The rise in the “virtual office” allows growing businesses the flexibility to have a city address at a lower rate. However, one recent case highlights the potential pitfalls in being a provider of serviced offices.
The City of London Corporation Trading Standards recently won a case against Regus Management UK Ltd- a leading serviced office and mail forwarding provider. The case was triggered after a consumer was given false information during a phone call to Regus enquiring about one of their clients. The consumer asked if the suspicious company was present in the building. Regus gave the caller the impression that a team of people occupied level seven of the building. In reality, only a mail forwarding service was provided. The consumer persisted and asked if other investors complained or questioned the company and was assured this was not the case. This conversation was recorded and provided vital evidence for the prosecution.
Regus was found guilty of two breaches of regulations protecting consumers and four breaches of the London Local Authorities Act 2007 (the “LLAA”), requiring mail forwarding businesses to hold detailed records of their clients.
Four months before the call, the company had been warned that one of its temporary tenant’s records were incomplete and that it holds hallmarks of a typical “boiler room” investment scam.
City of London Corporation’s Trading Standards conducted a follow up inspection. As the concerns were not addressed the proceedings commenced. Regus was found guilty and fined incurred a substantial fine.
Regus is not the only serviced office and mail forwarding company that has been prosecuted on similar grounds. Servcorp UK Limited, a multinational provider of temporary offices, was ordered to pay £21,000 in fines and £11,500 in costs after pleading guilty to seven offences under the LLAA. The poor business practice enabled suspects under investigation to operate from a serviced office. The management company was unable to provide detailed records of its client on request as required by law.
In both instances Regus and Servcorp were deemed to have enabled fraudsters to operate. The Financial Conduct Authority issued seven warnings about suspicious companies operating in Dashwood House and fourteen about those in Tower 42. It is not confirmed whether all of them were Regus’ or Servcorp’s clients.
It is important to create a hostile environment for fraudulent companies using prestigious addresses as a base for criminal operations. Management companies and organisations such as City of London Corporation should cooperate to ensure that customers are not exploited.