The first EU anti-money laundering directive was adopted in 1991, with the aim of establishing a consistent regulatory environment across the EU to prevent money laundering and terrorist financing. It was reflected in the national laws of member states by April 1994 and has been followed by a further four related directives, all of which have led to current UK legislation, the most recent of which focus on improving transparency in financial arrangements.
One area in which there has been very limited transparency in the UK is where an overseas entity owns UK land, as HM Land Registry does not currently have any record of beneficial owners. Whilst there are many legitimate reasons for an individual or family to structure ownership of their wealth through such entities, a preference for anonymity being one, it has long been feared that they could also be used as a front for money laundering purposes or other forms of corruption.
Since 2016, there have been moves by government towards increased transparency regarding the beneficial ownership of UK land, including proposals for a centralised register, but there was little progress after an initial draft bill was published in 2018. In view of concerns over illicit money in the UK originating from Russia following the Russian invasion of Ukraine, however, the issue of tracing wealth held in the UK came back to the top of the political agenda. The new Economic Crime (Transparency and Enforcement) Act 2022, which introduces the register of overseas entities, was therefore prioritised and expedited through Parliament in March 2022.
The register of overseas entities
The register of overseas entities will hold details of the beneficial owners with at least a 25 per cent holding in certain overseas entities that own UK land (whether the owner’s interest is held directly or indirectly) and anyone who can exercise significant influence or control over such entities. It applies to non-UK incorporated companies, non-UK limited liability partnerships, foreign foundations and non-UK partnerships with a legal personality that hold UK residential and/or commercial property.
Notably, non-UK trusts will not need to register; however, relevant details for such entities will usually need to be reported via the HMRC trust registration service, although its contents are not made public.
The register of overseas entities will be held by Companies House but, whilst the information required to be provided can be extensive in some cases, only part of the information included within the register will become publicly available.
Registration will be required for many existing holdings of UK land by relevant entities as at the date the register goes live, as well as newly acquired land and any land disposed of between 28 February 2022 and the go live date.
Given the fast-tracking of the primary legislation, the register is not yet live. However, HM Land Registry has confirmed that ‘work is progressing at pace’ on its creation, and that a launch date will be confirmed once the necessary secondary legislation is laid before Parliament with further guidance. Once the register is available, there will be a six-month period for registration to be completed.
It will also be necessary to update the register on a regular basis, within 14 days of the anniversary of initial registration or earlier, to provide details of any updates or confirm that there are no reportable changes.
Consequences of failure to comply
A failure to meet the obligation to register carries a criminal sanction for the entity and every officer of the entity who is in default, ranging from fines of £2,500 per day (for failing to update the register) to unlimited fines (for making a materially false statement) and prison sentences.
Once registration for the regime has been completed, the entity will receive an ‘overseas entity ID’ which it will be required by HM Land Registry to provide when registering as the legal owner of property or to register dispositions (including sales, mortgage charges and leases of more than seven years). As a result, failure to comply will also prevent entities from legally acquiring or selling UK property directly.
Plan in advance
As the six-month turnaround time between the register becoming available and the deadline for registration for overseas entities with existing UK property interests is relatively short, it is important to plan in advance of the register being available and begin to gather the information that will be required to be reported; it may be that in some cases gathering the relevant information and identifying beneficial ownership could be complicated.
The information that will be required on the register will include: details of the overseas entity itself, including its name, country of incorporation and service address; as well as, details of the registrable beneficial owners, including their name, date of birth, nationality and residential address.
Forward planning will also be important for any upcoming acquisitions or disposals, to ensure that all of the information is available for timely registration and, for such entities acquiring UK property for the first time, to obtain the overseas entity ID that will be required by HM Land Registry to register the land. The absence of the overseas entity ID may cause delays on the completion of a sale or acquisition.
For more information, please get in touch with Alex Foster, or your usual RSM contact.