Money Laundering Linked to Weak UBO Regulations

Last month, a BBC investigation run by journalists Simon Maybin and Tim Whewell discovered 100 suspicious companies potentially connected to international money laundering all located in a single office block in Potters Bar, UK.  The investigation suggests that approximately £1.2 billion ($1.6 million) was laundered through these companies and the unkempt conditions of the office building itself was enough to indicate suspicious activity when compared to the large sums of money flowing through them.  Transparency International (TI) has also reported that they believe billions of pounds were laundered from Russia and ex-Soviet states through the use of these companies.

An anti-corruption investigation last year discovered that one of the Potters Bar companies owns a Ukrainian firm which in turn owns the Parkovy Congress & Exhibition Center.  This investigation concluded that the funds used for the construction of the Parkovy Centre were most likely stolen from the Ukrainian state.  Prosecutors estimate that ex- President Yanukovych and his colleagues were connected to this scheme and stole over £29 billion ($40 billion) while in office.

Following compliance regulations, UK companies must select and report the ultimate beneficial owner (UBO), or person who holds the majority of control over the company, to a public register.  However, according to the Global Witness, 350,000 UK companies have failed to do so or are reporting false information such as using employees from offshore companies.  Global Witness spokesperson Murray Worthy stated that “The vast majority of those companies will not meet requirements of the register and are hiding who really owns and controls those companies.”  In response, Companies House, the holder of the UK company ownership register, insisted to the BBC that they do perform checks into the information reported from companies.  Although, it is interesting to note that the companies who have violated their regulations by failing to report the correct UBO information have not been prosecuted yet.  

The fact that Companies House is having great difficulty ensuring accurate UBO information is recorded and even failing to prosecute violators of the UBO regulations is a clear indication that something needs to change for the better.  Either the UK strengthens and enforces its UBO regulations or, if the UK chooses to stop using a public register, another solution would be the use of regulated offshore company formation agents who can gather and analyze important AML/KYC compliance data in order to determine if the information is accurate or false because criminals often feel more comfortable revealing themselves confidentially instead of publicly.  Overall, Companies House and other similar public registers need to practice stronger due diligence and enforce more stringent penalties for failing to adhere to the AML regulations in place.


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