The white facade and palm trees make Ugland House look like a small hotel in the West Caribbean. But the five-storey office block in the Cayman Islands combines a reputation for controversy with 18,000 tenants.

Described by President Obama as the "biggest tax scam in the world", Ugland House is home to thousands of businesses which take advantage of the Islands' status as a tax haven. The building is also the registered address of several "mutual funds" that are part of the investment group chaired by First Minister Alex Salmond's chief economic adviser, Sir George Mathewson.

A Sunday Herald investigation can reveal that Toscafund Asset Management LLP, a £3.5billion hedge fund whose holding company has Mathewson as chair, has domiciled many of its funds in this sun-kissed British dependency - out of reach of the UK Treasury.

Documents from the Cayman Islands government and the US Securities and Exchange Commission (SEC) confirm that seven Tosca funds are registered in a tax haven described by one American senator as "feasting" on the taxpayer.

Mathewson, a prominent Nationalist supporter, was appointed chair of the SNP government's council of economic advisers in 2007. The 11-strong team was created to "advise the first minister on the best way to improve Scotland's sustainable economic growth rate".

Mathewson is now at the centre of a controversy over whether his company's business interests are damaging the economy he is meant to be helping.

The former Royal Bank of Scotland chief is chairman and director of Old Oak Holdings Ltd, a financial services and investment group based in London. Old Oak is the holding company for Toscafund, which has several "mutual funds"- schemes that invest money in stocks, bonds and other market instruments - registered in the Caymans.

According to the Cayman Islands Monetary Authority, Tosca, Tosca Long and Tosca Asia were all registered there between 2000 and 2007. Another four firms - Tosca Focus, Tosca Infrastructure, Tosca Metriks and Tosca Small Cap - were registered in the Caymans after Mathewson was appointed as Salmond's chief economic adviser.

One of the funds, Tosca Asia, is managed by Tosca Global Limited, a wholly owned subsidiary of Old Oak registered in another tax haven, Dubai.

Another three of the funds are run by Toscafund Asset Management LLP.

A spokeswoman for Ugland House confirmed to the Sunday Herald that the seven Tosca funds were registered in the building. She added: "They are all handled by the same attorney, Oliver Godwin." Godwin did not respond to emails. A spokeswoman for Toscafund confirmed Old Oak was the holding company for Toscafund. She said: "They are all still ongoing and doing well."

Setting up businesses in the Caymans is legal, but they have long been linked to financial scandal and criticism.

Enron, the former energy corporation which perpetrated a global fraud, had 700 subsidiaries registered there.

The British territory does not levy tax on capital gains, corporations or income, and does not impose a withholding tax. With 47,000 residents, the Caymans has two registered companies for every citizen, and a mutual or hedge fund for every five residents.

Tax havens are estimated to cost the Treasury around £33billion a year in lost revenue. Richard Murphy, an adviser to the Tax Justice Network, said: "There isn't a need to do anything fancy to avoid paying tax. You just have to say you are there. It is also incredibly hard to find out what is going on."

Ugland House is the main hub of business activity in the tax haven.Occupied by Maples & Calder, an international law firm, the building is home to 18,857 separate corporate and individual entities. For a fee, the law firm will receive a firm's mail, forward it to another address and accept telephone calls on the business's behalf.

Ugland House has long been in the sights of the US Congress and President Obama said of the George Town building: "There is a building in the Cayman Islands that houses supposedly 12,000 US-based corporations. That's either the biggest building in the world or the biggest tax scam in the world, and we know which one it is."

A report by the General Accounting Office (GAO), Congress' investigative arm, concluded that US citizens were using the haven to evade income taxes or hide illegal activity. A follow-up hearing last year by the Senate Finance Committee also blasted the activities of Ugland House. Committee chair Max Baucus said: "Today, we'll examine whether many of those tenants are feasting at American taxpayers' expense."

A US-EU crackdown on tax havens now appears inevitable. President Obama - praised by Salmond last week when the first minister visited Washington - and Gordon Brown have both promised action. "We want the whole of the world to take action. That will mean action against regulatory and tax havens in parts of the world which have escaped the regulatory attention they need," the prime minister said.

Earlier this month, Brown lost key banking adviser Glen Moreno after it emerged he had links with a Liechtenstein bank involved in tax avoidance.

Although there is no suggestion that Mathewson is involved in wrong-doing, it is unclear how he can square Toscafund's use of tax havens with his public role as an advisor to the first minister.

Mathewson first became a problem for Salmond last year when it was revealed that Toscafund profited from the "short-selling" which the first minister blamed for the run on HBOS and other financial institutions.

He also contradicted Salmond last week by describing calls for a cap on bankers' bonuses as "grossly simplistic and populist". The first minister, the previous day, labelled such a proposal "a perfectly workable solution".

According to its latest accounts, Toscafund Asset Management LLP made a profit of £158,234,839 in the year to December 2007. However, in 2008, it lost half its value.

In December, the company polled investors about restructuring its portfolio. This was followed by the hedge fund suspending dealings on Tosca Small Cap and Tosca Asia last month. Comment on this story here