Register of Overseas Entities
Written by Ray Coman
The Economic Crime Act 2022 has made it a requirement for overseas entities dealing in UK land and property to register with Companies House. It is already a requirement for UK companies to file annually with the registrar and this legislation brings the requirement of foreign entities into alignment with those registered in the UK.
A requirement for greater transparency about the ownership of UK land has been on the government agenda since at least 2018. It has long been suspected that property in London is used to launder proceeds of crime. The perception of a robust legal system has attracted a notion of the UK as a safe haven for asset holding. Pride of possession, through London’s historic housing stock, has appeal for the super-rich seeking to add prestige to luxury in their property.
In jurisdictions without clear reporting standards, such as a register of Persons with Significant Control, the ultimate beneficial owner of a company can be concealed. In April 2016, a series of confidential information about the owners of Panamanian companies were revealed to the world press. Dubbed the Panama Papers, the documents were considered a leak because it would not have been possible under Panamanian law to have obtained ownership information legitimately.
In states, such as Panama, ownership can be set up through a series of shell companies and nominee shareholders. Pursuit of privacy raises the suspicion that overseas entities facilitate kleptocrats and other criminals to syphon wealth through UK property.
An Unexplained Wealth Order (as introduced The Criminal Finances Act 2017) enables UK enforcement to oblige a respondent to explain the origins of wealth, where assets values are at odds with known income levels.
An inability to explain origin of wealth could lead to confiscation of assets by the state, under the Proceeds of Crime Act 2022, even though it has not been established that the wealth resulted from criminal activity. The aim is to expose individuals who are known to be criminal but have frustrated law enforcement through concealment. However, the new legislation raises concern about the power of the state over people who have not been convicted of a crime.
The Bill for an overseas register was drafted in 2018, but did not make statute. However, in reaction to Russia’s invasion of Ukraine, a revised version of the Bill is being sped through the enactment process. The concern is that lack of transparency in the holding of assets is not just facilitating criminals but tyrants as well.
Following Russia’s invasion of the Ukraine, the finances of wealthy UK Russians have come under increased scrutiny to assess the risk that money harboured in the UK is being used to fund Putin’s war machine. Around the world, assets have been frozen of Russian expats, the most prominent of which is Roman Abramovich. Proceeds from the forced sale of Chelsea football club were not paid to the oligarch but instead directed to a foundation supporting Ukrainian war victims.
It is expected that the register of overseas companies will help to target Unexplained Wealth Orders, and more widely in the government’s fight against economic crime.
The Register of Overseas Entities has not yet come into force and there is no action that an overseas entity can take at this stage. Companies House will be writing to foreign corporate owners of UK land to notify about filing requirements once the register is ready for applications. Overseas entities will have six months to submit required information.
Foreign jurisdictions will not have a direct equivalent of a company as defined by UK law. The requirement is therefore extended to overseas entities equivalent in nature to a UK company. Corporate bodies and foundations will likely be covered by the definition of overseas entity. Extension of the meaning of entity to include Trusts has been identified as a potential weakness in the regulation.
Any transaction by an overseas entity to buy, sell, or hold a charge over land will be registered.
Entities that have held land since January 1999 in England and Wales or since December 2014 in Scotland will be required to register.
An entity will need to identify its beneficial owner or owners. A beneficial owner will defined in broadly the same way as Persons of Significant Control. The requirement has been in place for UK entities to reveal beneficial owners or ‘persons with significant control’ since 6 April 2016. An individual holding 25% of the company’s shares, voting rights or right to company distributions is treated as having significant control. An ability to appoint or remove directors indicates significant control.
The register will also apply to entities that hold charges over UK property.
The name and address of the beneficial owner will be registered. But the day of birth and usual residential address will not be made public.
Registration with Companies House will not be required as result of owning property directly. Individual property owners are already recorded on the land registry.
An overseas entity that does not directly or indirect hold UK land will not be required to make a registration.
A registration number will be issued to the overseas entity, and it will be required to file an annual report.
As a further requirement, the register will need to be updated with any change in beneficial owners.
An entity will therefore be unable to buy, sell, transfer, create a lease, or register a charge UK land unless this is reported on the overseas register.
The overseas entity will not be able to register its title with HM Land Registry unless it is registered with Companies House. This would have the effect of preventing the sale of UK property.
The legislation is intended as a deterrent against the use of UK property to launder money. As with most of the content on Companies house, information about overseas entities will be publicly available.
Most owners of overseas companies holding UK land will not find the new reporting to be onerous. It is understandable, for instance, that an overseas investor would favour the use of a company governed by a local legal system. Furthermore, it is not the claim of the British to have a monopoly over company law making - which is the reason that the entity transacting in UK land does not have to be UK resident.
It has been widely suspected that overseas companies are used to facilitate money laundering. The reputation of a beneficial owner will be tarnished by participation in a mechanism of investment which is perceived as being used by criminals. A as result, overseas investors will welcome a more rigorous reporting structure that dissuades criminals.
Coman&Co routinely assist with reporting to Companies House for existing UK businesses and have been helping overseas companies with filing of a corporation tax compliance with HMRC. We are well positioned to assist overseas landlords with the new reporting requirements at competitive prices.
The wider impact should level the playing field between UK and overseas entities transacting in UK property. The intentions of the register have the power to better incentivise legitimate land related businesses.
The register of Overseas Entities will help the accountancy, legal and other professions who deal with property in carrying out Know Your Client checks. The legislation has potential to reduce the burden of anti-money laundering currently placed on the accountancy profession.