REUTERS | Nikola Solic

Money laundering and corruption risk: a driving force behind the new SLP beneficial ownership declaration requirements

Until recently, Scottish Limited Partnerships (SLPs) had remained a relatively obscure legal entity. Historically intended to provide a vehicle for managing ventures like highland crofts and fishmongers, they had been a fairly innocuous legal construct. But around ten years ago something changed.

According to Companies House data, there was a sharp and seemingly unexplained increase in SLP incorporations from around 2008. Instead of a few hundred being set-up annually, the numbers rocketed into the thousands. In 2016 alone, more SLPs were registered (5,215) than in the century after they were introduced in 1907 (4,458).

Initially, there doesn’t seem to have been much alarm about this trend. Then the Scottish Herald started noticing SLPs turning-up in corruption scandals in former Soviet states like Ukraine and Uzbekistan. As more corruption stories broke with SLPs at their core – like the bank raid that cost Moldova an eighth of its annual GDP and the multibillion pound global money laundering scheme uncovered by OCCRP – it became clear that they were being widely used for financial crime.

With twenty-twenty hindsight, this should have been clear from a cursory glance through the owners of these new SLPs. According to research by Transparency International UK and investigative journalists at Bellingcat, 71 per cent of all SLPs registered in 2016 are controlled by companies based in secrecy jurisdictions, hiding who is really behind the partnership. Almost 30 per cent are controlled by secretive companies based in the Seychelles, with companies incorporated in Belize and Dominica featuring prominently.

These are the type of opaque ownership structures that have been used in a number of high-level corruption and money laundering cases.

On face value they look like legitimate businesses based in the UK, but then you try and find out who controls the partnership and you hit a brick wall. Take Hilux Services LP as an example. Based on its filings, it’s controlled by Akron Resources Corp and Solberg Business Ltd, which are registered elsewhere on Companies House as being incorporated in the British Virgin Islands. Unlike the UK, there is currently no public register of who owns companies based in this jurisdiction. This is far from ideal for compliance staff looking to do due diligence checks on potential corporate clients based in these secrecy havens, but ideal for money launderers.

According to a Milan Prosecutor, far from being a legitimate UK business, Hilux was used by an Azeri diplomat to funnel over £1million in bribes to an Italian politician, Luca Volonte, sitting in the Council of Europe (CoE). The purpose was to reward him for lobbying fellow CoE members to vote down a human rights report that was critical of the Azeri regime. In short, it was a conduit for bribes.

In Transparency International UK’s submission to the government’s review of partnership law, the full scale of their potential abuse was laid to bear. In June this year Ministers introduced new regulations requiring SLPs to start submitting beneficial ownership information to Companies House, just like other UK legal entities. These requirements kicked-in just last week on 24 July 2017, so we should start seeing data on who ‘really’ controls SLPs fairly soon.

However, as highlighted in Transparency International UK’s report, Offshore in the UK, this is only one part of the solution to stopping the abuse of SLPs. Without further changes to partnership law and an adequately-resourced compliance function in Companies House, UK legal entities will still remain an attractive piece of money launderers’ toolkit.

Transparency International UK Steve Goodrich

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