Accountancy firms are working from false data from Companies House when they conduct their AML checks, meaning they are at risk of working for disqualified directors.
Fraud investigation technology provider HooYu has claimed that “chameleon fraudsters” are abusing the commercial register, enabling them to register as a director despite being disqualified.
The disqualified directors are simply altering their date of birth or the spelling of their name and then they can continue as before.
False data frustrates accountants' AML checks
HooYu claims through using graph theory and data visualisation that that of the 6,700 currently disqualified directors, there are over 800 (one in every eight) have an active directorship. And the analysis also found 500 disqualified directors changed their name or date of birth to register a clean directorship.
Of course, this loophole would frustrate accountants’ AML checks, which rely on Companies House checks as part of the customer due diligence process.
David Pope, HooYu’s marketing director, said the loophole still exists because filing company, director and PSC records at Companies House is taken on trust. “The staff at Companies House are keen to be able to perform due diligence on the commercial register but it requires a legislative change to allow this process to take place,” he said.
New Companies House consultation may be the answer
HooYu is, therefore, calling for there to be more identity verification. A step towards this happened earlier this month when the Department for Business, Energy and Industrial Strategy issued the corporate transparency and register reform consultation.
This consultation considers new proposals that would enhance the role of Companies House such as allowing the government agency to undertake checks on the information submitted to the register.
'The level of abuse of records at Companies House'
The consultation is the result of lobbying from organisations such as Robust, Transparency International and Global Witness. Robust’s founder Richard Osborne is no stranger to identifying Companies House failings. He formed Robust to raise awareness of criminals abusing Companies House data.
And in 2017 he flagged a loophole in anti-money laundering regulations that allows criminals to incorporate directly with Companies House.
Osborne today says this new research “reveals the level of abuse of records at Companies House and underlines our call for the Government to act”. He said it also reaffirms the results of his organisation’s YouGov survey which found 84% of business leaders would want to see more robust identity checking procedures carried out by Companies House.
'A worrying loophole open to fraudsters and criminals'
But, as HooYu’s Pope pointed out, the results of the consultation won’t be released until 2020 and won’t be another year before legislation is published that allows Companies House to perform due diligence on the register.
However, Pope is concerned that HooYu’s analysis of Companies House data just represents “the tip of the iceberg”.
“Until Companies House information is properly screened at the point of submission, and ongoing due diligence is undertaken to remove disqualified directors, it leaves a worrying loophole open to fraudsters and criminals for them to exploit.”
Companies House is 'a powerful tool for identifying fraudulent information'
A Companies House spokesperson told AccountingWEB that it operates one of the world’s most open company registers, and this means that company information is under constant scrutiny by law enforcement agencies and "is a powerful tool for identifying inaccurate or fraudulent information".
The spokesperson continued: “Where economic crime and other offences are suspected, we work closely with law enforcement partners to assist their investigations.
“Although we don’t currently have the statutory power or capability to verify the accuracy of the information that companies provide, the government has recently announced a consultation on a series of reforms which seek to address these matters. We encourage all stakeholders to give their views by taking part.”
Accountants already under AML scrutiny
HooYu’s research should come as a concern to accountants who are already expecting an increase in AML scrutiny. A recent report from the newly formed Office of Professional Body Anti Money Laundering Supervision (OPBAS) has kicked open the doors on the lack AML enforcement from professional bodies, and this public shaming is likely to lead to the supervisors ramping up their supervision.
Meanwhile, accountants who are supervised by HMRC are also expecting similar scrutiny thanks to the government departments more robust approach. HMRC has backed this AML crackdown through a series of investigations, which have resulted in an increase of non-compliance fines dished out last out.
About Richard Hattersley
Richard is AccountingWEB's Practice Editor. If you have any comments or suggestions for us get in touch.