SCOTTISH shell firms were used to move at least £4 billion out of the former Soviet Union as part of what is thought to be the world’s biggest and most elaborate money-laundering scheme.

In a dramatic blow to the country’s global image, The Herald can reveal Scotland played a key role in the so-called “Laundromat”, a giant criminal conspiracy enabling Russia’s elite to funnel a minimum of $20bn out of their country.

The scale of the alleged money- laundering through Scotland dwarfs anything seen here before.  The £4bn figure – $5bn at current exchange rates – is the equivalent to nearly £1,000 for every adult in the country or our entire annual whisky exports.  Politicians now fear the sheer volume of dirty money flushing through Scottish shell firms – entities that only exist on paper and are registered at modest flats or high street mail drops – could do lasting damage to the country.

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Green MSP and campaigner Andy Wightman said: “This kind of corruption undermines democracy and the rule of law and undermines Scotland’s reputation as a place to do business.   “Ultimately the price is paid by the poorest and most vulnerable citizens of the countries affected through loss of public revenue and lack of trust in government.”

The scale of Scotland’s role in the Laundromat was calculated by  The Herald using data provided by the Organised Crime and Corruption Reporting Project, or OCCRP,  a not-for-profit group that has led the investigation into the scheme.

Andy Wightman

HeraldScotland: Writer Andy Wightman

Background: How Scotland is a perfect tool for criminals

Working with journalists and investigators across Eastern Europe, including Moscow’s independent Novaya Gazeta newspaper, the OCCRP has exposed how $20bn (£16bn) was syphoned out of Russia between 2010 and 2014.  However, investigators believe the actual sum laundered through the entire Laundromat may be even bigger, perhaps $80bn, which is about one-third of the size of Scotland’s total annual GDP.  The latest Laundromat revelations come amid growing anger in Russia where thousands took to the streets over the weekend to protest against corruption they believe is crippling public services and political life.

HeraldScotland:

Britain – and especially London’s property and financial markets – is believed to be one of the main final destinations for such dirty money.

The Guardian last week revealed that OCCRP and Novaya Gazeta had obtained banking records showing that British banks, including the Royal Bank of Scotland, were used to process some of this money.   The Laundromat scheme typically was designed to bypass Russian  capital flight regulations by creating fictitious loans from western companies to Russian ones. Russian firms would then default on their debts and a court in the tiny Soviet republic of Moldova would order them to pay up. Sixteen judges in Moldova are currently being prosecuted.

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The OCCRP has details of 21 “core” companies which received payments through Moldovan courts in this way. Six of them are Scottish, all of them now dissolved. These included four ordinary limited companies called Westburn Enterprises, Caldon Holdings, Tottenham Management and Mirabax Investments.  OCCRP data, based on Moldovan court records. shows these firms received at least £4bn at currently exchange rates. Westburn Enterprises alone accounted for nearly half that figure.

However, two of the six Scottish “core” firms were Scottish limited partnerships or SLPs, unique entities that enable their owners to be anonymous, pay no taxes and file no accounts. They were called Treegold Development and Alaro Business. It is not clear how much money went through accounts in their names.  The “core” companies, however, only represent the beginning of the journey of  dirty Russian money  through Moldova and western companies. Cash was cascaded through “layers” of hundreds more businesses and their accounts. A Herald analysis of OCCRP papers  has so far identified 114 SLPs, 40 of them registered at a single flat in Leith that has been used as a maildrop of anonymous shell companies on an industrial scale.

Herald View: Scotland of our tax haven status

The Herald last week revealed that one “layer”  SLP registered in central Glasgow had been used  to launder £160m as part  of the Laundromat. These revelations about the abuse of SLPs in the Laundromat are focusing political minds at  the highest level of the  Scottish Government and law enforcement. 

Justice Secretary Michael Matheson last night said: "It is essential the abuse of SLPs is prevented and that Scotland is not seen as a refuge or conduit for criminal activity.”

"There are some legitimate uses for SLPs and I hope that these legitimate uses can be preserved but it is essential that the abuse of SLPs is prevented and that Scotland is not seen as a refuge or conduit for criminal activity."

Justice Secretary Michael Matheson

HeraldScotland: Justice Secretary Michael Matheson  (Photo by Mark Mainz)

British authorities are currently reviewing the future of SLPs - corporate law is reserved - after The Herald revealed their involvement as fronts for everything from industrial scale corruption in the Ukrainian arms export industry to multi-million-dollar Israeli financial betting scams, $1bn movie, TV and gaming piracy scam and child pornography websites.

Thanks to SLPs, Scotland is increasingly marketed in the former Soviet Union and around the world as a "secrecy" jurisdiction akin to Panama, Belize and the British Virgin Islands. The number of SLPs trebled between 2011-12 and 2015-26.

How this story looked in print

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