Revealed: Scottish firms loom large in Ukraine dirty money blacklist

Independence Square. Ukraine.Independence Square. Ukraine.
Independence Square. Ukraine.
An investigation has revealed 700 offshore British companies have been used to avoid tax and launder illicit cash

They are as common as muck in Ukraine. And often as dirty.

Foreign shell firms – “offshores” in the jargon – litter the country’s politics and economy.

They are used to conceal ownership, avoid tax, make illicit payments and launder dirty money. Their abuse, say anti-corruption campaigners, helps keep Ukraine poor.

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Many are British, especially Scottish. Now an analysis of Ukrainian government public records by openDemocracy gives another glimpse at just how often UK corporate entities are being red-flagged in the country.

We found that more than 700 Scottish, English, Welsh and Northern Irish firms are “blacklisted” in Ukraine.

Transparency International said this was “a stark reminder of Britain’s role as a global hub for financial crime”. The Scottish National Party, which has been campaigning for tighter corporate governance, said Scottish limited partnerships – or SLPs, one of the most common “offshores” used in Ukraine – had left a “toxic” legacy.

The businesses are all listed on a searchable database of thousands of international corporate entities subject to special sanctions, usually because of suspicious money transfers.

Officials decreed that such enterprises – many of which appear to be shell firms registered in traditional secrecy jurisdictions such as Panama or Belize – could trade in the country only if they obtained individual licences.

For years British corporate entities – especially limited liability partnerships from across the UK (LLPs) and SLPs – have been openly advertised as “offshore companies” in Ukraine and other parts of the former Soviet Union.

Scottish and other UK shell companies are widely seen as providing a perfect mix of high prestige but low transparency. And combined with a bank account, often in one of the Baltic nations, they formed what amounts to a money-laundering kit.

Such firms regularly crop up in financial crime scandals, big and small, across the region.

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LLPs and SLPs formed a significant part of a complex money-laundering scheme reportedly used to funnel some $1.5 billion out of Ukraine on behalf of people close to the ousted Ukrainian president Viktor Yanukovych and his “clan”.

And Ukraine’s elite but controversial anti-corruption task force, NABU, said SLPs were used as fake intermediaries to skim millions from at least two important state arms exports.

Rachel Davies, head of advocacy at anti-corruption campaign group Transparency International, suggested the sheer volume of UK entities subject to Ukrainian special sanctions reflected the widespread abuse of British shell firms in that country.

She said: “The presence of so many UK companies on this list is a stark reminder of Britain’s role as a global hub for financial crime. Despite recent advances in improving corporate transparency, it is still far too easy to set up opaque firms in Britain.

“The limited checks on the individuals behind these companies means that UK entities regularly appear in major money-laundering scandals. Until there are tighter controls on company formation, their continued involvement in suspected financial crime poses a significant risk to the UK’s status as a safe and respectable place to do business.”

Ukraine introduced its blacklist at the turn of the century as it tried to stem capital flight and address irregularities in the movement of money. Its economy ministry told openDemocracy that sanctions – which range from special licensing to fines and outright bans – were imposed by officials or courts at the request of law enforcement or market regulators.

The country late in 2019 lifted its regime of special licensing but the economy ministry still publishes a searchable database of international companies which were subject to the rules. Ukrainian laws are not usually retroactive and the ministry argues that sanctions still apply to blacklisted firms, although this is under legal debate.

The blacklist underlines the sheer volume of “offshore firms” – mostly believed to be controlled by locals – in the Ukrainian economy. It was part of a wider attempt, widely criticised both in Ukraine and abroad as half-hearted, to stem the tide of dark money flowing in and out of the country.

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More than 700 named companies are identifiably British. Around a third of them are Scottish, mostly SLPs. Many of the English entities named are LLPs. There are six Northern Irish businesses on the blacklist, two of them limited partnerships registered at a virtual office business in Newry featured earlier this year in an openDemocracy investigation.

Northern Ireland limited partnerships do not have to say who controls them. SLPs and LLPs do, or at least they have to make an effort to.

Official filings for SLPs suggest strong connections to the former Soviet Union.

That means British firms being red-flagged in Ukraine may not, in fact, be controlled in the UK.

So far Companies House, the UK’s corporate registry, has recorded nearly 8,500 individuals who are declared “persons of significant control” of SLPs, which means they have a controlling stake of at least 25 per cent. More than 1,200 describe themselves as British, English or Scottish.

The rest are non-UK nationals, including more than 2,000 Ukrainians and more than 1,600 Russians. In total, citizens of the 15 former Soviet republics account for around 5,500 of the roughly 8,500 people who say they have a controlling interest in an SLP.

Alison Thewliss, the Scottish National Party’s Treasury spokesperson in the Westminster parliament, is a long-standing critic of what she sees as the UK’s lax regime of corporate governance.

She said: “The legacy of financial vehicles such as Scottish Limited Partnerships is – to a large degree – a toxic one. For years the UK government has failed to properly regulate them, or to provide adequate resource to Companies House to undertake the necessary due diligence.

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“Ministers must take the opportunity during the Finance Bill to put this right. Failure to do so will only add weight to the suspicion that this government is happy to turn a blind eye to money laundering and corruption occurring on its own doorstep.”

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