IT IS not a reputation Scotland should seek, but increasingly the country is being seen abroad as a good place to do business if your business is the avoidance of tax. A series of investigations by The Herald and others, including the Organised Crime and Corruption Reporting Project, have revealed the extent of the problem and in particular the use of thousands of limited partnerships based in Scotland that foreign firms use to avoid tax.
Now The Herald can reveal Scottish shell firms are also at the centre of what could be the world’s biggest ever money-laundering scheme. Known as Laundromat, the conspiracy has allowed wealthy Russians to funnel at least $20 billion out of their country – $5bn of it through Scottish shell firms. Nearly 120 businesses formed and registered in Scotland – mostly limited partnerships – are known to be involved.
There are a number of deeply worrying aspects to the revelation, the first of which is the reputation of Scotland and the UK abroad. Even now, we tend to think of tax havens as far-off, sunny places in South America or the Caribbean, but the latest revelations about Laundromat should end that traditional view for good. Whatever we might like to think, Scotland and the UK are seen in many parts of the world as the kind of jurisdiction where tax evasion is possible and easy. Left unchecked, this represents a serious threat to the reputation of Scotland.
But the Laundromat revelations should also be worrying for anyone concerned about international equality. The astronomical figures involved might be hard to visualise, but the consequences are real. In fact, as long as there are tax havens that allow wealthy individuals or multinationals to avoid paying their fair share of tax, governments will be denied resources they could use to help the poorest – something we saw recently when it emerged Scottish limited partnerships had been used to funnel $1bn out of Moldova, Europe’s poorest country.
All of this creates a strong moral case for action and, to be fair to the UK Government, it did announce earlier this year – partly because of The Herald’s reporting on the issue – there will be a review of limited partnerships. As for the Scottish Government, it has fairly limited room to act beyond encouraging the police to do more to investigate limited partnerships. Longer term, the review will need to be given time, but the Laundromat revelations have underlined the extent of what is effectively a white-collar industry in Scotland that facilitates money laundering and tax evasion on a grand scale. Only a dramatic tightening-up of the rules on the establishment of limited partnerships will begin to tackle the problem.
The UK Government also has to look again at its procedures for the everyday policing of companies, which are not as robust as they should be – it is still the case in the UK that some companies can go for years without publishing full accounts. Checks on the accuracy of company documents are also not as frequent as they should be, which means firms can continue to act in the way they have as part of Laundromat – with serious consequences for ordinary people around the world and considerable risk to Scotland’s reputation.
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