When it comes to setting up shell companies, UK limited companies and limited liability partnerships (LLPs) are the top choices for money launderers. We explain why.
“The use of anonymous shell companies is a well-known cover for criminals. They have been compared with getaway cars, putting corrupt individuals as far away from a crime scene as possible,” wrote Xiangmin Liu, former president of the Financial Action Task Force (FATF) in a Financial Times opinion piece.
Shell companies generally exist only on paper or as a letter box or brass plate on the wall of a serviced office. They don’t need a physical presence, meaningful mind or management located within a country. Nor undertake any real business activity, such as employing staff, paying wages, taxes, pension fund contributions or social benefits. They’re empty shells with nothing inside.
Enabling global dirty money
UK companies are seen as safe and prestigious. They have the appearance of probity. UK Companies House offers a publicly accessible, searchable online database of companies incorporated in the UK. However, scratch the surface of some of the largest Laundromat scandals of recent times and UK corporate structures have played an important supporting role.
“Typically, if something is seen as prestigious and desirable, it also happens to be expensive and difficult to get. That’s not the case with UK companies,” said Anton Moiseienko in conversation with Web Shield ahead of RiskConnect 2020. "Despite their patina of respectability, UK companies are also extremely easy to incorporate and cheap to create and maintain. That creates the perfect storm for someone who wants to create a company for nefarious purposes.”
Anyone from anywhere in the world can set up a UK limited company or limited liability partnership (LLP) within 24 hours at a cost of £12. There are no requirements for residency or a physical presence in the UK, and no restrictions on the number of directorships any company or individual can have.
The last FATF mutual evaluation report on the UK found that while the information in the register was subject to basic checks, “it remains largely unverified”. Companies House has no powers to query, amend or remove data, dissolve limited partnerships, or share suspicious information with law enforcement or financial intelligence units.
It has been apolitical choice to make it easy and cheap to register companies in the UK to stimulate entrepreneurship and inward investment. However, at the same time this has made it easy and cheap for bad actors to abuse the system to create shell companies, which provide anonymity, conceal beneficial ownership as well as the illicit origin of funds. UK shell companies can also be used to open bank accounts all over the world.
“The role of the UK is an absolute disgrace. Limited liability partnerships and Scottish limited partnerships have been abused for absolutely years,” said Howard Wilkinson, whistleblower and former Danske Bank employee in Estonia, at a European Parliament hearing.
Transparency is good, enforcement is better
In 2016, the UK government was the first to establish a public register of the true owners of companies, known as the register of persons with significant control (PSC). The PSC is the equivalent of the owner or controller of a legal entity – someone with more than 25 percent of company shares, voting rights and so on. Confusingly, a PSC can also be a legal entity, namely another company rather than a person, as long as it is subject to an appropriate transparency regime.
In practice, there is a lack of transparency as PSCs can be anonymous shell companies in secretive tax havens, with their ultimate beneficial owners hidden behind layers of corporate identities. Moreover, once again the information contained on the register is self-reported and not checked.
Research by Global Witness on the UK register in 2019 found five PSCs controlling over 6,000 companies, plus 4,000 beneficial owners under the age of two, including one that had yet to be born. There may be rules against deliberately falsifying information on corporate registers. Yet if enforcement is weak or non-existent, it creates loopholes which unscrupulous operators exploit.
“There is this grey zone of people not necessarily bringing their money to the UK but using UK-based infrastructure in money laundering schemes. This contributes to the sense that the UK has an outsized importance in the world of money laundering – the spider at the center of the web exploited by criminals,” says Moiseienko.
How Web Shield can help
Acquirers and payment service providers should satisfy themselves that they are able to identify beneficial owners and the rationale for corporate structures. This is so they can assess their acquiring, money laundering and terrorist financing risks.
AddressReveal, as the name suggests, helps you get behind virtual addresses, which often go hand-in-hand with shell companies. The system uses a whole host of methods, chiefly our proprietary database of 50 million address, which is being enriched all the time.
UBOReveal goes a step further. It retrieves all corporate documents from registries in 62 supported jurisdictions and counting, necessary to identify ultimate beneficial owners. All findings concerning shareholders and UBOs as well as documents retrieved are compiled into a single report for record-keeping and monitoring purposes.
Various Web Shield online academy courses are also available on anti-money laundering, merchant acceptance and underwriting. The courses are packed full of practical, real-life information and case studies to help risk professionals recognise various risks, plus advice on how to manage and monitor them.