Mon 04 Sep 2023

The Economic Crime and Corporate Transparency Bill: a clamp down on the Scottish Limited Partnership?

The Scottish Limited Partnership ("SLP") has long been identified as a potential vulnerability in the fight against fraudulent activities in Scotland.

There are various reasons that the SLP is perceived as a weakness in this regard, including the following:

  • SLPs are subject to limited reporting requirements at Companies House
  • Depending on their structure, SLPs may not be required to file annual accounts
  • The general and limited partners of the SLP may themselves be corporate vehicles (including corporate vehicles registered in other jurisdictions). This means that the identity of those who own or control the SLP can easily be masked.

These vulnerabilities, combined with Scotland's global reputation as a respected and safe jurisdiction in the financial services world, have made the SLP an ideal target for those seeking a vehicle to aid in the commission of fraudulent acts. The SLP can act to legitimise what are, in reality, fraudulent actors and schemes.

One high profile example of the use of SLPs as a vehicle for fraudulent activities was, in 2012-14, when 20 Limited Partnerships (all but one being an SLP) were used to extract billions from a number of Moldovan banks, forcing the country into a massive banking bailout as a result. Estimates of the losses suffered by the banks as a result of the fraudulent scheme range from $1 billion to $2.9 billion.

The UK Government will be hoping that this vulnerability is about to be fortified as a result of the Economic Crime and Corporate Transparency Bill - which is currently back with the House of Commons for their final approval (expected in early September).

The Bill aims, amongst other things, to prevent the abuse of limited partnerships by reforming the role of Companies House. Reforms are to include:

  • tightening registration requirements
  • requiring limited partnerships (including SLPs) to maintain a connection to the UK (or Scotland in the case of SLPs)
  • increasing transparency requirements
  • enabling the Registrar of Companies House to deregister limited partnerships (and SLPs) which are dissolved, no longer carrying on business, or where a court orders that it is in the public interest to do so

Given that SLPs are still formed in accordance with the Limited Partnerships Act 1907, reform in this area is long overdue.

What remains to be seen is how effectively the Economic Crime and Corporate Transparency Bill can be implemented in practice.

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