Barbara Kahan may be the busiest woman in Britain. She is 85 years old, retired and in ill health. Despite this, the former consultant is listed as the founding director of 25,802 companies. That is quite a feat — equivalent to starting a company every day since April 22, 1946, when Barbara was all of 14.
It’s not that Kahan was an ultra-ambitious teenage entrepreneur. Rather, she was until quite recently a director of A1 Company Services, a specialist in company formation. Businesses of every stripe — from rubbish clearers to online pornographers, financial scammers to perfectly legitimate retailers and restaurateurs — list their addresses as A1’s modest two-storey building on a residential street behind a Homebase store in north London.
It is one of the top providers of incorporation services and off-the-shelf companies. For as little as £11, any punter can set up a firm, or for a bit more — £60 — buy a ready-made one, usually with Kahan as the founding director (law requires companies to list a “natural person” — as opposed to a corporate entity — as director).
Ministers are worried that the process is an open door for dodgy businesses, terrorists and money launderers. Britain’s company formation procedure is one of the easiest in the western world.
So Whitehall is cracking down. Just before David Cameron’s anti-corruption summit in the spring, Theresa May, then home secretary, unveiled what she called “the most significant changes to the UK’s anti-money laundering and terrorist finance regime in over a decade”.
The “action plan” envisioned fresh powers for law enforcement to stamp out “illicit enrichment” and shifting more of the policing burden on to middlemen — the so-called trust and company service providers, such as A1.
But there is one very large problem. A huge swathe of companies will be exempt from the new regime. Nearly 40% of the 611,372 companies formed in the year to April were established not with professional agents but directly with the public register, Companies House.
Because it is a governmental, not-for-profit organisation, it is excluded from current and new money-laundering regulations. Stephen Curtis, head of the Association of Company Registration Agents (ACRA), the industry body, likened the approach to “locking the front door but leaving the back gate wide open”. The loophole, he argued, will funnel nefarious characters away from the professionals, who are obliged to carry out checks when red flags are raised, to the automated Companies House website, where human review is scant.
Curtis said: “It is slightly difficult to believe that the government is really interested in anti-money laundering when a quarter of a million companies set up under its own auspices are done so without any checks being made.”
Companies House claimed, however, that it carries out “a wide range of checks”. These are on basic points such as whether incorporation documents are complete. Determining whether that information is genuine is a job for the banks, solicitors and estate agents that interact with firms once they are set up. Companies House said: “Every UK company will be subject to customer due diligence many times over. So we do not see a gap in the UK regime for detecting money laundering.” The rest of the industry clearly does.
The situation throws into stark relief two big problems for May. After the Brexit vote, the prime minister is desperate for Britain to be seen as “open for business”. Making it easy to set up a company lies at the heart of that.
At the same time she has made much of her plans to stamp out the money laundering that sees billions in ill-gotten gains diverted into high-end properties and questionable shell companies. The National Crime Agency has called money laundering a “strategic threat to the UK’s economy and reputation”.
What is clear is that the current system is failing, woefully. Thirty years ago, if you wanted to set up a company it was a cumbersome, paper-only process that would take three weeks and cost, in today’s prices, £250. Today, it takes three hours and will set you back all of £12 via the Companies House website.
Formation agents grew up in the old, paper world, setting up companies and providing ancillary services such as a registered address or producing annual returns. They greased the wheels of UK plc. The big change for the industry came in 2011, when Companies House launched web registration, making it possible to set up shop entirely online.
It is easier than ever to set up a company on these shores. A1, for example, keeps a stock of more than 1,000 that it is waiting to sell — which explains why Kahan is still “incorporating” companies even though she retired early this year. The other reason her name appears so often is she was the “initial officer” of choice when any A1 client wanted to quickly set up a company from scratch.
Once a firm is set up or sold, she is automatically resigned from the board and A1’s responsibility ceases. This is why most of her directorships last one day.
A1 declined to comment. Kahan could not be reached.
Overseeing the sector is a gaggle of regulators who together appear to achieve very little. No fewer than 27 bodies are charged with policing anti-money laundering and terror financing rules. One anonymous formation agent said: “Everyone thinks that someone else is going to do the job.”
The system’s weakness was highlighted last year when it emerged that UK shell companies were used in a Russian scheme to funnel offshore more than $1bn (£795m) stolen from banks in Moldova.
Scammers often use a UK address to give their businesses an air of legitimacy — a tactic regularly employed by binary options traders, recently labelled “the fastest-growing iteration of investment fraud” by the City of London police. Complaints about such schemes have spiked this year, the force said, with the average loss topping £20,000.
These firms promise vast riches via financial “trading” on small movements in currencies and stocks. They are simply all-or-nothing bets with the odds stacked against the punter.
Most companies are based in exotic climes such as the Grenadine islands or Belize and are entirely unregulated by British authorities. Of the many dozens that offer online trading here, only seven fall under British law. Many give the appearance that they are “British” businesses when they are not.
On January 21, 2014, A1, quite legally, incorporated a company called Worldwide Tech Ltd, listing Uri Katz, a 42-year-old Israeli businessman, as its sole director. The company is the parent of UK Options, a binary trading company that, despite its name and a London address — since changed from A1’s location — is not regulated here.
It has been put on warning lists by Switzerland’s regulator, Finma, and by the British Columbia Securities Commission in Canada, for possibly operating without a licence.
The website is still in operation, enticing Brits into trading that is “fast, safe and profitable — even when global markets aren’t”. The company did not respond to questions.
The Gambling Commission last week issued a warning regarding unlicensed binary options companies — which is most of the industry. It said: “An unlicensed [binary options] operator may be acting illegally. They will not abide by any code of conduct and have no incentive to deal fairly with you.”
Whitehall is working on ways to make it harder for dodgy operators to set up here.
Last month, the Treasury closed its consultation on an updated anti-money laundering regime to comply with a European directive. The rules will come into force at the end of June next year. It is the latest in a steady stream of rules — the first anti-money laundering regulations were put in place in 1994.
This summer the government imposed a new rule forcing companies to reveal “persons with significant control”. Last year it put an end to the use of “bearer shares”, often used by offshore investors to disguise their holdings. Progress has been slow.
Transparency International, the anti-corruption group, released a report last week revealing that more than half the 44,022 properties in London held by overseas companies have “no data available on the real owners”.
For as little as £11, any punter can buy a ready-made company
Among the new measures under consideration by the Treasury is forcing formation agents to conduct due diligence — such as checking passports or proof of address — on every person who forms a company.
Currently an agent must do so only if an individual or, say, an accountancy firm that specialises in setting up companies, establishes several or is a repeat customer. Turning up the heat this way on formation agents would be no bad thing. It would certainly make it harder for fraudsters to set up in Britain.
The problem is that, as with so many other requirements, Companies House will not be subject to them.
A spokesman said this is because “Companies House does not do anything by way of business with companies, or perform additional services”. In other words: we’re not a business, so the rules don’t apply.
The disparity between the industry and its biggest competitor — Companies House — is dangerous, the industry has warned.
ACRA said: “Whilst the private sector is required to make an active, risk-based assessment of all applications under money laundering regulations, this does not apply to Companies House.
“The government’s share of the company formation market has risen steadily since 2011 and continues to increase.”
The anonymous formation agent added: “What is the value of regulations if a huge number of company records are either incomplete or inaccurate?”