Martin Kenney: Scotland acts against unscrupulous formation agents and their crooked clients

The formation and use of Scottish offshore limited partnerships and companies has attracted significant criticism.

Much of this criticism was justified. Scottish business vehicles were clearly being exploited by the unscrupulous to further tax evasion and money laundering efforts.

The lack of an effective Know Your Customer (KYC) and due-diligence regime saw some company formation agents marketing their wares in a manner that was indifferent to the risks involved — in particular to those in the old Eastern Bloccountries.

The well-documented matter that saw Scottish limited partnerships implicated in the $1 billion Moldovan scandal of late 2014 was a case in point. When a small country like Moldova suffers this sort of loss, the effects can be seriously damaging to a vulnerable economy (as it was in this case).

The lax KYC processes and ultimately the facilitation of the money laundering process painted Scotland and her government in a poor light.

When such scandals break, they attract the critical gaze of the compliance and regulatory community worldwide. As a lawyer specializing in the investigation of international fraud and cross-border asset recovery on behalf of victims of these unworthy activities, both I and my colleagues in ICC FraudNet have added our voices to this condemnation.

This said, I have been pleasantly surprised by the measures put in place recently by the Scottish Parliament. It has recently acted and responded to the criticism and set in place a new set of regulations [The Scottish Partnerships (Register of People with Significant Control) Regulations 2017] designed to frustrate any unscrupulous activity.

How effective these measures prove to be only time will tell, but early feedback suggests that they are already having the desired effect, with a significant drop in new registrations of Scottish limited partnerships and companies.

But these new regulations, in tandem with recent enactment of the UK’s overarching money laundering legislation [The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017], make for a potential substantial improvement to the UK’s overall anti-money laundering (AML) resilience.

My reading of the regulations would suggest that the newly enhanced AML regulatory regime is effectively retrospective in its application, in that existing company officers and directors have to disclose and confirm their ultimate beneficial ownership information annually; albeit there is still scope to protect some personal information from the public register dependent on meeting certain criteria. Significantly, in such instances the protected information still remains available to the authorities.

The Scottish Parliament should be congratulated on its new regulations, and it is to be hoped that their implementation will help to retard the ability of unscrupulous formation agents and their crooked clients from abusing the Scottish legal system.

Two notes of caution in moving forward in Scotland however: (1) beware of fake or nominee ultimate beneficial owners and (2) the authorities must be properly resourced to permit robust enforcement of the enhanced AML regulatory net.


Martin Kenney, pictured above, is Managing Partner of Martin Kenney & Co., Solicitors, a specialist investigative and asset recovery practice based in the BVI and focused on multi-jurisdictional fraud and grand corruption cases |@MKSolicitors. He was recently selected as one of the Top 40 Thought Leaders of the Legal Profession  in 2017 by Who's Who Legal International.


This article first appeared on the FCPA blog – link to original here: