THE UK Government has been accused of “outrageous” inaction after a Scottish “ghost” firm was linked to an FBI investigation into international fraud.
Two men were arrested in the Estonian capital of Tallinn in connection with a $575 million cryptocurrency scam, with claims that a Scottish Limited Partnership (SLP) was used to help launder the cash.
Unlike traditional partnerships, which require two named partners, SLPs have a legal personality, which means they can enter into contracts, take on debts, and own property while their offshore beneficiaries remain anonymous.
Sergei Potapenko and Ivan Turogin were detained by the FBI and accused of using the SLP Ecohouse Networks as part of a wider scam, according to reports in The Times.
US authorities accused the pair of defrauding “hundreds of thousands” of people out of funds through their cryptomining company HashFlare and an unregulated cryptocurrency bank called Polybius.
The two men face 16 claims of wire fraud, one of conspiracy to commit wire fraud, and one of conspiracy to commit money-laundering.
Ecohouse Networks was registered with Companies House in November 2014 and has a registered office address at 5 South Charlotte Street, Edinburgh. The UK Government website notes that on November 16, 2022 this address was updated from 12 South Bridge, Suite 1, Edinburgh.
Roger Mullin, a former SNP MP and long-time campaigner for SLP reform, told The National it was “outrageous that the UK Government continues to allow such SLPs to be registered via Companies House and to operate unhindered in large scale international activities of this sort”.
Mullin went on: “There are around 30,000 SLPs where we know nothing about what they are doing. It is solely through investigative journalists, or through actions by authorities in other countries ranging from the USA to Ukraine, that particular events come to light.
“The UK Government, although it holds all the powers, consistently refuses to investigate and act.”
A report from legal advisers Shepherd and Wedderburn explains: “A Scottish LP is transparent for tax purposes, which means that the tax authorities look through the Scottish LP and only tax the profits arising from the Scottish LP’s activities in the hands of its partners. The vehicle itself, unlike a company, is not subject to its own taxation regime.
“This tax transparency has meant that the Scottish LP has been an attractive vehicle for legitimate investment activity enabling a more tax efficient structure to deliver benefits to investors.”
In 2017, investigative journalism website Bellingcat and Transparency International UK published a report claiming that “money launderers are abusing Scottish Limited Partnerships (SLPs) – the UK’s own home-grown secrecy vehicle – to move billions of pounds of corrupt wealth around the world”.
In a 2019 follow-up, Bellingcat said that a “lack of due-diligence has enabled SLPs to facilitate a range of criminal activity, from corruption at the highest levels to unregulated cryptocurrency trading”.
In March, the UK Government was urged to take action on SLPs, with Labour’s Ian Murray challenging Scottish Secretary Alister Jack to “commit now to reforming SLPs and wider company law so we can see who actually owns these companies and shut down these laundering loopholes”.
Murray said such reform was one of the most important ways to “clamp down on illicit Russian money and influence in the UK”.
The UK Government has been approached for comment.