How Companies House Facilitates Financial Fraud

What's the problem?

Companies House registers companies without thorough verification, which opens the door to fraud and false filings, misleading consumers and businesses alike.

What does this mean for me?

As a business owner or customer, you must exercise extreme caution when dealing with companies registered with Companies House, as they may not be trustworthy.

What conclusions can I draw from the article?

It is essential to thoroughly check information about companies and individuals from Companies House, not to rely solely on data from this register, and to use additional, reliable verification sources.

Companies House in the UK was established in 1844 and still serves as the official register of companies in the UK – however, registration is based solely on "good faith". This means that new companies and their directors are registered without any data verification, which opens the door to various abuses.

This lack of oversight can pose a serious risk not only to consumers and businesses but also to lawyers in Poland who may be unaware of these threats. This was the case for a client who discovered that their company, based in Poland, was listed as a director of another entity in the UK, without their knowledge.

Upcoming Legal Changes for Companies House

Fraud at Companies House is a significant problem that can have serious consequences. From false company registrations that can lead to a series of financial crimes, to the use of addresses without the owners' knowledge. Annually, thousands of people discover that their data has been used without their consent.

The House of Lords is currently debating a new bill concerning economic crime – The Economic Crime and Corporate Transparency Act. Its aim is to introduce new identity verification measures for directors and to grant Companies House powers to conduct investigations. While these provisions promise improvement, removing existing erroneous entries will be a challenge.

An alarming aspect is cases of identity theft, where individuals discover they were listed as directors of companies unknown to them. Problems with false registered company addresses are also becoming more frequent, complicating legal and debt collection efforts.

In the 2021/22 tax year Companies House received 2,432 applications from directors to have their entries removed because they "did not consent to act" – a 59% increase in just three years. Often, addresses unrelated to the business – typically homes – are also used as registered company addresses.

Identity Verification at Companies House – A New Standard?

Once the act comes into force, every new company officer will have to undergo mandatory identity verification before a company can be incorporated.

Companies House will also have the power to challenge information it deems "suspicious, misleading, or false." Identity checks for existing companies are also planned for the future.

Lawyers should exercise particular caution when conducting due diligence before engaging in any collaboration with UK companies. One should not assume that a company or individual is legitimate solely based on their presence in the register. It is important to be aware of standard warnings and red flags, such as directors who frequently register and close companies in a short period, without filing financial statements. Company addresses can also be checked using Google Mapsto assess their credibility.

For Polish lawyers operating in this space, it is important to understand that even something that appears authentic does not guarantee legitimacy. Therefore, it is always advisable to verify information from additional sources, such as Financial Conduct Authority, which maintains its own register of companies operating in the financial sector, providing a more reliable source of information.