When I was a schoolgirl, in the late Victorian era, BO had a different meaning: if some poor soul had BO, you flapped your hand in front of your nose and worked the word “deodorant” into your conversation with them as often as you could. But nowadays we’re concerned much less about body odour than about beneficial ownership, which almost everyone agrees is a central plank of any AML endeavour. Sadly, we in the UK have been poorly served by our register of beneficial ownership: since its inception in June 2016, the register of people with significant control has been nothing more than a giant filing cabinet. As I heard someone describe it so well, those who run it are librarians rather than detectives – they have no power or obligation to validate what they are told. This means, of course, that the PSC register is all but worthless for AML purposes: it serves as perhaps a second or third corroboration, but certainly cannot be relied upon as a primary check.
And then along came MLD5. It amended Article 31 of MLD4 to this: “Member States shall require that the information held in the central register [of beneficial ownership] is adequate, accurate and current, and shall put in place mechanisms to this effect. Such mechanisms shall include requiring obliged entities and, if appropriate and to the extent that this requirement does not interfere unnecessarily with their functions, competent authorities to report any discrepancies they find between the beneficial ownership information available in the central registers and the beneficial ownership information available to them. In the case of reported discrepancies Member States shall ensure that appropriate actions be taken to resolve the discrepancies in a timely manner and, if appropriate, a specific mention be included in the central register in the meantime.”
How marvellous: thanks to the EU (oh, the irony) the UK government can sidestep the eminently sensible (but costly) step of requiring all submissions to the PSC register to be verified and validated, and instead throw responsibility for pointing out “discrepancies” (i.e. fraudulent submissions) onto the regulated sector and the FIU. Isn’t this rather like a doctor asking his patient to let him know if he finds a better diagnosis on the internet, so that he can improve his own diagnostic skills? Useful for the doctor, but rather alarming for the patient.
HMG has been talking of reforms to the system for some time. In September 2020 it published its response to a consultation on the matter, in which it confirmed that “the Government’s vision is for a register built upon relevant and accurate information that supports the UK’s global reputation as a trusted and welcoming place to do business and a leading exponent of greater corporate transparency”. However – and more tellingly – it immediately continued: “Companies House will play an even stronger role [my italics] as an enabler of business transactions and economic growth, whilst strengthening the UK’s ability to combat economic crime.” So that’s the true purpose of the registry, is it, to enable business? And all this talk of reform cannot disguise the fact that we are starting from an extremely low base. In Guernsey, for instance, submissions to the Guernsey Registry can be made only by “resident agents”, who are covered by stiff legal obligations to gather and maintain information about beneficial owners – and face heavy penalties if they don’t. In the UK, on the other hand, that consultation response confirms that it’s all much more informal: “Information on companies may be filed at Companies House by a range of individuals. They may be people connected with the company, such as a director or some other employee. Alternatively, information may also be filed by third party agents (professional intermediaries who provide such services, including accountants and trust and company service providers, who should be registered with a supervisory authority).” Should be registered (and covered by AML obligations) – but might not have bothered, and CH won’t know… And as for penalties for refusing to verify yourself as a PSC, or indeed lying about it, well, “we will develop a suite of compliance activities and sanctions to ensure that as many PSCs as possible are verified within a certain time period of them confirming that they are the PSC with the company”. I’m sure those dastardly money launderers are quivering in their boots – there’s little that scares them more than a suite of compliance activities.
So why I am so het up about this? Well, on 5 May 2021, HMG published “Economic Crime Plan: Statement of Progress”, covering the period July 2019 to February 2021. (It contains enormous amounts of repetition – but perhaps that’s necessary, when progress has been so slow.) In the section on “strategic priority six – transparency of ownership”, it confirms that there will be “compulsory identity verification for all directors, People with Significant Control and those filing information on behalf of a company”. Together with obliging the regulated sector and FIU to report any pesky discrepancies, this will “improve the accuracy of the information on the register”. And – so important that it’s said twice in the same section – “the outcome should be that the millions of users of the register, including the regulated sectors, can have greater faith in the information, so that it continues to serve its vital role facilitating business transactions and underpinning confidence in our economy”. As someone immersed in the world of AML, I had quite lost sight of the vital role of such registers.