Warning that Scotland is becoming ‘Panama of the North’ as Edinburgh tax haven firm under investigation
UKRAINE is investigating a Scottish-registered firm for alleged corruption at the former Soviet bloc’s state-owned vodka maker.
Winglex Inter has a registered office in Edinburgh – but no physical presence in this country. It has now been named in a prosecution by the elite National Anti-Corruption Bureau (Nabu) over claims state officials abused their powers.
The claims, which appear in Ukranian court documents, follow increasing fears a loophole in century-old Scottish company law is being exploited by international gun-runners, money-launderers and tax dodgers.
Winglex Inter is a controversial Scottish Limited Partnership (SLP) with only an administrative address in this country. It is allegedly one of six firms that bought millions of dollars worth of ethyl spirit from the Ukraine government alcohol giant Ukrspirt in a cut-price deal.
Politicians believe such cases are damaging Scotland’s reputation as a place to do “legitimate business.”
Liberal Democrat MSP Liam McArthur said: “This is the latest in a series of reports that suggest that abuse of SLPs is damaging Scotland’s reputation as a place to do business.
“These are not minor allegations. This is serious criminality. The last thing we want is for Scotland to be seen as the Panama of the north in the eyes of the world.”
READ MORE: Scottish tax haven firms front for controversial financial betting sites.
Scotland? The Panama of the north?
Independent Mafia watchers in the eastern European country have suggested that some SLPs and other Scottish and British so-called “shell” companies – openly sold off-the-shelf as vehicles for tax avoidance and secrecy – are fronts for organised crime.
The Scottish Government has formally asked the UK to close the SLP loophole to organised criminals. The charity Oxfam, as well as SNP, Green Party, Labour and Liberal Democrats’ politicians have called for reform. READ IN FULL
INTERNATIONAL gun-runners are using Scotland to launder their profits, Mafia watchers in the former Soviet Union have said. Organised criminals are increasingly exploiting secretive and obscure Scottish shell firms as fronts for everything from cyber-scams to the wholesale looting of banks.
Last month one Scottish company was accused by Ukraine’s elite anti-corruption bureau of skimming profits from state arms exports to the Middle East. Another, despite being officially dissolved, won a bid to hire armed men in the war zone of eastern Ukraine
The Scottish Government has become so alarmed about such shell firms – usually limited partnerships or SLPs advertised as “zero-tax offshore companies” across eastern Europe – that the Sunday Herald can reveal that last week Finance Secretary Derek Mackay wrote to his UK counterparts urging a crackdown.
Now Mafia monitoring group CRiME has warned that Scotland has become a money-laundering factory for criminal gun-runners hiding behind SLPs.
Journalist Andriy Lavryk, who heads CRiME, said: “For some reason the interests of arms dealers from Ukraine, Russia and the Middle East – and their customers – are concentrated in Scotland.”
Lavryk stressed how hard it is to get infallible information on Scottish arms links but confirmed that corrupt officials and businessmen from across the former Soviet Union – not just the so-called “arms Mafia” – use SLPs and other British “offshore structures”. He cites a source as saying: “All the arms dealers gather in Scotland. Arms billionaires live there.”
Some law enforcement and political sources in Scotland have long been concerned that SLPs – which often exist only on paper – were putting this country on the radar of very serious international criminals.
SLPs are businesses that often start of their lives advertised online in eastern Europe as “Scottish offshore companies”, firms registered in Scotland but with parent companies in the world’s shadiest fiscal paradises such as Belize or Panama. The Sunday Herald last month revealed there are now more than 25,000 such firms registered, none of which has filed accounts and almost all of which have ownership in secretive offshore jurisdictions.
Tax Haven Scotland
We first exposed SLPs as money-laundering vehicles last year when it emerged such firms had been used to help funnel $1bn (£773m) allegedly stolen from Moldovan banks.
The Herald and Sunday Herald have since revealed SLPs have been allegedly implicated in a Latvian scandal involving the now-jailed nephew of the president of Uzbekistan, and as fronts for websites peddling diet pills dubbed a scam, as well as sites offering to write essays for students.
Lavryk stressed that criminals and corrupt officials and politicians in the former Soviet Union were attracted to “offshore” companies with addresses in the EU, not just Scotland.
Former Soviet criminals – and nervous legitimate business people – will choose any jurisdiction that provides a way of hiding the ultimate owner of assets – and protecting those assets from potential threats, including the taxman.
But he added that there was a “specific” arms element to organised criminals who had shown an interest in Scotland.
Lavryk said: “Scottish offshores have only started to crop up relatively recently in the investigations of law enforcement and independent journalists. “Some offshore companies registered in Scotland have appeared in dubious contracts involving Ukroboronprom, a group of companies belonging to the government of Ukraine and specialising in the production and trading of military hardware, from Kalashnikovs and mortars to tanks, planes and missiles.”
Ukraine: the former Soviet republic is currently in a ‘frozen’ conflict with Russian-backed separatists
Other sources in Ukraine stress that the prestige and kudos of Scotland and the UK also plays a role in prompting tax evaders and gangsters to use SLPs or English limited liability partnerships.
Anybody controlling an SLP or LLP – which have legal personality – can open an EU bank account. Firms marketing SLPs for around £1,000 off-the-shelf claim the Scottish model has the added advantage of not having to file financial accounts if neither of its partners is a limited company.
Police Scotland and Her Majesty’s Revenue and Customs have raided addresses where thousands of SLPs are registered. Senior law enforcement figures have been aware of the issue for some time – although sources stress any crimes committed tend to be outside their jurisdiction.
The SLPs are routinely used in conjunction with banks in countries like Latvia or Cyprus. So the money they launder may never move through Scottish accounts, sources say. Scottish politicians across party lines have become increasingly concerned about the boom in SLPs – amid fears the country’s international reputation could be tarnished.
Holyrood cannot legislate because corporate law is reserved to London.
Roger Mullin, SNP Treasury spokesman in Westminster, said: “It is not acceptable that despite being raised over a year ago no action has been taken to close these loopholes.
“The SNP proposed a Fair Tax Bill to take action against tax avoidance and the UK Government needs to get on with the job of stopping criminals using these methods to move and conceal their money. The Scottish Government has asked the UK to make these changes and the SNP at Westminster will be pushing for urgent action.”
Labour MSP Jackie Baillie agreed. She said: “It appears there has been very little movement on this issue since the Sunday Herald revealed the problems over a year ago. Scottish Labour believes the UK Government must consider whether the law covering limited partnerships needs to be tightened and whether it is being abused by criminals. TheHerald