The role of due diligence in preventing fraudulent business registrations

A modest terraced house in Bolton valued at £155,000 should not be the registered headquarters of a company claiming to manage assets worth £50 billion. Yet, this is exactly what happened when businesses like 1 Stallion Limited, e-bank Ltd, and Avantulo SA Ltd used the address to register at Companies House. While the firms presented themselves as major financial players, closer scrutiny revealed warning signs of potential fraud.

Cases like these are far from rare. In 2023 alone, reported fraud cases in the UK surged by 104%, with losses reaching £2.3 billion. Estimates suggest that between 5% and 20% of UK-registered companies may be fraudulent, exploiting weaknesses in the registration system.

The UK’s company registration process, with its minimal verification requirements, has long been a weak point. Registering a company costs as little as £12, and addresses are often not verified, allowing fraudulent actors to hijack residential or commercial locations without the knowledge of property owners. These vulnerabilities have enabled cases such as Novateur International Group Ltd, which falsely claimed to possess £49 trillion in cash and £100 trillion in net assets, figures that surpass even the world’s largest corporations.

While Companies House is set to gain greater powers under the Economic Crime and Corporate Transparency Act 2023, including mandatory identity verification by autumn 2025, these reforms alone may not be enough to prevent financial crime. Due diligence remains a critical defence, providing deeper scrutiny where regulatory systems still fall short.

Uncovering false claims and financial irregularities

Due diligence plays a key role in verifying the legitimacy of a business, exposing inconsistencies that might not be obvious at first glance. Many fraudulent entities present exaggerated financial statements, fabricated client lists, or unverifiable sources of funding to appear more credible. By examining official records, transactional histories, and regulatory registrations, investigators can determine whether a company is operating as it claims.

A recent example involved a company advertising itself as a global investment firm with assets exceeding £7 billion. The reality was very different. A closer look at its filings revealed a complete lack of operational history, no evidence of actual transactions, and company directors linked to multiple dissolved entities with no real business activity. These patterns are not unusual, and they are often only uncovered through rigorous checks.

Address misuse and identity theft in business registrations

Fraudulent businesses frequently register addresses without the knowledge of the residents or property owners, as seen in the Bolton case. While this may appear to be a minor technicality, it is often part of a larger effort to obscure true business locations and avoid detection. Many of these companies operate purely on paper, with no physical presence beyond a registered address that adds an air of legitimacy.

For individuals whose addresses are misused, the consequences can be serious. Once a fraudulent company is linked to an address, it can attract unwanted attention from regulators, creditors, and even law enforcement. Due diligence measures, including verifying company locations and cross-referencing against known fraudulent registrations, can help prevent misuse before it happens.

Regulatory gaps and evasion tactics

Many high-risk industries, particularly those in finance, require companies to be registered with regulatory bodies such as the Financial Conduct Authority (FCA). However, fraudsters often exploit gaps in oversight to appear compliant while avoiding full regulatory scrutiny.

One firm denied FCA registration due to concerns about its legitimacy was later found to be operating under a different name, using a separate entity that had successfully secured FCA approval. This tactic, where multiple businesses with overlapping ownership are registered under different names, allows fraudulent operators to continue their activities even after regulatory intervention. Identifying these connections requires a level of investigative diligence beyond simple database checks.

Strengthening protection against fraud

Cases like the Bolton investigation demonstrate how easily false information can enter official registries and how damaging it can be when fraudulent companies gain credibility. The problem is not limited to a single jurisdiction. Internationally, shell companies, address misuse, and regulatory evasion are common strategies used in financial crime.

Due diligence is essential in countering these risks. Whether assessing a potential business partner, evaluating an investment opportunity, or investigating unusual financial activity, a thorough review of company filings, financial data, and director histories can reveal risks that might otherwise go unnoticed.

At Conflict International, we specialise in comprehensive due diligence services designed to uncover hidden risks, verify corporate legitimacy, and ensure compliance with regulatory requirements. Fraudsters continue to evolve, adapting their tactics to exploit loopholes as soon as they appear. Contact us today to learn how we can assist.