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Crime and (no) Punishment


Today I am so very pleased to welcome as my guest blogger Richard Smith. He supplied inspiring support to me when an MP. He advised me on parliamentary questions that exposed a wide range of areas including Companies House lack of resources to police Scottish Limited Partnerships and other forms of companies (and thanks Richard for referencing this below). He also gave critical advice as I fought in committees to get at least some limited action by UK government. I continue to have huge concerns. I asked him for an up to date account relating to SLPs and of course gave him a free hand. Here is the master at his work:


Scottish Limited Partnerships

Last Saturday, a Scottish Limited Partnership (SLP) made it to top spot on the leader page of The Times. That’s another waypoint for a five-year campaign, led in the UK Parliament by SNP MPs Roger Mullin (2015-17) and Alison Thewliss, and, in Scotland, by Andy Wightman, Green MSP.


It’s unusual for a Times leader to read like investigative journalism. The story concerned an SLP called Intergold LP, which had received $1.6 million for “confectionery”, from the evidently very sweet-toothed Trade Ministry of Turkmenistan. For no obvious reason, the money ended up in a Latvian bank account. The Times is silent on where the sweeties came from, if there were any, and whether they were ever delivered.


Suspicious Activity reporting

That all looked improbable enough, even to the notoriously unsuspicious Deutsche Bank, for Deutsche to file a Suspicious Activity Report (SAR). A few years later, this SAR was one of thousands leaked to the International Consortium of Investigative Journalists.


The Times tells us that it’s just one of numerous SARs triggered by 380 entities formed by Intergold’s UK-registered and HMRC-supervised formation agent, Comform Solutions Limited. My own very rough research indicates that, since 2009 or so, Comform Solutions has formed around 3,000 SLPs, and over 1,000 equally anonymous, but slightly pricier Limited Liability Partnerships. That makes it one of the top 5 players in SLP registration. From other reporting, it is clear that all the big players are equally well-represented in Deutsche’s SARs: they flag up thousands of suspicious SLPs.


I may well have missed some of Comform’s output. Still, if my estimates are somewhere near right, roughly every 10th partnership ever registered by Comform, in its 13 years of operation, shows up in the Suspicious Activity Reports of just one not particularly alert bank. That’s an extraordinary density of Suspicious Activity, thought it doesn’t imply that Comform is doing anything illegal. Far from it: I’d not be at all surprised to find that every single thing that Comform ever did in the company register was scrupulously legal.


Talking £billions

Let’s make a bold extrapolation from our one data point: if those 380 suspicious entities each transferred no more than Intergold’s $1.6 million, that’s around $600 million-worth of Suspicious Activity.


That sounds outrageous, but in fact, in the world of SLPs, $1.6 million and, for that matter, $600 million, are relatively modest sums.


For instance, two other anonymous SLPs, Hilux Services LP and Polux Management LP, moved $2.9 billion from Azerbaijan into the dollar-based financial system. Their formation agent does not identify himself. The billion-dollar SLPs do happen to share their maildrop address, in Glasgow, with hundreds of SLPs created by Comform, but that, by itself, doesn’t prove that Comform had anything to do with them. There are plenty of other unidentified agents plying the same trade; by no means all of them have made themselves known to HMRC, as required by law.


It's worth emphasising that the world of SLP abuse encompasses much more than giant money laundering exploits by a tiny delinquent handful.


Lesser frauds involve literally thousands more SLPs.


Here are some supporting observations, from journalist Graham Stack, focussing on just the 10,000 SLPs formed in 2015-6:


The use of anonymously owned SLPs as trade intermediaries runs a high risk of trade misinvoicing. This involves the falsification of the value of a commercial transaction submitted to customs officials. Predominantly, the names given as trade intermediaries were found in custom databases in Russia and Ukraine.


In 2015-2016, the names of 793 SLPs were being used as trade intermediaries.


The dodgy trade intermediaries are backed up by dodgy web sites, also operated by SLPs:


The names of 230 SLPs created in 2015 and 2016 were found on websites which claimed to be trading businesses, but gave falsified contact details, were vague on the details of their exact trading activities and who were almost always situated at the virtual office or mailbox address they were registered at…


Outside of these websites, no trace of their business activities could be found. One can speculate as to why, but one possible reason is that such websites are set up to pass money laundering checks, and may be a component of misinvoicing as described above.


Then there are all the likely investment frauds operated by SLPs:


240 businesses which run a high fraud risk were identified in 2015/16 —these included crypto currencies, HYIP and Forex trading, binary options trading, alleged pyramid schemes, and unregulated online gambling.


Organised Crime and Corruption

You can add that lot, and the hundreds of SLPs that appear in the Organised Crime and Corruption Reporting Project’s “Russian Laundromat” and “Azeri Laundromat” files, to the thousands of SLPs in Deutsche Bank’s SARs.


The UK Government tell us that they are part-way through a reform programme that will end the large-scale abuse of Scottish Limited Partnerships in financial crime. Let’s road test what they’ve introduced, or proposed, so far, using Intergold LP, and its agent Comform, as our stalking horses. We could have used a couple of dozen other agents, and 20,000 other SLPs, but this pair are topical.


Person of Significant Control

First up, the Person of Significant Control regulations, which apply to SLPs since July 2017, and supposedly require SLPs to disclose who controls them. Intergold LP kicked off by ignoring the initial two-week Person of Significant Control disclosure deadline, an offence that should have made it liable to a £5,000 fine. As SNP MP Alison Thewliss discovered in a multi-year series of Westminster Parliamentary questions, none of the many thousands of SLPs that ignored the deadline suffered any penalty at all. The threatened fine is simply a bluff, one that’s already been called, thousands of times.

This non-enforcement is not just a manifestation of Companies House’s apathy: a few days ago, Andy Wightman extracted from the Lord Advocate an admission that obstacles to enforcement arose from “difficulties in identifying an individual offender against whom there is corroborated evidence and who can be made subject to the jurisdiction of the Scottish courts”.


In other words: the way that Companies House and the Crown Office see and do things at the moment, there are probably no effective sanctions at all against offshore-controlled SLPs that choose to ignore the law. For offshore crooks, that’s a feature, not a bug. No wonder many hundreds of dodgy SLPs are still being registered every year, even after much of the corrupt “non-resident” business has been driven out of Baltic banks.


When Intergold LP did get around to complying with the PSC regulations, six months late, this is what it said:


The partnership has not yet completed taking reasonable steps to find out if there is anyone who is a registrable person or a registrable relevant legal entity in relation to the partnership


This is a perfectly legal, perfectly uninformative PSC statement, in a form prescribed by the regulations. There are several other legally-prescribed statements that are equally uninformative. In other words, the option to make no disclosure at all is actually hard-wired into these supposedly transparency-enhancing regulations. That will never, ever work.


Since the PSC regulations allow companies and SLPs to postpone disclosure indefinitely, or dodge it in a variety of other ways, it may seem easy to understand how Intergold LP survived for another 18 months without managing to work out who controlled it. But in fact, there is another puzzle.


Step forward James Dickins of Comform, who filed Intergold’s uninformative PSC statement. He seems to have been struggling with how to report Intergold’s ownership structure to Companies House, despite having previously identified its owners as part of the due diligence checks legally required of all company agents. Yet, 18 months later, Dickins has no difficulty identifying someone with sufficient influence over Intergold’s affairs to request its dissolution, duly filed by Dickins on 22ndJuly 2019.


Comform people’s perspicacity is like that: it comes and goes, yet is always at the service of Comform’s terribly shy clients. Be in no doubt, though: everything Comform has done in these filings is perfectly legal.


Is Intergold LP a pathological one-off? Not exactly: since August 2017, Comform have followed instructions, from nobody in particular, to dissolve at least 462 SLPs that had made PSC declarations identical to Intergold’s.


So much for the PSC regulations.


Reforms?

Let’s look next at the Limited Partnership reform proposals published on Dec 10th 2018. Nearly two years on, they haven’t yet resulted in a Bill, but that’s Brexit for you. Here are the highlights:


1. “Those registering Limited Partnerships must demonstrate they are registered with an official anti-money laundering supervised agent, such as an accountant or a lawyer, or an overseas equivalent.”


Admittedly, pinning one’s faith in unidentified “offshore equivalents” to do the same job as the local supervisors isn’t credible, in the absence of global AML standards enforced by treaty. Apart from that, this idea sounds great, and it’s a proposal I once endorsed. My enthusiasm for it dwindled as I learned more and more about the resources and enforcement record of HMRC, Comform’s anti-money laundering supervisor. Never mind the “overseas equivalents”: the local supervisors aren’t too impressive either.


Between August 2019 and January 2020, HMRC issued penalty notices to four company agents for AML compliance breaches, apparently the first ever issued to company agents. The fines ranged from £1,000 to £9,000 and totalled just under £15,000.


HMRC don’t say how many agents they had to inspect in order to find this handful of minor offenders. One hopes, a lot more than four. HMRC supervise around 2,500 company agents: inspecting four every six months, it would take over three hundred years to tour the lot.


Look at it another way: even knocking off 250 inspections a year, which is one per business day, and far, far beyond HMRC’s capacity, completing just one inspection visit to each registered agent would take a decade. HMRC’s company agent supervision is largely a sham: a sham already exposed by some of Roger Mullin’s Parliamentary questions, back in 2016, when HMRC admitted that it doesn’t know which companies are registered by which agents.


It happens that Comform Solutions was one of the four agents recently penalized. They were fined £1,000, or, as we now know, just over £2.63 for each entity in Deutsche Bank’s Suspicious Activity Reports, or 0.0625% of Intergold’s suspicious confectionery trade. That’s barely a spot on their otherwise unblemished official record.


It doesn’t look like much of a deterrent, either.


2. “The Limited Partnership must demonstrate an ongoing link to the UK, for example by keeping its principal place of business in the UK”.


This is a particularly half-hearted proposal that is already satisfied by every single one of the 20,000-odd SLPs mass-registered at Scottish mailbox addresses since 2008, and abused in crime after crime since then. It is of no relevance to SLP anti-abuse reforms.


3. "More confirmation statements"


This is not relevant to SLP abuse either.


4. “Registration particulars and accounts


The registration particulars of SLPs can be decidedly cryptic. For instance, we know next to nothing about the Partners of Intergold LP. Where are they incorporated? Not in the UK, as a quick check reveals; so, somewhere on planet Earth, maybe. Who’s signing for them? Dickins and O’Donoghue of Comform Solutions, acting for nobody in particular.


Dickins and O’ Donoghue are unusually easy to identify. With the billion-dollar Hilux Services LP, it’s even worse: even the authorised signatures are unintelligible. Who knows who signed for its partners: someone or other, somewhere or other, with a couple of billion dirty dollars to shift.


Equally lackadaisically, the 2018 reform proposals still neglect to propose any extra identification of partners that happen to be companies, such as their company registration number, the jurisdiction in which they are incorporated, and contact details and printed names for the signatories.


This is ludicrous, and it matters. Most of the 20,000-odd SLPs mass-registered at Scottish mailbox addresses since 2008 sport corporate registration details that are just as unverifiable as Hilux Services LP’s: almost all have partners that, if identifiable at all, are anonymous companies registered in offshore secrecy jurisdictions. The big draw is secrecy: it must be ended.


So far, then, the results of a year-long consultation exercise are two broken-backed ideas, two irrelevancies, and a glaring omission. They will have little effect on the abuse of SLPs. But there is one idea to applaud, cautiously; it follows.


5. “Strike off


For the register of companies to be transparent and reliable, the Government considers it essential that it should contain information that is up to date and accurate and therefore intends to grant the Registrar the power to strike off LPs that are dissolved or which the Registrar concludes are not carrying on business or in operation.”


This gets a thumbs up: for a flavour of the sheer disreputable insanity of an SLP register lacking this protection, consider the history of Largo LP, partnership number SL022291, which was registered on the 8thSeptember 2015, dissolved on the 22ndSeptember 2016, brought back to life again on the 8thDecember 2016, dissolved again on the 12thSeptember 2018, resuscitated again on the 18thOctober 2018 and dissolved again on the 1stOctober 2019.


Dozens of other SLPs flicker in and out of existence in a similar manner.


There is still a niggle: it would be interesting to understand how the Registrar will determine that an SLP has ceased to carry on a business. Even the easiest possible case, when an LP that has made a filing stating that it has dissolved, presents significant difficulties. The Registrar seems unlikely to have the resources simply to consult, by hand, at least 100,000 filings of 30,000 SLPs (and another 20,000-plus in England and Northern Ireland), looking for any stating that the LP has dissolved. Yet, without that initial effort, the register will continue not to be “transparent and reliable”. Decades of neglect have a cost.


We are not quite finished with the official LP reform ideas: there’s an important, incomplete afterthought in the Companies House reform proposals published just a few days ago (18thSeptember 2020), namely, striking off “in the public interest”:


The Government plans to give the Registrar powers which will enable Limited Partnerships to be removed from the register following a court order. Further work will be undertaken to explore the criteria which should be met before this decision can be taken. The process will be designed in a way which balances the need to deter criminal activity while protecting the interests of innocent parties in the limited partnership.


SLPs are a crime risk to the world at large: the corresponding “public interest” is global too. Accordingly, here's a suggestion for this “further work”: most of the criminal activity associated with SLPs occurs in far-off countries. If an SLP breaks someone else’s laws, far away, will that satisfy the Registrar’s criteria? If that question can only be answered in the negative, this proposal is a waste of time too.


In short, there’s nothing in the legislation and proposals so far that would have kept Intergold LP off the register, or at least identified its owners, or encouraged Comform Solutions to find less Suspicious clients, or mitigated the tendency of Scottish Limited Partnerships to turn up in SARs and crime reports worldwide.


Proposed reforms

So here, finally, are a set of proposals that might actually have some bite. They have had no scrutiny from a legal expert and they are at varying levels of detail, but it looks as if there’s plenty of time to remedy any deficiencies.

  1. Implement the “Strike Off” proposal from the 2018 reforms, but resource the Registrar well enough for him to be able to identify and strike off already-dissolved LPs in a reasonable timescale: 3 months, say.

  2. Ensure that the criteria for “carrying on business” include filing of PSC statements and confirmation reports by the due date.

  3. Reserve the right to form new SLPs to Scottish law firms, only; those firms to be clearly identified on the registration forms.

  4. Increase the cost of registering an SLP from the current £20 to £2,000, which modestly exceeds the price for which they have been sold by offshore web sites for the past decade. That’s not going to deter a serious money launderer, nor make any difference to a serious Scottish business plan: but it raises some enforcement cash, and might squeeze out some of the spivs.

  5. Increase the cost of other filings (currently zero, despite the manual labour they generate) to £1000.

  6. General Partners of SLPs to be UK legal persons or UK nationals. Existing SLPs to comply with this requirement, by a deadline, except for SLPs registered by Scottish law firms.

  7. Define “public interest” in a way that recognises the abuse of SLPs in crime overseas.

  8. Make it much harder to circumvent the PSC regulations (there are ways to do this: it’s not magic!).

There’s still time to stress test these ideas, and come up with better ones. If the largely toothless reform proposals from 2018 ever make it into this Parliament’s legislative agenda, an 80 seat Tory majority is poised to wave them through and declare victory.


Implementation of more effective measures might then just have to wait until Scottish independence…

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