With the Joint Committee on the Draft Registration of Overseas Entities Bill calling for loopholes in the draft legislation to be addressed, Jessica Parker, partner at Corker Binning, provides key information on the Bill. Parker sets out the background to the Bill, how it will work in practice and the identified issues with it.
Briefly, what is the background to this Bill? Why was it introduced and what mischief is it designed to address?
The UK’s relative political and economic stability combined with the strong and sustained growth of property as an asset class has contributed to massive investment in UK property by overseas investors. This group includes individuals whose assets are connected to, or derived from, criminal activity. The complaint by anticorruption campaigners and law enforcement officers was that criminals could benefit from property ownership in the UK with immunity by frustrating efforts by investigators to identify them. They do this by owning property through companies registered in overseas jurisdictions where registration requirements were not robust, or which did not have mutual legal assistance arrangements or other informal cooperative relationships with UK investigators. The draft Registration of Overseas Entities Bill was introduced as part of the wider drive for transparency to counter money laundering and financial crime at the 2016 Anti-Corruption Summit in London.
As currently drafted, how will the register work in practice?
Many of the constitutional developments described thus far can be defended on the basis that they The Bill, if enacted, would require the establishment of a new, publicly accessible register to be held at Companies House which would record the beneficial owners of overseas entities holding UK property. Entities including companies and partnerships who hold or are acquiring property are required to identify their beneficial owner mand register that person.
The definition of beneficial owner—set out in Schedule 2 of the Bill—is someone who either:
• owns more than 25% of the shares in the entity
• has the right to exercise significant influence or control over the entity
• actually exercises significant influence or control over the entity
The definition broadly corresponds with the definition of the person with significant control (PSC) register that all UK companies have been required to register with since 2016—also held at Companies House. A person knowingly or recklessly providing misleading information to the registrar or failing to keep the information up to date may commit a criminal offence, punishable by up to two years imprisonment.
What are the key concerns about the Bill overall and as currently drafted?
It may be assumed that transparency to counter financial crime is unobjectionable, but it is important that a loss of privacy (which among other things may put the UK at a competitive disadvantage) is weighed against the efficacy of these registers. As with the PSC register, the information recorded will only be as accurate as the information provided by the applicant. A law-abiding person who wishes to maintain their privacy will be required to provide the information, whereas a person who is determined to obscure their ownership will easily be able to defeat it by using a bogus or cloned identity. This brings the entire rationale for the register into question.
The Bill provides no mechanism for verification of the data on the register and in practice the system could, only be policed by the professionals registering the property on behalf of the overseas entity, or investigations by Companies House itself. The practical and cost implications of either are significant and as a consequence it seems unlikely that either would be introduced to the final Act without further consultation. Thereafter, it is likely that the mechanism by which an investigator would establish the veracity of the information would be to seek direct confirmation from the person listed as the beneficial owner. The system therefore stands and falls on the ability to compel that person to verify the information, which in most cases could only be achieved via cooperation in the jurisdiction they reside and a legal mechanism in that jurisdiction to compel them to provide it.
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