FRAUD FIRM LTD

4,000 toddlers are listed as UK business owners

Last week, crypto-watchers noticed something strange: According to the UK registry of companies, Russian tech entrepreneur Pavel Durov appeared to have founded a new company, named it after his widely-used chat app Telegram, pumped it with £800 million in capital, and become a British citizen.

After online magazine The Calvert Journal reported the news, the real Telegram tweeted out what many suspected—the company, and all the information about it in the national registry, was fake. Durov had not magically become a British citizen, had not registered the company, and the £800 million in shares had not been paid out. Someone else must have filed official registration forms using his name and other fictions; nevertheless, at time of publication (April 13) the sham company was still listed on the UK government’s Companies House registry as “active.”

It is surprisingly easy to fraudulently create a company in someone else’s name and go undetected by UK authorities—a flaw that potentially helps criminals and kleptocrats hide their identities from law enforcement and the public. That’s thanks to a significant loophole in the way Companies House works, says Nienke Palstra, a campaigner at Global Witness NGO.

No verification checks

Companies House was created to offer transparency into who really owns and controls UK companies. Yet its vetting of information is limited; Companies House has previously said they accept everything “in good faith” and that “there is no verification of the documents we receive as long as they have been correctly completed.”

That means there are no regular checks on whether the people listed as the company’s directors or owners actually exist, or that the person filing the company is who they say they are, which is what happened in Durov’s case.

Companies House also doesn’t have investigatory powers to probe false filings, though a spokesman told Quartz that it is “an offense to knowingly or recklessly file false or misleading information,” and “where potentially criminal activities are suspected, we work closely with law enforcement bodies.” They didn’t respond to a question asking how often they do work with law enforcement on suspected criminal filings.

Weird results

The registry is riddled with weird filings, according to Global Witness analysis published in February.

“We’ve found that there are are 4,000 beneficial owners listed under the age of two,” Palstra says. The report also says that just five people are listed as owning more than 6,000 companies, “raising the question of whether some of these individuals are simply stooges put in place by the real owners,” Global Witness writes.

“While you can’t assume that all of that is malicious, there is a gap now where questions aren’t being asked or follow-up isn’t happening,” Palstra says. Palstra says Companies House needs a “clear mandate to police the register,” and that it should start “automated checks on companies in the register” and fining those who have lied in their paperwork.

Enabling crime

Corporate secrecy enables crime and corruption. Being able to hide the real owner of a company impedes law enforcement in tracking down human traffickers, drug traffickers, and foreign kleptocrats laundering money into country.

The matter is particularly pertinent as questions circle over the ownership of UK properties by Russian oligarchs and foreign elites from corrupt countries. Is the government making it too easy for others to falsify forms and otherwise hide the true ownership of UK assets? Anti-corruption activists who have analyzed the issue answer with a definitive yes.

Last month the government did prosecute its first ever case of false filings with Companies House, forcing businessman Kevin Brewer to pay a £12,000 fine (paywall). But the prosecution wasn’t quite as laudable as it seemed. According to one report, Brewer deliberately created obviously fake companies in the names of politicians—for example, former business secretary Sir Vince Cable, who rolled out Companies House—with the aim being to show up just how easy it was to mess around with the system. “It’s a high fine for somebody when it appears he was trying to make a point in exposing a loophole in the system,” Palstra says.


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