Earlier this year Dechert reported on the new Register of Overseas Entities ("ROE"), introduced in March as Part 1 of the Economic Crime (Transparency and Enforcement) Bill (the "Bill"). The Bill was enacted on 15 March 2022, just 14 days after being introduced to Parliament, reflecting the government’s intention to expedite the passage of the Bill as part of its response to the Russian invasion of Ukraine.1 Since then, the government has announced that it intends to launch the Register of Overseas Entities today, 1 August 2022.2 This OnPoint explains how the transitional provisions of Part 1 will operate, and examines the practical implications for overseas entities and owners of qualifying estates in land, following the launch of the ROE in August.
In summary, Part 1 of the Economic Crime (Transparency and Enforcement) Act 2022 (the "Act") will require all overseas entities who wish to engage in transactions involving qualifying estates in land to (i) apply for registration on the ROE and (ii) make a statement in the ROE confirming whether or not it has identified any Registrable Beneficial Owners ("RBOs").3 Where an overseas entity has identified RBOs, it will be required to enter certain information about its RBOs in the ROE and to update that information annually. The Act is not yet in force, but Companies House has indicated that they expect the Commencement Order to be laid on 1 August 2022.4
The Transitional Period
Part 1 of the Act will apply retrospectively to all overseas entities who (a) bought a qualifying estate on or after 1 January 1999 in England and Wales (or 8 December 2014 in Scotland); and / or (b) sold or transferred a qualifying estate on or after 28 February 2022.5 Overseas entities who hold a qualifying estate in land (or who have disposed of a qualifying estate in land on or after 28 February 2022) must have registered with the ROE by the end of the transitional period legislated for in the Act – currently slated for 31 January 2023.6 Failure to do so will be a criminal offence with penalties of up to two years imprisonment and an unlimited fine. After 31 January 2023, all overseas entities wishing to engage in transactions involving qualifying estates will have to register with the ROE before the transfer can be registered with the Land Registry.
Updates to the Bill
Parliament did not make many changes to Part 1 of the Bill before it was enacted, so the provisions remain largely as reported in our previous OnPoint. However, two amendments are noteworthy:
1. One of the grounds for exempting an overseas entity from identifying RBOs and/ or providing certain information about their RBOs in the Bill did not make it into the Act. In the Bill, the Secretary of State would have been allowed, on a case-by-case basis, to exempt someone from registering with the ROE if it was necessary to do so:
(a) in the interests of national security
(b) in the interests of the economic wellbeing of the UK; or
(c) for the purpose of preventing or detecting serious crime.
In the Act, paragraph (b) has been removed. The amendment was introduced after some expressed concern that subsection (b) ran the risk of allowing financial and economic considerations to override the objectives of Part 1, which are to encourage greater transparency and make it easier to identify the provenance of funds being used to acquire property in the UK.7
2. Criminal liability for one of the new offences has been amended. The Act creates various offences for failing to cooperate with enquiries carried out for the purpose of identifying RBOs, including a general offence of providing false, misleading or deceptive information when applying for registration on, or updating, the ROE. In the Bill, the offence would have required the prosecution to show that the person providing the information knowingly or recklessly provided false, misleading or deceptive information in a material particular.8
The Act has removed the mental element to make this a strict liability offence, with the onus on the defendant to show that they had a "reasonable excuse" for providing the false, misleading or deceptive information.9 It is now simply an aggravating factor if the person providing the information knew the information was misleading. The creation of a strict liability offence is a significant change, and will put agents, representatives and lawyers acting for overseas entities entering information on the ROE under significant pressure to verify and ensure that the information they are providing is correct.
Companies House ("CH") has published guidance providing further detail about how the registration process will work.10 This includes information about who will be eligible to carry out verification checks on RBOs.11 The agent will need to be based in the UK and supervised under the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017. They will also need to have an agent assurance code from CH. Once registered, overseas entities will be issued with a CH ID number that they can provide to the land registry when applying to register a transaction. The Land Registry has indicated that it will not start requesting CH ID numbers from overseas entities until September.12
According to Companies House, Part 1 of the Act is due to enter into force on 1 August 2021. Given the relatively short transition period (six months), overseas entities should start gathering information about their RBOs now, particularly those with complex corporate structures and trusts, where information on RBOs may not be readily available. The Act will also impact those seeking to acquire qualifying estates held by overseas entities, and appropriate pre-contract enquiries to ascertain and verify information about any RBOs will be vital. The consequences for those who fall foul of the Act will be significant. For overseas entities and their officers it could involve criminal penalties, fines, and imprisonment. For anyone involved in a transaction of a qualifying estate in land owned by an overseas entity it could result in significant delays, financial loss and the Land Registry declining to register the transaction, if overseas entities have not properly registered with the ROE. It could also lead to the UK authorities treating sale proceeds as the proceeds of crime, leading to further criminal penalties and potential civil recovery proceedings.
Dechert can assist clients in investigating, identifying and obtaining relevant information on registrable beneficial owners as well as with preparing and filing relevant information with the registrar, and advise commercial real estate clients on the implications of Part 1 on their transaction. If you have any questions regarding the Act, the ROE or the UK Parliamentary process please do not hesitate to contact one of our experts listed below.