Super-rich inhabitants of ‘Moneyland’ are subverting democracy

The sinister tale of how a century-old law was abused to turn Scotland into a tax haven, writes Oliver Bullough

Scotland became a tax haven thanks to 17 words, and one enterprising crook – perhaps in eastern Europe? – who spotted them. The words were remarkably dull (the Partnership Act of 1890: “in Scotland a firm is a legal person distinct from the partners of whom it is composed”) but important. It was these words that attracted conmen and fraudsters from Russia, Ukraine and elsewhere and helped them hide their theft of billions of pounds.

The discovery of this Victorian law, which defines Scottish partnerships as different to those in the rest of the UK, illustrates the phenomenon that I call Moneyland. The guardians and servants of the super-rich are constantly scanning the world for legal loopholes like this, and then exploiting them for the benefit of their clients’ money and the detriment of the rest of us.

If they can’t find a useful legal loophole, they find a friendly jurisdiction happy to create one for them. Places from Jersey to Lichtenstein to the Marshall Islands have long made a happy living by tailoring their laws to the needs of the wealthy. This has created a virtual country in which the planet’s richest residents can choose how they live in a way the rest of us cannot: Moneyland, a place where, whoever you are, wherever your money came from, the laws do not apply to you.

The creation of Moneyland has helped the richest people monopolise an ever-greater share of the planet’s resources. According to Oxfam, the planet’s top 42 people own the same amount as the bottom half of the world’s population. Their ability to escape taxation and scrutiny means by next year, they’ll be richer still.

Combatting their misuse of the world’s financial architecture is crucial to the defence of democracy. Perhaps 10 per cent of all wealth is hidden behind the ramparts of the tax havens, and outside the reach of national exchequers. Its owners escape any form of democratic control as a result, yet can use their money to subvert our politics, just like they do in Russia. Unless we want Britain to become a plutocracy as well, we need to combat Moneyland before it’s too late.

Scottish Limited Partnerships – Scotland’s own secrecy vehicle – appeared in 1907, in an updating of that 1890 law. They were used to secure agricultural tenancies, and remained distinctly unglamorous, until a century after their creation. That was when the enterprising crook spotted them. Within seven years, more SLPS were being created annually than had been created in the whole of their first 100 years, almost all of them linked to just ten addresses.

Some of these SLPS were legitimate, and used by financiers to structure investment funds. But hundreds of them were dodgy, like the 119 SLPS abused in a scheme to secretly move $20 billion out of Russia in 2010-14. The SLPS were created by lawyers in the former Soviet Union, controlled from secrecy jurisdictions like Nevis or the Seychelles, so no-one had any idea who owned them and therefore who was behind the crime that they were committing.

Thanks to that wrinkle in the law – the 17 words – the SLPS could enter into contracts on their own account, but hide the identity of their owners as successfully as anything registered in the most notorious tax havens. It took the UK government (although they are Scottish Limited Partnerships, they are not controlled from Holyrood)