Companies House Strategic Intelligence Assessment published: implications for businesses and corporate transparency

On 24 October 2024, Companies House released its first-ever Strategic Intelligence Assessment, evidencing a shift in how economic crime is being tackled in the UK. Historically known as a passive registry, Companies House is now taking an active role as a guardian of corporate data with the power to reject, correct, and verify information. This comes at a time when the UK is facing growing threats from fraud, money laundering, and data misuse.

In certain other countries – Germany and The Netherlands for instance – public notaries are involved throughout the company lifecycle and act as guardians of the statutory records, needing to be involved any time that shares, stock or equivalent are issued or transferred.  That is not the case in the UK, where we have had a low-friction environment when it comes to executing corporate transactions.  However, low friction can mean high fraud.

Register of overseas entities

By December 2023, 30,000 entities had registered on the Register of Overseas Entities (“ROE”). According to the assessment, this is likely to have reduced the risk of hidden foreign ownership of UK land and property and increased transparency, providing important information to law enforcement and other authorities.

The ROE was established in response to growing concerns over foreign ownership of UK property, especially in light of global economic crime and the geopolitical climate following Russia’s invasion of Ukraine. This ROE enforced by Companies House, requires overseas entities owning UK properties to register and declare their beneficial owners or managing officers. By preventing unregistered entities from buying, selling, or transferring property in the UK, the ROE reduces opportunities for overseas actors to be engaged in money laundering. With nearly half of the properties owned by registered overseas entities located in London, enforcement and ongoing monitoring will ensure compliance, upholding the UK’s commitment to international anti-money laundering standards.

The assessment underscores how there has been a notable upward trend in company incorporations, with a 19.3% increase observed when comparing specific weeks in 2022 and 2023. The findings suggest that a plausible factor driving this surge could be individuals wanting to establish companies ahead of anticipated legislative changes or changes in government policy. The assessment notes that there is a noticeable rise in the formation of companies proceeding both domestic and international declarations or enactments, however such legislative requirements will still apply to businesses, regardless of when the company was formed.

The findings in the assessment indicate that the UK is a favoured destination for registering private limited companies. For example, in 2021, the UK registered 758,751 new companies—154% more than Australia, which recorded 298,663 incorporations that year.

Money laundering and UK-based organised crime groups

According to the assessment, the scale of money laundering through UK limited companies is almost certainly underestimated. The National Crime Agency estimates that there is a realistic possibility that money laundering impacting the UK annually exceeds £100 billion. However, no precise assessment of its value currently exists.

The assessment highlights that money laundering in the UK takes three main forms: high-end, trade-based, and cash-based. High-end laundering involves using the financial sector and property transactions to obscure ownership and integrate illicit funds. Trade-based laundering manipulates international trade to legitimise illegal funds, while cash-based laundering uses physical cash and businesses like nail bars and car washes to conceal illicit money. Corporate structures are sometimes exploited for terrorist financing, though the full scale of this threat remains unclear.

Companies House, in collaboration with The Insolvency Service, is establishing two new intelligence teams funded by the Economic Crime Levy to enhance detection and enforcement efforts. Such teams will strengthen oversight in this area which will be vital to reducing the misuse of UK companies for laundering criminal proceeds.

Exploitation of the public

The exploitation of Companies House processes for fraudulent activities, such as appointing directors without consent or using false addresses, poses significant risks to both individuals and businesses.

The assessment notes how the Economic Crime and Corporate Transparency Act (the “ECCTA”) will gradually implement identity verification procedures for individuals submitting documents to Companies House. The assessment suggests that this aims to reduce the associated risks, and it is highly probable that the extent of the issue will decrease as a result.

The ECCTA aims to address these challenges by introducing identity verification requirements, which will reduce fraudulent incorporations and improve the accuracy of the company register. However, until these measures are fully implemented, the onus remains on victims to navigate complex administrative processes to rectify fraudulent entries.

Exploitation of business and state

The findings also suggest that the flexibility in naming rules for limited companies at Companies House creates opportunities for confusion and fraud. This makes it easier for individuals to set up companies that appear legitimate, potentially allowing them to exploit future government relief schemes for financial gain. As new relief programs are introduced, strengthening these processes will be essential to prevent fraud and protect state resources.

Cross-cutting threats

Cross-cutting threats poses significant risks to Companies House and extend beyond specific criminal activities. These include the misuse of professional enablers and formation agents, which facilitate the abuse of registration processes, and the jurisdictional complexities that allow individuals to exploit the UK’s lenient registration framework. Internal vulnerabilities, such as insider threats and outdated processes, must be addressed to prevent exploitation.

Concluding thoughts

The publication of Companies House’s first-ever Strategic Intelligence Assessment marks a pivotal moment in the UK’s fight against economic crime.

The evolving landscape of corporate transparency and economic crime presents both challenges and opportunities for Companies House and the UK business environment.  With the introduction of new powers under the ECCTA, Companies House is taking decisive steps to address the growing threats of fraud, money laundering, and data exploitation.

As Companies House strengthens its role in safeguarding the UK’s business landscape, it highlights the importance of adapting to these new dynamics to meet evolving requirements and mitigate risks effectively.

This piece was written by Sinead Cassidy with input from Henry Humphreys. Do please reach out to a member of the team if you would like to discuss matters related to company law generally.

All the thoughts and commentary that HLaw publishes on this website, including those set out above, are subject to the terms and conditions of use of this website.  None of the above constitutes legal advice and is not to be relied upon.  Much of the above will no doubt fall out of date and conflict with future law and practice one day.  None of the above should be relied upon.  Always seek your own independent professional advice.

Humphreys Law