Failure to properly grasp the implications of UK's Economic Crime (Transparency and Enforcement) Act 2022 (the Act) could be catastrophic, with significant financial and criminal consequences. If you are offering corporate or fiduciary services or loan facilities to non-UK entities (overseas entities) owning UK property then this article is essential reading.
The Act requires overseas entities to register with Companies House if they own or intend to own registrable property in the UK1. In order to do this they must have identified and verified the identification of their registrable beneficial owners and where relevant their managing officers.
The purpose of the Act is to make the ownership of property within the UK more transparent.
What does this mean for owners and officers of overseas entities?
Both owners and professional service providers need to be alive to the risks of failure to register an overseas entity.
Failure to register on the Register of Overseas Entities (the ROE) could result in the overseas entity not being able to undertake dispositions in relation to its UK property. This could result in significant financial loss to the overseas entity, which may in turn seek to recover those losses from the professional service provider.
Banks and other lending institutions are also potentially impacted by the requirements within the Act. Failure, by the financial services business, to ensure that the overseas entity has complied with the registration requirements and that the title is unencumbered, could result in their not being able to register with the Land Registry or enforce any charge that they may have over that property.
Finally, beneficial owners of overseas entities, which includes directors, managers, secretaries and anyone else who might be considered to be an officer of the company, could be criminally liable if found to have failed to properly address the requirements set out in the Act.
The ROE
The Registrar of Companies for England and Wales (the Registrar) must now keep a register of overseas entities that own either freehold or leasehold2 land in the UK. For the purposes of the Act, an overseas entity is defined as a "legal entity that is governed by the law of a country or territory outside the United Kingdom", therefore capturing entities incorporated in the Channel Islands, as well as other Crown Dependencies.
In order to register, an overseas entity must identify its registrable beneficial owners and, when necessary, managing officers3. A registrable beneficial owner can be an individual, government, public authority or other legal entity which meets one of the following conditions:
- holds more than 25% of the shares or voting rights in the overseas entity (directly or indirectly);
- holds the right to appoint or remove the majority of the board of directors of the overseas entity (directly or indirectly); or
- has the right to exercise, or actually exercises, significant influence or control over the overseas entity.
Beneficial owners are exempt from registration where:
- the person does not hold any interest in the overseas entity other than through one or more legal entities;
- the person is a beneficial owner of every legal entity through which the person holds such an interest;
- as respects any shares or right in the overseas entity which the person holds, the legal entity through which the shares or right are held is a beneficial owner of the overseas entity and is subject to its own disclosure requirements; and
- as respects any shares or right in the overseas entity which the person holds indirectly, at least one of the legal entities in the chain is a beneficial owner of the overseas entity and is subject to its own disclosure requirements4.
Each of these exceptions will require careful scrutiny on the facts.
How do I identify a registrable beneficial owner?
An overseas entity must send an information notice to all the individuals or entities that it has identified as being a registrable beneficial owner, regardless of whether the overseas entity already has all the information that it needs in order to identify them. There is no specific format that must be used for the notice but it must require the individual or entity that it is given to, to:
- state whether or not they are a registrable beneficial owner in relation to the overseas entity; and
- if they are a registrable beneficial owner, they must confirm, correct or provide all of the required information contained within the information notice.
The individual or entity must comply with the requirements within the notice within once month of being given it.
Once the registrable beneficial owners and, when necessary, managing officers have been identified, their identification must be verified.
Verification can only be undertaken by specific professionals5. Collas Crill can assist with verification.
What should be done if the registrable beneficial owner does not return the information notice?
There is no specific guidance on this point but the overseas entity must register with Companies House or face the legal consequences. In such circumstances the overseas entity must ensure that all the information that it does provide to Companies House is accurate and keep a comprehensive record of the steps it took to:
- identify the registrable beneficial owner; and
- confirm the accuracy of the information provided to Companies House.
Dates of note
The ROE opened on 1 August 2022.
Overseas entities that have owned property in England and Wales since 1 January 1999 or in Scotland since 8 December 2014 must register on the ROE before 1 February 2023. Failure to register prior to this date will mean that the entity cannot register any disposition of land with the Land Registry.
Overseas entities must register on the ROE if they have made a relevant disposition of land since 28 February 2022. A "relevant disposition of land" includes:
- a transfer;
- where the registered estate is an estate in land, the grant of a term of years absolute for a term of more than seven years from the date of the grant;
- the grant of a legal charge; or
- the delivery of a qualifying registrable deed granted by the overseas entity, where the entity's interest in respect of which the deed was granted was registered in the Land Register of Scotland on or after 8 December 2014.
Overseas entities will not be able to register the disposition of land with the Land Registry from 5 September 2022 if they are not registered on the ROE.
Ongoing obligations
There will be an obligation that overseas entities update their information annually6. Failure to do so could result in the commission of an offence.
What should I do now?
The Act is far from straight forward and has introduced a number of obligations impacting upon those associated with overseas entities owning or leasing UK property. It is apparent that only a relatively small number of overseas entities have registered thus far, which may well result in significant delays as the 31 January 2023 deadline draws near.
It is imperative that anyone impacted by the requirements set out in the Act mobilise themselves immediately to ensure that they are not at risk from financial implications or worse.
Identifying the registrable beneficial owner can be complex. If you would like further assistance, then please do not hesitate to contact Michael Morris at Collas Crill, who heads up our Register of Overseas Entities - Verification Services Team and will be able to advise you in relation to your obligations.
Footnotes
1. This only relates to property acquired after 1 January 1999 (England and Wales) and 8 December 2014 (Scotland)
2. For greater than 7 years
3. This includes a director, manager or secretary (section 44(1) of the Act)
4. Part 3 of Schedule 2 of the Act sets out when a legal entity is subject to their own disclosure requirements.
5. As defined in the Register of Overseas Entities (Verification and Provision of Information) Regulations 2022 (regulation 3(1)) and The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (regulation 8(1))
6. Section 7 was not in force at Royal Assent at the time of writing.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
