New requirements loom for Scottish limited partnerships, often fronting for binary options firms

Maria Nikolova

The UK Government opens consultation to crackdown on abuse of Limited Partnerships, as new evidence shows certain financial instruments are being exploited by foreign money laundering schemes.

Brexit-British-Pound

The UK Government has earlier today launched a consultation on proposals that aim to deter the misuse of limited partnerships in criminal activity. The document outlines measures to crack down on the abuse of a specialized financial arrangement to launder dirty foreign money through the UK, as part of a package of government reforms.

Scottish Limited Partnerships (SLPs) and Limited Partnerships (LPs) are used by thousands of legitimate British businesses, particularly the private equity and pensions industry, to invest more than £30 billion a year in the UK.

However, evidence unveiled today shows the growing evidence SLPs have been exploited in complex money laundering schemes, including one which involved using over 100 SLPs to move up to $80 billion out of Russia. As FinanceFeeds has previously reported, such entities are often used as fronts for binary options scams too.

Figures published today show just 5 frontmen were responsible for over half of 6,800 SLPs registered between January 2016 and mid-May 2017. By June 2017, 17,000 SLPs, over half of all SLPs, were registered at just 10 addresses.

The consultation seeks views on a number of reforms to ensure SLPs can continue to be used as a legitimate vehicle for investment and enhance the UK business environment. The proposals make it clearer who runs limited partnerships to enable British investors to continue to use them legitimately and invest in the UK while cracking down on their use in unlawful activities. These include:

  • requiring a real connection to the UK, including ensuring SLPs do business or maintain a service address in Scotland;
  • registering new SLPs through a company formation agent, meaning frontmen will be subjected to anti-money laundering checks;
  • new powers for Companies House to remove limited partnerships from the company register if they are dissolved or are no longer operating.

The reforms being proposed will apply to all limited partnerships in the UK and will also include new annual reporting requirements for limited partnerships in England and Wales and Northern Ireland, which will help Companies House ensure they comply with the law.

The UK has already taken a number of steps to improve transparency and tackle money laundering through measures, such as introducing a register of People of Significant Control in 2016, which now includes 4.6 million names. The register was expanded in 2017 to include Scottish Limited Partnerships.

Following the introduction of new requirements for SLPs in the summer of 2017, such entities are now obliged to disclose details about their beneficial owners. The measures were set to increase transparency and to help tackle the illicit activities performed by companies abusing the status of SLPs. Several months after the entry-into-force of the new rules, however, it became clear that SLPs that do not comply with the new requirements can avoid fines. “No Scottish Limited Partnerships (SLPs) have been fined since the People with Significant Control (PSC) register came into force”, Conservative MP Margot James said in November.

Before the coming into force of the new regulations, SLPs had been allowed not to disclose the identity of their owners and to file no accounts. A report by the Scottish Herald from May 2017 has estimated that 43 Scottish shell companies act as corporate fronts for binary options sites. Of these, 41 are Scottish limited partnerships.

SLPs differ to Limited Partnerships elsewhere in the UK as they have legal personality, which allows them to enter into contracts, take on debts or own property. In a Limited Partnership in England and Wales or Northern Ireland, this is done by the partners.

The consultation closes on July 23, 2018.

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