Rogue Trading Sites Set up Shell Businesses in Scotland

Posted on: August 16, 2016, 06:00h. 

Last updated on: October 12, 2016, 08:39h.

Casino.org Staff Writer Read More

Expertise: Commercial Gaming.

Unregulated binary options trading sites, at which customers can lose thousands making high-risk fixed odds-bets on financial markets, are being set up in Scotland as shell companies, according to an expose by Scottish newspaper The Herald.   

Despite strict financial and gambling regulations in the UK, the rogue sites are exploiting a hundred-year-old loophole in the law that allows foreign companies to establish themselves in Scotland, as Scottish Limited Partnerships (SLP), as a tax avoidance scheme.

SPLs, unlike their equivalent south of the border, require no financial reports to be submitted if they do no business in the UK. The Scottish Law Commission, as well as the Law Commission of England and Wales, has argued that this makes them attractive to international criminal organizations and has demanded that the loophole be closed.

Arms Dealing

While SPLs have existed since before World War One, their incorporation has more than doubled since 2009 when businesses based in traditional tax havens realized the loophole could help them to pay no tax, or close to no tax, whatsoever.

According to The Herald, since 2009 SLPs have been widely marketed in Eastern Europe as being zero-tax havens for “offshore companies.” The newspaper has previously exposed SLPs as being shells for organized criminal organizations, including an arms exporter running guns from the former Soviet Union to the Middle East.

The Herald this week found three binary options websites using the loophole to circumvent UK Gambling Commission licensing. Finpari, Barclays Traders and Solution-Capital were all recently blacklisted by the French financial regulator, AMF, which warned that it could not find any authorized investment services provider for the sites.

Consumer Warning

The UK’s Financial Conduct Authority issued a formal warning on such unlicensed businesses this month. “Unfortunately, many of the reports we have received are from consumers who have dealt with fraudulent binary options firms that have no regulatory status either with the FCA, Gambling Commission or other EEA or non-EEA regulators,” it said.

“Most consumers describe having lost substantial sums of money. While this might be expected given the high risk win or lose nature of the activity, we are particularly concerned about the experiences many consumers report to us when trying to deal with unauthorized or unlicensed binary options firms.

“We regularly hear about such firms suddenly closing consumers’ trading accounts, refusing to pay back their funds and ceasing any further contact with the consumer.”

The Scottish Government last week formally asked the UK Government to close the controversial loophole.