Economic Crime (Transparency and Enforcement) Act 2022
The fast-tracked Economic Crime (Transparency and Enforcement) Act 2022 (the act) received royal asset on 15 March 2022, creating a new public “register of overseas entities”. Part 2 and 3 of the act is already in force, with the remainder coming into force after further regulations are enacted.
The aim of the act is to force overseas entities that own UK property (both commercial and residential) to reveal the identities of their beneficial owners, in turn allowing crime enforcement agencies to seize the “unexplained wealth” of those suspected of laundering money in the UK.
What is an overseas entity and a beneficial owner for the purposes of the act?
An “overseas entity” is a body, corporate, partnership or other legal entity governed by non-UK law. A “beneficial owner” is any individual, government, public authority or other legal entity who: (a) holds, directly or indirectly, more than 25% of the shares or voting rights in the overseas entity or (b) holds the right, directly or indirectly, to appoint or remove a majority of the board of directors or (c) has the right to exercise, or exercises, significant influence or control over the entity.
What will the register of overseas entities capture?
The register will capture any overseas entities that own freehold titles or leasehold titles with a term remaining of longer than seven years in England and Wales (a "qualifying estate"). The register will include details such as the name, address, nationality and email address of the beneficial owner as well as the date on which the person became the beneficial owner and the nature of their ownership. Further information about the overseas entity such as its country of incorporation, registered office and governing law will also be captured. This information must then be updated by the overseas entity every 12 months.
There are limited exemptions to the requirements such as where disclosures have already been made to public registers or authorities, or if the information is required to be confidential for UK national security reasons. The register will be maintained at Companies House and will be open to public inspection.
The scope of a qualifying estate is wide-reaching and will apply retrospectively. An overseas entity will be required to register any qualifying estate it has acquired since 1999. There will be a transition period of six months from the date the register of overseas entities goes live to allow overseas entities to submit their registrations.
Additionally, any relevant disposal by an overseas entity of a qualifying estate which is made between 28 February 2022 and the end of the transitional period will also be captured by the legislation and the overseas entity will be required to provide records of such transactions, even if it no longer holds the property at the end of the transition period.
Failure to comply
The register of overseas entities will be held at Companies House and, following registration, overseas entities will receive a unique ID number. HM Land Registry will require this ID number as evidence of compliance with the act. An overseas entity will not be able to apply to be registered as the proprietor of a qualifying estate at HM Land Registry without this ID number. In addition, overseas entities who are currently registered as the legal owners of a qualifying estate at HM Land Registry will be prevented from certain dealings with the property (such as sales, lettings and raising finance) without an ID number. Breaching the terms of the act also constitutes a criminal offence for the overseas entity and its officers which may lead to a fine or imprisonment of up to five years.
Practical considerations for overseas entities
The act requires HM Land Registry to enter a restriction on the title of each qualifying estate held by an overseas entity as soon as reasonably practicable after the relevant section of the act comes into force, and this is expected to be within six months. These restrictions will prevent the registration of registrable dispositions by an overseas entity without evidence of compliance with the Companies House requirements. Registrable dispositions include the transfer of a freehold estate, the transfer of a registered leasehold estate, the grant of a legal charge and the grant of a lease for a term of more than seven years.
The government has recently published secondary legislation which sets out a number of practical measures required for the act to come into force. These include confirmation that the register will be a digital service, confirmation that the beneficial owner details will be publicly available, details of the verification process for the overseas entity and details of who will constitute a registrable beneficial owner. Following this publication, it is now expected that the register will go live this summer and so it is important that overseas entities which could be caught by the act immediately assess whether the act applies to them and, if so, ensure compliance with the act as soon as possible.
Please also refer to our article on the impact of the register on financial transactions which can be found here.