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Kate Gee and Paul Brehony discuss Companies House’s new powers under the Economic Crime and Corporate Transparency Act 2023

By Kate Gee & Paul Brehony

Partners Kate Gee and Paul Brehony examine the new powers for Companies House under the Economic Crime and Corporate Transparency Act 2023, and whether these will allow for more proactive gatekeeping.

Kate and Paul’s article was published in Accountancy Daily, 16 April 2024, and can be found here.

The powers of Companies House, the body responsible for corporate governance in the UK, were recently extended by the Economic Crime and Corporate Transparency Act 2023 (ECCTA) substantially amending parts of the Companies Act 2006. The changes were set in motion last month, and as soon as the Act became effective, it was immediately put to the test.

According to the Home Office, the ECCTA will be central to ‘Driving out dirty money from the UK. Strengthening the UK’s reputation for supporting legitimate business to thrive.’ The Act introduces new requirements for companies registered in England and Wales and how they interact with, and submit information to, Companies House. In essence, the Act enables it to investigate, challenge and even remove information that is provided. All of this is geared towards making Companies House “a custodian of more reliable data concerning companies and other UK registered entities” by strengthening systems for collecting, accessing and displaying information about UK companies and limited partnerships, as well as improving the transparency and accuracy of information on the register. Thanks to the scale of its ambition, many measures introduced by the ECCTA, such as the new offence of failing to prevent fraud, will require secondary legislation and further guidance.

But the critical focus of the ECCTA’s far-reaching reform programme involves “cleansing the register to remove details of those appointed without consent,” according to Companies House CEO Louise Smyth. She further noted that “As we start to crack down on abuse of the register, we are prioritising cases where people’s names and addresses have been used without their consent. It will now be much quicker and easier to report and remove personal information that has been misused.” This measure is primarily designed to protect legitimate businesses and individuals and to prevent organised criminals, fraudsters, kleptocrats and terrorists who have previously misused UK companies and other corporate entities to commit fraud, money laundering and other forms of economic crime. For Companies House to achieve this is no easy task, requiring an improvement in the quality and reliability of its data and tackling on-going misuse of the register.

No sooner had the new ECCTA-backed powers become effective than Companies House was simultaneously required to launch an “urgent review” into the corporate register: the account of one individual using an address in Northern Ireland had been used to file 800 “erroneous” forms in relation to 190 companies. All of these forms were filed in February this year, with the majority dated between 15 and 22 February.

Erroneous filings such as these are all too common with scammers using other peoples’ addresses to register companies fraudulently. Companies have been incorporated by long-dead individuals or with fictional characters, such as Donald Duck, listed as directors. This bad practice has been a driver for change, with campaigners arguing for a crack-down on hundreds of shell companies on the register which have been involved in fraud and money laundering.

The rogue filings in February coincided neatly with the phased roll out of Companies House’s new powers to tackle fraud, including the power to conduct more stringent checks on company names and the ability to remove inaccurate information. Media reports have suggested that these filings were indicative of a sophisticated fraud directed at the Bank of Scotland, Sainsbury’s, Macquarie, Barclays, Morgan Stanley, and Knight Frank, among several dozen companies affected.

According to the Financial Times, the rogue filings appear to show that property owned by the companies has been released from charges granted to banks in return for loans. Perhaps the intention behind this is to cause confusion over whether the lender would still be entitled or able to take possession of these assets in the event of a failure to repay, with – at minimum – significant administrative ramifications. The Bank of England was among the organisations affected, having been named as security trustee on at least one of the affected charges.

Manifestly, the integrity and reliability of information filed at Companies House is of critical importance to the UK’s financial ecosystem. Although every organisation is potentially susceptible both to cyber-attacks and fraud, its unique systemic significance makes security and integrity of particular importance.

For Companies House, the ECCTA aims to be transformational, moving its role from being a passive recipient and custodian of information to becoming a much more proactive gatekeeper with substantive powers to investigate and challenge the information which it receives. Business Minister Kevin Hollinrake said: “Companies House now has the tools to take a much harder line on criminals who take advantage of the UK’s open economy and can now ensure the reputation of our businesses is not tarnished by the UK playing host to the world’s scammers.” However, to perform this enhanced role to optimum effect, the roll out of bolstered powers and deterrent penalties under the new ECCTA needs to be combined with a sufficient level of investment in staff and IT to ensure that robust oversight and enforcement are achievable. It will not be enough merely to empower Companies House to scrutinise information, demand supporting evidence and rectify inaccuracies without suitable resources.

It therefore remains to be seen whether Companies House will be allocated appropriate funding and staffing in order to do what is necessary to police the register, prevent future offences and maintain a reliable and accurate record of company data.

Company directors and media outlets will, no doubt, watch with keen interest to see how the Companies House Registrar operates the new tools in its toolkit, and whether it has any discernible impact on the misuse of UK companies to commit fraud, money laundering and other forms of economic crime.

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