Revealed: Nearly 400,000 British Companies Evade Anti-Money Laundering Checks

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Yves here. Richard Smith, who was of enormous help on ECONNED and wrote many infomative posts on technical finance topics (such as This is Basel III??), developed a deep and abiding interest in tracking down international scammers after a good friend lost a lot of money. This has led him to, among other things, identify and try to curtail dodgy company registries. It goes without saying that a lot of these letterbox entities are vehicles for cheating the tax man or worse. So we’re gratified to see him get more profile, both by publishing in openDemocracy and in establishing the connection between shady entities and abuses like money laundering.

By David Leask, a freelance journalist and Richard Smith, a researcher documenting shell company abuse. Past collaborations, credited and uncredited, with Australian Broadcasting Corporation, British Broadcasting Corporation, Canadian Broadcasting Corporation, Al-Jazeera, interest.co.nz, Glasgow Herald. Originally published at openDemocracy

Nearly 400,000 British companies do not, will not or cannot say who controls them, according to research carried out by openDemocracy.

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.

UK-registered firms have been used to channel billions or dollars of dirty money out of the former Soviet Union.

Just four opaquely-owned Scottish limited companies – incorporated before Britain’s PSC regime was put in place – processed $7 billion through their accounts as part of the so-called Russian Laundromat, according to data obtained by the Sarajevo-based Organised Crime and Corruption Reporting Project and Moscow’s Novaya Gazeta newspaper. (That figure is the same as a year’s worth of Scotch whisky exports.)

English and Northern Irish limited partnerships are not subject to PSC rules. Britain’s most controversial form of corporate entity – the Scottish limited partnership or SLP – was added to the list of firms which must name a PSC in 2017.

Some 17,000 SLPs – once dubbed “Britain’s home-grown secrecy vehicle” by Transparency International – have failed to make any PSC filings, according to openDemocracy’s research.

However, it is difficult to be sure about levels of non-compliance since SLPs which are dissolved are not removed from the Companies House register. The Government has announced plans to force what it believes are dissolved SLPs off the corporate register. There is no way of knowing how many of the SLPs currently listed as having no PSC are actually trading or not.

SLPs which have made no PSC disclosures include a firm called Biniatta Trade which was at the centre of a secret lobbying scandal in Albania.

The firm paid for lobbying in the United States but was later revealed to have done so on behalf of Albania’s opposition centre right Democrats. The party’s leader, Lulzim Basha, was cleared in connection with the case earlier this year.

SNP Shadow Chancellor Alison Thewliss said the Biniatta case showed calls for action on SLPs were “falling on deaf ears”.

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.

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5 comments

  1. Colonel Smithers

    Thank you, Yves.

    My own employer structures investment funds, often to buy property, with the 25% threshold in mind. A group of clients are brought together to avoid the trigger for declaration.

    I don’t understand why anyone took Cameron’s idea seriously as his relatives use these arrangements to hide their wealth, e.g. the Astor family’s Ginge Manor off shore trust and its ownership of Ginge Manor in Oxfordshire and Jura in Scotland. The Astors use similar arrangements for their London and Berkshire properties.

    A much larger landowner who uses these arrangements, including Scottish limited partnerships, is the Duke of Buccleuch and Queensberry, a descendant of Charles II and the rebel Duke of Monmouth. The Duke’s a funny one. He reckons he doesn’t own anything, but is somehow able to enjoy these hundreds of thousands of acres in the Scottish borders and Northamptonshire.

    Blair set up a network of investment funds to cash in after doing George Bush II’s dirty work. At that time, no threshold for declaration existed, but his advisers at JP Morgan and Lansdowne Partners felt it wiser to have a series of funds and different investors, including his own family and Middle Eastern, in each. One of my friends and former colleagues authorised the funds and wondered about the structures. The UK collective investment schemes no longer exist. Blair’s ill gotten gains are managed by JP Morgan outside the UK.

    One gathers that Nova Scotia is good, as attested by the Clintons.

    Reply
    1. Synoia

      Twas ever thus. My sister was in the City, and had a friend who’s business was advising people how to use off shore money to evade taxes in the ‘7s0s

      Reply
  2. Off The Street

    There are other stories emanating from England, including some about Prince Andrew and his legal and publicity concerns.

    There is a way to combine the evasion and royal matters to arrive at a creative solution. The Queen has many powers, one of which is the Golden Share. That power could be used to solve the evasion problem in exchange for some form of suitable admonishment and punishment for Andrew.

    Reply
  3. EoH

    The government spokesperson’s insistence that the UK has robust controls in place is as credible as a recommendation for Boris Johnson’s hair stylist. The 25% cap is too high. It should be reduced to zero, because investors will game any number higher than that.

    Disclosing “control” should not be the only or main objective. A might control B through a 10% shareholding, but who is A? The disclosure needs to pierce multiple levels. Middle men abound, as do multiple jurisdictions. A might control Z – a business, a large asset, or a country estate – in his home town, but do it through multiple intermediaries on and offshore, such that no one would know A has any relation to Z.

    If there are too few resources to police this, it would be by design, in a country whose financial center is the world’s premier money launderer.

    Reply

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