Obscure NI entities ‘used to hide money laundering, corruption and worker exploitation’

Politicians have expressed alarm after an investigation claimed that a little-known form of corporate entity unique to Northern Ireland is being used in exploiting workers in other countries, corruption and money-laundering.

Thursday, 26th March 2020, 7:30 am
Updated Thursday, 26th March 2020, 4:24 pm
This graph shows the surge in NILPs around the point where controls were put on another secretive corporate structure. Source: openDemocracy

An investigation by the news website openDemocracy has raised multiple concerns about Northern Ireland limited partnerships (NILPs), a corporate entity that is cheap to set up but which was rare until a few years ago.

The entities themselves are entirely above board, but openDemocracy found NILPs being openly advertised in Russia as a way of paying no taxes, filing no accounts and allowing owners to be anonymous.

It said that Nikolai Sukhanov, a trade union leader in Nakhodka, a port in the far east of Russia, had stumbled on a company from Northern Ireland which had links to what he called “unacceptable” terms and conditions for 17 Russian sailors. The men, who were serving on a freighter, were being paid just $350 a month.

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Yet when the trade unionist attempted to find the firm which had hired them, in an attempt to argue for better conditions, he struggled to identify their ultimate employer.

Instead, he found that they had been hired by a firm whose only trace is an anonymous company registration thousands of miles away in Newry. 

openDemocracy said that when it went to the official home of the company in Newry it found an office above a cafe with the man there having nothing to do with the company other than providing a registration address for the firm, one of nearly 400 NILPs are registered at that address.

The man who owns the address said that he was surprised and he had no association with any of the enterprises, with some of them “squatting” without permission. He then wrote to the Stormont Executive calling for action.

One Ukrainian online shop for NILPs openly describes them as an “absolutely tax-free structure”.

openDemocracy said that the registration of NILPs has boomed from none in 2013 to 289 in 2017 after attempts to limit the use of Scottish limited partnerships, which had been used as a secrecy vehicle in money-laundering scandals around the world.

The investigative website said that while the number of new Northern Irish firms has dropped since 2017, many of the NILPs created in the boom have facilitated money laundering, labour abuses and corruption around the world – and continue to do so.

It can cost as little as £20 to register a NILP, but about £1,600 to buy a ready-made one off the shelf, complete with legal documents that enable people to run the NILP through ‘phantom’ partners in tax havens.

Partnership law is reserved to Westminster. London’s Department of Business, Energy and Industrial Strategy proposed in 2018 to reform limited partnerships with tighter registration requirements such as demanding that evidence of a firmer connection to the UK and more transparency.

However, it does not regard limited partnerships as legal entities that need to declare beneficiaries because in theory they are merely mechanisms for sharing profits rather than owning assets – yet one appears to own a massive ship.

Ulster Unionist leader Steve Aiken said that the situation was “extraordinary” and that current loopholes with NILPs needed to be closed urgently.

He said: “That these NILPs are being used to launder funds of highly dubious origin fundamentally undermines Northern Ireland’s reputation as a place to do business.”

South Belfast SDLP MP Claire Hanna said that without “urgent action” and “meaningful regulation” Northern Ireland “could become, like Panama, a jurisdiction where blind eyes are turned to money from shady places”.

She added: “It’s bizarre and in fact shameful that companies registered in NI are linked to so much wrongdoing, ranging from non transparency to causing real harm and financial hardship to people.”