SLP review will need to ensure legitimate Scottish partnerships can thrive while tackling criminal activity

The Law Society of Scotland has said that increased scrutiny of Scottish limited partnerships’ anti-money laundering processes could help deter criminal activity.

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

Michael Clancy, Director of Law Reform at the Law Society of Scotland, said: “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 Law 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 said: “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.”

In its response, the Society has also said 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. A requirement for this information to be updated regularly could prove effective, with failure to do so leading 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.

The Society’s full response to the Department for Business, Energy and Industrial Strategy call for evidence is available on the Law Society of Scotland website: Review of Limited Partnership Law.