The UK Department for Business, Energy & Industrial Strategy proposed the establishment of a first-of-its-kind public registry requiring foreign entities that own real estate in England, Wales, Northern Ireland or Scotland to disclose a property's beneficial owner. Should the draft bill become law, it will build upon existing UK requirements to register people with significant control over UK legal entities.

The bill is intended to prevent the use of UK real estate for money laundering and other illicit purposes. Overseas entities that own any real estate in England, Wales, Northern Ireland or Scotland would have 18 months to initially register their beneficial owners with the UK Companies House. Overseas entities would need to annually update the information contained in the registry, which will be largely available to the public.

The bill defines a beneficial owner as "an individual," "a legal entity," or "a government or public authority" that meets one or more of the following criteria: (1) holds more than 25 percent of shares in the overseas entity, (2) holds more than 25 percent of the voting rights in the overseas entity, (3) can appoint or remove a majority of the board of directors, (4) has "significant influence or control" over the overseas entity or (5) has significant influence or control over the activities of certain trusts, partnerships, unincorporated associations or other entities that are not legal persons under the law by which they are governed.

Violations of the bill's registration requirements would result in criminal fines, imprisonment and blocks on the transfer of real property owned by foreign entities.

Commentary / Christian Larson

p>This draft legislation is part of an international trend toward greater transparency in the use of shell companies to purchase real estate and conduct other financial transactions.

The UK already requires the disclosure of persons with significant control over UK legal entities. This draft legislation would extend that disclosure to foreign entities that own any real estate in the UK.

Both the existing and proposed UK rules determine significant control and beneficial ownership using standards similar to those in the United States. FinCEN's customer due diligence rule, effective May 16, 2018, requires the disclosure of individuals who control or own 25 percent or more of a legal entity customer. However, while FinCEN requires financial institutions to collect and retain this information for new accounts, the draft UK rule would require disclosure directly to the UK Companies House.

Pursuant to temporary Geographic Targeting Orders ("GTOs") that have been renewed for the past several years, FinCEN has required title companies to collect and provide FinCEN with beneficial ownership information for legal entities used to purchase high-end real estate without bank financing. However, the GTOs apply only in select geographic markets in the United States, whereas the UK's draft legislation would apply to all real estate in England, Wales, Northern Ireland, and Scotland. The United States currently has no mechanism for collecting beneficial ownership information on the geographic scale of what is being proposed in the UK.

This comment was co-authored by Stephen Weiss.

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