Companies House have published their first ever strategic intelligence assessment and the following are key observations from the assessment:
“Register of Overseas Entities:
Thirty thousand entities were registered on the Register of Overseas Entities by December 2023 – over 90% of the total register.
By November 2022, 1% of all UK properties were owned by overseas entities. Approximately 46% of properties that are registered as owned by overseas entities in the UK are in the London area. Other significant groups of overseas property ownership correspond with different large cities.
Companies House is vital in implementing the Financial Action Task Force standard in the UK. The next UK assessment is scheduled for 2027. The data collection period to inform this assessment has already started. Implementing FATF standards also addresses issues of politically exposed persons and those individuals looking to evade sanctions control.
Money laundering and UK-based organised crime groups:
It is almost certain that the scale of money laundering through UK limited companies is underestimated. There’s no assessment of its value currently available. It is highly likely that limited company structures within the UK are widely used to facilitate many types of serious and organised criminality. Work is ongoing to fully understand the scale of the issue.
The part that previous legal frameworks and UK corporate structures have played in the commission of money laundering is widely recognised. It is highly likely that limited company structures within the UK are widely used to facilitate many types of serious and organised criminality. Work is ongoing to fully understand the scale of the issue. Law enforcement give examples relating to:
Illegal drugs: case study:
A UK limited company was established with the purpose of smuggling drugs. In 2021, 514 kilograms of cocaine worth £57 million was intercepted while being exported overseas from the UK. Assets of more than £3 million were identified and connected with these criminal activities.
Fraud: case study:
A network of apparently unconnected limited companies were used in a business-to-business tele-sales scam concerning long-term energy contracts. Misleading details were provided to customers before the call was transferred to another operator who then formed a verbal contract with victim. The business-to-business element ensured that no cooling off period was applicable. Organisations targeted included a charity offering support to children suffering from cancer. Analysis revealed that one individual was connected to all the limited companies. According to press reports at the time, a juror was allegedly offered a bribe and threatened in exchange for a particular plea.
Exploitation of the public:
It is highly likely that details from future external data breaches could be used in limited company incorporation activity. It is unclear the extent to which proposed identity verification will mitigate against this threat. This may depend on the sophistication of the data breach and details obtained.
Exploitation of members of the public occurs through the abuse of Companies House processes. This can be seen directly in the use of personal details of others in the incorporation or director appointment processes.
The Economic Crime and Corporate Transparency Act will over time introduce identity verification processes for everyone who presents documents to Companies House. This will help to mitigate against this risk and it is highly likely that the scale of the issue will reduce.
Our response to fraudulent appointment of directors and addresses not associated to entities is very process driven. The current position places the responsibility on the person who has been fraudulently appointed, which includes a lot of administrative effort. The speed with which registration is completed (and the proactive approach to maintaining this) is not matched when queries are raised regarding accuracy of details used to incorporate. The ECCT Act gives us opportunities to change our approach and reduce the administrative burden of getting the register corrected.
Exploitation of business and state:
It is highly likely that limited companies and other structures regulated by Companies House will be used to commit government fraud in relation to any future business relief schemes. It is almost certain that Companies House processes facilitate confusion and fraud due to openness of naming rules for limited companies.
Bounce Back loan fraud: case study 1
Two companies submitted false documents to at least 41 local authorities and the government’s Bounce Back loan scheme. They secured £230,000 worth of funding put in place to support businesses during the pandemic, despite having never traded. This included Bounce Back loans totalling £100,000. Following an investigation by The Insolvency Service, the companies were liquidated, or ‘wound up’ by the Court.
Bounce Back loan fraud: case study 2
A director obtained Bounce Back loans of £150,000 for 3 companies which had never traded, and so were not entitled to the loans. The director used the money for cash withdrawals and made payments to a company owned by a “close friend” and other third parties. He was disqualified from acting as a company director for 13 years as a result. His “close friend” was also banned as a director for similar reasons.
VAT fraud: case study
Eleven thousand limited companies were incorporated and VAT-registered to a residential flat, allegedly without the knowledge of its owner. The owner received letters from HMRC asking for VAT payments of £500,000.
Companies House processes prevent auto-registration in several scenarios. For example, on attempted incorporation, when a proposed company name or director details include one of 2,394 restricted words or phrases.
Despite this success there are still very few restrictions on the contents of a registered company name. This means companies can be incorporated with similar names to existing entities. Imitation companies confuse consumers and can use the reputation of the ‘real’ company in their business dealings. This is particularly visible in the financial services sector with attempts to imitate financially regulated firms.
Cross-cutting threats:
It is almost certain that use of professional enablers facilitates abuse of Companies House processes. It is highly likely that the low cost and ease of registration also contributes to the nation’s desirability as a registration location.
Many professionals participate in the creation and ongoing management of UK limited companies. These include, but are not limited to formation agents, accountants and solicitors.
Many of these professionals provide their services legitimately and enable companies to meet their legislative requirements. However sometimes, professional services are used to facilitate abuse of Companies House processes. This ranges from failure to apply due diligence, to negligence to complicit activity by regulated professionals. Supervisory bodies provide some oversight of professional activities. However, there is no requirement to fall under one of the regulators to describe yourself as an accountant.
Professional services are commercial, therefore motivated by profit. Compliance with ‘know your customer’ and due diligence is required but not always a primary focus. Company creation is often offered as a loss leader (sometimes free) by enterprises looking to attract long term accountancy business. We therefore assess resources allocated to the necessary checks as low.
All trust or company service providers must register with HMRC for anti-money laundering purposes, unless they’re already supervised by another body. For example, service providers in the legal and accountancy sector. However, the use of formation agents can add opaqueness to corporate structures. In these cases, agents might be reckless or careless in their due diligence, or sometimes complicit in illegal actions.
The ECCT Act introduces the concept of authorised corporate service providers (ACSPs). ACSPs will introduce a clearer regulatory framework for corporate service providers. ACSPs will be liable to suspension if they fail to engage with Companies House.”
