Written by Dawn Fisher on Monday January 15, 2018
In November 2017, Transparency International (TI) published the report Hiding in Plain Sight which further highlighted the attractiveness of UK Plc to those that wish to launder the proceeds of corruption or value of other criminal origin.
On the face of it, TI does seem to have an axe to grind against UK Plc. They are constantly and consistently critical of the UK AML and anti-corruption frameworks, highlighting the flaws in the system rather than celebrating the positive steps taken by the UK.
Those involved in the AML, ABC or general financial crime prevention space may well question what appears to be a negative attitude towards one of the most robustly regulated jurisdictions on the planet, and are entitled to point to legislation such as the Proceeds of Crime Act 2002 (considered draconian and further supported by recent legislative changes such as the Criminal Finances Act 2017), and the Bribery Act 2010 (described as the FCPA ‘on steroids’) but let us take a step back and consider some of the points being made by TI – keeping in mind the phrase ‘we are only as good as our weakest link’.
Looking at some of the TI findings, and comparing these to UK AML and anti-corruption legislation, it seems that the weakest link for UK Plc is our policymakers themselves.
Let me attempt to qualify such a bold statement by looking at UK AML efforts – the requirement to undertake CDD in particular.
Under Regulation 27 of the Money Laundering Regulations 2017, firms are required to undertake due diligence on (prospective) clients which include establishing beneficial ownership and those with effective control of a body corporate (with some exceptions e.g., public listing).
From 30 June 2016, UK companies (except listed companies) and limited liability partnerships (LLPs) have had to declare this information when issuing their annual confirmation statement to Companies House – a person of significant control being a person holding more than 25% of shares or voting rights in a company, having the right to appoint or remove the majority of the board of directors or otherwise exercising significant influence or control.
This information forms a central public register of people with significant control, which is free to access and it seems like a no-brainer that this would be a primary data source to assist firms in fulfilling their obligations under R27.
Under Regulation 28 (9) however, regulated firms may not solely rely on Companies House for the identification of beneficial owners of UK bodies corporate – they must take additional steps to identify and verify the ownership and control structure. This implies that the UK registry is not a reliable source of information. But why is this the case?
According to the research carried out by TI:
Whilst the PSC register is certainly a step forward, it seems somewhat counterintuitive to put in place a legal requirement intended to protect the integrity of UK Plc yet provide almost no resource to ensuring compliance with the regime and to test the accuracy of the information provided.
Put simply – what is the point?
The system as it currently stands provides little to no prevention or deterrent to the incorporation of UK companies for illicit purposes such as laundering and Companies House has neither the power nor the resources needed to ensure the integrity of the UK company register, instead allowing inaccurate and misleading information to be submitted by those wishing to hide illicit activity and having no resources to check on the activities of firms after incorporation.
I have to agree with TI that there is work to be done in this space and the provision of adequate resources for Companies House should be a priority.
It is all very well requiring the regulated sector to undertake CDD checks on owners and controllers of UK incorporated firms but given the lack of compliance checking undertaken by Companies House, the buck stops very firmly with our policymakers.
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