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UK to crack down on companies at heart of money laundering scandals

Plans by the U.K. government to tighten the rules around limited partnerships, which played a key role in the Danske Bank A/S money laundering scandal, have been condemned as inadequate by campaigners.

Such entities, along with Scottish limited partnerships, or SLPs, can be registered at Companies House, the U.K.'s official company registry, for just £50.

Though a partner must be named as the ultimate beneficial owner of a limited partnership, the Labour Party said earlier this year that 17,000 Scottish limited partnerships had failed to comply with such rules.

Companies House has come under fire in recent years for a lack of supervision of the system after limited partnerships featured at the heart of international money laundering scandals.

The government is now planning to introduce new legislation to ensure limited partnerships are registered through an official supervised agent and must maintain a link to the U.K., according to the Financial Times. Legislation to address the issue is expected in 2019 and will include measures to allow company registrars to strike off dissolved LLPs, while partnerships would have to update Companies House with key information each year.

LLPs, or limited liability partnerships, differ from limited partnerships in that all partners have limited liability protection against company obligations.

"The government recognizes the need to reform limited partnerships legislation and has consulted on proposals to prevent SLPs being abused. The response will be published before the end of the year," said a spokesman for the Department of Business, Energy and Industrial Strategy.

'Opaque and ineffective'

However, campaign group Transparency International, which said that limited partnerships had been abused in money-laundering scandals "on an industrial scale," said the measures, though welcome, did not go far enough.

"Implementation will be key to ensuring these proposals are effective in practice. It's all very well saying that those incorporating limited partnerships need to be subject to supervision, but in practice that means nothing if the regulators aren't up to challenging those enabling money laundering either here or abroad," said Duncan Hames, director of policy at Transparency International UK.

"Our research has found bodies overseeing compliance with anti-money laundering rules to be opaque and ineffective. This needs to change urgently if these proposals are to be more than just words of good intent."

BEIS estimates there are 48,000 limited partnerships and 31,000 SLPs registered at Companies House. SLPs differ slightly from others in the U.K. because they can hold assets, borrow money from banks and enter into contracts. The number of SLPs grew by 236% between 2009 and 2016.

Much of the $234 billion that flowed through Danske Bank's Estonian branch between 2007 and 2015 moved through accounts held at the bank by U.K.-registered limited partnerships and limited liability partnerships.

Suspicious activities

Graham Barrow, an anti-money laundering consultant, investigated a sample number of the suspicious accounts linked to nonresidents at the bank. He discovered that just six bank accounts were linked to 32 LLPs registered at Companies House. All of the LLPs had overseas-designated members, 22 had the same members and 17 were registered to the same address. In one instance, Barrow identified one U.K. LLP that received $1 billion in just 14 months despite having no internet presence and paying no wages, rent or tax.

"It will require both resources and impetus from Companies House to enforce [these new rules] and there is no indication that the change will apply retrospectively, which means that there will still be thousands of already created entities that will likely circumvent the rules," said Barrow.

Global Witness also reported that more than 40% of the beneficial owners of SLPs are either a national of a former Soviet country or a company incorporated there.

Howard Wilkinson, the British whistleblower who repeatedly tried to alert senior executives at Danske Bank to his concerns over money laundering, told the European Parliament that the U.K. was "worst of all" at combating corruption.

He said U.K. entities were "the preferred vehicle for nonresident clients" who were at the heart of the money laundering scandal. He told Danske executives in emails to alert them to the issues at the bank's Estonian branch that one U.K. LLP, Lantana Trade, appeared to be linked to the family of Russian President Vladimir Putin, though the Kremlin has denied any such link.

"The role of the U.K. is an absolute disgrace. Limited liability partnerships and Scottish liability partnerships have been abused for ... years," Wilkinson told European lawmakers Nov. 21.