The government's system for registering companies is a "gaping black hole" in anti money laundering defences, a senior member of the UK's accountancy body told Business Insider.

Companies House is exempt from the due diligence regulations that were tightened last year under the Fourth Money Laundering Directive.

Individuals wishing to establish businesses under false pretenses or with dirty money are not subject to due diligence by Companies House, which takes information on good faith.



LONDON — The government's system for registering new companies is a "gaping black hole" in defences against money laundering and fraud, a legal professional at the UK's accountancy body has said.

The government's online system by which company details are registered and updated, Companies House, is not subject to the same scrutiny as private businesses that offer company formation services, David Stevens, Integrity and Law Manager at the Institute of Chartered Accountants in England and Wales (ICAEW), told Business Insider.

"No matter how much you ramp up regulation on [private firms]," said Stevens, it "doesn’t address the gaping black hole" that is Companies House.

New regulations introduced last year under the EU's Fourth Money Laundering Directive require due diligence to be done on all companies registered with Trust and Company Service Providers, and the individuals behind them. But Companies House is exempt since it is not considered a commercial business provider.

"People can just go directly to Companies House with no questions asked," said Stevens. "There is scope for abuse.

"One of the best descriptions I’ve come across is, whereas previously if I wanted to make some illegal cash I'd walk into an off license with a handgun, now it is significantly less risky just to set up a Limited Liability company and use that as my handgun," he said.

According to Richard Osborne, managing director of eFiling, an administrative service for company formation agents, around 40% of all companies set up annually are established via Companies House. Filings are "accepted in good faith," said Osborne, which is "making a mockery of the registry."

Individuals do not need to prove they have permission to use the address they give, he said: "you can pick an address out of the yellow pages."

Lax regulation also enables fraud and tax evasion, both men said. One tactic is for individuals to establish trading companies and dissolve them within a year, before any meaningful accounts are filed, in order to evade paying tax.

"I have come across that in a context of a couple of quite specific scams, it’s a known practice," said Stevens.

A 2017 report by Transparency International found there are only six people at Companies House who police four million firms' compliance with company law, and around half of the 766 companies alleged to have been involved in high end money laundering were based at just eight UK addresses.

Exempting Companies House from due diligence legislation could be tactical, said Osborne: "It's better for the UK to be an 'easy' place to do business, and to ignore and accept fraud."