Scots lawyers should face ethics action over shell firm abuse

Here, Govan Law Centre's Principal Solicitor, Mike Dailly, argues that much more must be done to tackle the misuse of Scottish Limited Partnerships as shell firms in Scotland.  See also today's (Tuesday, 10 April 2018) news story in The Herald, "Scots lawyers should face ethics action over shell firm abuse".

When the Panama Papers scandal broke two years ago, few would have thought such murkiness would wash up on the shores of Scotland.  The use and abuse of shell companies to facilitate massive tax evasion, money laundering and organised crime didn’t happen here.  Or so we thought. 

A naïve belief that Scotland was somehow beyond the shady world of global finance and international crime has been shattered by good investigative journalism from The Herald, confirming that we are not so different to Panama.  The reality is that no country in the world is immune from international crime.  But that doesn’t mean to say we should make it easy for fraudsters.

While Scottish Limited Partnerships (SLPs) have been a respected and legitimate business model for over a century, this vehicle has now been car-jacked by those with something to hide.  In the four years before 2016, the number of SLPs registered in Scotland increased by 237%, while those registered elsewhere in the UK increased by 43%.  16,461 new SLPs were registered at just 10 addresses in Scotland.  Something was happening.

The attraction of SLPs is a combination of their secrecy and separate legal persona in law.  Unlike in England, a SLP is a legal entity in its own right that can enter into contracts, own and control assets.  As a partnership it is ‘tax transparent’ so only the partners are taxed as individuals, and no accounts need be filed with Companies House.  Until last year, the owners of a SLP were entitled to secrecy.  In short, it was the perfect partner to a shell company in Panama City.

Responding to growing concern over the abuse of SLPs for criminal activity, the UK Government introduced new transparency regulations last June requiring SLPs to disclose the identity of “people with significant influence or control” (PSCs) over them.  Companies House maintains a register of PSCs, and it was thought that removing the secrecy of SLPs would dissuade those with unlawful intentions.  However, many partners of SLPs routinely flout these new regulations.  

We must do much more to tackle this problem in Scotland.  While SLPs and company law is generally reserved to Westminster, the regulation of Scotland’s professions isn’t.  Why should Scottish solicitors, accountants and others act for SLPs who flout the law?  Simply explaining that the responsibility for compliance with transparency regulations rests with the SLP isn’t good enough.  This should be a matter of professional conduct and ethics.

For example, it isn’t in the public interest for Scottish solicitors to continue to provide services and/or host SLPs who ignore transparency regulations.  There is a very real risk that continuing to act for SLPs with something to hide will damage the public interest and reputation of the legal profession in Scotland. 

There is nothing to prevent the Law Society of Scotland introducing a professional conduct rule to prohibit a Scottish solicitor from acting for a SLP who fails to demonstrate compliance with the transparency regulations.  It should be a matter of professional ethics.  The power to do so exists under section 34 of the Solicitors (Scotland) Act 1980. 

Scottish law firms could be required to declare the number of SLPs they act for on a six monthly basis, and give a declaration they are satisfied the SLP has complied with the transparency rules. The professional regulatory bodies for accountants and other professionals could easily do likewise using conduct rule making powers. 

No professional in Scotland should act for a SLP flouting the 2017 transparency regulations.  To do so should give rise to professional misconduct.  If regulatory bodies in Scotland are unwilling to do more to combat the misuse of SLPs then there is nothing to stop the Scottish Parliament from legislating.  Govan Law Centre offers its support to MSPs in framing an appropriate member’s bill, if so required. 

* This commentary first appeared in The Herald.

Scots lawyers should face ethics action over shell firm abuse

Is the buy-to-let market a property bubble waiting to burst?

GLC's Principal Solicitor, Mike Dailly writes: "SCOTLAND’S private rented sector is a phenomenon. It has trebled in size over the last 15 years and now makes up over 15 per cent of all Scottish households. For our cities the story is more profound.  

Scottish Government figures published last month show that private lets represent 19 per cent of all homes in Glasgow, Edinburgh and Perth. For Dundee the figure rises to 23 per cent and peaks at 26 per cent in Edinburgh.

How did this happen? Almost half a million homes have been lost from Scotland’s social rented sector since the right to buy was introduced in 1980. While the Scottish Parliament ended that right last July, the impact coupled with the growth of the buy-to-let mortgage market has fuelled the private let sector".  Read the full column in The Herald here (Saturday, 7 October 2017).

Is the buy-to-let market a property bubble waiting to burst?

GLC Principal Solicitor interview in The Herald, 17 May 2017

Below is an extract of an interview with our Principal Solicitor, Mike Dailly, with The Herald's personal finance editor and business correspondent, Margaret Taylor, published on the 17 May 2017. A link to the full article is reproduced below.

＂IT IS somewhat fitting that the converted cells of Govan’s old Orkney Street Police Station are now home to Govan Law Centre, given that the man who runs it - principal solicitor Mike Dailly - takes no prisoners when it comes to fighting for justice.  When you consider the type of work he and his colleagues do - defending mortgage repossessions, fighting eviction cases, advising on money matters and welfare rights - you can understand why. With little or no voice of their own, Mr Dailly’s clients depend on him to fight their corner for them. “Our work is about enforcing people’s rights and enabling them to access those rights and access justice,” Mr Dailly said.＂(read the article on The Herald's online site here).

GLC Principal Solicitor interview in The Herald, 17 May 2017

GLC campaign for lenders to reimburse unfair mortgage fees in Scotland

Banks are facing compensation claims of up to £30m from Scottish mortgage customers hit by "unfair, immoral and unethical' fees and charges added to their mortgages after court actions were dismissed by lenders for technical reasons. Govan Law Centre's (GLC) campaign to stop Scottish consumers being 'double charged' for mortgage expenses has been reported in The Herald (Sat, 29 December 2012).

GLC believes that the issue here is fairness, and that incompetent or defective proceedings cannot be the fault of consumers; rather it is the responsibility of lenders and their Scottish solicitors. GLC considers it to be unfair, immoral, and unethical for Scottish solicitors and UK lenders to profit twice by 'double-charging' Scottish consumers who are in financial difficulties.

GLC has set up a simple self-help website for affected customers or their advisors to seek free refunds.

The Council of Mortgage Lenders told The Herald that if costs were not added to mortgage accounts "then all customers would effectively end up paying for them, which many would regard as unfair and inappropriate". The Herald's own editorial has argued that this approach "fails to recognise the only fair and appropriate way for the charge to be borne is by the institutions whose incompetence caused the actions to fail". The Herald goes on to argue that:

"Mike Dailly of Govan Law Centre, the solicitor who is leading the campaign to recover the charges levied for failed actions, is entirely justified in condemning the lenders and criticising their solicitors as "unfair, immoral, and unethical" in double-charging Scottish consumers who are in financial difficulties".

Repossession cases which were dismissed in Scotland centre on two significant legal rulings in the UK Supreme Court and the sheriff court that resulted in thousands of repossession cases being aborted: RBS v. Wilson; and NRAM v. Millar & RBS v. McConnell, respectively (GLC represented the defenders in NRAM v. Millar and RBS v. McConnell). 

GLC campaign for lenders to reimburse unfair mortgage fees in Scotland

A fair and level playing field?

When a Government Minister fights an election, he or she does not do so on Government time, with paid civil servants producing campaign materials. Likewise, if the Scottish Government were to hold a referendum on independence, they would campaign not as Ministers, but as members of their political party. They would not be permitted to use civil servants to produce campaign materials or use their Office to run a campaign. Such referenda are subject to campaign rules.

For example, in 'Scotland's Future' the Scottish Government explain why their proposed referendum would need to be subject to campaign rules: "it is essential that rules are in place to ensure that the campaigns are run in a demonstrably fair and open manner ... The aim is to create a level playing field for those involved in campaigning; no organisation should have an unfair advantage over another. In particular, a single wealthy organisation should not be able to influence the campaign disproportionately".

But incredibly there are no such campaign rules for Law Society of Scotland referenda. Which explains why the President, Council members, and the Chief Executive Officer can help themselves to resources - paid for by the members - such as staff time, organisational facilities, confidential databases, and Law Society financial resources to run their own campaign in favour of 'Tesco Law', and the Legal Services (Scotland) Bill.

Does that give them 'an unfair advantage'? You betcha. Have they been prepared to offer the same resources to Scottish solicitors who have concerns over aspects of the Legal Services (Scotland) Bill? No, because they want to win at all costs. It's their game, their rules, and if you don't like it, it's their ball too. This is a very sad indictment on Law Society President, Ian Smart, who is ultimately responsible for this undemocratic process.

GLC's Principal Solicitor's call for Mr Smart to resign is reported in today's The Scotsman here, and concerns over the lack of fairness in next week's SGM is reported in today's The Herald here.

A fair and level playing field?

Complaints upheld by FOS doubles in two years

The Herald reports that the proportion of complaints upheld in favour of consumers by the UK Financial Ombudsman Service (FOS) has doubled in the past two years.

FOS upheld 61% of banking-related complaints, 41% of mortgage complaints, 70% of general insurance complaints and 42% of investment-related complaints. Five banking groups accounted for 38,286 cases – over half of all the new complaints received by the ombudsman during this six-month period.

The British Bankers Association (BBA) response to this data was to immediately claim this was a great success as this translated to "less than one upheld complaint for every 10,000 products you can get from your bank".

Of course this may provide little comfort to the 38,286 bank customers who complained to the FOS in the last six months; and if FOS is upholding 61% of these complaints, this is compelling evidence that the banks' complaint handling systems are wholly inadequate and in need of reform.

Clearly, the FOS is providing a practical remedy to UK consumers with financial disputes, and if you want information on how to complain to the FOS please visit here. Although, for a critical 'insiders' take on problems with the FOS see here.

Complaints upheld by FOS doubles in two years

Rebel Lawyer: Herald business profile

Simon Bain's profile of GLC's Principal Solicitor in The Herald's Saturday Business Section: 'Mike Dailly is not your typical successful lawyer. He speaks his mind, exudes enthusiasm, earns a very modest salary, and annoys bankers, bureaucrats and politicians'. The full article from The Herald is online here.

Rebel Lawyer: Herald business profile

Halifax Bank of Scotland new charges 'don't add' up

The Herald reports that HBOS' new charging structure - in force from tomorrow - will cause serious problems for many customers. Being overdrawn for HBOS customers by up to £2,500 will cost £1 a day, and for more than £2,500 it is £2 a day. For unauthorised overdrafts, it will be £5 a day – with no monthly cap.

More than 50% of the UK population use their overdraft facility on a regular basis, and choosing the wrong facility could cost unwitting borrowers hundreds of pounds a year, according to moneysupermarket.com.

Its research suggests that 17% of us are permanently overdrawn and 13% use an overdraft more than six times a year. For these customers, an agreed overdraft with no charge except interest rates is likely to be a much better option than the new “simple” daily fees.

GLC's Principal Solicitor said: “The bank says it’s simple – it is, but ultimately the problem is it will only benefit those customers who can bring down their overdraft within a couple of days. If you can bring it down quickly it isn’t going to cost you very much, but the vast amount of people who go into overdrafts and unauthorised overdrafts are in financial difficulties. The reason for that is if you have either lost your job or your partner has, or you have lost your overtime, or you have got ill, and you are in a bit of a sticky position or have fallen on hard times, in that situation you are not in a position to find a lump sum of money to bring yourself back into the black.”

The full story is in today's The Herald here.

Halifax Bank of Scotland new charges 'don't add' up