SCOTTISH shell firms have been named in a multi-million-dollar bribery court case in Argentina.

Two of this country’s limited partnerships were allegedly used to funnel kickbacks in the latest twist in a corruption “mega scandal” ripping through Latin America.

Prosecutors say one of the best-connected lobbyists in Buenos Aires used the anonymously-owned Scottish firms – SLPs – to take cash from the Brazilian construction giant Odebrecht in return for state contracts.

The case comes as a Herald on Sunday investigation published today reveals anonymous SLPs and similar English structures were used to make hundreds of millions of dollars of untraceable “foreign” investment in Uzbekistan.

Anti-corruption and human rights campaigners in the Central Asian nation – still one of the least open societies in the world – are demanding to know where the money comes from. They are particularly concerned over secretive buy-ups of the nation’s cotton industry, with its record of slavery and environmental damage.

HeraldScotland:

Cotton workers in Uzbekistan

Concerns over both bribery in Latin America and opaque investments in the former Soviet Union prompted Britain’s big business lobby to issue a warning about SLPs.

Tracy Black, Scotland director of the CBI, said: “These reports are concerning because they pose a risk to the hard-won reputation of Scottish business.

“We want Scottish firms to feel confident about pitching for international projects and exporting to global markets.

“This comes at a time when business is working tirelessly in partnership with the government to attract top talent and much needed investment.”

Over the last three years The Herald and former Sunday Herald have published scores of stories about the abuse of SLPs. These include allegations that Odebrecht – whose officials admit paying bribes of at least $800m across the Spanish and Portuguese-speaking world, used SLPs and other British corporate entities to suborn officials and politicians.

READ MORE: Peru leader accused of taking bribes through company based at Scots law firm

The UK Government – which is responsible for Scots corporate law – is currently mulling new reforms to the structures under pressure from opposition and backbench MPs, such as the SNP’s Alison Thewliss.

British officials – especially since the attempted murders in Salisbury – are particularly concerned about the abuse of SLPs in Russia.

UK firms, including SLPs and Scottish limited companies, were are the centre of the $20 billion Russian Laundromat, one of the biggest and most elaborate money-laundering schemes ever uncovered.

The CBI’s concerns echo those of Scottish politicians, who have long warned of a threat to the country’s corporate reputation from SLPs involved in global fraud and money laundering.

In some major markets the words “Scottish firm” has come to have the same kind of image as “Swiss bank account”.

READ MORE: How Britain enables routine, everyday corruption and fraud in the ex-USSR

Researcher Ben Cowdock of anti-corruption group Transparency International said: “It is now well established that SLPs have been a money-laundering vehicle of choice for corrupt individuals around the world. Controlled by anonymous offshore companies, they have proven to be effective in funnelling bribes to politicians and allowing corrupt elites to gain control of key industrial assets.

“Their continued use in high corruption risk jurisdictions should raise red flags to law enforcement agencies in the UK and abroad.”

Cowdock added: “It is clear that money launderers and corrupt individuals have sought to exploit the UK’s ease of doing business for criminal ends ... As the tally of crimes committed with UK companies mounts, the cost of inertia becomes increasingly clear.”

The SLPs in the Argentinian case have not named their owners under rules Cowdock cites. Nor have most of the SLPs and other firms making opaque investments in Uzbekistan. No business has been prosecuted for failure to comply with transparency laws.

The UK Government is expected to unveil reforms before Christmas.

Long Read: The Scottish shop at the Centre of the World

HeraldScotland:

44 Main Street, Douglas

On the long, narrow drag of a Scottish mining village, opposite The Countryside Inn and just a step or two from The Mane Attraction hairdressers, there is a little shop, a former draper’s.

Number 44 Main Street looks like a house a child would draw: a square sandstone terrace with a wooden front door flanked by hanging baskets and two rectangular windows, each with a wooden owl perched on its sill.

This is real Douglas, South Lanarkshire. But there is also a fake Douglas, a counterfeit 44 Main Street, one that only exists online: the HQ, among other things, of a global corporation with offices in New York, Los Angeles, Tokyo, Copenhagen and beyond.

This particular make-believe version of the draper’s shop has a two-storey glass and steel atrium, huge open-planned rooms and an army of hipster staff in designer glasses. 

It is, at least according to its own website, the London (yes, London) office of Falcon Business Services, an international “creative advertising agency” working for blue-chip clients like Starbucks, H&M, Boeing, Cisco and even disgraced mogul Harvey Weinstein’s now bankrupt movie-making concern. 

Falcon’s internet offering may look slick – if authentic, it would be by far the biggest and most successful business in Scotland’s under-pressure advertising sector – but the site’s gobbledygook English gives its fakery away.

 “We appreciate every culture, we are consist from many different culture from many country around the worlds,” the agency boasts on its site about its “London” HQ in Douglas. “This place very big and cozy, this is our main office consist of large amount of employee across the world.”

HeraldScotland:

How Falcon portrays its HQ, screen grab of its website

Back at the real 44 Main Street, Lilli Clark bursts out laughing when she hears how Falcon describes her surroundings. Clark, with friend Sally Kerr, runs a small book-keeping practice at the old shop, including a “virtual office” where a Falcon Business Services is, indeed, registered. 

The pair find themselves on the edge of the surreal world of Scotland’s notorious “tax haven” firms: of ghost companies; of here-today, gone-tomorrow anonymously owned corporate entities. That is because their address is the registered HQ of thousands of businesses, many created as global criminals exploit Britain’s lax and barely policed corporate transparency laws.

Most are Scottish limited partnerships or SLPs, a kind of shell firm which anti-corruption campaign Transparency International describes as “a  vehicle of choice for money-laundering”.

Falcon is an SLP. There is no way of knowing who owns the business, how much money it turns over or even if it has anything to do with the website in its name. 

This, for Clark, is not funny. Because it means her address does not just feature on shlocky websites: it also stars in some of the world’s biggest crime stories.

Two years ago The Herald revealed “number 44” was the official home of firms at the centre of a major Ukrainian investigation in to allegedly corrupt side-payments on an arms export to the Middle East. Since then Douglas shell firms have rarely been out of the news.

Clark stresses she knows nothing about any of the firms using her address. “We have no control over them whatsoever,” she explains. “We want to get rid of them but we can’t.” 

She sighs as she hears the latest on Douglas SLPs. That is because they number among a series of UK shell firms – with no identifiable real world connection to Britain – which The Herald on Sunday has identified as being behind supposedly multi-million-dollar investments in the tyrannical Central Asian state of Uzbekistan.

Just one SLP, called Quality Trade Supplies or QTS, is building a steel mill in the Uzbek capital, Tashkent, for just over 278 million euros. This “British” investment was announced by Uzbekistan’s president, Shavkat Mirziyoyev, with an official visit to its 100-hectare site, which, unlike Falcon’s global HQ, is very real. 

HeraldScotland:

Presidential press release

Two decades after the closure of Ravenscraig, a Scottish company is again investing in steel, albeit overseas. Or is it? 

The Herald on Sunday has made multiple attempts to contact QTS, whose website says it has a representative office in Kazakhstan, as well as its official home at 44 Main Street, Douglas. We wanted to ask QTS who its owner was. The firm has failed to comply with new UK rules under which last year it should have named any ultimate beneficiary or PSC – a “person of significant control”.

The firm’s website says the Tashkent Metallurgical Plant is a “state” project – while the state itself says it is a QTS project. The stated investment is one of the biggest carried out by a Scottish enterprise overseas in recent years. 

QTS on its site also said it was also building a 1000km railway line with 48 stops across Kazakhstan, part of a major drive to improve transport links between China and Europe. That job, it said, would involve 3500 construction workers. Again, this would be a nearly unprecedented venture for a Scottish firm. 

Uzbeks also have questions about who owns QTS. One prominent former Soviet oligarch has been named locally as being behind the firm. A London public relations firm acting on his behalf has denied any connection. 

Mirziyoyev has also given his official blessing – and visit – to another major “British” investment from a Douglas firm, a $17m cement factory in the underdeveloped western Uzbek region of Karakalpakstan. 

HeraldScotland:

Shavkat Mirziyoyev

Uzbekistan’s Ministry of Economy formally lists “foreign investments” in infrastructure or industry every year. These include a roll-call of SLPs with either opaque ownership or PSCs filed in the name of untraceable Uzbeks. At least five other Douglas SLPs are named in press reports or official bulletins as recent investors. None have transparent ownership or any real-world links to Lanarkshire.

Uzbek authorities have also named a series of English and Welsh shell firms, mostly limited liability partnerships or LLPs, as “foreign investors”. 

Take Fortalia Consult, a now struck-off LLP. It put up $8m for a $26.6m factory making washing machines, fridges and cookers. The plant, partly funded by the state National Bank of Uzbekistan, employed hundreds. LLPs have to provide more information on Britain’s corporate registry, including accounts. Fortalia, in its last year of existence, 2017, made an operating profit of £9 on a turnover of just over £4,000. A company investing millions in a white appliances factory made a profit of under a tenner. It did, however, file a PSC. She was Uzbek.

Official bulletins, government press releases and state-controlled media reports suggest SLPs and LLPs whose owners are either Uzbeks or unknown have made declared “foreign” direct investments of well over £300m in recent years. 

Other investments officially made by SLPs and LLPs are in real-world factories making everything from spinning equipment to probiotic dairy produce.

One of the businesses investing in a major new business district, Tashkent City, is an Edinburgh SLP called Corso Solutions. Corso was created last year but has failed to comply with new rules under which it was supposed to say who its owner is. Fines for failure to comply are £500 a day. None has ever been levied.

HeraldScotland:

Tashkent

Human rights campaigners – Uzbek and international – have grave concerns about this. They want to know who is buying up chunks of the country’s economy. They are especially concerned about equity and other investments in cotton, the nation’s biggest industry.

Uzbekistan is currently reforming its cotton farms, which have a record of forced labour – slavery, effectively – and environmental abuses which have led to the near-disappearance of one of the world’s biggest lakes, the Aral Sea. But reforms are only just beginning. They include partial privatisations that have seen SLPs and English shell firms buy stakes in both processing and picking enterprises.

HeraldScotland:

Cotton

Two, Trontex of Stirling and Gratum Trading of Edinburgh, received import tax breaks under a Mirziyoyev decree. Both firms, like QTS, have filed at Companies House saying they have not yet attempted to identify a PSC.

The Herald on Sunday has written to both Mirziyoyev’s press office in Tashkent and the Uzbek Embassy in London. We asked if the president knew who the beneficiaries of his tax breaks were. There was no reply. We also wrote asking if he was concerned that major “foreign” investors were failing to reveal who they were. Again, there was no reply.

This worries Umida Niyazova. She is a journalist and campaigner who was jailed under Mirziyoyev’s predecessor, the authoritarian Islam Karimov. Now based in Berlin, she leads the Uzbek-German Forum for Human Rights (UGF).

She says: “The cotton sector in Uzbekistan is entirely under the control of the state which sets the price of cotton and is the sole beneficiary of revenue from sales on the international market."

HeraldScotland:

Umida Niyazova

She adds: “UGF has been monitoring and reporting on state-organised forced labour in Uzbekistan’s cotton sector for over eight years. We can confirm that, despite some changes, mass mobilization of forced labour and extortion from organisations and employees to pay for cotton pickers is again ongoing during this year’s cotton harvest, despite Mirziyoyev’s public commitments to eradicate it.

“For decades, the production of cotton has been underpinned by a system ... in which Uzbekistan’s citizens are forcibly mobilised to pick cotton. This is a state-operated system of forced labour, in which the Uzbek government imposes regional cotton production quotas which are, in turn, allocated by regional officials to their sub-districts. 

“Regional and district officials are responsible for meeting these quotas under threat of penalty. 

“We have observed a proliferation of Uzbek entities registered as limited partnerships in Scotland and England, including a number of companies with direct ties to the cotton industry. 

“We are interested to know why these companies, in receipt of large swathes of foreign direct investment, want to register in Scotland. Why do these companies not disclose their ownership? Given that hundreds of millions of dollars in foreign direct investment are flowing into the country at this time, the UK government must ensure these companies are not a vehicle for money laundering.

“Uzbekistan’s cotton sector has already disrupted the lives of millions. It would be criminal if they were to be robbed of revenue which should ultimately benefit the Uzbek people.” 

HeraldScotland:

Abandoned ships on the dried-out Aral Sea

Uzbek sources stress they have no evidence SLPs or LLPs investing in cotton or other industries are responsible for human rights abuses. Nor do they have evidence any nominally UK registered firms are fronts for government officials or others who wish to conceal their identities. They just want to know who is behind investment. They have reason to be concerned. SLPs have been widely abused elsewhere in the former Soviet Union, including as part of multi-billion-dollar schemes to launder money out of Russia, Ukraine and Azerbaijan.

At last count, some 95 Uzbeks were named as the PSCs of SLPs. But multiple investigations reveal closer links. A nephew of former leader Islam Karimov in 2016 was named as the effective controller of SLPs involved in a dispute over the ownership of hotels in Riga which culminated in an attempted gangland-style hit

Last year an international journalistic investigation alleged that Karimov’s youngest daughter, Lola, and her husband used three SLPs – two of which, Five Star Star Technology Support and Greenhall Management, are based in Douglas – as part of complex offshore scheme. None of the SLPs has named a PSC.

HeraldScotland:

Lola Karimova, from Getty Images

Ms Karimova is a multi-millionaire who last year launched her own fragrance at a party at the Cannes Film Festival attended by Juliette Binoche, Catherine Deneuve, Kristin Scott Thomas and Pamela Anderson. 

She denies detailed allegations of tax avoidance set out by journalists at a group called The Black Sea.

This month Britain’s Serious Fraud Office announced it had begun a proceeds of crime investigation against Ms Karimova’s estranged elder sister, Gulnara, once touted as a replacement for her father.

She is in prison near Tashkent on embezzlement charges, which she denies. British authorities are understood to be seeking to confiscate London properties linked to her and an associate. Swiss authorities have already seized some $700m in assets. 

HeraldScotland:

Gulnara Karimova, from Getty Images

Meanwhile, as The Herald revealed this year, The United Nations Development Programme has blacklisted five SLPs amid concerns over international aid fraud in Uzbekistan. The sanctions are against SLPs called Special Alliance Partnership, Investment Affairs, Trident Asia and Five Star Commercial Services. 

They are all registered either at 44 Main Street, or a flat in Edinburgh’s Montgomery Street, number 78.

The owners of this property, like Clark and Kerr, once ran a virtual office business. They too stress they have no control over the entities registered at what is their home. They also have tried and failed to get SLPs de-registered. 

Some SLPs have been transferred from Montgomery Street to Douglas. They include Tashkent steel mill builder QTS, whose website still has a map showing its Edinburgh HQ.

HeraldScotland:

Montgomery Street, Edinburgh

The Montgomery Street flat has been the base for SLPs which played a key role in the $20-billion Russian Laundromat, one of the biggest and most elaborate money-laundering schemes ever uncovered. 

READ MORE: A Baltic bank, a Belarussian bribe and a British embarrassment

Now government investigators in Argentina allege two SLPs  using the address were used as part of one of the world’s biggest bribery scandals. 

Earlier this year The Herald revealed the role played by Scottish shell firms in complex offshore structures used by a construction giant called Odebrecht to pay kickbacks to officials and politicians across Latin America and beyond. The so-called “mega scandal” – nearly $1bn was paid out, Odebrecht admits – has rocked the western hemisphere and led to prosecutions against senior officials in multiple jurisdictions

A  former president of Peru, who denies using an SLP based at a Glasgow law firm to take money in return for a highway contract, is among those facing prosecution. A senior state oil official close to the outgoing president of Mexico also dismisses reports he took money from the construction firm through SLPs.

In Argentina, government anti-corruption investigators have focused on a prominent entrepreneur called Jorge Rodríguez, though he usually goes by the nickname “Corcho”, or “Cork”. 

In a “box office” celebrity court case, Rodríguez is accused of taking in bribes from Odebrecht, which was among companies bidding to build a metro line. He denies any wrongdoing. 

HeraldScotland:

Corcho Rodríguez, from YouTube

An Argentinian government report suggests money was transferred the tax haven bank accounts of two SLPs to Uruguay. From there, investigators allege, Rodríguez  used his fleet of private plans to fly money in cash across the River Plate to a small airfield near Buenos Aires. Figures of up to $11m have been cited. 

The two SLPs named in official papers are Latin Financial and Capital Investment Enterprises, both of which were created and dissolved without ever filing any meaningful paperwork. Rodríguez says he has no connection with the two Scottish firms. His Uruguayan accountants, in testimony, say they were his. 

The case continues. Rodríguez – often described as a lobbyist – was part of a politically-linked Buenos Aires jetset often seen in the Uruguayan resort of Punto del Este. 

His wife, Verónica Lozano, hosts a chat show on Argentinian TV. His ex, former 1960s film star Susana Giménez, has an even bigger rival programme and her own monthly glossy magazine, on whose cover she always features. 

HeraldScotland:

Susana Giménez

An Odebrecht official in Brazil,  Marcio Faria do Bentos, earlier this year said there had been a smooth flow of illicit payments to Argentina until former president Néstor Kirchner died in 2010 while his wife, Cristina, ran Argentina. The system, Faria said, started “ticking smoothly again” after he was contacted by Rodríguez.

Anti-corruption campaigners are more than aware of the absurdity of linking the fleshpots of Punta del Este or Cannes with Montgomery Street flat, with a derelict phone box in its front garden, or a Lanarkshire draper’s shop. 

HeraldScotland:

The Buenos Aires metro

But Scotland – and the UK – is part of a world-wide machine for washing dirty money. Our SLPs and our LLPs are like the Swiss banks of old, the means to hide illicit wealth with a veil of British respectability. 

Graham Barrow, UK-based money-laundering expert, has been slowly but surely unpicking and exposing the system in a series of detailed essays. The Uzbek and Argentinian cases, he says, “highlight yet again that this is a global problem (albeit exacerbated by uniquely British firms such as SLPs) which can only be solved by a global effort”. 

But he adds: “The UK can make a huge contribution by better regulating these entities so that they don’t keep cropping up in far flung corners of the world for all the wrong reasons.” The British Government is mulling reforms.

HeraldScotland:

Punta del Este, Uruguay

Meanwhile, back in the through-the-looking class world of fake Douglas, “Scottland”, Falcon Business Services is hiring creatives. On offer, among other benefits, are “free snacks”. “Join our awesome and fantastic team,” its site claims in its trademark broken English, “We offers you a bright shine of your next career level.” The Herald on Sunday tried to contact Falcon. All its contact details were bogus, its telephone was 123456478, its fax 987654321. Britain has still to get the number of its fake firms.

So what are SLPs?

SCOTTISH Limited Partnerships, to give them their proper name, were once just a means for farmers to share fields.

Then some lawyers figured out such structures made tax-efficient vehicles for managing equity funds. And others realised they were also enticing for people who want to avoid more than just tax.

Writer Oliver Bullough has explored the murky world of international offshore finance – and its effect on some of the planet’s poorest nations – for his book Moneyland. He has long watched SLPs being abused. 

“SLPs and shell structures like them are absolutely crucial to anyone who has wealth to hide,” he explains. “Without them, it would be impossible for crooks and thieves – whether they’re rulers of former Soviet states, or leaders of drugs cartels – to move their wealth out of the shadows and into the legitimate economy."

HeraldScotland:

Bullough's book

He adds: “SLPs are useful to crooks because, unlike limited partnerships elsewhere in the UK, they have legal personality and thus can own bank accounts and other assets, enter into contracts, and take on debt. If the SLP’s partners are offshore companies, then their ownership is completely opaque.

“The great advantage of Britain as a place to register a company is that the company looks legitimate, because it’s British, but really is not. Our money-laundering regime is so lax, and Companies House doesn’t check the accuracy of any information supplied to it. This is why British structures are almost invariably found in the biggest financial scandals.”

The abuse of SLPs, Bullough stresses, is not a victimless crime. “More than a trillion dollars a year is stolen from the world’s poorest countries, devastating their economies and spreading misery and destitution,” he says. “That would not be possible without shell structures like SLPs, and it’s imperative the UK Government acts to reform them to they can no longer be misused in this way.”

HeraldScotland:

A map of just some of the SLP scandals in recent years

A spokesman for the Department of Business, Energy and Industrial Strategy said: "The UK is leading the global fight against money laundering. "Changes to the law last year have increased the transparency of these financial arrangements, reducing the likelihood of them being used for illegal purposes.

“We carefully developed our recent reforms to further prevent these crimes without harming the legitimate businesses and pensions that invest through limited partnerships.”

Registrations of SLPs have fallen in the last year after new PSC reguilations were introduced and, crucially, banks in Latvia started refusing to handle their accounts.

Comment: Alison Thewliss on why SLP reform cannot wait

More than three months have passed since the UK Government closed its consultation on the reform of limited partnerships, and despite calls for recommendations to be published, nothing has been forthcoming.

Today we see yet more evidence linking limited partnerships to opprobrious behaviour abroad; this time with regards cotton production in Uzbekistan.

Agencies such as Amnesty International, and the Uzbek-German Forum for Human Rights, have gone to great lengths to expose the coercive and manipulative nature of this industry. 

HeraldScotland: Alison Thewliss

Alison Thewliss

The purported involvement of financial vehicles registered in the UK – with little or no information offered on ultimate ownership – should be of serious concern to UK Government Ministers.

Unfortunately, that’s not likely to be the case as far as the UK Government is concerned. A volley of evidence has been sent their way, but met only with indifference.

The UK Government must take a firm stance on limited partnerships being used to fund corrupt activities and perpetuate human-rights abuses, and stop ignoring the scandal that is continuing to take place on their doorstep.

Alison Thewliss is the SNP MP for Glasgow Central