Business, Energy and Industrial Strategy Committee
Oral evidence: Fraudulent company registrations: Economic Crime and Corporate Transparency Bill, HC 862
Tuesday 8 November 2022
Ordered by the House of Commons to be published on 8 November 2022.
Members present: Darren Jones (Chair); Bim Afolami; Ruth Edwards; Andy McDonald; Charlotte Nichols; Mark Pawsey.
Questions 1 - 38
Witnesses
I: Graham Barrow, Director, The Dark Money Files; Rachel Davies Teka, Advocacy Director, Transparency International UK; Shari Vahl, Senior Investigative Reporter, BBC Radio 4; Dr Susan Hawley, Executive Director, Spotlight on Corruption.
Witnesses: Graham Barrow, Rachel Davies Teka, Shari Vahl and Dr Susan Hawley.
Q1 Chair: Welcome to this morning’s session of the Business, Energy and Industrial Strategy Select Committee for a one-off hearing as part of the Economic Crime and Corporate Transparency Bill, which is going through the House and is in Committee stage at the moment. This session today is predominantly focused on the reforms to Companies House and the fraudulent use of company registrations, given that Companies House is a BEIS body. That is what we will be asking about today.
We have three panels. In our first panel, I am delighted to welcome Graham Barrow, who is the director of the Dark Money Files; Rachel Davies Teka, who is the advocacy director for Transparency International UK; Shari Vahl, who is the senior investigative reporter for BBC Radio 4; and, on the screen, Dr Susan Hawley, who is the executive director of Spotlight on Corruption. Welcome to all four of you this morning.
Graham Barrow, just to kick us off, you have obviously been doing a lot of work looking at the figures nationally. There is an assumption here that lots of companies are being registered fraudulently. How do we know that and how big is the problem?
Graham Barrow: Let me just take one step back and give you some context. Since 1 January 2000, 10 million companies have been registered at Companies House. As of today, 5 million of those are still on the register, so we have lost 5 million plus whatever was already on the register in 2000. At the moment, we are losing about 50% of the companies registered, which never actually make it to filing anything else. That is consistent. If you go back to 2018 or 2019, we had about 600,000 or so companies each of those years that were registered. Half of those have now dissolved. It stands to reason that there would be a spectrum of reasons why that has happened.
Some of them will be failed businesses, but a pretty significant percentage of those were never set up to do any business in the first place. There are some fairly straightforward indicators of that, particularly failing to ever file another set of accounts. We have developed a whole series of typologies where you get commonality of addresses, commonality of directors, companies registered to addresses that they have no connection to and companies that have directors who have no knowledge of the company. Also, I would guess about 150,000 companies each year are registered from outside the UK, a lot from China but from other areas as well, which have a very poor track record of maintaining their records and staying on the register. There are extremely strong statistical reasons to suppose that they have no commercial benefit or purpose whatsoever.
Q2 Chair: This has been a problem for a while. Has nobody realised that might be a bit odd?
Graham Barrow: Yes, it has been a problem. You will see a lot written about limited liability partnerships and limited partnerships. That is partly a function of the fact that very few of those are ever registered, so it is a relatively small pool to analyse. In the last 20 years 9.5 million limited companies registered, which is a statistically huge problem to extract signals from. Technology is becoming very good at doing that, but within our limited company population we have a very significant problem of shell companies or, as I call them, burner companies. They are companies that are set up for no other purpose than to do short-term criminal activity and then disappear.
Chair: We are going to dive into some of those issues in a bit more detail.
Q3 Mark Pawsey: Graham, to follow that up, why is it a problem?
Graham Barrow: Let me give you a specific example. This year I have been monitoring companies that are being registered to empty properties, mainly empty shops. They are using the names of stolen people. There have been hacks of a couple of very large companies and they have stolen the entire HR databases. They have been using those people’s names and their personal identifiers to create these companies. I know, because I have seen the paperwork, that those companies are then used to open bank accounts. They then obtain fraudulent overdrafts or loans, and they then disappear.
You now have 1,500 or so people, who have no ability to stop this happening, whose names now appear on Companies House and who may have their credit references wrecked. They may have bailiffs turning up at the door. They may have disgruntled creditors turning up at their door, and they have no power whatsoever to control those things happening. That is just one example of a huge spectrum of financial crimes that could be committed through these easy incorporations.
Q4 Mark Pawsey: Are the people whose names are being fraudulently used the only people who are being harmed here, or are other people being harmed as a consequence of this activity?
Graham Barrow: Lots of people are being harmed. It is not just people whose names are being used. Other people find their addresses are being used. Some people find that their houses are being stolen from under their noses through some of these activities. It is a huge spectrum. Within the last few weeks, somebody in my own road on our group WhatsApp said, “Somebody has just registered a company to my address”. I do not think that was somebody trolling me. That is just how widespread it is. About 50,000 people every year have their names or addresses used by criminals.
Q5 Mark Pawsey: Have Government taken that issue sufficiently seriously?
Graham Barrow: No.
Q6 Mark Pawsey: Why are Government not taking it seriously, in your view, if there are this many people being harmed?
Graham Barrow: They do not know. I genuinely think it has been a hidden problem. Part of it is because of the rate of company incorporations. There were 4,400 companies incorporated yesterday. There will be probably 780,000 companies registered this year. That is a massive number to be able to extract signals from that indicate criminality. It is an educational issue as much as anything.
Q7 Mark Pawsey: Rachel, the Government do recognise there is a problem, because they are bringing forward the Economic Crime and Corporate Transparency Bill. In your view, does the Bill go far enough? Is it adequate? Is it going to solve the problem that Graham has told us about?
Rachel Davies Teka: I should first acknowledge that the Bill takes a really big step forward. It gives Companies House the statutory power to maintain the integrity of the register. Many of us on this panel and behind me have been asking for that for many years. It does that, so I want to recognise that it takes a massive leap forward.
At Transparency International, we assess and analyse this Bill through an anti-corruption and anti-money laundering lens. While we recognise the positive elements of this Bill, we are also looking for the vulnerabilities and the loopholes that remain, because I know that there are criminal networks and criminal individuals who will be doing the same, not because they are genuinely interested but because they are looking to exploit those vulnerabilities. There are a couple of areas where we think the Bill does not go far enough, which I can touch on briefly and go into in more detail if that would help.
Mark Pawsey: Yes, please.
Rachel Davies Teka: First of all, the Bill does not disallow the use of opaque corporate shell companies to control UK companies. To give an example, let us say I am a criminal individual. I set up a limited partnership, which is a type of UK company, and under the law I have to give Companies House some information about my beneficial ownership of the company—who controls it. I can say to Companies House, “There is no beneficial owner”. I can claim there is no beneficial owner at the same time as registering my two partners of that limited partnership as two shell companies who are based in, say, Belize, where there is no public information over who really owns those companies.
What do we know about that company? If you are working at Companies House or in law enforcement, you do not know who controls the assets. You do not know who is benefiting from the money flowing through that company. There are ways to solve that, for example by extending the register of overseas entities to encapsulate overseas shell companies that act as partners for UK companies. I can go into more detail on that register if it is helpful.
The second area where we think the Bill needs to go further is around the transparency over shareholder information. Currently, it is incredibly difficult to get adequate shareholder information on UK companies. For example, the information is very limited in terms of shareholder information. You just have to submit a name or the name of a company that is a shareholder. My name is Rachel Davies. It is incredibly common; I have already met four people called Rachel Davies in my lifetime. If you registered my name as a shareholder without giving the year of birth, my address and so on, how are we going to know who I am from the hundreds of other people called Rachel Davies in the country? The same goes for, again, offshore corporate entities.
Q8 Mark Pawsey: Have you proposed that these amendments should be made to the Bill?
Rachel Davies Teka: Yes, absolutely.
Q9 Mark Pawsey: What is the response?
Rachel Davies Teka: We have been talking to members of the Bill Committee about putting down amendments that basically say you need more information on shareholders. It all needs to be kept in one place. At the moment, that information is spread across multiple PDF documents that are submitted over many years. You have to really go looking for it. We also think that information should be verified. Companies House should check the accuracy of that information.
Q10 Mark Pawsey: You have made your pitch for the change. What is the resistance? What is the argument against?
Rachel Davies Teka: I am waiting to see, because I do not think those amendments have been discussed yet in Bill Committee.
Q11 Mark Pawsey: In your discussions, did you sense that those are likely to be accepted, or do you sense there is a resistance, to try to keep things relatively simple and inexpensive?
Rachel Davies Teka: In terms of having more information, potentially I would really love the Minister to stand up and say, “We have plans in secondary legislation to require far more information and to present that differently in Companies House”. That is a possibility. I would like confirmation from the Minister on that. On verification, there is nothing that indicates to me that there are any plans to do that in secondary legislation at a later date. We will see how the debate goes in the Committee.
Q12 Mark Pawsey: Graham told us about this very large number of companies that were being formed. Would the need to check all this data, as you are suggesting, act as an impediment? Would that restrict economic activity?
Rachel Davies Teka: It would certainly be feasible to do that. The average number of shareholders for each UK company is 2.15. That has been pretty consistent over the last five years. Many of them will already be what we call persons of significant control or directors. They will already have had their identities ID’d at Companies House. I should have mentioned that we are not suggesting that any shareholders with less than 5% shares in companies should be doing this, because we understand that would not be feasible. The 5% threshold gives a lot of power to shareholders, particularly in public companies. We do not think that information would be too hard to gather and submit.
Q13 Mark Pawsey: Shari, one of the suggestions we have received is that the cost of incorporating a company being no more than £12 makes it all too easy. Do you think that should increase? If so, what level would restrict some of these fraudulent formations?
Shari Vahl: When I started talking to people who lived in streets in Oldham and streets in Oxford who had had companies registered at their addresses completely fraudulently, they were very shocked that it cost £12 to set up a company and it took about 20 minutes. Some of the people I have spoken to who have set up companies say, “It does not take 20 minutes. It takes about three”, because they are very good at it. You have criminal entities using other people’s money, because they will not use their own money, to set up these companies. They will use stolen credit cards; they will use laundered funds from somewhere else. Whether or not you make it more expensive may make no difference at all.
Q14 Mark Pawsey: The £12, in your view, is not an impediment.
Shari Vahl: It does not matter how much it is, because if you are a criminal it is not your money, so you do not care.
Q15 Mark Pawsey: Let us say it became several thousand pounds. In your view, that would make no difference at all. Is that what you are saying?
Shari Vahl: If it became several thousand pounds, it might make it more difficult to use laundered funds to do that. Criminals do not want to spend too much money. That is not the point that worries the people whose identities have been used to steal their houses, to set up companies or to become persons of significant control where they cannot remove themselves. They do not care how much it costs to form a company. What they care about is how much it costs to get their names off Companies House. When they say no, it should not cost them £300 to get a court order.
Q16 Mark Pawsey: How much does it cost, then? It is costing them £300.
Shari Vahl: It is at least £300 to get a court order.
Q17 Mark Pawsey: How much could it be?
Shari Vahl: It should not cost anything at all, they say.
Q18 Mark Pawsey: No, but in reality it costs between £300 and a bigger sum. What is the maximum that could cost?
Shari Vahl: If your name was put as a person of significant control without your knowledge or consent on a company that you did not know about, the only way to get your name removed from that company would be to go to court and get a judge to force Companies House to remove you as a PSC. That will cost you whatever the lawyers or the court fees are.
Q19 Mark Pawsey: So there is no upper limit to the amount it could cost to get your name off, if your name has been used fraudulently.
Shari Vahl: It depends how much the courts charge for that kind of order and it depends whether you want a lawyer. The sky is the limit.
Mark Pawsey: Rachel, you want to come back on the £12.
Rachel Davies Teka: Yes, on the £12, it is incredibly low compared to other jurisdictions. Looking at other English language jurisdictions and the fees for incorporating companies, for example we have Ireland, which is on the low side. That is €50, which is about £42. Canada is 200 Canadian dollars.
Q20 Mark Pawsey: What about Shari’s view that these people are using stolen money anyway, so the amount does not really matter?
Rachel Davies Teka: We do not want it to inhibit business here. We still want to be competitive on the global market. Raising the cost to at least £50 would not inhibit that at all. If you are setting up a legitimate company and you do not have a spare £50 to do that, you are probably not in the best position to do so. Even if we raised it to £100, we would still be lower than many other jurisdictions around the world.
Q21 Mark Pawsey: Have you proposed that to Ministers and to members of the Committee? What is the response to that proposal?
Rachel Davies Teka: We have proposed that it should be raised to at least £50. We are looking to see how the debate goes in Committee, but in conversations behind the scenes I have not met much resistance to that idea. Most people on all sides of this Bill recognise that the current fee is incredibly low.
Graham Barrow: I have a couple of points. One is that, in 1844, when Companies House was first set up, it cost £5 to register a company. That would now be about £750 if it had increased in line with inflation. I do not know if you know, but Companies House is required only to recoup the cost of incorporation. It is actually about £40 if you do it by post but £12 online.
There is another thing here, which is that I agree with Shari that you will not necessarily deflect criminal activity. On the other hand, it could generate significant funds to Companies House in order for it to fund doing the job properly.
If you buy a new car, it costs you £55 to register your new car. People are not put off buying a new car because they have to pay £55 registration. If they think they are going to have the next Apple, Alphabet or whatever, they will not be put off spending £50 or £75 to start their dream company. It is not an impediment, but it can raise massively important revenue. If you want to go and borrow a book from your library, you have to provide verification of your identity. You do not have to do that to create a company that could cause thousands or tens of thousands of pounds’ worth of damage to our economy. I genuinely do not understand the logic.
Q22 Mark Pawsey: Graham, is this a failure of Companies House or is it just a weakness of the legislation?
Graham Barrow: It is a weakness of the legislation. Companies House would be ecstatic to be able to have stricter rules around incorporations. I found yesterday a company that has declared Jesus Christ as its person with significant control. That brings the whole country into disrepute and could be stopped instantly by having those rules.
Q23 Mark Pawsey: Are you telling us that, in an instance such as that, Companies House has no powers to do anything? It is obliged to make the entry on the register in the way that you have just described.
Graham Barrow: Yes, as long as the forms have been fully completed, whatever is on those forms will be put on the register, irrespective of the garbage that they may actually contain.
Q24 Mark Pawsey: Do you think that the reforms contained in the Bill go far enough to prevent that kind of behaviour?
Graham Barrow: I am with Rachel here. It is an extremely important step and I fully support the Bill. It does not go far enough, but that should not be an impediment to getting at least this on the statute books, and then let us build from it.
Dr Hawley: I want to support what Graham just said. This is not about whether we are putting criminals off. It is about raising the revenue to make sure that gold standard checks can be done. The amount that Companies House sets needs to reflect that gold standard.
The Minister has said in Bill Committee that, at this stage, the figure could be arbitrary, because we do not know exactly what that is going to cost. We know that Companies House has said it is going to need over 100 new staff to do the verification that is in the Bill as it stands. It is extremely important that the Government come forward with some transparency about what kind of cost we are talking about, so that we can get a sense of what fees need to be applied here.
I just wanted to throw in as well that, in the impact assessment from some work that BEIS did in 2019, users were saying that they valued the information they got from Companies House at about £2,000. I am not suggesting that is what the fee should be, but a very accurate Companies House register provides a huge amount of benefit to businesses that can check that data as part of their due diligence.
Q25 Andy McDonald: Shari, in your broadcast in August, you noted that individuals who are victims of identity fraud cannot do anything to proactively protect themselves. Can you describe what measures you think should be added to the Bill to help individuals in those circumstances stop these scammers setting up companies in their name?
Shari Vahl: Victims of identify fraud who have had their identities stolen are not necessarily the victims who are getting companies registered at their houses. If the company is registered at number 4 on a street in Oldham where every single house has had a company registered, the criminals do not know the householders’ names. They do not care. They are not interested in the householders’ names. They just want an address to show that a company is registered. The victims of this have no way of protecting themselves at all, because Companies House is just a register.
One victim, who was desperately trying to go through the courts to get her address off Companies House and get the person of significant control off her house, told us it was impossible because, of course, the person of significant control is not at the address so could not be served documents by the court. They have no recourse. There is nothing.
Q26 Andy McDonald: As we currently stand, there is nothing, certainly if a company is registered in my name.
Shari Vahl: It is not in your name, in these cases. It is at your house.
Q27 Andy McDonald: In those circumstances, there is nothing. I cannot go to Companies House.
Shari Vahl: You can. You can fill in a form called RP06. You have to supply your identity and your council tax bill. You have to show proof that you have a right to the property. What you are trying to do is tell Companies House that this company that is registered does not have a right to your property. What that means is weeks and weeks of paperwork and anxiety for you.
What the householders have told me is that, first of all, Companies House is a facilitator of fraud on a grand scale, but also it should press a red button. When I live in a house and I say, “No, this company does not exist”, it should not be that Companies House then writes to the company at my house and says, “We have received an objection and we are going to provide you with the identity of the person who has objected to this company”. That feels completely wrong to all the people I have spoken to.
Q28 Andy McDonald: You will have said this to Companies House on many occasions.
Shari Vahl: Yes.
Andy McDonald: What is the response that you get?
Shari Vahl: I have asked Companies House to come on to the programme “You and Yours”, on BBC Radio 4, to explain the situation they find themselves in. Of course, they have to act by the legislation that governs them. They will not come on to the programme and they send a statement saying, “We take security very seriously”.
Q29 Andy McDonald: You have mentioned already the difficulty people have getting court orders to go through this process.
Shari Vahl: We have spoken to a woman in Torquay who was desperately trying to get the person of significant control and the major shareholder off her house, her property, because she was worried that the property would be stolen. This whole thing started because we had two men whose houses were stolen and whose names were used to set up a fake company in Leicester. They did not know. They did not know they were directors of this company.
She said, “I am very worried that my house is going to be stolen. I have tried to get a court order to take the PSC and the major shareholder off my address”. The court says, “We want to do this for you, but we need to serve the director of the company, and we cannot do that because we do not have an address for the director of the company”. She said, “That is all right; it is my address”, and they said, “No, we actually need an address for the director of the company to be able to serve the process”.
Q30 Andy McDonald: That seems somewhat perverse, if they have actually put that as the registered office of the company. Service on the registered office is usually sufficient to demonstrate good service.
Shari Vahl: That is what she told us. I looked yesterday and the PSC is still on her address.
Q31 Andy McDonald: Is that right in law? Have you checked that out?
Shari Vahl: I have tried to. It is very difficult to get a clear answer on that.
Q32 Andy McDonald: Some of us, from our previous experiences, would have thought that would be quite sufficient.
I would like Dr Hawley to address a different subject for me. Dr Hawley, you noted in your oral evidence to the Public Bill Committee that the Bill needs to address the anti-money laundering supervision regime. I am looking at our briefing. It seems incredibly complex with a number of players in the same space. Can you give us a little idea of what changes you are looking for to improve the regime?
Dr Hawley: Yes, absolutely. To explain why this is so important for Companies House, the provision in the Bill that allows authorised company service providers to verify information relies on them being supervised properly so that they do those checks properly. The impact assessment suggests there will be around 26,000 of these alternative service providers doing that verification. It is a lot of providers. It may be up to half of the register.
We know that there are real concerns around whether that supervision of trust and company service providers is adequate. At the moment, there are possibly up to 24 supervisors who cover the whole range. We have accountancy sector supervisors, legal sector supervisors and HMRC. We know that for supervision, for instance, in the legal and accountancy sectors, only 15% of the 22 professional body supervisors have an effective supervisory regime in place. Only 19% have an effective risk-based approach to supervision.
We also know there are very serious problems at HMRC. There has been essentially a 97% drop in the value of average penalty imposed by HMRC over the past two years, due in part to it not being able to collect penalties. Penalties in particular for these trust and company service providers fell by 76% between 2017 and 2021, despite the fact that these are very high risk. The UK’s national risk assessment has said they are the highest‑risk services and enabled the laundering of millions of pounds. We have a problem here that needs some serious improvements and upgrades of the UK’s AML regime.
There is going to be a Treasury consultation taking place, but we proposed in the evidence we put to the Bill Committee, which has been shared with your Committee, some immediate measures. It may be that we want a really massive reform down the line, but in the short term there are ways of beefing up the office of professional body supervisors to crack down on poor supervision by imposing financial penalties, naming names, providing disaggregated data and supervising bodies like HMRC to make sure that they are brought up to standard.
Q33 Andy McDonald: If certain professional bodies are carrying out anti-money laundering checks and, to your mind, they do not have adequate or any supervision systems, how on earth is it that they are allowed to conduct that work? Should it not only be carried out by people with robust supervisory systems in place?
Dr Hawley: Absolutely, yes, and there are some supervisors who are better than others but, to be honest, there are problems across the board. This is the concern—that you might get rogue actors who are not being properly supervised, can evade any proper meaningful supervision and do not face any realistic prospect of being penalised for doing so. That is why we need some urgent action and we do need the Treasury to bring forward its consultation as soon as possible, because it may be that we need a significant consolidation so that you have only between two and five supervisors instead of 24 or 25.
Q34 Andy McDonald: Have you said as much to the Treasury consultation invitation?
Dr Hawley: We, Transparency International and RUSI have all made robust recommendations in a pre-consultation. Now we are waiting for a second consultation. We are all worried that it is being kicked down the line, because it is a little complicated.
Q35 Andy McDonald: Rachel, you stated that a cross-system response will be needed to clamp down on the use of UK companies in money laundering. I would like you to say a little more about what a cross-system response looks like. That would require law enforcement agencies and regulators to act on new streams of intelligence from Companies House. Again, if you could touch upon the major players, I would be greatly assisted. If they are better resourced, they will be able to provide that, so how is that system going to work in practice? We hear constantly that enforcement agencies are just so badly resourced themselves.
Rachel Davies Teka: You have hit the nail on the head there. Obviously, now that Companies House has this new statutory power, hopefully it will be finding lots of new information, with intelligence leads for law enforcement but also for the regulators that Sue mentioned. It will need systems in place to make sure that information flows well. Although the statutory power has been given to Companies House, we are yet to receive any reassurances that Companies House will have adequate and sustainable funding. I would argue that the law enforcement agencies receiving that intelligence will need increased funding as well.
In fact, Spotlight on Corruption, from which we have Sue here, put out a really excellent research paper a couple of months ago that compared the percentage of GDP lost to economic crime every year versus how much the Government spends at tackling economic crime. I do not know, Sue, if you want to come in on that.
Dr Hawley: Yes, we are suggesting some amendments to the Bill as well about how we could address the situation of very serious underfunding, and underperformance as a result. Just to give an example, in the past six years the UK froze £4.6 billion but only recovered £1.3 billion of it. In the past two years alone, Italy has confiscated €12 billion. Other countries like Italy and the US are streets ahead of the UK in utilising this kind of information. We definitely need some reinvestment back into law enforcement of the funds that it brings in. Around £3.9 billion has been brought in over the past five years through fees, regulatory fines and asset forfeiture. Only a very small percentage of that goes back into those agencies.
We are also looking at what it needs to be invested in. If you look at the IT facilities of both Companies House and law enforcement, they are just so antiquated and they are creaking at the seams, whereas the private sector is steaming ahead with AI and very advanced technology. These agencies and Companies House need to be able to invest very large sums in technology to bring themselves up to date and play their role in addressing the vulnerabilities in the UK.
Q36 Andy McDonald: I am wondering whether any thought has been given to a UK benchmark for a sufficiency of funds for all these purposes, without killing the golden goose. We want people to be able to create companies and function without too much inhibition. Surely we should be looking at something significantly more than £12 to register a company in the first place, because that would bring us that benefit, and £200 or £250 is not going to stop somebody setting up a company, is it?
Dr Hawley: The average in the EU is €300. Jersey and Guernsey charge significantly more.
Q37 Andy McDonald: One would assume you could get a Rolls‑Royce service if you produced something from fees of that nature. Finally, has any thought also been given to the recovery of the proceeds of crime from this? It is not just the activity itself and the enforcement of the regulations, but it is actually the end product. Presumably, there will be immense recovery. Does anybody have any ideas about what that might look like?
Shari Vahl: There is tremendous harm for UK business from these kinds of failings. For example, I recently heard from a woman who lives in a terraced house in Huddersfield, where a firm called Asda Ltd has been set up at her house. It is not Asda Stores Ltd, which is up the road in Leeds, but she has received seven kilos of mail, including firms of solicitors trying to sue Asda, fire officers, bailiffs trying to recover “goods to the value of”. Apart from the reputational harm to Asda, she has gone to Asda and said, “Please can you take this company off my address? It is not here”. Asda has gone to the courts and got a judge to order Companies House under the “too like” rules saying, “No, please dissolve that company, Asda Ltd, because it is too like Asda Stores Ltd”, and Companies House said, “No, we are not going to do that. It is not too like it”.
A young man called Callum Evans, who lives in Cheam, has also set up Asda Ltd, Renault Ltd, Samsung Ltd, Volkswagen Ltd and Adidas Ltd. He is the director of those companies. I rang him up and I said, “How did you do this?” He said, “It cost £12 and took me about five minutes. I have done this because the companies have not, and I am waiting for them to come and buy the companies from me”, in the same way that they do with domain names.
If you are a criminal and you adopt the identity of a company like that, you can then pose as other companies and get goods in the name of those companies. We did a fraud like that and major suppliers lost about £20 million with company impersonation fraud.
Graham Barrow: Can I make one more point? There is fantastic AI and machine learning. I am a bloke who sits at home on a computer, yet I can monitor in real time the formation of companies that are clearly criminal. I can do that as they are being created. It seems to me that there is a whole wealth of other information that I do not have access to, like IP addresses, email addresses and credit card details, which could be the most extraordinary intelligence to proactively investigate criminal networks that are in the process of being set up. We are reacting at the moment. We are waiting until someone has lost a lot of money and then investigating it. That is ridiculous.
There is the capability to interrogate new company incorporations, take that intelligence out and start disrupting these networks as they are doing it. If I could do that with a fairly basic search function and a PC, imagine what we could do with some more sophisticated approaches and a bit of money. I do not get anything for doing this. Do not look at me.
Q38 Andy McDonald: Presumably our police forces up and down the land are sharing your frustration.
Graham Barrow: Can I give you one very simple example? We monitored it. This was in Leeds. It was another terraced house, where about 100 companies were set up in the space of three days. Every one, allegedly, was in the name of somebody who was British. They were real people, because I found a lot of them. The giveaway was that their title was consistently either Domnul or Doamna, which is Romanian for Mr and Mrs. It was absolutely apparent that this was a Romanian organised crime network setting up companies in the UK, using stolen UK data, but forgetting that we do not use Domnul and Doamna in the UK.
Sometimes it is that easy to track down clearly organised criminal activity. Some of it is a bit more subtle, but we are not even doing that. We are not doing anything at the moment, as it seems to me.
Shari Vahl: After we did our first programme in August on Radio 4, within the week we had had about 350 people contacting us and saying, “Yes, yes, me too”, and then other people saying, “Well, my name has been used as a director to set up a fake company at an address that is not my home”. Then several of these people said, “At least 50 credit agreements have been attempted and some succeeded to be taken out in my name”. They did not know what to do with that.
There was one chap who literally said, “I am not going to get involved with that”, and someone was trying to take out £5,000 in his name. I said, “Quick, contact them”. They got on to it very quickly and managed to stop the loan coming out. We have certainly seen, as a result of one of these companies set up in somebody’s house, a business loan from one of the major high street banks given to the company immediately on the day of incorporation of the company, and then, that same day, £8,000 going out of the bank in £999 tranches. Funnily enough, the overdraft was spent in 24 hours.
Andy McDonald: It is staggering that the banks could participate in that.
Dr Hawley: As well as the idea of recovering assets, it is the savings in terms of prevention from having a robust verification regime that would prevent exactly what Graham and Shari just talked about.
I know this Committee has looked a lot at Covid loan fraud, but the losses on that are extraordinary. We know that a lot of that was down to vulnerabilities at Companies House, with a 40% increase in company registrations just after the Covid loan scheme was established compared to pre-pandemic levels. We are very bad in the UK at putting a cost on what that prevention is. For the cost, we are looking at already £1.1 billion confirmed fraud on those loan schemes. With the furlough scheme, we saw 340 firms created after it was introduced and claiming up to £473 million. That prevention is really important.
One final point is on the fines that Companies House is allowed to impose under the Bill. A significant portion of those should be reinvested back into Companies House to help it increase its enforcement and be able to provide accurate intelligence to law enforcement.
Chair: Great; thank you so much to everyone on our first panel. We are very grateful to all of you for setting the scene for us and for your contributions to the Bill Committee, as well as to our work. Thank you to all four of you.