Fake directors UK plan to combat money laundering

Fake directors UK plan to combat money laundering

The UK authorities are set to introduce measures to regulate or even prosecute the persons who are the sole directors of fake companies. Currently, owners of fake companies are not obliged to disclose the real owner of a company when they are appointed the sole director, but the authorities are planning to impose such regulation.

The governments will try to tighten laws in order to counter money laundering activities. The UK government claims that many of the UK-registered companies used for money laundering activities are often owned by individuals posing as the directors. If the real person is the sole director of a company, the other directors are supposed to file a proper affidavit in court. But it is often difficult for the authorities to determine the true owner of a company, particularly if the chief executive or the main shareholder is not listed on the statutory documents.

If the laws were tightened, the laws would make it harder for anonymous shell companies to operate in the country, because even the sole director will be required to identify the true owner of the company. The authorities are planning to draft legislation for a new section on money laundering, which would strengthen enforcement against companies which appear to be based in the UK but do not have any presence in the country, reported the Guardian.

Mark Easton, who was appointed as the new director of Companies House, which maintains the register of UK-registered companies, said: “Today’s announcement shows our commitment to clamping down on overseas-based criminals using the UK as a base to launder their dirty money.” However, the move is opposed by experts, who argue that more information disclosure requirements for the people who are the sole directors of companies are not effective at stopping criminals from hiding behind the shell firms. They believe that the government should focus on preventing money laundering instead of on tightening the existing rules.

Jeremy Lefroy, a member of the House of Lords and a former government minister, said that the UK government should focus on protecting the British public, rather than tighten the existing laws. He said: “I think people like a bit of what they can get their hands on. So if it makes it a bit more difficult for people to invest in companies, that’s all right, but I don’t think it is the answer to these sorts of problems.” The proposals also raise fears that it could affect companies registered in the UK, with the Treasury admitting that these investors would prefer if the regulations are not strict.

The Treasury and the Department for Business, Energy and Industrial Strategy rejected that this move would affect the investors, but insisted that the existing law and regulations would still be implemented. Read more The government will also target so-called “quarterly filers”, who are individuals who own companies but only register them once in a quarter, before they turn over the day-to-day management of the companies to someone else.

Tax avoidance scheme also make use of the lack of checking at companies house, networks of 100's or even 1,000's of companies are created then used as part of Vat avoidance schemes and to claim allowances such as the enterprise allowance when strictly if activities where in a single company that entity would not be entitled to claim.

Because it is so easy to setup new companies often scheme like this don't even bother to file accounts and just leave the companies concerned to be stuck off the register setting up new companies and moving on to the next one.  All of which costs the taxpayer £millions in lost taxes and consumes a lot of time and effort for HMRC to chase after companies that will never pay any tax.

HMRC has attempted to crack down on this area but there are still 100's of schemes in existence and likely 10,000's of companies are setup and struck off each year as part of all of this.

I estimate probably as much as £700m - £1billion is being lost in this way.

The Treasury believes that these individuals are mainly owners of small companies,who are able to hide their true ownership from authorities. Some existing rules are already quite strict and would not be affected by the proposed regulations, including rules which say that the only person who can be the sole director of a company is a Briton. But the proposed new regulations will make it more difficult for criminals to hide their true identity in companies, particularly if they are owned by Britons.

Given how technology has move forward so much over recent years, its not unreasonable to introduce a passport or ID scan combined with facial scans.  The NHS app works in this way and it only takes a few hours to register supply your ID and get your documents approved.

This increase in barrier to money laundering is long overdue and welcome.  A increase in the registration fee currently £15 is another way Government could raise money and use it to better investigate suspicious activity and more closer working with HMRC is clearly long overdue.  What is unfair always in these situations is that reputable businesses are paying their full share of tax, whilst a minority get away with illegal and unfair activities.  It's important that given the now challenging state of the UK economy more is done in this area.

Bio - Adrian is the CEO of reporting Accounts, he supports UK companies as a part time FD and CFO for various companies, helping them raise debt and equity finance as well as working as a senior financial professional.  He has more than 25 years of senior finance experience and 12 years of ecommerce, a contributory to many forums such as elastic search, he can also often be found over at Brasskangaroo