Set up to be abused? Companies House needs to get its act together if we are to tackle money laundering

Money Laundering is a huge problem in the UK, with the National Crime Agency and Serious Fraud Office conceding in a recent Treasury Select Committee that “it would be realistic to say that hundreds of billions are laundered through the UK annually.”

The most efficient way to spot fraudulent activity and identify money laundering activity is through an electronic anti-money laundering system – in fact, the Fifth Money-Laundering Directive which came into force in April calls for electronic identification to verify customer information.

And, while high tech, electronic AML platforms are making it quicker and easier for companies to comply with AML regulations, there is one issue that continues to thwart efforts to tackle the UK’s money laundering problems; the lack of regulation surrounding company formation.

Donald Toon, director of prosperity for the National Crime Agency said that one of the main sectors within the UK where AML regulation is weak is around ‘company-formation services.’

He said: “We have seen cases where UK company structures have been used to facilitate large‑scale money laundering. The money itself has never touched the UK.”

Toon’s comments were backed by a recent report from Global Witness which exposed the extent to which money launderers are exploiting the UK company register.

Global Witness found that 335,000 companies have not declared a beneficial owner, and of those that have, 9,000 have owners that control more than 100 companies.

The report also discovered that more than 200,000 companies were registered to a ‘company factory’ which is the name given to an address with more than 1,000 companies registered to it, with one single address found to have 1,226 companies registered to it. It is thought that this one address alone has laundered £1.7bn.

Ridiculously, the report also revealed that 4,000 toddlers and one person yet to be born are registered as beneficial owners.

 

So why is this happening?

Around 250,000 new companies are registered directly through Companies House every year, and Companies House does not undertake any background checks.

Can it be fixed? The simple answer is, yes, a huge amount of this fraudulent activity could be stopped if Companies House could perform the necessary due diligence.

 

So why doesn’t the Government fix it?

That is a good question.  Under the EU’s fourth anti-money laundering directive private formation agents or lawyers are required to perform due diligence when creating a company, but the Government rejected requiring Companies House to do the same.

And then, when an amendment to the Sanctions and Anti Money Laundering Bill was tabled, which would have meant Companies House had to perform due diligence checks, it was voted down by the Government.

The Government is reluctant to do anything about it because it does not want to jeopardise the fact that the UK is one of the easiest countries in the world to set up and run a business.

But the simple fact is, while there are thousands of legitimate companies being set up every year, the ease at which anyone from anywhere can set up a company in the UK is being exploited by criminals.

Just 20 people work at Companies House, and those 20 people oversee around four million companies. Combine this lack of resource with the fact that it costs just £12 to set up a company and you can see why the system is being so easily abused.

Company formation tech experts eFiling recently surveyed business leaders and found that almost two-thirds thought checking procedures at Companies House should be more robust while more than 80 per cent said they would be willing to pay more to form a company if it meant proper due diligence was undertaken.

It is all very well insisting that estate agents, financial advisers, legal firms, banks, insurance and credit companies use all the relevant databases for their money laundering checks, but how can they do this properly when they know that one of those databases – Companies House - is being hugely exploited?

If the Government is truly committed to tackling money laundering it needs to do its part, and give Companies House the funding it needs to ensure its own register is not left open to abuse.

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