What's that saying again?
Nothing to hide, nothing to fear? Oops sorry wrong topic.
The apple doesn't fall far from the tree?
Like mother like daughter?
"The UK is at the centre of global corruption: shell companies that
launder dirty money can be set up with ease. But when a whistleblower
showed just how easy it is, he faced the full force of the law"
See article from 22 Apr 2018 by theguardian.com of the headline:
Britain, headquarters of fraud
Officials get fed up with accusations that Britain is a cesspool of dirty money; that they do too little to check the wealth hidden behind shell corporations. They grouse among themselves that their critics overlook the work they’re doing to expose the money flows and to drive out the corrupt.
When they do get a win, therefore, they trumpet it. Last month, Companies House successfully prosecuted someone who had lied in setting up a company, the kind of white-collar crime committed by the sophisticated fraudsters who fleece ordinary Brits every day, and the government went large. “This prosecution – the first of its kind in the UK – shows the government will come down hard on people who knowingly break the law and file false information on the company register,”
crowed business minister, Andrew Griffiths, in a press release.
A Warwickshire businessman called Kevin Brewer had pleaded guilty, paid a fine and the government’s costs: a total of more than £12,000. His crime had been to falsely claim that two companies he created belonged, in one case, to the MP Vince Cable, and, in the other, to the MP James Cleverly, Lady Neville-Rolfe and an imaginary Israeli. At first, the public response to the news was everything the press release’s authors could have hoped for. The Times splashed with the details of the crime – the government was tough on fraud, tough on the causes of fraud. But the victory was short-lived. Within a month of the triumphant press release, Tory MP John Penrose, the government’s anti-corruption champion, was slamming the prosecution as “a bone-headed exercise in shooting the messenger”. Brewer may have been, by his own admission, naive, but he was trying to expose a flaw in British regulations that enables frauds totalling hundreds of billions of pounds. His reward was years of being ignored and, finally, a criminal record. “That has to be wrong,” said Penrose.
Lady Neville-Rolfe
was minister responsible for Companies House when Kevin Brewer set up a
company that included her as a director and shareholder. Photograph:
Richard Gardner/REX/Shutterstock
The 4m corporate vehicles in the British registry are the building
blocks of our economy, crucial to our prosperity. Hidden among them,
however, like pickpockets in a crowd, are thousands of fake companies
used by fraudsters to commit their crimes. Companies let criminals look
legitimate and make their frauds, tax evasion or kleptocracy resemble
normal business activity.
These fake companies have tell-tale flaws: invented addresses,
offshore ownership, dormant companies acting as other companies’
directors. The strange thing about Brewer’s companies, however, is that
they did not have these flaws. They were registered to Brewer’s address;
his business acted as their agent; he wrote to the MPs and the peer to
tell them he had created companies in their names; and he dissolved the
companies after he’d done so.
If he was a criminal, he was a very strange one: a bank robber who
took no money, left his business card on the counter and wrote the
manager a letter confessing to the crime. Yet, while real bank robbers
are getting away with theft all around us, Brewer ended up in court. His
is a story that goes to the heart of Britain’s ramshackle approach to
tackling
money laundering and exposes our shameful failure to combat a crime that spreads far beyond our borders.
Brewer, who turned 66 on Saturday, is a company formation agent and
reckons he has created half-a-million corporate vehicles since 1984. “It
grew into a national enterprise, forming companies for anybody in the
country,” he told me. “My main clients were solicitors and accountants,
professional clients more than the public, because of – I’d like to say –
the quality of the service.”
Part of that service was a rigorous due diligence process: he checked
his client’s identity, the source of their funds and the purpose of
their company. Often, investigators from the police or the Revenue &
Customs would ask to look at his files and he would help them discover
who was behind a company that had committed a crime. “I’ve given witness
statements in very large trials. The
Serious Fraud Office sent me a thank-you letter,” he said.
His problems began in 2011 under the coalition government, when
business secretary Vince Cable opened up Companies House’s online
registration system. As part of a drive to make the country more
entrepreneurial, anyone could now register a company via the registry’s
web portal, rather than doing it on paper or going via an intermediary
such as Brewer. You may remember the “Britain Is Great” advertising
campaign from bus stops in 2012: one strapline boasted that it took less
than 24 hours to incorporate in the UK. Ministers thought this was
good; Brewer thought it was awful.
“For the price of some fish and chips, anyone in the world could log
in, form a company, put in any name they liked, Mickey Mouse and Donald
Duck, somebody else’s name, totally fictitious names, get their
companies formed and get their certificate,” he said. “You could be in
Russia, Jamaica, anywhere.”
Where Brewer had charged £100 for a company, Companies House charged
£18; where he checked his client’s intentions and identity, Companies
House didn’t check anything. This threatened his business, but it also
threatened to unleash fraud on a scale never before seen. He felt sure
the government hadn’t considered the consequences of its policy, so he
wrote to Cable. “Not only is the policy misguided and costly, it has
created massive opportunity for fraud and deception,” Brewer wrote. “To
illustrate the point we have created a company in your name without your
consent or knowledge and could start trading using your identity.” John
Vincent Cable Services Ltd had been incorporated on 23 May 2013, with a
single shareholder – the business secretary.
Illustration: Dom McKenzie
Jo Swinson MP replied on behalf of Cable, explaining at length why
Companies House was not covered by anti-money laundering regulations.
She also warned that he had committed a criminal offence in creating the
fake company, but that she didn’t want to see him prosecuted. The
Daily Mirror wrote it up as a curious oddity and that was the end of the matter.
A spokesman for the Department for Business, Energy & Industrial
Strategy (BEIS) was careful to point out to me last week that Brewer was
not being altruistic when he made his warning to Cable: he was losing
business as a result of the changes to Companies House. Although this is
true, it does not detract from the fact that Brewer had a point.
British corporate vehicles have enabled fraud on a global scale. The former
president of Ukraine used British companies to conceal his property, as did his cronies. The “
Russian laundromat”, a complex money-laundering scheme that moved $21m out of Russia, was
run through Scottish limited partnerships.
Transparency International UK (TI-UK) last year analysed 52 corruption cases
and found they involved 766 British corporate vehicles, which had
laundered some £80bn. “The human damage inflicted on the victims of
these crimes is still being counted,” it said, in its report
Hiding In Plain Sight.
Sophisticated financial crime is impossible without corporate
vehicles. Carousel fraud, a scam in which traders import goods, sell
them to themselves via related companies, before exporting them and
claiming back VAT that they never paid, costs the UK £500m to £1bn a
year and that is just one category of crime. The
UK as a whole loses as much as £193bn a year from fraud, while perhaps another £100bn is laundered through the
country’s financial system, according to a National Crime Agency (NCA) report from last year.
In an attempt to stop this happening, David Cameron’s government
obliged UK companies to declare a person with significant control (PSC –
someone who actually owns the shares) and made it free to search
Companies House so as to increase public scrutiny. The trouble is that
no one at Companies House is checking the accuracy of the information
submitted. No matter how transparent something is, the old tech rule
applies: garbage in, garbage out.
There is a cottage industry of activists seeking discrepancies in
Companies House’s data in an attempt to make it do something about this
problem. In January, Global Witness analysed PSC entries and found
4,000 toddlers owning companies,
as well as one beneficial owner who was yet to be born.
Graham Barrow, a
City expert on financial crime who is currently working at Deutsche
Bank, likes to post
amusing cases on his LinkedIn page.
A recent example documented the adventures of a man who had spelled his
name six different ways, thus foiling attempts to search for him
electronically.
However, Companies House doesn’t appear to respond to such
revelations. I wrote an article in 2016 that featured a serial company
director whose career had been unimpeded by her death four years
earlier; two years on and she’s still director of an active company
listed on the registry. TI-UK alerted Companies House to active
companies that had been involved in the money-laundering schemes it had
identified, but no noticeable action appears to have been taken against
them.
“I’ve worked for a number of global banks who between them have
received multimillion dollar fines and none of them was close to being
as bad as Companies House with their due diligence,” Barrow told me.
“Poor Kevin Brewer, I feel for him. A man tries to show how bad things
are and he’s the one who ends up getting prosecuted.”
Part of the problem is the extraordinary complexity of the
money-laundering regulations, which float around in an acronym soup. If
an accountant or lawyer creates a company, she will be regulated by one
of 22 different bodies, which are in turn overseen by the newly created
Office for Professional Body Anti-Money Laundering Supervision (OPBAS),
which is part of the
Financial Conduct Authority
(FCA). Company formation agents such as Brewer, however, are regulated
separately, although they’re doing exactly the same job. They report to
HMRC, which is a non-ministerial department. When Companies House
creates corporate vehicles, meanwhile, it isn’t regulated for
anti-money-laundering purposes at all and is an executive agency working
with BEIS.
According to Jon Benton, who retired last year after a career
investigating corruption and financial crime in the Met, the NCA and the
Cabinet Office, most of these agencies don’t even have software that
can communicate with the others, let alone share intelligence with them.
“I’m in the private sector now and I see the power of the analytical
software used by financial institutions. It’s decades ahead of law
enforcement,” he told me. “We criticise things in places like the
British Virgin Islands, but it’s happening on our doorstep.”
In March, MPs discussed a sanctions and anti-money-laundering bill
and Labour’s Anneliese Dodds, a shadow Treasury minister, proposed two
amendments that would have addressed the problems identified by Brewer,
TI-UK, Global Witness, Barrow, Benton and pretty much everyone else who
has looked at Companies House for any length of time. One amendment
sought to make the registry liable to money-laundering regulations and
the other sought to block anyone not subject to UK regulations from
creating UK companies.
“A huge number of companies are created without any checks. We are
talking about 251,628 companies last year,” Dodds told the public bill
committee. “Our proposal has been portrayed as only a burden, when it
could help our constituents from being ripped off by unscrupulous
individuals… they can be there by day, fly by night, and leave the
unfortunate person who dealt with that company in a very difficult
position.”
John Glen, a Treasury minister, replied for the government, repeating
many of the same arguments that Jo Swinson used with Brewer in 2013:
Companies House is just a repository of information, it has no powers to
check the accuracy of what is presented to it. He also stressed that it
would not be fair for legitimate companies to have to repeat the kind
of identity checks they already do to open bank accounts. “The impact on
resources to carry out due diligence on that number of companies would
be considerable,” he said. “The overall cost to the UK economy could run
into the hundreds of millions of pounds each year.”
TI-UK has also assessed the cost of the kind of changes Labour was
arguing for, but came to a figure far below that of the government. It
estimated that Companies House could cover the cost of the reform by
raising the price of incorporation by just £5-10. That would make
incorporating in the UK cost around £20, which would still be cheap by
global standards. Buying a company in the British Virgin Islands costs
50 times as much. Frances Coulson, an experienced insolvency solicitor
and a director of the Fraud Advisory Panel, which aims to help Britons
fight financial crime, said that even a £100 fee would be a price worth
paying. “This is a hole, through which people can launder money. I don’t
think fixing this would be problematic for business; what’s £100 to
them? And it wouldn’t cost the state anything - it’s self-funding,” she
said. “There are thousands of companies on the register with nonsense
information; we come across them all the time, the information is just
nonsense. So the question is what sort of business would it deter? Do we
want fraudsters? This wouldn’t deter legitimate business, because they
need to do all the same checks to set up bank accounts anyway.”
Vince Cable, in whose name Kevin Brewer set up one of his fake companies. Photograph: Andrew Matthews/PA
Dodds said that she didn’t think the government had understood the
scale of the problem. The proportion of companies created directly with
Companies House, rather than via regulated intermediaries, is increasing
every year and is approaching 50%. If the ownership information for
half of all new companies is non-verified, that brings the integrity of
the entire registry into question.
“We need to be absolutely sure that London or Potters Bar, or Glasgow
for that matter, are not locations for washing dirty money. Because
that’s about stealing money from poor people and we really shouldn’t be
helping,” she said. “The only thing that’s happened is this poor bloke
has been convicted. It’s outrageous and it needn’t be that expensive to
do something properly.”
After Cable lost his position following the 2015 general election,
Brewer renewed his campaign with the new all-Conservative government. He
wrote to MPs he thought might be sympathetic and to ministers, trying
to persuade them this flaw in Britain’s anti-money-laundering defences
was something they should be concerned about.
He won a friendly response from James Cleverly, leader of the Free
Enterprise Group of Tory MPs, and he hoped to persuade Neville-Rolfe,
who was then the minister responsible for Companies House. He decided to
repeat the trick that had failed to impress Cable and incorporated a
new company – Cleverly Clogs Ltd – on 17 May 2016.
Cleverly and Neville-Rolfe were shareholders and directors, alongside
the fictitious Israeli Ibrahim Aman (whose home address, for some
reason, Brewer listed as being in a shopping mall in Braintree). It
didn’t help, however. The meeting with Cleverly was cordial, but he
never got to meet Neville-Rolfe and ministers were every bit as
noncommittal as their Lib-Dem predecessors. “It got nowhere; I was
disillusioned and had come to the end of the road really. I didn’t think
there was much more than I could do. That was 2016,” he said.
He may have been finished with Companies House, but Companies House
wasn’t finished with him. An investigator from the Insolvency Service
interviewed him under caution, so Brewer showed him the correspondence,
explained how he’d told Companies House about his stunts, tried to tell
the people whose names he’d used, explained that he’d been trying to
highlight a problem. “I hadn’t done anything for nefarious purposes; I
closed the companies immediately after. Nobody said I was going to get
prosecuted,” he told me. “I’d just been a bit naive in my actions, which
were well-intentioned, to try to get dialogue, because I felt they just
didn’t understand. Every letter you got back from whatever minister was
virtually word for word the same.”
Then, on 11 December last year came the summons to Redditch
magistrates’ court. He consulted a lawyer and pleaded guilty on 15
March. With the fine, his own costs and those of the government, he was
£22,800 out of pocket.
This was the decision that so appalled Penrose, the anti-corruption
champion. “The only prosecution that has ever been brought was the
gentleman who was trying to point out the problem in the first place,
and admitted it, and drew it to the authorities’ attention. And what did
he get for his pains? A £22,000 [bill],” he said, at the media-focused
Frontline Club’s regular
kleptoscope event
(full disclosure: which I organise and host) in London on Wednesday.
“That cannot be right, that has to be wrong. But it rather
self-evidently proves the point that we’re not paying enough attention
to whether this information is being filed properly and I’ve already
taken this up in the last 24 hours with ministers.”
It took me most of a day to discover who had taken the decision to
prosecute Brewer. BEIS, the department whose minister, Andrew Griffiths,
was so enthusiastic in the original press release, passed me on to
Companies House, which credited the decision to unnamed “prosecutors”. A
spokesman for the Crown Prosecution Service told me with undisguised
relief that the decision had had nothing to do with them. Eventually,
the buck stopped with the Insolvency Service, where a spokesman
confirmed that they had received a file from Companies House. “The
Insolvency Service Prosecutor concluded that there was sufficient
evidence to institute criminal proceedings with regards to the Code for
Crown Prosecutors and that it was in the public interest to do so,” he
said.
The
Code for Crown Prosecutors
is an 18-page document laying out what to consider before taking
someone to court. It is divided into stages and this case would have
clearly passed the evidence stage, since Brewer himself had either
provided all the evidence needed or else left it in plain sight in the
files of Companies House. The public interest stage was a more
interesting hurdle to overcome, however, particularly the requirement to
consider the “circumstances of the victim”. Who exactly was the victim
of Brewer’s crime?
Neville-Rolfe, who had no warning or explanation for what had
happened, never met Brewer and didn’t realise it was supposed to be a
stunt, said it felt like a violation, almost as if she’d been hacked.
Cleverly, however, who had met Brewer and perhaps realised the robust
nature of his sense of humour, has confirmed that he sees no reason for
Brewer to be prosecuted.
Cable, now leader of the Liberals Democrats, said in a statement that
he thought this was an overreaction. “The civil servants were doing
their job trying to protect me because they were worried this was a
scam. However, in retrospect. this was heavy handed and they did not
sufficiently realise that Kevin Brewer was trying to improve the
system,” he said. “They should drop the fine.”
Oliver Bullough’s new book, Moneyland: Why Thieves and Crooks Now Rule the World and How to Take It Back
, will be published in September.
