15 May 2018 by Jimmy Nicholls
The conviction of a whistleblower protesting the ease of registering with Companies House shows flaws in the system
The UK government doubtless hoped for applause when it touted its first ‘successful prosecution for [submitting] false company information’ in March.
Hailing the case, business minister Andrew Griffiths said: ‘This prosecution – the first of its kind in the UK – shows the government will come down hard on people who knowingly break the law and file false information on the company register.’
However, this was not the result of expert sleuthing by Companies House.
The convicted, Kevin Brewer, owner of National Business Register, which helps set up businesses, had effectively turned himself in by contacting authorities after registering obviously phoney businesses in the name of public officials. He wanted to show that the service had perilously few checks in place.
Among the fake businesses Brewer set up was John Vincent Cable Services Ltd, incorporated in 2013. It listed the then business secretary Vince Cable, current Liberal Democrat leader, as a director and shareholder without his knowledge.
After failing to see progress, Brewer repeated the stunt in 2016, this time with Cleverly Clogs Ltd. The company appointed government minister Lucy Neville-Rolfe, James Cleverly MP and imaginary Israeli Ibrahim Aman as shareholders and directors.
The two businesses had been registered for £12 each through an online service from Companies House, launched in 2011 by Cable in his role as business secretary. For Brewer the cost was steeper: he was fined £1,602 and ordered to pay legal costs of £10,462.50. Including his own bills, he lost £22,800, according to The Guardian.
“Prosecuting a whistleblower does not seem to me to be the right answer”
Critics have noted that Brewer has a stake in all this. The ease and low cost with which people can register businesses online creates competition for services like National Business Register. Although Brewer’s firm and others offering similar services may be costlier, they do look into customers’ identity, funding and purpose in forming a company – checks Companies House does not perform.
Peter Swabey, policy and research director at ICSA, said: ‘I have a lot of sympathy for Companies House’s position.
‘It is trying to balance the laudable government policy of making it easy to set up a company in the UK, which creates all kinds of benefits for entrepreneurs, against the need to protect against money laundering and criminal activity. But prosecuting a whistleblower does not seem to me to be the right answer.’
In the wake of the story, even the government’s own anti-corruption champion, John Penrose MP, told a Frontline Club event in April: ‘[Brewer’s treatment] cannot be right, that has to be wrong. But it rather self-evidently proves the point that we are not paying enough attention to whether this information is being filed properly, and I have already taken this up in the last 24 hours with ministers.’
The controversy comes at an awkward time for Companies House, which just published its business plan for 2018–19. The goals for the agency include ‘developing our online services and guidance’, ‘making sure the data on the register is right’ and ‘continuing to build a high performance culture’.
The agency’s register contains records of more than 3.9 million companies, with more than 30,000 transactions being processed every day, according to Companies House. The business plan sets out a three-year scheme aiming to fully digitise all of
its services, starting this year.
Over 85% of transactions with Companies House are already completed digitally and the plan is to expand the scope and availability of digital account filings, and further develop digital services for prosecution activity, linking up with the courts.
More ambitiously, Companies House is aiming to close down paper filing channels ‘wherever possible’. It argues that digital services ‘are more secure and efficient, for us and our customers, and also reduce the risk of errors occurring when information on paper is transcribed or scanned.’
It sounds futuristic. But despite the apparent depth of these plans, Companies House has been warned repeatedly about how lax its checks are. Critics claim that it is too easy to create ‘ghost’ or ‘shield’ companies connected to global money laundering.
‘The commitment by Companies House to “making sure the data on the register is right” is to be welcomed and is, frankly, overdue,’ Swabey said.
‘Historically, the role of Companies House has been that of a repository of data – responsible for holding data, not for verification. Companies House has ensured that all the fields on a document are completed, but responsibility for their accuracy has rested with the compiler.’
“Companies House argues that digital services ‘are more secure and efficient, for us and our customers’”
Last November, Italian journalists from Il Sole 24 Ore all but registered a company in the name of a mafia boss, with the headquarters listed at 10 Downing Street, the UK prime minister’s official residence.
The journalists did not fully submit the application, or pay the fee, for fear of being prosecuted. A Companies House spokesperson at the time said: ‘Had the application been submitted our systems would have picked up the false information and the incorporation would have been denied.’ The Brewer case suggests otherwise.
At the same time the findings of Il Sole 24 Ore were being publicised, Transparency International, a campaigning group, released its ‘Hiding in Plain Sight’ report, listing alleged abuses of and weaknesses in Companies House’s processes.
It claimed to have found 52 money laundering and corruption cases linked to some 766 UK corporate structures, dating back to 2004. These were worth some £80 billion.
Transparency International highlighted how easy it was to set up companies, citing Companies House lack of checks. ‘In the UK last year [2016–17], 251,628 UK companies were created [online] with no checks being made on the person setting-up the company or their source of wealth,’ it said.
It also highlighted that Oliver Bullough, a journalist focusing on financial crime, had previously set up a limited company called Crooked Crook Crook Limited. According to Bullough, the application took nine minutes to complete, and a mere 36 hours to be approved.
‘No one at Companies House asked for any proof that the information I provided was accurate,’ Bullough said in a Guardian piece describing the registration.
Unlike business-registering agents, the non-profit Companies House is not subject to the latest money laundering regulations. Transparency International suggested that a simple passport check, funded with a £5–10 increase in registration costs, would provide basic due diligence without costing the UK taxpayer extra.
Swabey said: ‘My own view is that it would be better were the UK to follow the model in some of the Crown Dependencies. The information submitted to Companies House about ownership and so on must be lodged by an appropriately qualified professional – for example, a lawyer or chartered secretary – who takes responsibility for its accuracy.’
For some, however, the agency simply lacks resources. ‘Companies House does not currently have sufficient resources – in terms of the number of personnel and expertise – to sufficiently monitor and ensure the integrity of data that is submitted to them,’ Transparency International said in ‘Hiding in Plain Sight’. ‘This allows a significant amount of false and misleading data to be submitted.’