The U.S. Treasury Department has been eager to establish a corporate ownership registry in its battle against dirty money. Those who have read my articles before on public registries know I have doubts about their effectiveness.
It would appear that the American Bankers Association (ABA) would agree with me, at least regarding the effectiveness of Treasury’s idea. In a letter sent out last month, it described the notion as being “fatally flawed.”
As I understand it, this U.S. database will work in a similar fashion to the UK’s Companies House register, which allows anybody to run searches on companies and/or directors.
The Corporate Transparency Act (CTA), which is grounded within the Anti-Money Laundering Act of 2020, requires FinCEN to create a registry of the beneficial owners of legal entities formed or registered in the United States. The intention of this legislation (besides creating the database) is to minimize the compliance burden on the regulated community. Yet in its February 14 letter, the ABA said that “as currently conceived, the Registry will be of limited, if any, value to banks.”
The ABA explained that “the proposal creates a framework in which banks’ access to the Registry will be so limited that it will effectively be useless, resulting in a dual reporting regime for both banks and small businesses.” It added that “there is no assurance that the BOI [beneficial ownership information] in the Registry will be accurate, complete, and reliable.”
This is not only a damning indictment of the FinCEN proposal, but it also centers on the main gripe many have with the UK’s Companies House: that it is full of unchecked and unverified information.
Transparency International has made the observation: “The UK is now moving to verify reported information” and that “the U.S. must learn from their experience by doing the same.”
Though there is a commitment in the UK’s new Economic Crime and Transparency Bill to beef up Companies House, doubts remain as to the effectiveness of how the UK will manage to verify the 800,000+ companies created in the UK each year. Simple calculations indicate that approximately 2,191 new companies are registered daily, including weekends.
Assuming, for a moment, that each member of Companies House staff can verify five company applications a day, that equates to a workforce of 438 employees (not accounting for illness and annual leave). Verifying a company should entail enhanced due diligence checks, and completed verifications would likely be lower than my estimate above.
At the time of writing, Companies House has a total of 1,000 employees in various roles. How many of these workers are checking applications given the size of the organization? It will take a lot more than warm words to turn the tide.
For example, a recent investigation in The Guardian reported: “… global organized crime gangs are using the UK as a virtual base for their operations – systematically exploiting lax company registration laws to carry out fraud on an industrial scale.”
An anti-money laundering expert, Graham Barrow, also told The Guardian: “We are that perfect storm of being highly regarded, cheap, and easy to incorporate [a company]. Why would you go anywhere else?”
Companies House said it was aware of the misuse of the company register to support illicit activity and a spokesman said that it “recognized the difficulties faced by those affected by this, where potential criminal activity is identified, we work closely with law enforcement agencies.”
The lack of accuracy is not the only problem. Genuine company owners with nothing to hide are providing candid information to the register. But it is the disingenuous crooks who are filling the system with fake and misleading information which then goes unverified. This renders the system useless if you are looking to “out” a money-laundering oligarch.
Thus transparency without effective verification is near useless. And verification costs significant sums. We will have to see how well-resourced Companies House is under the new proposed Economic Crime law.
Even so, simply having access to data is potentially a breach of the right to privacy too, as revealed in a recent European Court of Justice ruling over a matter in Luxembourg, which has led many of the EU’s open corporate registers to close their doors to the general public.
I have a hypothetical suggestion. When opening a company, why not allow an applicant to tick a box stating whether they wish their data to be made public. How many, even those with absolutely nothing to hide, would tick that box? I suspect not that many.
When opening a company, we should not necessarily be opening our finances to the entire public. In fact, the only people who should have unfettered access to these databases are law enforcement and tax authorities. Otherwise, we risk driving crooks even further back behind layers of secrecy and fake nominees.
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With thanks to Tony McClements, Head of Investigations at Martin Kenney & Co, for his assistance with this post. He served for 33 years with UK police forces and has specialized in Fraud & Financial Investigation since 1998. He is also a lecturer in these subjects at the University of Central Lancashire (UCLAN).
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