King's College London

The report, jointly authored by the Business Innovation and Skills, Defence, Foreign Affairs, and International Development Committees says it is ‘regrettable’ that the government has not yet taken steps against these companies that carry out activities overseas contrary to UK government policies whilst maintaining a UK business  license.

These recommendations follow similar statements made in the 2009, 2010, 2011 and 2012 CAEC reports. Given the protracted concern about the existence of these companies in the UK and past inadequacies in addressing these issues, it is prudent to more closely examine what these companies are, why their existence and activities are worrisome, and what is currently being done within Government to address these problems. Given the current problems in regulating these companies, it should also be noted that responsible private firms should be sure to conduct complete due-diligence on all business partners, even those registered in ostensibly legitimate countries.

What are ‘brass plate’ companies?

The 2011 CAEC report defines ‘brass plate’ companies as existing only in name in the UK, further stating that ‘they have no presence in the UK other than the brass plate, employ no UK nationals and no part of their activity is actually conducted in the UK.’[2] These companies, sometimes referred to as ‘shell companies’ are thus set up to provide a legal existence in a country where it has no real physical presence. Though brass plate companies can carry out legitimate business activities, the use of these companies to conceal arms brokering and exchanges and money laundering activities has sparked concern in recent years.

Human rights groups like Amnesty International have been especially outspoken against brass plate companies that are used to supply weapons and components to countries with poor records of human rights violations. Oliver Sprague from Amnesty stated in 2010 that,

The UK should not be considered a safe place by gun-runners and the like to trade weapons and their components to places where terrible human rights violations persist.  It cannot be right that a company can pay a very small token fee, set up an arms company and broker weapons to human rights crisis zones with apparent impunity from detection and prosecution. The Government should make sure it’s sending a clear message that it will not tolerate human rights violations and should make every effort to close down these kinds of operations.[3]

Sprague’s statement highlights a crucial problem in the UK, namely that it is currently relatively simple and cheap to set up a company that will not face a great degree of oversight from the Government. In order to register a business in the UK, companies need to register a UK address that can receive official letters and documents and display their company name outside the office.[4] UK laws do not require the company’s trading address and registered office to be the same, meaning that it is extremely easy for business owners of UK limited companies to live and work outside of the UK.

Those seeking to set up a shell business can do so through an accountant, through a company formations agent, or directly through UK Companies House. Though it is possible to set up a company through Companies House for a standard £15 registration fee,[5]those seeking to set up a company for more illicit purposes may prefer the similarly cheap anonymity afforded by a formations agent, officially known as a ‘trust or company service provider.’[6]

Google searches for ‘company formation UK’ reveal that hundreds of formations agents are available online offering a range of services from ‘email only’ (in which all necessary company documents are emailed to the business owner) to more inclusive packages where a brass plate with the business name is included. All one needs to do is confirm the desired company name is available, pay a fee, and the agent takes care of the rest. Once the shell company is created and set up, formations agents will usually provide basic administrative services for the business, but are usually unaware of the nature of the activities being carried out by the company.

The use of these services is essentially unregulated in the UK, and a single formation agent has been known to have several thousand companies registered at a single address.[7] Though the Government’s position is that any company with a registered office address in the UK is subject to UK law, lack of information about these companies and their physical presence abroad means that in practice it can be difficult to take enforcement action against these businesses.

A 2012 Report by Global Witness[8] revealed that ‘it is so easy to set up a company with hidden ownership in Britain that even a dead man can do it.’ The example cited, in which the shareholder of a British company used to funnel millions of dollars though the UK was a Russian man who had died years before the company was registered, demonstrates the need for more to be done to account for the true owners and activities of brass plate companies in the UK.

Where does the concern over brass plate companies stem from?

The CAEC Committees visit to Ukraine in 2009 revealed that the Ukrainian State Service for Export Control had granted licenses for strategic exports to UK-registered brokers. Four of the 12 companies named were ‘brass plate’ companies registered in the UK. An Amnesty International investigation in the aftermath of the release of this data showed that at least three additional companies registered in the UK had also been granted export licenses in Ukraine to transfer weapons to countries with human rights records of concern.

Oliver Sprague from Amnesty International commented on two of these cases, saying a Cornwall-registered company owned by two Ukrainians had brokered small arms components to Rwanda and a company based on the Isle of Man, also operated by Ukrainians, had been responsible for arranging the shipments and ‘chartering the vessels that supplied a huge number of T-72 tanks, armoured vehicles and anti-aircraft guns to Southern Sudan, a destination’ under EU arms embargo.[9]

The issue gained further prominence in the 2010 CAEC report, which recommended the Government ‘explore ways in which it would be possible to take enforcement action against brass plate companies, including consulting enforcement agencies in other countries on their approach to this problem.’[10] Though the Government’s written reply to this suggestion stated that it ‘remains very concerned about the growing evidence that UK ‘brass plate’ companies are being used to facilitate the unlicensed supply of weapons to countries of concern,’ the continued calls for further action demonstrate that not enough work has yet been taken towards this goal.

There has also been increasing concern outside of Britain regarding the improper use of brass plate companies. Though the Financial Action Task Force (FATF) is explicit about the steps governments need to take to regulate shell companies, stating that countries should ‘take all necessary measures to prevent their misuse, such as ensuring that accurate information on the real (or ‘beneficial’) owner is available to ‘competent authorities,’ it does not appear as if the 180 countries that have promised to comply with these measures are adequately doing so.[11]

A study[12] conducted in 2012 showed that almost half of incorporation agents failed to request proper identification and documentation from new clients. Posing as consultants, the authors of the report asked 3,700 incorporation agents across 182 countries to set up companies for them. The results showed that providers in OECD countries were far less likely to comply with standards than providers in other areas, and that many providers were willing to knowingly ignore the laws for the right price.

What is being done?

Despite repeated requests from the CAEC Committees and human rights groups like Amnesty International, the Government has yet to take major steps towards addressing the issue of ‘brass plate’ companies engaging in arms deals overseas contrary to British policy.

There are limited indications there may be changing:  The written answers from the House of Commons from June 4, 2013 show that the Secretary of State for BIS asked Customs House ‘if improvements can be made to their enforcement procedures,’ and stated that BIS is also considering whether any internal change to current legislation is appropriate.[13] The Chancellor of the Exchequer added that:

‘HMRC is developing the intelligence picture on the use of brass plate structures both in the United Kingdom and offshore that are impacting the UK across the regimes HMRC oversees. Specifically, HMRC is working with the Australian Tax Office and the Internal Revenue Service of the USA to tackle tax evasion through the use of offshore structures, some of which include the use of brass plate companies across a range of offshore territories.’[14]

While these comments specifically address actions to combat the money laundering implications of brass plate companies, these statements and the recent G8 Action Plan[15] to prevent the misuse of companies, provide hope that progress will be made on further regulating brass plate companies engaged in any form of activity contrary to UK Government policy in the future.

The Action Plan is a marked step forward in this regard, and states that the G8 endorses a set of common core principles consistent with FATF standards ‘that are essential to ensure the integrity of beneficial ownership and basic company information, the timely access to such information by law enforcement for investigative purposes, as well as, where appropriate, the legitimate commercial interests of the private sector.’[16]

A recent discussion paper published the BIS, ‘Transparency & Trust: Enhancing the Transparency of UK Company Ownership and Increasing Trust in UK Business,’[17] speaks to the importance of these reforms, especially for establishing greater transparency and trust in the business environment, and considers a wide range of proposals to help prevent illegal activity, including steps to ensure that the true owners of UK-based companies are known.

While moves towards establishing a central registry of business owners is a step in the right direction for combating the use of brass plate companies to hide illicit activity, it should be remembered that there are many obstacles standing in the way of full transparency, especially for companies registered under company formation agencies. Additionally, while steps to reduce tax evasion and financial impropriety are necessary to establish greater trust and transparency in the UK business industry, proposals in this regard should not neglect the fact that actions of brass plate companies, especially those involved in arms brokering and exchange can be devastating when linked to countries with recent histories of human rights violations.

As such, responsible firms should make sure to maintain complete due-diligence when investigating potential business partners, even those registered in countries not usually considered to be of concern. If anything, the debate over what the Government can do to further regulate brass plate companies involved in unfavourable activity demonstrates that many business owners take advantage of perceptions of the UK as a safe environment for business and the relatively lax enforcement laws when setting up shell companies for illicit purposes. A UK business-license does not necessarily imply that the company conducts legitimate business in the UK. All firms should be sure to thoroughly research the owners and activities of all potential business partners and report and questionable findings to the relevant authority.