Economic Crime (Transparency and Enforcement) Bill

[edit] Introduction

On 15 September 2016, HM Treasury published a consultation on the transposition of the fourth money laundering directive which lead to the discussion paper on the transposition of article 30: beneficial ownership of corporate and other legal entities.

In 2018 the department for business, energy and industrial strategy (BEIS) published their response to the call for evidence; a register of beneficial owners of overseas companies and other legal entities, which was initially due for launch in 2021. The requirement in principal was for any overseas company owning or purchasing UK property (or bidding on government procurement contracts) be required to enter details of its beneficial ownership on this register.

The BEIS stated that over £135 million of overseas owned UK property was the subject of criminal investigations, representing only a small proportion of the UK property owned by offshore companies. Overseas companies have been used legitimately for many years as tax mitigation measures, and mostly unlikely to have criminal motivation however the small proportion that do relate to significant sums. This transparency forms part of general approach to discourage property ownership through offshore companies.

In March 2022 the long-tabled reforms to the economic crime (transparency and enforcement) bill were brought forward and set to be fast-tracked through the houses of parliament in many respects as a response to the war in Ukraine. One of the main issues it will seek to address is the lack of transparency surrounding issues of overseas ownership of UK property, perhaps specifically in relation to Russian sanctions in early 2022.

[edit] Beneficial ownership register

The reforms propose the creation of a ‘beneficial ownership register’. This will aim to establish a level playing field between UK companies that already report to companies house on the matter of beneficial ownership, and those based overseas, by actively identifying all beneficial owners of overseas assets that also have interests in UK properties.

To be maintained by companies house and made publicly available, it’s expected that the scheme will follow the same template used for the register of ‘persons with significant control’ of a UK company, which was introduced in 2016.

[edit] Explanation

Robert Lee, corporate partner from regional law firm Wright Hassall, explains:

“Under the new legislation, every overseas entity featured on the ‘beneficial ownership register’ must supply information including the details of its all its registrable beneficial owners and any ‘managing officers’ such as a director, manager or secretary.

"Those found to be submitting information which is false or misleading to the register could potentially find themselves facing a fine, a two-year prison sentence or a combination of both. Information will have to be updated annually and if it isn’t, then the entity and its officers will be liable for a fine. If the situation persists, this would become a daily default fine of not more than £500."

"It will not be legal for an overseas entity to own property in the UK without being entered on the register, and this will be applied retrospectively to any properties purchased by overseas entities in England and Wales after 1st January 1999."

Details within the bill specify that those overseas entities who fail to retrospectively place themselves on the register will face major restrictions when looking to sell-on a property. However, a transition period of 18 months has been proposed, which will come into force from the day the bill becomes law. This should offer ample time for any historic transactions to be placed on the register, before restrictions are enforced.

Lee adds: “Restrictions will first take the form of a Government notice requiring the entity to register within 6 months, and if this doesn’t have the desired effect, a fine will be levied on the overseas entity and every officer of that entity will find themselves facing a two-year prison sentence, a fine, or a combination of the two punishments.”

[edit] Clarification

Clarification on the term ‘beneficial owners’ is already set out in Schedule 1 of the Companies Act 2006, which defines what a ‘person with significant control’ of a UK company is. In order to be deemed a ‘beneficial owner’ of an overseas entity for the purposes of the register, a person or entity will have to meet at least one of the following conditions:

• They hold, directly or indirectly, more than 25% in the overseas entity
• They hold, directly or indirectly, more than 25% of the voting rights in the overseas entity
• They hold the right, directly or indirectly, to appoint or remove a majority of the board of directors of the overseas entity
• They have the right to exercise, or actually exercise, significant influence or control over the overseas entity
• They are trustees of a trust, members of a partnership, unincorporated association, or other entity which is not a legal person under the law by which it is governed; and they have the right to exercise, or actually exercise, significant influence or control over the activities of that trust or entity

[edit] Comment

"The impact of the Russian invasion of Ukraine is likely to reverberate through Europe and across the rest of the world for years if not decades to come. While questions remain about the speed and effectiveness of the UK government’s response thus far, there are some changes being made closer to home that will not only impact the Russian economy, but will also alter the legislative landscape of the UK.

Robert Lee - Wright Hassall

“Despite the seemingly good intentions of this new register questions have been asked about how it will be enforced in reality. In its current form a register of this kind would impose significant extra work on Companies House and the Land Registry and would require extra funding to make enforcement a practical reality,” concludes Lee.

“Only in the months going forward will it become clear whether the new register, as well as the other measures contained in the Bill, will have the impact the government presumably intends.”

Robert Lee, Corporate partner from regional law firm Wright Hassall

Article basis provided via press release 17 March 2022; LEGAL BRIEFING: The Ukraine Invasion Drives Reform to UK property law; Laura de Vente - workpr

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