Company formation agents, a sector that the government has linked with organised crime, are to be given a critical role in cleaning up Companies House, Britain’s corporate registry.
Directors will be able to verify their identity via third party company formation agents, which assist with the creation of corporate structures.
This is despite the fact that the government and National Crime Agency have been working towards a crackdown on formation agents amid alarm at the industry’s connection with serious organised crime and money laundering.
Verification of directors’ identities is being introduced as part of a broader package designed to drive down abuse of Companies House. The government has said that the reforms will make Companies House a “more active gatekeeper” and confront its misuse by “kleptocrats, organised criminals and terrorists”.
The registry has outlined its approach to the introduction of identity verification, which it said would “help deter those wishing to start companies for illegal purposes”.
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All directors and people with significant control of companies will need to complete identity verification as part of the company incorporation process.
Companies House said people will be able to verify directly with the body or through an “authorised corporate service provider” — an intermediary such as an accountant, legal adviser or company formation agent.
There are about 20,000 trust and company service providers in Britain assisting with the creation of corporate structures. While there are many legitimate reasons to use a formation agent, the sector also helps individuals and businesses to establish complex and opaque corporate structures that are abused by criminals.
The Times has revealed how formation agents had been used by companies applying for emergency pandemic finances. For example, 7,000 companies registered to only five London addresses claimed £473 million between them from December 2020 to June 2021.
Companies House said such agents would have to be registered with a supervisory body for anti-money laundering purposes and have an existing duty to carry out customer due diligence checks on all of their clients. “Identity verification will simply build on these existing checks,” it said.
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Many company listings on the registry are bogus, and directors have included the names Adolf Tooth Fairy Hitler and Judas Superadio Iskariot. Companies House says identity verification will make it much more difficult to “register fictitious directors or beneficial owners, stopping the vast majority of fraudulent appointments from reaching the register”.
David Clarke, former head of the City of London Police fraud squad and a director of Guildhawk, a technology firm, welcomed the steps but said: “Extra caution needs to be exercised because intermediaries like company formation agents are known to be professional enablers to organised crime.”
Graham Barrow, whose Dark Money Files podcast researched and catalogues abuses of the registry, said such agents account for nearly 10 per cent of all registrations. He welcomed the implementation of ID verification but said it remained unclear how the “new rules will be overseen and enforced”.
He added: “There is no requirement in the new rules to perform an appropriateness check; that the person named is indeed a legitimate owner or director of the company and not just a proxy or nominee for an underlying and potentially bad actor.”
A government spokesman said its reforms will “improve transparency over UK companies. This will strengthen our business environment, support our national security and combat economic crime, while delivering a more reliable companies’ register to underpin growth and jobs.”
