Why We Still Don’t Know Who Controls British Firms, and Why it Matters

The fact that we don’t know who really controls British firms has been highlighted by recent admissions by Doug Barrowman, the businessman who benefited £60 million from his company PPE Medpro supplying PPE to the UK government during the pandemic in association with his wife, Baroness Michelle Mone. In a BBC interview in December, Barrowman admitted that he was the ‘ultimate beneficial owner’ of PPE Medpro. Yet, as the interviewer summarised ‘you led this consortium, you’ve made tens of millions of pounds out of it for your family, but your name’s nowhere to be found at Companies House when it comes to the business’.

The UK does have a legal regime which is intended to provide transparency as to the people who really control British firms, known in the UK as ‘People with Significant Control’ (PSCs), and internationally as ‘ultimate beneficial owners’. Firms must register the details of their PSCs and the nature of their control in order to assist law enforcement and regulators in identifying the real humans responsible for criminal or other wrongdoing by the firm or controlling its assets.

So how can a law, intended to provide transparency of business ownership by people like Doug Barrowman, allow such blatant disregard of both its spirit and its letter?

Well, for starters, the UK regime enables firms to declare to Companies House that they have no PSC.  Yet it is self-evident that every firm must be controlled or influenced by at least one person if it is to function at all. This is a significant loophole.

Second, challenging such a declaration, or indeed proving that there are PSCs other than those registered, is difficult for anyone outside the firm. This includes Companies House, regulators, law enforcement and journalists—the very people who need to be able to monitor and enforce the PSC regime. This is because the definition of a PSC creates further loopholes. Broadly, a PSC is a person who satisfies any one of the following conditions:

(1) they own more than 25% of the shares in a company (or of the surplus assets in a partnership when it comes to an end);

(2) they hold more than 25% of the voting rights;

(3) they have the right to appoint a majority of the managers;

(4) they otherwise exercise significant influence over the firm.

Yet the 25% threshold in (1) and (2) can easily be avoided by dividing ownership into smaller elements held by connected people and is anyway too high since much lower percentages can still be significant. Further, in partnerships the final entitlement to assets will not be clear in advance, and since partnerships operate on one vote per person, the voting threshold can only be reached if there are three or fewer partners. As to (3), the right to appoint managers will be unclear to the very outsiders who need to be able to assess it in order to monitor and enforce the PSC regime. And while conditions (4) and (5) are intended to catch arrangements which fall outside the more specific conditions, ‘significant influence’ is too nebulous a concept to monitor or enforce.

Third, PSCs often operate through trust or partnership structures or are themselves companies. The legal regime is intended to catch such multi-layered arrangements because they are potentially dangerous as they can prevent the chain of ownership from being traced to a human person who can be held accountable. But their very opacity also prevents monitoring and enforcement. Unsurprisingly, the use of corporate PSCs is a common feature of firms involved in money laundering and corruption.

Fourth, Companies House has had no power to challenge the veracity of documents registered with it and, although the Economic Crime and Corporate Transparency Act 2023 will give it some limited powers to do so, it is not being given the resources necessary for it to properly check PSC declarations or the underlying arrangements of firms. The PSC register is effectively ‘simply a voluntary honesty box arrangement’; just six people are responsible for monitoring the integrity not only of the PSC register but of the entire Companies House register. The scale of honest error alone was demonstrated when Companies House targeted 250 suspected non-compliant companies and discovered that 70% had inaccurate PSC details.

Finally, the PSC regime does not apply at all to English, Welsh or Northern Irish partnerships, despite extensive evidence that partnerships exempt from the regime have been involved in criminal activities on an international scale. Indeed, the extension of the PSC requirements to Scottish partnerships resulted both in a reduction of 80% in the number of Scottish partnerships being registered, and an associated increase in the number of English, Welsh and Northern Irish partnerships, suggesting that wrongdoers were deterred by the application of the PSC regime. Nonetheless, the government refused to extend the PSC regime to partnerships in the Economic Crime and Corporate Transparency Act.

What is needed, as a minimum, is for the government to resource Companies House to verify PSC data, close loopholes by prohibiting declarations that there is no PSC and reducing or removing the ownership and voting thresholds, and check up on corporate PSCs since they can obscure the real controllers. But Doug Barrowman and many others will be hoping they continue to refuse to act.

Elspeth Berry is an Associate Professor of Law at Nottingham Trent University.