Regulation  

How grandparents are facing more restrictions than oligarchs

  • Describe the impact of the Economic Crime Act
  • Explain some of the perverse consequences of it
  • Identify the impact of other legislation regarding those people setting up trusts
CPD
Approx.30min
How grandparents are facing more restrictions than oligarchs
(FT Money)

Which should be the greater focus for government scrutiny: foreign oligarchs trying to hide their ownership of London mansions, or grandparents buying premium bonds for their grandchildren?

Bizarrely, current UK legal requirements imply it is the latter.

In March 2022 the Economic Crime (Transparency and Enforcement) Act was rushed through Parliament in response to renewed parliamentary and public concern, in the wake of Russia’s invasion of Ukraine, about ‘dirty money’ – that is, the proceeds of corruption and other crime – being stored and laundered in the UK by wealthy foreigners.

A key measure in the act is a register of overseas companies and other entities owning or buying UK property. This is designed, ministers explained, to require anonymous foreign owners of UK property to reveal their real identity to ensure criminals cannot hold houses in secretive chains of shell companies.

Except it will not – or not necessarily.

Loopholes

The legislation directs that most non-UK companies owning UK land must go on a public register maintained by Companies House, which already holds a public database showing UK companies. 

This registration includes identification of the ‘beneficial owner’ of the company (the real owner or owners of the company).

This is sensible and could potentially be of great benefit to UK and overseas law enforcement on an ongoing basis as well as to officials putting in place and enforcing sanctions in the current emergency. However it has gaping holes. 

During the passage of the act, the Chartered Institute of Taxation highlighted a particular loophole in the new law; namely that the legislation requires the identification only of the beneficial owners of the company in question, and not those of the land or property itself.

This matters because the company could be holding that land as a nominee for an individual who does not own the company. The company might be owned by a Cayman or Panamanian law firm for example, which holds legal ownership of many properties on behalf of wealthy clients.

In this scenario the names on the register would likely be the partners in the law firm, or perhaps no one at all. The name of the oligarch would be nowhere to be found.

The government acknowledges this. When the amendment we proposed was debated in the House of Lords, the minister, Lord Martin Callanan, replied that the register was designed specifically to capture the beneficial owners of overseas entities, and while there might be a wider policy debate to be had about capturing ultimate economic beneficiaries of land, this register "would not be the appropriate vehicle" for that.

Even if the oligarch does own shares in the offshore company holding the UK property, if they hold 25 per cent or less of that company’s shares nothing needs to be disclosed. Other family members may each hold shares. Provided each is individually at or below the 25 per cent threshold no one needs to be named.