UK's corporate-transparency upgrade lacks enforcement bite
17 Jan 2020 12:00 am by Annie Robertson
When the latest update of EU rules to fight money laundering took effect last week, they were accompanied in the UK by a flurry of regulatory reminders and warnings that a new era was beginning.
Regulated UK businesses such as law firms, auditors, tax advisers, banks and other financial institutions will have bolstered their compliance processes to take account of provisions of the UK rulebook that has implemented the EU's fifth Anti-Money Laundering Directive.
Included are new customer due-diligence requirements, a specific regime for cryptoasset exchange providers, new controls for art-market participants and a new classification for tax advisers.
Also new is an obligation on regulated businesses to notify any discrepancies they identify between the information that they hold about a beneficial owner of a company and information on the "people with significant control" register at Companies House.
That particular change brought a stern briefing from the UK government. "Discrepancies must be reported if there's a material difference between the two sets of information. Companies House will investigate these discrepancies and, if necessary, contact the company," it noted.
On the surface, this appears a tangible step forward for a stop-start drive in the UK to improve transparency around company ownership in the wake of scandals such as the Panama Papers and Paradise Papers leaks, and in line with developing international efforts to shine a light on companies sheltering in tax havens.
There is just one problem. Businesses that don't comply will escape penalties — because none exist.
"In terms of a specific penalty to a particular new offense linked to this, there isn't one," a Companies House official told MLex. "The new requirements for obliged entities to report any discrepancies is just an additional responsibility that is really added to the pre-existing responsibilities they have, and anti-money laundering is one side of things".
Companies involved in money-laundering have a vested interest in avoiding transparency — and without new regulation being bolstered by enforcement, there is little incentive to change. Unless authorities have the power to hold companies to account, it is an arguably wasted opportunity.
'Part of the jigsaw'
The UK confirmed last April that it was working on implementing the new EU rules, and it did brought forward legislation in mid-December with the Money Laundering and Terrorist Financing (Amendment) Regulations 2019.
But the opportunity to dovetail with an existing reform exercise over corporate ownership seems to have been lost.
Last May, Companies House launched a consultation on how to beef up corporate transparency and its ability to prevent misuse of UK companies as vehicles for economic crime. There has not yet been an official government response.
When that consultation was begun in the summer, there was some consideration given to sanctions and potentially introducing specific ones, MLex understands, but in the end it was felt that existing sanctions available to regulators such as Financial Conduct Authority were sufficient.
Some members of the consultation — which included company directors and shareholders — expressed the view that the UK remains an effective jurisdiction in preventing corporate money laundering.
Instead, Companies House proposed working more closely with law enforcement and sharing information between different government departments. It does not investigate allegations or reports of wrongdoing, but instead acts as an intermediary for other regulatory bodies including the FCA and the accounting watchdog, the Financial Reporting Council.
One explanation for the lack of penalties is that regulatory bodies don't treat non-compliance with Companies House as a standalone offense."They don't look at it in isolation, [but] as a pattern of behavior … an additional part of the jigsaw," the Companies House official said. "You would have hoped that we would have greater powers."
The lack of resources available to Companies House to identify suspicious behavior can only serve to undermine confidence in the UK's corporate and beneficial registers. Unless it can benefit from powers to hold rogue businesses to account, the company-ownership rules will have a slightly louder bark but still little bite.
FinCEN Files show banks should play greater role in disrupting financial crimes, head of New Zealand's FIU says16 Oct 2020 8:44 am by Ben LucasThe FinCEN Files show that banks and other financial institutions should be playing a greater role in disrupting and preventing financial crimes early on.
24 Sep 2020 4:19 pm by Annie RobertsonThe current legal safeguard for whistleblowers in the UK is "toothless, overly complex and lacks the backing it needs to be effective."
Deloitte executives reading newspaper headlines would be forgiven for finding more to grimace about there than in the multimillion-pound malpractice fine.