Setting up a UK company costs £12 and can be done online. You have to provide the personal details of anyone who will be a director of the company, though nobody checks what you’ve submitted so it takes less than 24 hours for the company to be incorporated.
This makes the UK an especially good place to be an entrepreneur. The UK ranks 8th in the World Bank’s ease of doing business ratings, and around three-quarters of a million companies are founded each year. It also makes the UK an especially good place to launder money and commit fraud. You can simply open a company with fake personal details, such as:
- Judas Iskariot, who is director of MI5ER Limited alongside James Bond and Lord TM Spypriest. The company has £666 of capital. Of course it does.
- Donald Duck, a Saudi Arabian labourer.
- Jesus Christ, of Zion Road and apparently governed by the Word of God, who had significant control of a now dissolved company.
- The Scary Guy, who is sole director of a balance-sheet insolvent company called Visionheart
- Ganesh the Awesome, a Bristol-based cloud computing consultant.
- Earth Seasun Moonstar, a 77 year old director in charge of a company with the same name.
And this list doesn’t even include the 75 directors whose first name or surname is reported as “Xxx” (amongst their ranks a certain “Stalin XXX”). There are also 5000 company directors apparently under the age of 5. It seems unlikely that there are quite so many gifted kids with a bit of spare time on their hands before compulsory schooling.
However, a serious fraudster wouldn’t use such an obviously fake name or birth-date. Instead, they might try get someone else to be the “nominee” director of their company. That means the fraudster’s name isn’t associated with the business. And a nominee isn’t hard to find. There are 29 individuals which are the director for over 500 companies. Between them, those 29 individuals are directors of around 40000 companies…! That’s not a typo.
But even using a nominee might draw attention to your company: it looks like you’ve got something to hide. It would also, unhelpfully, involve someone else in your criminal enterprise. So instead you might create a generic alias as director. Something like David Smith – the UK’s most common name – won’t look suspicious.
The problem is that other fraudsters have had exactly the same idea. And so Companies House ends-up with a few too many David Smiths as directors. It’s hard to estimate exactly how many. You can’t reasonably compare directors’ names to those of the general population – using the electoral register – as certain people are more likely to start businesses than others. Men, for example, are more likely to be directors than women. So you’d expect more John Smiths in the list of company directors than in the list of voters.
To control for this effect, we need limit our analysis to just names that appear as company directors. We can then divide our list of directors into two: those that represent companies that file their accounts on time, and those that don’t. The latter, we assume, includes more frauduelent companies. If you’re laundering money, its much easier to start another new company for £12 than get an accountant to publish fake accounts which anyone you’re committing fraud against might query.
And it turns out that there are twice as many David Smiths among the companies which fail to publish timely accounts. The same is true for most of the other most common names:
And so the Economic Crime and Corporate Transparency Bill is welcome. It’s yet to pass through the parliamentary process and achieve Royal Asset. But when it does, it will require individuals opening companies to verify their identity. We’ll keep an eye on how many David Smiths continue to open companies…