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Limited partnership review should let legitimate concerns thrive: Society

5 April 2017

Increased scrutiny of Scottish limited partnerships’ anti-money laundering processes should not be allowed to disrupt legitimate business activity, the Law Society of Scotland has said.

In its response to the Department for Business, Energy & Industrial Strategy’s call for evidence on limited partnership law, the Society also called for any measures introduced to prevent criminals using Scottish limited partnerships (SLPs) also to apply to other types of business structures, to ensure that criminal activity is not simply displaced elsewhere.

The review follows media reports linking SLPs with international criminal operations as well as assisting tax avoidance by foreign nationals.

The Society's response also argues that concerns about SLPs could be addressed by a register of beneficial ownership, and that increased scrutiny of beneficial ownership could discourage use of SLPs as a vehicle for criminal activity without disproportionately prejudicing their legitimate use. Failure to update this information regularly could lead to the business being struck off by Companies House.

Limited partnerships could also be required to submit an annual confirmation statement similar to that required by companies, and introducing a requirement to register a service address could also aid due diligence by interested parties.

Michael Clancy, director of law reform at the Society, commented: “We do not condone any criminal use of what is a legitimate business structure and it is essential that there are measures in place which will deter people from using SLPs for fraudulent activity.

“In taking steps to deter criminals, it will be important to get the balance right and make sure that the introduction of any new measures will not have an adverse impact on legitimate businesses. Partnerships and limited partnerships are commonly used business structures as they offer operational flexibility and tax transparency. Many people currently use SLPs to run successful businesses, employing thousands of people in different sectors across Scotland, and they have been common in farming and the rural sector as landlords have used SLPs to set up tenancies on agricultural land.

“A review of the current system would help to establish just how significant the problem is, and if SLPs in particular are being misused.”

The Society believes that any review should not just focus on SLPs, but on how all relevant legal business types might be misused for criminal purposes.

Mr Clancy added: “To prevent these entities being used for illegitimate purposes, we think that the UK Government should take action to ensure that anti-money laundering and ‘know your client’ actions are carried out by formation agents, who are regulated by HMRC, and there should be increased investigation and enforcement activity if required.

“Changing SLPs in isolation could displace any criminal activity, so proper use of anti-money laundering procedures and know your client actions should apply across the board irrespective of the form of the business.”

Click here to access the full response.

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