In October 2023, the UK government passed the Economic Crime and Corporate Transparency Act, the most significant reform to Companies House since the agency was created in 1844. The Act turns a passive registry that accepted whatever documents were filed into an active gatekeeper that can challenge, query, and reject filings. For the more than 5 million limited companies on the register, the change is fundamental. The question is whether the new powers arrive in time and with enough resources to fix a system that had become a global vehicle for money laundering and sanctions evasion.
Companies House is the executive agency that incorporates and dissolves limited companies and maintains the public register. For most of its history, it did exactly what it says on the sign: it kept a list. It did not check whether the people named as directors were real, whether the registered address was genuine, or whether the business itself had any legitimate purpose. That system worked when company registration was a niche administrative function. It broke catastrophically when the UK became the jurisdiction of choice for shell company formation.
The Passive Registry as a Vulnerability
The absence of identity checks at Companies House made the UK register attractive to criminals. Between 2010 and 2014, the scheme known as the Russian Laundromat moved over USD 20 billion out of Russia using UK-registered shell firms. The mechanism was simple: create an entity, name a nominee director who may not know they have been named, open a bank account, and move money through trade transactions that never took place. Companies House had no power to stop the incorporation. It had no power to ask who was really behind it.
Transparency International UK published an investigation in 2018 that found over GBP 80 billion worth of property in England and Wales owned by businesses registered in secrecy jurisdictions. A substantial portion of those properties were held through UK-registered entities whose ultimate owners could not be identified. The register had a People with Significant Control (PSC) requirement from 2016 onward, but it relied on self-reporting. No one checked if the named person was real or if they had consented.
How UK Shell Companies Enabled Global Schemes
The Russian Laundromat was not an isolated event. The Azeri laundromat, a similar scheme uncovered in 2017, used UK-registered firms to move money from Azerbaijan into European bank accounts. Danske Bank's Estonian branch, which processed hundreds of billions of dollars in suspicious transactions between 2007 and 2015, routed funds through UK shell entities that had no employees and no websites. The common thread: Companies House could not confirm who controlled those entities.
Sanctions evasion after the Russian invasion of Crimea in 2014 and again after the 2022 invasion of Ukraine relied on the same gap. Individuals under sanctions incorporated businesses through UK formations agents, provided nominee officers, and filed addresses that were empty offices or residential properties whose occupants had no connection to the entity. When law enforcement agencies tried to trace ownership, they found a chain of UK companies with no real people attached. The register gave the appearance of transparency while concealing the truth.
The Economic Crime and Corporate Transparency Act
The Economic Crime and Corporate Transparency Act received Royal Assent on 26 October 2023. It is the legislative vehicle for transforming Companies House from a document repository into an active gatekeeper. The Act introduces mandatory identity confirmation for all new and existing company officers, for People with Significant Control, and for anyone filing documents on behalf of a business. That includes formations agents, accountants, and solicitors who submit filings for clients.
The Act also gives the Registrar of Companies statutory power to query, challenge, and reject filings. Previously, the Registrar could only reject a document if it had a physical defect: missing pages, illegible text, or an incomplete form. Now the Registrar can ask for evidence that an officer exists, that an address is genuine, and that the entity has a lawful purpose. If the evidence does not arrive, the filing is rejected and the business can be struck off.
Mandatory Identity Verification for Directors and PSCs
Identity confirmation is the central mechanism of the reforms. Every new company officer will have to confirm their identity with Companies House before the entity is incorporated. Existing officers will have a transition period during which they must confirm, or the business risks being struck from the register. The process requires linking the individual to a certified identity provider and submitting biometric or document-based proof. For officers who already hold a UK passport or driving licence, the process is designed to be digital and automated. For overseas officers who do not hold UK identity documents, the requirements are stricter.
The People with Significant Control register, introduced in 2016 to comply with the EU's Fourth Anti-Money Laundering Directive, will finally be enforceable. Under the old system, a business could name a PSC without that person's knowledge or consent. Under the new system, the named PSC must confirm their identity, and Companies House will check that the person exists. If the named PSC does not confirm within the statutory period, the entity must explain why or face penalties. This closes the nominee officer loophole that the Russian Laundromat and similar schemes exploited.
Enforcement Powers and the Scale of the Challenge
The Act enhances the Registrar's investigative and enforcement powers. Companies House can now issue financial penalties for non-compliance, including for late filing, failure to provide identity confirmation, and submission of false information. The penalties are designed to be proportionate but significant enough to deter casual non-compliance.
The scale of the challenge is defined by the register itself. With more than 5 million limited companies on the register, even a low proportion of non-compliant entities means hundreds of thousands of cases to process. Many of those businesses are dormant, abandoned, or used for a single transaction and then left unused. The reforms require Companies House to distinguish between a dormant entity owned by a real person and a shell entity owned by no one traceable. That distinction is not visible without confirmation, which is why the backlog of unverified entities will take years to clear.
Implementation Timeline and Phasing
The Act received Royal Assent in October 2023 but the reforms are being implemented in phases over several years. The first phase, which includes the establishment of the identity confirmation framework and the secondary legislation to define the confirmation standards, began after Royal Assent. Subsequent phases will introduce mandatory confirmation for existing officers and PSCs, enhanced powers to query filings, and the full enforcement regime. As of October 2024, the transition was ongoing. The precise start dates for each phase depended on further statutory instruments and the readiness of Companies House's digital systems.
The phasing is necessary because the scale of the change is unprecedented for the agency. Companies House had to recruit and train staff, build new digital confirmation infrastructure, and design processes for handling millions of confirmation requests. The agency moved from a model where most filings were accepted without human review to a model where every filing is subject to potential challenge. That shift requires cultural change as well as technical change.
Criticism from Anti-Corruption Campaigners
Transparency International UK, which had campaigned for reform of Companies House for over a decade, welcomed the Act but criticized potential loopholes. The fee structure for identity confirmation was a particular concern. If confirmation was priced too low, it would not deter criminals, as the cost of forming a shell entity would remain trivial compared to the value of the fraud they enable. If priced too high, it could burden legitimate small businesses and startups that use company formation frequently. The balance remained unresolved as of late 2024.
Campaigners also pointed out that the reforms applied only to the UK register itself. The role of formations agents and intermediaries who incorporate thousands of entities per year was not directly addressed. While the Act requires those agents to confirm the identity of their clients, enforcement relies on the same Companies House infrastructure that was historically under-resourced. If an agent in a low-regulation jurisdiction incorporates a UK business for a client who never sets foot in Britain, confirmation is only as strong as the agent's due diligence.
What the Reforms Mean for the Register and Its Users
For legitimate businesses and investors, the reforms should make the register more reliable. An entity that is on the register after the confirmation transition period will actually have identifiable officers and owners. That reduces risk in due diligence, corporate transactions, and property purchases. For policy makers and law enforcement, the reforms close a channel that had been used for sanctions evasion and large-scale money laundering. The days when a shell entity could be formed in 15 minutes with no confirmed identity and no real address are ending.
For criminals, the cost of using UK entities will rise. They will need to provide real identity documents, real addresses, and real ownership information, which exposes them to detection. The question that remains unanswered is whether the enforcement resources will match the ambition of the legislation. The Act gives Companies House the legal power to act. It does not guarantee that the agency will have enough staff, enough funding, or enough political support to see the transformation through before the next set of criminal innovations finds a new gap.
Key Facts
- Register size: Over 5 million limited companies
- Russian Laundromat: Over USD 20 billion moved through UK-registered shell companies (2010-2014)
- Property ownership: Over GBP 80 billion in UK property owned via secrecy jurisdictions (Transparency International UK, 2018)
- Legislation: Economic Crime and Corporate Transparency Act, Royal Assent 26 October 2023
- Key new power: Mandatory identity verification for directors, PSCs, and filers
Comparison of Old and New Powers of the Registrar
| Power | Before the Act | After the Act |
|---|---|---|
| Identity verification | None | Mandatory for all directors and PSCs |
| Query filings | No statutory power | Can demand evidence and explanations |
| Reject filings | Only for physical defects | For non-compliance with identity or substance requirements |
| Financial penalties | Limited | Enhanced, including for false information |
| Strike off | Required court action | Administrative power for non-compliance |
Frequently Asked Questions
When did the Economic Crime and Corporate Transparency Act become law?
The Act received Royal Assent on 26 October 2023.
Who must verify their identity under the new rules?
All new and existing company directors, People with Significant Control, and anyone filing documents on behalf of a company.
What happens if a director does not verify their identity?
The company risks being struck from the register. The Registrar can also issue financial penalties for non-compliance.
