One notable UK operating officer, who has now resigned, is called Jesus, Holy Christ. He gave his abode as heaven, the nationality as the angel and the profession as creator. As amusing as the entry on the UK’s official corporate register (the company has since been disbanded), it underscores the seriousness of poor data verification at Companies House. Such laxity makes financial crime possible. This now includes fraud, which the watchdog for parliamentary spending estimated last year be as high as £ 3 billion. That figure could be even higher once the government’s job-keeping scheme for coronavirus comes to an end this week.
A corporate registry that does not undertake even basic checks is a problem for more than just the UK: fraudsters, kleptocrats and criminal gangs around the world have long used themselves in the UK to launder their profits, which the National Crime Agency urged to estimates that £ 100 billion worth of dirty money flushes through the UK every year.
All it takes to set up a business in the UK is £ 12: not even a passport is required and this can be done online within 15 minutes. Companies House is a mere repository of information, without statutory powers to verify the information provided to it. It does not have the necessary resources to police even the minimal laws that exist there. No wonder criminals are drawn to a jurisdiction where few questions are asked in exchange for the imprimatur of a British address. Although governments of all stripes wanted businesses to be easily incorporated into the UK, a balance had to be found so that blatant fraud could be better detected.
The government has long promised a refurbishment, with the most recent consultation beginning May 2019 en a comment published more than a year ago. It promises robust rules that will strengthen companies’ investigative and resource competencies, and impose mandatory identity checks on those who include companies, on directors of companies, and on those who ultimately control companies. Nothing has been done to carry out the necessary reforms.
In mitigation was the end of the consultation during the pandemic. But not implementing reforms promised more than a year ago is a missed opportunity and a false economy. This is especially true given the large amounts of fraud expected; the Financial Times last week uncover irregularities in one network of companies claim as much as £ 40 million in state aid in a single month, despite little public evidence that they employ staff. It also gives an open purpose for the opposition to exploit: Labor announced at its party conference this week that it will set up a dirty money task force to make London more inhospitable to financial criminals.
Even if the government can finally implement the reforms it has already promised, it is right must also go further. This includes better oversight of founding agents that provide incorporation measures, including setting up dozens of businesses or limited partnerships, some with mailbox addresses only. About 1,500 such agents are currently under the protection of HM Revenue & Customs, and for limited purposes only. Last year they only submitted about 31 suspicious activity reports – which could be a red flag for fraud investigators – compared to 8,353 filed by accountants and lawyers.
It emphasizes the need for effective supervision and enforcement. The government can speed up rules around corporate registrations, but it will abuse criminals, as they have been doing for years, unless the rules are adhered to effectively.