The good, the bad and the companies - The Global Witness Report

In this special episode we review and comment on the recent Global Witness update to its reports from last year on the effectiveness of the Companies House PSC regime.

For more see:Global Witness blog and link

Oh, and we also include an amusing update to our previous report on UK Limited Liability Partnerships.

Transcript

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spk_1:   0:01
the way to the fourth episode of Season two of Dark Money files, which we shine a light into a murky world. I'm right, Blake. And with me is my co host friend and business partner, Grand Barrow. Hello, Graham.

spk_0:   0:25
Hi, ro.

spk_1:   0:26
Type for another special, then grain.

spk_0:   0:27
Yes, Ray, do you want to explain?

spk_1:   0:30
Of course. Last week we saw the release of a follow up report from Global Witness looking in detail at the effectiveness of Companies House here in the UK, which we might have mentioned once or twice.

spk_0:   0:40
Yes, and it makes for interesting reading, doesn't it?

spk_1:   0:43
It does. And just like in last week's episode, it's important for the global financial crime community to understand these issues as UK into Tzu so extensively by money launderers the world over.

spk_0:   0:55
Exactly. And before we begin on DH, while we're talking about last week's episode, it reminds me of an anecdote that I'd love to share just to augment our journey through the labyrinth that is UK limited liability partnerships.

spk_1:   1:08
Of course.

spk_0:   1:10
Well, you'll remember that we used as an example last week and LP called JSC Maureen geology A. Partly because that jsoc was interesting is It's a common entity prefix found in central and Eastern European companies

spk_1:   1:25
where it means joint stock company.

spk_0:   1:28
Exactly. But what of the other common prefixes is? Oh,

spk_1:   1:33
and other than out of office? What does that stand for?

spk_0:   1:37
That stands for limited liability company, right?

spk_1:   1:39
No, it doesn't grow him. That would be LLC.

spk_0:   1:43
Well, I know, but it does in Russian,

spk_1:   1:46
and you're gonna give us the Russian version. Grab.

spk_0:   1:49
I did have a look at it, Ray, and it's utterly unpronounceable. So the answer to that is no. Anyway, just for the hell of it, I stuck. Oh, l l P into companies house just to see if anything came up

spk_1:   2:02
and did it.

spk_0:   2:03
Oh, yes. Go on. Well, for a start, there were a whole bunch of Scottish limited partnerships which started Oh, and we may well come back to those in our episode on SL piece. But there were two NL piece which also started. Oh, really? Yes. One was called Oh, Rose, you crab toe helping on the other one was O c t a p t l p.

spk_1:   2:33
Both rather strange names

spk_0:   2:35
when they are. Although C T. A. P. T. Is actually if you read that in civilly is start. So if we assume it's Russian, it would be called Start LLC in English.

spk_1:   2:46
Anything else interesting about that one? Well,

spk_0:   2:49
it's accounts where it only actually filed one set of accounts.

spk_1:   2:53
I've got a funny feeling, Graham. I might know what's coming next,

spk_0:   2:57
which is right.

spk_1:   2:59
They were signed by alley. Move away

spk_0:   3:01
dead like they were any other guesses.

spk_1:   3:04
They weren't for very much money.

spk_0:   3:07
Total commission for the one and only year they filed accounts was £3003.

spk_1:   3:14
Of course, it was great. What about the other unpronounceable l l p

spk_0:   3:19
the yellow rose. You crapped o l l p. Well, where do I start? Well, it was incorporated in October 2012 with a couple of well, quite well known designated members.

spk_1:   3:32
Well known no island and overseas. And Milltown corporate services. Yes, but they also form the JSC LP. We spoke about last week.

spk_0:   3:43
Yes. Again.

spk_1:   3:44
Which means we can be fairly confident about who signed the accounts.

spk_0:   3:48
Oh, yes, it was our friend Allie in 2016 and the commission income reported in those were £5750

spk_1:   3:56
give grace

spk_0:   3:57
on it is still trading Ray. They've only just recently filed their 2018 accounts,

spk_1:   4:02
which were not signed by Alan Mulally of history. Is anything to go by?

spk_0:   4:05
No, they weren't. They were signed by someone called Kim Lin, gentle

spk_1:   4:09
or hold on. Unless there's two Kemble in gentles involved in corporate activity on companies House. Isn't that the same person who is a shareholder in port or a trade and lived in Grenada?

spk_0:   4:20
I believe it is. Except the company on whose behalf she signed this time isn't in Grenada. It's in belief.

spk_1:   4:27
Of course it is. And doesn't she get about a bit? Even after all these weeks and all these revelations, I still find it shocking that this network of connectivity exists in. So companies house apparently undisturbed and undiscovered.

spk_0:   4:41
Well, we'll know completely way are doing out beyond nicely Safeway. Actually, into today's episode that global witness they're doing, there's a swell

spk_1:   4:51
global witness. Before we go on, I think it would be a good idea to explain to our listeners exactly who they are is there might be some who don't know about the work they do.

spk_0:   4:59
I think that's a great idea, Right?

spk_1:   5:02
Okay, then. So they were founded 25 years ago, back in 1994 specifically to expose and confront corruption and to explain how it can sustain poverty and destroy the environment. They've been active across the world with hugely successful campaigns against, for example, the Camaro Rouge in Cambodia, corruption in Equatorial Guinea. Corporate secrecy, of course. And they currently deeply involved in the shell Ian I case over the allocation of a Nigerian oil field to them through alleged corrupt activity.

spk_0:   5:35
Yes, it's a chief's, um, really remarkable results, hasn't it?

spk_1:   5:39
It has its good offices here in London, in Washington, D. C. And in Brussels, on a whole host of partners and allies around the world.

spk_0:   5:46
And I've had the pleasure of working with some of them, too, and they're also really nice people.

spk_1:   5:51
Great on Dave just published a report into the workings of companies House

spk_0:   5:55
they have, and it's a mixture of good and worrying.

spk_1:   5:59
Okay, Should we look at the good bits first?

spk_0:   6:02
Yeah, let's So what struck you?

spk_1:   6:05
Look, it's first of all, clear benefit that transparency is brought. The register was access more than two billion times in 2017 and that's an awful lot of accesses,

spk_0:   6:16
and I suspect it's going up even more since then. But, Ray, we've spoken before about big numbers and how hard they are to imagine. So should we try and give some context to that two billion?

spk_1:   6:26
Yeah, that's a good idea if we assume, for the sake of this explanation that the requests were spread evenly over the year, which they probably weren't. But I think we can live with the assumption. The first thing to say is that this equates to just under five and 1/2 1,000,000 requests a day

spk_0:   6:43
on DH. Therefore, that's just under 230,000 requests an hour,

spk_1:   6:49
just under 4000 requests a minute.

spk_0:   6:51
And just to complete this, that's about 65 or thereabouts requests a second

spk_1:   6:57
yes, and that's assuming even distribution, which it won't be. So there must be times when hundreds or thousands of people are accessing companies house simultaneously.

spk_0:   7:07
Yes, and is one of their more regular users. I have to say that the system works very quickly and effectively virtually all the time, so very seldom do you have a problem with the request,

spk_1:   7:18
definitely one of the other areas that really caught my eye in the report was the huge increase in Saul's, originated by companies House, who filed 2260 for suspicious activity reports in the year ending April 2018.

spk_0:   7:36
Yeah, I spotted that. And, to be fair, is a fairly frequent critic of their process. I was surprised and delighted by that figure.

spk_1:   7:45
Yeah, what about you? The ground. What did you notice?

spk_0:   7:49
All right. The fact that the public had filed nearly 60,000 reports of likely mistakes in company house data. And of course, you'd prefer there were none. But the ability of the public to actors another set of eyes on the accuracy of the data is a great way. I think of holding filers to account

spk_1:   8:06
very much. So anything else?

spk_0:   8:08
Yeah. The company's houses reported a very significant drop in the registration of Scottish limited partnerships SL piece, which is seen as a success So in the fight against financial crime, But I have a slight reservations.

spk_1:   8:22
Why's that?

spk_0:   8:23
Well, not to preempt our forthcoming episode on SL ps, I think the way they're being used has changed from being the main vehicle in a laundromat activity to being inserted into the ownership chain often as the PSC off another entity,

spk_1:   8:39
A ll sneaky.

spk_0:   8:40
Yeah, on because we should not forget that currently you cannot permanently wind up on SLP. So all the hundreds, if not thousands, of currently dissolved partnerships Khun B frankly revived for the price of a postage stamp in the time it takes to complete a form. And also, I think there has been a resurgence ofthe LP says the money launderers have learned how better to circumvent the rules using them.

spk_1:   9:08
Which brings us on to the next part of the global witness report, the notes, the good stuff.

spk_0:   9:14
Yeah, I was going to ask what your highlights from this part of the report. Where? But that doesn't seem an entirely appropriate word.

spk_1:   9:20
Well, no, there are some really quite astonishing facts disclosed, though, for example, and this again follows on from last week where we disclosed that to import express was appear si tu 22 l a piece. We never find out that there are 6711 companies that are controlled by a PFC, which itself controls more than 100 entities.

spk_0:   9:47
Of course, they just wouldn't you love to see their accounts, right? I just might have a little sniff around that one, I think.

spk_1:   9:56
Yes, but as a counterbalance, nearly 8% of all companies who are included in the PSC regime have declared that they don't have one.

spk_0:   10:06
Okay, which could be for the entirely legitimate reason that they have no one who owns and controls more than 25% of the entity. But there's no sense of companies House actually checking to see if that's true. Just take the declaration on its merits.

spk_1:   10:21
On a similar subject, I see that a total of no 0.2% of eligible companies have declared a foreign company is PFC. But which itself is based in a country that doesn't possess a recognise stock exchange on, which means it doesn't meet the actual Piercy requirements.

spk_0:   10:38
No. And although expresses the percentage north 0.2% doesn't sound very march, it equates to 8870 companies, which is, for example, substantially more than a ll. The Entities which form the non resident portfolio at Danske Bank in Estonia

spk_1:   10:52
Yeah, way know that kind of mayhem that that number of entities can actually cause having said that, we're not suggesting that every company that's registered in inappropriate PSC has done so with criminal intent. I'm sure at least some of them are a simple misunderstanding of the rules.

spk_0:   11:10
Well, I I agree, right? But isn't that all the more reason for ch teau have some sense checking in place between receiving the filings and accepting them, if only to protect the innocent from inadvertently breaking the rules?

spk_1:   11:22
Yep, and catching the not so innocent before they Khun deliberately break them?

spk_0:   11:26
Exactly. Possibly. My favourite contravention is almost certainly dance, revise or ignorance or just a lack of care when completing the form on the only involves a small number of entities. But it's still pretty amusing, which wants that well, it's the ability to exempt yourself from the PRC requirements because you overtly state that your company is listed on an equivalent stock market. Global witness have done the analysis and discovered there are 78 such companies

spk_1:   11:55
and they're not listed

spk_0:   11:57
well. 30 of those 78 are private liberty companies, which, by their very nature can't be list is is it contravenes their status.

spk_1:   12:07
That's very true and the other 48.

spk_0:   12:10
Well, to be fair, the remainder of all PR CES, which means they are capable of being listed by June more than one I looked at were guilty at the very least of sloppy filing, as they are identified as being exempt from disclosing appear, see as they have shares admitted to trading on a regulated market other than the UK. And when they I looked, they were actually quoted on the London Stock Exchange. But But, like I say, that looks more sloppy than suspicious.

spk_1:   12:36
Nevertheless, Global Witness make the point that if it was a requirement to submit your ticker code, which is an internationally recognised way of identifying publicly quoted cos it was weed out both the dodgy and the dumb at the same time,

spk_0:   12:50
Yeah, I completely agree.

spk_1:   12:52
And you can't help but notice that Global witness also identified a raft of filings, which included directors under the age of to who had the right to receive profits and appoint directors. It's an interesting idea. Grown,

spk_0:   13:05
Yeah, and you know, more than most rate, given your aptitude for excel just how easy it is to air a trap for specific ages and reject anything which falls outside of a predetermined range.

spk_1:   13:18
Its simplicity itself. Crime

spk_0:   13:20
share. So So, Ray. Overall, what was your impression of the report?

spk_1:   13:24
I think it was probably helpful that b e i s The Department for Business, Energy and Industrial Strategy had slightly preempted Global Witness by publishing their proposals for reforming companies house the day before this report was released. And it contains many of the recommendations put forward in the global witness report.

spk_0:   13:44
It did, although it's only out for consultation at the moment, so it will be a while before all or indeed, any off them are actually implemented.

spk_1:   13:55
Indeed, so at least we should celebrate in the meantime that by opening up the register, we at least have the opportunity to continue to highlight the weaknesses, finding publicise real life examples of where they're being put potentially to nefarious purposes and maintain the pressure on the government to see through these reforms.

spk_0:   14:15
Yeah, I agree, and we'll continue to work with organisations like Level Witness and Transparency International and many others to advocate for change.

spk_1:   14:24
Yeah, absolutely. We should also have a quick chat about some of the recommendations that were put forward at the end of the report, don't you think?

spk_0:   14:31
Oh, yeah. Good point. That nearly slipped off my radar. They were pretty sensible. And I thought, straight forward. Don't you think?

spk_1:   14:40
Yes. I mean, I d cheques and proof of control the blindingly obvious. It's necessary requirements. After all, if you need to do that to open a bank account, you should also be required to do so to open a company.

spk_0:   14:52
Yeah, I guess the counter argument is that your bank account details aren't put on a transparent register, whereas your company details are

spk_1:   15:01
well, that's true. But then think about the benefits you get from forming a limited liability company. You might do it to get tax reductions or to be shielded from the full losses your business might make if things go badly. Society, I think a little disclosure in return for that.

spk_0:   15:18
Yeah, it does seem only fair

spk_1:   15:21
and being a lover of databases myself were also wholeheartedly support the allocation of a unique identify to anyone listed in the register that would enable fast and accurate cross checking of records. Duplication of data is the bane of any database managers life.

spk_0:   15:38
Here's an idea. It has to save, which, if rolled out across all public data sets, would enable the quick and easy cross referencing against other important data like shareholders and disqualified directors and other relevant information.

spk_1:   15:53
That would be good.

spk_0:   15:54
Yeah, so all in all, we think this report is balanced, informative and makes an important contribution to the ongoing debate about what we call it the direction of travel for companies. House.

spk_1:   16:07
Yes, and that direction of travel isn't all bad. And there's there's much to applaud, but without a shadow of doubt, it's still too easy for those with criminal intent to circumvent the rules and gain the appearance of respectability that a UK registered entity could bring without properly disclosing the ultimate ownership behind that entity.

spk_0:   16:28
But if the UK acts alone in those, there is a risk. Oh, well, why the people who are based in the UK and have frankly no intention of running these companies in the UK formed them here nonetheless

spk_1:   16:41
well, because he's easy. Thie UK government has been consistently clear that it wants the UK to be an easy place in which to establish a business.

spk_0:   16:50
Absolutely, and it's so easy to do here that the criminals have flocked to set up their companies.

spk_1:   16:55
But that's a bad thing, isn't it? Grand?

spk_0:   16:58
Well, no argument there, Ray. And in setting up the company's here, where there is a transparent ownership register, they inadvertently give people like us away to investigate and expose them.

spk_1:   17:08
I see what you're saying. If we unilaterally strengthened companies house controls than they might shift their business to less transparent regimes.

spk_0:   17:17
Yes, that would be good news for us in a way. But bad news for those trying to detect and prevent global financial crime.

spk_1:   17:23
Well, then we'll have to hope that the companies house reforms when they come don't happen in isolation and that there's a worldwide effort to ensure both transparency and property diligence over corporate registration.

spk_0:   17:35
Yes. Ah, Ray, I completely agree. And speaking of proper due diligence over corporate registration, I think we should look in those Scottish limited partnerships in next week's episode.

spk_1:   17:47
I suspect there are. In fact, I know there are a few people out there. It will be eagerly awaiting this episode because we get mail from them.

spk_0:   17:57
You know, there are times when I'm not sure if you're being serious, also casting, but I think you probably being serious nevertheless. Well, we will be looking both at what makes them unique within the range of UK entities available on DH. How and why they became so popular as part of a Laundromat activity. Well, I'm

spk_1:   18:17
looking forward to

spk_0:   18:18
it. Thank you for listening to the way we hope. If you would like to listen to future episodes, please subscribe through iTunes, Spotify for your normal podcast provider. Thanks.