Last year an MP fired a shot over the bows of Scotland’s legal establishment. The SNP’s Roger Mullin was campaigning for reform of Scottish limited partnerships or SLPs - the shell firms dubbed “Britain’s home-grown secrecy vehicles” - and he was sensing resistance from some of the solicitors who created and hosted such entities.
The UK Government had launched a consultation on how to close a century-old loophole which effectively allowed SLP owners to be anonymous, pay no tax and file no public accounts.
The Law Society of Scotland responded with a defence of the legitimate use of such firms, as tax-efficient vehicles for private equity funds.
Mr Mullin was not impressed. “It is rather sad that the Law Society should be so complacent about the extent of criminality associated with SLPs,” he told this newspaper. “One wonders if the Law Society is more interested in defending the aggressive tax avoidance strategies of wealthy clients, rather than ensuring Scotland builds a reputation for ethical practice.”
Mr Mullin had expected some smart ideas from Scotland’s best legal minds on how to stop abuse. Instead he encountered scepticism about the scale of the problem. Speaking today, he said: “When I campaigned for much tighter regulation in relation to SLPs, I was aware that some in the legal hierarchy in Scotland were far from supportive of moves to tighten up matters.”
Now out of politics, Mr Mullin still backs tougher regulations and legislative change. Rules can change. But just sticking to the rules, he and other campaigners suggest, is never going to be enough.
Scottish white-collar professionals, solicitors, accountants and company formation agents, are going to have to ask themselves harder questions about why their clients want to be anonymous. In providing secret firms, they face same ethical quandary as the Swiss banks who let their customers have secret accounts
The SLPs based at Scottish lawyers or regulated accountants are far less likely to end up in the headlines as money-laundering vehicles or fronts for organised crimes than those registered at anonymous mailboxes or council flats. But they have got in to trouble. And hundreds - including those linked to private wealth management businesses in the Caribbean - remain non-complaint with basic new rules on identifying their owners. That, strictly speaking, may not always be the legal responsibility of lawyers or accountants.
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Mr Mullin, however, reckons professionals must take a moral view on their clients. He said: “This to me should be the central focus. Not whether some law has been broken, but whether firms are operating ethically in providing a base from which others can engage in evil deeds under a cloak of anonymity.
There are broadly two schools of ethics relevant here. The first is the deontological school of ethics, easiest to understand as a duty based approach to ethics. In making such a defence, it matters little whether following the rules leads to good or bad consequences. It matters little that some of the SLPs registered at a reputable firm’s address are mere fronts for illegal activities of various sorts.
“There is nothing to preclude those firms following the rules from also having cognizance of the consequentialist school, where behaviour involves a firm weighing the consequences of its choices and choosing those that are most likely to result in a good, rather than bad, effect for the greatest number of people.
“This could even include paying some concern for the overall reputation of Scotland.
“Such small-scale progress as has been made in terms of SLP regulation (without the wholehearted support of legal establishment) may be welcome, but it is far from enough.
“Even if campaigners can eventually get much stronger regulation in place, it is unlikely to be fully successful if legal firms continue with such a narrow view of their own obligations.”
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