As readers know, British premier David Cameron wants to require the Land Registry to publish information about foreign companies that own property in England and Wales. This is all of a piece with Britain's wider AML objectives.

The United Kingdom is an attractive destination for global investment because of its leading enormous financial system and the respectability of its laws and regulations. Unfortunately, the very things that make it attractive to law-abiding investors also attract more unscrupulous elements to its shores, with British corporate entities often a popular choice for international fraudsters and other criminals who want to launder their ill-gotten gains.

As in most jurisdictions, the general lack of publicly available information about the ultimate beneficial ownership of British companies makes them the perfect vehicle in which to hide the proceeds of crime. The UK is not alone – the majority of Western jurisdictions offer this loophole – but the veneer of respectability that a British corporate entity bestows on its owners enables the criminals among them to move funds around the world with less scrutiny than they might otherwise attract.

In the cases it handles, Kroll frequently sees the use of British corporate entities to facilitate fraud and corruption and to launder the proceeds. From a relatively simple invoicing fraud by an account manager, to the theft of a nation’s sovereign wealth by a corrupt politician, the relative anonymity provided by UK legal entities makes them an attractive vehicle of choice for fraudsters to launder and hide their stolen wealth.

Leading by example

The passing in March 2015 of Britain's Small Business, Enterprise and Employment Act 2015 (SBEE Act) is an important step, whereby the UK is leading by example, cracking down on this transparency loophole. The SBEE Act aims to limit the attractiveness of British companies to fraudsters and money launderers by making ultimate beneficial ownership information publicly available for the first time. Beneficial ownership information relates to the individual who ultimately, after seeing through any interposed entities, controls a British company.

As of January 2016, companies registered in the UK will be required to collect information, and provide it to Companies House, about people who meet one or more of the following conditions.

• Direct or indirect ownership of more than 25% of a company’s shares.
• Direct or indirect control of more than 25% of a company’s voting rights.
• Direct or indirect right to appoint or remove a majority of the board of company directors.
• They can exercise or they have the right to exercise significant influence or control over a company.
• They can exercise or they have the right to exercise significant influence or control over the activities of a trust or a firm which itself meets one or more of the first four conditions.

This information will be available to anyone who wants to search for it on a public registry and a failure to prove ultimate beneficial ownership or a failure by a company to maintain a beneficial owner registry will be a criminal offence punishable by fine and/or imprisonment.

The available information will have to include the beneficial owner’s name, the month and year of his birth and the nature of his control over the company. Individuals who fear that the public disclosure of their beneficial ownership might leave them open to a serious risk of violence or intimidation will be allowed to apply to suppress part or all of their personal details.

The Act also forbids people to issue and hold bearer shares in British companies and for companies to act as the directors of British companies. These provisions are in line with the recommendations of the Organisation for Economic Co-Operation and Development, the Financial Action Task Force and various so-called 'non-governmental organisations,' which want more information about corporate ownership to be available to the authorities.

The evolution of a worldwide policy

HM Government first promised to create a beneficial ownership registry at the 'Group of Eight' industrialised nations' summit meeting in 2013 and with the passage of the SBEE Act took a giant step towards the realisation of its goal. Norway, Denmark, France and Holland have now also promised to create central public registries.

The European Union has also entered the fray by issuing its 4th money-laundering directive, which appeared on its statute book on 26 June. The directive obliges all EU countries to create central beneficial ownership registries for corporate entities and trusts and to make them, with some restrictions, largely accessible to those with a legitimate interest, including banks and journalists. At present the SBEE Act does not include Limited Liability Partnerships, Trusts or other legal entities but HM Government has indicated that it intends to introduce provisions to fulfil its obligations under the new money-laundering directive.

The SBEE Act is clearly a move in the right direction as it promises to restrict criminals’ ability to launder the proceeds of crime and disguise beneficial interest through opaque corporate structures. So how will this impact corporates and their legal advisors operating in the investigations and compliance spheres?

The Act will make it easier for compliance officers and investigators (internal and external) to identify third-party risk in the supply chain, perhaps in relation to bribery and corruption, perhaps in relation to international sanctions such as those against those Russian 'politically exposed persons' who are clustered around Putin. It will be far easier for any investigator who is trying to trace the proceeds of criminal activity, or to pursue an arbitration award or a judgment arising from a corporate dispute, to identify beneficial interest in tangible assets and commercial interests.

The future of crime

Despite the obvious benefits of closing loopholes, criminals will always find ways around the reforms. As a result, we are far more likely to see assets held through foreign legal entities operating in classic offshore environments, and a significant rise in shareholder restructurings, whereby holdings fall just below the 25% threshold. The British Act also leaves out a number of types of legal entity, including partnerships.

The importance of not limiting beneficial ownership rules to companies is highlighted in a recent Kroll investigation in which Scottish Limited Liability Partnerships were used to facilitate a multi-million dollar fraud. The dissipated funds were largely funnelled through accounts held in the name of Scottish LLPs, with local fiduciary advisors and corporate agents as the Limited Partners.

The British (and now European) thrust to make beneficial ownership information available to the public is a welcome step in the fight to tear away the corporate veil, but it will not reduce the risk posed to companies and governments by sophisticated fraud syndicates. Fraudsters constantly adapt and without coordinated efforts between jurisdictions to make beneficial ownership information publicly available, any moves by countries in isolation will simply prompt fraudsters to shift their corporate structures to more opaque jurisdictions.