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Martin KenneyManaging Partner at Martin Kenney & Co., Solicitors
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What Goes Around, Comes Around

February 19, 2016 by Martin Kenney

It is ironic that the UK government is wont to criticise locations such as the British Virgin Islands (BVI) and the Caymans for their systems of taxation, and as offshore hosts to companies owned by people and entities from across the globe, yet suddenly finds itself almost making a Russian blacklist for exactly the same reasons.


The Kremlin's Finance Ministry had announced that it would officially equate Britain with traditional ‘fiscal paradises’ like Panama, the BVI and the Caymans. Such a humiliating move would have meant any Russian resident who set up a UK company – such as a controversial Scottish limited partnerships (SLPs) – would face punitive tax rates. Scotland got a last minute reprieve this week, when Russia rowed back on its stance.


The paradox of this situation cannot be lost on the UK government, which must be feeling very embarrassed. It has stomped across the Caribbean and elsewhere, issuing demands and veiled threats to small islands offering offshore facilities, only to be almost caught with its pants down a lot nearer to home. The Kremlin’s threats to blacklist the booming Scottish offshore business (it has almost doubled since 2009) has to be seen as part of what was described only last week, by Russian Prime Minister Dmitry Medvedev, as the development of a new Cold War.


But the fact remains that Scotland as an offshore centre is causing a stir. Nor did the Russian accusations stop there. They also included Switzerland and Austria as potential candidates for their blacklist. So perhaps Russian anger isn’t all down to the new Cold War. But the scenario is eminently embarrassing for a country whose government seeks to portray itself as a global crusader against money laundering, corruption and tax evasion.


The removal of the UK, Switzerland and Austria from the final blacklist was described by the Russians as being a “…serious concession to the business community.” It would appear that the Scottish offshore business is being advertised as a ‘Tax Haven’, by targeting locations such as the Ukraine in Russian language adverts. So there can be no doubt that this is not simply a loophole identified by a few Russian businessmen. Instead it is clearly a concerted marketing effort designed to attract Russian business to the offshore company formation industry north of the English border.


The Scottish MSP Jackie Baillie has described the situation as extraordinary, calling upon the powers that be in Scotland to close the loopholes. She said: “It will be damaging for Scotland's image in the world if we are seen as a tax haven for gangsters.” It was more pointedly commented upon by Scottish Greens spokesman, Andy Wightman: “The fact that the law in this area is reserved does nothing to prevent a vigorous effort to clean one of Scotland’s dirty little secrets.”


I would suggest to Ms Baillie that her fears for the reputation of Scotland are one thing; the fact remains that Scotland is still inextricably linked to the rest of the UK, so the embarrassment can be shared among the whole of the parts.


As a lawyer whose practice is based in the BVI, I have spent many hours being interviewed by foreign journalists who do their best to portray the Islands as a refuge for illicit money, with offshore businesses, trusts and accounts shrouded in a veil of secrecy that can never be lifted. The fact is that they are wrong. Yes there is confidentiality, but information regarding the identities of the owners of BVI companies is available to any law enforcement agency or any law firm which can show to the satisfaction of the courts here that there exists some form of apparent wrongdoing concerning their administration. This is no different to the way that judges in the UK need to be satisfied by the police, for example, that there is evidence of apparent wrongdoing and a need to sign a production order as it is in the public interest.


When I read this article, it brought a big smile to my face. But I bet the smiles are even bigger down in Road Town, Tortola, where the local government officials will be thinking: “What goes around, comes around.”


Martin Kenney is Managing Partner of Martin Kenney & Co., Solicitors of the British Virgin Islands, a specialist investigative and asset recovery practice focused on multi–jurisdictional fraud and grand corruption cases | @MKSolicitors

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