NEWS: UK introducing identity checks for company directors to fight rampant money laundering

By PAUL O’DONOGHUE, Senior Correspondent

The UK will bring in tighter identity verification checks for company directors in an attempt to limit widespread money laundering.

The Companies House, the UK state body which manages the country’s business register, has warned that it is far too easy for individuals to use fictitious identities when establishing new corporate entities.

Previously, there were no requirements for many directors of UK companies to have their identities verified. 

However, it is planned that agencies which form companies on behalf of other individuals will soon be required to carry out more stringent checks and keep records of identity verification documents.

In its first ever ‘strategic intelligence assessment’, the Companies House said this would be done using the Economic Crime and Corporate Transparency Act 2023, a law passed last year aimed at increasing corporate transparency and stopping money laundering.

“The Act will, over time, introduce identity verification processes for everyone who presents documents to Companies House,” the organization said. 

“This will help to mitigate against this risk and it is highly likely that the scale of the issue will reduce.”

State bodies have previously estimated that up to £100 billion in dirty cash is funneled through the UK every year.

The UK government itself recently estimated that up to 40% of the world’s illicit finance, at some point. moves through the UK and its overseas territories.

The Companies House has warned that the UK’s lax identify verification process has likely led to ‘company creation tourism’. 

This refers to when someone with no link to a country is looking around for the best – or easiest – place to set up a new corporate entity. 

The regulator said this, in turn, likely contributes to international money laundering.

The Companies House said the Corporate Transparency Act will introduce the concept of ‘authorized corporate service providers’ (ACSPs).

These are businesses which have expertise in setting up new corporate entities.

 ACSPs will soon be required to:

• Be based in the UK
• Register with Companies House
• Be registered with a supervisory body for AML purposes
• Retain records of identity verification checks

ACSPs which don’t comply with the new requirements can be suspended.

“We recognise that formation agents are a legitimate and regulated business,” the Companies House said. 

“However on occasions their behavior exploits vulnerabilities in Companies House systems and leads to an increase in fraudulent companies. 

“At the very least, the use of a formation agent adds practical challenges to data and enforcement opportunities.”