Acceleration of UK transparency measures: Economic Crime (Transparency and Enforcement) Bill

Article 07 March 2022 Experience: Corporate
Private client

The war in Ukraine has led to the UK, EU, USA and other jurisdictions imposing a number of far-reaching sanctions on Russia and Russian individuals. This has triggered a renewed focus on transparency and raised once again questions concerning the use of the UK as a destination for the proceeds of criminal activities.

Recap of the purpose of the register of overseas entities

In our article from October last year, we looked at the draft legislation contained in the Registration of Overseas Entities Bill.

In brief, the intention is to create a new public register of beneficial owners of non-UK entities owning UK land, similar to the persons with significant control regime that applies to UK companies.

The current position is that the publicly accessible register held at the Land Registry for a particular piece of land only discloses the name or names of the legal title holder. Therefore, if a non-UK company holds the legal title to the land, the register will disclose only the name of that company. If that company is not required to reveal its beneficial owners on a public register in its jurisdiction of incorporation (as companies incorporated in the UK are, for example), then it is not possible to determine the beneficial owner of the land.

As we set out in our previous article, the register of overseas entities would require the beneficial owners of non-UK entities which own UK land who satisfy particular tests to be disclosed. Those tests are modelled on the tests which already apply to UK companies. Failure to comply with the registration and disclosure requirements will prevent the entity from dealing with the land and can lead to financial penalties and even a prison sentence. Existing owners will have a transitional period of 6 months from the date the law comes into force to register and the requirement will apply to those who purchased land on or after 1 January 1999 (in England and Wales).

Economic Crime (Transparency and Enforcement) Bill: accelerating the implementation of the register

The text of the Registration of Overseas Entities Bill was originally published in 2018 and received renewed attention when the Pandora Papers disclosures were made. Following the Russian attack on Ukraine and the imposition of economic reprisals by many nations, the text of the old Bill has now been rolled into the new Economic Crime (Transparency and Enforcement) Bill which is set to be fast-tracked through Parliament. The new Bill covers not only the creation of the new register of overseas entities but also changes to sanctions law and unexplained wealth orders. We will look in more detail at these latter two areas in a separate article.

The text implementing the register has undergone some changes since we first reported on it in October last year. There is a new section requiring the Secretary of State to make regulations concerning the verification of information. This should give the register more teeth and responds to criticisms of the existing Companies House registration requirements, where actual verification of identity information provided to the registrar currently does not take place (although reforms in this area have been promised).

Another notable change is to the power of the Secretary of State to exempt persons from the registration requirements. In the previous draft text, this power was rather widely drafted, exercisable by the Secretary of State if there were ‘special reasons’ to use it. The power has now been narrowed such that it will only be exercisable where the Secretary of State is satisfied that to do so is necessary in the interests of national security, the economic wellbeing of the UK, or for the purposes of preventing or detecting serious crime.

In the original draft Bill, there was a window of 18 months for overseas entities which already held UK land to register. This came in for some criticism given the current momentum around sanctions and the reluctance to see the holders of property perceived to be derived from criminal proceeds given time to rearrange their affairs. As a result, that window has now been reduced to six months. This means that advisors and their clients will need to respond quickly to the changes in order to be compliant with the new regime. Failure to register within the six-month window will be an offence committed by the overseas entity and every officer of that entity who is in default. The maximum penalty for the offence is imprisonment of up to two years plus a fine.

What should I do now?

As the law is being fast-tracked through Parliament it is likely to come into force very soon. The new six-month window for registration means that advisors and their clients will need to act quickly. You may consider applying the five tests set out in our previous article on this topic now in relation to any overseas entities holding UK land to which you or your client is connected in order to determine which details you will need to gather in order to register the overseas entity once the obligation to do so takes effect.