The UK government has published its proposals to clamp down on the use of anonymous or fraudulent shell companies and partnerships that provide criminals with a veneer of legitimacy to help commit a range of crimes, from money laundering and grand corruption to fraud and identity theft.
The Danske Bank money laundering scandal, said to be the largest in history, highlighted the crucial role played by anonymous UK registered entities in moving illicit wealth around the globe for the bank’s non-resident customers from Russia and other ex-Soviet countries.
Shell companies registered in the UK played critical roles in the Russian and Azerbaijani ‘laundromats’ while US investigators found that thousands of UK entities were set up for suspicious illicit purposes between 1999 and 2017.
Mandatory identity verification
Under the UK government’s proposals, the country’s registrars of companies will be given new powers to stop and query suspicious filings that, for example, follow patterns known to be associated with misuse. They will also be able to query suspicious appointments or filings and, in some cases, request further evidence or reject the filing.
A cornerstone of the reforms is the introduction of mandatory identity verification for the vast majority of individuals incorporating or filing with the UK’s registrars of companies.
This will mean that individuals associated with UK registered entities will have to prove they are who they say they are, making it much harder to appoint fictitious directors or beneficial owners.
Danske Bank
The Danske Bank case highlighted how the veneer of legitimacy provided by association with a UK registered company was crucial to US$200 billion flowing through accounts of non-resident customers from Russia and other ex-Soviet countries via Danske’s Estonian branch through hundreds of UK registered entities.
A report on the non-resident portfolio at Danske Bank’s Estonian branch found that more than half of the 10,000 customers in the bank’s non-resident portfolio had suspicious characteristics.
Azerbaijani and Russian laundromats
The report also found that UK registered limited liability partnerships (LLPs) were the preferred vehicle for the non-resident customers. Four UK LLPs were used in the ‘Azerbaijani laundromat’ from 2012-2014 to launder US$2.9 billion.
Similarly, the ‘Russian laundromat’ scheme in 2013-2014 involved 177 customers, many of whom were UK registered LLPs.
FinCEN Files
In Autumn 2020, thousands of Suspicious Activity Reports from the US treasury department’s Financial Crimes Enforcement Network (FinCEN) were leaked.
The reports alleged that 3,267 UK LLPs and limited partnerships were set up for suspicious illicit purposes by registration agents between 1999 and 2017.
The UK government’s proposals to clamp down on the use of anonymous or fraudulent shell companies are contained in a White paper on corporate transparency and register reform that can be found here.
The Report on the Non-Resident Portfolio at Danske Bank’s Estonian branch can be found here.
Categories: Trade Based Financial crimes News
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