BCL partner John Binns' article, discussing the UK government's claims that it plans to reform Companies House to "clamp down on fraud and money laundering" has been published by Money Laundering Bulletin.
Here's an extract from the article:
A beacon of transparency?
What is the purpose of Companies House? The traditional, prosaic response to this is that it is a repository for information, in the form of various documents and required filings, about the ownership, control and financial health of UK limited companies and other business entities, such as LLPs, with limited liability. In combination with the legal duties of directors and other officers under the Companies Act, it ensures a reliable or, at least, verifiable source of information for public authorities including, for instance, HM Revenue and Customs, as well as private parties who may have an interest for various reasons such as reporters, as well as regulated-sector businesses conducting due diligence.
The last few years have seen a notable and welcome step change in the amount of information available via the CH route, first by enabling a large amount of data available on its website, and then by introducing requirements to provide the details of Persons with Significant Control (PSC). The net result is a system that draws praise for its commitment to transparency and is generally seen as tremendously useful to all those engaged in the fight against money laundering.
An asset for money launderers?
An alternative, more provocative answer to the question is that CH provides a very useful asset to money launderers. By helping to create an impression of legitimacy and transparency, it provides an effective passport for criminal money into the legitimate financial system. To anyone dealing with a company incorporated in the UK, whose details including those of their officers and PSCs, are on the face of it available for anyone to view, the assets of that company will appear to have legitimacy – but it is an appearance that it often not borne out by reality.
Part of the problem is that the information provided to CH, with a few very limited exceptions, does not undergo any checks for accuracy. While many companies are incorporated with the help of regulated trust or company service providers (TCSPs), this is not compulsory and given the deliberately simple system for incorporating companies in the UK, often unused. In many cases, then the information held by CH has literally not been verified by anyone.
The planned reforms
The planned changes, set out in the government's response to a consultation exercise on corporate transparency and register reform, include a commitment to require and verify documents to prove the identity of officers, PSCs, and anyone providing information on behalf of a company. Without such documents, an individual would not be able to open or maintain an account with CH, which in turn would prevent companies from being registered. Importantly, to ensure that companies can continue to be incorporated with the minimum of cost and delay, the intention is for the vast majority of these checks to be carried out electronically and within a maximum of 24 hours.
An outsourced service
This of course raises a number of interesting questions, starting with the mechanics of how CH will undertake this enormous verification task. Virtually the only thing said about this in the consultation response is that it will be outsourced, so the capability of the provider will be crucial. Anyone familiar with the challenges of processing and verifying ID documents electronically will know that, while there is much that can be achieved with modern technology, the prospect of fraudsters producing sophisticated forgeries that slip through the net cannot be ruled out. The detail of how that challenge will be met will depend not only on how much the UK government is prepared to pay for this service, but on how smart a procurer it will be, and how much priority it gives to spotting fraud as opposed to, for instance, meeting targets for quick turnaround.
This article was originally published by Money Laundering Bulletin on 13/10/20. You can read the full version by visiting their website.
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