Scotland's Corruption Companies

Scottish Limited Partnerships (SLPs) were set up a century ago when they were widely used to register contracts for tenant farmers, but today organised crime gangs and corrupt politicians are exploiting the system with them. SLPs can own assets and borrow money, just like a person. They can register as a partnership of two parent companies with no obligation to reveal the people behind them - until last year. The British government changed the rules last year to compel SLPs to identify "persons of significant control", but some have simply ignored the regulation.

SLPs were established in 1907 and widely used as a loose tenancy agreement but they are now primarily used for private equity and venture capital investments.

"What seems to make them attractive for legitimate use in the fund industry also makes them attractive for illegitimate uses," Stephen Chan, a partner specialising in SLPs at Scottish law firm Harper Macleod, told AFP.

Dirty money from eastern Europe is flowing through companies registered to nondescript properties across Scotland in a practice that has alarmed global campaigners and policymakers

A tiny flat in the crime-ridden council housing scheme  of Pilton was found to be home to hundreds of SLPs including Fortuna United, part of a US$1 billion theft that crippled the economy of Moldova in 2014.

"It's kind of crazy," Ben Cowdock, an SLP expert at anti-corruption campaign group Transparency International, told AFP. "There were over 100 SLPs in the Moldova scheme, and some were used to own shares in banks, allow individuals to take over banks and then make dodgy loans to companies that they also controlled."

Such companies also cleaned money for Russian and Azerbaijani "laundromats" exposed by the Organised Crime and Corruption Reporting Project (OCCRP). 

More recently, a joint investigation by Al Jazeera and Scottish daily The Herald this month linked SLPs to US$1.5 billion of assets seized from associates of ousted Ukrainian president Viktor Yanukovych. On paper, their registered address looked like an office suite a few minutes walk from Holyrood Palace - but it is actually a run-down apartment with a broken window.

Cowdock said there were 612 SLPs registered in 2009, a figure that rose to more than 5,000 by 2015. Over 70 per cent of SLPs registered in 2016 were controlled by anonymous companies based in jurisdictions such as Belize, Seychelles and Dominica, Transparency International found. "If you're hell-bent on laundering money it's still quite an attractive tool, because it's cheap and disposable," Cowdock said. "You can submit false information, and then launder your money before anyone notices."

Companies House said the government was "considering whether any further action is required to prevent limited partnerships from being used for unlawful activities". Scotland's  government is powerless to regulate them directly as company law is controlled from London.