The UK has taken the lead on the international stage against the use of the 'corporate veil' by money launderers in two ways: by opening a public registry of beneficial owners at Companies House and by trying to force its offshore satellites to do the same. This is ironic because the UK has plenty to learn from these jurisdictions when it comes to screening corporate arrangements.

In April 2018, a rather remarkable story briefly hit the British papers, fascinating that limited class of people who, like me (and I hope. dear reader, you) are intrigued by the minutae of compliance and issues.

The story concerned one Kevin Brewer, a 65-year-old company formation agent, who had been prosecuted for deliberately falsifying information that his firm then submitted to Companies House in the UK. People's interest in the case stemmed primarily from two facts: firstly, Mr Brewer was the first person ever prosecuted for this crime in the UK; and secondly, he claimed to have committed his offence (falsely registering companies in the name of, amongst others, Liberal Democrat Vince Cable) with a view to drawing attention to the flaws of Companies House. He was claiming, in effect, to have 'blown the whistle' for the good of the public.

The issue here is that anyone can form a company in the UK by using the Companies House website. It is, as a colleague of mine once pointed out in a fit of pique, as easy as buying a tin of beans. As a result, British companies are open to abuse from all over the world. Some companies are, or have been, reputedly owned and operated by toddlers, registered erroneously in the name of the prime minister and any other number of absurdities.

In April this year, the company behind the Telegram Messenger app was forced to issue a tweet to point out that a purportedly massively capitalised new company formed in the UK with Telegram Messenger's tech billionaire founder Pavel Durov named as its director and secretary had nothing to do with it or with Mr Durov. It was either a prank or a flat-out fraud that happened because of an absence of checks at Companies House.

You may ask how this is possible. The answer is because any person can form a company electronically in the UK without the direct intervention of service providers or regulators. By removing service providers with an anti-money-laundering function from the system, HM Government has inevitably opened it up to abuse by money launderers. This is, to say the least, an unsurprising result.

The politicians of the UK seem to be obsessed not by any abuses on their doorstep but rather by abuses that take place offshore in the Crown Dependencies (Jersey, Guernsey and the Isle of Man) and British Overseas Territories. The problem with this outlook, of course, is that this kind of abuse takes place in those jurisdictions, all of which by one means or another have systems in place to deal with it, more rarely than it does in the UK. Here in Guernsey, a company can only be formed by a professional service provider, licensed and required to have appropriate systems in place to identify its clients. The same is true in the British Virgin Islands and Cayman. Jersey's process requires direct interaction with the financial services regulator. It makes sense that this should happen; offshore centres do incorporate a lot of companies and, as a result, they have become rather good at doing it properly.

The act of uploading misinformation in this environment requires not only an intent to deceive but also the successful deception of, or a criminal conspiracy with, a government licensee. As the CEO of one licensee pointed out to me recently as I was giving him advice about compliance, the licence is the firm's most valuable asset because, without it, the firm simply cannot do business lawfully. Every company that holds such a licence has a regulator to please, so it has a powerful incentive to prevent abuses. As in the UK, an individual who fails in this regard will be punished and will become unemployable in his jurisdiction's financial sector. The fact that he lives in a small community, however, is also likely to curtail his opportunity for employment outside financial services more sharply than for someone who transgresses in the UK, where job opportunities are far more numerous and where finance accounts for a smaller part of the job market.

In 2016, MONEYVAL (the Financial Action Task Force's regional body for Europe) reported that Guernsey was compliant or largely compliant with 48 out of 49 of the standard-setter's recommendations - the highest standard of any jurisdiction so far assessed. The FATF has not evaluated the UK since 2007 but we await the results of this year's on-site visit eagerly.

The story is similar in other areas where international standards rule. Take this exchange that happened in June this year between David Richardson, the interim director-general for customer strategy and tax design at HM Revenue and Customs, and Commons Treasury sub-committee chairman John Mann.

Richardson: "None of the overseas territories has been difficult or [have] not co-operated. They are all independent jurisdictions and they have different people, but it is not part of our gripe or agenda that one is more co-operative than another. They have all signed up to the same standards in terms of what they will exchange with the UK and internationally."
Mann: "As the Office for Budget Responsibility has pointed out, you are only getting about a quarter of what you anticipate as the yield from the Crown Dependencies. Are you saying, therefore, that none of them is particularly co-operative?"
Richardson: "That is not a reflection on the Crown dependencies; it is a reflection on the individuals who were investing in the Crown dependencies, as to whether they were prepared to use the opportunity to settle with us. One needs to be careful not to regard the authorities in those jurisdictions as the same as the people who are investing there."
Mann: "People listening might be puzzled. You are remarkably keen to defend the overseas territories and Crown Dependencies in terms of how co-operative they are."

I am not sure why anyone who knows about this situation should be puzzled. Guernsey, Jersey and the Isle of Man all received the top rating of ‘compliant’ from the Organisation for Economic Co-operation and Development's Global Forum on Transparency and Exchange of Information for Tax Purposes.

The UK, for those keeping score, was ‘largely compliant,’ which puts it on a par with Burkina Faso, El Salvador and the Seychelles but below higher-rated jurisdictions such as Lithuania, Iceland, South Africa and Columbia. Nonetheless, Mr Mann preferred to point his finger at the Crown Dependencies.

All jurisdictions, of course, suffer instances of abuse. It would be hopelessly naive for the Crown Dependencies and Overseas Territories to maintain a perfect record year after year, but they have developed world-leading skills in operating this kind of business properly.

One area where the UK of course does surpass the international finance centres is in its provision of a public beneficial ownership register; its rallying cry is that of Judge Brandeis in 1914, who said that "sunlight is the best disinfectant." If we assume that this really is the case and that such a public register has benefits that go beyond the tabloids writing stories about pop stars' yearly earnings, the strength of this argument must stand or fall on the integrity of the information on the register. As the old saying about databases goes, "garbage in equals garbage out." If information about a company's directors and shareholders is unverified and inaccurate, why would the beneficial ownership information be any different?

Each of the Crown Dependencies has pledged that if and when a public beneficial ownership register becomes the global standard, they will satisfy that standard. As we have already said, they are very good at meeting global standards and will no doubt continue to be so. It would be helpful if the UK's politicians understood and acknowledged that. If they could only bring themselves to learn some lessons from the world's most compliant jurisdictions, they might just do something about Companies House.

* Wayne Atkinson can be reached on +44 (0)1481 734225 or at wayne.atkinson@collascrill.com