Neil Williams of Rahman Ravelli explains the thinking behind the Bill, the measures it contains and the proposed civil and criminal penalties it may carry.
In many ways, the Registration of Overseas Entities Bill (ROE Bill) can be seen as a response to a problem that has become increasingly apparent in the UK. Namely, that those looking to launder money obtained from illegal activity abroad have come to view the buying of property in the UK as one of the most viable ways of disguising the origins of their proceeds of crime.
The Bill is the result of a commitment made at the Anti-Corruption Summit in 2016 to combat money laundering and achieve more transparency in the UK property market. It intends to create a register, to be in operation by 2021, which will hold information about the beneficial ownership structure of overseas entities that possess or are looking to acquire UK property. The transparency this will create will, it is hoped, deter the money launderers and / or lead to them being more easily identified.
The Thinking Behind the Bill
In July 2018, the government published a draft bill on the registration of overseas entities. It was prompted by the need to remove the problems that UK enforcement agencies face when it comes to finding information about those who control or own overseas entities that possess UK land and property. The ROE Bill seeks to create a publicly accessible register of beneficial owners of almost all overseas entities that are current owners of UK land or are set to purchase some.
This ROE Register will be managed by Companies House. Enforcement agencies will be able to use it as well as - and in tandem with - other resources at their disposal, such as:
- The People with Significant Control register, which is run by Companies House and includes information about individuals who own or control companies.
- Suspicious activity reports (SARS), which are submitted by financial institutions and other professionals in the regulated sector to alert enforcement agencies to suspected money laundering.
- Unexplained wealth orders, which were introduced into UK law by the Criminal Finances Act 2017 and are used to compel an individual or organisation to explain how they obtained an asset.
- The Fifth Anti-Money Laundering Directive, which is set to come into force by 10 January 2020 and introduces regulation of virtual currencies and pre-paid cards, improved safeguards for financial transactions to and from high risk countries and access for all member states to centralised national bank and payment account registers or central data retrieval systems.
- When they are on the ROE Register, overseas entities must annually update their beneficial ownership information or confirm that the existing information on it is still accurate.
Defining Overseas Entities and Beneficial Owners
Overseas entities are defined in the ROE Bill as legal entities that are governed by the law of a country or territory outside the UK. They must be body corporates, partnerships or other entities that are considered legal persons under the law that governs them. However, not all overseas entities that are owners of or are purchasing UK land will have to register details of their beneficial owners, as some exemptions (which are detailed below) are permitted.
The ROE Bill defines a "beneficial owner" as similar to that used in the People with Significant Control regime: someone that holds, directly or indirectly, more than 25% of the shares in that entity. Although more guidance is set to be issued on the precise meaning of significant control.
As mentioned above, the Bill allows entities deemed exempt from the regime (in accordance with secondary legislation made by the Secretary of State) to neither publicise beneficial ownership information on the ROE Register nor provide that information to Companies House. The government has indicated it will exempt foreign governments on the basis that there are no clear beneficial owners of governments, purchases by them show up on land registries and any overseas entities that foreign governments use to try and buy property will be subject to registration.
The government has also said that trusts will not be subject to the new regime but that overseas entities holding land on behalf of trusts would have to detail this when disclosing their beneficial ownership. At present, offshore trusts whose activities generate UK tax consequences already have to provide beneficial ownership information to the Trust Registration Service to comply with their obligations under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017
The Secretary of State may exempt individuals if he is satisfied that there is a special reason for such an exemption. But as yet, there is no clear definition of what can be considered a special reason
Penalties for Failing to Register
At present, the draft of the ROE Bill states that beneficial owners who will be required to register but fail to do so could have sanctions imposed, including:
- being restricted from acquiring, letting and disposing of property in the United Kingdom
- being held criminally liable for the breach.
The government has said it will also consider introducing civil penalties for this failing as these may be easier to enforce in other countries. But any sanctions are unlikely to be imposed as soon as the bill becomes law, as an 18-month transition period is likely; which would give those who do not want beneficial ownership details to be made public the chance to sell their UK property before having to register.
At present, the Bill has various penalties for non-compliance, including:
- Up to 5 years’ imprisonment and an unlimited fine for making a disposition of a property that cannot be registered.
- Up to 2 years’ imprisonment and an unlimited fine for failing to comply with the registration requirement; or
- An initial fine (and daily default fine for continuing contravention) for failing to comply with the ‘updating’ requirement.
Further, it will be an offence to knowingly or recklessly provide to Companies House any document or to make to Companies House any statement that is misleading, false or deceptive “in a material particular”. Penalties can include a fine and/ or imprisonment (to a maximum of 12 months on summary conviction, or 2 years on conviction on indictment).
This article was also featured on Lexology.com.
Looking for more information?Read about Investigations, Enforcement, White-Collar and Litigation Lawyers, Business Defence, Corporate Investigations, Anti-Money Laundering Investigations, General Counsel, Serious, General and Complex Crime.