December 5, 2016 / 12:47 PM / 10 months ago

Weak UK regulation lets opaque companies persist

A man walks past a branch of Mail Boxes Etc. at 43 Bedford Street in London, Britain, August 25, 2016. Picture taken August 25, 2016. REUTERS/Tom Bergin/Files

LONDON (Reuters) - To get an idea of how Britain allows individuals to hide behind hard-to-trace companies, take a look at Number 43 Bedford Street, a nondescript brick terrace in central London. The ground floor of the building is lined with myriad mail boxes and is more of a staging post than a conventional office. It is occupied by a branch of Mail Boxes Etc., a franchise chain that provides postal services for other companies.

More than 1,600 companies or partnerships have used 43 Bedford Street as their registered office in the past five years, UK corporate records show. Some exist there in name only and their ultimate ownership is hard to determine, a Reuters examination of corporate filings found. 

While the UK government is trying to make companies give clear information on their owners and controllers, and while many users of mail boxes are transparent, opaque companies still persist.

To help prevent fraud, business service providers, which include companies such as Mail Boxes Etc., are legally required to check the identities and backgrounds of their clients. They are required to pay particular attention to clients based offshore or in tax havens. A 2015 UK government assessment of money laundering and terrorist financing said it was likely that some business service providers facilitate money laundering “through the creation of complex corporate structures and offshore vehicles to conceal the ownership.”

Yet interviews with industry figures and a Reuters examination of corporate accounts, annual returns and other filings over the past five years show business service providers often do not know the people using their services.

Reuters examined 55 companies that give 43 Bedford Square as their current registered address, yet are controlled by individuals or entities based offshore in jurisdictions with low corporate transparency such as Vanuatu, Belize or Panama. Rikesh Nichani, the Mail Boxes Etc. manager at 43 Bedford Street, told Reuters that he had not conducted due diligence on the companies. “We don’t know who is behind the companies,” said Nichani. “We have no idea who they are.”  

With all the companies, Reuters could find no sign of physical existence such as other premises or websites. None of their names were publicly displayed, as required by the UK Companies Act, at 43 Bedford Street.

Managers at other Mail Boxes Etc. branches said they, too, were unaware of the true owners of offshore-controlled companies based at their offices.

Simon Cowie, head of the Mail Boxes Etc. franchise in the UK, said it is authorised as a business service provider by Her Majesty’s Revenue and Customs (HMRC) and that he believed its operations met HMRC’s requirements. “No one has raised a concern over it (Mail Box Etc.’s due diligence) with us,” he said.

Cowie said his network looked out for signs of fraud and conducted due diligence. He said the network did request identification from most but not all customers: If a customer came to Mail Boxes Etc. via another business service provider, he assumed that the other business service provider had already done sufficient checks on that client.

“The whole point with AML (anti money laundering procedures) is that the risk assessment is proportionate and you don’t carry out the whole bureaucratic checks at each stage in the process,” Cowie said.

It is a potential weakness in the system that is illustrated by mail box 11 at Bedford Street. The entity renting that mail box is a company formation agent, according to staff at Mail Boxes Etc. In turn, more than 100 businesses use mail box 11 as their registered address, and the formation agent that rents the mail box forwards correspondence to them. Mail Boxes Etc. said it had not done due diligence checks on these companies and had no direct dealings with them.

Mail Boxes Etc. declined to name the company formation agent renting mail box 11, citing a policy of client confidentiality. The agent renting the mail box did not respond to a letter requesting comment. MBE Worldwide, the owner of Mail Boxes Etc., said the UK franchise network follows British laws and regulations, and liaises with the authorities.

THE WATCHDOG

HMRC told Reuters it regularly visits business service providers to “test and challenge ... their approach to anti-money laundering policies and processes such as customer due diligence.” However, HMRC declined to say how regularly it visits agents or what specific checks it makes. Nor does it publish the register of firms it authorises as business service providers.

Reuters has sought to obtain a copy of that list from HMRC for more than a year. The watchdog has declined to provide it, and has rejected requests for the list made under the Freedom of Information Act. In October, HMRC told Reuters it was aiming to make its register of business service providers public by the Spring of 2017.

Of 20 UK business service providers contacted by Reuters, including Mail Boxes Etc., 12 said they did not check the background of potential clients or conduct enhanced due diligence on offshore clients. Ten said they didn’t require any proof of identity for companies’ ultimate beneficial owners. And two said they didn’t ask for identification documents from someone wanting to rent a mail box.

The 20 agents said they believed HMRC was happy with their practices and that they were complying with HMRC rules. HMRC declined to comment on specific cases. A company formation agent that fails to meet HMRC standards can be a fined or have their authorisation suspended. HMRC declined to say whether it had fined business service providers; last year it said it had withdrawn authorisation from some providers and had refused authorisation to some applicants.

Two of the company formation agents contacted by Reuters said they did not offer services to offshore-controlled companies at all. They said they felt it was too difficult to do proper due diligence checks on such companies.

“It’s not an industry I want to be involved with,” said Richard Jobling, managing director of The Company Warehouse, a business services provider. “Under the money laundering regulations, we have to identify the people of significant control, that’s the majority shareholders. It’s easier to do that if you’re dealing with UK-based clients. They have a footprint.”

Under anti-money laundering rules, business service providers are also legally required to report suspicions about financial wrongdoing by their clients. Data from Britain’s National Crime Agency show business service providers made only 101 reports of suspicious activity, such as money laundering, by clients in 2015. They were the smallest group to do so. Banks, the group reporting the most suspicious activity, made 318,445 reports.  

Editing By Richard Woods

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below