MLR3C10445 - Trust or Company Service Providers (TCSPS): Company Formation Agents and Money Laundering risks

-— Company formation agents are considered to be potentially high risk from a money laundering point of view. This is because criminals can hide behind the anonymity of a company name. It becomes difficult to trace the origins of criminal money if it is concealed behind a web of connected companies. Fraudsters make use of companies because the company name can give an impression of size and substance to the victims of crime. The main risk therefore is that companies may be formed with false particulars being given for the identities of the directors and/or their addresses.

The following risk factors have been identified as being present in applications to form companies and in situations where the business supplies a range of TCSP services where company formation forms part of an overall package.

• A request for a face to face interview to form a company made to an on-line formation business is regarded as being suspicious. This is because formation agents usually set up systems where their web forms require details of the applicant’s name, home address and landline telephone number. Payment must be made from a credit or debit card in the applicant’s name. Additionally checks may be made to match the applicant to the postcode and email or phone contact may also be made.
• Not all businesses will choose to collect the information listed above which goes beyond what the regulations require for one-off transactions.
• Applications from nominees are accepted which when coupled with a service address makes the applicants almost untraceable.
• Applications are accepted from a “true” director and a nominee director however the true director is offshore and the nominee is UK based. Again this renders the applicants almost untraceable.
• The initial application requests a straightforward formation (subject to minimal due diligence) however the applicant apparently has “second thoughts” (industry term for these applicants is “second thought applicants”) and requests further services such as the provision of a registered office where additional due diligence measures should be undertaken but is often forgotten. It is thought that these “second thought” clients are often deliberately trying to evade the formation agent’s compliance systems.
• Cash applicants. As most formation is conducted on-line cash cannot be used. Any cash trading is therefore high risk as checks cannot be verified by reference to bank information.
• As the market is very competitive with fees being as low as £15.99 plus the Companies House fee the profit element is very low. Due to this the agent is unlikely to carry out much compliance checking activity.