Companies House redesign is long overdue
Notable UK business executive who has now resigned is called Jesus, Holy Christ. He gave his residence as Heaven, his nationality as Angelica and his profession as a creator. As funny as the entry is on the UK’s Official Companies Register (the company has since been dissolved), it underscores the seriousness of a bad data check at Companies House. Such laxity allows financial crime. This now includes leave fraud, which the parliamentary spending watchdog estimated last year at Â£ 3 billion. That figure could be even higher once the government’s coronavirus job retention program ends this week.
A business register that does not carry out even basic checks is a problem for more than the UK: crooks, kleptocrats and criminal gangs around the world have long used UK-incorporated shell companies to launder ill-gotten gains, which has prompted the National Crime Agency to estimate that Â£ 100 billion of dirty money flows through the UK every year.
All it takes to start a business in the UK is Â£ 12 – not even a passport is required and it can be done online in under 15 minutes. Companies House is a simple repository of information, without any legal power to verify the information provided to it. There is a lack of resources to monitor even the minimum laws that exist. No wonder criminals are drawn to a jurisdiction where few questions are asked in return for the imprimatur of a UK address. While governments of all stripes have wanted businesses to be able to integrate easily into the UK, a balance must be found to better detect blatant fraud.
The government has long been committed to a redesign, with the most recent consultation starting in May 2019 and a published response More than a year ago. He promised strong rules that would strengthen the investigative powers and resources of Companies House, and introduce mandatory identity checks on those who make up companies, on company directors and on those who ultimately control. businesses. Nothing has been done since to implement these necessary reforms.
In terms of mitigation, the consultation ended during the pandemic. But failing to implement the reforms promised more than a year ago is a missed opportunity and a false economy. This is especially true given the large amounts of expected leave fraud; The Financial Times last week uncovered irregularities in a network of companies demanding up to Â£ 40million in government aid in a single month despite little public evidence of staff employment. It also gives an open target for the opposition to exploit: Labor announced at their party conference this week that they would set up a dirty money task force to make London more inhospitable to financial criminals .
Even if the government finally manages to implement the reforms it has already promised, it should also go further. This would include better oversight of training agents, who offer tailor-made incorporation services, including setting up dozens of corporations or limited partnerships, some just with mailbox addresses. About 1,500 of these agents are currently under the auspices of HM Revenue & Customs, and only for limited purposes. Last year they only deposited around 31 suspicious activity reports – which can be a red flag for fraud investigators – compared to 8,353 filed by accountants and lawyers.
This highlights the need for effective monitoring and enforcement. The government can galvanize the rules around business registrations as it sees fit, but unless these rules are effectively vetted, criminals will exploit them – as they have for years.