The new economic crime (transparency and enforcement) bill was introduced to parliament on March 1.
The need for further legislation in this area has long been acknowledged by the government, but recent events have meant the bill has been expedited to the top of their priority list.
The provisions that have been put forward this week are the first step in the government’s plan to improve transparency of ownership of companies and property in an attempt to dissuade criminals from investing the proceeds of crime in the UK.
Below are the key takeaways from a bill that, as currently drafted, creates a register of overseas entities, strengthens the reach of unexplained wealth orders and heightens the risk of financial penalties for breach of financial sanctions. Financial advisers should take note of how these changes may impact both their business and those of their clients.
A new register of overseas entities
At present there is a significant distinction between the treatment of UK entities that purchase property in the UK and their overseas counterparts. Since 2016 UK registered companies have been required to provide information to Companies House about their ultimate owners and controllers by way of a persons with significant control (PSC) register, but entities registered overseas are not so obliged.
The new register seeks to rectify this disparity and, while there may be a legitimate basis for a complex and opaque corporate structure, it is going to become harder for the ultimate beneficial owners of such overseas entities to hold property in the UK and remain anonymous.
Unless exempt, an overseas entity that wishes to invest in freehold or leasehold property (granted for a term of more than seven years) will have to apply for registration in the new register, setting out the details of the beneficial owners they have taken reasonable steps to identify, and failing that, the managing officers, before they can register their title with the Land Registry. All overseas entities that have purchased property on or after January 1 1999 will also have to apply for registration within 6 months of the bill coming into force and they will be prohibited from disposing of it in the meantime (except in limited circumstances).
Aligned with the definition used by the PSC register, a beneficial owner for the purposes of the bill may be an individual, legal entity, government or public authority that holds directly or indirectly more than 25 per cent of the votes or shares in the overseas entity; has the right directly or indirectly to appoint or remove a majority of the overseas entity's board; or has the right to exercise or actually exercises significant influence or control over the overseas entity. Trustees of a trust or members of a partnership and other entities that do not have a legal personality are subject to further rules.