In March of 2022, in the wake of the Russian invasion of Ukraine and amid rising concern about dirty money entering the UK originating from Russia, the Government fast-tracked the Economic Crime Act 2022 through Parliament. At its core, the main objective of the Act is to create the public Register of Overseas Entities that own property in the UK. The Register will be launched on Monday 1st August 2022.
When set up, any overseas entity (like a foreign company) that owns or is seeking to acquire property in the UK will need to disclose and register its beneficial owners.
What is the Register of Overseas Entities?
At present, an overseas company that owns property in the UK doesn’t have to divulge who owns or controls that company. This means that it is easy for bad actors to disguise the ownership of UK property since the company will ‘own’ the asset.
While, in some cases, there are legitimate reasons for overseas entities to own property in the UK, there are just as many illegitimate reasons (such as hiding criminal or terrorist actviity) why someone would want to disguise their ownership.
When launched, any overseas entity (like a foreign company) buying UK property will need to register its beneficial owners. The register will be publicly available and searchable via Companies House.
Generally, those with more than 25% of the shares of an overseas entity will need to be registered.
Why is the Register of Overseas Entities Needed?
Since 2016, UK companies owning property have had to declare their owners and this information is publicly available in the People with Significant Control (PSC) register.
However, many foreign countries do not have an equivalent, public register of ownership, and it is not always possible (or easy) to find out who controls a company in another country.
This is the need that the soon-to-be-launched Register of Overseas Entities is trying to satisfy.
In light of the recent Russian invasion in Ukraine, detailed analysis of Russian ownership of properties in the UK discovered that there are 1,895 Russian-owned properties in London alone. This is more than three times higher than official figures of 795.
Overall, the research carried out by property data software provider, HARNESS Data Intelligence, found a staggering 17,055 records for Russian-owned assets in the UK, with the most being in London.
With existing records failing to provide a clear-cut picture of the scale of Russian property ownership in the UK, the need for a Register was fast-tracked as Russian oligarchs and those associated with Putin’s regime were swiftly placed on sanctions lists.
Crucially, uncovering which of Russian-owned assets are connected to sanctioned individuals is a challenging task for compliance professionals at present. WIthout publicly available data such as that which the Register of Overseas Entities will supply, identifying the beneficiaries of property assets will take compliance professionals on a wild goose chase in the pursuit of often anonymous, offshore companies with vastly complex ownership structures.
Who Has to Register?
Any non-UK company that owns (which has been acquired since 1 January 1999), or wants to acquire UK land or property will have to register with Companies House and provide details about the beneficial ownership of the entity.
In broad terms, a beneficial owner is an individual or legal entity that:
- Holds more than 25% of the voting rights or shares in the entity
- Is entitled to appoint or remove directors with a majority of the voting rights
- Has the power to exercise ‘significant control or influence’ over the entity
Upon registration with Companies House, the entity will be published on the Register and issued with an Overseas Entity ID which will be required to deal with any property in the UK. Specific information and statements must be reconfirmed to Companies House at least every 12 months in order for their Overseas Entity ID to remain valid.
What Happens if an Overseas Entity Does Not Register?
Failure to comply with the requirements of the Register of Overseas Entities can lead to criminal proceedings ranging from fines of up to £2,500 per day of non-compliance to unlimited fines and prison sentences.
Without a current Overseas Entity ID, the entity cannot be registered as the legal owner of the property at HM Land Registry, preventing it from acquiring new property.
Any transfer of interest will be unable to be registered at HM Land Registry without a valid Overseas Entity ID. As such, foreign companies will not be able to carry out certain transactions on their UK property such as sales, mortgages and leases of more than 7 years without a valid ID proving their inclusion on the Register.
How Will it Impact Property Transactions?
For those involved in property transactions with an overseas entity (including lenders), they must ensure that they receive evidence that the entity in question has complied with the requirements of the Register.
The entity must provide some basic information about the company including its name, country of incorporation, registered office, legal form and applicable governing law, details of any overseas public register which it is included on and any applicable company registration number. Depending on the structure of the business and whether any beneficial owners are identified, further information about these individuals may also be required.
This new register overhauls Unexplained Wealth Orders and makes it easier to uncover the true owners of land and property that have been hidden in a web of secretive shell companies that only exist on paper and are registered in offshore havens. However, as with all new Acts, the criminals can find loopholes but this Registry will make it easier to prosecute anyone involved in international corruption or organised crime.