Nearly 400,000 British Companies Evade Anti-Money Laundering Compliance

Nearly 400,000 British Companies Evade Anti-Money Laundering Compliance

Almost 10 per cent of UK firms still do not declare who their beneficiaries are.

In 2016, the UK’s more than four million firms were ordered to identify who controls them, in an attempted crackdown on anonymously owned shell structures often used to wash dirty money through the international financial system.

However, a detailed analysis of millions of filings at Britain’s corporate registry, Companies House, shows almost 10 per cent of UK firms still do not declare who their beneficiaries are – often thanks to what campaigners believe is a legal loophole that could facilitate crime, corruption and tax evasion.

Most forms of British corporate entities have to name a “person of significant control” – a beneficiary with a stake of 25 per cent or more. The idea was introduced in 2013 by David Cameron, the then prime minister, who pledged to attack the “small minority” of companies that had “hidden their business dealings behind a complicated web of shell companies”.

But openDemocracy’s analysis shows almost 400,000 businesses still under opaque ownership with no named PSC, exactly what the Tories said they wanted to avoid.

The 25 per cent threshold means that vast numbers of companies are able to leave their beneficiaries unidentified, without explanation, and perfectly legally. Other companies illegally ignore the requirements, or say they cannot comply with them.

Tina Mlinaric, a campaigner at Global Witness, which aims to tackle corruption and environmental and human rights abuses, said: “The PSC register has been effective in combating the use of UK companies in money laundering but in some cases criminals and the corrupt have still been able to avoid filling or, in some cases having been filing inaccurate information, that ultimately still hides company ownership.”

Opposition politicians have previously accused the UK Government and Companies House of lacking resources to check the accuracy of filings, including on PSCs.

There is a system of fines in place for corporate entities which flout rules but government officials insist their aim is to boost compliance rather than seek prosecutions.

Dirty money

OpenDemocracy’s findings have been corroborated by research conducted by OpenOwnership, which campaigns for greater transparency over who controls corporate entities.

Steve Day, OpenOwnership’s technical lead, said that thousands of companies had not even responded to inquiries about their beneficiaries.

“OpenOwnership’s Global Register shows 347,492 companies declared that they did not have a beneficial owner in 2019. The lack of beneficial ownership declarations may be legitimate in many cases, as listed companies or those below the 25 per cent control threshold are excluded.

“Of more concern is the additional 19,000 companies that did not make any declaration at all and therefore have no listed owner. This latter group is in contravention of UK company law,” Day said.

OpenOwnership – which uses a slightly different methodology to openDemocracy – found that nearly nine per cent of all registered companies in the UK did not have a listed ultimate beneficial owner. Day added that 70 per cent of corruption cases involve opaquely-owned companies.

Failure to prosecute

The British government believes 99 per cent of firms are in technical compliance – partly thanks to the 25 per cent equity threshold requirement. But campaigners have called for the equity threshold to be scrapped and for those who break the rules to be punished.

“Government must remove the 25 per cent control threshold for beneficial ownership disclosure that creates the risk of significant interests in a company not being disclosed and enables beneficial owners to structure company ownership in order to avoid public scrutiny,” said Tina Mlinaric of Global Witness.

“Likewise it is vital that where individuals and companies have been found to be maliciously breaking the rules, they are properly sanctioned, including with fines and prison sentences where necessary.”

The SNP’s Alison Thewliss this spring asked the UK Government how many prosecutions there had been for “knowingly or recklessly” filing false information at Companies House.

In a written answer, junior business minister Paul Scully said five individuals had been prosecuted for the offence over the last three years in England and Wales. He said authorities were unaware of any prosecutions in Scotland or Northern Ireland in the same period.

A spokesperson for the Department of Business, Energy and Industrial Strategy, which is responsible for corporate governance in all UK jurisdictions, insisted action was taken against those who flout the rules.

“The UK has robust controls in place to ensure compliance with People of Significant Control filing requirements. Where there is failure to comply appropriate action is taken.”

The Government said that it had issued 535 criminal proceedings against directors, and another 479 against companies since March 2018 for failure to comply with PSC requirements. It added that 163 directors and 161 companies had been convicted. Two directors have been disqualified following conviction.

The original article was published in openDemocracy on 6th June 2020: Revealed: Nearly 400,000 British companies evade anti-money laundering checks.

In summary

Beneficial owner identification and ongoing monitoring is complex and widely understood by many business owners, causing many to unwittingly break the law including Jeremy Hunt: In addition, in early 2018 it was reported that the then Health Secretary, Jeremy Hunt failed to notify Companies House of his 50% interest in Mare Pond Properties which was reportedly set up with his wife in order to buy seven flats in a Southampton development (source).

Whether through fraud or misunderstanding of the system, the huge number of omissions in the database of ‘Person of Significant Control’ are a nightmare for anyone trying to conduct effective and efficient due diligence on their customers.  The recent efforts to ask companies to report any discrepancies is inadequate for the scale of the problem, and just pushes the problem down to the users.  For a robust anti-money laundering (AML) regime the role of Companies House needs to be expanded to include verifying the information, and it needs to be given appropriate legislative powers to enforce.

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