UK company law is terrorism's friend

[R.A. Hettinga]

<http://www.guardian.co.uk/commentisfree/2010/jan/20/uk-company-law-terrorism
/print>

The Guardian

UK company law is terrorism's friend
By prioritising laissez-faire ideology over public safety, Britain is helping
al-Qaida et al to move cash through the banking network

Prem Sikka
guardian.co.uk, Wednesday 20 January 2010 08.00 GMT

US security officials claim that the growing presence of terrorist networks
operated by al-Qaida and others in the UK poses a major security threat. The
UK fights wars in Iraq and Afghanistan, but its domestic laws can enable Osama
bin Laden, al-Qaida and others to own and operate companies and move
resources.

For less than #100 almost anyone can buy a ready-made off-the-shelf company.
Armed with the certificate of incorporation, the controllers can open bank
accounts and be in a position to move cash through the banking network.

The UK laws on formation of companies are very permissive. Almost anyone over
the age of 16, with the exception of undischarged bankrupts and those
specifically disqualified by the UK courts, can become a company director.
Under the Companies Act 2006, directors of companies are required to register
a service and a residential address with Companies House, which could be the
UK address of an agent or a nominee. All companies must have at least one
natural person as a director but she or he does not have to be a UK citizen or
permanently resident in the UK. So in the absence of extradition treaties, the
UK law is powerless to do anything if the company directors leave the country
to escape criminal inquiries.

In principle, Companies House is supposed to check on the eligibility of
individuals to be company directors, but it can't cope. Last year, a study
revealed that nearly 4,000 individuals suspected of terrorism, drug
trafficking, fraud and illicit trading were running UK companies. Banned
company directors manage to set up new businesses without great difficulty.

The UK law also allows companies to become directors of other companies. These
companies can be registered in secretive tax havens. Over the years, I have
conducted many investigations into dubious corporate practices for newspapers,
radio and television programmes and the trail always leads to tax havens,
which hold no public information about the individuals behind those companies.
The registered address is about the only publicly available information. One
building in the Cayman Islands, a UK overseas territory, is the registered
address of 18,857 corporations. British Virgin Islands, another UK overseas
territory, with a population of 23,000 has more than 813,000 registered
companies, the highest number per capita in the world. These companies rarely
carry out any trade in their locales, but facilitate secrecy to their owners.

Over the years, US regulators have complained that many of the anonymously
controlled companies are behind terrorist funding, money laundering and
organised financial crime. US Senate inquiries show that offshore companies
are behind organised tax abuses and the jurisdictions rarely co-operate with
investigations. Indeed, the whole idea of control through tax havens is to
pitch one country's legal system against another's and thus obstruct and slow
down any investigation.

The anonymously controlled companies registered in tax havens control and
direct UK companies. The public has no idea who the real owners are and who
they are really dealing with. As part of the money laundering regulations
banks subscribe to the doctrine of "know your customer" (KYC), but without
knowing the details of directors they are happy to open bank accounts for
companies controlled by anonymous companies from tax havens. They may be
providing banking and credit facilities to criminals and terrorists.
Accountants and lawyers frequently act as the UK postboxes for the tax haven
companies and are often the brains behind the secrecy structures. The accounts
of the UK companies controlled by companies from tax havens carry a clean bill
of health even though there is no public information about the individuals
behind these companies.

The current UK company law prioritises laissez-faire ideologies over concerns
about public safety, security and accountability. It is perfectly possible for
Osama bin Laden, al-Qaida and others to be operating UK companies and shifting
funds through the established banking network. A first step towards reform
should to ban companies from acting as directors of other companies. Only
natural persons who are UK residents and citizens should be allowed to become
directors of companies.