Tens of thousands of people are having companies set up in their name by fraudsters who then use the details to take out loans or swindle consumers.
Victims forever live in fear of debt collectors and the police linking them to dodgy companies and loans. This growing type of fraud, part of a wider criminal epidemic sweeping the country, is being met with no resistance from Companies House, the country’s official register of more than four million limited companies.
Despite promises by the Government to beef up its powers, Companies House is powerless to check the veracity of information supplied by anyone forming a new company.
Increase: Tens of thousands of people are having companies set up in their name by fraudsters who then use the details to take out loans or swindle consumers
The result, one expert told The Mail on Sunday, is a fraudster’s paradise.
Fraud is now reaching shocking levels in the UK. The amount stolen through such scams surged by 30 per cent in the first half of this year to £754million. For months, the MoS has campaigned for urgent action to ‘Nail the Scammers’, including co-ordinated action by the police, Government and banks to tackle the crimewave head on.
Identity fraud – the type being perpetrated by those setting up companies in the name of innocent consumers – has surged.
Recorded cases are up a quarter in the first half of this year. Experts believe this is in part due to fraudsters finding ways to get their hands on financial assistance offered to legitimate struggling businesses during the pandemic.
One victim is Michael Waller, 77, a director of a specialist print company in Kent. ‘I was shocked to receive a letter from Companies House in May congratulating me on becoming the director of newly-formed business Capital Financing Ltd,’ he says. ‘It said that as director, I was legally responsible for running it.’
Michael had never heard of Capital Financing, does not know what it does (if anything), or who is behind it, and now faces a battle to get his details removed. So far, Michael is not aware of any loans taken out in his name. But he fears it is only a matter of time.
How can this happen?
Facilitating this increase in identity fraud is the ease with which anyone can set up a company in the UK.
Someone is able to register a business at Companies House in minutes for just £12 – without having to provide proof of identification. There is also little to stop fraudsters inputting any information they like – for example, details about the alleged directors of the business and their addresses.
The register is littered with false and fraudulent information. A quick search reveals that registered company directors include Adolf Tooth Fairy Hitler and Stalin Stalin. Companies House simply registers whatever information is provided – it has no legal power to check or question it.
In fact, Martin Swain, director of strategy, policy and external communications at Companies House, recently admitted: ‘Even though, sometimes, we know that the information is incorrect or potentially fraudulent, the registrar is legally required to register it.’
After Michael Waller was fraudulently registered as a company director, he decided to set up a company himself to see how easy it was to do. He was not asked for identification and with help from his computer-savvy grandson, the firm, called Fraud Prevent Limited, was registered in 29 minutes. Tony Hetherington, The Mail on Sunday’s consumer champion, says: ‘The flaw with Companies House is that it is no more than a library. It relies on everyone being honest, which is not the case.’
Informing Companies House that information about a registered company is incorrect is a waste of time, he says. Once information is accepted by Companies House, it gains an air of legitimacy. Banks, for example, will often use it to help them verify details about a company, its accounts and directors. Helena Wood is an associate fellow at the Centre for Financial Crime and Security Studies at the Royal United Services Institute in London. She says: ‘The Companies House register is not fit for purpose and we need action to fix it.
‘There has been a lot of heel-dragging from the Government which has left victims exposed to identity fraud. It has compromised the UK’s reputation as a place to do business.’
There is a plan to beef up the powers of Companies House. Wood says details must be included in the Queen’s Speech next year.
She adds: ‘Either the Government doesn’t understand that poor Companies House oversight is fuelling a fraud issue, or it does understand, but is willing to prioritise the ease of doing business in the UK.’
Wood believes more people will discover they have companies fraudulently registered in their name in the coming months.
‘It is likely companies were set up in other people’s names to fraudulently claim billions of pounds of bounce back loans and other financial support during the pandemic,’ she says. ‘It would not have been as easy to abuse the system if Companies House could have carried out proper checks.’
Lenders do not normally rely on Companies House data to award a loan. But during the pandemic, when it was vital to provide a cash lifeline to struggling businesses, standards dropped. Loan fraud will cost taxpayers tens of billions of pounds, the Public Accounts Committee of MPs has warned.
How fraudsters operate their scams
Once a fraudster has set up a company in someone else’s name, a wealth of opportunity for criminal activity suddenly opens up.
They may use the new company to apply for loans or bursaries they have no intention of repaying. The fraudsters remain anonymous, so they will not be on the hook for the loans. Thankfully, victims will not be asked to pay the loans back once they show that their information was fraudulently used without their knowledge. But if someone appears to be associated with a bogus company, it can compromise the reputation of any genuine business of which they are a director.
WE NEED ACTION TO STOP SCAMS NOW
If Companies House verified the information it received from those wishing to set up a business, it would go a long way to cracking down on fraud.
Readers’ Champion Tony Hetherington believes that anyone who registers a company should be required to provide their National Insurance number. Companies House could then use this to check with Revenue & Customs that they are who they say they are. ‘It would also stop fraudsters registering company directors who are dead or emigrated years ago, as happens today,’ he says.
James Jones, at credit reference agency Experian, says anyone worried that their personal information may have been used to commit a fraud can contact fraud prevention service Cifas to ask for a warning flag to be added to their credit file – held by the main credit reference agencies. He adds: ‘A warning flag can delay a genuine application for credit, but it may be worthwhile if it prevents someone fraudulently taking out a loan in your name.’
Companies House offers a free service, PROOF, that allows directors to protect their firm from unauthorised changes to its records. Go to gov.uk/guidance/protect-your-company-from-corporate-identity-theft.
Victims also face a struggle to have fraudulent details removed from the register. In some instances, Companies House will delete information, although it takes weeks. Some fraudulent information can only be removed with a court order.
Amber Burridge is head of financial intelligence at fraud prevention service Cifas. She warns there is a second sinister reason why fraudsters may set up companies in someone else’s name. She says: ‘Criminals may use the listing of a company at Companies House to add an air of legitimacy to a fraud campaign they are running.
‘Many consumers trust organisations which are listed. So, by registering a business, criminals can often defraud more individuals.’ At most risk are genuine company directors, of whom Michael Waller is one. They are targeted because they often have good credit records – so a loan applied for in their name has a high chance of approval.
Company directors also have their personal details – full name, address, month and year of their birth – listed at Companies House. These are freely available for anyone to see and use.
Almost one in five victims of impersonation fraud are company directors, according to research by fraud prevention service Cifas.
Helen Shorthouse, 59, from London, is a director of several legitimate property companies. She recently discovered she had been fraudulently named the director of a new company, Helen ST Ltd.
She’s now very worried that a loan will be taken out in her name – or that the police will knock on her door because she is the director of a fraudulent company.
‘It has been upsetting,’ she says. ‘I contacted Companies House, but it would not take responsibility. It directed me to Action Fraud, but it was uninterested because no crime had yet been committed.’
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