Social Enterprise Scotland says that tackling the misuse of Scottish Limited Partnerships offers opportunity for positive reform
Legislation to clamp down on Scotland's role in global corruption should be used to turn the country into a leader in ethical wealth creation.
Social Enterprise Scotland has called for corporate law to be modernised in light of recent publiciity on Scottish Limited Partnerships (SLPs) being used by international money launderers.
The UK Government has pledged to introduce tougher measures to prevent economic crime, which the organisation says offers an opportunity to modernise corporate law and promote positive economic activity.
Social Enterprise Scotland policy manager Duncan Thorp said: "SLPs are anti-social enterprises. Their secrecy breeds a range of dodgy business practices.
"At the opposite end of the scale we have ethical social enterprises like community interest companies and co-operatives.
"We should modernise corporate law to encourage social enterprise and ethical wealth creation, instead of allowing certain types of business to extract wealth from our communities."
The SLP model is used by partners who want to carry out joint business ventures with a view to profit.
SLPs have their own legal personalities, enabling them to hold assets such as property, take out loans from banks and enter into contracts – and until recently details of their ownership were not required to be declared.
There are more than 30,000 SLPs operating in Scotland – the vast majority of which have been formed over the past decade – and the rise in their popularity has been linked to their use by money launderers to deliver profit by investing illicit cash. Around 70% of those registered in this period have been registered to just 11 addresses in Scotland.
Police Scotland has launched investigations into around 50 of the partnerships over the last two years. Despite new legislation being introduced by the UK Government last summer, more than 28,000 of the partnerships have still not provided details of ownership.
Analysis by the charity Transparency International UK uncovered the link between SLPs in moving millions of pounds of corrupt wealth around the world.
The Offshore in the UK report revealed that 71 per cent of all SLPs registered in 2016 were controlled by anonymous companies based in secrecy jurisdictions, like Belize, the Seychelles and Dominica. A further 113 SLPs with similar secretive structures were used to launder between $20 billion and $80 billion between 2010 and 2014 as part of what has been called the Global Laundromat.
SLPs also formed key parts of a $1 billion raid on Moldovan banks, involving corrupt judges and officials, which cost the country around an eighth of its annual GDP.
The UK department of business, energy and industrial strategy this week said plans are in place to crack down on SLPs, after the Herald newspaper linked three Scottish firms to international bribery.
"This government is committed to making the UK a hostile environment for all forms of economic crime, including money laundering," a spokesman said.
"We have concerns that some Scottish Limited Partnerships are being abused and that is why we will shortly announce new reforms to prevent limited partnerships from being used for unlawful activities."
