Sitting across the kitchen table at her central London home, Charlotte Pawar cheerfully explained how it was possible to create British companies without disclosing the owner’s real identity and how cash could be transported to foreign banks.
I had been invited to visit after emailing her company, Formations House, seeking advice on behalf of my fictional boyfriend in North Macedonia who was hoping to expand his used car sales business. During the meeting Ms Pawar talked me through how he could create a company without publicly disclosing his identity and obtain an account with banks not constrained by the strict anti-money laundering rules enforced by those on the British high street.
My backstory was carefully chosen as I had been advised that references to Macedonia and car sales should immediately raise red flags about the risk of money laundering.
Ms Pawar explained how I could act as a company director and obtain a bank account while a secret trust agreement would mean my boyfriend was really in charge and I would not be liable if anything went wrong.
She said Formations House would need to have proof of the source of the funds and more details of the business before they could proceed further.
She added that the luxury car industry was known as a money laundering risk so my boyfriend should be careful about talking about cash-based transactions as HM Revenue and Customs were “clamping down quite a lot”.
Laughing, she continued: “They’re interfering more . . . monitoring companies that sell high-value goods that are known to have a history of money laundering.”
Changes in European money laundering regulations meant cash banking was now difficult, Ms Pawar said. “It’s not going to be easy for him to take cash in because basically it’s tantamount to money laundering. The car industry is known for it and that’s what I would say he’d need to be very careful about talking about doing cash-based transactions — banks generally don’t like it.”
When later asked if my boyfriend’s business could continue trading in cash, Ms Pawar replied: “We’d need to check which banks in Europe are still taking cash. Rietumu still take cash but you have to go to Latvia, so if he’s driving that way . . . you can.” Rietumu was fined €80 million in France in 2017 over a money laundering scheme. The bank is appealing against the fine.
Details of Formations House services are included in a leaked database of documents being investigated by an international consortium, including The Times and Finance Uncovered in the UK, which is coordinated by the Organised Crime and Corruption Reporting Project.
In a boilerplate letter for customers Ms Pawar explains how Formations House holds “a large stock of pre-incorporated shelf companies”, with some over 15 years old and many having active accounts as well as credit ratings.
Her colleague described to customers how Formations House sold “readymade companies” in which “we have done some in-house little transactions just to file active trading accounts for them at Companies House”.
While a standard company was advertised as costing just £20, established firms were far more expensive. One was offered for sale for £15,000 with a “trading history over three years with significant trading volume” and an account at Royal Bank of Scotland.
Formations House also boasted of having had several UK limited liability partnership companies for which it had been “filing as active accounts with around 80k-90k per year turnover”.
Ms Pawar later said in a statement: “We clarified that we would only provide basic information and no advice could be given without a consultancy service being purchased. I immediately said that [the undercover reporter’s] partner should come to discuss the business in detail as there are many compliance issues with what she states he does. I explained that for high-value goods such as cars, HMRC may need to carry closer diligence of the business.
“I described to her the risks of the business in terms of money laundering. My intention was to clarify for her that she could be at risk and she should take caution.
“I did not tell her anything that is not widely available on the internet nor provided by countless trust service providers under fully regulated conditions. Her questions were clearly leading, and the information I provided to her is factual public information.
“I did not advise her of anything in relation to banks. I in fact attempted to highlight further that having to drive cross-border should tell her that the business is high risk and she should consider her position. The sale of shelf companies is common practice.”
What is Formations House?
The family-owned business registers new companies at Companies House, which holds the records of UK firms, directors and annual accounts. It has also offered customers “nominee” services to act as fronts for directorships and bank accounts, allowed its offices to be used as companies’ registered address and sold companies with a previous trading history. It also manages companies on behalf of owners.
It is among at least 105 formation agents authorised by Companies House to submit incorporations, accounts and updates using electronic filing software, although the number is likely to be far higher.
Charlotte Pawar, 39, the head of Formations House, said in a statement that it “does not offer nominee director services”.
How much did customers pay for Formations House’s services?
Formations House charged from as little as £20 to register a new company. Companies incorporated historically and with trading histories could cost more than £15,000. It offered new companies a nominee director service and bank account for £2,500. Use of its office as a registered address cost £75.
What is the appeal for criminals of using a formations agency?
The majority of companies incorporated in Britain are done through third-party formation agents. Criminals do not want to be identified but need a method of “laundering” their ill-gotten gains. They therefore like the distance an agent creates between themselves and the company and the extra services on offer.
Did Formations House know criminals were using its services?
The vast majority of its customers are legitimate: the self-employed, small businesses and companies looking to expand. There is no evidence in its leaked database that it knew in advance that criminals were using its services. The concern about its operations is that the level of its checks on customers would fail to highlight concerns about possible criminality and that its services have been extensively used by fraudsters and money launderers. Ms Pawar said that it “carries out the required due diligence”.
How is it regulated?
Formation agents operating in the UK are required to register with one of more than 20 supervisory bodies. They include HM Revenue & Customs, which supervises Formations House. HMRC subjects individuals to fit and proper tests to ensure that they are “appropriate people”, but this does not test whether the “business is professionally run or operated”. Money-laundering regulations require formation agents to put in place procedures such as checks on their customers. These include as to whether they are in tax havens or countries with high-levels of corruption, whether services are delivered online and whether funds are transferred via “high risk” countries. Formation agents are required to report suspicious activity to the National Crime Agency.
What are the penalties for breaching the money-laundering regulations?
Failure can result in an unlimited fine and/or prison term of up to two years if “the officer agrees to, or is involved in committing a crime” or “a crime is committed because of their neglect”, HMRC’s guidelines state. They also say it is a criminal offence to “say or do anything that may prejudice an investigation or ‘tip off’ another person”.
What is the government’s risk assessment of formation agents?
The government has found that agents with the highest risk are those offering a wide range of services used together to mask the real owner “whether through complicity, wilful blindness or negligence”. It also found that the greatest risks arose from those that were negligent or complicit in facilitating money laundering and from inconsistent oversight by supervisory bodies. The business department has been seeking to bolster the powers of Companies House. However, it believes that “very few” formation agents are complicit in money-laundering activities.
What can be done to improve the regulations?
The business department has proposed that agents should provide evidence to Companies House that they have undertaken due diligence checks on individuals, and that more information on agents filing on behalf of companies should be collected.
Companies House would also have responsibility for checking the identities of individuals setting up, managing or controlling companies. Reforms recommended by The Times include that only formation agents supervised in the UK or in jurisdictions with at least equivalent regulatory standards should be able to incorporate companies at Companies House. Agent supervisors should also have appropriate resources and sanctions to carry out their duties effectively, be free from conflicts of interest and have transparent enforcement.
