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Scam sparks Scots fraud haven fears

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Fears are growing that Scotland may be becoming a magnet for money-launderers following allegations linking shell companies there to a $1bn (£634m) fraud in the ex-Soviet republic of Moldova.

The swindle allegedly emptied three of Moldova’s leading banks of almost all their funds.

Investigators say a key role was played by firms registered in Scotland.

The case has highlighted a huge rise there in limited partnerships, whose ownership is often opaque.

The report by the international investigation agency Kroll identified 20 UK LPs as allegedly involved in the complex fraud.

All but one of them are in Scotland.

One – which is now said to be owed the $1bn – is registered along with 420 other companies in a flat in a run-down part of Edinburgh.

Others are said to be involved share an address with more than 3,400 other companies nearby.

Opaque companies

Limited partnerships involve a company structure which has few reporting requirements and whose ownership is often opaque.

The number of limited partnerships in Scotland has more than doubled, from 6,117 in 2009-10 to 14,598 in 2013-14. That’s now more than the number in England and Wales.

Many are legitimate businesses. But there are concerns about transparency, because most are concentrated at a small number of accommodation addresses, and belong to companies in offshore tax havens.

The $1bn that vanished from the banks represents an eighth of the former Soviet republic’s GDP, or about half of annual government revenue.

‘Shocking’ report

Scottish Labour’s justice spokesman Hugh Henry said: “This report is shocking and it’s also very worrying, because, on the face of it, it looks like Scotland is becoming the money laundering capital of Europe. It’s frankly unacceptable.”

According to the Kroll report, based on Moldovan National Bank records, the equivalent of $498m in loans was transferred to three Scottish limited partnerships.

All have partners registered in offshore tax-havens, and all allegedly deposited the money in a single bank in Latvia.

Meanwhile the collection rights to those loans – and to others made to companies registered in Northern Ireland and Hong Kong – are said by Kroll to have been acquired by another Scottish limited partnership – Fortuna United LP.

The total sum owed to Fortuna United is $1bn – equivalent to the complete proceeds of the alleged Moldovan bank fraud.

But, surprisingly, the partnership shares an address with 420 other companies – including 258 other limited partnerships – at a flat in Pilton, the district of north Edinburgh famous as the setting for “Trainspotting”, the novel about heroin addicts.

Viktorija Zirnelyte, head administrator of Royston Business Consultancy, which are company formation agents and registered at the same address, said she and a partner helped set up Fortuna United. But she refused to say anything else about it.

Unlike limited companies, limited partnerships do not need to file publicly-available annual returns or accounts. Their partners have to file their own returns if they are UK limited companies.

But the two partners of Fortuna United LP are both firms registered in the Seychelles. Many other limited partnerships also have partners who are both based in jurisdictions which require no further information to be given.

‘Embarrasses Scotland’

Hugh Henry said: “I think the UK government needs to consider whether the rules governing limited partnerships need to be tightened. But I think, more significantly, Police Scotland and the Crown Office need to investigate to determine whether or not there is industrial scale money laundering going on.

“Because it’s not just that it embarrasses Scotland and diminishes our reputation for financial probity, but if we’ve got relatively poor countries being ripped off by unscrupulous individuals and then we become a conduit for the money, then it’s morally and ethically indefensible.”

Limited partnerships in Scotland are regulated slightly differently from those in England and Wales. Those in Scotland, unlike those in England and Wales, are regarded as separate legal personalities. But there is no difference in reporting requirements.

The sudden increase of them in Scotland appears to be due to the activities of a number of company formation agents keen to advertise their advantages mainly to overseas clients. In some cases they have given out false information suggesting that Scottish limited partnerships have fewer reporting requirements than others – and even that they are free from tax.

Stricter regulations

Ekaterina Ostapchuk of Coddan CPM Ltd, a company formation agent in London, said she had had many inquiries from potential overseas clients with those misapprehensions.

She said: “Pretty much anyone can incorporate a company. Unqualified and uneducated advisers are, I’d say, really dangerous. Because they misuse the system, they misuse the business entities and they provide wrong information to their clients. And I personally think there should probably be stricter regulations for company formation agents.”

A Scottish Government spokesperson said: “The Scottish government is committed to disrupting and dismantling serious organised crime, wherever it is found in Scotland.

“The regulation of company formation is a matter reserved to the UK government.”

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