Business Ownership and Concerns Raised Over Loopholes In Small Business Bill
Business Ownership and Concerns Raised Over Loopholes In Small Business Bill
MPs have been warned that a new law aimed at ensuring transparency surrounding the ownership of companies is likely to be easily circumvented by criminals. As part of the new small business bill currently being debated in the House of Commons, the names of the shareholders who ultimately own and control businesses will be revealed by a new public register. The proposal could affect around 2.5m companies and partnerships.
The measure, part of the Small Business, Enterprise and Employment Bill 2014-15 which has been put forward by prime minister David Cameron to fulfil a pledge made at the G8 summit last summer to create a central register of beneficial ownership, would make it more difficult for companies to conceal the proceeds of corruption, tax evasion, and other illegal activities. However, despite winning the backing of organisations such as the Confederation of British Industry, critics of the bill say the rules can be easily sidestepped.
New measures easily circumvented
In a submission to Parliament, a leading accountancy firm said the measures could be circumvented because the provisions would not apply to overseas companies operating in the UK through a branch. The company added that enforcement of the law could be problematic: “Criminals who use ‘front’ companies are unlikely to comply with the new law, at least not properly, and detection may prove difficult”.
The Institute of Directors meanwhile, while supportive of the law, said “the small minority of company owners who wish to conceal their influence over a company are likely to continue to be able to do so”.
A further issue with the bill is that it excludes foreign companies operating in the United Kingdom. Business secretary Vince Cable has recognised these complaints, but says it simply highlights the importance of “proactively” lobbying overseas firms “to take equally ambitious action on transparency of company beneficial ownership”. The International Financial Centres Forum, which represents professional services firms in offshore territories, said that the public nature of the register would not necessarily make it easier to police, and that international regulatory bodies were unlikely to see “sporadic error spotting by the general public” as fulfilment of the obligation to gather better, more accurate data.
Owners face prison for non-compliance
Ninety-five per cent of small business proprietors say they are in favour of the new bill, according to a survey carried out by private equity firm Key Capital Partners, with 80% believing it will give their companies better access to funding and investment. The bill opens up access to small business credit data, which the government says will help companies to secure loans from sources other than banks.
Doubts remain though, especially regarding the transparency measures, and business owners are advised to seek guidance on the bill’s provisions. A leading industry watcher concluded that “The new provisions will be complex and there is a significant risk that many companies will fail to comply because they don’t understand the requirements or make mistakes. The proposed remedies provide for up to two years in prison without the need to show any dishonest intent or knowledge of breach”.
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