The Guardian has today reported massive money laundering through UK banks: some $740 million is alleged to have be n illicitly laundered in the UK. Almost inevitably, it seems, HSBC was was the main bank used. The story is important for highlighting banking weaknesses, yet again. But there is a dimension to the story that I think is at least as important. As the Guardian notes:
The trail led investigators to 96 countries and to a network of anonymously owned firms, most of them registered at Companies House in London. Most of the 21 core companies under scrutiny have been dissolved.
The emphasis is mine and deliberate. Let's ignore the fact that Companies House is in Cardiff and concentrate on why British companies are used. There are five good reasons.
First, forming companies in the UK is cheap: just a few pounds buys you a company.
Second, you don't even have to sign any documents to form a company in the UK. It can all be done electronically.
Third, no proof of identity is ever required. The only thing Companies House will ever check on a form is the postcode (I am not joking).
Fourth, you can ignore all HMRC requests for data on the company and if you do they assume you are not trading and ask for no more information for five years (again, I am not joking).
Fifth, if you fail to file any of the data due to Companies Houese (an annual return or annual accounts) they almost never penalise the company: in practice they make no practical enquiries and simply wipe the company off the Register of Companies without ever bothering to find out what it might ever have done. The crooks record is wiped clean for them as a result of simple inaction.
You could not make up a better system for the encouragement of fraud.
The reality is that the UK has no company regulator. It has a wholly ineffective Registrar, which is bad enough. But it has no regulator at all.
And the UK has a voluntary corporation tax system because non-compliance is completely tolerated by HMRC who assume by default that any company that does not file information with them is not trading and so can owe no tax without almosty ever seeking evidence to confirm whether that is true or not.
And this is not accident. This is by design. We do not regulate because successive ministers have thought that admin kills the entrepreneurial spirit (which in extremis has an element of truth to it but most certainly does not demand its absence) whilst ignoring that a failure to regulate permits massive tax abuse and fraud that poses a far greater threat to effective markets. It is wholly misplaced pro-market dogma has made the UK a centre for corruption. Successive ministers should hang their heads in shame, as should the current incumbents if nothing is done. I suspect that will be the case. Our ministers hate tax and regulation so much they'd rather permit fraud instead. That's the reality of this country in 2017.
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They could learn a lot from the strict regulatory systems for company administrators in Guernsey and Jersey, which are light years ahead of the UK
But we have no evidence of that, which negates the whole point
Nonsense. There’s masses of evidence of it. It’s a very heavily regulated industry. Regulated corporate service providers have very extensive regulatory obligations which are heavily enforced, with substantial fines and lengthy bans for those who do not meet those standards. If you want evidence of regulatory enforcement action, visit the GFSC and JFSC websites.
Compare that system with the UK’s and conclude which system is better.
You can say what you like – everything is hidden from view.
Transparency cannot be done in secret, which is what these places claim to be doing
That wasn’t my point. I said that they were light years ahead of the UK re regulation of companies. True or false?
Just because the register of beneficial ownership isn’t open to the public does not affect that. The registers will be accessible 24/7 to tax and law enforcement agencies, just not available to those who don’t need to know but who just want to snoop.
And my answer is clear
I do not know
No one can be sure
Richard
Take your Crown Dependencies blinkers off. Research the CSP regulatory regime in Guernsey and Jersey and everything that goes around it. Then compare it with the UK’s regime. Then do a gap analysis. It’s mindboggling.
Just because you, Joe Soap, with no need to know ultimate beneficial ownership of companies that are extensively regulated, does not mean that regulation in the CDs is flawed. To the contrary, it is very effective. Now compare with the UK.
In principle it is better.
But I can’t know that for sure
So in principle is not worth the paper it is written on
I suppose the counter argument from such Ministers would be that companies would behave ‘rationally’ and avoid getting themselves a bad name in any market because they would just not be able to trade?
Obviously however, ministers do not talk to consumer groups and the litany of rip offs there is week in and week out. Let’s face it – this present system is almost a license to get into market, rip off as many people as possible and then disappear.
One ‘entrepreneur’ my company worked with was involved in providing accommodation for disabled people. He decided he wanted to sell the properties concerned and threatened to make all the disabled tenants homeless so we had to buy him out. When we got in there conditions were really bad and the building he was using was not fit for purpose. Trying to get any sense of out of Companies House about him was a joke.
Another company we worked with (and which failed during a contract) had basically lied about its financial health and had filed those lies at Companies House.
It should be called ‘Complicit House’ – because that is what it does – it helps fly by nights get away with daylight robbery.
We can do better than this as you rightly point out.
Thanks
“He decided he wanted to sell the properties concerned and threatened to make all the disabled tenants homeless so we had to buy him out. When we got in there conditions were really bad and the building he was using was not fit for purpose”.
Disgusting, and pathetic, for what is said to be the world’s 5th (or is 6th, 7th, 8th..as Brexit takes hold?) largest economy. This is where the simplistic rhetoric of the right bumps up against the inconvenient realities of human nature. Some ‘entrepeneurs’/businessmen/’wealth creators’ are greedy, or corrupt, or incompetent or exploitative.
Who would ever have thought it, eh?
Yet another example of what happens when politicians have an obsessive belief in ‘free enterprise’ and worship ‘entrepeneurs’, with a concomitant dislike of and contempt for the state and regulation.
As you have pointed out endlessly Richard, this is the ‘cowardly’ state in action; or, rather, inaction. And far from promoting healthy markets, it simply enables those who are dishonest, exploitative, corrupt or incompetent to thrive at the expense of others.
As a civil servant who daily sees the effects of this kind of politics I wonder why such politicians actually want to be in office. If you don’t believe in the power of the state or government to do any good in the world, why are you in government in the first place?
It appears some see their role in negative terms
Since you are writing about corporate fraud, it is worth giving some consideration to the adequacy (and indeed in your terms Mr Murphy, thr purposes) of the Fraud Act (2006). There are ironies in the Fraud Atc (2006): first the date itself – it was being debated in Westminster just as the City was hurtling headlong to the Financial Crash – but nobody seemed to notice anything; and second, it was supposed to replace old and unusable fraud legislation. The question is – how usable is the all new, modern, bursting with effectiveness, Fraud Act (2006), and in the Finance Sector, how effective has it proved? I suspect completely ineffective. I suspect it is a complete dud. But why?
I have not done proper academic research, but in the long calamity and consequences of the fall-out from 2007-8, I have seen very little evidence to suggest that the Fraud Act has proved much use in the Banking and Finance sector, which has had to rely on regulation and fines (which merely become a cost of doing business). There are some good papers, articles on this general matter (David Corker, or Anat Adamti in the US for example ), but it does not receive the attention it should – for reasons that perhaps should be explored.
Prima facie the Act looks like it should work
If it does not it is a lack of willing to make it do so
I do not think the “prima facie” gloss of surface appearance will work here. I am thinking of hard evidence; experience and facts as the basis of illumination. I do not have the answers, but I have the questions; and from my admittedly narrow observation of limited facts, I am highly sceptical of the adequacy of statute.
The question I would ask is simple but robust. How often has the Fraud Act (2006) been used since 2006 in the Banking and Finance sector 1) to mount a prosecution 2) how often has it produced a guilty verdict, and 3) where either a prosecution has been mounted or a guilty verdict produced in this general area, how much has any legal effectiveness actually achieved over the last decade or more, relied on older legislation or the common law; legislation or common law that the Fraud Act was supposed to replace?
On related issues, how effective – just for example – is the criminal cartel law in effecting prosecutions and guilty verdicts? How often has the Bribery Act (2010) been used? Has Section 7 (failing to prevent bribery) been used to prosecute anyone at all; and if so, has anyone been found guilty?
I suespect the answer is close to or actually none in most cases
I think the subsequent careers of Blair and Osborne explains why many seek public office. I would not go as far as Louis Namier who claimed that wealth-seeking was the principal motive of all 18th century politicians, but we are well on the way back to that era. The difference is that Pitt & co were developing an empire to plunder whilst our shoddy crew are reduced to milking what remains of our public services and offering open house to the crooks of the world.
I think you are right
I was looking at how easy it would be to set up a company for my wife to provide her services through the other day (I know, I know …) and it is indeed very easy. She provides Early Years support, parent support, training etc. to local councils, Children’s Centres etc. It all seemed very easy and it “costs £12 and can be paid by debit or credit card or Paypal account”.
But I suspect she can’t call her company EY Consulting Ltd 🙂
Reblogged on Jobbery
On the Isle of Man the controls are incredibly difficult/stringent to make forming a company worth while, also relatively expensive. Also fines for late annual returns, share transfers, changes in directors etc are strictly enforced.
The UK is the best place to form a company, do your dirty deeds and walk away from it.