Another damning report has been released highlighting the extent to which the UK’s rules around company formation aren’t fit for purpose. Last week’s report from Global Witness exposes how criminals and the corrupt are exploiting the gaping loopholes in the UK company register. The UK introduced the world’s first publicly available register of beneficial ownership in 2016, and it is the inspection of this register that has revealed the highly suspicious results.
Global Witness found
1. more than 335,000 companies have not declared a beneficial owner.
2. Over 9,000 have owners who control more than 100 companies, while 10,000 are owned by foreign companies, which would never meet formation requirements.
a. An astonishing 72 per cent of those companies are linked to secrecy jurisdictions.
3. More strikingly, 208,000 companies were found to be registered to a “company factory”,
a. the name was given to an address with more than 1,000 companies registered to it.
4. At one address in Potters Bar,
a. the second floor alone has over 1,226 companies registered to it,
b. 100 of which have been linked to international corruption scandals.
c. The BBC estimates that £1.7bn has been laundered through that single address alone.
When Global Witness analysed PSC entries (people with significant control), it found
1. 4,000 toddlers owning companies,
2. as well as one beneficial owner who is yet to be born.
The issue comes down to Companies House. Just 20 members of staff oversee around four million companies.
Last year, 42 per cent of company incorporations were done directly through Companies House, which does not undertake any background checks on customers. That’s about a quarter of a million new companies a year.
It is more than obvious that Companies House is currently unable to perform the necessary due diligence required to prevent financial fraud. As a result, the UK has become the world’s dirty money laundromat.
The latest official figures suggest that £90bn is laundered in crime proceeds through the UK each year, while the government estimates that financial fraud costs the UK economy £6.8bn a year, or over £100 per person.
What is so frustrating is how simple the solution is. While private formation agents or lawyers are required to perform due diligence under the EU’s fourth anti-money laundering directive when creating a company, the government rejected Companies House doing the same.
Further, when an amendment was tabled to the Sanctions and Anti-Money Laundering Bill in parliament earlier this year, it was voted down by the government. This would have ensured that due diligence checks were performed at Companies House, and safeguarded against fraud.
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