IN Armenia and Siberia there are questions about millions of dollars of missing tax. In Kazakhstan, holidaymakers are complaining about a hard-sell timeshare scheme.

These are all routine stories of crime, corruption and unethical trading published in the former Soviet Union over the last two months.

They all have one thing on common: at their very centre is the alleged abuse of a Scottish limited partnership or SLP, the corporate structure long dubbed “Britain’s home-grown secrecy vehicle”.

In fact, there are so many international revelations, big and small, about SLPs and similar English, Northern Irish and Scottish entities called limited liability partnerships or LLPs, that we would need a special edition of The Herald just to cover them all.

This article catalogues just a few recent scandals to emerge since UK Government - under pressure from the SNP and transparency campaigners - announced in the spring that it would reform SLPs (but not English or Scottish LLPs). A consultation on those changes ends this weekend.

Let’s start with a big story from Armenia. Its National Security Service recently arrested three officials at a business called Norfolk Consulting which last year secured a monopoly on handling customs processing for cargo from neighbouring Turkey, China and the United Arab Emirates. The men have been charged with serious tax evasion. Local media suggest some $7 million in import duties has been lost between August of last year and May of this year.

There have been suggestions that the executives detained - along with a total of $500,000 in cash - were connected to some of the Transcaucasian republic’s leaders.

The National Security Service said Norfolk Consulting was owned by a business registered in Edinburgh last year, Norfolk Project. This SLP was created just as the UK Government in an emergency move last summer forced such entities to name a person of significant control, or PSC, a beneficial owner in layman’s terms.

This policy, which already applied to LLPs and limited companies, was designed to deter abuse. Norfolk Project has named its official owner, a man with an Armenian name who lives in Moscow.

The case in Armenia continues. The general director of Norfolk Consulting was last month remanded in custody pending trial.

Armenia’s story has echoes thousands of miles away. Journalists in the Siberian republic of Khakassia, part of Russia, are asking questions about tax there. They want to know why a huge open-cast coal mine is selling millions of tonnes of coal at below-market prices to a Russian-registered intermediary which then sells the fuel on to two British firms. One of those UK businesses is an SLP and shares an Edinburgh address with Norfolk Project. The other is an English LLP. Neither have revealed their owners. Local news sites have found paperwork for the Russian intermediary. One if its beneficiaries, they said, is the 90-year-old father of an MP.

English LLPs are offered for sale, off the peg, on the same websites as SLPs. And, with astonishing regularity, the two kinds of businesses appear in the same crime reports.

Just across the border from Khakassia, in Kazakhstan there is a rolling row with consumers saying they have been given an unfair hard-sell by a holiday company flogging timeshares. Customers entered in to deals through the holiday firm with a London LLP and an SLP registered at the same address, a well-known mass mailbox, as Armenia’s Norfolk Project and the Khakassian coal case SLP.

At the other end of the old former Soviet Union, in the Latvian capital Riga, there are questions about a lawyer gunned down earlier this year.

Martins Bunkus was working on the insolvency of a Trasta Komercbanka, which lost its licence over breaches of money-laundering and counter-terror rules two years ago. Trasta was where shell firms involved in the Russian Laundromat - the biggest ever scandal to feature SLPs and LLPs - had many of their accounts.

Mr Bunkus was killed in his Range Rover. He also drove an Aston Martin. Both were leased by a firm ultimately owned by LLPs registered in Milton Keynes.

Latvia is currently cleaning up its banks, which have started to drop their offshore clients, including many SLPs and LLPs and their usually secret ultimate owners. It has come under pressure from the US and European Union to do so, not least because of a series of money-laundering scandals involving the rest of the former Soviet Union.

Ukraine is the country which most frequently throws up stories involving SLPs and LLPs, frequently with Latvian banks and often with Trasta.

Only this week Ukraine’s National Anti-Corruption Bureau or Nabu announced it was looking the accounts of the country’s publicly owned research institute for the nitrogen industry. Nitrogen is a big deal in an agriculturally rich place like Ukraine: think fertilizer.

Nabu has a formal criminal investigation in to the alleged theft of some $7.5m from the institute, which goes by the Ukrainian acronym UkrGIAP. Detectives from Nabu said the institute had ordered goods and services from seven overseas firms for the $7.5m, with payment up front to Baltic banks. The goods were never delivered, according to court filings made as part of the investigation and reported in local media.

The firms paid? Two were SLPs: Fukuyama Invest of Edinburgh’s Montgomery Street and Europe Inter Corp of Glasgow’s Bath Street. Both firms dissolved on the same day almost a year ago. Two were LLPs, both from London.


Bath Street

Nabu has secured court permission to ask UK authorities for support in the case. The agency als wants Britain’s help on the “possible theft” of $2.5 million from a state enterprise which reconditions aircraft, Aviakon.

According to court filings, Nabu detectives believe Aviakon overpaid for new fuel tanks it bought for helicopters from a business in the notorious tax haven of Nevis. Nabu says money from those deals went to offshore firms, including an LLP in Leith and a business of the same kind in Reading, Berkshire.

An LLP from Newcastle been named in the Ukrainian press as part owner of a factory producing cigarettes so cheap there have been questions about whether excise has been paid.

An similar structure from London has been revealed as the owner of a dredger at the centre of a row about what critics say was an overpriced contract to clear out a public owned harbour. And there there is the ongoing controversy about apartment buildings which appear around the Grishko botanical gardens in Kiev. Local news reports have named a Dundee SLP as owning land being developed despite widespread opposition.

An opponent of the now ousted Yanukovych, senior Ukrainian MP, Borislav Rozenblat, was last year caught on tape describing how a “Scottish firm” could be used to purchase Ukrainian amber falsely described as Polish. He denies any wrongdoing.

Now Ukraine’s Defence Ministry is buying military-grade drones from a firm in neighbouring Moldova owned by his wife. The drones were made from parts supplied by an SLP.

Chris Law, an SNP MP, earlier this year visited Ukraine as part of a party delegation meeting senior figures in the country. Scottish shell firms were firmly on the agenda, he said. “We were left in no doubt, by those at the highest levels, that SLPs pose a real threat, not only to the Ukrainian economy, but to security as well, as faith in the democratic process is undermined by the dead weight of corruption,” Mr Law said. “Stopping this abuse of SLPs would be probably the most significant support the UK Government could make to help Ukraine to becoming a full democracy, by allowing it to use the wealth it creates for the benefit of the Ukrainian people.”


Chris Law

World's corrupt are abusing UK PLC

Comment, by Rachel Davies Teka of Transparency International

This catalogue of crime goes to show how the UK’s relaxed approach to corporate formations has facilitated corruption across Eastern Europe. Using the respectability of UK PLC, organised criminal gangs and corrupt officials have abused our ease of doing business to extract illicit wealth at the public’s expense.

Failure to act will only damage the UK’s reputation as beacon of good governance and the rule of law.


Rachel Davies

The UK has made great steps to improve corporate transparency in Britain, and should be proud of the progress it has made in statute. However, these words will ring hollow if these laws aren’t enforced properly in practice.”

There needs to be a much tougher approach taken by law enforcement and Companies House to stop the abuse of UK entities for financial crime.

This requires a more joined-up approach across a range of agencies, including the myriad of anti-money laundering supervisors, and changes to the law to ensure there is greater control and oversight over the use of UK companies.