Examination of Witnesses (Questions 60-79)
COMPANIES HOUSE,
BERR
26 MARCH 2008
Q60 Mr Binley: Can I pursue this
point a little further, though, because you will know of World-Check's
and Datanomic's checks against high-risk people on the directors
list and you know that they found 4,000 on a relatively cursory
search actually. That must disturb you enormously, high-risk people
whose names are being sent out as being bona fide directors of
bona fide companies. Bearing that in mind, have you been to places
like Barclaycard to check the way they interpret in an intelligent
fashion their data? Have you seen that?
Mr Jones: I have not seen the
Barclaycard experience. I will just say a word though, if I may,
Chairman, about World-Check. I should say at the outset that I
welcome the opportunity of working with World-Check, or indeed
any other information provider, any other source of information
which would enable us to improve the quality and robustness of
the information on the register. We have been working with World-Check.
Without sounding too dismissive, because I do not want to sound
like that, there are, I believe, problems with some of the information
that World-Check produced. We have seen a sample of the cases
they have brought up and they include things like company secretaries
rather than directors, who of course are not caught by the legislation.
They include a number of directors of companies which are insolvent
or in liquidation and therefore not actually still—
Q61 Mr Binley: Sure, but there is
enough of a figure there to be concerning?
Mr Jones: Oh, absolutely, and
what I have said to World-Check and what I would say to any information
provider is that if they can provide me with information that
I can cross-match against the register to determine whether or
not we have got robust information on there, if we have got disqualified
directors on the register clearly I want to know about it because
our responsibility is to make sure that we keep a register of
disqualified directors but not that it seems to the public as
if they are still running companies.
Mr Binley: I understand that.
Q62 Chairman: I just want to push
this a little harder, because the claims made by World-Check,
if they are well-founded—I do not know the status of these
claims and you have raised some questions about some of them—are
really remarkably serious, disqualified directors operating companies
from prison. We are talking about money-launderers, fraudsters,
terrorists, sanctioned entities in 12 other high-risk categories,
narcotics traffickers. These are quite serious people and the
figures, 154 individuals involved in financial crime on your list,
13 individuals wanted by Interpol, and this is a month ago this
claim was made. I would have thought it would have been panic
stations at Companies House to see whether it is right or not?
Mr Jones: It was not panic stations,
but we certainly have taken their work very seriously and have
had discussions with them about how it can be used. I think we
need to remember, Chairman, that my responsibility goes as far
as making sure that disqualified directors are not on the register.
As far as I am aware, being wanted by Interpol does not necessarily
disqualify you as a director of a UK company, or indeed being
a terrorist.
Q63 Chairman: That is interesting.
A convicted fraudster would be. They say a convicted fraudster
had served a five year jail sentence for selling false insurance
and is listed as a director of two companies.
Mr Jones: Provided that person
had been disqualified as a director by the courts and I had been
notified about it, then I would be disturbed if that person was
still on the register. I would say that there are some question
marks in my mind about the size of the issue, but I do not want
to belittle it. The point is made and we most certainly do want
to work with any information provider who will give us valuable
information like this.
Mr Binley: That is fine, because that
takes me on to my final question really, and it is recognising
that you do have very valuable information, recognising that it
is already a saleable item in the marketplace, recognising you
have got an asset you can do much more with from a business perspective,
and you saw this question coming ages ago. Recognising that you
have got the data clean and you have put some investment into
checking it properly—and I do suggest you go to Barclaycard
and look at what they are doing in terms of intelligent interpretation
of data—
Chairman: You are very fond of Barclaycard!
Mr Binley: Yes, I am. Given all that,
would you like to be freer to exploit what is a massively valuable
asset and turn it into an asset of much greater use to the business
sector generally which they can rely on with much more credibility?
Would you like to be denationalised?
Q64 Chairman: We have just come back
from Turkey, where of course company registration is done compulsorily
by the Chambers of Commerce, so it is effectively denationalised.
Mr Jones: Yes. There are lots
of different models around the world.
Q65 Mr Binley: Would you like it
yourself? Do you see that as exciting?
Mr Jones: I think the job that
I have currently got is exciting, Chairman!
Q66 Mr Binley: I think you should
liven it up, because you could really go out there and make a
mark!
Mr Jones: It could hardly get
more lively! Just on the broader point, we have got an exciting
agenda in front of us in terms of implementing the Companies Act
so that businesses benefit, in terms of improving our electronic
take-up of services, so that ultimately our costs reduce and businesses
benefit and I have got a first-class team of staff there who are
a joy to manage, so I think it would be difficult for it to get
more lively even if we were denationalised.
Q67 Mr Binley: Can I just say, you
are sitting on a gold mine and it is not being appreciated, but
if you would like me to come with you to see Barclaycard, I would
be more than pleased to arrange it.
Mr Jones: Chairman, I undertake
to go and see Barclaycard!
Mr Binley: Let us do that.
Q68 Chairman: With a visit to Northampton.
Can we just go with this question of company hijack and how big
the scale of fraud is? You said you had a police officer from
the Met working with you for a year. The evidence I think we got
from the All Party Group on Identity Fraud suggested that he had
disrupted some 490 attempts to undertake fraud on the register.
At an estimated average cost of around about £100,000, there
was about £50 million worth of fraud disrupted in a year.
Do you have any idea of the scale of fraud in the use of the register?
Is it a small problem, a medium sized problem, a growing problem?
Mr Jones: The answer is that downstream
I do not have any idea because our responsibility, as far as I
understand it and as far as I have allowed staff to take it, is
that we identify (usually notified by someone) potential instances
of fraud and then we pass that information on to the law enforcement
agencies, be it police forces, SOCA or the City of London Police,
and they take it from there. They are, of course, given complete
access to the information on the register but I do not have any
information as to how fruitful their work is further down the
line in terms of combating fraud.
Q69 Chairman: What surprised me is
that there was a certain reluctance to admit to being the subject
of fraud, of course. It is slightly embarrassing and it carries
a reputational risk as well, but some big name companies have
come forward and said, "We have had it happen to us".
Atkins have said that. A recent example involved the director
of a subsidiary of W.S. Atkins plc, whose identity was stolen
and used fraudulently. "We firmly believe the fraudster obtained
the director's details, including a copy of the signature, from
Companies House".
Mr Jones: Yes. I would say two
things about that. The first thing I would say is, for Heaven's
sake sign up to PROOF and you will be covered, and secondly—
Q70 Chairman: Why not make PROOF
compulsory? Why should it be a requirement of registration?
Mr Jones: Because I do not have
the powers, Chairman.
Q71 Chairman: You would like to?
Mr Jones: I would very much like
to make PROOF compulsory, but I do not have the powers at the
moment.
Q72 Chairman: That is a very helpful
answer.
Mr Jones: The second thing I would
say, Chairman, is that of course the new Companies Act does provide
more protection for directors' residential addresses, and of course
a lot of the problems that we see are in people hijacking individual
directors' identities and therefore using that as the route to
hijacking individual companies.
Q73 Chairman: It is true that AXA
have said in public as well that they were the victim of a fraud
and their whole subsidiaries' registered office address was changed
at Companies House and they said, "Drawing on the credibility
of the AXA brand, this allowed a fraudster to rent property and
obtain goods, none of which were ever paid for. Tracing allowed
the creditors to identify our offices as a previous registered
address and alert all parties ..." They say that the cost
was relatively small but the opportunity cost for management and
its brand reputation was very considerable. So that was a whole
company that was hijacked.
Mr Jones: It is, sadly, not untypical
of that sort of issue that we see.
Q74 Chairman: Is there anything you
can do? Making PROOF compulsory—and I feel a Committee recommendation
coming on here, Mr Dart—is clearly one thing to be done,
but we have had some very useful evidence from the Institute of
Chartered Secretaries and Administrators, and this is a quote
from one of its members: "I am not surprised when fraudulent
acts take place. It seems to me it would be very easy to hijack
a company. It would be easy to obtain a sample of the current
director's signature from already filed documents and then to
file new forms replacing existing directors. I wonder if signatures
are checked by Companies House". Are signatures checked?
Mr Jones: No. It would be simply
impossible to check signatures given the number of documents that
we get in. We check that things are signed and that they purport
to be signed by a director, but for me it demonstrates how vulnerable
people are if they continue to file information on paper. However,
those who file information electronically with authentication
codes, which they would keep secret in the way that we keep our
bank code PINs secret from other people, if they would only sign
up to that and to protected on-line filing they would be covered.
Q75 Chairman: There is never a magic
bullet, a solution to all the world's problems, but compulsory
membership of PROOF would very significantly reduce the risk of
identity fraud?
Mr Jones: Oh, yes.
Q76 Chairman: Thank you very much.
Just two last issues then from me. This may be more for Mr Dart
than Mr Jones, I am not sure. It is about European private companies,
the proposals from the Commission for a new registration system.
I have to say I am sceptical about this myself, very sceptical.
I am not quite sure at all what benefits this brings. The European
Commission claims this would allow significant cost savings by
enabling the use of the same legal form in several Member States.
We would have to have a parallel registration system, though,
would, we not, and a full European registration system alongside
the national one?
Mr Dart: Chairman, I think it
is quite difficult to make a very soundly based assessment of
pros and cons of the European private company because we have
not actually got a detailed proposal in front of us, so we have
not, as it were, got something to evaluate. The Commissioner announced
in October that that was a priority for the Commission and I think
it is very likely that we will hear more during the French presidency.
It is slightly topical, perhaps, with the visit today. There is
a case in principle for a European private company. I am not sure
whether it really would rest on cost so much as making it easier
for small companies to operate across boundaries. It is a relatively
complicated thing to do, the rules on setting up subsidiaries
and branches, and so on, so the idea is that a common standard
format which would be recognised across boundaries in Europe might
make things simpler for small companies. Whether that is or is
not the case and whether it is accepted by people who have to
do business with such entities really does depend on the detail,
which we have not got yet. So I think it is one of those things
where the proof of the pudding will be in the eating.
Q77 Chairman: So it is a theoretical
possibility? In the abstract it might make sense, but the practical
consequences are not yet apparent to the Department and you cannot
really comment in detail on the proposal?
Mr Dart: This is an idea which
will be very complicated to make work. This is a proposal which
has been around for many years. You are, I am sure, familiar with
the European large public company, the Societas Europaea. Negotiating
that took, I think, nearly 30 years. You referred earlier to company
law being a job for life. Luckily, that was not entirely my job
for life, just 30 years. I would hope that since the intention
of the private company statute would be to help small companies,
that it would be a simpler process, but until we actually see
the proposal it is very difficult to say how it would work and
there are quite complicated issues about the interplay between
something which is a European vehicle and national laws, given
that we have not got harmonised company law in Europe.
Q78 Chairman: Consultation has ended
now, has it not, for the Commission?
Mr Dart: I am not sure I would
quite call it a consultation. The Commission asked whether such
a vehicle would be useful and a relatively high proportion of
the people from business who replied to that consultation on the
point of principle said that yes, it could be interesting and
they might want to take advantage of it, but that is not, of course,
the same as a consultation on an actual proposal.
Q79 Chairman: You talked about a
30 year timescale for the public company. Where do you think we
might be in terms of timescale? What is the next milestone in
this idea?
Mr Dart: I am expecting that there
will be a proposal put forward by the Commission during the French
presidency. I think it would take several years to negotiate the
detail.
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