Companies House – Will Imminent Anti-Fraud Powers Suffice?
Businesses need to know that changes at Companies House will make significant changes to the company registration process, in yet another move to tackle fraud and financial crime. The most fundamental change to be introduced to the creation of new companies at Companies House (CH) for more than 170 years, is intended to tackle abuse of the companies register.
Or as its chair Lesley Cowley put it more bluntly, CH is now expressly in the business of combatting economic crime “through active use of analysis and intelligence”. It amounts to major reforms handing greater powers to CH to help prevent the misuse of corporate entities.
The economic cost of corporate fraud is huge: anti-corruption group Transparency International UK reported last month that around 929 British companies were involved in 89 cases of corruption and money laundering between 2000 and 2019. This amounted to £137 billion pounds in economic damage.
So what’s coming? The most significant development will be a new identity verification process being introduced. No longer can fake or fictional identities be used as a cover, formalised by entry on the companies register.
This means that when a company is being set up, the individuals running, owning or controlling the company will be required to verify their identities with CH. Failure will not simply mean the company will be removed from the register - there could be civil and criminal sanctions; and directors could be prohibited from acting as a company director.
Verification will be available either directly via CH, or indirectly through an authorised corporate service provider and – in the case of individuals - must be done within 14 days of registered with the Registrar. Relevant legal entities will have 28 days.
CH will also have powers to challenge information submitted to it, for instance information that may flag up potentially suspicious activity. The company will be expected to provide evidence in order for a query to be resolved. This will be an important anti-fraud measure; where an issue remains unresolved, further action may include a penalty being sent to the company.
New legislation is needed before the powers come into effect. The fact that a policy paper/fact sheet has just been published suggests it may be imminent, (though there are more immediate distractions to government at the moment). It’s noteworthy that the policy paper comes hot on the heels of the implementation of the Register of Overseas Entities, which went live on 1 August. The Register is to prevent further anonymous foreign ownership of UK property and, by extension, increase confidence in the data and registers held.
Will the measures go far enough to make a significant dent in corporate crime? It’s too early to tell, though critics believe they don’t go far enough. Transparency International UK has expressed concern that CH lacks the resources; and says verification checks are unlikely to deter ‘rogue actors’ from setting up shell companies for the purpose of money laundering.
If you would like us to cover an issue in the next NGM Tax Law Newsletter, we would be pleased to hear from you