September 22, 2022 – Legislation to crack down on the abuse of UK firms for money laundering will strengthen Britain’s defences against dirty money – but the current drafting risks leaving vulnerabilities to exploit, Transparency International UK said today.

The Economic Crime and Corporate Transparency Bill, tabled today in the House of Commons, contains long-overdue reforms to Companies House, including new powers to verify the identities of those setting up firms and the ability to flag suspicious activity to law enforcement.

Transparency International UK’s previous research found 929 UK companies involved in 89 cases of corruption and money laundering between 2000 and 2019, amounting to £137 billion in economic damage. The actual number of UK companies used in major financial crime could be much higher - in the thousands or tens of thousands. 

Duncan Hames, Director of Policy at Transparency International UK, said:

“We welcome the priority the Government is giving to much-needed reform of the UK’s company incorporation system. Over the years, lax controls on company incorporation has seen thousands of UK firms and partnerships being used to launder the proceeds of corruption - hundreds of billions of pounds lost all around the world. 

“Verifying the identities of those that own and direct companies and the professionals providing these services will help to make it harder for criminals to use and abuse UK businesses, but the effective implementation of these measures remains critical to their eventual success. Without sufficient resourcing of Companies House or a concerted crackdown on rogue company service providers, these reforms would still not be able to adequately address the UK’s role as a safe haven for illicit funds.” 
 

In its current drafting, the Economic Crime and Corporate Transparency Bill risks leaving vulnerabilities for money launderers to exploit. These vulnerabilities, and how to close them, include: 

1. Prohibiting UK companies from being controlled by opaque offshore companies

The Bill currently makes no changes that would stop certain types of UK companies - private limited companies (PLCs), limited liability partnerships (LLPs), limited partnerships (LPs), or Scottish limited partnerships (SLPs) - from being controlled by other companies based in secrecy jurisdictions, such as the British Virgin Islands.

There is a wealth of evidence that these types of UK companies have been abused on an industrial scale, seemingly in large part because they can be controlled by opaque offshore entities in secrecy jurisdictions where there is little public information about who really owns them. 

There should be a prohibition against members and partners for PLCs, LLPs, LPs and SLPs to prevent UK companies from being used to provide a veneer of legitimacy for money launderers.  

2. Using Verification checks to identify wrongdoing

The Bill will require all third-party agents who set up companies on behalf of others to declare that they have verified the information they are submitting on behalf of those making use of their services. This by itself is unlikely to deter rogue actors from setting up shell companies for money laundering.  

Companies House should be given further powers to review the documentation of these verification checks in cases where they suspect wrongdoing has taken place.

This would not create additional work for agents acting within the law but would provide Companies House with a useful tool to identify illicit activity. 

3. Ensuring all agencies tasked with tackling economic crime are properly resourced

Whilst the Bill does state that the role of Companies House will be changed to promote the integrity of the company register, no assurances have been given that Companies House, law enforcement agencies or regulators will be given additional funding to carry out this new role and achieve the ambition of the legislation.

This could partly be achieved by increasing the price of company incorporation to £50 to enable Companies House to have a sustainable self-funding model for the future while Britain remains globally competitive.