The Economic Crime (Transparency and Enforcement) Act 2022 (the "Act") came into force earlier this year. The transitional period has well and truly begun, and the clock is most certainly ticking for any affected overseas entity to comply with the Act or face tough penalties for failure to do so.
The Act was brought into force after a speedy passage through Parliament and, at the point of going live In August 2022, was beset by significant unknowns, ambiguities and uncertainties. Three months on, and with the benefit of guidance from relevant authorities (including Companies House, the Land Registry, the Law Society and BEIS), we know a little more about how the registration provisions of the Act operate in practice.
So, what does the Act mean for an overseas entity?
1. Overseas entity owning property in England and Wales
Broadly, an overseas entity, and every officer of that entity who is in default, will commit a criminal offence if it owns relevant property (essentially, a freehold or leasehold interest of more than seven years) and does not make an application to register details of its beneficial owners on the Companies House Register of Overseas Entities before 31 January 2023.
2. Overseas Entity acquiring property after 5 September 2022
If the property was or is to be acquired by the overseas entity on or after 5 September 2022, the overseas entity must be registered with Companies House at the time it makes its application to the Land Registry to register the acquisition. If the overseas entity is not registered with Companies House, it will not be able to register its property acquisition with the Land Registry.
3. Restrictions on title
To support these provisions, the Act requires the Land Registry to enter a restriction against title of any relevant property, the effect of which is to prevent the overseas entity from selling, leasing or charging its interest in the property until the overseas entity is registered at Companies House.
If the property was acquired by the overseas entity between 1 January 1999 and 1 August 2022, the restriction will not take effect until 1 February 2023.
If, on the other hand, the application to the Land Registry to register the acquisition was or is to be made on or after 1 August 2022, the restriction will take effect immediately.
4. Disposals since 28 February 2022
An offence is also committed by any overseas entity which disposes of property (by transferring a freehold interest, assigning a leasehold interest, granting a lease of more than seven years or granting a charge) between 28 February 2022 and 31 January 2023 without supplying specific information to Companies House.
Whilst the structure of the Act, based on the essential components mentioned above, was known at the time that the Companies House register went live on 1 August 2022, the speed of the Act's introduction meant that some of the practicalities only became apparent in the days surrounding 1 August and thereafter.
It was not clear on 1 August, for example, whether or not (and - if so - the extent to which) law firms would be able to carry out Companies House registration on behalf of overseas entities. The legislation requires that the information submitted to Companies House is verified by a "relevant person", such as an auditor, solicitor or accountant. Guidance from the Law Society issued shortly before 1 August (and expanded subsequently) has now made clear that this verification is not something that a law firm will ordinarily be competent to do. Instead, a number of company service providers have identified themselves as able and willing to carry out verification and Companies House registration.
Those providers or relevant person must be UK based agents as under the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017, but high value dealers, casinos, art market participants, crypto exchange providers, custodian wallet providers and family members are specifically excluded. The relevant person is required to verify information about the overseas entity and any beneficial owners including checking and verifying their personal details.
Further legislation to the supplement the Act, and to clarify its provisions, including the Economic Crime and Corporate Transparency Bill, is expected. In the meantime, as the Government continues to complete, revise and refine this hastily-introduced legislation, we continue to work on behalf of our clients to ensure compliance with relevant provisions within applicable timeframes. In particular, we are working with third party company service providers to assist our clients in registering with Companies House in as straightforward and cost-effective a manner as possible.
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.