Exclusive: ‘Scotland now go-to country for global arms dealers to stash cash’
Mafia watchers in Ukraine say organised criminals exploiting secretive Scottish companies to launder money
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 warzone 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 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 off 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.
We first exposed SLPs as money-laundering vehicles last year when it emerged such firms had been used to help funnel $1 billion (£773m) allegedly stolen from Moldovan banks.
The Sunday Herald has 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 there was a “specific” arms element to organised criminals who had shown an interest in Scotland.
He 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.”
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.
“Scotland shouldn’t be in danger of becoming the money-laundering capital of UK.”
MSP Ross Greer of the Scottish Greens added: “This obscure legal vehicle has made Scotland a haven for a conflict industry the Scottish public want nothing to do with. The Scottish and Westminster Governments must take action to prevent SLPs being used for unethical purposes.”
Scotland shouldn’t be in danger of becoming the money-laundering capital of UK