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Bank robbers go where the money is. Fraudsters not surprisingly do the same. But illicit finance in some of the world’s richest countries is partially a self-inflicted problem. Until recently, the US and UK turned a blind eye to opaque corporate structures that enable economic crimes.
A crackdown is now under way. Next month, the UK’s Companies House will get more powers to query information and rectify inaccuracies — the biggest shake-up in its 180-year-old history. It joins the US in tackling corporate opacity. The latter now requires companies to disclose who controls them.
The UK leads the world for shell company-related risks, according to Moody’s research. The ability to hide behind fake companies has facilitated crimes ranging from the Russian “Laundromat” case to pandemic Bounce Back Loan Scheme abuses. It causes widespread misery. An estimated 10,000 Britons each year discover that fake companies have been registered to their addresses.
New checks are not watertight. Criminals can still exploit limited partnerships. Identity verification rules coming into force next year can be sidestepped with the help of a corrupt professional. In any case, they are no panacea. Financial crime expert Graham Barrow points out that banks have long carried out verification checks without blocking criminals’ access to the financial system. Front companies used in the Iranian sanctions evasion scheme reported by the FT raised no obvious filing red flags, he told MPs this month.
Experts also worry that the £20mn earmarked to revamp Companies House is not enough. A proper clean-up, using technology-based controls, would cost at least five times as much, says Kathryn Westmore of think-tank Rusi.
Should business foot the bill? Banks already contribute to the new £100mn-per-year economic crime levy. But reliably verified Companies House data would streamline their know-your-customers checks and help cut fraud losses. These will increase from October when banks will be forced to shoulder a bigger share of victims’ losses, currently running at more than £1bn a year.
Charging companies more to incorporate would make sense. Fees are rising from £12 to £50, but they will still be lower than in many other countries. A rise to £100 would be more likely to deter scammers than genuine entrepreneurs. It would raise a tidy sum while reducing incorporations, now running at nearly 900,000 a year.
When it comes to cracking down on opaque shell companies, scrutiny is a vital weapon. It needs to be wielded effectively.
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