On 15 March 2022, the Economic Crime (Transparency and Enforcement) Act 2022 (the Act) received Royal Assent. This is seen as another key initiative in the UK Government’s drive to fight corruption and money laundering.
This note focuses on what is seen as the key takeaways from the 2022 Act for most commentators, that is the establishment of a Register of Overseas Entities (ROE), applying across the UK. It is designed to provide more transparency around who (in terms of overseas entities) owns freehold, heritable and leasehold property. This Act will also flush out who controls, or has significant influence over overseas companies doing business in the UK. Other amendments to Unexplained Wealth Orders and Sanctions rules are also covered in the Act.
Given the high level of liquidity of commercial property, forestry land and energy projects, the Act will have a major impact on overseas entities (OE) which own UK property but also on those doing dealing with overseas companies (transaction counterparties, lenders and investors amongst others).
There will very shortly be no less than 3 regimes geared towards improving transparency of corporate ownership, each of which will require companies to make additional filings at Companies House:
- The ROE as mentioned above
- The People with Significant Control Regime (which was established in 2016)
- The Register for Trusts.
The Act also requires companies to maintain a register of beneficial owners (BO) being such persons:
- with a shareholding of more than 25% in an OE
- whom directly or indirectly hold more than 25% of the voting rights in respect of an OE
- whom otherwise exercises significant influence or control over the OE)
Once the forms have been completed and Companies House has completed its checks, the OE will be issued an overseas entity ID and that ID will be recorded in the ROE.
Where the OE holds or intends to hold an interest in UK land or property, this ID number will then used by the national Land Registries to verify that the OE is a registered overseas entity and is therefore entitled to be registered as the proprietor/tenant of the property in question. There is an annual updating process which will require ongoing compliance by OEs, similar to the confirmation statement process.
When to register and non-compliance
In terms of UK land already belonging to overseas entities, the requirement to register will apply retrospectively to land bought on or after 1 January 1999 in England and Wales, and 8 December 2014 in Scotland. Overseas entities will have a 6-month transitional period to sell or register their property. Failure to register will be a criminal offence and will also prevent the overseas entity from being able to transact and or raise finance on property in the future.
A transfer of land by an overseas entity in breach of the registration requirement will be a criminal offence committed by the overseas entity and every responsible officer of it, punishable by a fine or imprisonment. In England & Wales, a restriction will be placed on the title of the property. Where a disposition is made by an overseas entity that should be registered on the OER, the transaction will not be processed by the Land Registry. A party buying or leasing property from an OE (or a security interest in same) will need to carry out due diligence to ensure compliance with the Act.
In Scotland, the Land Register must reject an application where the overseas entity would become the registered proprietor or tenant of land unless the overseas entity is a registered or exempt overseas entity. It remains to be seen whether the Scottish Government will drop or amend the newly in force Register of Persons Holding a Controlled Interest in Land so as to avoid duplication of reporting requirements under that register and the Act.
Considering the resource constraints at Land Registries in both Scotland and England & Wales, it will be interesting to see how quickly applications involving OEs will be processed.
