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Oligarchs and Obfuscation

The Corporate Transparency and Register Reform White Paper, published in February 2022, reviewed the government’s position on reforming Companies House ahead of introducing legislation into Parliament. And this couldn’t come at a more relevant time. But what’s changing and is it going to make a difference?

Companies House has more or less acted in the same way since the Joint Stock Companies Bill of 1856, being a body that simply records things that are filed with it. Of course it’s modernised in that many of its functions are now online, and it’s used by millions of businesses to assess the creditworthiness of prospective clients (although because of the delay in Limited Companies reporting their results this can be interpreted as having little real time benefit).

For a register that’s accessed over 10 billion times a year, Companies House needs to be a suitable platform to make important business decisions. In recent years, however, the system has increasingly been manipulated by anonymous and often fraudulent “shell” companies and partnerships.

The consultation process to review Companies House began in 2019, and there is now a sense of urgency for the reform as there is a need to identify “dirty” funds flowing into the Western financial system from former Soviet countries.

What’s changing?

Currently the Registrar’s remit is only to record company information. The fundamental change is that it will now have a new function “to maintain the integrity of the register of companies and the UK business environment.”

This means that the Registrar will now have powers to query suspicious appointments or filings and to request further evidence or reject the filing. In addition, the Registrar will be able to share this data with law enforcement agencies, and, in certain circumstances, the private sector.

The decision to seize assets has highlighted the shortcomings of the current system where many assets are held by companies whose real ownership isn’t known. Moving forward, anyone setting up, managing or controlling Limited Companies or other registrable entities will have to verify their identity with Companies House via a third party supervised agent who will perform anti money laundering checks. The theory is that this will make it much more difficult to submit anonymous filings through nominee companies or complicated and opaque corporate structures.

On the flip-side to this, however, individuals who have previously had their personal information recorded on the register will be able to have some of that information “suppressed” where they can prove that the publication of that information might put them at risk of harm.

The government has committed an additional £63million to achieve this transformation, and the money has been set aside as part of the Government’s Economic Crime Plan.

Is it going to make a difference to the fraudsters?

A 2018 report on the operations of Danske Bank in former Soviet countries found that the preferred vehicle for laundering money into the UK was to use LLPs. In the case of the “Azerbaijani Laundromat” over 2.9 billion US dollars was laundered by 4 UK registered LLPs in 2013-14. Danske’s Estonian branch was also involved in over $200 billion flowing from Russia and other ex soviet countries through hundreds of UK registered entities. We don’t know how many similar schemes haven’t been discovered, of course.

It’s not just money

In a human trafficking case, the stolen identities of individuals who had been trafficked to the UK were used to set up Limited Companies. In turn, further companies were then used to launder the proceeds of crime and receive wages for the trafficked people, who were housed in appalling conditions and made to work long hours.

When will the reforms happen?

The “Transformation Programme” is expected to be implemented within the next 5 years, and will take place alongside the legislative reform that needs to be in place to enable it to happen.

Whether the reforms and the legislation go far enough to curb the majority of fraudulent activity remains to be seen.

If you have any queries regarding the contents of this blog please don’t hesitate to contact one of the team at BLB Advisory.