14% of all LLPs ever incorporated show money laundering red flags

October 10, 2022 - More than one in ten of all Limited Liability Partnerships (LLPs) ever incorporated in Britain bear the hallmarks of shell companies used for serious financial crimes, new research from Transparency International UK reveals.

Partners in Crime details how more than 21,000 LLPs – some 14 per cent of all LLPs set up between 2001 and 2021 - share almost identical characteristics with those known to have been used in major corruption and money laundering schemes.

Read the report

The report is the first to expose the scale of abuse of this type of company, with a conservative estimate putting the economic damage caused in the hundreds of billions of pounds, much of this flowing out of Russia.

These findings come as the Economic Crime and Corporate Transparency Bill is due to be debated by MPs on Thursday, October 13. This legislation includes welcome reforms that could help end the abuse of the UK’s company registration system, including long-overdue new powers for Companies House.

But these measures would only solve part of the problem and still leave vulnerabilities for money launderers to exploit.

Duncan Hames, Director of Policy at Transparency International UK, said:

“This research lays bare the seemingly industrial-scale abuse of UK LLPs and how this type of company has been used to facilitate billions in economic harm. With a substantial proportion of LLPs showing red flags for use in high-end money laundering, it’s clear that those engaged in corruption and other major financial crimes are one step ahead of the Government’s response. Key to getting on the front foot is a long-overdue reform of Companies House, effective anti-money laundering regulators and properly resourced law enforcement that can provide a credible deterrent to economic crime.

“Russia’s war on Ukraine, its impact on our economy, and the use of LLPs and other UK legal entities to skirt sanctions, demand a renewed impetus for expedited reform. Legislation being considered this week by MPs includes welcome changes to prevent the abuse of UK companies, but there are glaring gaps in the Bill that leave vulnerabilities for money launderers to exploit. Parliament should prohibit opaque corporate control of UK-registered companies to further strengthen this legislation and buttress Britain's defences against dirty money.”

LLPs are a type of corporate entity that differ from private limited companies in that they are made up of partners instead of directors and shareholders. Law firms are commonly LLPs, as are legitimate investment vehicles. But this type of company is also attractive to those seeking to move illicit funds because they can be set up in a way that provides multiple layers of secrecy, making it difficult to ascertain who really owns them.

Analysis of all 146,948 LLPs incorporated between April 2001 (when this type of company was first established) and September 2021 reveals:

• 21,002 (14 per cent) showed three or more money laundering red flags. These include having one or more corporate partners in one of 21 high-risk jurisdictions (such as Belize and the British Virgin Islands), registered at addresses with hundreds, sometimes thousands, of identikit LLPs, and having partners that were also partners to dozens or sometimes hundreds of other LLPs. 
• An interconnected network of 15,000 LLPs (10 per cent) was controlled by pairs of omnipresent offshore corporate partners. A total of 1,873 were controlled by just two holding companies in Belize, while a further 661 were controlled by two firms in the Seychelles. Both jurisdictions are infamous secrecy havens with no publicly available information on who owns companies there.
• 948 suspect LLPs were registered at an address in Cardiff barely 100 metres from Companies House. A further 2,444 were registered to an office building a 10-minute walk from Birmingham’s International Convention Centre, which hosted last week’s Conservative Party Conference. 

To end the abuse of UK companies for serious financial crime and strengthen Britain’s defences against dirty money, Transparency International UK calls on the government to:

1. Get Companies House reform right the first time

• Prohibit all UK companies, including LLPs, from being controlled by opaque offshore companies.
• Give Companies House powers to review ‘know your customer’ checks carried out by company formation agents where rogue behaviour is suspected.
• Increase the cost of company incorporation to at least £50 to enable Companies House to have a sustainable self-funding model.

2. Ensure an effective first line of defence against economic crime 

• Overhaul the UK’s fragmented and ineffective system of anti-money laundering supervision.
• Commission an independent investigation of high-risk company formation agents to review their compliance with anti-money laundering rules.
   

3. Create a credible deterrent against abusing UK companies for economic crime

• Ensure Companies House has the resources to make use of its new powers
• The Financial Conduct Authority (FCA) should implement the recommendations from our 2021 report, Together in Electric Schemes, which outlines emerging money laundering risks associated with UK electronic money institutions.

Notes to editors:

A Limited Liability Partnership (LLP) is a type of corporate entity with several key differences from private limited companies. Instead of directors and shareholders, LLPs have partners, which can either be individuals or other companies. Neither need to be living or registered in the UK.

LLPs can do everything a private limited company can do, except they also offer multiple layers of secrecy for those wishing to obscure the partnership’s true owners:

Separate legal personality - LLPs can open bank accounts in the UK and overseas in the name of the partnership, not the individual partners.

Offshore ownership - The partnership can be controlled by companies in secrecy jurisdictions where there is no public information about who owns these firms. 

Lack of information - LLPs have very limited reporting requirements, meaning there are very few public documents to help trace their activities.

For this research, our experts first analysed 1,628 LLPs known to be connected to serious financial crime. They identified eight money laundering red flags that appeared throughout the data:

• incorporation between 2005 and 2015
• one or more corporate partners in one of 21 high-risk jurisdictions (HRJs), 15 of which are either British Overseas Territories or members of Commonwealth nations
• ten or fewer partners
• relatively few, if any, natural persons as partners
• partners spanning dozens, sometimes hundreds, of LLPs
• partners appearing in tandem alongside their ‘pair’, usually another secretive offshore corporate partner, on the paperwork of 10 or more LLPs
• both the LLPs and their officers registered at one of a relatively small number of addresses, typically alongside hundreds of other identikit LLPs
• where they have data on Persons with Significant Control (PSC), it is invariably either non-compliant or a natural person based in Russia, Ukraine, a Baltic state or somewhere else in the former Soviet Union

These characteristics were then checked against all 146,948 LLPs incorporated between April 2001 and September 2021.