Last December I wrote a blog post suggesting that the government was aiding and abetting money laundering by letting UK based companies be incorporated direct by Companies House without any checks on the identities of those doing so when the private sector is required to undertake appropriate money laundering 'know-you-client' procedures. I highlighted a report from Transparency International on the issue when doing so.
One reader wrote to his MP as a result and got this reply:
Four things worry me.
First, that the whole of the first page fails to address any question asked.
Second, that expediency is the basis for the answers in the first two paragraphs on the second page. There is no policy here. Rather there is a 'speed is good' and a 'no questions asked' attitude that means that money laundering risk is not even considered a risk that might prevent incorporation of a company.
Third, there is an apparent inability to spot that what the Registrar of Companies does when forming a company is identical to what a third party does and to have one rule for the private sector because the risk of abuse is recognised and another for Companies House simply because the risk of abuse is ignored is a red flag for risk existing - about which there appears to be a casual indifference hidden behind the glib suggestion that Companies House was not intended to be covered by regulation and so it is quite acceptable if it is not.
Fourth, the government seems quite unaware that their requirements do cause delays in the private sector, precisely because checks take time, but almost seem to take pride that Companies House circumvents this.
Overall there is evidence of an attitude that applauds regulatory laxness; fails to appreciate that abusers will always find and abuse the weakest link in any chain, and a total lack of awareness that this is weak link is what is being provided by Companies House.
In addition, there is no apparent awareness that because the UK is unusual in not requiring these checks the UK system is used to facilitate abuse elsewhere. Absurdly, many tax havens have better standards than we do, by some way.
Andrew Griffiths does not cover himself in glory with this reply. It is contemptuous of international standards; creates an unlevel playing field and does undoubtedly reflect a system where abuse is easy to perpetrate. I stand by my suggestion that the government is aiding and abetting money laundering by its laxness.
I would add that some simple changes in the law could correct this.
First, the right to refuse incorporation should exist where there are any doubts as to the intended legitimacy of the intended use of the company.
Second, there should be full anti-money laundering checks on incorporation.
Third, these should be required to be updated at least every three years (and maybe more often) unless another agent, such as an accountant, has confirmed they have alternatively checked the information.
That way we might just beat the abuse that is prevalent using UK companies. Right now we have not got a chance.
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It seems to be a letter displaying a very complacent attitude.
It inspires no confidence that the government even accepts there might be problems here let alone displaying an intention to investigate.
“The vast majority of over 3.9 million companies ….etc…. for legitimate purposes”
May well be true, probably is true, but under current systems there’s not much chance of filtering the rogues.
It’s the sort of mindset that assumes our borders are secure because customs officers will be able to spot the people who have “Occupation: International Terrorist” in their passports.
Actually, no one can be sure that’s true
Hundreds of thousands of companies file no data each year
I wonder how many of the 80 staff involved by companies house are trained investigators? (0?) Many must be doing routine admin, answering the phone, or actioning requests for companies to be struck off.
I am pursuing this right now
Isn’t all this just the kind of thing the EU is tightening up on, and we’d be required to follow suit if we stayed in? If so, that might well explain the Brexit-or-bust attitude of certain parties.
Richard
Is it allowable to register a company in the UK with a bank account in a foreign country that has no anti money laundering regulation? If so then the second from last paragraph in the minister’s reply is also nonsense
In a word, yes
Although in fairness, AML regulation is near enough worldwide now
But by no means effective worldwide
“Although in fairness, AML regulation is near enough worldwide now”
I don’t think this is right. The Seychelles, in particular, have basically told all governing bodies they can shove their legislation.
As a result, most reputable banks won’t accept transactions from Seychelles’ accounts.
So you set up a company with 3 bank accounts. A Seychelles one, through which all dodgy dealings work, a Cypriot or Maltese one, because the banks there are within the EU but alarmingly lax & will take Seychelles funds, & then a ‘clean’ one with (say) Deutsche bank which wouldn’t dream of accepting dodgy stuff from Seychelles but Cyprus, Malta, within the EU, no problem!
The point is the Seychelles, like Vanuatu, is ver6 hard to use as a result
The freeholds of much of the UK leasehold properties are more or less gambling chips used by traders in their markets. Typically, you get a company as a front to deal with basic admin’ which is then owned by this or that, say Limited Liability Partnerships which are then owned by off shore Trusts etc. Quite where real ownership might be is an interesting question. One big player is Deutsche Bank via pension funds. One good big bang and most of the UK freeholds will disappear into the ether. As in the USA sub prime crisis.
If Companies House is not willing or able to perform basic money laundering checks (and ignoring the glaring question of “why not”?) we could simply tweak the rules to stop direct applications, and require people wanting to register a company to do so through an approved and regulated company service provider who would be obliged to perform the checks. Simple.
True
Easy
Why not?
The blog title says it all.
As a government agency tightening compliance should be easy for Companies House if it were able to cross reference checks with Passport records and HMRC. No doubt there could be civil liberties implications but the possibilities are available.
AML breaches civil liberties in the same way
That hurdle has been crossed
A great contrast from forming and running a company on the Isle of Man. The checks there are incredibly onerous.
I have made the point
I’ve been moved to post my thoughts on this subject several times in the past but have not done so until now.
I share your view Richard. I suspect there is a lot more abuse taking place than Andrew Griffiths suggests. I also have serious doubts over the extent to which Companies House checks information.
My scepticism is based on what I see almost on a daily basis. Companies House is in my favourites list for good reason. I’m a regulator working in the public sector and I frequently use Companies House data.
What really gets me is the ease at which individuals can hide behind a company name, use sham Directors or simply disappear seemingly without trace. I therefore have no doubt that money laundering and tax abuse are being facilitated by CH, and Govt simply turns a blind eye.
Thanks
I agree
Richard
Glad you’re on this one. It comes up over again on accounting.web that whereas small firms should do rigorous AML vetting, we have a Govt agency, Companies House, that does not minimal AML but, literally, none at all!
Apart from the obvious risks of washing through drug or terrorist funds it is increasingly, alarmingly, clear to anyone who wants to know that bad builders (& it is more common in construction than anywhere else) can set up a company, pay their employees under NMW in cash, not register for VAT, routinely do poor grade work then close the company after 2 years & start another one.
You keep banging this drum yet despite frequent challenges you have not exposed one single actual case where the system you are complaining about has led to fraud or tax evasion. Not one. Not one single case.
Of course, you’d like an army of nosey civil servants cramping the economy. Money laundering checks on 3,500,000 companies. Repeated every 3 years? An average of a million a year! The vast vast vast majority of those checks would show nothing. A waste of everyone’s time and money. Have you costed this crackpot idea? How much it would cost busineeses? Course not.
It’d be like having a roadblock on the M25 checking every single vehicle’s boot just in case there’s a body there.
Surely even you could think of a better way to use those resources?
No, this idea gets put along with all the others in the “totally unworkable” pile.
This is ludicrous
I linked to a report with evidence in it
And day in, day out HMRC bring cases
If you are going to object stop making stuff up