As the UK gears up for an increasingly divisive Brexit, investigative journalism and open-source intelligence group Bellingcat and Germany-based anti-corruption NGO Transparency International UK have published a timely report on UK money laundering, ‘Offshore in the UK’.
With the UK’s medium- to long-term stance on anti-money-laundering (AML) regulations uncertain as it decouples from Europe, the potential for a No Deal Brexit is looking increasingly high. Some commentators have observed that the prospect of the UK becoming a deregulated, Singapore-style tax haven would appeal to ardent Leavers and the Tory right, as the UK tears up international agreements and casts around for new business.
In this context, Bellingcat and Transparency International have zeroed in on a specific practice: the recent use of Scottish Limited Partnerships (SLPs) as mechanisms for corruption and money laundering, at a time when the mainstream media focus in these matters has been more on offshore havens, shell companies, and the drift of former-Soviet funds through Baltic banks and into Europe. However, SLPs have had a major role to play in the latter, says the report.
The joint research reveals that more SLPs were registered in referendum year, 2016, than in the entire century (1907–2007) after they were introduced. Seventy-one percent of the SLPs registered in 2016 were controlled by companies based in ‘secrecy jurisdictions’ – countries or territories that allow financiers to circumvent mainstream regulations.
The report says, “SLPs have been used as a mechanism in large-scale money laundering operations, including the Moldovan bank fraud scandal in 2014 and the Azerbaijani Laundromat in 2017. This had led to questions in Parliament and assurances from the government that action will be taken.”
The EU’s Fourth Anti-Money Laundering Directive (4AMLD) obliges the UK government to hold a register of Persons of Significant Control (PSCs) for SLPs. This rule came into force in July 2017 and resulted in an almost immediate reduction in new SLP registrations, according to the report.
Between April and July 2018, the government ran a consultation on Limited Partnership reform, the conclusions of which were published later that year. These proposed a series of measures which would limit the potential for misuse of Limited Partnerships, while protecting the interests of Limited Partnerships that traded within the law. However, those proposals have yet to come into effect, warn the authors.
“In the meantime, the most prolific enablers of SLPs involved in illegal and high risk behaviour have moved on, demonstrating that those who wish to use the UK’s company system for illicit purposes are frequently two steps ahead of the authorities.”
The investigation found that large numbers of SLPs have controlling partners in secrecy jurisdictions, a disproportionate number of those companies’ PSCs come from Ukraine and Russia, and many use mailbox addresses and virtual offices.
“We have found SLPs operating unregulated gambling sites, SLPs widely used as front end companies for cryptocurrencies, unlicensed Forex trading, and binary options trading firms obtaining warnings from the FCA and their foreign equivalents.
“We have found hundreds of SLPs with generic, anonymously owned websites of dubious authenticity. We have also found a large number of SLPs used as trade intermediaries for firms operating in the former Soviet Union, attracting the attention of the Ukrainian courts, as well as SLPs involved in political lobbying.
“The government, in its consultation on Limited Partnerships, is right to point out the genuine business needs that SLPs fulfil. But their use as a conduit for criminal activity cannot be ignored. Our report shows that offshore partners, often with a track record of controlling SLPs involved in money laundering, are also currently active as partners of thousands of Limited Liability Partnerships (LLPs).
“Companies House does not currently conduct due diligence on any corporate vehicles on registration, and presenters of LPs are not currently required to register with an anti-money laundering supervisory body (or indeed, to state who they are).”
The document concludes: “Despite reports in the media at home and abroad concerning major laundromats and the link between SLPs and criminality, it has taken years for the government to react. As indicated in this report, offshore companies in secrecy jurisdictions are named as the partners for thousands of Limited Liability Partnerships, but they are not included in the plans for Limited Partnership reform.”