London laundry: Companies House
International authorities are considering freezing the assets of Ukrainian millionaires associated with the regime of Viktor Yanukovych. If it happens, a fresh light could soon be shone on London, where much of Kiev's wealth is said to have either ended up, or travelled through "brass plate" companies during complex laundering process.
The official take on the flood of money from wealthy foreign tycoons in unstable countries is that they like Britain's stability and predictable legal framework.
However, some experts say the UK's overly liberal financial system has also made it a Petri dish for incubating fraud, and a magnate for money launderers.
Today, in part one of our three-part series, Ros Wright, chairman of the Fraud Advisory Panel, reports on how the UK has made it too easy to set up companies with the scantest of checks.
We pride ourselves on being one of the easiest places in the world to do business. The current Government, as with all UK governments in recent memory, is committed to encouraging enterprise, reducing unnecessary business regulation, and helping people to set up in business. This is excellent encouragement for legitimate businesses but a heaven-sent stimulus to crooks from all over the world.
Under current laws, to set up a limited company in the UK can cost as little as £15 online from Companies House, and requires no minimum capital. Anyone can be a company director, unless he or she is disqualified. A convicted fraudster can become a company director and companies can be formed from prison.
There are no checks on the identity or address of company directors, or on their past history. Phoenix companies can be formed in the wake of the collapse of a failed enterprise, which may have gone bust owing thousands of pounds to creditors. Such a firm can be made with no debt, with the same directors, the very same day.
Companies House is a repository of corporate information and no more. It neither regulates companies nor even guarantees the accuracy of the information it holds about companies and publishes on its website. It carries out some very basic checks to make sure that documents have been fully completed and signed and to make sure that the company's name is not similar to another existing company. But it has no statutory power or capability to verify the accuracy of the information that corporate entities send to it.
As the disclaimer on its website states: "We accept all information that such entities deliver to us in good faith and place it on the public record. The fact that the information has been placed on the public record should not be taken to indicate that Companies House has verified or validated it in any way."
Filings can still be lodged in paper form, rather than online. This means that, unless its staff trawl by hand through the details of the 30,000-40,000 new companies incorporated each month and the nine million annual filings, there is no way they can verify, cross-check or analyse the information submitted. In some cases, accounts of a company on the Companies House website have been cut and pasted by fraudsters from those of another (perfectly respectable) company, with no connection at all to the first one.
Nominee directors cannot be identified as such and the real beneficial owners of companies can legitimately hide behind them.
As if that weren't bad enough, you can't even have total faith in the address provided. A new breed of "company service providers" has sprung up, offering serviced offices rented on a daily or hourly basis with telephone answering services. While usually used for legitimate purposes, they are also wide open to abuse by criminals wishing to give the impression of a permanent place of business for the entity clients are dealing with.
Some large service providers are registered with HMRC for anti-money laundering purposes, but in reality have no policies or procedures in place to prevent their being abused by criminals. Meanwhile, visits from the taxman are virtually unknown.
To set up a company in the UK offering financial services requires strict regulation. The business and staff in key positions must be registered with the Financial Conduct Authority and prove themselves to be "fit and proper".
But there is no such requirement – indeed no requirement of any kind – on directors and controllers of limited companies outside the financial services sector. Company law does indeed expect company directors to bear responsibility for the companies they run. Many have no idea of what their responsibilities entail and many nominee directors are not even aware of the companies of which they are registered as directors.
This state of affairs must not be allowed to continue. It is making the UK a magnet for fraudsters worldwide and bringing its reputation as an honest place in which to do business into serious doubt. The Fraud Advisory Panel counsels urgent action to address the problems: it recommends, as a minimum:
* Introducing requirements for new company directors to prove their identity and demonstrate their good character;
* Ensuring all new company directors are checked against the register of disqualified directors;
* Requiring Companies House to tell directors their duties and liabilities and putting this information online;
* Preventing the exploitation of virtual and serviced offices by criminals by enforcing the existing regulatory controls on them;
* Requiring all company filings to be made online and equipping Companies House with data-mining software to identify false financial reports, disqualified directors or those with previous criminal records for dishonesty.
None of these proposals would inhibit legitimate business but would go a long way to deterring criminals from taking advantage of our system to commit fraud.
The Fraud Advisory Panel is an independent watchdog on white collar crime
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