15th March 2022
The Economic Crime (Transparency and Enforcement) Act 2022 (the Act) came into force on 15 March 2022 and contains measures aimed at putting a stop to what has been described as the ‘London laundromat of dirty money’. The stated purpose of the new legislation is “to crack down on foreign criminals using UK property to launder money [and] ensure criminals cannot hide behind secretive chains of shell companies”. To achieve this purpose, the Act, amongst other measures, introduces a public register of beneficial ownership of UK property held by non-UK companies and similar entities. The register will highlight the ultimate owners of overseas companies that control property and land in the UK.
In addition to the beneficial ownership register, the Act also makes key changes to the UK’s unexplained wealth orders regime and also introduces a strict civil liability test in relation to sanctions breaches. These topics are outside the scope of this briefing which concentrates on the corporate aspects of the Act but will be the subject of a future article from the Walker Morris Regulatory & Compliance team.
The possibility of introducing a public register for overseas corporate owners of UK property was first discussed in 2016 and a draft Registration of Overseas Entities Bill was published in July 2018 but didn’t make it to the statute book. However, in light of Russia’s actions in Ukraine over recent weeks, the Economic Crime (Transparency and Enforcement) Bill was introduced at the start of March 2022 and has made its way through Parliament in record time. The register of beneficial ownership will apply retrospectively to UK land acquired on or after 1 January 1999.
The register complements other initiatives, including the People with Significant Control (PSC) regime, the Trust Registration Service, suspicious activity reports and unexplained wealth orders. The Act does not, however, make any changes to the existing provisions relating to the existing PSC register.
The legislation is relevant to the following entities:
Failure to register and update the beneficial ownership register at Companies House will be punishable with imprisonment and fines. In addition to criminal penalties for non-compliance, the Act provides that a failure to register, or to comply with the updating requirements, will result in an overseas entity being unable to register as a proprietor of land in the UK at the Land Registry and certain dispositions made by an overseas entity registered proprietor being incapable of registration at the Land Registry. In practice this means that a failure to register, or to comply with the updating duty, will in most cases affect the ability of the overseas entity to either sell or lease the land, or create a charge over it.
Individuals who try to sell or lease property without first publicly declaring its beneficial owner face potential imprisonment and daily fines of up to £2,500. It will also be an offence to deliver misleading, false or deceptive material to the registrar or deliver false, misleading, deceptive statements.
As with the current PSC regime, the practical consequences for directors of overseas entities will be correctly identifying the beneficial owners which need to be submitted to Companies House. Beneficial owners are defined in the legislation as individuals, governments and public authorities or other legal entities that meet one or more of five conditions which include the ownership of shares, the ability to exercise voting rights and the ability to exert significant control. Please get in touch with your usual Walker Morris contact so that we can help you navigate the new requirements.
Corporate and Head of Food & Drink