How UK company formation agents fuel fraud

Fri Mar 18, 2016 7:17am EDT
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By Tom Bergin and Stephen Grey

LONDON (Reuters) - British government efforts to crack down on money laundering and fraud through UK businesses are failing to tackle a key area - the role of company formation agents - a Reuters study of the sector shows.

Some formation agents, who typically offer to create new businesses for fees of about 200 pounds ($288) or less, fail to perform significant due diligence on who their customers are or why they are buying new companies, according to lawyers. The agents offer to set up companies within a day or even a few hours, allowing time for only minimal checks.

The weaknesses of the system make it vulnerable to abuse. A Reuters analysis of bank transaction data gives a unique insight into how newly-formed UK businesses were used to conceal huge flows of money that originated in Russia and eastern Europe. The bank transaction data spanned 2006 to 2008; such data is rarely available and Reuters was unable to obtain more up-to-date information.

Frances Coulson, head of insolvency and litigation at Moon Beever solicitors, said the data showed how illicit money passes through Britain. She said such flows still continue because no regulatory or investigatory changes have had any significant effect in clamping down on the practice.

"This is going on now and all the time," said Coulson, who is a trustee director of the Fraud Advisory Panel, a body set up by the Institute for Chartered Accountants in England and Wales. "All the indicators are that it's getting worse."

Coulson said better due diligence - such as checking identification documents - by company formation agents and the UK corporate register, Companies House, would help combat fraud.

Formation agents, also known as company service providers, are regulated by Her Majesty's Revenue and Customs (HMRC), the UK tax collector, which maintains a list of approved agents. However, HMRC does not publish the list, thus preventing potential customers from easily checking the status of an agent.

New rules coming into effect later this year are intended to improve corporate transparency. From June, British authorities will begin compiling and publishing details of "people with significant control" of businesses.   Continued...

The shadow of the Shard is cast across the financial district of London, Britain, as seen from The View from The Shard, in this January 9, 2013 file photo.  REUTERS/Luke Macgregor/Files