Overseas entities that own property in the UK were required, by the introduction of the Economic Crime (Transparency and Enforcement) Act 2022 (the ECTEA), to register their details, and those of all Ultimate Beneficial Owners (UBOs), on the register of overseas entities (ROE), within 6 months of the Act coming into force. The deadline for this was 31st January 2023.
As a result, as of 1st February 2023, any foreign entity that had not complied – and some estimates put this as high as 40%, although the exact figure is almost impossible to gauge – was in line to face financial and criminal penalties, as well as sanctions. Fines of up to £2,500 per day, as well as potential prison sentences, up to 5 years, for company officers, are possible under the legislation. In addition, restrictions are placed on the sale or lease of properties and land – once registered, the entity will be assigned an Overseas Identity ID (OIID), which will always be needed by the Land Registry for further transactions involving land in England & Wales.
Overseas entities had to register with Companies House and tell them who their registrable beneficial owners or managing officers are by 31 January 2023. These requirements also applied retrospectively to overseas entities who bought property or land on or after:
- 1 January 1999 in England and Wales
- 8 December 2014 in Scotland
A further sanction, for companies who purchased UK land or property after 5th September 2022, is that such assets cannot have their legal title registered on the Land Registry, or have any other dealings with the property, unless and until they are registered on the ROE, held by Companies House and have had their OID assigned.
Why is the register of overseas entities so important?
Whilst it was ultimately rushed in, as part of the response to Russia’s illegal invasion of Ukraine, the ECTEA forms a key element of the UK government’s AML policy. Following withdrawal from the EEC, it was essential that the UK developed a robust defence against foreign criminal incursions into our financial markets.
Property has often been seen as the ‘soft underbelly’ of the financial sector for money launderers, partly because of the large amounts involved and partly because of the fast-moving dynamics it is characterised by. Leases and freeholds change hands on a regular basis and there are often many hands involved in the transactions. Ripe territory for false identities, or for the incursion of money that is not entirely above board.
For these reasons it is very important that estate agents check the credentials of everyone involved in a transaction thoroughly, from the lowliest, seemingly innocent, lessee, through to the large conglomerate investor – particularly those from overseas.
Is registration onto the register of overseas entities complex?
It shouldn’t be, particularly for those with nothing to hide! Registration details for entities are fairly standard and uncomplicated:
- The entity’s name
- Country of incorporation
- Registered office
In addition, the Register also requires details of each Beneficial Owner:
- Date of birth
- Residential address
- Service address
In some cases, the details will be of the entity’s Managing Officers. Once registered, all this information must be updated on the register of overseas entities annually. Much of this information will then be available for scrutiny publicly, aside from certain personal details of individuals.
Any overseas entity that has not already registered and wishes to avoid fines and sanctions, as outlined above, should register at Companies House as quickly as possible.
How important is it that for property firms to stay on top of AML?
Despite the best efforts of the government, regulatory authorities and many within the regulated industries, criminal activity is on the increase and money laundering is favoured by criminals of all types: thieves, fraudsters, human traffickers and terrorist groups and their financiers alike. So, it’s only by increased legislation and regulation, combined with higher and more sophisticated levels of detection, that the AML faculty can hope to keep pace.
It’s incumbent, therefore, on all UK financial entities to perform to the highest level of due diligence scrutiny, whether that be KYC or KYB. Those with manual processes are most at risk, whilst those who have digitally transformed and run automated software systems, can more easily keep ahead of the game.
This doesn’t just cover initial onboarding, but also the subsequent levels of monitoring and remediation – areas where manual and partly manual systems are particularly weak in. Automated software platforms also offer easy ongoing access into the realms of PEPs, Sanctions and Adverse Media, to ensure that you keep up-to-date with any issues that may arise with previously ‘clean’ clients.