Revealed: Thirty Scots firms fronting for what police call Britain's biggest internet scam

International watchdogs believe the industry has cost investors - or punters - hundreds of millions of pounds over the last decade, with English police earlier this autumn saying they believe an average of two scams they uncover a day were just the “tip of the iceberg”. It is believed that thousands of Britons have been conned out of money by the sites, many of which are rigged so that their customers lose.

The Scottish firms acting as formal owners of the website are all limited partnerships or SLPs, a kind of business which allows their owners to be secret, file no accounts and pay no taxes.

UK Security Minister Ben Wallace last week told MPs that “intelligence assessments from law enforcement” on the abuse of SLPs were “very concerning”. The Sunday Herald and its sister paper The Herald have named scores of SLPs involved in criminal or unethical behaviour over the last two years, including the alleged $1bn looting of banks in Moldova and Ukraine’s arms export mafia.

Ben Wallace MP

A Dundee SLP called T.S.I.E is now acting as front for a website called DGI Market, which earlier this month was fined half a million shekels - more than £125,000 - by the Israeli Securities Authority in the first major crackdown on binary options operators in Tel Aviv. DGI was found to have provided financial services in Israel without a licence. Most of the firms do most of their business outside Israel, but have faced numerous bans across the world, including in Belgium and America.

Britain’s Financial Conduct Authority (FCA) has issued a blanket warning on using such sites.

Roger Mullin, the SNP’s Treasury spokesman and a campaigner for the reform of SLPs, wants the UK to follow other nations and ban binary options.

He said: “Masquerading as investment opportunities, binary options are unregulated, unethical gambling on financial markets, but where the investor-punters are systematically stripped of all of their funds.

“That some are now using SLPs to give a smokescreen of legitimacy while hiding the identity of the crooks running such operations, is doubly concerning.”

Mullin believes the UK Government is now moving towards acting on SLPs, control over which is reserved to Westminster. “I will be ensuring ministers are fully aware of these binary option scams which serve to emphasise the need for urgent action,” he said.

Formal ownership of the con has been migrating to Scotland and the rest of the UK from traditional Pacific tax havens in recent months.

Scam watchers believe this may be because credit card companies are happier processing transactions from an address in Edinburgh than in the Marshall Islands.

Writing for our website, Simona Weinglass, the investigative journalist for The Times of Israel who uncovered the scale of the binary options industry there, said Scotland had a clear role to play in stopping scammers processing credit card payments.

She said: “Fraudulent binary options and other cyber scams only work because the scammers are able to process credit card payments.

“Thus, if a binary options company in Bulgaria can pass itself off as a company that sells electronic equipment in Scotland, the transaction is much more likely to be approved by Visa and MasterCard. All of this happens algorithmically, with no humans involved. At the human level, victims are more likely to ‘trust’ a company with a Scottish address than one in, say, the British Virgin Islands.”

Israeli lawmaker Ksenia Svetlova, who represents the centre-left Zionist camp in the Knesset, said: “Tax havens and the dodgy businesses being incorporated around the world, and now in Scotland as well, must make us all lose sleep, especially when there is money coming from Israel involved.

“Vast sums of money are changing hands, crossing continents clandestinely, and this is because government authorities are not doing enough to expose this activity. It’s clear that the purpose of transferring the money is dubious, otherwise there would be no need for tax havens.”

Ksenia Svetlova

Svetlova is proposing Israeli legislation to impose tighter controls on lawyers and accountants who provide company formation services. As revealed in this newspaper, such businesses, some based in Scotland, have been advertising off-the-peg SLPs globally as vehicles for secret ownership and tax avoidance

The FCA in its warnings on binary options stressed such websites frequently presented themselves as being British.

It said: “Fraudulent firms operating in the binary options market without the necessary authorisations or licenses tend to be based outside the UK yet often claiming to have some kind of presence here, often at prestigious City of London addresses.”

SLPs acting for binary options are clustering around two addresses, one in Bath Street, Glasgow, and another in St Vincent Street, Edinburgh. Both are mail drops and the partnerships concerned have no physical presence in the country bar their virtual “brass plates”.

England’s National Fraud Intelligence Bureau’s head of crime, Detective Chief Inspector Andy Fyfe, has described offshore binary options scams as the biggest fraud in the UK. Speaking in September, he said: “People have been persuaded to cash in some of their pensions and invest in rubbish. The vast majority of the non-UK based binary firms are operating from Israel.”

Fyfe said the average UK loss was £16,000.