13 october 2020: The UK has announced changes to identity checks for individuals which aim to fill gaps in the UK company registration system.

In 2006, Gennaro Pazuto, a Neapolitan mafia boss trying to avoid arrest in Preston, started a new criminal enterprise. He discovered how easy it was to form fake companies in the UK and went on to commit carousel fraud, shifting goods from company to company while evading VAT on those goods.

He was eventually caught in 2007, but not through his UK activities – his more murderous crimes, via lieutenants in Naples – gave him away. But his crimes, and others like it, demonstrate the weaknesses in the UK’s company registration system. The UK has now announced several changes to Companies House to strengthen its protections against financial crime and money laundering. 

“We've said for years that this is a massive gap in the AML defences of the UK,” says Sophie Wales, ICAEW’s Head of Ethics and Economic Crime. “When the proposals were issued last year, we sent a detailed response to the consultation and are in support of most of the measures being suggested.”

The UK government reviewed the role of Companies House to address the misuse of UK limited companies by criminals, to address the accuracy of the data on the register and protect individuals’ personal information from being abused. 

Company directors and people with significant control (‘PSCs’) will have their identity verified when appointed or when a new company is formed. Individuals who file information on behalf of a company will also be subject to ID verification. Incorporations and filings can be made either by the business owner or through an agent, such as an accountant.

Where accountants check the identity of their clients for due diligence purposes, those clients won’t need to be checked again by Companies House if their accountant makes the filings on their behalf. Accountants will have to provide evidence to Companies House of the checks they’ve done on their clients. It’s not yet clear how this process will work but ICAEW is in discussions with BEIS about a suitable mechanism. 

Companies House will also be given the power to query submitted information and remove information they don't think is accurate. “That's a fundamental change; Companies House have never had the right to do that previously,” says Wales.

The identity verification requirement will initially apply to new director appointments and newly registered companies, but eventually, existing company directors and PSCs will have their identities verified as well. Time has been built in for the development of a pragmatic approach to checking pre-existing PSCs and company directors.

One crucial thing to note is that these new checks by Companies House will not replace accountants’ obligations to perform client due diligence checks on clients for AML purposes. “Your primary responsibilities to comply with the money laundering regulations and perform client due diligence still exist,” says Wales. “but it will mean that you can place a bit more reliance on the information at Companies House.”

To address the risk of identity theft, an individual’s occupation will no longer need to be listed, and it will be possible to request to have certain information such as a signature, the day in a date of birth or a residential address be suppressed from public records. 

“This has been a goldmine for identity theft and fraudsters,” says Wales. “Although it has been tightened up to an extent, previously you could go onto Companies House and find someone's date of birth, home address, occupation and a copy of their signature.”

One question which remains unanswered is how Companies House will be properly resourced to process these new checks. The UK government has released a consultation on proposals for an Economic Crime Levy on all sectors that are regulated for money laundering, such as banks, accountants and lawyers. The aim is to raise £100m a year from those sectors, to pay for measures to battle against economic crime.