Home Fraud, Error and Debt UK anti-fraud and economic crime legislation aims to tackle fake identities

UK anti-fraud and economic crime legislation aims to tackle fake identities

Companies House: the legislation introduces what has been described as the ‘biggest shake-up’ in the 180-year history of the Cardiff-headquartered agency | Credit: Companies House

New legislation to tackle fraud and money laundering – and that hands greater authority to Companies House to identify people faking their identity – is to come into force in the UK, having gained Royal Assent.

The Economic Crime and Corporate Transparency Bill became the Economic Crime and Corporate Transparency Act on 26 October, heralding greater powers at Companies House – an executive agency of the government that operates under the authority of the Department for Business and Trade – described as the ‘biggest shake-up to the service in its 180-year history’.

The National Crime Agency (NCA) is among the further agencies standing to benefit: it receives greater powers to compel businesses to hand over information suspected to be used for money laundering or terrorist financing, with the act introducing provisions for crime-fighting authorities to seize cryptoassets more easily.

“I am committed to ensuring criminals do not profit from their offending and this landmark act will help law enforcement clampdown on the tactics they use,” said home secretary Suella Braverman.

“It will have a big impact on our ability to fight organised crime, including terrorist funding, fraud and money laundering, and that will ultimately help keep us all safe,” Braverman added.

REGISTER NOW ‘Following the money: how can data and technology combine to help governments beat fraudsters?’Global Government Fintech is organising a webinar on 7 November (partnered by SAS) with panellists including representatives from Germany’s Federal Ministry of Finance and Spain’s Ministry of Economic Affairs and Digital Transformation

Identity verification in focus

Identity verification (the process of confirming that a person is who they claim to be) through Companies House is among the most significant measures introduced by the new act.

Through the act Companies House will receive enhanced abilities to verify the identities of new and existing registered company directors, people with ‘significant control’ and those who file information on behalf of companies; remove fraudulent organisations from the company register; and share information with crime-fighting agencies.

Verification checks will assess the identities of people setting up and managing companies, ‘stopping criminals hiding behind false names or registering companies with fictional characters’, the government states, adding that this would ‘help prevent fraudulent appointments and avoid people involved in money laundering hiding behind false names’.

Such powers have been eagerly anticipated by public servants across government whose roles include tackling fraud. Euan Slack, who is responsible for the development and adoption of digital tools within the UK Cabinet Office’s Government Grants Management Function, highlighted the legislation during a panel discussion at the Global Government Fintech Lab 2023 (on 18 May), saying it should help stymie what he described as “still painfully easy” fraud via this route.

Business minister Kevin Hollinrake said in the government’s announcement of Royal Assent that the reforms would “remove the smoke and mirrors around companies hiding behind false identities, provide further protection to the public from companies fraudulently using their addresses, and deliver better data to support business and lending decisions across the economy”.

RELATED ARTICLE Protecting the public purse: tackling fraud, error and debt – a write-up of the session referred to above at the Global Government Fintech Lab 2023

Staggered introduction

The numerous provisions of the act will be introduced over a period of time. This will allow Companies House, which is headquartered in the Welsh capital Cardiff, to make system changes to accommodate the new requirements.

Companies House expects some measures to enter into force in ‘early 2024’, including: greater powers to query information, which means the agency will be able to scrutinise and reject information that seems incorrect or inconsistent with information already on the register (it will be able to remove information in some cases); stronger checks on company names; and new rules for registered office addresses that will mean all companies must have an appropriate address at all times (companies will not be able to use a PO Box as their registered office address).

Further measures it expects to come into force on the same timeline include: a requirement for all companies to supply a registered email address; a requirement for all companies to confirm that they are forming the company for a lawful purpose when they incorporate (annually the company will need to confirm that its future activities will be lawful on their confirmation statement); steps to ‘clean up’ the register, using ‘data matching’ to identify and remove inaccurate information; and the sharing of data with other government departments and law-enforcement agencies.

Other measures, such as identity verification, will be introduced later and some will require secondary legislation before they can come into force. In a blogpost on the Companies House website, chief executive Louise Smyth has also acknowledged that the agency ‘will not be able to identify every piece of information or document on the register that could be incorrect or inconsistent’.

The Department for Business and Trade told Global Government Fintech that it would provide clarity on the proposed timetable for implementation in due course.

RELATED ARTICLE Data and financial services reform among UK legislative priorities – a news story (10 May 2022) on the UK government’s lawmaking agenda, with the overall package comprising a programme of 38 different bills – including the-then economic crime and corporate transparency bill

‘Unprecedented steps’

“We have known for some time that UK companies have been misused by criminals to commit fraud, money laundering, and other forms of economic crime and our thoughts have always been with those affected,” said Smyth in the government’s overarching announcement notice.

“We will now play a much greater role in preventing further abuse of the register,” she continued. “We will be taking unprecedented steps to crack down on fraudulent activities, help victims quicker and clean up the register by removing information we know to be incorrect. This will underpin our efforts to improve the quality and reliability of our data, which will in turn hugely increase the value of the register for businesses across the UK and beyond.”

The act will additionally give judges new powers to deal with strategic lawsuits against public protection, known as ‘SLAPPS’, involving economic crime. These are court cases used by powerful individuals to intimidate critics and evade scrutiny.

Reforms to corporate criminal liability will also provide prosecutors with powers to hold companies criminally liable for malpractice. The creation of a criminal offence, called ‘failure to prevent fraud’, will hold a large organisation criminally liable if it benefits from a fraud that is committed by a member of staff.

Serious Fraud Office director Nick Ephgrave described the act as “the most significant boost to the Serious Fraud Office’s ability to investigate and prosecute serious economic crime in over 10 years”, saying that “big businesses can no longer turn a blind eye to fraud”.

RELATED ARTICLE UK’s Public Sector Fraud Authority sets out tech-focused priorities – a news story (20 July 2023) on the Public Sector Fraud Authority’s 2023-2024 ‘delivery plan’ (one of four priority workstreams is to make better use of technology to ‘find, stop and recover’ fraud)

‘UK companies vulnerable to abuse’

On the topic of crypto-currencies, the NCA’s National Assessment Centre has estimated that more than £1 billion (about $1.2bn/€1.1bn) of illicit cash was transferred outside the country using cryptoassets in 2021.

New powers will allow law enforcement to target illicit cryptoassets, while ‘in exceptional circumstances’ there will be power to destroy seized cryptocurrency.

NCA director-general Graeme Biggar described the act as “long awaited and welcome”. He said that “for too long criminals and corrupt elites have abused UK company structures to launder their illicit wealth”.  

Changes to public beneficial ownership registers, meanwhile, aim to ‘close loopholes that allow corrupt actors to use opaque companies to move and hide money’, the government states.

Although welcoming the reforms, Transparency International UK warned that ‘gaps remain that leave UK companies vulnerable to abuse’. The anti-corruption group said on 26 October that ‘the corrupt and other criminals can continue to withhold their ownership of UK property assets from public view by owning overseas companies, that in turn own UK property, through opaque trusts’; and that ‘information about the shareholders of UK-registered companies is difficult to access, extremely limited, incomplete and unverified’.  

RELATED ARTICLE UK’s Public Sector Fraud Authority turns to ‘cutting-edge’ tech – a news story (30 January 2023) on London-headquartered company Quantexa being awarded a contract by the PSFA to use ‘new data and cutting-edge technology, including AI, to find and prevent more fraud across the public sector’

‘Landmark piece of legislation’

On the Companies House-focused aspects of the new act, the Business Information Providers Association (BIPA) hailed a “landmark piece of legislation that will make Companies House one of the most transparent and robust business registers in the world”.

Gareth Jones, chairman of the board at the Association of Company Registration Agents (ACRA) which represents company formation agents and company service providers, said the association “looks forward to continuing to work with the Department for Business and Trade and Companies House as the provisions of the Act are implemented over the coming months and years.”

“Ensuring that Companies House has adequate powers to regulate and investigate is also a welcome step forward,” said Robert Mudge, executive director of regulation at the Institute of Chartered Accountants of Scotland (ICAS). “This legal update is crucial in enabling the registrar to keep up to date with fast-moving digital technology, protecting individual and businesses against fraud.”

The new act’s policies and powers were also welcomed by Dr Henry Balani, global head of industry and regulatory affairs for Encompass Corporation, a company that provides know-your-customer (KYC) and RegTech (regulatory technology) solutions.

“Technology is a central aspect of detecting and preventing financial crime, bringing robust and efficient compliance processes through means such as dynamic KYC process automation,” said Balani, who is based in the US. “As measures tighten, a collaborative approach to harnessing the innovative solutions available, critical to truly fighting financial crime now and in the future, will be crucial.”

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‘Glad something is improving’

Smyth’s blogpost has an open comments section encouraging members of the public to share their views.

‘Glad something is improving,’ one person writes. ‘We had someone fraudulently use our address for their business, and had to go through hoops to get it changed. We had to prove we had nothing to do with this business, was time consuming and stressful, with phonecalls, and providing documented evidence. It should never have happened, Companies House need to diligently verify those registering, not innocent people having to put time and effort in to it to get documents changed that have absolutely to do with them.’

Another comment urges speed in implementation. ‘This is all very well,’ the commentator writes, apparently welcoming the act’s aims. ‘However at present anybody can set up a company without, it seems, any check on who they are and use any address with no check that it is their address. None of this will change for 18 months. This all seems very weak.’

One commentator warns against over-reliance on technology. ‘I think this is a very good idea, however, on a personal note as a company secretary of more mature years less accustomed to technology I am hoping that the eventual procedure for confirming personal identity of all company officers will be straightforward,’ the person writes, adding that they ‘will have to collect and collate for four directors not all of whom are local to the registered office’.

Another makes a similar point, urging that any new procedures ‘do not become an administration nightmare for small companies and keep lost manhours to a minimum!’.