Labour has called on the government to stage a crackdown on potential Russian money laundering through opaque shell companies based in Scotland, after finding that nearly 17,000 are flouting the law.
More than half of all Scottish limited partnerships (SLPs) – structures originally established in the early 1900s for farm holdings but now popular among private equity firms and investors in the former eastern bloc – have not disclosed the identity of their beneficial owners, despite new rules introduced last year.
Labour attacked the government for failing to enforce the law, introduced in June to force the almost 30,000 SLPs in the UK to register their ownership or face a £500 fine for every day they are not registered. The party said the new law had resulted in no prosecutions and up to £2.2bn in uncollected fines because 16,812 firms have been unregistered for 266 days.
Shadow Treasury minister Anneliese Dodds said the lack of action showed the government was soft on money laundering. “We need immediate and powerful action to stop the flow of dirty money from Russia and elsewhere into the UK,” she said.
“Only two weeks ago we discovered that no prosecutions had been brought forward as a result of the 2017 criminal offence for failure to prevent money laundering. This is another advert to oligarchs and crooks that the UK is open to business due to the Conservative government’s failure to use their powers.”
The intervention comes as Labour attempts to put itself back on the front foot following criticism over Jeremy Corbyn’s response to the death of Sergei Skripal, the former Russian agent poisoned in Salisbury.
The Labour leader had warned Theresa May against “rushing way ahead of the evidence” after the poisoning, in what was seen as a lacklustre response to the government’s moves against Moscow and drew criticism from Conservatives and some of his own MPs.
The latest move remakes the argument posed by John McDonnell, the shadow chancellor, who told the Guardian last week he would be tougher than May on Russia by starving “gangster politicians” of cash.
He said Labour would “hammer” money laundering in the UK should the party come to power, arguing a crackdown on secretive financial arrangements used in the City of London would be a more effective weapon against Vladimir Putin’s regime than expelling Russian diplomats.
The use of SLP business structures have previously been found at the centre of the “Global Laundromat”, a large-scale money laundering scheme that moved more than $20bn (£14.2bn) out of Russia, reported by the Guardian last year.
More than 100 SLPs were used to launder $20bn to $80bn between 2010 and 2014 in the laundromat, while almost $3bn was channeled through shell companies based in Glasgow in a similar scheme to move cash out of Azerbaijan into the UK to buy luxury goods and peddle political influence throughout Europe.
The number of SLPs used in the UK has increased rapidly in recent years following a tightening of the law elsewhere in 2006. More than 40% of beneficial owners are either a national of a former-Soviet country or a company incorporated there, compared to just 0.1% for all limited companies, according to Global Witness.
Both Labour and the SNP have applied pressure for a tougher crackdown on the use of SLPs, which are seen as one of the main routes for filtering dirty money into the UK and laundering it.
Ben Wallace, minister for security and economic crime, admitted to MPs during a debate over money laundering instigated by Labour this week that he was concerned SLPs were “remarkably popular with countries such as Russia and Ukraine” and said more action would be taken.
He said the government was taking steps to make it harder for criminals to launder money through property, jewellery and betting, adding: “Whoever the crooks are, wherever they are from, and no matter what their nationality, we will pursue them and their cash.”