HUNDREDS of shell companies based at one of Scotland’s biggest law firms have flouted anti-money-laundering laws, The Herald can reveal.

The Scottish limited partnerships or SLPs – all legitimate investment vehicles formally headquartered at the Edinburgh offices of legal giants Burness Paull – have failed to meet key transparency rules.

They were supposed to name their controllers under a new openness requirements imposed last summer after hundreds of other SLPs were exposed as key fronts for organised crime and corruption, especially in the former Soviet Union.

Their failure to do so comes amid serious political concern about the robustness of Britain’s anti-money-laundering regime, and especially the rule under which firms, including SLPs, have to name a “person of significant control” or PSC if they have one.

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Politicians stress that legitimate SLPs - usually used for tax-efficient equity funds investments - are just as obliged to comply with the rules as those with entirely opaque offshore structures most likely to be used for money-laundering.

Burness Paull is the biggest host of SLPs used in the equity funds industry but is not legally responsible for what its client firms do.

The Herald has analysed filings at Britain’s corporate registry, Companies House, from some 2500 SLPs registered at Burness Paull’s address in the capital’s Lothian Road.

We were only able to locate full PSC statements from one in three of them. Just under 1000 said they had a person of significant control but were yet to name them. We found at least 342 SLPs which were as of this week legally active but which had made no attempt to file any statement.

Burness Paull Animation from BurnessPaull on Vimeo.

Burness Paull said that it was helping some of its clients to meet the regulations, introduced to enable to the UK to comply with EU-wide anti-money laundering directive, but that it was not responsible for any SLP which decided not to accept that assistance.

There is no suggestion that Burness Paull itself has breached money-laundering regulations– or any other laws or professional practice rules.

The law firm says its funds team operates with “integrity and professionalism”.

The Herald: Alison Thewliss

SNP MP Alison Thewliss  has been campaigning for tougher transparency rules and for further reforms of SLPs, despite concerns from legal firms, including Burness Paull, that a crackdown on the abuse of corporate entity could threaten their equity funds business.

Ms Thewliss said “There are serious issues with the accountability and transparency of SLPs. While there may well be legitimate use of SLPs there is very little being done to ensure they are compliant with the law.”

Corporate law is reserved. Ms Thewliss and the SNP wants to see powers at Britain’s Companies House beefed up so officials can insure that SLPs are not abused.

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She said: “It is undeniable that the current processes employed by Companies House are deficient, and are failing to improve transparency with respect to SLPs. Companies House clearly does not have the resources to keep tabs on SLPs.”

SLPs have played key roles in multi-billion-dollar money-laundering schemes such as the Russian and Azerbaijani Laundromat. Because they have legal personality, SLPs can enter in to contracts and own assets on their own behalf, despite having no named owners. And their anonymity has made them hugely popular, especially in Ukraine and Russia where they were advertised, off the peg, as “Scottish zero-tax offshore companies”.

The Herald has already exposed mass PSC non-compliance by SLPs with the most opaque ownership. Such partnerships have partners which are equally opaque corporate entities in secrecy jurisdictions such as Belize or Panama. These Caribbean partners are in turn controlled, often using powers of attorney, by unknown figures elsewhere in the world.

The kind of legitimate firms hosted by Burness Paull are more likely to have partners in the Channel Islands set up using tax-efficient structures, 

Burness Paull, on its website, warns that it is a criminal offence not to comply with PSC regulations, even though doing so “undoubtedly involves a degree of inconvenience”.

In a statement to The Herald, its partner Paula Kennedy said she was aware of reports that SLPS were being used for “apparently unknown purposes” but that that was “not an area in which Burness Paull operates”.

She added: “There is a significant and legitimate use of SLPs. Our funds practice is engaged in the formation and operation of SLPs in private equity and other private fund structures.

“We believe a significant contribution has been made by private equity, venture capital and other such firms to the UK economy through the investment in, and growth of, UK and international businesses, and the use of SLPs and their English equivalents have been an essential part of that model.”

Ms Kennedy stressed that this business was regulated and said Burness Paull was “diligent” in carrying out all necessary checks for clients “as required by law and in accordance with our strict internal policies”.

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She added: “We proactively advised our SLP clients about the introduction of the PSC regime, and the duties and obligations of those clients under the regime.

“When instructed to do so, we work with SLP clients to help them satisfy their PSC obligations and this work continues. A number of clients choose to deal with these requirements internally, or perhaps use other service providers, as is their right.”

The UK Government, which is still considering whether further reforms of SLPs are needed, said Companies House was in the process of chasing up all such firms which had failed to name a PSC.

A spokesman for the Department of Business Energy and Industry Strategy, which is responsible for Companies Houses, said: “The UK has one of the most transparent and accessible company registers in the world - viewed two billion times last year – helping investors choose how best to mange their funds and supporting law enforcement agencies in money-laundering investigations.

“When irregularities are identified, Companies House takes action and is contacting all non-compliant SLPs to ensure they adhere to the new transparency requirements. When SLPs choose to ignore these requirements, information is passed to the relevant agencies which can lead to prosecutions.”