Shocking report reveals huge money-laundering loophole

An anti-money laundering expert is backing calls for reform of the UK’s company registration system after a shocking report this week revealed that thousands of UK-registered Limited Liability Partnerships bear the hallmarks of shell companies for serious financial crime.

An investigation by anti-corruption organisation Transparency International UK found that more than 20,000 Limited Liability Partnerships (LLPs) – almost one in ten of those incorporated in Britain – share the characteristics of those used in major corruption and money laundering schemes.

LLPs differ from private limited companies in that they are made up of partners rather than directors and shareholders. Because their structures can be multi-layered and the ultimate beneficial owner (UBO) is difficult to determine, money launderers can use them to move illicit funds.

Martin Cheek, managing director of SmartSearch, leading UK anti-money laundering (AML) software platform, said: “This is a glaring loophole in our financial system and dealing with it is long overdue.

“The economic damage caused could amount to hundreds of billions of pounds. Much of this dirty cash, according to Transparency International, is flowing out of Russia and this is undoubtedly one of the ways that Russians are evading sanctions and helping Putin to finance the war in Ukraine.”

The Transparency International UK investigation found that 14 per cent of LLPs had one or more corporate partners in one of 21 high-risk jurisdictions, were registered at addresses with hundreds, sometimes thousands, of identikit LLPs, and had partners that were also partners to dozens or sometimes hundreds of other LLPs.

It even found 948 suspect LLPs registered at an address in Cardiff, just 100 metres from Companies House.

Mr Cheek is backing Transparency International’s call on the Government to use the Economic Crime and Corporate Transparency Bill – being debated by MPs this week – to reform Companies House, overhaul the UK’s fragmented and ineffective system of AML supervision and create a credible deterrent against those who abuse UK companies for economic crime.

He added: “Even with reform, the complexity and vulnerability of these LLP company structures is yet another reason for regulated firms to use electronic verification (EV) to determine ultimate beneficiaries when on-boarding and monitoring customers.

“As part of their compliance, regulated firms are legally obliged to identify UBOs. However, without the right tools, criminals can make these checks seem like an impossibly complex process.

“EV solutions like SmartSearch offer fast, robust UBO checks. These are supported by our High-Risk Country Report, which enables businesses to immediately check their customers for links to Russia, Belarus and other high-risk countries.

“Combined with reform, EV is the most effective way to stop the flow of this dirty money tarnishing the reputation of the UK’s open economy.”