EXCLUSIVE: Transparency campaigners flag company law loopholes that let money launderers and fraudsters off the hook

"There is now a wealth of evidence showing how UK companies have been used to facilitate corruption and launder illicit wealth," Transparency International say.

Anti-corruption campaigners have demanded an overhaul of corporate transparency rules, amid concerns that fraudsters and money launderers are exploiting Britain’s lax safeguards.

In a submission to the government’s consultation on corporate transparency, Transparency International UK warn of widespread abuse of loopholes in company law.

Laundering loopholes

At present, those setting up often opaque corporate structures are not required to provide documentation verifying their identity – ripe territory for criminals to launder cash using false names or stolen identities.

Moreover, despite being viewed as a regulator, Companies House – which all limited companies are required to register with and report to – currently has no legal powers to investigate wrongful reporting.

As TI UK note: “Companies House has no statutory powers to investigate potential non-compliance, with most of its existing powers merely relating to the format in which it receives information from companies or amendments it can make to the register.” That creates a regulatory gap where companies can be set up by criminals with almost no scrutiny.

For example, Limited Liability Partnerships (LLPs) and Limited Partnerships (LPs) can still be set up through offshore corporate ‘officers’ registered in secrecy jurisdictions like the Seychelles and Belize, where there is little public information about companies and their beneficiaries. “We have seen this opaque structure used on an industrial scale to facilitate illicit financial flows,” say TI UK.

The group point to the fact that individuals can be registered as directors for an unlimited number of companies – a clear red flag for potential criminality: “One particular individual, for example, had been an officer for 568 UK legal entities. A cap of 25 directorships appears to be a reasonable limit that would prevent widespread abuse whilst still allowing innocent individuals to run a large number of legitimate businesses.”

Staggering abuse

Last year, accounting expert Prof Prem Sikka reported on the scale of the problem for Left Foot Forward, writing: “The use of UK-based shell companies to conceal identity of beneficiaries is also evident from Panama Papers, Swiss leaks, Luxembourg leaks and Paradise Papers, but has not resulted in any reforms.

“Anyone from anywhere in the world can form a company in the UK and become a shareholder and/or company director. In 2017, the Business Secretary informed parliament that “Companies House does not have powers to verify the authenticity of company directors, secretaries and registered office addresses”. Of course, government can change the law but won’t,” Prof Sikka wrote.

“Individuals can use nominee shareholders to conceal the identity of the ultimate company owners and controllers. The government has no plans to prohibit nominee shareholdings. The UK law requires each company to identify beneficial owners known as persons of significant control (PSC) i.e. individuals who own 25% or more of the company, but reality is murky.

“The BBC’s File on Four radio programme reported that 4,000 company beneficial owners are listed as under the age of 2; Over 40% of the beneficial owners of Scottish Limited Partnerships are either a national of a former-Soviet country or a company incorporated there, and 5 beneficial owners control more than 6,000 companies.

Global Witness reported that 7,848 UK-registered companies share a beneficial owner, officer or registered postcode with a company suspected of having been involved in money laundering. More than 208,000 companies are registered at a company factory i.e. a physical address that is the registered address of more than 1,000 companies. More than 175,000 UK-registered companies have provided directors addresses which are secretive offshore jurisdictions.”

Under pressure, the government’s launched a (just-closed) consultation on tightening up corporate transparency rules.

Time for real powers

Campaigners are calling for Companies House to be able to draw on a range of police and governmental registers to flag potential fraudsters. TI UK say point out that there are known individuals and companies who have repeatedly helped to incorporate and manage UK legal entities that have been involved in high-level corruption and money laundering – but Companies House lacks the powers to spot them.

The lack of proper oversight of company registration is highlighted by the fact that the first ever prosecution for filing false information came in March 2018 – “for a formation agent who purposefully set-up companies with incorrect information to highlight how easily this could be done – drawing this to the authorities’ attention in the process.”

Meanwhile, the public body has few powers to issue fines or punishment action short of requesting a full criminal prosecution. The huge costs involved mean there remain a ‘sizeable number’ of entities who appear to be purposefully evading new rules, according to TI UK.

“There is now a wealth of evidence showing how UK companies have been used to facilitate corruption and launder illicit wealth. Their ease of incorporation and the lack of checks on information submitted to Companies House continue to render these legal entities vulnerable to abuse” the group’s submission states.

Pressure from Scotland

The SNP has also ramped up pressure on the government to take steps to prevent corporate money laundering, in their own response to the UK government consultation on corporate transparency and register reform.

The party point to the “ongoing, improper use of Scottish Limited Partnerships (SLPs)” which allow agreements and deals to be made by individuals in the name of the financial product – without ever having to name the person or people who control it.

The Herald has reported that SLPs were openly marketed as secrecy vehicles – along with Baltic bank accounts. Yet there have repotedly been no prosecetions of the ‘thousands’ of SLPs who fail to meet even minimal transparency rules.

And in April the Sunday Times revealed that Scottish companies were said to have laundered more than £26m through these SLPs, some of which was used to fund an organisation accused of working with Russian security agents to spread misinformation and destabilise countries opposed to Vladimir Putin’s regime.

Josiah Mortimer is Editor of Left Foot Forward. Follow him on Twitter.

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5 Responses to “EXCLUSIVE: Transparency campaigners flag company law loopholes that let money launderers and fraudsters off the hook”

  1. Tom Sacold

    A real socialist government is needed to utterly transform our economy. Simply managing and regulating capitalism simply will not be enough.

    Unfortunately Labour has once again been hijacked by Blairite rightwingers who want to keep us inside the captialist club of the EU.

    Socialist change is not possible under EU rules and regulations.

  2. nhsgp

    The big fraud still remains.
    Official government debt, 1,600 bn
    Actual government debt, 13,000 bn

    Your share Tom, 450,000 plus interest.

    How are you going to pay your share of the socialist debts? [It’s the 10 trillion the welfare state owes for pensions that’s the issue. No capital, so you can’t blame the capitalists]

  3. Julia Gibb

    Tom Sacold still trying to sell the idea that the UK will have better controls when we leave the UK.
    The big money funded Farage. The dark money poured into the Leave campaign. Brexit was pushed at the very time the EU was tightening tax evasion and pushing legislation to access the offshore accounts.

    When you are on the same side as Trump, Farage, The ERG, Arron Banks etc you really need to give yourself a hard slap because these people are not socialists.

  4. Julia Gibb

    correction to above – first line – when we leave the EU no UK
    A Freudian slip perhaps.

  5. Jill Brian

    Rich people have been using shell companies and tax havens for many years, apparently legally, to avoid tax.
    The rest of us pay our taxes to fund our public services and the rich get richer still.
    Remaining in the EU with access to their data is the best way to monitor aggressive tax avoidance and it should be a priority to close down these legal loopholes.

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