It’s extremely easy to register a new enterprise at Companies House. In a process that costs £12 and takes just a couple of hours, almost anyone in the world can incorporate their business in the UK, not only allowing them to begin trading in that company’s name, but also access lines of domestic and international credit. The appearance of company officer names in the organisations’ database like ‘Victor Les-Appy Hugo’ and ‘Adolf Tooth-Fairy Hitler,’ however, reveal an incorporation system woefully vulnerable to criminal manipulation – one that Companies House’s government sponsors, the Department for Business, Energy & Industrial Strategy, criticised in February as facilitating a system where ‘thousands of UK-registered companies have been misused in major money-laundering scandals.’
That same month witnessed Russia’s invasion of Ukraine, and with it a newfound urge in Whitehall to prevent the former’s oligarchs from laundering their billions through a ‘London laundromat’ of UK-based companies. The result was the Economic Crime and Corporate Transparency Bill. Introduced by the government last week, the new legislation promises to clamp down on the use and abuse of businesses registered at Companies House by requiring corporate officers to digitally verify their identities by matching them to existing identification documents – a measure the government hopes will transform the organisation’s reputation from being a mere postbox for business information into a paragon of corporate moral rectitude.
Digital ID verification at Companies House
The new bill will also grant Companies House new powers to check, remove, or decline information submitted to the register, as well as invest in new data analytics capable of casting new light on shadowy corporate ownership structures. ‘For the first time we’ll know who owns these properties and land, and we’ll have enforcement powers to place sanctions on anyone who doesn’t comply,’ wrote the organisation’s chief executive Louise Smyth in a blog post that previewed some of the changes last month. All of this translates into what has been described by the government as the ‘most fundamental change’ to the national registrar of companies since 1844.
For his part, Graham Barrow welcomes these reforms. While the anti-corruption campaigner has criticised Companies House in the past for inertia on issues of money laundering – Barrow has previously ‘guesstimated’ that about a quarter of the 3,000 companies incorporated daily by the organisation are suspicious. “I know from my dealings with them that they are very receptive and knowledgeable about big data and are highly willing to embrace it.” While there are always issues surrounding the ability of government departments to implement such changes efficiently, Barrow adds, “my feelings towards the potential for data scientists to work effectively with Companies House in this area are, overall, very positive.”
Details on how these changes will be implemented, however, remain vague. For one thing, Companies House has not yet confirmed which digital identity verification system it will use, although a white paper on the reforms published earlier this year anticipated that it will be developed in tandem with the government’s ‘single sign-on’ service. When approached for comment, a spokesperson for Companies House simply stated that it “will implement a robust system which shares relevant and timely information with enforcement partners through the appropriate gateways”.
Whatever system is implemented, its success will be contingent on Companies House receiving an appropriate level of funding from government, explains financial crime expert and RUSI research fellow Maria Nizzero. So far, the government has already invested some £20m in the transformation of Companies House for the 2021/22 financial year, on top of £63m committed in the 2021 Spending Review. That kind of funding needs to continue, argues Nizzero, if Companies House has any hope of running a workable data analytics operation. “Data analysis is a very expensive technology that requires a lot of time to implement,” she says.
Even so, some industry observers believe that these digital reforms will not be enough on their own to meaningfully reduce international money laundering in the UK. “Whilst the Registrar will have the power to reject information that appears to be inconsistent with other information held, it does not appear on the face of it that Companies House will be asking probing questions regarding complex ownership structures sitting behind corporate shareholders beyond identity verification,” says Hannah Piper, director of dispute resolution at the law practice Field Fisher. “I question, therefore, whether the bill goes far enough to ensure that there is sufficient transparency in relation to who in reality owns or controls a company.”
Economy Crime and Corporate Transparency Bill: A new hope?
Does the new Economic Crime and Corporate Transparency Bill signal that the UK government is now firmly committed to undermining the international money laundering system? Oliver Bullough thinks not. The author of two books examining high finance in the criminal underworld, Bullough believes that the UK government is afraid that tighter rules in this area will ultimately make this country a less attractive place to do business.
“There is genuine concern,” says Bullough, “particularly in the Treasury and Business Department, that increasing regulation on the UK economy will send business overseas to the US, or Luxembourg, for example - and that that will harm the City of London and the national tax base”.
It’s a false dichotomy, says Nizzero. “If you have a company that is actively operating in the UK and reinvesting into the country, that makes our economy grow,” she says. “But if it’s a dodgy company that’s just using the company's registration number to transfer money somewhere else, or even to commit fraud abroad, then I don’t really see the point.”
Bullough, meanwhile, is sceptical that the digital ID verification process proposed by Companies House will decisively clamp down on money laundering in the UK. “You’re talking about incredibly imaginative criminals constantly looking for new ways to move their money,” he says. “So, yes, this particularly egregious loophole would be closed – but there are plenty of other ones out there.”
The author has little confidence that the government has sufficient willpower or wherewithal to close the remaining gaps in law enforcement. That, he says, will require much greater sums to be spent on enforcement across multiple ministries and departments, not just Companies House. And with the new chancellor emphasising the importance of cutting taxes rather than increasing government spending, combined with Whitehall's historically anaemic attitude toward the practicalities of enforcement, the chances of a funding bump for anti-money laundering initiatives are low. That will only serve to leave those at the coalface of verifying new corporate entities in the lurch.
“Like any law enforcement or investigative bodies, the people at Companies House know what they’re up against and they’re trying their best, but there just aren’t enough of them,” says Bullough. “These criticisms are not for them - they’re just lions led by donkeys, all the way down.”