Herald research: Scots 'tax haven' firms bypassing transparency laws

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.

Azerbaijan's President Ilham Aliyev visits Downing Street

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”.

A list of Scottish and other shell firms for sale in Ukraine

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

BACKGROUND: The secret bases of 25,000 SLPs

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.

Our headline findings at a Glance

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.

Roger Mullin 

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.”

The new PSC regime was announced in June. SLPs had until early last month to comply. An early August snapshot of SLP PSC declarations by the investigative group Bellingcat - taking a single year as a sample - also suggested poor compliance. 

ANALYSIS

Why's Britain's Companies House is just an 'honesty box' exploited by the dishonest

By Richard Smith

It was Britain’s Big Idea to improve trust and transparency in its often shadowy corporate world. Back in June 2016 the UK forced most companies to say who, if anyone, controlled them. After all, politicians conceded, hidden ownership facilitated crime. A year later Scotland’s troubled limited partnerships or SLPs were added to the scheme after a series of major crime scandals exposed by this newspaper.

There was, however, a Big Problem with the Big Idea. The new declarations of “Persons of Significant Control” - or PSC for short - were based on information on a corporate register you just cannot trust, Britain’s barely policed Companies House.

One particular group of agents with indecipherable signatures illustrates just how uninformative PSC statements can be. Let’s call these agents the Squiggles because we have no idea who they are bar their tiny autographs.

I think their story is telling. Bear with me while I explain why. Because it reveals what I believe is eye-poppingly sloppy supervision and a PSC system with a giant loophole

One of the Squiggles has signed a PSC for an SLP called ErgoInvest LP. This business is fascinating because of its name. It was set up this June, just four short months after an English firm, ErgoInvest LLP, was struck off after it was found to be part of a $10bn money-laundering scandal involving Deutsche Bank last year.

Deutsche Bank was fined $630m in Britain and America for allowing that to happen.

Now the new Ergoinvest LP has two partners called Dexberg Inc and Montbridge Inc, which are anonymous companies registered in the Marshall Islands, a scattered and impoverished group of 29 Pacific atolls best known for being the test sites of American thermonuclear bombs

These two distant partners, at least in name, control hundreds of other UK entities, including 150 SLPs registered in shops next to trendy coffee shops in Glasgow’s West End and South Side. So far, so typical.

One of the Squiggles has said ErgoInvest LP has no single controlling person, which is, of course, perfectly possible and a legitimate response allowed in the rules. In fact, he, or she, simply puts a cross in a box on a form to that effect. And adds their trademark squiggle.

A Squiggle signs off a PSC for ErgoInvest LP

This Squiggle has provided similar brush-offs for other SLPs, and volunteered some residents of the former Soviet Union for a few more.

It gets worse: Dexberg Inc of the Marshall Islands is the general partner of another SLP, Fortline Industrial. But Fortline’s PSC statement is signed by an entirely different Squiggle. And the accompanying stamp is for a firm called Dexberg Inc registered, not in the Marshall Islands in the Pacific, but in Dominica, more than 8500 thousand miles away in the Caribbean.

Another Squiggle signs off for Fortline Industrial LP

So the two firms have the same name but different signatures and different island homes.

What business does Dexberg Inc of Dominica have, making a PSC statement for Fortline Industrial, whose general Partner is Dexberg Inc of the Marshall islands? And why did Companies House accept this filing?

The Marshall Islands, no Pacific Paradise, fiscal or otherwise

The Dexberg Squiggle family, from the various island homes, can be even more elusive. Take the PSC statement for Astronet Trade LP. It was signed by a Squiggle acting on behalf of a Dexberg Inc which does not indicate where it is based. The Squiggles, in their statements for both Fortline and Astronet, do say who they are controlled by: respectively, by another SLP and an English limited company. But those two firms have declared that they do not have any person of significant control. Another dead end.

So how do you keep your SLP secret? There are two options: deny that there is a PSC, or provide a PSC that is a UK company, LLP or SLP that has no PSC. And while you’re at it, make sure no-one can tell who you are or where you are.

Companies House is just a glorified honesty box at the moment: the dishonest can have their wicked way with it.

Richard Smith is a writer and researcher who specialises in global fraud and money-laundering