion was reportedly unaware this was taking place.
Nagra would then pretend the garments were being made by another company and place a fake order, usually with a shell company. The shell company would then provide an invoice at an inflated price, far higher than what Nagra actually paid to the CMT supplier. The fake invoice also included a 20 percent VAT charge on top.
Nagra would then pay the inflated amount into the shell company's bank account. Almost immediately after, the cash would be withdrawn and given to Nagra. Typically, half of the VAT would be used to pay off accomplices.
The judge in the civil case concluded Nagra had operated a “fraudulent scheme to launder cash for his own benefit” over a “prolonged period”, with “very substantial amounts” of money involved.
The BBC confronted Nagra, who denied involvement in fraud.
Select Fashion did not respond to the BBC's requests for comment, but the broadcaster said “there is no suggestion they were aware of the fraud within their supply chain”.
The BBC also examined the activities of two other companies mentioned in the court case involving Nagra.
T&S Fashions Ltd, which folded in 2017, provided invoices to Nagra charging above average prices for garments, and while it didn't appear in Nagra's “cash book”, it was one of 14 other companies the judge said “may have been involved in laundering cash”.
The company had the capacity to produce 30,000 garments a week when it was operating. Its biggest customer was Boohoo, which it dealt with through another company.
Boohoo initially told the BBC that T&S Fashions was neither a direct nor indirect supplier. However, when the BBC mentioned the other company's name, it confirmed it had done business with it.
Boohoo said it had concerns about “unauthorised subcontracting” by suppliers and had therefore already commissioned an auditing firm to map out its supply chain.
“This work is well under way and once it is completed we will be publishing a list of all of our UK suppliers,” Boohoo told the BBC in a statement.
Another firm, HKM Trading Limited, run by director Hassan Malik, was found to have entered into “cash laundering transactions” with Nagra. After the company went out of business, Malik set up another company in 2018 called Rose Fashion Leicester Limited, of which Nagra is currently an employee, according to the BBC.
Rose Fashion Leicester Limited supplied clothing to Boohoo-owned brand PrettyLittleThing.
Following the BBC’s report, Boohoo told the broadcaster it has terminated its relationship with Rose Fashion Leicester.
Boohoo told the BBC it had undertaken due diligence checks on all its new suppliers, but added that “a search against Rose Fashion Leicester would not have elicited the court judgment given Rose Fashion Leicester was not mentioned.”
The company continued: “We would never knowingly conduct business with anyone acting outside of the law and we have always been swift to provide information to regulatory authorities to support any investigation that they are conducting.”
Malik did not respond to the BBC's questions, but lawyers acting for his company said Rose Fashion Leicester was set up after the events outlined in the court case and the company was not involved in it.
Photo credit: PrettyLittleThing