A new Register of Overseas Entities will require those behind foreign companies which own UK property to reveal their identities.
Speaking in late February, the home secretary said: “Time is up for Putin’s cronies hiding dirty money in the UK.” She was referencing the Economic Crime (Transparency and Enforcement) Bill, which received royal assent on 15 March, and which is designed to force foreign companies holding UK property to reveal the identities of their owners, in turn allowing crime enforcement agencies to seize the “unexplained wealth” of those suspected of laundering cash in the UK.
The Economic Crime (Transparency and Enforcement) Act 2022 comes on top of much legislation with a similar aim: the Proceeds of Crime Act 2002, the Criminal Finances Act 2017, and the Sanctions and Anti-Money Laundering Act 2018. Among other things, these promulgated unexplained wealth orders authorise the National Crime Agency and others to gather information on property reasonably suspected to have been purchased with illegally obtained income. UWOs proved difficult to implement, however (with only nine having been granted thus far), and investigations were frustrated by the ability of the beneficial owners of suspect properties to hide their identities behind offshore shell companies. The reforming and strengthening proposals in the 2022 Act were put forward in 2016, but failed to find parliamentary time to progress. The Russian invasion of Ukraine has hastened the reforms.
How it works
The 2022 Act introduces many reforms, in particular to UWOs and sanctions regulation, but we are concerned here with the measures designed to ascertain who genuinely owns property. Part 1 of the Act establishes a Register of Overseas Entities and their Beneficial Owners and, in most circumstances, compels overseas entities to register if they own or wish to acquire UK land. An “overseas entity” is any body corporate, partnership or other legal entity governed by non-UK law. A “beneficial owner” is any individual, government, public authority or other legal entity who: (a) holds, directly or indirectly, more than 25% of the shares or voting rights in the overseas entity; or (b) holds the right, directly or indirectly, to appoint or remove a majority of the board of directors; or (c) has the right to exercise, or exercises, significant influence or control over the entity.
Overseas entities that hold or purchase a freehold or a lease granted for more than seven years will be required to identify their beneficial owners and provide details about both the entity and the beneficial owners, including (as applicable) their name, date of birth and nationality, country of incorporation, registered office, usual residential address, service and e-mail addresses, legal form of the entity and its governing law, any public register in which they are entered, the date when they became a registrable beneficial owner, the basis on which they are deemed to be beneficial owners, whether they are a beneficial owner as a trustee, and whether they are a “designated person” for the purposes of certain sanctions and anti-money laundering legislation. The information must be updated every 12 months.
There are limited exemptions to these requirements, and these are generally only where disclosures have already been made to public registers or authorities, or if needed for UK national security reasons. The register will be open to public inspection, although some information (eg dates of birth and residential addresses) will not be available.
Schedule 3 of the 2022 Act will amend the Land Registration Act 2002 (inserting a new Schedule 4A). Non-compliant overseas entities will not be able to apply to be registered as proprietor of a qualifying estate (a freehold, or lease for more than seven years).
Moreover, HM Land Registry will enter a restriction on the title of every qualifying estate held by any overseas entity registered as proprietor from 1 January 1999. The restriction will prevent the registration of transfers, charges and leases by unregistered (non-exempt) overseas entities. Thus an overseas entity that fails to get itself entered on the new register will be unable to dispose of its property.
Further, an unregistered (non-exempt) overseas entity must not make such a disposition of a qualifying estate if it is entitled to be registered as proprietor of a qualifying estate. HM Land Registry must not register any such disposition. This will stop off-the-land-register dealings where a property passes through the hands of an unregistered entity which acts as a go-between. It is illegal for overseas entities to breach these restrictions on disposing of property. The offence carries a maximum of five years’ imprisonment and a fine for the entity and its officers.
The new regime will also apply retrospectively to overseas entities that acquired title to registered land since 1999; such entities will have six months to apply to be included on the new register. Breach carries a maximum two-year jail term and a fine for the entity and its officers.
The practical effect
As one might expect, the legislative requirements are lengthy and complex – but the scheme is simple: from the commencement of the relevant part of the 2022 Act (which has yet to be announced), (1) overseas entities will have six months to apply to be entered on the new register if they hold UK-registered property acquired since 1999; (2) from day one overseas entities will be precluded from acquiring UK property or dealing with UK property they already own unless they are on the new register, failing which the transactions will not be registered by HM Land Registry.
It remains to be seen how effective this legislation will be – but it is worth noting two robust anti-avoidance mechanisms. First, overseas entities cannot evade the registration requirement by having a quick sale. For sales after 28 February 2022, the overseas entity will still (post-sale) have to apply for registration and provide the relevant information. Secondly, as well as the fundamental inability to acquire or deal with qualifying estates, the 2022 Act establishes a number of offences with serious consequences for non-compliance.
Those involved in overseas-owned UK property have a lot of work to do.
Guy Fetherstonhaugh QC and Martin Dray are barristers at Falcon Chambers
