FCA Business Plan 2019-20: A reflection of recent enforcement action
During the Treasury’s recent consultation on Anti Money Laundering, it was noted that the Draft Registration of Overseas Entities Bill is an example of the leading role being taken by the UK in respect of improving transparency in the property market. First published in July 2018, the Bill seeks to establish a beneficial ownership register of overseas entities that own property in the UK. Details of those who ‘own and control’ any entity that owns land in the UK would be kept at Companies House, and would be open to the public in the same way as current Companies House records. The register would be the first of its type in the world, and would mark a significant milestone in the UK’s fight against money laundering.
According to anti-corruption group Global Witness, and based on data from the Land Registry, £100 billion worth of UK property is owned by anonymous companies registered in tax havens. Currently, those who invest in the UK property market are able to hide behind opaque company structures to obscure their identity, making it difficult, if not impossible, to see who ultimately owns and controls an overseas entity and, by extension, any land it might own. This ultimately makes the UK property market vulnerable to misuse as a means of hiding or laundering the proceeds of crime.
Since 2016, UK registered companies have been required to provide information to Companies House about their ultimate owners and controllers. This is done by way of the ‘Persons with Significant Control’ (PSC) register. At the moment, the position for UK companies therefore differs from that of overseas companies, and the proposed register seeks to remedy this inconsistency. Further, the register intends to make it easier for regulators, legitimate businesses and the general public to identify the ‘true’ owners of land, and to improve the efficiency of law enforcement investigations (particularly in identifying and tracing the proceeds of crime).
The introduction of the Bill follows a commitment made at the Anti-Corruption Summit in 2016 to establish such a register. The government intends for the register to become operational in 2021 (see here to track the Bill’s progress).
After successful registration, Companies House will provide the overseas entity with an ID number and the date of its registration. In parallel with the PSC regime, the entity will then be required annually either to update the register, or to confirm that the information on the register remains accurate.
Overseas entities who already own land in the UK will have 18 months from the Bill’s commencement to either: (1) dispose of the property (if they do not wish to register); or (2) provide their beneficial ownership information to Companies House, and subsequently apply to the Land Registry to add their valid registration ID number to their title.
Under the current wording of the Bill, the word “entity” encompasses not just companies, but also non-registered bodies with legal personality that can own property in their own right. This includes corporate bodies, partnerships, and “any other entity that (in each case) is a legal person under the law by which it is governed”. This definition encompasses all forms of legal entity – not just those that can exist here in the UK - thereby significantly widening the scope of the register and ensuring its efficacy.
Overseas entities are required to take “reasonable steps” to identify their beneficial owners. Where entities are not able to provide beneficial ownership information (for example, because they don’t have any beneficial owners or have not been able to obtain information about them), they will be asked instead to provide information about their managing officers. This ensures there is at least some information on the register about who manages the entity’s day-to-day affairs. The definition of “managing officer” is a provided by way of a non-exhaustive list, which includes directors, managers and secretaries.
The Bill further supposes that every overseas entity will have at least one person that directs or manages its affairs – be it an individual or another corporate body – and provides for both of these eventualities. If an overseas entity is unable to identify its beneficial owners or managing officers, the Bill still permits the entity to register at Companies House, but it will be required to provide any information it has about its ‘ultimate’ owners or managing officers.
An overseas entity that is already required to disclose its beneficial ownership information on an equivalent public register in its own country will not be required to disclose this information again. For these entities, there will be modified application requirements (i.e. they can register without providing details of their beneficial ownership). It is expected that by early 2020, pursuant to the Fourth EU Anti-Money Laundering Directive 2015, all EU Member States will have established a publicly accessible beneficial ownership register, such as the PSC Register in England and Wales. Accordingly, this modified registration requirement is eventually likely to apply to all European entities.
Further, the Secretary of State can specify any overseas entities that would be exempt from the requirement to register. For example, it is expected that foreign governments or public authorities are likely to be exempt.
A restriction will be imposed by the Land Registry on any property where an overseas entity is registered as the proprietor.Unless an entity is exempt or has a valid registration ID number, this restriction will prevent it from transferring a freehold, assigning or granting a lease for longer than 7 years, and granting a legal charge.However, exceptions will be made where dispositions are: (1) required by a court order or statutory obligation; (2) made pursuant to a contract that pre-dates the restriction; or (3) made by a registered mortgage or exercising its power of sale.
As currently drafted, the Bill provides for various penalties for non-compliance, including:
Further, it will be an offence to knowingly or recklessly provide to Companies House any document, or to make to Companies House any statement that is misleading, false or deceptive “in a material particular”. Penalties can include a fine and/ or imprisonment (to a maximum of 12 months on summary conviction, or 2 years on conviction on indictment).
Nicola is a partner in the criminal litigation team. She has experience in money laundering, fraud, corruption (including the Bribery Act) and cartel matters, financial compliance, asset seizure and confiscation notices, through to sexual offence cases, drugs, murder and offensive weapon crimes.
Josephine is a trainee solicitor in the criminal litigation team. She has worked on a range of criminal matters, including sexual offence cases, youth cases, general crime (including assault and harassment cases), and has a background in international criminal law.
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