The misuse of companies is an issue in almost every case investigated by the SFO as highlighted in the HM Treasury national risk assessment of ML

In section 7 of the HM Treasury national risk assessment of ML the SFO has identified a number of instances in which ‘off the shelf’ companies have been used to facilitate criminal conduct.

The following case examples demonstrate the diversity of the issues facing the regulated sector and law enforcement agencies.

In some of these cases the presence of a beneficial ownership register, as has now been established under the SBEE Act 2015, would have aided law enforcement agencies in their investigations:

1. evidence in a bribery and corruption case identified invoices alleging millions of turnover in a business that declared no assets and no employees; investigation found it was being used as a conduit in the layering and integration process for money laundering

1. a bank received significant sums of money alleged to be the sale proceeds of assets purchased and sold within the same financial year yet the accounts submitted to Companies House demonstrate the corporate entity did not purchase or sell the assets in question and the bank had been misled

1. a company incorporated directly with Companies House was used to transfer funds into the UK for the benefit of a fraud suspect. Details show the company directors and shareholders bear the same names as relatives of the suspect however it appears false addresses and dates of birth have been provided – it is suspected this is to disguise the relationship to the fraud suspect

1. a defendant in a long running fraud case was subject to a restraint order covering all his assets. At confiscation, he was adjudged to hold an interest in a company used to receive rent from several properties. The company was supposedly owned by his wife and he went to great lengths to try to conceal his true role in controlling the company

1. the main suspects in a commercial mortgage fraud had a portfolio of UK properties held through a Gibraltar company, which was subject to a restraint order. They set up a UK company with a similar name to the Gibraltar company and then diverted rental income from the properties to an account in the UK company’s name and then dissipated it. The UK company filed minimal documentation and was purportedly controlled by the sons of one of the suspects

1. a defendant in a major fraud case utilised an elaborate offshore trust structure to hold a range of assets in the UK and abroad, mostly through offshore entities. However, a significant property in France was nominally held by a UK company which filed little documentation and dormant accounts even though the property was generating large sums in rent. Ownership was never clear and the shareholders at various times included nominees, another company and the defendant’s wife

Some of these cases suggest that the company in question was being used to deliberately conceal criminal activities, and that the regulated sector did not identify these activities, or was complicit in their concealment.

A main feature in the evidence gathered by this assessment is the use of “shell” and “off the shelf” companies to facilitate criminal conduct.

A “shell” company is a company that serves as a vehicle for business transactions without itself having any significant assets or operations and an “off the shelf” company is one created which typically has no activity before being sold on. Both of these are legal structures only detectable sometime after a company has been incorporated. Criminals use existing company structures such as shell companies to launder money, taking advantage of the fact that a company’s existing reputation and financial profile will make it less suspicious than a newly-formed company.

Another feature of these case studies is the use of companies which file dormant accounts for money laundering purposes.

The difficulties in identifying if laundering has taken place through dormant companies is also a major issue for law enforcement agencies. A “dormant company” is a company that is registered with Companies House that is not active, trading or carrying on business activity.

A copy of the policy paper is available.