By Caitlyn Buchanan, 22 July 2019
The United Kingdom’s registrar of companies, Companies House is planning reforms that will result in the biggest overhaul of its official corporate register in 175 years. The plans were announced following recent criticism that criminals around the world are laundering unlawful gains through shell companies registered in the UK.
The anti-corruption group, Global Witness have reported that nearly 3,000 UK companies list their beneficial owner as a company based in a tax haven, even though this is not allowed. They also flagged that more than 2,000 persons of significant control are disqualified directors, additionally, 76 beneficial owners have the same name and date of birth as individuals on the US sanctions list.
The Companies House maintain that the vast majority of companies on the register are law-abiding, however, they suspect a small but growing number of companies are being used for money laundering. According to Companies House, the UK company law framework was developed to support transparency and ease of doing business and while these values remain the foundation there are other equally important issues that need to be addressed. The noted issues include:
- Accuracy of information held at Companies House
- Abuse of personal information on the register
- Misuse of UK registered entities as vehicles for economic and other crime
The Companies House together with The Department for Business, Energy and Industrial Strategy (BEIS) have responded to these issues by publishing a wide-ranging register reform to achieve corporate transparency. The reform proposals would result in the most important changes to company law since the register was established in 1844. The Companies House have stated that a digital transformation is essential to the reforms, to create a modern, intuitive system with improved identity verification and customer communication with the register. The following four aspects are included in the reform.
1. Identifying who is setting up, managing and controlling companies
The proposal states that Companies House will be introducing verification procedures for directors, people with significant control (PSCs), presenters and could potentially include shareholders as well. The verification of individual identities is expected to bring significant benefits to information accuracy on the register. This can increase trust and act as a deterrent to those who seek to use UK companies for criminal activities.
2. Improving data held on the register for increased accuracy and usability
Although the Companies House claim to be ‘fairly confident’ about the accuracy of the information on the register, they acknowledge that there is potential for people to file information that is incorrect. The current system only offers the ability to amend or remove information under specific circumstances.
3. Protecting personal information on the register
The Companies House report more than 4 million companies on the register which allows information to be accessed by the public. With more than 5 billion searches performed each year, it is said that individuals are concerned about identity theft and fraud. Companies House agrees that sensitive information needs to be safeguarded from risk. The proposal includes limiting the information which is publicly available and granting increased access to public authorities such as the police.
4. Improved detection of potential crime behaviour
As previously stated, the Companies House are confident that most companies on the register are legitimate but they do recognise there could be a growing number of companies that are involved in laundering money. The proposal includes feedback loops to cross-reference the register data with other public and private bodies, taking a risk-based approach to intelligence sharing. The identification of suspicious behaviour will allow steps to investigate and stop criminal activity.
If adopted the proposed reforms could transform the Companies House into a very different organisation with a changed focus. A digital overhaul would result in the modern and intuitive systems that are essential to achieving the new goals. The introduction of a user-friendly system with identity verification is expected to minimise any additional burdens faced by users. The Companies House have stressed that the streamlining of any operations will be done in a way that maintains the integrity of the register.
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