Crime reports 'disappear into a black hole': How criminals have abused company formation firms
PUBLISHED: 17:00 20 September 2019
North London company formation agents have been exploited by criminals across the world but they say that now the government - not them - is the one that needs to change. Hannah Somerville reports.
The 88-year old who helped set up around 30,000 British companies lives in a modest flat in a leafy suburb of north London.
Before her retirement three years ago Barbara Kahan signed off on tens of thousands of incorporation documents for companies formed in the UK at 788-790 Finchley Road.
The companies were set up by a firm founded by her son Keith called A1 Company Services.
He moved to Florida in 2003 and could not be reached for comment.
But as the Ham&High detailed yesterday some companies sold by agents at Finchley Road were used by criminals. Things however could now be changing.
Weaknesses in the public register, Companies House, have prompted a consultation on corporate transparency in the UK.
A government paper surmised: "There are concerning cases of UK corporate entities being deployed by international criminal elements… and provision of false information."
These changes are supported by formation agents, including the new owner of A1, the Stanley Davis Group.
Chief executive of the Stanley Davis Group, Andrew Davis, said: "We have neither a legal nor a moral responsibility for the activities of the companies that we form."
But he said A1 and sister companies now carry out due diligence where anti-money laundering or terrorist financing is suspected - and report concerns to the National Crime Agency (NCA).
"Unfortunately," he said, "their systems are not terribly satisfactory. The reports do not get acknowledged and just seem to disappear into a black hole.
"When we identify, for example, a fake passport, we report this to the NCA, to Action Fraud, to police and to the Passport Office. These reports are never acknowledged."
Mr Davis said, Companies House was the true "hole in UK legislation, allowing people to bypass anti-money laundering checks".
Robert Gersohn, the manager of BC Business Centrum, A1's former stablemate at 788-790 Finchley Road, echoed the same sentiments.
Calling the situation a "farce", he wrote to the Ham&High: "We are complying with the Anti-Money Laundering Regulation of 2017 but Companies House isn't.
"Effectively, what the government is saying is that if we let a criminal slip our net, we will be prosecuted but it's ok for the government to let in the Mafia.
"How stupid is that?"
Here are some of the firms linked to domestic crime which were set up via agents at Finchley Road:
The phone fraud
In April 2018 a man called Hilal Jaafar was disqualified from the UK company register for fraudulently evading VAT.
His company, GSM Inter Trade Limited, was incorporated by Keith Kahan of A1 in 2001, and registered for VAT claiming to be an "agency for sales of mobile phones and electronic and radio equipment".
In an extraordinary High Court case in 2014 Jaafar appealed against HMRC's decision to deny his company a claim for £1.8million in input tax - even as the government was already trying to recover £1.6million from him.
It related to alleged purchases and exports of expensive Samsung Serene mobile phones in early 2016 from two suppliers, Infinity and Future.
Infinity Holdings Limited had also been formed by agents at 788-790 Finchley Road in 2004.
Judges noted it was "manifestly the case" that Infinity and Future were fraudulent contra-traders: buying and selling the same shares without paying for them.
Infinity collapsed in 2010 owing an estimated £11.2million to HMRC and efforts to recover the funds continue today. Two years later the gang's masterminds were jailed at Kingston Crown Court over their attempt to steal a grand total of £176million from the taxpayer.
Monticello PLC, where work and pensions secretary Amber Rudd was a director from 1999 to 2000, was incorporated in October 1998.
Incorporation documents reveal it was set up at 788-790 Finchley Road through then-A1 Company Services owner Keith Kahan, Mrs Kahan's son.
In January 2000 then-director Mark O'Hanlon gave a misleading interview to a news website about Monticello's prospects, leading its share prices to soar.
After an inquiry by the Department of Trade and Industry into share-ramping at the company, O'Hanlon pleaded guilty to an offence under the Financial Service Act and was sentenced to 18 months in jail in 2007.
The company was wound up by a court order in 2003 owing £70,000 to creditors and £1.3million to shareholders - as well as thousands to Camden Council.
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In a case brought by the Financial Conduct Authority (FCA), eight men were jailed in 2015 for a total of 26 years for running an unauthorised investment scheme.
Between 2008 and 2011 they were found to have extracted more than £5m from 110 people, none of whom saw any kind of return, by cold-calling them to sell them agricultural land they did not own.
Three companies were set up to run the scheme including one called Stirling Alexander Limited, which was set up by A1 at 788-790 Finchley Road.
Its incorporation document bears the name of two nominee directors, Barbara Kahan and Woodberry Secretarial Limited, from the group's latent address in north Finchley.
A total of £2.1m was later confiscated from the defendants.
Binary options allow investors to take a bet on which way the price for a financial asset or market will go - either winning a fixed amount, or losing all their cash.
It is banned outright in the UK as a form of gambling. Many outlets have been exposed as fraudulent, with the FBI claiming binary scammers take in $10bn a year worldwide.
In the early 2010s company formation agents in Britain were targeted by binary scammers looking to set up UK companies.
NetoTrade UK Limited, Amadicia Limited and Fyremount Consultants Limited were among those formed through BC Business Centrum, with Barbara Kahan and BC's manager, Robert Gerhson, as initial directors, between 2011 and 2014.
The three firms were subject to FCA scam warnings and have since shut down.
Mr Gersohn told the Ham&High that he helped the Serious Fraud Office and senior Metropolitan Police officers investigate the practice.
He said he reported "dozens" of similar companies to Action Fraud and as a result of the "fiasco" he resigned outright from being a nominee director.
He added: "The industry has tightened its belt severely in the last few years"
A drop in the ocean: what needs to change?
The former tenants of 788-790 Finchley Road operated company registrations under a number of different names, but the main two were BC Business Centrum and A1 - whose faded name is, many years down the line, still stuck on the doorbell.
Ben Cowdock, a researcher at Transparency International UK, said it was "fairly extraordinary" to have hundreds of thousands of firms based at one address.
He added: "While it's difficult to find an annual sum, the value of the company formations industry runs into billions of pounds."
BC Business Centrum's owner David Pearlman told the Ham&High his company was "small stuff" and the spotlight should be on Companies House, the government body where owners register firms.
In August this year the government closed a consultation on sweeping reforms to the service to make it less vulnerable to "misuse" by "international criminals and corrupt elites".
The proposals include identity verification on shareholders, and companies having to prove they are entitled to use their registered address.
Formation agents could also be told to share the results of their customer due diligence work with Companies House and report any "anomalies".
Gareth Jones OBE, chairman of the Association of Company Registration Agents, is a former civil servant and chief executive of Companies House.
He said: "We welcome any attempt by government to make the UK a better place to do business."
But he echoed other private agents' sentiments that the proposals did not go far enough.
"Even if they are fully implemented," he said, "which is likely to be some years away, there will be an illogical and, in our view, unacceptable difference between what is expected of our members and the processes Companies House will undertake.
"The government should go the whole hog and undertake full due diligence on applicants (as we currently do). There should be a level playing field."
The official register of UK companies is accessed more than six billion times a year.
It employs around 1,000 people and currently has no statutory power or capability to verify if the information provided in company filings is accurate.
A spokesperson said 80 people are now employed to work specifically to improve the integrity of the register.
They added: "We operate one of the world's most open registers.
"Company information is under constant scrutiny by law enforcement agencies and the public and is a powerful tool for identifying inaccurate or fraudulent information.
"Where it is suspected that companies are involved in economic crime or other offences, we work closely with our law enforcement partners to help their investigations.
"We are well aware of the concerns about the misuse of UK corporate entities. That's why the UK Government has consulted on a range of reforms to Companies House, which would if taken forward, would be the largest change to the UK's system since the register was created over 170 years ago."
No date has yet been set for the results of the consultation to be published.