White-collar professionals, including solicitors, must carry the can for the shell firms they create or host, an MP has insisted.
In a move which could put her at loggerheads with parts of Scotland’s legal establishment, the SNP’s Alison Thewliss opened a new front in the campaign to reform secretive Scottish limited partnerships or SLPs.
The Glasgow Central MP called for law firms to face sanctions if their anonymous clients fail to identify themselves under anti-money-laundering rules introduced last year.
Analysis: Why it will take a change in ethics, not just rules, to end abuse of secret shell firms
Speaking in the House of Commons, Ms Thewliss said: “The Government need to think about where the buck really stops in these arrangements.”
Thousands of SLPs and similar English entities have failed to declare a person of significant control or PSC, effectively shrugging off a basic attempt by the UK Government to find out who owns them.
Their failure to do so comes amid serious political concern about the robustness of Britain’s anti-money-laundering regime.
Most of the non-compliant secret shell firms are not based at legitimate law firms or accountancy practices.
However, The Herald earlier this year revealed that hundreds formally head- quartered at the Edinburgh offices of legal giants Burness Paull had failed to name a PSC. The law firm said it was encouraging its clients to comply and was acting within the law.
Alison Thewliss
Ms Thewliss this week tried and failed to amend a new money-laundering bill to ensure that at least one partner of an SLP was a British person, a human being rather than a corporation who could answer for any criminality.
Analysis: Why it will take a change in ethics, not just rules, to end abuse of secret shell firms
However, speaking in the debate she warned Government was powerless to sanction solicitors who hosted non- compliant SLPs.
She said: “If a firm asks its client to register a person of significant control, and the client does not do so, where is the incentive for that firm to remove that client altogether?
“The firm has to decide for itself whether the cost of reputational damage from being named in the press is enough. That is the balance that it has at the moment. It is not obliged not to have that SLP within its client base. There is no comeback and no consequence.
“There needs to be some means by which the firm is forced to do something to put that right. If the SLPs under its umbrella do not register a person of significant control, and continue not to register them, there is no fine to that legal firm, as I understand it.
“The SLP may face a fine but there is no comeback to the legal firm, other than potential reputational damage.”
Any law firm – or accountancy practice – actively facilitating money-laundering can be prosecuted. There is no suggestion any Scottish white-collar business has knowingly enabled criminality. Ms Thewliss’s concerns come after a Green MSP, Andy Wightman, suggested Holyrood could legislate for vicarious liability, meaning the enablers of SLPs could be held criminally accountable for any unlawful acts carried out by businesses they facilitate.
Analysis: Why it will take a change in ethics, not just rules, to end abuse of secret shell firms
Most SLPs registered in recent years are opaque and registered at maildrop addresses. Those hosted by law firms, in contrast, rarely feature in crime scandals and are vehicles for offshore wealth management or for tax-efficient equity funds.
Industry insiders have previously suggested reforms such as those proposed by Ms Thewliss would hurt this legitimate business. Some openly oppose further action to stop SLPs being abused, fearing extra red tape could make it harder to compete with jurisdictions such as Luxembourg or the Channel Islands.
A spokeswoman for the Law Society of Scotland stressed it was currently up to shell firms themselves to comply with the transparency laws or face fines, not solicitors.
Analysis: Why it will take a change in ethics, not just rules, to end abuse of secret shell firms
She said: “New requirements on SLPs have been introduced and it is the officers of an SLP who are responsible for providing detail on people with significant control.
“We would support any action by government to identify and robustly deal with non-compliance with these requirements.”
The UK Government has signalled it will make further reforms.
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