Select Committee on Business and Enterprise Minutes of Evidence


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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