Number of Scottish business entities used for tax avoidance and crime collapses as new rules kick in

The number of new firms being registered as Scottish Limited Partnerships, the entity identified as widely used by tax-avoiders and organised crime, has plummeted since new UK rules closed the legal loophole that had made them so attractive to nefarious elements.

This summer UK ministers imposed emergency legislation to bring SLPs into line with European Union anti-money laundering rules by demanding they produce an “ultimate beneficial owner” report, meaning the individual controlling the SLPs now have to be identified.

The new rules were introduced following a campaign conducted by The Herald newspaper after it identified hundreds of SLPs and other Scottish shell companies were involved in practice such as mass tax avoidance and unethical online business to alleged serious criminality, including child pornography, corrupt arms exports from Ukraine to the Middle East and the biggest money-laundering case ever identified in which $20 billion was transferred out of Russia.

The legal requirement to declare those behind the SLPs was announced on June 23 this year and came into force on July 24.

Now, according to latest figures, while there were 116 SLPs registered in the week when the announcement was made, there were just seven in the week when it began to come into force, a year-on-year decrease of 124 from the 131 such firms registered in the same week last year.

However, the drop in registrations in SLPs is partly offset by a rise in those for English limited partnerships, which are not subject to the UK Government’s “person of significant control” rules.

There were 64 such firms registered in the week from July 24, compared with just 13 in the week when the SLP measure was announced.

Glasgow Central MP Alison Thewliss, said: “I am delighted that after a two-year campaign led by The Herald, my tenacious former colleague Roger Mullin, and the SNP, the UK Government is finally taking steps in the right direction to clamp down on the abuse of SLPs.

“The drastic reduction in uptake of SLPs has coincided with new transparency rules and demonstrates the relentless two-year campaign on this issue is starting to pay off.”

However, Ms Thewliss added: “The UK Government must now take further action to guarantee the abuse of SLPs is not transferred to other limited partnerships.

“We still need greater transparency on international financial transactions. While the latest development is welcome, much more must be done to combat the international flows of criminal financing which originate from SLPs.”

For more on this story please see today’s blog where Catriona Reid of BTO Solicitors talks us through the implications of new “persons with significant control” rules introduced this summer to tackle tax avoidance, money laundering and other criminal activity through exploitation of Scottish limited partnerships. Click here to read the blog.