Research exposes industrial-scale abuse of UK LLPs for financial crime

More than one in ten of all Limited Liability Partnerships (LLPs) ever incorporated in Britain bear the hallmarks of shell companies used for serious financial crimes, according to a new report published today by Transparency International UK (TI).

The independent anti-corruption organisation now wants to prohibit all UK companies, including LLPs, from being controlled by opaque offshore companies. It is also seeking additional powers for the UK’s registrar of companies and an overhaul of the country’s anti-money laundering (AML) supervisory systems.

Corruption and money laundering

The report, Partners in Crime, details how more than 21,000 LLPs – some 14 per cent of all LLPs set up between 2001 and 2021 – share almost identical characteristics with those known to have been used in major corruption and money laundering schemes.

What TI describes as a “conservative estimate” puts the economic damage caused by LLPs in the hundreds of billions of pounds, much of this flowing out of Russia.

Upcoming legislation

These findings come as the Economic Crime and Corporate Transparency Bill is due to be debated by UK members of parliament (MPs) later this week.

The UK authorities should be well aware of the dangers posed by the LLP structure, which allows for an offshore foreign company to become a partner without requiring the disclosure of the ultimate beneficial owner of that company.

Evidence of abuse

A report on the non-resident portfolio at Danske Bank’s Estonian branch, which was at the centre of what some say is the largest money laundering scandal in history, found that UK registered 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.

In Autumn 2020, thousands of Suspicious Activity Reports leaked from the US treasury department’s Financial Crimes Enforcement Network (FinCEN) alleged that 3,267 UK LLPs and limited partnerships were set up for suspicious illicit purposes by registration agents between 1999 and 2017 (Trade-based Financial Crime, 3 April 2022).

Glaring gaps and vulnerabilities

The proposed new UK legislation includes welcome reforms that could help end the abuse of the UK’s company registration system, including long-overdue new powers for the UK’s registrar of companies, Companies House, according to TI.

But it says these measures would only solve part of the problem. “There are glaring gaps in the bill that leave vulnerabilities for money launderers to exploit,” says director of policy at TI UK, Duncan Hames. “Parliament should prohibit opaque corporate control of UK-registered companies,” he concludes.

AML deficiencies

An overhaul of the UK’s “fragmented and ineffective system of anti-money laundering (AML) supervision” is also needed according to the TI report.

It also calls for the commissioning of an independent investigation of high-risk company formation agents to review their compliance with AML rules and for powers for Companies House to review ‘know your customer’ checks carried out by company formation agents where rogue behaviour is suspected.

TI’s report, Partners in Crime, can be found here.

 



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