The British Government has launched a full-scale review of Scottish "tax haven" firms exposed by The Herald.
Ministers on Monday published a major consultation on Scottish Limited Partnerships (SLPs) after this newspaper revealed scores of them were being used as fronts for alleged organised crime groups and unethical internet businesses.
Thousands of SLPs have been sold as off-the-peg shell companies around the world in recent years, many by agencies openly advertising them as tax avoidance and secrecy vehicles, especially in the former Soviet Union.
The Government - in its review document - reporter a 237 per cent rise in the number of SLPs registered.
Registrations for the equivalent kind of business in England, Wales and Northern Ireland for the same period rose only 42 per cent. Ministers want to know why.
UK Government Business Minister Margot James said: “I am concerned about recent reports relating to the use of Limited Partnerships, suggesting that some are being used for criminal activity.
"This undermines the many legitimate uses this form of incorporation can give.
“The UK Government is fully committed to stamping out criminal activity, so I have launched this call for evidence and would encourage businesses and other interested parties to respond with their views on whether the rules and scrutiny around Limited Partnerships need to be tightened up to prevent them being exploited.”
Margot James
All Scottish political parties - most recently the Conservatives - have called for reform of SLPs, powers over which are reserved to Westminster. All party leaders have signed up for a campaign organised by Oxfam to close the SLP loophole.
Calls for action in the UK parliament were led by SNP MP Roger Mullin, who today tweeteda response to the British Government move. He said: "A move in right direction. We'll be cooperating and making proposals. Must get this fixed pronto."
The UK Government is now looking for specific evidence on what the impact of a crackdown on the abuse of SLPS would be.
Such firms are currently allowed to have anonymous owners, pay no taxes and file no accounts.
Ministers want views on whether SLPs shouild be forced to have a physical presence in Scotland, declare their owners and file full accounts. They also want to know what the effect on the market would be if they moved to strike off SLPS with crime links.
Secretary of State for Scotland David Mundell said: “It is right the UK Government launches this call for evidence into the use of Scottish Limited Partnerships for possible criminal activity.
“Work by campaign groups and a series of media reports have highlighted growing concerns which require to be taken very seriously.
“I would urge businesses and organisations in Scotland to share their views. It is important we are able to gather as much information as we can.”
Research for The Herald has found that some 17,000 of the roughly 25,000 SLPs registered as of last spring had opaque ownership.
But that leaves thousands of SLPs created by major Scottish law firms as tax-efficient investment vehicles for legitimate and transparent businesses and individuals.
The UK Government said it had sought the views of law and accountancy firms, among others, to its questions.
SLPs, unlike their English or Irish counterparts, have "legal personality". That means their often anonymous owners can use them to, for example, open a bank account, typically in the Baltic States.
Reform of "legal personality" is one of the issues being consulted on.
The UK Government's Questions in Full
1. Does the significant increase in Limited Partnerships registered in Scotland bring a similar increase in economic benefit to Scotland? We would be very grateful for the details of the nature of that benefit.
2. Do you have examples, or specific evidence of why Limited Partnerships registered in Scotland have become more popular in the last 5 years than those Limited Partnerships registered in England, Wales and Northern Ireland?
3. What forms of economic activity or sectors of the economy make the most use of those Limited Partnerships registered in Scotland?
4. What could the UK government do to reduce the potential of Limited Partnerships registered in Scotland being used as an enabler of criminal activity, whilst retaining some or all of the aspects of Scottish Limited Partnership structures which are beneficial?
5. We would like to know whether this basic information requested at the time of registration should be enhanced and if so what additional information might be useful and why? Should there be a requirement to update it at regular intervals?
6. We would like to also consider what levels of transparency would be appropriate to Limited Partnerships, Private Fund Limited Partnerships and Limited Partnerships registered in Scotland?
7. What are the costs of registering a Limited Partnership /Scottish Limited Partnership under the current regime?
8. What would the costs be of enhancing the regime to include more transparency requirements - for example annual reporting of accounts, re-confirming identities of partners or principal place of business?
9. Do you have any evidence that increased regulatory requirements would have an adverse effect on legitimate use of Limited Partnerships registered in England, Wales, Northern Ireland and Scotland?
10. We would welcome views on whether this level of transparency is adequate for Limited Partnerships, Private Fund Limited Partnerships and Limited registered in Scotland.
11. Would this level of transparency have any adverse effects on Limited Partnerships or Limited Partnerships registered in Scotland, and if so, what might they be?
12. Given that formation agents are already subject to money laundering regulations, should there be any additional requirements placed on these entities? If so, what should these be?
13. Why is it important for a Limited Partnership or Limited Partnership registered in Scotland to be able to move all of its activities outside of the UK whilst still being governed by UK legislation?
14. What benefit does a UK registered Limited Partnership or a Limited Partnership registered in Scotland bring to the UK if its Principle Place of Business and all of its activities are outside of the UK?
15. What would be the impact of requiring a Limited Partnership or Limited Partnership registered in Scotland to maintain some form of presence within the UK at all times?
16. We would also be interested in views on whether a Limited Partnership or a Limited Partnership registered in Scotland should be struck off the register if there are convictions against the partners or the entity for illegal activity.
17. The UK government would also welcome views on the real impact of striking off a legitimate Limited Partnership or Limited Partnership registered in Scotland without the knowledge of the partners and what could be done to mitigate any adverse impact.
The full consultation can be found here
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