ICC Commercial Crime Service

Not All Tax Havens Are Sunny

While people only half paying attention to the debate over legal tax avoidance and illegal tax evasion likely link both practices to the tropical islands of the Caribbean, sun, sand and palm trees are not necessary for stashing legitimate or illicit assets. Not all tax havens are sunny or world financial centres like London, Hong Kong and the like. Scotland is proof of this.

An article in The Herald (Scotland) recently pointed this out, noting several examples of how police and government agencies in Scotland have mounted mass money-laundering investigations tied to Eastern Europe.

Under intense scrutiny now, thanks to these investigations and the Panama Papers leak, are Scottish Limited Partnerships. These structures allow individuals or corporations to set up shop in Scotland without registering for tax or requiring financial reporting if they conduct business abroad. This makes Scottish Limited Partnerships attractive to many legitimate enterprises, as well as criminals.

Additionally, as The Herald reports, these structures need not necessarily disclose their true owners, and many use the same business address, which has no business ties what so ever. This permissible secrecy is, of course, at the heart of the problem. Unless there is robust regulation, requiring registration and disclosure of the ultimate beneficial owner of a company and the company’s assets, money laundering will continue. It is easier to hide stolen monies in this secret environment, and it makes life more difficult for victims seeking a recovery.

The Scottish government has said that it will consider closing this “loophole”, and it appears steps are being taken in Scotland and across the whole of the U.K. to counter the secrecy from which money launderers can benefit. One positive step is the introduction of the Register of Persons with Significant Control, which we hope the government will commit to apply to Scottish Limited Partnerships as well. We also expect transparency to be bolstered across the EU when the Fourth Money Laundering Directive comes fully into force. Through these steps, it should be more difficult to hide the true ownership of the proceeds of crime.

This will hopefully and inevitably stop Scottish Limited Partnerships from being “sold” abroad as the article alleges. In our shrinking world, weaknesses in one country will inevitably be exploited globally. That leads to a cloudy forecast for us all.

Douglas Milne leads the team at Morton Fraser, which serves as the market leader in Scotland for fraud and asset recovery. Milne, the former Deputy Head of the Scottish Ministers’ Civil Recovery Unit, and the partners and associates of his firm specialise in advising clients and others about the United Kingdom’s Proceeds of Crime Act. The firm acts on behalf of government departments, such as the Civil Recovery Unit and the National Crime Agency, to recover stolen assets and helps victims of fraud. The firm also advises about compliance with European and United Kingdom money-laundering regulations.





ICC FraudNet is an international network of independent lawyers who are leading civil asset recovery specialists in each country. Recognized by Chambers Global as the world’s leading asset recovery legal network, our membership extends to every continent and the world’s major economies, as well as leading offshore wealth havens that have complex bank secrecy laws and institutions where the proceeds of fraud often are hidden. Founded in 2004 by the Paris-based International Chamber of Commerce (ICC), the world’s business organization, FraudNet operates under the auspices of the ICC’s London-based Commercial Crime Services unit.