Research reveals industry-wide abuse of UK limited liability partnerships for financial crime

14% of all LLCs ever incorporated show money laundering red flags

October 10, 2022 – More than one in ten of all limited liability partnerships (LLPs) ever formed in Britain bear the hallmarks of front companies used for serious financial crimes, new research from Transparency International UK reveals.

Partners in Crime details how more than 21,000 LLPs – approximately 14% of all LLPs created between 2001 and 2021 – share almost identical characteristics with those known to have been used in major corruption and money laundering schemes.

Read the report

The report is the first to expose the scale of abuse by this type of business, with a conservative estimate putting the economic damage at hundreds of billions of pounds, much of it coming from Russia.

These findings come as Economic Crime and Corporate Transparency Bill is due to be debated by MEPs on Thursday 13 October. This legislation includes welcome reforms that could help end the abuse of the UK’s company registration system, including long-awaited new powers for Companies House.

But these measures would only solve part of the problem and still leave vulnerabilities for money launderers to exploit.

Duncan Hames, policy director at Transparency International UK, said:

“This research lays bare the seemingly industry-wide abuse of UK LLPs and how this type of business has been used to facilitate billions in economic harm. With a substantial proportion of LLPs showing red flags for use in high-end money laundering, it is clear that those involved in corruption and other major financial crimes have a leg up on the response. of the government. The key to taking the lead is long overdue reform of Companies House, effective anti-money laundering regulators and adequately resourced law enforcement that can provide a credible deterrent against crime. economic.

“Russia’s war on Ukraine, its impact on our economy and the use of LLP and other UK legal entities to evade sanctions requires renewed impetus for accelerated reform. Legislation before MPs this week includes welcome changes to prevent abuse by UK businesses, but there are glaring loopholes in the bill that leave vulnerabilities for money launderers to exploit. Parliament should ban opaque scrutiny of UK-registered companies to further strengthen this legislation and strengthen UK defenses against dirty money.

LLPs are a type of legal entity that differs from limited liability companies in that they are made up of partners instead of directors and shareholders. Law firms are usually LLPs, as are legitimate investment vehicles. But this type of business is also attractive to those looking to move illicit funds because they can be set up to offer multiple layers of secrecy, making it difficult to determine who actually owns them.

Analysis of all 146,948 LLPs formed between April 2001 (when this type of company was first created) and September 2021 reveals:

  • 21,002 (14 percent) showed three or more money laundering red flags. These include having one or more business partners in one of 21 high-risk jurisdictions (such as Belize and the British Virgin Islands), registered at addresses with hundreds, sometimes thousands, of identikit LLP, and to have partners who were also partners of dozens or sometimes hundreds of other LLPs.
  • An interconnected network of 15,000 LLPs (10%) was controlled by pairs of ubiquitous offshore partner firms. A total of 1,873 were controlled by just two holding companies in Belize, while another 661 were controlled by two companies in Seychelles. Both jurisdictions are infamous secrecy havens, with no publicly available information about business owners.
  • 948 suspected LLPs have been registered at an address in Cardiff just 100 yards from Companies House. A further 2,444 people registered at an office building a 10-minute walk from the Birmingham International Convention Centre, which hosted the Conservative Party Conference last week.

To end the misuse of UK businesses for serious financial crime and strengthen UK defenses against dirty money, Transparency International UK calls on the government to:

  1. Getting Companies House reform right the first time
  • Prohibit all UK companies, including LLPs, from being controlled by opaque offshore companies.
  • Giving Companies House the power to review ‘know your client’ checks carried out by company formation agents if there is suspicion of rogue behaviour.
  • Increase the cost of company incorporation to at least £50 to enable Companies House to have a sustainable self-financing model.

  1. Provide an effective first line of defense against economic crime
  • Overhaul the UK’s fragmented and ineffective anti-money laundering oversight system.
  • Commission an independent investigation of agents forming high-risk companies to examine their compliance with anti-money laundering rules.
  1. Create a credible deterrent against the abuse of UK businesses for economic crime
  • Ensure Companies House has the resources to use its new powers
  • The Financial Conduct Authority (FCA) should implement the recommendations of our 2021 report, Together in electrical diagramswhich outlines emerging money laundering risks associated with UK electronic money institutions.

Notes to Editors:

A limited liability company (LLP) is a type of legal entity that has several key differences from limited liability companies. Instead of directors and shareholders, LLPs have partners, which can be individuals or other corporations. Neither need to live or be registered in the UK.

LLPs can do everything a limited liability company can do, except they also offer several layers of secrecy for those who wish to hide the true owners of the partnership:

Separate legal personality – LLPs can open UK and overseas bank accounts in the name of the partnership, not individual partners.

Offshore property – The partnership may be controlled by companies in secret jurisdictions where there is no public information about the owners of these companies.

The lack of information – LLPs have very limited reporting requirements, which means that there are very few public records to trace their activities.

For this research, our experts first analyzed 1,628 LLPs known to be linked to serious financial crime. They identified eight money laundering red flags that showed up in the data:

  • incorporated between 2005 and 2015
  • one or more partner companies in one of 21 High Risk Jurisdictions (HRJs), 15 of which are either British Overseas Territories or members of Commonwealth countries
  • ten partners or less
  • relatively few, if any, natural persons as partners
  • partners spanning dozens, sometimes hundreds, of LLPs
  • partners appearing in tandem alongside their ‘pair’, usually another secret offshore business partner, on documents of 10 or more LLPs
  • LLPs and their leaders registered at one of the relatively few addresses, usually alongside hundreds of other identikit LLPs
  • when they have data on persons exercising significant control (PSC), it is invariably either a non-compliant person or a natural person based in Russia, Ukraine, a Baltic state or elsewhere in the former Soviet Union

These characteristics were then compared to all 146,948 LLPs formed between April 2001 and September 2021.


Source link

Comments are closed.