The UK is one of the quickest, and cheapest, places in the world to set up a company. Typically, a company can be set up within 24 hours by using an online form and paying an online registration fee of £12. Half a million companies are set up each year. Companies House, however, has no power to query or investigate documents submitted to it. This makes it an attractive target for criminals who use complex corporate structures to enable money laundering[1].
At the business, energy and industrial strategy committee (BEIS) meeting this week which discussed fraudulent company registrations, MPs were told that more needs to be done to ensure Companies House is not helping to facilitate business fraud.
Director of international illicit fraud at UK Finance and anti-fraud bosses at NatWest and HSBC criticised Companies House for the lack of checks for people setting up a business. The committee heard that fraudsters are stealing identities and using victims' home addresses to register fake companies. Companies House disclosed that 40,927 people complained their addresses had been listed as an organisation's main office without their permission over the past three years.
Head of risk threat mitigation at NatWest Donald Toon said that NatWest already spends about £500million a year on fraud prevention, and it is set to pay an economic crime levy on top of those costs. NatWest uses Companies House data as part of its account verification process, and is relied upon to tell Companies House whether there is a difference in their records.
Money-laundering expert and director of The Dark Money Files podcast Graham Barrow commented on the problem of shell companies undertaking short-term fraudulent activity and then disappearing, with half of companies registered on Companies House being lost after just a few years, which may indicate that they were set up to undertake fraudulent activity.
Measures are already in discussion within government to strengthen the UK's response to economic crime. The Economic Crime and Corporate Transparency Bill 2022-23 is a government bill, with one of the key focuses of the bill aimed at a reform of Companies House. Some of the key changes will be:
- Requiring all directors, persons with significant control and those delivering documents to have their identities verified;
- Giving the registrar greater powers to share information and reject documents with inaccuracies; and
- Companies classified as "small" will no longer be exempt from the requirement to file a profit and loss account.
Part 1 of the Bill is seeking to deliver the biggest upgrade to Companies House since it was first introduced in 1844. These reforms will go some away to protect individuals and businesses from fraud risks, as business fraud and economic crime continues to rise[2] but will these go far enough?Although the reforms are welcome, Companies House is still not being given sufficient regulatory and / or financial resources in order to carry out the levels of due diligence that could afford greater transparency into an entity's corporate structure and tackle misuse.
Unless and until those loopholes are closed, preparation and development of counter fraud strategies as well as response plans will remain paramount to alleviating business risk. As always, the key is to be vigilant and proactive.
