Registers play a key role in the debate about corporate transparency. In 2016 the UK was the first G20 state to establish a public register identifying and recording those who actually own or control certain corporate entities. The UK currently maintains registers showing which individuals or companies own or control three different types of assets: companies, properties and land, and trusts (the latter is not made public). That is now set to be extended to overseas entities which own, or which buy, property in the UK.
The UK Government has committed to launching a UK “register of beneficial owners of overseas entities” which own or buy properties in the UK. The register would be the first of its kind anywhere in the world. Once the register is in place, overseas entities would not be able to obtain legal title to property in the UK, or to secure UK Government contracts, without submitting the necessary beneficial ownership information. Under the Sanctions and Anti-money Laundering Bill (the “Bill”), which is due to be enacted into law today (23 May), the Government must provide annual reports on progress made regarding the register being put in place, and the reports are to include an assessment of when the register will be in place.
Most recently the Government has been backed into a corner by Parliament on amendments to the Bill’s provisions on transparency of company ownership in British overseas territories. As a result, British overseas territories will also be required to introduce publicly accessible registers of beneficial ownership of companies registered there by the end of 2020.
What is beneficial ownership?
The beneficial owner of a corporate entity or property is the person who actually owns or controls it, and benefits from that ownership or control. This may not be the same person designated in the company / asset documentation, which may only name, for example, a nominee director or offshore trust.
In 2016 it was estimated that 40,000 properties (from pubs and car parks to apartment complexes) in London were owned by offshore companies whilst earlier this year it was reported that some 11,700 firms based in the British Virgin Islands own 23,000 UK properties. The numbers have continued to grow year on year.
Proposed UK register of beneficial owners of overseas entities
In this section we consider the potential impact of this register once in place, as discussed in the Government’s consultation response.
Who might be caught?
- The Government intends for the register to cover all legal entities that can hold properties “while ensuring that there is flexibility in the regime to permit exemptions” where appropriate
- The definition of “beneficial owner” is likely to be the same as that under the present UK “persons of significant control” (PSC) regime for recording company ownership
What might require to be registered?
- New purchases of, or acquisitions of certain leasehold interests in, UK property; and
- Any sale or mortgage of, and certain leases of, UK property already owned by the overseas entity – the Government intends to include all leases of registrable duration in the scope of the new register’s requirements
- Overseas entities which already own UK property may be allowed a period of at least one year to comply with the new requirements, and perhaps longer – the Government is seeking to balance the rights of overseas entities to have sufficient time to comply, or to sell the relevant assets, while not undermining the register’s underlying objective by undue delay in compliance
- Penalties for non-compliance are set to include restrictions on the relevant land register - in the event that there is an attempt to transfer property to an overseas entity without a valid registration number, beneficial interest would pass but the legal title would not; voiding the transfer document in such a transaction was discounted by the Government as a potential penalty because it could have damaging consequences for innocent third parties
- Entities unable to give information on their beneficial owners could then be asked to provide information about their managing officers
- How often entities will be required to update their information entries is not yet clear, but criminal penalties for failure to do so are envisaged
UK requirement for overseas territories to introduce registers of beneficial ownership
In addition, the Bill states that by no later than 31 December 2020 the UK Government will require the government of any British overseas territory, including Bermuda, the Cayman Islands and the British Virgin Islands, to introduce a publicly accessible register of the beneficial ownership of companies within its jurisdiction, if it has not already introduced such a register. The Bill does not, however, require Crown dependencies like the Isle of Man or the Channel Islands to follow suit. At present four of the fourteen British overseas territories have a register of beneficial ownership set up, but they are not publicly accessible; the information on the registers is only available on request to British law enforcement agencies.
Overseas owners of assets in the UK, as well as owners of companies registered in British overseas territories, should be closely following the Bill’s enactment into law.
A number of issues will require to be ironed out in the coming months, including potential ramifications for joint ventures, insolvency practitioner procedures and property law systems around the UK. As the UK register of beneficial ownership of overseas entities will be the first of its kind, it will need to be designed from scratch without the aid of a pre-existing model, and the Government will need to liaise with the devolved administrations as well as raise awareness around the world.