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R3 response to the Treasury Select Committee's economic crime report

R3 response to the Treasury Select Committee's economic crime report

08 March 2019

Commenting on today's publication of the Treasury Select Committee's report "Economic Crime - Anti-money laundering supervision and sanctions implementation", Stuart Frith, President of insolvency and restructuring trade body R3, says:

"It is positive that the Treasury Select Committee recognises the importance of strengthening the statutory duties and powers of Companies House, to stymie would-be fraudsters. This is something R3 has long campaigned for. It's far too easy for fraudsters to muddy the waters at Companies House by setting up different companies with different spellings of their name. This makes it harder for insolvency practitioners and others to track them down, or to work out the extent of their corporate network. Even simple changes, like requiring ID from someone before they can register a new company, would help make the Companies House register much more useful in the fight against fraud.

"Insolvency practitioners play a key role in uncovering fraud, and tracking down expropriated funds, in order to return them to creditors. We look forward to working with the Government to look at what more could be done to encourage its departments and agencies to engage with external stakeholders who could assist in the fight against fraud - such as the insolvency and restructuring profession."

R3's policy recommendations (not covered in the TSC report) - see also R3's response to the TSC inquiry:

Reform of Companies House and improved registration requirements for directors

  • Require directors to provide identity documents when registering with Companies House;
  • Require companies to state (on their annual return to Companies House) the name of all directors 'however described' rather than just appointed directors;
  • Add a 'health warning' of what may happen to directors who break the terms of their disqualification order and other directors who are complicit in allowing disqualified directors to be involved with the management of a company to annual return forms, and notifications of appointment of, termination or change to the directors of a company.

Tackle strike-off abuse

  • The insolvency profession often finds that some directors seek to avoid scrutiny and repaying liabilities to creditors by having their company struck-off instead of liquidated. Unlike a liquidation, a dissolution involves no repayments to creditors and no investigation of director conduct. If abuse is only picked up after a company has been struck-off, a company can only be properly liquidated (and repayments made to creditors) once it has been 'restored' with an expensive and time-consuming court order.
  • The Government should make restoration an administrative process to make investigations easier.

Unique 'director identification numbers'

  • It is relatively common to find one director using multiple different versions of their name on Companies House records (for example, different spellings of a name, or with or without a middle name).
  • Providing directors with unique identification numbers would be an accurate way to distinguish between directors with similar names and to identify all of the companies for which an individual acts as a director. This would make it easier for creditors and others doing business with a company to track a director, and would help Government agencies to inform enforcement activities.

Use of bankruptcy as a method of redress for victims

  • The Secretary of State can currently petition to wind up a company in the public interest in various situations, including where the company has been used for an unlawful purpose, such as a vehicle to conceal fraudulent activity. Regrettably, there is currently no equivalent provision for individuals to be made bankrupt in the public interest. R3 believes that such a provision would strengthen the tools available to tackle fraud and increase the opportunities for recovering funds for victims of fraud from the individuals responsible.
  • Directors of companies wound up in the public interest should face automatic individual public interest petitions for their bankruptcy and/or disqualification from acting as a director.
  • The Government should also consider re-introducing 'criminal bankruptcy'. As originally enacted, criminal bankruptcy enabled a court to make a criminal bankruptcy order against a defendant where loss or damage was suffered by another person/s as a result of the offence committed by the defendant and the amount of the loss or damage exceeded £15,000. This power was abolished in 1988.

Review of funding options for civil action

  • Given the nature of an insolvency, there is often little or no money left in the insolvent company's 'estate' with which to fund litigation against directors and others who have removed money from the company illegitimately and who are refusing to repay it. Office holders and creditors may fund litigation out of their own pocket, or office holders may rely on third party funding (which may not be appropriate in all circumstances).
  • The Legal Aid, Sentencing and Punishment of Offenders Act 2012 stopped the practice of conditional fee arrangement uplifts and after the event insurance premiums being reclaimed, in full, from losing defendants. While insolvency litigation was initially exempted, this exemption ended in 2016. R3 would like to see the exemption restored, and a wider review of the funding options available for civil action.

Review of the operation of the Crown Prosecution Service

  • It often takes years to obtain a confiscation order and to appoint a criminal Enforcement Receiver, leading to a substantial loss in value of the asset base in criminal cases, and difficulties in making recoveries. The CPS's method of awarding appointments is often slow, with the cases awarded generally being small, as is the process of applying for a Receiver for cooperative and un-cooperative defendants. This impedes the aim of causing maximum disruption to serious fraudsters.
  • R3 recommends a review of the Crown Prosecution Service (CPS), both from an operational and funding perspective, and the creation of a separate joint public-private unit which is responsible solely for the recovery of criminal property.
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Giorgio Buttironi
Giorgio Buttironi
020 7566 4227
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