Shining a Light on the Dark Work of Shadow Companies

City of London; An attractive City for Illicit Money

According to the National Crime Agency, as much as $120 billion of illicit money is funneled through the City of London alone each year. How? This was one of the best places in the world to set up a company, but hide who owns it. Anonymous companies are involved in 70% of all corruption cases worldwide, according to estimates from the World Bank. They can be used to launder cash, fund organized crime and terrorism, avoid taxes, and to hide conflicts of interest — particularly for politicians.

UK Makes Waves as First Country to Establish Beneficial Ownership Register

Measures to strengthen the City of London’s work in the fight against the often shady work of shell companies, were included in consecutive United Kingdom action plans: in 2013-2015, and 2016-2018.

Through these commitments, the UK became a world-leader in the establishment of a beneficial owner register. A beneficial owner is the ultimate beneficiary of a company’s business – distinct from the legal owner who owns the company on paper. By making the beneficial owner transparent, the register prevents shell companies being set up to obscure the often-questionable work of the person or entity who has real control.

Following years of advocacy for beneficial ownership transparency by organizations like Global Witness and Transparency International, the UK committed to making a public and open beneficial ownership register a reality. The commitment came as part of the UK’s OGP Steering Committee Chair year, and was announced by then Prime Minister David Cameron at the OGP Global Summit in London.

As the first country to take this on, there were a lot of components of the commitment that were approached without the benefit of precedent. Establishing the register would require legislative change, extensive communication with the business community, technical work on beneficial ownership definitions, and the creation of infrastructure to collect and publish the data.

During the process, Companies House and The Department of Business, Energy, and Industrial Strategy regularly communicated with and received input from civil society and the business community. This helped ensure that stakeholders knew what was required of them and that the register would be responsive to user needs.

Launch of Register Empowers Watchdogs and Journalists

From 2016, all UK companies were required to hold a register of ‘People with Significant Control (PSC) – the beneficial owners – and to provide this information to the Companies House Public Register. The registry is now accessed more that 20,000 times a day. Activists and journalists have used it to uncover wrongdoing, including exposing a number of senior politicians, 76 people on the US sanctions list, and hundreds of others who are barred from owning UK companies, but were previously still able to do so because of the anonymity that was possible.
In late 2017, Global Witness and DataKind conducted an analysis of the data available on the Register, covering more than 10 million corporate records from Companies House. They found thousands of companies were either not complying with PSC regulations, or were submitting information that should have been flagged as highly questionable. For example, 4,000 beneficial owners were listed as being younger than 2 years old, and 5 beneficial owners were found to be controlling more than 5,000 companies. Moving forward, better verification processes and stricter requirements would shift the burden of oversight from journalists and civil society organizations to the government.

A Precedent for Worldwide Action

The UK’s pioneering beneficial ownership register has had a ripple effect, showing that such a huge task can be done, and providing a technical guide, where it may have previously been considered hopeless. Since the UK’s reforms, 30 countries have made OGP commitments to strengthen beneficial ownership transparency including countries as diverse as Kenya and Armenia.

Looking ahead, the UK parliament voted to advance the scope of the Register to include registers for British Overseas Territories, which include several notable tax havens.

In September 2021, the UK joined the OGP-affiliated Beneficial Ownership Leadership Group, which seeks to “shift the global norms of company beneficial ownership transparency by 2023, by committing ourselves to developing domestic public registers of company beneficial ownership, support efforts globally and regionally for other countries to do the same”. Through its domestic work and international leadership, the UK is now well-poised to continue to break ground on this important work against corporate corruption.

Featured Image: UK Member of Parliament John Penrose talks about the country’s progress around beneficial ownership transparency reform at the 2019 OGP Global Summit. | Credit: OGP