A SCOTTISH firm is at the heart of a major organised crime investigation into arms exports from the former Soviet Union to the Middle East.
Ukraine’s elite National Anti-Corruption Bureau (Nabu) has named Lanarkshire-registered Fuerteventura Inter in their prosecution of officials accused of skimming from the state sale of cannon shells to the United Arab Emirates.
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Their accusations – detailed in Ukrainian court documents – come amid increasing concerns that a loophole in century-old Scottish company law is being exploited by international gun-runners, money-launderers and tax dodgers.
It has been claimed that the use of the loophole – achieved through establishing a Scottish limited partnership (SLP) – threaten Scotland’s reputation as a “place to do legitimate business”.
Fuerteventura Inter is one of thousands of controversial SLPs currently emerging in eastern Europe, many, allegedly, as vehicles for avoiding taxation.
Such firms, almost always set up by secretive shareholders in traditional Caribbean tax havens, have already been implicated in the looting of $1 billion from banks in impoverished Moldova and a corruption scandal involving the jailed nephew of the authoritarian president of Uzbekistan.
The latest scandal has sparked new concerns about the existence of off-the-shelf Scottish limited partnerships, some of which are being sold as “offshore companies” in Ukraine, Russia, Belarus, the Baltic states and Moldova.
According to papers filed by an investigating magistrate at Solomianka district court in Kiev, the Ukrainian capital, the Scottish-registered Fuerteventura Inter has been used as a cover to skim nearly $2 million from an export of 23mm calibre munitions from Ukraine to the UAE.
A military parade in Kiev shows off Ukraine's arms industry
Officially, the SLP was an intermediary in a deal between a Ukrainian state enterprise called Ukrinmash and the UAE military. But prosecutors allege the firm was used by unnamed officials to take a slice of the value of the contract, approximately 12 per cent or $1.95m.
Fuerteventura Inter was created in February 2015, just months before the allegedly corrupt arms deal.
Andy Wightman, a Green MSP, has been campaigning for the reform of Scottish partnerships for some time.
“These latest allegations of corruption and criminality conducted in the name of Scottish limited partnerships provide further damning evidence of the ease with which this legal arrangement can be used for nefarious purposes by unscrupulous criminal enterprises,” he said.
“The revelations contained in the Ukrainian court papers highlight the urgency with which the Scottish and UK Governments should be acting to clean up the obvious abuse that is taking place. Increased transparency, financial and accounting disclosure, criminal sanctions and reporting requirements are vital if this archaic legal entity is to have any future for legitimate business transactions.”
Andy Wightman MSP
Mr Wightman has said revelations highlighted by The Herald “threatened to tarnish the reputation of Scotland as a place to do legitimate business”.
The Fuerteventura Inter allegations, which have not yet been proved in court, come as part of a wider scandal in Ukraine dubbed the “Ukrinmash affair” or the “weapons mafia case”. Ukrinmash has been supplying vast quantities of arms to the Middle East, including mines, tanks and missiles.
Ukrainian court documents naming Fuerteventura Inter
The wider case, and Fuerteventura Inter, is being investigated by the National Anti-Corruption Bureau which warned that powerful individuals in state enterprises may try “to apply illegal pressure on its detectives”.
Fuerteventura Inter has no presence in Scotland bar an address at a former draper’s shop in the high street of the South Lanarkshire former mining village of Douglas. This address, on Main Street, belongs to a small accountancy firm, Office Wizards, which offers virtual office services to the breed of company formation agents behind the creation of thousands of limited partnerships in recent years.
A partner in the firm, Lily Clark, said she had no knowledge of the Fuerteventura Inter other than its registration.
“All we are doing here is providing a postbox,” she said. “We don’t even open the mail, we just pop it in the post.”
Records at Companies House show more than 2,600 limited partnerships are registered at the address.
Ms Clark’s own records show she has nearly 2,400 firms of various kinds on her books.
The official address of Fuerteventura Inter in Douglas, South Lanarkshire
Fuerteventura Inter was created by a company formation business in Birmingham, England, called CIE Europe Ltd and run by a businessman called Bill Murphy. Such firms generally have no knowledge of how the entities they set up are actually used. No-one has returned calls or emails at CIE Europe Ltd, which pays a modest monthly fee for mail box services for hundreds of companies at Ms Clark’s virtual office in Douglas.
Scottish limited partnerships are unique corporate entities created under Edwardian company law. They can act as legal personalities, have bank accounts and assets, but do not need to provide financial accounts or pay tax if they do not do business in the UK. They have two “partners”. According to adverts from a whole raft of company creation businesses and their agents in eastern Europe, they do not need to pay tax if these partners are themselves corporate entities registered in more traditional tax havens and secrecy jurisdictions, such as Panama or Belize.
Agencies typically offer nominee to be officially responsible for the limited partnership’s partners. The partners of Fuerteventura Inter are two companies called Japan Intergroup SA and Kyoto Holdings SA. Aside from acting as the partners of other Scottish limited partnerships, these companies have no internet trace.
The Scottish Government has previously said that it is asking the UK Government, which has jurisdiction because company law is not devolved, to examine the issue.
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