By Tom Bergin
LONDON (Reuters) - Some UK shell companies under offshore control may be skirting new rules which were designed to clamp down on corruption and tax evasion by forcing businesses to reveal their true owners, a Reuters analysis of corporate filings shows.
British government officials have heralded the rules, which came into effect last month, as a world-leading transparency move to tackle crime and urged other nations to follow suit.
Under the new system, statements which UK companies file when they are set up and on each anniversary of that date showing changes in shareholders or directors are supposed to include details of “Persons with significant control (PSC)”.
For most companies this is straightforward. But some owners use nominees or shell companies, which can have legitimate purposes but also can mask international crime, governments and international bodies like the World Bank say.
Of 300 offshore shell companies identified by Reuters, 22 would typically have been required to have published the beneficial ownership information by now because their reporting dates fell in the weeks since July 1, when the rules came into force.
All but one of them has not done so. The ways they have avoided the rules lay bare, for the first time, several loopholes in the new regulation.
Twelve filed their annual ownership statement before the new rules came into effect on July 1, although their anniversaries fell after that date. They could thus apply the old rules which did not require them to declare beneficial owners.
Others filed late or stated they did not have any beneficial owners.
Shell companies can have legal aims such as easing access to international markets or servicing clients in many countries and none of the actions by the companies necessarily signal improper dealings.
Robert Palmer, policy advisor at advocacy group Global Witness, said the filings showed people might be able to hide behind shell companies despite the new system.
“One of the biggest flaws with the UK set up is that it is based on self-reporting and Companies House (which runs the UK Corporate register) has limited resources to go after people who fail to provide information or provide incorrect information,” he said.
Asked to comment on the ways in which companies appeared to be sidestepping the rules, Daniel Munden, Chief Press Officer for the government Department for Business, Energy and Industrial Strategy, which oversees the process, said implementing the new system would take time.
“These changes will ensure that companies are more transparent about who actually owns them," he said. "We have always been clear that the Companies House public register will be built up over time and completed by June 2017.”
"WE NEED TO KNOW"
The World Bank said in a 2011 report that UK corporate vehicles “feature prominently” in a database of international corruption cases its anti-corruption arm had compiled.
Two years later, former Prime Minister David Cameron unveiled the planned new rules, aimed at making Britain the first major financial center to insist beneficial owners are declared. The United States is now considering a similar step.
"We need to know who really owns and controls our companies. Not just who owns them legally, but who really benefits financially from their existence," Cameron said at the time.
The UK firms Reuters identified were either UK- registered companies or Limited Liability Partnerships (LLPs) whose directors were foreign-based individuals representing many companies or whose members were companies registered at legal offices in low tax jurisdictions such as Vanuatu or the Seychelles.
None had any obvious operations in the UK.
Two of the companies identified - Peaking Investments LLP and Global Cluster International LLP - had been formed since July 1. They did not list any controlling parties.
Both said in filings: “The company knows or has reasonable cause to believe that there is no registrable person or registrable relevant legal entity in relation to the company." They did not respond to requests for comment.
Asked about their statements, Joanne Johnstone, a spokeswoman for Companies House, said:
"It is entirely possible for companies not to have a PSC (person of significant control), For example, 4 shareholders with 25 percent of the shares each, and 25 percent of the voting rights, none of them is a PSC."
"It is perfectly legitimate for a company to have no beneficial owners and we do not verify such statements when they are submitted to us."
If a complaint was referred to Companies House, it could refer the complaint on to the BEIS, she said.
Of the 20 older shell companies, only one had published the required details as of Wednesday.
The annual statements or details of persons of significant control of seven of the companies have not yet been published.
Companies officially have 14 days after their anniversaries to present their ownership statements, but corporate filings at Companies House show they often file later.
Johnstone said late filing incurs an automatic civil fine and both late filing and filing of inaccurate statements are criminal offences. However, no one has been prosecuted under the relevant sections of the Companies Act 2006.
"Persistent breaches in delivering documents to the registrar also places the directors at risk of disqualification as a director," she said.
Twelve opted to file their statements before their due date and the June 30 cutoff. They had previously filed between July and October.
None of the 22 companies have websites or publish office addresses or telephone contacts in their filings. Directors, members or agents listed as providing mail forwarding services either did not respond to requests for comment or declined comment.
George Turner, a campaigner with the Tax Justice Network, said that while the practice of companies filing their annual ownership statement early was legal, it was unusual and that those companies should be investigated.
"This should be a red flag that the authorities should pursue," he said.
Other experts dismissed the concerns.
Lawfirm Shoosmiths advised clients filing early would simply be a way "to postpone dealing with a new and unfamiliar CS01 form” – a reference to the statement of beneficial owner.
Reuters was unable to trace any details of the activities of most of the companies which filed early or late.
An exception was Australia-based Ian Taylor, listed as a director for one of the firms, Gallow & McKenzie Ltd, whose registered address is a mailbox rental company in central London.
It was among those which filed early. Reuters was unable to establish why it had done so. In 2009, Taylor’s company helped incorporate SP Trading Ltd., a New Zealand registered company which chartered a plane that was impounded at Bangkok airport.
Thai authorities said they found weapons on board being sent to Iran from North Korea, whose arms exports were banned by United Nations sanctions.
Formation agents rarely have any idea as to the activities of the companies they create and Taylor denied any knowledge of or responsibility for the actions of SP Trading in a statement to media at the time confirming that he had helped set it up.
The beneficial owners of SP Trading were not sanctioned by any government and neither was Taylor in relation to his company formation activities.
Taylor did not respond to requests for comment by email and telephone. On his website Taylor says he conducts due diligence on clients and that “only those with sincere business interests will be accepted as clients”.
The one entity which identified a person of significant control among the 22 companies Reuters examined, was an LLP of two companies registered at a company formation bureau in the former British colony of Belize in Central America.
It listed a 27-year old Russian national based in a town 300 km (186 miles) south of Moscow as the sole “person with significant control”.
Reuters was unable to find any contact details for the shareholder or the partnership. The Belizean formation agent did not respond to requests for comment.
(Reporting by Tom Bergin; editing by Philippa Fletcher)