Herald research: Scots ‘tax haven’ firms bypassing transparency laws

Only one in a dozen of Scotland’s increasingly notorious “tax haven” shell firms has named a real person as its owner under new transparency rules.

Scottish limited partnerships, which have been branded as Britain’s “home-grown secrecy vehicle” by anti-corruption campaigners, are largely failing to comply with both the letter and spirit of the law, The Herald can reveal.

The firms – usually known by their abbreviation “SLP” – since last month have theoretically been forced to declare their main controllers or face potentially crippling fines of £500 a day.

British ministers imposed the new rules after it emerged international criminals and corrupt officials – including those running child porn sites and dirty arms deals – were hiding behind the secrecy offered by a quirk in Scots corporate law.

Last week it emerged SLPs had played a key role in funnelling £2.2bn out of the oil-rich former Soviet republic of Azerbaijan in a elaborate money-laundering scheme.

However, a major Herald analysis of tens of thousands of formal company filings has found that most SLPs are either ignoring or bypassing a scheme to reveal their so-called “Persons of Significant Control” or PSC.

Only around 2000 of the roughly 24,500 live SLPs as of last month had said they had a PSC who was an actual person.

However, even these modest filings show that nearly three-quarters of all named individuals who control SLPs are in the former Soviet Union, where the once obscure entities are widely marketed online as “zero-tax Scottish offshore companies”.

Ukrainians alone, our analysis reveals, own twice as many SLPs as British people do.

We have identified controlling individuals in a total of 74 countries, including every ex-USSR republic, Israel, Italy, Turkey, Spain, the United States and much of Latin America.

However, our analysis also shows that just a third of all SLPs have made any PSC statement at all – meaning many of them should be getting fined for missing a deadline early in August to do so.

Corporate transparency campaigner Roger Mullin – who lobbied the UK Government to tighten the screw on SLPs when serving as an SNP MP – warned there is a danger further reforms could be put on the political back burner even as new shell firm scandals in eastern Europe further tarnish Scotland’s image.

Mr Mullin said: “I fear, given the parliamentary timetable for Brexit, that fixing this will take a back seat. I therefore call on the Scottish Government to make further representation to Westminster, as without further changes Scotland will continue to suffer reputational damage.”

Questions from Mr Mullin earlier this year revealed that Companies House, Britain’s corporate registry, had just six civil servants policing the accuracy of filings for more than four million UK firms.

Herald research suggests this tiny group of officials will find it extremely difficult to even work out which SLPs are supposed to declare an PSC.

Not all SLPs, under the new rules, qualify to do so but there is no way to identify them amid the archaic and only semi-digitised filings. Moreover, some SLPs are still listed at Companies House as “active” months or years after their dissolution.

There is also little or no way to check if SLPs – most of which have equally opaque firms registered in traditional tax havens as their partners – are telling the truth in any PSC statements they do make.

Many firms have simply said no corporate entity or human being has a stake of more than 25 per cent – and therefore say they have no PSC. These include legitimate firms set up by Scottish law firms as tax-efficient vehicles for global private equity funds with multiple shareholders.

We found many SLPs which said their person of significant control was another SLP which had either said it had no PSC or had failed to make any statement at all. We also discovered SLPs whose PSC statements were made by unrelated entities.

The Herald was able to scrape PSC statements from Companies House open-source data in respect of just over 8000 SLPs, around a third of the total. For SLPs created since February 2014 – filings for which are mostly digitised – the proportion subject to PSC statements rose to 42 per cent.

Mr Mullin summed up: “This research reveals three things.

“First, as we have known for some time, Companies House does not have the manpower needed to properly supervise the filings of SLPs. “Second, though only some SLPs have properly registered people of significant control, it is clear the pattern reveals a huge use of SLPs in Ukraine, Russia, Belarus and Uzbekistan where they are often associated with criminal activity.

“Third, the process of filing PSC statements remains administratively flawed, making it too easy to avoid proper scrutiny, thus confounding the intention of making SLPs more transparent.”

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