The FinCEN Files and Companies House Reform: Tied Together

The FinCEN Files and Companies House Reform: Tied Together

Reforms to Companies House have been announced just before the FinCEN Files were published in what appears to be an attempt to head off accusations of the UK dragging its feet on anti-money laundering reforms. This poses a real risk that they have been rushed rather than properly thought through.

There is currently little to no verification of the information held by Companies House and there have been numerous reports of UK corporate vehicles being used in foreign jurisdictions for money laundering. The UK government accepted there was a need to reform and held a consultation back in May 2019, but only got around to publishing its response on 18 September 2020 with still a lot of information missing and detail to be worked out.

The 2016 Panama Papers, the 2017 Paradise Papers and now the 2020 FinCEN Files show the importance of getting anti-money laundering controls right. Hopefully, despite the delay, these proposals will lead to real reform that helps combat money laundering.

We have set out the high level of these changes below and we will report further on this over the coming weeks and months as things develop.

Timing of FinCEN files and UK Corporate Transparency

Yesterday (20 September 2020), the BBC and other news outlets published reports on the ‘FinCEN Files’, where the suspicious activity reports (SARS) of major international banks were leaked. You can read more on this on the BBC here and on other news sites.

On Friday (18 September 2020), the UK Government announced reforms to Companies House ‘to clamp down on fraud and give businesses greater confidence in transactions’. These were supported by the Corporate transparency and register reform: government response.

The timing does seem coincidental, particularly given that these reforms were developed from a consultation held in May 2019. In fact, the Executive Summary (para 46) of the Government Response says that the Government will be ‘working with key parties in the first half of 2020’, suggesting that this was drafted and planned in 2019 but not issued until 2020 when the FinCEN files were published.

UK Corporate Transparency Reforms

Despite the fact that these proposals appear to have been pushed out just ahead of the FinCen Files and possibly before they were ready, the proposals do seem to show a real desire to improve the quality of the information at Companies House and make it a stronger tool in the fight against money laundering.

A lot of the detail is still needed and perhaps this is what was being worked on in the delay since the consultation, but some of the key highlights from our perspective are:

  • all directors and People with Significant Control (PSCs) will need to have their identity verified;
  • all persons who file information on behalf of a company will need to have their identity verified;
  • incorporation agents to be properly supervised to be able to form companies;
  • an obligation on bodies supervised under the AML regulations to report discrepancies between the public register and information they hold on file;
  • permit cross-referencing of Companies House data against other data sets; and
  • giving Companies House the ability to query information submitted in certain circumstances.

In our view, the key question amongst these reforms is how identity verification will work, particularly as it will then inevitably form the starting point for all other AML checks on the company. If it is too light then it could make it easier to commit fraud, but if it is too heavy it could add unnecessary cost and burden to doing business in the UK.

The government response says that they are looking to have user testing of this system by March 2021, so we will hopefully know the answer to this soon.

How Elemental can help

We believe that company secretarial and compliance matters. These reforms show how important they are and how much is likely to be changing over the next few years. For more information on our company secretarial services or to speak to one of our experts, please get in touch.


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