Scottish limited partnerships and the loophole exploited by the mafia

The 50-year-old was taken in to custody at Naples Airport as he got off a plane from the Latvian capital, Riga.

He is charged, essentially, with cleaning the loot of some of the most dangerous organised criminals in the world. 

We are talking high profile figures connected to the Calabrian ‘ndrangheta, the Neapolitan Camorra and Sicily’s Cosa Nostra. 

The mafia, in other words.

Scognamiglio, of course, is accused, not convicted. But his arrest - and that of many associates - came after a concerted day of action by law enforcement agencies in Naples; Lecce in Puglia; Riga; and the Lithuanian capital Vilnius. 

EuroJust, the EU body which helped co-ordinate the operation, said it was targeting an organised crime group which had laundered two billion euros. Yes, two billion.

Italian prosecutors put the figure a little higher. 

But there is another story, too, as The Herald revealed yesterday. Scognamiglio and his business partner, fellow arrestee Marco Spinola, also had business interests in Scotland.

This included a firm in Glasgow called Trustcom Ltd. It was put in to liquidation more than a year ago after Lithuanian authorities shuttered an e-money provider called Trustcomfinancial as money-laundering investigations kicked off.

Read more: Mafia money-laundering probe uncovers Scottish connections

The Scottish business, on paper at least, was a minnow. Registered at a popular virtual office, it filed accounts for a micro-company, suggesting capital and reserves of just £300,000.

In reality a lot of money must have been going through Trustcom, an awful lot. 

HMRC reckons it is owed more than £7 million in VAT and corporation tax. Liquidators, from a reputable firm, have warned this public money may never be recovered.

They have tried to get hold of Scognamiglio and Spinola. Without success.

The pair, as it happens, have or have had other UK interests, including an SLP, or Scottish limited partnership, a once obscure and still opaque kind of corporate entity that remains incredibly popular among criminals and tax avoiders.

We do not know what - if any relationship - the now defunct Scottish and UK entities had to the alleged money-laundering scheme. 

But there have been plenty of other cases when gangsters, corrupt officials or corporations or tax evaders used a combination of Scottish firms, especially SLPs, and bank accounts in the Baltics to clean their ill-gotten gains.

Authorities in Estonia, Lithuania and Latvia - under pressure from the EU and the United States - eventually cracked down on this cottage industry. 

Essentially agencies were selling money-laundering kits. SLPs, for example, were routinely marketed as “anonymous Scottish zero-tax companies”. (Image: Damian Shields/Newsquest)

This came after multiple money-laundering scandals. One Latvian bank, Rietumu, part owned by Celtiuc shareholder Dermot Desmond, in 2017 was ordered France’s biggest ever criminal fine, 80m euros. This was cut to 20m on appeal in 2021. 

But laundering fines and penalties were building up in the sector.

Eventually the Baltic nations banned their banks from servicing accounts for anonymously owned shell firms, not least Scotland’s.

Latvia made the move in 2018. Banking regulators in the country said that something like 26,000 shells had accounts. This made up something like 45% of the non-resident clientele of the entire industry.

Many of these anonymous non-residents with Latvian bank accounts in the name of, say, Scottish firms were from other parts of what had been the Soviet Union, especially Ukraine and Russia. This include people who were not criminals - they were just looking for a safe haven for their money.

For years a whole variety of agencies had openly advertised off-the-shelf shell companies, such as SLPs or other British entities, along with bank accounts in the Baltics. 

A typical package would be an SLP with two paper partners in a more traditional tax haven - such as Panama - and an account in Riga. 

Buyers would get power of attorney over the paper partners, a year’s rent on a virtual brass plate in a virtual office and an account. At what price? Perhaps £1000.

Essentially agencies were selling money-laundering kits. SLPs, for example, were routinely marketed as “anonymous Scottish zero-tax companies”.

Money-laundering or tax evasion sounds like the kind of thing that is carried out in the dark, something secret, covert, underground.

But entrepreneurs skirting the law do not always operate unseen: they, like any other business, have to market their wares, their services.

Their customers, of course, could select from a menu of jurisdictions for their shell firm and for their bank. Agencies, alongside SLPs, would sell other UK entities, including limited companies, as well as a whole range of shell firms from other countries, such as Canada, Ireland, Denmark and Luxembourg.

Transparency International, the anti-corruption campaign, has had this trade in its sights or years. 

Its UK chapter has focused on the role of Britain’s corporate registry, Companies House, in acting as an unwitting enabler of money-laundering and fraud.

But an SLP or other opaque UK structure is not much use without a bank account. 

Juliet Swann, Transparency’s programme manager for nations and regions, said: ”Over the years shell companies based in Scotland have gone hand in hand with Baltic bank accounts at institutions which we now know were hubs for money laundering. 

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“This combination made it possible for corrupt officials, organised criminals and those seeking to circumvent sanctions to move illicit funds through the financial system.”

There is good news. The UK Government is moving to beef up Companies House, albeit not as fast as campaigners would have liked.

But Swann has a warning: the people who were happy to create, host or service anonymous or opaque corporate entities with foreign bank accounts have not gone away.

She added: “After many years the UK is now reforming Companies House to make it harder for criminals to misuse British companies.

“ The success of these reforms rests in large part on UK efforts to crack down on 'professional enablers' who sell secretive shell companies and Baltic bank accounts as packages for dubious clients. Failure to root out these rogue service providers will undermine the new Companies House reforms and continue to give criminals a way to move their dirty money around the world.”

The people who help criminals clean their money, and often their reputations, are always looking for weak spots. That might be a regulatory hole. Or an unethical business culture.

So as Baltic nations tightened their rules on banks, some started moving in to a new industry: e-money. A whole new generation of financial institutions has mushroomed, many perfectly reputable, offering easy access to funds at the click of an app. 

Trustcom Financial was one of these. Its closure, in 2022,  came after its licence was revoked amid money-laundering investigation.

Scognamiglio produced an e-book, a manual said the Italian press, on how to use “offshore” services. 

It had what one Italian reporter called a “captivating” cover: a man sitting in an armchair in stormy waters with an umbrella.

“Set sail out of the crisis, with us you will be navigating in safe waters,” it said before adding its subtitle: “How to pay less tax.”