American Candy and Afghan Heroin
How money launderers and tax evaders took over Oxford Street
On 2 March 2023 Met Police, alongside officers from Westminster Council Trading Standards, raided a number of addresses on London’s Oxford Street. They were searching for counterfeit goods, as well as illegal drugs, the sale of which at ‘American candy stores’ is an open secret in London.
During and immediately after the Covid-19 pandemic “Tourist Shops”, selling tourist tat at inflated prices closed down their shops on one of London’s busiest (and most expensive) shopping streets. Londoners describe the subsequent emergence of American Candy Stores in a blink-and-you’ll-miss-it way. Perhaps due to the fact that during lockdown many people were unable to venture out of their homes and notice the quiet transformation of many storefronts in central London, or simply everyone's preoccupation with the pandemic, these changes were largely under the radar. It was only in the summer of 2021 that interest in these shops began to emerge, and questions raised as to how it could be possible for several apparently competing shops to crop up selling identical products only a few doors from each other in some of the UK’s most expensive commercial real estate.
The Problem
A medium sized Oxford street shop can cost up to £50,000 in monthly rent alone, with business rates, VAT, council charges and bills significantly upping the cost of running one of these storefronts. Plenty of people can be drawn into these stores but they rarely walk out with any items. So how these shops, that usually appear to be completely devoid of paying customers, are staying in the black has been the subject of intense speculation by the media and, more recently, law enforcement agencies.
So, what are they up to? The short answer is that we don’t really know, however there are several clues that might reveal some of the picture.
The standard procedure for these companies is as follows. When HMRC or Companies House request filings and company information from these candy stores, they simply dissolve the company and re-form it in a new name, with different persons of significant control (at least on paper). Often these named persons of significant control are not British citizens, making following up on economic enforcement or financial transparency far more difficult.
The challenges of enforcement do not end there. A police source that I have spoken to says that another issue with beginning law enforcement proceedings against these shops is the way that the MPS and City of London Police target businesses that are suspected of money laundering. Criteria to trigger an investigation, which are kept secret for operational reasons, include low footfall in a shop when compared with revenues, as well as a mismatch between the price and volume of goods compared with declared revenues. Due to the central London location of these shops, footfall is almost always high. In addition to this, one of the first things that you notice when visiting these businesses is that almost none of the stock is labelled with a price. By both criteria, such shops have avoided data-driven triggers for investigation.
In an investigation conducted by The Byline Times, their correspondent asked the price of a box of sugar drenched cereal, and was told that it would set him back £16.99. When he expressed his shock at this obviously absurd price even by 2022 standards, the price requested immediately dropped to £12.99. It was a similar story for other items, which included a twinkie bar for £16.99, a small packet of sweets for £9.99. These obviously inflated and fluid prices may be seen as a device that avoids initiation of investigation by law enforcement or trading standards. There is no apparent advantage to having unknown and constantly changing prices other than to obfuscate the volume of trade.
The dissolution and re-formation of companies is just the tip of the iceberg when it comes to the intricate webs of ownership and control behind these Oxford Street candy stores. Further digging into their corporate structures reveals a labyrinth of offshore holding companies, trusts, and partnerships that seem designed to obscure the true beneficiaries.
Many of the stores operate as UK private limited companies, but these entities are often owned by opaque offshore holding companies based in tax havens like the British Virgin Islands or the Cayman Islands. These holding structures can involve multiple layers of shell companies, making it extremely difficult to trace the flow of funds and identify the individuals ultimately profiting from the businesses.
Furthermore, some of the stores utilise UK limited liability partnerships (LLPs) and Scottish limited partnerships - structures that offer tax transparency but also lend themselves to money laundering due to their ability to accommodate complex and opaque beneficial ownership. In this way nominee directors, who are tasked with merely representing the interests of unknown beneficial owners, cloud the picture.
Investigators have also uncovered the use of UK trusts and family investment companies, which can be adapted for commercial purposes beyond their traditional use in wealth management. These vehicles allow the true controllers of the businesses to remain in the shadows, frustrating efforts to establish accountability.
The sophisticated segmentation of real estate holdings, intellectual property, and trading activities across multiple jurisdictions is another tactic employed by these operations. A Cayman Islands exempted company may own the trademark rights licensed to a UK umbrella company, which in turn controls the individual candy store subsidiaries. This layered approach makes it nearly impossible to follow the money trails and shut down the entire enterprise.
Clearly, the individuals behind these Oxford Street stores have gone to great lengths to construct impenetrable corporate structures, taking full advantage of the latitude afforded by the UK's company registration system and the availability of offshore havens.
As for the original source of the funds, the only real lead comes from a Private Eye investigation of the tourist shops that seemed to operate in a similar fashion before the post lockdown shift towards American candy. They found that many of the beneficiaries of these companies were Afghan nationals with connections to the heroin trade and the misappropriation of international aid. Under the Taliban’s rule heroin production has supposedly plummeted1 but still the shops are well-stocked and funded, only neglecting to pay their taxes and business rates. Westminster Council has said that as of 2022, there is in excess of £5 million in unpaid business rates and other charges. So, now that Afghan heroin is likely to be a less significant source of funds for these operations, where is the money coming from? The most obvious answer is that the operations have pivoted to freelance money laundering, washing illicit proceeds of international crime for a fee, but really, this is anyone’s guess.
The (Limited) Response
The Economic Crime and Corporate Transparency Act became law in October 2023. This legislation has the stated aim of cleaning up the reputation of Companies House as a murky and opaque system where wrongdoing goes unnoticed and unpunished due to the ability to engineer a complex web of loopholes and company structuring arrangements that are advantageous for bad actors. The measures that have been put in place include: No longer being allowed to use a PO box as a registered company address, identity verification for company officers or persons of significant control, the requirement for a registered email address for a company, a declaration that a company operates lawfully and intends to in the future and Limited Partnerships will have to provide the names and addresses of their officers. It struck me when reading this list that it is extraordinary that these rules were not already in place. In some cases loopholes appear already to be baked into the legislation, presumably to ensure a smooth transition of existing companies, but this obviously removes the teeth that the legislation would otherwise have had. One example of this is that although you are no longer able to use a PO box as a registered company address, you are able to use a third party agent’s address that is in no way connected to the company, as long as you can have the mail redirected to you and are able to confirm the receipt of documents. Although this will undoubtedly increase pressure on criminals and will certainly catch a few out, if the UK is serious about dealing with this issue, the response from the Government must go much further.
For now, the shops still are increasing in number, and remain a significant presence in Central London, silently churning their way through vast sums of money, with little known about where it comes from, or who benefits from it.
A UN report indicates that heroin production in Afghanistan has dropped by as much as 95%. However, curiously the price and supply of Heroin to Europe has remained stable. Drug kingpins now hold influential positions in the Taliban government, indicating that the ban on production by the Taliban may not be as clear cut as it seems. An Iranian government official is reported to have suggested, plausibly, that the eradication of heroin production is beyond the capability of the Taliban.