27/10/22

UK: ‘Dead directors’ on records listed at Companies House.

As published on thetimes.co.uk, Wednesday 26 October, 2022.

Hundreds of directors listed at Companies House were dead before their companies were formed, according to figures that reveal the huge scale of the clean-up challenge facing Britain’s corporate registry.

An analysis of mortality data and directorships has revealed at least 800 “zombie directors” named on Companies House files who had already died before the businesses they ostensibly run had even been established.

LexisNexis Risk Solutions, the data and analytics service that did the analysis, said it was a stark illustration of “the ease with which UK companies can be set up with false data, allowing the legal entity to be used for nefarious purposes with impunity”.

The data is based on an audit of a portion of the registry and LexisNexis said the number of “zombie directors” across the entire Companies House database was probably far higher and was likely to be in the thousands.

Last month, the government said it would make the “biggest changes to Companies House in 170 years” by making it a “more active gatekeeper”. The Economic Crime and Corporate Transparency Bill gives Companies House the ability to “check, challenge and decline” incorrect or fraudulent information, as well as upgraded investigation and enforcement powers.

Britain is a global leader in company creation, with 768,449 being registered in 2021, but many add little value to the economy and the ease with which they can be set up, plus the lack of oversight by the registry, opens the door to international fraud and money laundering.

Many listings are bogus, while directors have included Adolf Tooth Fairy Hitler and Judas Superadio Iskariot.

While the reforms have been welcomed, there are concerns about whether Companies House will have the resources to implement them effectively.

Katarina Pranjic, of LexisNexis, said that fake filings were damaging to the UK economy and added: “When businesses don’t have enough data to check potential partners, or feel they can’t rely on it, they are more likely to walk away from establishing a valid relationship for fear of making an uninformed decision, or, worse, unwittingly entering a relationship with a criminal entity.”

She said the reforms were the “first steps” towards fighting financial crime, but it was not clear how Companies House was going to tackle the issue. “It’s going to require resources, time and, to do it properly, technology. This isn’t going to happen overnight, but, given the scale of the problem, is worth the wait. Just verifying the people behind a company and preventing dead people opening a company is a good start.”

However, she said more should be done to enforce rules and ensure that companies are fulfilling their duty in keeping information up to date. “Businesses are living entities and the ownership and management structures can change all the time. We need the regulatory framework to be designed to avoid a ‘one and done’ culture over companies maintaining their Companies House data, and also to ensure that there are checks in place to monitor for the kind of misuse demonstrated by the zombie director data.”

Companies House said: “We are aware of the misuse of the company register to support illicit activity and recognise the difficulties faced by those affected by this. Where potential criminal activity is identified, we work closely with law enforcement agencies to refer matters and support investigations. We welcome the [reforms], which will give us broader powers to verify the identity of those incorporating companies and tackle abuse of the register.”