Following years of London being labelled the "money laundering capital of the world" and public concerns over the continued use of the capital's property market by oligarchs to protect their assets through purchases in the names of obscure trust structures, and in the wake of new sanctions on Russia following its invasion of Ukraine, the government has brought into effect the Economic Crime (Transparency and Enforcement) Act 2022.
A key part of the Act sees the introduction of a new Register of Overseas Entities, which will require individuals/legal entities/governments/authorities behind foreign companies who own UK property to record their identity with Companies House.
The new Register's introduction has brought a lot of concern from overseas buyers who are keen to avoid any penalties that the new Act will introduce for those who breach its requirements. These penalties will include criminal sanctions.
In this article, I will set out the some of the initial current regulatory guidance on what to expect as it pertains to England and Wales.
Who will be affected by the new register?
An overseas entity is defined in the Act as any legal entity that is governed by the law of a country or territory outside the United Kingdom, so this will include any company, partnership or other similar entity that makes up a legal person under an overseas jurisdiction.
Any overseas entities that currently own freehold land or leasehold estates for a term greater than seven years and have held their interest since at least 1 January 1999 in England and Wales or are purchasing new property that fits these criteria will be affected. An overseas entity that grants a legal charge over its property would also be required to register. An overseas entity that is a lender does not need to be registered.
Those who are caught by the Act will be required to give notice to each beneficial owner to confirm their details and then declare details of who they are as part of the application, as well as the entity's managing officers.
- Beneficial owners, in short, will be anyone who has more than 25% of shares in the company or holds significant influence or control over the entity (including the right to appoint or remove directors).
- Managing officers will include specifying who are the entity's directors, managers and secretaries.
The Act creates an obligation on overseas entities to ensure this information is renewed on an annual basis.
What else will I need to disclose?
From 1 August 2022, the date on which the register comes into force, overseas entities that currently own property in the UK will have six months to disclose key information to Companies House (i.e. on or before 31 January 2023) and thereafter keep the details updated annually.
An entity's transactions involving transfers, grants of leases for longer than 7 years, and legal charges that have taken place since 28 February 2022 will need to be disclosed with this application.
This will include, but may not be limited to-
- The date of any transactions.
- The registered title number of the propert(ies) effected.
- A statement that you have taken steps to identify your company's registrable beneficial owners, and managing officers, identified them, and have no reasonable cause to believe there are others and that you are able to provide the required information in respect of those persons on request.
- The application must then provide the details of the beneficial owners and managing officers of the entity. Alternatively, the overseas entity must state if it is not able to attain the necessary information, or does not have any registrable beneficial owners.
- A statement must be provided that all the information required by section 41(3)(a) and (b) of the Act has been given (ie. the above information).
- Details must be given for who may be contacted concerning their application.
Information provided will need to be verified by an independent UK-based agent that is supervised under UK money laundering regulations eg. a solicitor/accountant. It is anticipated that it will be quicker for the agent to make the Companies House registration on the entity's behalf. Supervised agents will need to contact Companies House to get an assurance code before they verify or file on an overseas entity's behalf.
New overseas entities looking to purchase property in the UK will need to register with Companies House from the day the Register comes into effect in order for their transaction to be successfully registered in their name on completion.
What will happen after the application is made?
Successful registration at Companies House will result in the name of the overseas entity and its beneficial owners being publicly available on Companies House's website and the provision of a formal Overseas Entity ID. This ID will enable the entity to register any future property transactions at the Land Registry.
When will this change take place?
The commencement date for the Register is 1 August 2022. It is planned that the land registration elements of the Act will come into force on 5 September 2022. The intention for this is to give some time for those currently engaged in a relevant land transaction to comply with the requirement to register with Companies House and obtain an Overseas Entity ID before making an application to the Land Registry.
If you are an overseas entity, any disposition you make of land you already own can still be registered within six months of commencement even if you do not have an Overseas Entity ID when you make the disposition. However, you will still have to comply with the reporting obligations in the Act from 1 August 2022. You may also find that the person taking the disposition, such as a buyer or their lender, still asks you to register with Companies House before they will complete. From 1 February 2023, it will be a criminal offence to deliver a qualifying deed to a third party without being registered.
What sanctions apply for those who are in breach?
Non-compliance will inevitably mean that parties will not be able to register their transactions when trying to sell/lease/remortgage/purchase their land without an Overseas Entity ID from Companies House.
Penalties such as fines and criminal penalties including prison sentences of up to 5 years will also apply to managing officers who fall foul of the Act.
Notably, the legislation amends sanctions breaches in key ways –
- For civil penalties such as fines, the Act implements a strict liability regime meaning that a person does not need to have "known, suspected or believed" that they were breaching sanctions prohibitions to receive a monetary penalty.
- It creates an emergency power for an individual to be sanctioned without reasonable grounds provided they are sanctioned by another country and it is in the public interest to sanction them.
- It allows the Treasury to publish notices on cases where it thinks a person has breached sanctions law but it has not (for whatever reason) imposed monetary penalties.
- It expands the government's information-sharing powers relating to sanctions.
Are there any exemptions?
Restrictions are limited. However, the Secretary of State can exempt a person from having to provide their details when it is in the interests of national security, in the interest of the economic wellbeing of the UK, and for the purposes of preventing or detecting serious crime.
Originally published 30 July 2022
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.