Companies House releases its inaugural Strategic Intelligence Report

On 24 October 2024, Companies House published its first strategic intelligence assessment report (Intelligence Report) looking at the key threats it faces. The Intelligence Report comes at a time of great change at Companies House, with the implementation of the Economic Crime and Corporate Transparency Act 2023 (ECCTA) ongoing. As addressed by Hamish Perry and Anna Schwarze in a recent article for The Times, ECCTA has ushered in a new era of corporate governance, wherein Companies House has a much more active role in combatting economic crime, with powers to reject and rectify information on the company register, and to analyse and share data and information. The Intelligence Report will guide Companies House in prioritisation, decision making and risk identification and mitigation, with a view to supporting UK businesses, and the economy, by providing an accurate and responsive register of corporate entities. 

Register of Overseas Entities 

A key focus of the Intelligence Report is the Register of Overseas Entities (ROE), introduced in August 2022 to mitigate money laundering risks involved when investors purchase properties through corporate entities, including offshore entities. All overseas structures (and their beneficial owners) who buy, sell or transfer land or property in the UK are registered under the ROE scheme.

Between 2010 and 2022, overseas property ownership in the UK tripled, and almost 50% of properties now owned by overseas entities are located in the London area. As of December 2023, 30,000 ROEs were registered, improving transparency and reducing the threat posed by foreign ownership obfuscation. The success of the ROE is contingent upon effective implementation and rigorous enforcement against non-compliance.

Companies House has identified that threats remain following the implementation of the ROE, and it will continue to monitor these over the coming year.

Money laundering and organised crime risks

The Intelligence Report acknowledges that UK companies are widely used to facilitate money laundering and organised criminality, with the National Crime Agency estimating that money laundering costs the UK economy more than £100 billion annually.

The Intelligence Report considers the threats posed by three main types of money laundering:

• High-end money laundering, which involves channelling illegally-gained proceeds through the UK financial services sector or associated professional services. For instance, cash from illegal activities may be diverted vis-à-vis overseas entities to purchase real estate or fund businesses in the UK. 
• Trade-based money laundering, which means facilitating illegal funds through trading activities of UK limited companies to obscure the origins of such funds. Common tactics include wrongly describing goods, invoice discrepancies and ghost shipments.
• Cash-based money laundering, which uses physical cash to integrate illegal funds into the legitimate economy. Companies House noted that certain cash-based limited companies, such as nail bars and car washes, are commonly used. 

The Intelligence Report acknowledges that there is currently a lack of understanding at Companies House as to the scale of these issues, and it is working to get a fuller picture of how the abuse of corporate structures contributes towards organised crime.

Exploitation of the public

Another area of interest addressed by the Intelligence Report is the misuse of personal data from data breaches, for company incorporation and director appointment processes. Companies House recognises the inadequacies of current processes wherein members of the public are appointed as directors of limited companies without their knowledge and invalid addresses being used to further fraudulent behaviour. ECCTA’s introduction of identity verification, to be in place by autumn 2025, is expected to help mitigate the risks of data misuse and reduce the administrative burden of getting the register corrected. 

Exploitation of business and state

The Intelligence Report highlights that limited companies and entities regulated by Companies House can be used to commit fraud against the UK government. Examples considered in the Intelligence Report include abuse of Bounce Back loans, a scheme put in place to support businesses during the COVID-19 pandemic, and VAT fraud. The Intelligence Report also identifies other pitfalls of current procedures which facilitate business exploitation, including the use of cloned companies, phoenix companies and company hijacks. 

In relation to abuses of Bounce Back loans, the lack of identity verification for directors may have encouraged abuse of the system, by making it easy to hide or confuse who owns a company and gives directors the opportunity to distance themselves from personal liability. In an extreme case referred to in the Intelligence Report, an ineligible company without a trading history successfully received £100,000 in Bounce Back loans. Approximately 4,000 individuals have subsequently been disqualified from being company directors due to their involvement in Bounce Bank loan fraud. 

Cross-cutting threats

The Intelligence Report discusses the role of professional enablers, such as formation agents, accountants and solicitors, used to facilitate the abuse of Companies House processes to commit frauds against companies and individuals. Given the business-friendly reputation of the UK, Companies House recognises the pressing need to adapt and improve its processes to avoid reputational fallout from risks such as cyber-crime.

Overall, the Intelligence Report provides a detailed and enlightening analysis of the range of threats Companies House is facing. It will be interesting to see how the implementation of ECCTA, the timeline of which we recently looked at in ECCTA 2023 - Companies House publishes new implementation timeline, will impact the fight against economic crime and mitigate these threats.