- Select & Boohoo linked to multi-million pound Leicester network of money laundering
- BBC investigation examined complex system of fraud in shell companies and fake invoices supplying fashion retailers
- Chair of Public Accounts Committee says this could be “tip of the iceberg”
By guest author By Ava Szajna-Hopgood from Retail Gazette
Boohoo and Select have been linked to a group of companies based in Leicester’s garment manufacturing district that are involved with money laundering and VAT fraud, according to an investigation by BBC Radio 4.
A civil court case involved a dispute between two heads of two clothing wholesalers has brought the activity to light.
Leicester-based company director Rostum Nagra was accused of effectively stealing a firm belonging to a business associate, transferring all the assets to his own company Rocco Fashion Ltd.
By doing this, Nagra also took over the relationship with its biggest customer, Select Fashion.
Though a complex supply chain network involved shell companies with addresses in Leicester, Nagra arranged for false invoices to be produced, artificially inflating the prices of the real suppliers of the clothing.
These fake invoices also included a 20 per cent VAT charge, half of which the court case found would typically be used to pay off accomplices.
The judge in the civil case said Nagra had operated a “fraudulent scheme to launder cash for his own benefit” over a “prolonged period” and “very substantial amounts” of money were involved.
There is no suggestion by the BBC that Select knew about the fraud within its supply chain.
The BBC’s investigation also examined two other companies mentioned in Nagra’s court case: T&S Fashions Ltd, one of the 14 other companies the judge noted “may have been involved in laundering cash”.
In operation until 2017, T&S was able to produce 30000 garments a week, one of its biggest customers being Boohoo, which it dealt with through another company.
When asked by the BBC about its relations to T&S, Boohoo confirmed it had done business with it, and added that it had concerns about “unauthorised subcontracting” by suppliers and for that reason had 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 said in a statement to the BBC.
Another firm, HKM Trading Limited, run by director Hassan Malik, had entered into “cash laundering transactions” with Nagra, according to the court case judge.
After HKM Trading went out of business, Malik set up another company in 2018 called Rose Fashion Leicester Ltd, which suppled Boohoo-owned brand PrettyLittleThing.
The BBC has discovered Nagra is currently an employee there.
Boohoo said as a result of the information provided by the BBC, it has now terminated its relationship with Rose Fashion Leicester.
It added that it undertook due diligence checks on all new supply, but that because Rose Fashion Leicester was not mentioned by name in the court case, it wouldn’t have been linked to the Rostum Nagra case.
Following the BBC investigation, Boohoo has now terminated its relationship with Rose Fashion.
“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,” Boohoo to the BBC.
It’s absolutely endemic in huge swathes of the city,” North West Leicestershire MP Andrew Bridgen told the BBC.
“There are gangs of factory owners going around in brand new four-wheel drives and there are very very poor exploited workers who are actually living in fear in the city, and you can feel it on the street.”
Whilst investigating the financial transactions of six companies said to be issuing fake invoices to Nagra, the BBC found firms had received payments totalling GBP8 million from a wider network of Leicester textile suppliers in the space of two and a half years from 2014-2017.
“This is a snapshot of a few companies… and on that GBP8 million washing through, that’s GBP1.6 million pounds of VAT that’s not being recovered,” Public Accounts Committee chair Meg Hillier said.
“If you extrapolate from that you’re talking tens of millions, if not hundreds of millions, if this is endemic across the sector.”
Hillier said the fraudulent activity revealed by the BBC appears to be “the tip of an iceberg”.
The full investigation All Sewn Up was on File on 4 from 8pm on October 13, 2020, on BBC Radio 4 and afterwards on BBC Sounds.