With the new requirements for transparency of ownership of UK companies just being implemented, the UK Government is considering extending the requirements to certain foreign companies. The proposals would affect foreign companies owning or acquiring property in England and Wales, or bidding for a public contract in England.
In addition to making the beneficial ownership information of these foreign companies available to public authorities and law enforcement, the Government is considering the extent to which it can be made available to the public.
If the Government decides to proceed with any of these ideas, it will move to a formal consultation later this year.
Proposed transparency requirements
The Government’s starting assumption is that the obligations placed on affected foreign companies should be broadly similar to those being placed on UK companies, which are required to maintain a register of people with significant control (PSC register). This information will, from June 2016, be made available on the public registry at Companies House. The PSC register must include information on individuals and legal entities who:
- directly or indirectly hold more than 25% of the shares or voting rights in the company or the right to appoint the majority of the board of directors;
- have the right to or actually exercise significant influence or control over the company; or
- exercise significant influence or control over a trust or firm that itself meets the control conditions, where that trust or firm is not a legal person.
One option for holding beneficial ownership information for foreign companies would be to establish a further register managed by Companies House alongside the UK PSC register. Alternatively, the new register could be operated by another independent public body, or by a private sector organisation.
Like UK companies, foreign companies and their officers who fail to investigate and publish beneficial ownership information would be subject to criminal penalties, and beneficial owners would have a duty to make their interests known. However, the Government notes that it is more difficult to enforce criminal penalties against foreign companies, who may not have officers in the UK, and is considering additional penalties for failure to comply. These include imposing a daily fine, sanctions linked to the specific activity that the company needs to register for (i.e. restrictions on the ability to charge or sell existing property; restrictions on the ability to purchase new property; or bidding for public contracts), and sanctions linked to other specific economic activities the company is undertaking in the UK.
This would make the PSC regime tougher in terms of sanctions for foreign companies than for UK ones. It is also worth noting that, where some investors in a foreign company disclose their interests but others do not and the company does not take reasonable steps to identify them, the additional penalties would adversely affect the interests of all the investors equally.
Holding UK property
The proposal is that foreign companies should be required to provide beneficial ownership information before being able to register title to any property in England and Wales. The Government is also considering whether the requirement should be extended to all foreign companies already owning property here.
The Land Registry currently records the registration number of a company incorporated in the UK, when it registers the company as a legal owner of land in England and Wales. Once the UK public PSC register at Companies House is up and running, it will be easy to cross-reference the beneficial ownership and control of most UK companies with the property they own recorded by the Land Registry.
The Government proposes that a foreign company will only be able to register its ownership of property in England and Wales in the future by providing the Land Registry with a unique identification number obtained from the proposed new foreign companies beneficial ownership register.
To cover existing properties owned by foreign companies in England and Wales under the new arrangements would mean asking each of the registered proprietors of up to 100,000 titles that are currently registered to foreign companies to obtain a unique identifier from the foreign companies beneficial ownership register and then provide it to the Land Registry within a reasonable time.
The Government is considering exempting foreign companies incorporated in jurisdictions which already have an accessible central register of beneficial ownership information (for example, any EU member states which set up such a register in order to implement the fourth Money Laundering Directive) from providing similar information to a UK foreign company beneficial ownership register. In this case, the Land Registry would request and record the unique identifier number from the foreign company’s home register.
The Government is also considering requiring any foreign company wishing to bid on major contracts (value of over £10 million) with the UK Government to identify its beneficial owners. It considers the potential benefits to be: securing best value for money on behalf of taxpayers; ensuring legitimate businesses are treated fairly; and preventing corrupt individuals from laundering the proceeds of crime through public contracts.
The Government is not recommending that beneficial ownership information be required in relation to existing public contracts.
The consultation paper identifies various options to ensure contracting authorities obtain beneficial ownership information from bidders before awarding a public contract:
- linking failure to provide beneficial ownership information to existing grounds for the three year exclusion from public contracts under the Public Contract Regulations 2015;
- treating failure to provide beneficial ownership information as making a bid incomplete or non-compliant, potentially leading to rejection of that bid;
- making it a condition of the procurement process that, to be awarded a contract, a bidder must provide beneficial ownership information – the highest ranked bidder would then be asked to provide its beneficial ownership information before contract signature but the unsuccessful bidders would not be required to provide the information.
It is proposed that contracting authorities should include termination provisions in new major public contracts which would apply if the contractor:
- provided inaccurate beneficial ownership information when bidding for the contract; or
- did not keep its beneficial ownership information updated throughout the period of the contract.
What are the implications?
If the proposals on public contracting are pursued, foreign companies considering bidding for major English public contracts will have to weigh up the additional costs involved in providing and updating information on their beneficial ownership, as well as any sensitivities around disclosure of this information, in deciding on the terms of any bid. The Government believes there would be benefits to UK businesses from extending the transparency requirements to foreign companies, but the proposals may mean that contracting authorities do not in the end get as good a deal as they might have done.
The proposals in relation to ownership of property by foreign companies would have implications for many more foreign companies. As well as affecting companies set up with the sole purpose of holding property in England and Wales as an investment, the current proposals would affect any foreign company which requires premises from which to trade or operate in the UK if it holds the freehold title to those premises or holds them on a lease of longer than seven years, as these must be registered with the Land Registry.