Calls for action over dirty money flowing

Dirty money from eastern Europe is flowing through companies registered to nondescript properties across Scotland in a practice that has alarmed global campaigners and policymakers, experts say.

The first Scottish Limited Partnerships (SLPs) were set up a century ago when they were widely used to register contracts for tenant farmers, but today organised crime gangs and corrupt politicians are exploiting the system with them.

A tiny flat in the crime-ridden Edinburgh suburb of Pilton was found to be home to hundreds of SLPs including Fortuna United, part of a $1 billion (824 million euro) theft that crippled the economy of Moldova in 2014.

"It's kind of crazy," Ben Cowdock, an SLP expert at anti-corruption campaign group Transparency International, told AFP.

"There were over 100 SLPs in the Moldova scheme, and some were used to own shares in banks, allow individuals to take over banks and then make dodgy loans to companies that they also controlled."

SLPs can own assets and borrow money, just like a person. They can register as a partnership of two parent companies with no obligation to reveal the people behind them -- until last year.

Such companies also cleaned money for Russian and Azerbaijani "laundromats" exposed by the Organised Crime and Corruption Reporting Project (OCCRP).

More recently, a joint investigation by Al Jazeera and Scottish daily The Herald this month linked SLPs to $1.5 billion of assets seized from associates of ousted Ukrainian president Viktor Yanukovych.

On paper, their registered address looked like an office suite a few minutes walk from Queen Elizabeth II's Scottish palace -- but it is actually a run-down apartment with a broken window.

"We are aware that SLPs are a feature of some money laundering typologies and are working with partner agencies to tackle the practice," a spokesman for the UK National Crime Agency said.

- 'Attractive for illegitimate uses' -

SLPs were established in 1907 and widely used as a loose tenancy agreement but they are now primarily used for private equity and venture capital investments.

"What seems to make them attractive for legitimate use in the fund industry also makes them attractive for illegitimate uses," Stephen Chan, a partner specialising in SLPs at Scottish law firm Harper Macleod, told AFP.

Cowdock said there were 612 SLPs registered in 2009, a figure that rose to more than 5,000 by 2015.

Over 70 percent of SLPs registered in 2016 were controlled by anonymous companies based in jurisdictions such as Belize, Seychelles and Dominica, Transparency International found.

The British government changed the rules last year to compel SLPs to identify "persons of significant control", but some have simply ignored the regulation.

"If you're hell-bent on laundering money it's still quite an attractive tool, because it's cheap and disposable," Cowdock said. "You can submit false information, and then launder your money before anyone notices."

Companies House, a government agency, said the government was "considering whether any further action is required to prevent limited partnerships from being used for unlawful activities".

- 'Clearly not enough' -

Alison Thewliss, a Scottish National Party politician fighting to change the law, said dodgy SLPs were "damaging Scotland's good name".

But Scotland's semi-autonomous government is powerless to regulate them directly as company law is controlled from London.

"The UK government has agreed to close some of the loopholes but it's clearly not enough," Thewliss told AFP.

But David Young, a partner at law firm Pinsent Masons, cautioned that the controversy should not tarnish the reputation of legitimate SLPs.

He said the ability to register companies, rather than people, as partners enables firms to create subsidiaries that ring-fence parts of the business to ensure their assets are not overexposed.

"Anti-money laundering and other checks should be carried out, but there is nothing wrong with the vehicle itself," he told AFP.

Source: AFP