One notable company officer in the UK, now resigned, is called Jesus, Holy Christ. He gave his residence as Heaven, nationality as Angelic and occupation as creator. As amusing as the entry is on the UK’s official corporate register (the company has since been dissolved), it underscores the seriousness of poor data verification at Companies House. Such laxity enables financial crime. That now includes furlough fraud, which the parliamentary spending watchdog estimated last year to be as high as £3bn. That figure could be even higher once the government’s coronavirus job retention scheme draws to an end this week.
A corporate register that fails to undertake even basic checks is a problem for more than the UK alone: scammers, kleptocrats and criminal gangs around the world have long used UK-incorporated shell companies to launder ill-gotten gains, prompting the National Crime Agency to estimate that £100bn of dirty money washes through the UK each year.
All that is needed to set up a company in the UK is £12: not even a passport is required and it can be done online in under 15 minutes. Companies House is a mere repository of information, with no statutory powers to verify information provided to it. It lacks the resources to police even the minimal laws that do exist. Little wonder that criminals are drawn to a jurisdiction where few questions are asked in exchange for the imprimatur of a UK address. While governments of all stripes have wanted businesses to be able to incorporate easily in the UK, a balance ought to be struck allowing blatant fraud to be detected better.
The government has long pledged an overhaul, with the most recent consultation starting in May 2019 and a response published over a year ago. It promised robust rules that would beef up Companies House’s powers of inquiry and resources, and would introduce mandatory identity checks on those incorporating companies, on company directors and on those who ultimately control companies. Nothing has been done since to implement those necessary reforms.
In mitigation, the tail-end of the consultation was during the pandemic. But failing to implement reforms pledged over a year ago is a missed opportunity and a false economy. That is especially true given the vast amounts of furlough fraud expected; the Financial Times last week uncovered irregularities in one network of companies claiming as much as £40m of government assistance in a single month despite little public evidence of employing any staff. It also gives an open goal for the opposition to exploit: Labour announced during its party conference this week that it would set up a dirty money task force to make London more inhospitable to financial criminals.
Even if the government finally gets round to enacting the reforms it has already promised, it should also go further. This would include better oversight of formation agents, who offer bespoke incorporation services including the creation of dozens of companies or limited partnerships, some merely with mailbox addresses. About 1,500 such agents currently fall under the auspices of HM Revenue & Customs, and only for limited purposes. Last year they only filed about 31 suspicious activity reports — which can be a red flag for fraud investigators — compared with 8,353 filed by accountants and lawyers.
This highlights the need for effective supervision and enforcement. The government can galvanise rules around corporate registrations all it pleases, but unless those rules are effectively policed, criminals will exploit them — as they have done for years.