The United Kingdom's Economic Crime (Transparency and Enforcement) Act 2022 (ECA) came into force on 1 August 2022 (see our previous article). Any Irish company, partnership or trust that owns, or intends to invest in property in the UK, must consider whether the ECA applies to them. Among other measures, the ECA introduces a requirement for 'overseas entities' (i.e. non-UK registered bodies corporate, partnerships or other entities with legal personality under the law by which they are governed) seeking to purchase, lease or grant security over UK land interests, which are either (i) freehold or (ii) the subject of a lease of longer than 7 years, to register the details of their beneficial owners with the UK's Companies House on a so-called 'Register of Overseas Entities' (Register). The requirement to register also applies to overseas entities which already hold such interests. This regime is referred to as the Overseas Entities Beneficial Ownership regime and it is discussed in more detail below.

Background

The ECA can be traced back to David Cameron's closing remarks at the Anti-Corruption Summit 2016 in which he expressed the wish to expose, punish and drive out corruption noting simply that "if you don't know who owns what, you can't stop people stealing from poor countries and hiding that stolen wealth in rich ones".

The outbreak of war in the Ukraine and an attendant focus on ensuring that individuals connected with that effort were prevented from evading sanctions against their property interests drove this issue up the legislative agenda in the UK.

This renewed focus resulted in the Economic Crime (Transparency and Enforcement) Bill being published in March 2022 and being expedited through the legislative process. The ECA aims to deliver on the aim to ensure "transparency about who ultimately owns and controls overseas entities that own land in the UK".

Requirements to register

An overseas entity that holds certain types of real estate in the UK will need to register with Companies House and provide details of its 'beneficial owners' (including in some cases managing officers and any trusts that sit within its corporate structure) to obtain an Overseas Entity ID number.

In England and Wales:

  • ownership of freehold land, or a lease for more than seven years is a 'qualifying estate'
  • an overseas entity is not able to acquire a qualifying estate unless it first registers details of its beneficial owners with Companies House
  • an overseas entity is not able to sell, grant a lease for more than seven years or grant a legal charge over a qualifying estate without first registering
  • to register, an overseas entity is required to provide details about itself and each of its 'beneficial owners'

The regime applies to qualifying estates that have been acquired on or after 1 January 1999 in England and Wales, 8 December 2014 in Scotland and from 1 August 2022 in Northern Ireland.

Entities that hold a qualifying estate must register with Companies House by 31 January 2023 and provide the required information.

Overseas entities that have disposed of a qualifying estate in land after 28 February 2022 in England and Wales or Scotland will also need to register and give details of that disposal or provide a statement to the effect that no such disposal has been made in the entity's application for registration.

The ECA is not intended to (and does not) result in a register of beneficial ownership of land in the UK, but rather of the owners or controllers of overseas entities which own land, an asset class that has for some time been the subject of the inflow of foreign investment into the UK.

Information to be provided

Overseas entities must take reasonable steps to identify their 'beneficial owners' and/or managing officers and provide information on such individuals.

A 'beneficial owner' of an overseas entity is someone who meets one or more of the following conditions:

  • holds (directly or indirectly) more than 25% of the entity’s share capital
  • holds (directly or indirectly) more than 25% of the entity’s voting rights
  • holds (directly or indirectly) the right to appoint or remove a majority of the entity’s directors
  • exercises or has the right to exercise, significant influence or control over the entity
  • has significant influence or control in respect of a trust or unincorporated entity that satisfies one or more of the four conditions above

Entities may send information notices to suspected beneficial owners or those who know their identity and failure to comply with such a notice is a criminal offence. The regime is substantially modelled on the existing requirements in respect of registration of 'persons with significant control' over UK entities (PSCs).

The information that will need to be provided for beneficial owners is broadly the information required under Ireland's Register of Beneficial Ownership of Companies and Industrial and Provident Societies (RBO) regime, on which we have previously published. Specifically, for an individual, this comprises that person's name, date of birth, nationality, usual residential and service addresses and which of the above categories of beneficial ownership applies to the individual(s) in question. Registers will be available to the public, although certain sensitive personal data is not disclosed on the public register, such as individuals' residential addresses.

There is an obligation on registered entities to update the Register annually or confirm that the Register is up to date.

Regulations set out additional requirements in respect of corporate trustees and provisions around the withholding of 'protected information'.

Verification

One key criticism of the PSC register was that information provided was self-certified. Addressing this concern, information uploaded to the Register will need to be verified by an entity that is regulated in the UK (credit and financial institutions; auditors, insolvency practitioners, external accountants, tax advisers; independent legal professionals; trust or company service providers; or estate agents and letting agents). This means that overseas entities are not able to pursue registration entirely independently. If, in the course of conducting verification activities, a 'relevant person' knows, suspects or has reasonable grounds for knowing or suspecting, that a person is engaged in, or attempting, money laundering or terrorist financing, they must submit a Suspicious Activity Report to the National Crime Agency. Relevant persons are also required to report any discrepancies between information being provided on the Register and information that is already available in respect of such individuals on the UK's PSC register.

Guidance

The UK government's Department for Business, Energy & Industrial Strategy published non-statutory technical guidance on the registration of overseas entities on the Register. The document also includes guidance on identifying beneficial owners, which beneficial owners are registrable and which are exempt, as well as verification requirements.

Sanctions

In short, the regime has teeth.

Failure to comply with the regime can result in both civil and criminal sanctions against both entities and individuals, in respect of a range of behaviours including: not declaring the details of beneficial owners without reasonable cause; failing to comply with the duty to update the Register annually; providing the Register with misleading, false or deceptive information; failing to comply with an information request from the registrar; and failing to update the register in respect of the sale of an qualifying estate between 28 February 2022 and 1 August 2022.

Unregistered overseas entities will be restricted from registering any acquisition, disposal, transfer, grant of a lease of seven years or more, or grant of a charge over such interests with the UK's Land Registry. If disposals are made despite such restrictions, the overseas entity and each of its officers who is in default will commit a criminal office punishable by up to five years' imprisonment and a fine of up to £2,500 per day.

Where such an interest is held already, a failure to register by 31 January 2023 will be a criminal offence by the entity as well as every officer in default, with a maximum penalty of two years' imprisonment and a fine.

Similarly, a relevant person who undertakes verification which it fails to carry out correctly is open to criminal prosecution in line with the above, regulatory sanction and liability for professional negligence.

Next steps

Non-UK incorporated companies which are engaged in M&A activity which results in acquisitions or disposals of interests in land in the UK, as well as non-UK incorporated companies which already hold such interests in land, must be mindful of this regime.

Overseas entities who already own land or property in the UK as set out above have until 31 January 2023 to register and provide information on their beneficial owners or managing officers.

Given the prohibition on the registration of qualifying estates to entities that are not on the Register, advisors will need to bear this in mind and ensure that parties to any transaction documents adequately manage this risk, which should be fully addressed during due diligence.

Commentators await with interest to see whether the spirit of the ECA, preoccupied as it is with policing inflows of overseas wealth into UK land, will be replicated in respect of other market segments (such as money management and the supply of other luxury goods) to minimise perceptions of the UK as a soft target for the nefarious spending of dubiously acquired funds.