Modern Technology is Helping Government Agencies Tackle Fraud
See how technology can accelerate the operationalization of the Economic Crime and Corporate Transparency Bill.
Up until 1844, the number of privately-registered companies in the United Kingdom stood at less than 100. At the time, you could only register a company through a Royal Charter, Private Act of Parliament, or Letters Patent.
In 1844, this all changed. MPs brought forward the “Joint Stock Companies Act,” which included the creation of a publicly available, central company register to help modernize the registration of enterprises and protect the public from fraud.
Fast-forward to 2023 and we have recently seen the second version of the Economic Crime and Corporate Transparency Bill introduced by Parliament. In a similar fashion to its predecessor in 1844, this new bill outlines potentially huge reforms on how Companies House and UK Law Enforcement Agencies will operate going forward.
So, what do the years 1844 and 2023 have in common? The answer is fraud—an age-old problem that is just as troublesome today as it was in 1844.
Today, however, the UK government has the opportunity to capitalize on the latest advances in technology to operationalize this bill, and not rely on traditional methods to solve this problem.
This article looks at how modern technology can help the UK government can move forward to prevent fraud.
For many years, Companies House has provided frictionless company formation to support a dynamic and growing economy, but this also opened the door to any organization that wished to be on the register. For a little island, the numbers [Companies Register Activities: 2020 – 2021] are impressive:
At the end of March 2021, the total register size was at 4,716,126, an increase of 8.4% when compared with the end of March 2020.
In 2020/2021, there were 810,316 company incorporations, an increase of 21.8% when compared with 2019/2020.
In 2020/2021, the agency saw the highest number of incorporations on record.
Over the years, the register has suffered from data-quality issues and companies being set up to front fraudulent or illicit activities. The impact of fraud grew exponentially during the height of the COVID-19 Pandemic when companies could easily apply for support schemes.
Until now, Companies House has not had the legal framework or mandate to improve the integrity of the register or prevent companies from being incorporated to front illicit activities. However, this could be about to change.
The reforms and the potential impact
The proposed Economic Crime and Corporate Transparency Bill has the potential to change Companies House's role from passive recipient to more of an active gatekeeper. The reforms in the legislation can be grouped into five key themes:
Integrity of the register – Delving into the register today, it is very easy to identify dubious and concerning entries. The legislation will enable Companies House to improve the quality of the data held by allowing them to amend, remove, or add the correct records.
Proactive prevention – Companies House will have the mandate to verify individuals when they register, helping to stop bad organizations from getting into the system.
Expanding asset seizures – UK Law Authorities will have powers to seize crypto assets, which have been a growing mechanism to hide the proceeds from economic crimes.
Enabling cross-intelligence sharing – Information-sharing rules are being reformed to help foster cross-industry collaboration. This will help a range of agencies get the full context of the individuals and companies they are investigating by joining multiple datasets together.
Overseas Impact – Limited partnerships will have tighter registration requirements, including having to maintain closer ties to the UK. This should help stop misuse from non-domestic individuals.
3 ways technology can help
The use of technology can accelerate the operationalization of the Bill in several key areas:
Creating the right data foundation – Maintaining the integrity of the register can only be achieved by joining multiple datasets to get the full context of individuals or companies. Traditional data-matching techniques struggle to scale and have poor accuracy rates. Entity Resolution helps organizations supercharge their data-matching requirements by unifying internal and external data (like Companies House datasets) and overcoming data-quality issues to create a true single view.
Equipping operators with the latest graph analytics technologies – Moving to an active gatekeeper role will require technology to assess individuals and organizations attempting to get on the register. Graph analytics has the power to make sense of masses of internal and external datasets to identify hidden risks and connections. This supports rapid detection of shell companies by considering their holistic network shape, rather than assessing a single-registry filing.
Operating in a fully explainable way – Any proposed law that expands the powers of the state has to be enabled by technology that delivers information in an ethical, open way. The technology must be built on open standards with fully auditable components so that every time the technology is applied it can provide fully audited, ethical, and transparent results. Explainability is key to supporting internal modeling teams and external regulators as well as building trust.
Fortunately, technology is already being used to tackle fraud and illicit activity. Quantexa’s technology has helped organizations like the Cabinet Office identify fraud in COVID-19 bounce-back loans, as well as helping banks and insurers identify risky behaviors.