By Richard Smith
A year after the Herald first reported on a billion-dollar fraud in Moldova, in which some 30 anonymous Scottish Limited Partnerships (SLPs) played key roles, the rate of incorporation of SLPs has risen from 300 per month to 500 per month.
This is not good news: continuing a trend that’s been evident since 2008, a daunting 95% of the new registrations in the year to Aril 2016 were of SLPs that had faceless offshore corporations for partners, just like the ones in the Moldova fraud, making them ideal getaway vehicles for financial crime.
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The squalid SLP news will keep flowing. Reforms are needed. Here are what I think are some relevant observations:
Companies House Scotland needs to keep better records. Information identifying who submitted a document, which helps, modestly, to counter money laundering or terrorist finance, is frequently cryptic, indecipherable, or absent.
Despite the incomplete registration records, it is obvious that many of the agents bulk-registering dubious SLPs are based offshore, completely eluding the UK’s ramshackle anti-money-laundering system. Offshore agents must be brought under control, or barred.
Some offshore operators work via UK-based agents. Disconcertingly, though, of 354,000 suspicious financial transactions reported to the UK’s Financial Intelligence Unit in a recent 12 month period, just 177 came from UK company agents. The current admission scheme for UK agents takes no account of their track record as gatekeepers. They need motivation to take it more seriously.
Recent transparency measures, requiring the publication of a company or partnership’s “persons of significant control”, are half-hearted. A particularly shy entity can satisfy the requirement simply by submitting a statement to the effect that there may be persons controlling the company, but no-one’s been able to identify quite who they are. Clearly this is the type of statement that will be proffered, from April 2017 onwards, by the 90%-plus of SLPs that are controlled offshore. Transparency is unenhanced.
The UK Insolvency Service has powers to investigate and liquidate companies and Limited Liability Partnerships. Limited Partnerships must be made subject to the same level of enforcement. Accepting registration of LPs (and LLPs) that have corporate members and partners registered in offshore secrecy jurisdictions is simply asking for trouble. There are admittedly a very small number of SLPs whose partners are based in the Channel Islands or Delaware. Since they have been registered by prominent Scottish law firms, it must be possible to make exceptions for them. The rest must go.
Richard Smith is the UK editor of the Naked Capitalism blog
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