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What is Company Identity Theft - How to beat it

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The recent upsurge of media interest in personal identity theft has provided a reminder that company identity theft is still a major problem for UK incorporated businesses who are being encouraged to “take ownership of their own public record” to combat company filing fraud in a new white paper by accountancy software developer, Digita.

There are over two million company records held by Companies House which currently reports that of the 500,000 documents filed each month, approximately 50 are identified as false.

Company ID theft or company hijacking can involve:

• The registered office is changed. Fraudsters file a form 287 to change the company’s registered office to an address, which is likely to be one to which they have access. Once this is done any communications from Companies House will be sent to the company at the new registered office, ensuring that the company itself doesn’t receive notifications from Companies House of any future changes.
• The officers are changed. Fraudsters file forms 288 to notify Companies House of a change to the company’s officers. They will notify the appointment one or more officers of their own. These will either be completely fictitious persons or possibly they will use the stolen identities of real people. At the same time they will notify Companies House that the company’s true officers have all resigned.
• Supporting documentation may be obtained. Once these notifications have been registered at Companies House the fraudsters effectively have the company under their control as far as third parties are concerned. In order to give credibility in their subsequent dealings with third-parties the fraudsters may request a Certificate of Good Standing from Companies House. This official document confirms the status of the individuals as being the company’s officers.

The White Paper, “Keeping The Record Straight”, reveals that since April 2005 identified instances of company filing fraud seem to have leveled off below the peak, but still at a relatively high historical level of approximately fifty incidents a month.

Report author, Digita’s Ian Manson said: “Although the numbers are not huge when compared to the two million plus companies on the register, it must be emphasised that according to the Metropolitan Police a single filing fraud could cost £1 million and could very seriously damage the businesses that fell victim.

“The trick appears to be gaining control of a company and its assets as far as third parties are concerned. This can include obtaining supporting documentation from Companies House and then approaching suppliers of high value, easily disposable, goods and placing orders apparently on behalf of the company, with delivery being made to the company’s “new” registered office."

“Assets may even be sold of as in the case of a Moscow office block where the true owners only found out it was no longer in their possession when they were barred from entering it."

” In another well known case taken up by the Federation of Small Businesses, the proprietor of a business was very surprised to discover that the registered office of his family business had been changed from the address at which it had been located for the last 100 years. Even the company’s nameplate was stolen from the front of the building."

Key to the success of the fraud is that the company itself doesn’t discover the changes at Companies House until the fraudsters have had time to complete their scam and vanish.

Other frauds include setting up bogus companies, falsely manufacturing accounts and even stealing the identity of auditors to ensure that these accounts appear to be credible.

Ian Manson added: “Calculations by credit ratings agency Graydon revealed nine auditors have had their details appropriated to legitimize a false set of accounts over the last nine months. Another 100 sets of accounts have been set up using completely fictitious auditor details over the same period.”

Companies House now offers a protected on-line filing scheme (PROOF) where only mutually approved documents are registered and a monitoring service advising companies each time a change of record has been made.

These measures, according to Manson, along with proactive company secretarial software are essential risk management tools for businesses and their professional advisors not only to combat company filing fraud but to protect against claims of negligence in the unfortunate event of fraudulent loss.

The new Companies Act will create a new offence under which a person who knowingly or recklessly delivers or causes to be delivered (to Companies House) a document that is misleading, false or deceptive in a material particular, will be liable to imprisonment for up to 2 years, or a fine, or both.

He concludes: “If every company were to opt in to the PROOF scheme tomorrow, and of course guard their company authentication codes as carefully as they guard their bank account PIN numbers, then the phenomenon of company hijacking would almost certainly disappear overnight.”

The free white paper can be downloaded from http://www.digita.com/

Posted November 1, 2006