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Corporate Due Diligence: Records in the Public Interest

on Tuesday, 23 August 2016.

At last year’s ARA annual conference in Dublin, we came in for (gentle) stick from some members for not being vocal enough when we see questionable things happening in the sector. We’ve been a bit more active this past year and, anecdotally, many of you say you have noticed and approve. For those who want us to do more, hopefully we’ll see you (and hear from you) at this year’s conference at Wembley from 31 August.

On the theme of speaking up, members may have seen reports that the UK Information Commissioner’s Office (ICO) has apparently been grappling with a particular issue of late. It concerns Companies House, the UK’s official register of firms, the government agency where you have to deposit registration documents, annual accounts, lists of directors and shareholders, etc. when setting up and running a business in the UK. All very dry stuff, but important for helping the tax man and for ensuring that directors and shareholders follow the law. Of course, the recent use of offshore shell companies has devalued much of the information in the Companies House files. Much like the debate about tax ‘evasion’ and ‘avoidance’, clever accountants and lawyers have create such shell companies to disguise the real ‘beneficial owners’ of a UK-registered firm, ie import more secrecy into the system for the benefit of their rich and connected clients.

But it wasn’t always like that. Twenty years or so ago, when Companies House began digitising its information (and later, when it became accessible online for pennies), the agency had locked in priceless information about dodgy directors, shareholders with a history of money-laundering, including from some of the world’s more corrupt jurisdictions), scam merchants and (of course) the vast majority, who – more or less – played by the rules.

The registry now contains some records going back half a century. Investors, journalists, non-governmental activists, corporate recruiters and private sector due-diligence providers – among others – have been able to use it to look into the background of major and minor companies of all shapes and structures, and the people who own and run them. If there were something murky in an individual’s past (or present), the registry would help them find it.

In other words, the Companies House register has become an important public interest information tool in the fight against fraud, corruption and tax evasion at home and abroad.

No surprise, then, that there is a (literally) rich list of those who would like to see that situation changed. And so it is that a number of people - reportedly, because they are un-named - have tried to use the 2014 ‘right to be forgotten’ ruling of the European Court of Justice to have all records held by Companies House erased that are older than six years. No mention in all of this of the public’s ‘right to know.’ Of course, none of this was intended in the 2014 ruling and none of it is intended – according to everyone we have spoken to – in the new EU General Data Protection Regulation. But intentions have never stopped clever lawyers from exploiting and creating loopholes. More worryingly still, Companies House and the ICO appear to be wobbling.

There is a parallel here with proposals to privatise the Land Registry, the repository of data and records on who owns what land and property in the UK. Like the Companies House register, the vast majority of Land Registry transactions and details and the people listed on them are clean. And, as with the corporate register, there are weaknesses in the Land Registry system. But if individuals and companies do try to launder ill-gotten gains through the UK property market, there is a good chance that researchers may be able to trace this through the records held in the Registry. Privatisation would take the Registry out of the public space completely and, with it, public access.

Due to extensive and welcome cross-party concerns in Westminster, it seems likely that the Land Registry privatisation may be dropped, though it is not yet a done deal. However, individual ICO considerations and decisions are not subject to the same kind of direct Parliamentary oversight. The new Information Commissioner, Elizabeth Denham, starts in a few weeks. We’ll write and seek clarification from her and her colleagues on the Companies House issue.

The good news is that lots of organisations and groups have picked up on the Companies House story. There was a good piece in the Guardian by Roy Greenslade two weeks or so ago. And an ARA Board member pointed out an excellent piece in the latest edition of Private Eye (1425), which will appeal to many members for its Byzantine twists and details!

If any of this bothers you as a records professional, drop a line to your local MP. It seems inconsistent at best for government to say that it will do everything possible to tackle money laundering, corruption and fraud, and yet contemplate allowing two key tools in that fight to be – literally – erased from the public space. Let’s hope that wiser counsel prevails. 

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