EDINBURGH's lucrative sex saunas are backed by businesses that do not need to disclose their income publicly, the Sunday Herald can reveal.

Eleven of the capital's saunas have 'unincorporated' companies registered at their addresses – none of which need to lodge accounts at Companies House.

Edinburgh's saunas operate by virtue of public entertainment licences granted by the city council.

Despite brothel-keeping being illegal, the sexual services believed to be on offer in the saunas have been tolerated by city authorities for more than two decades.

Defenders of the status quo argue the approach keeps women away from street prostitution, while critics say the policy amounts to the toleration of violence against women.

Although saunas were rarely on the radar of the now-defunct Lothian and Borders police force, the new single force appeared to take a different approach earlier this month.

Around 150 Police Scotland officers targeted seven saunas and 11 other addresses in what was described as a major clampdown. However, one source said Police Scotland had targeted serious criminality allegedly linked to the saunas, rather than focusing on the sex for sale.

Separately, three Edinburgh-based individuals were found guilty last week of proceeds-of-crime and immoral earnings charges relating to a flat in the city.

An investigation by this newspaper into the saunas has thrown the spotlight on the ownership of the industry and its profits.

An extensive trawl of legal and property records shows that 11 of the 13 saunas are supported by an identical business structure. In these cases, an individual or a company with little money in the bank holds the entertainment licence.

Space is then rented or used from a property owned by an unconnected party.

However, tracing details of the money taken in from clients is often harder.

Unlike limited companies – which have to register their directors, shareholders and income – these unincorporated businesses only have to prepare accounts for the taxman. An official business directory provides the names and addresses of these organisations, but little else.

It is a perfectly legal set-up, but one that prevents public scrutiny of the finances of the firms linked to the saunas.

Ambassador Sauna, at 91 Lothian Road, is one of Edinburgh's most popular massage parlours. According to a former associate, the sauna could be expected to make around £500,000 a year.

However, the firm that holds the licence, Ambassador Leisure Limited, has only £100 in the bank, according to its accounts.

Also based at the same address is an unincorporated business called Ambassador Sauna, which was created in 1993 and declares 10 employees. No financial details are available.

Scorpio Leisure is based on Albion Road, however, no limited company bearing this name exists, but an unincorporated entity called Scorpio Leisure is registered at the same address. According to the ICC business database, Scorpio Leisure has 41 employees and lists the contact as Charles Haig, who holds the licence.

Other saunas that have unincorporated bodies located at their address include: Executive; New Town; Paradise; Blair Street; London Street; New Gentle Touch; Carol's; Abacus and Gentleman's Club.

The revelation raises questions about how much money the saunas make, and the size of the cut the owners take from the sex workers.

MSP Margo MacDonald, who supports Edinburgh's harm-reduction approach, criticised the saunas' business arrangements.

"People involved in the running of the saunas like to give the impression they run a controlled and regulated service.

"However, that is blown out of the water if the public do not know how the saunas make their money and where the money goes. The saunas should comply with best practice on financial transparency."

Jenny Kemp, the coordinator at the Zero Tolerance charity, said: "Edinburgh saunas' business arrangements being secretive is disturbing but not surprising. The owners clearly don't want anyone to know how rich they are getting by preying on women's bodies. We'd urge the city council to explore why premises they licence as 'public entertainment' have such a desire to keep their affairs private."

* As part of the Sunday Herald's investigations into the sex industry in the capital, we also uncovered a Scottish farmer from Dumfries and Galloway who says he was "horrified" to learn he may own a property in Edinburgh that is used as a sauna.

James Gilroy inherited property in Argyle Place from a relative in 1987 and, like other parts of his portfolio, outsourced control to a property-management firm. He was shocked to be told that 40 Argyle Place is now home to The New Gentle Touch, a licenced sauna.

Gilroy said: "I thought it was a paper shop." He added: "I'm horrified. It is complete news to me."

Registers of Scotland, the Government agency, said, "it looks as though James Carey Gilroy is the owner of 40 Argyle Place".