ECSH52200 - Director, Company Secretary and Nominee Shareholder Services – What Would You Expect to See
For various business reasons (some of which will be legitimate), directors, shareholders and company secretaries may not want to publicly reveal that they are the owners or officials of a company or want to make it more difficult for them to be identified. One such example may be a property developer planning to acquire and develop a large area. They might prefer to shelter behind nominee company structures to avoid alerting rival developers of their plans and/or alerting the landowners, who, if aware of the plans, might drive a harder bargain. To avoid some of the public disclosure requirements which would easily reveal their identities, the owners of a company can instead appoint nominee directors, company secretaries and shareholders to create some distance.
The nominee directors’ and shareholders’ names appear on official records in the public domain which means that the real directors’ and shareholders’ identities are better concealed. This is a legal business arrangement. However, there is still a requirement under The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017) for relevant persons to understand the ultimate beneficial ownership when interacting with entities. The role of director, shareholder and company secretary will be listed as fact on Companies House, without distinction if the role is filled by a ‘nominee’. MLR 2017 does not use the term ‘nominee director’ or ‘nominee company secretary’, except for nominee shareholder in regulation 12(2)(d)(ii) MLR 2017.
The beneficial owners of the business retain control of the company and may carryon its business activities and operate the company’s bank account, with nominees being used to create distance between the beneficial owners and the company. The nominees may merelybe paper figureheads, rather than fulfilling the duties of director/shareholder as is expected by the Companies Act 2006. It’s important to note that legal responsibility for fulfilling director duties will lie with those recorded on the Companies House register as director, even if they are a nominee being used as figureheads. Company secretaries appointed will also appear on official records.
These arrangements could allow criminals and persons barred from taking on certain positions in business, to use nominees to create distance between themselves and a company, circumvent bans or sanctions, and remain hidden from some publicly available company documents and registries. Companies House is currently introducingidentification verification of anyone setting up, running, owning or controlling a company in the UK on a phased basis from Spring 2025, with the aim of improving the accuracy of information on the Companies House Register. But a trust or company service provider (TCSP) providing such services must risk assess its customer and their business relations and transactions to ensure they are not facilitating money laundering and terrorist/proliferation financing (ML/TF/PF). to ensure they are not facilitating money laundering and terrorist/proliferation financing (ML/TF/PF).
Companies offering nominee services advertise them on the internet. Many of them also operate as company formation agents. The nominee services are offered in return for an annual payment fee. Businesses may offer a company formation, nominee services and mailbox services package with discounted fees for bulk usage of services. A visit to a TCSP offering nominee services is likely to see an operating and business model similar to a formation agent. See ECSH52175.
As the purpose of using a nominee service provider is to conceal the identities of the directors or beneficial owners of a company, firms providing these services are regarded as presenting an increased risk. The risk is that criminals will set up companies that are involved in criminal activity and their involvement with the company is invisible when they make use of nominee structures. It is essential therefore that the proprietors of TCSPs offering these services have robust procedures in place to mitigate this risk.
At a compliance visit, an officer should seek to understand all TCSP services (relevant activity) conducted by the TCSP, how the TCSP has risk assessed each service alone and in combination, and how it manages and mitigates those risks.
Record testing should span all of the TCSP services provided. For example, where a TCSP provides formation and nomineeservices, records should be selected where formation services have been provided, where nomineeservices have been provided, and where both services have been provided together.
Where the TCSP also carries out relevant activity in another supervised sector, an officer should seek to understand the business’s compliance with MLR 2017 in respect of that additional sector(s). Record testing should span all sectors of relevant services provided by the business, including where provided in combination.
General money laundering, terrorist financing and proliferation financing risks for TCSPs can be found at ECSH52125.
At a compliance visit, TCSPs should be expected to provide an explanation for any departure from published guidance.