The UK’s Economic Crime (Transparency and Enforcement) Bill, which is being fast-tracked through Parliament “in consequence of recent events in Ukraine”, is designed to introduce a new register of the beneficial owners of overseas entities that own property in the UK, to strengthen Unexplained Wealth Orders (UWOs) and to make changes to help deter and prevent breaches of financial sanctions.
The Bill was tabled in the House of Commons on 1 March and several amendments were introduced during the committee stage, including reducing the transitional period for certain overseas entities registering as an overseas entity from 18 months to six months and increasing fines for certain offences. The government said it would examine several concerns raised in the Commons during the Bill’s passage through the House of Lords. The Bill received Royal Assent on 15 March 2022 to become the Economic Crime (Transparency and Enforcement) Act 2022 (the “Act”). Supporting regulations (the “Regulations”) will be published shortly which will lay down when the different parts of the Act come into force.
During the Bill’s passage through parliament, Business Secretary Kwasi Kwarteng said that the Bill was being introduced now to dissuade people from seeking to launder money in the UK, particularly those linked to Russian President Vladimir Putin, and has four main objectives:
- To establish a new Register of Overseas Entities (ROE), which will be held by Companies House, to include information on overseas entities that own UK property and their beneficial owners. Any overseas entity wishing to own UK land will need to identify and register the beneficial owners. A beneficial owner will need to be registered if: they hold more than 25% of the shares or voting rights in an entity; can appoint a majority of its directors; or have some other significant influence or control over it (including through a trust or partnership structure). This is in line with the threshold for becoming a registrable beneficial owner under the existing people with significant control (PSC) regime for companies.The ROE will need to be updated annually. Failure to register (or submitting false information) will be a criminal offence and will also prevent the entity from being able to buy or sell (or mortgage) UK property in future. A transfer of land by an overseas entity in breach of the registration requirement will be a criminal offence committed by the entity and every responsible officer, that is punishable by a fine or up to five years’ imprisonment. Some information on the register – including the identities of overseas entities and beneficial owners – will be open for public inspection.The requirement to register will apply retrospectively to land bought on or after 1 January 1999 in England and Wales, and 8 December 2014 in Scotland. Overseas entities will have a six-month transitional period from the Act coming into force to dispose (sell off) their land or register. In Northern Ireland the requirement to register will only apply prospectively.
- To remove key barriers to the effective use of UWO powers and increase and reinforce operational confidence in relation to their use.The Bill will create a new category of people who can receive a UWO called “responsible officers” (such as directors) of an entity that owns property. This is to allow law enforcement to get information more easily from officers of legal entities thought to have control over property, even if they do not own the property.Currently, the court must be satisfied that there are reasonable grounds for suspecting that the known sources of someone’s lawful income would have been insufficient to obtain the property. The Bill will add an alternative test that “there are reasonable grounds for suspecting that the property has been obtained through unlawful conduct”.When applying to the court for a UWO, the relevant enforcement authority can apply at the same time for an interim freezing order that will prohibit the person receiving the UWO from selling it. The Bill will allow for the court to grant an additional 126 days to enforcement authorities to review (and act on) material provided in response to a UWO, before the interim freezing order expires.The Bill will limit the liability of enforcement authorities to pay costs in legal proceedings relating to UWOs (or interim freezing orders).
- To amend the UK’s financial sanctions legislation, including the test for imposing monetary penalties and powers, to publicly name those breaching financial sanctions. This will make it easier for the government to act against those who fail to comply with sanctions by providing:
- A more robust legal test to support compliance and help the Office of Financial Sanctions Implementation (OFSI) impose monetary penalties for breaches of financial sanctions
- Greater flexibility in how HM Treasury manages the review process for monetary penalties.
- Enhanced intelligence and information sharing powers to give OFSI better tools for enforcement through greater access to information from other agencies.
- A statutory power to publicly censure for financial sanctions non-compliance even if a decision is made not to impose a monetary penalty for the breach.
- To amend the Sanctions and Anti-Money Laundering Act 2018 (SAMLA) to enable the government to respond more swiftly and effectively to sanction oligarchs and other businesses associated with Putin’s regime.
The key amendments made to the Bill in the House of Commons were:
- To increase the maximum daily default fines for non-compliance with the requirement to provide an updated statement to the Registrar of Companies in respect of an overseas entity’s beneficial ownership (or to deliver relevant documents to the Registrar where the Registrar has identified inconsistencies in the register) within 14 days of the end of each 12-month period following its registration from a “daily default fine not exceeding the greater of £500 and one-tenth of level 4 on the standard scale” (currently £250), to an amount “not exceeding the greater of £2,500 and one half of level 4 on the standard scale” (currently £1,250).
- To amend clause 16 of the Bill to require the Secretary of State to issue initial regulations prior to any applications being made for registration in the register of overseas entities. These regulations should provide further details regarding the information that must be verified to the Registrar upon registration, the person by whom the information must be verified and the statement, evidence or other information that must be delivered to the Registrar.
- To amend Schedule 3 of the Bill to reduce the transitional period within which overseas entities are required to register from 18 months to six months.
- To minimise the requirements with which ministers must comply when introducing new sanctions regulations by removing a requirement that the minister must demonstrate that there are good reasons to pursue that purpose and that the imposition of sanctions is a reasonable course of action for that purpose.
- To introduce a procedure for urgent designation of a person by name or by description in cases where similar sanctions (whenever made) apply to a person under the law of the US, the EU, Australia, Canada (or any other country specified by an appropriate minister), and it is in the public interest.
- To introduce a new clause 31 to the Bill to create a requirement under the Proceeds of Crime Act 2002 for the Secretary of State to prepare reports for each 12-month period setting out how many UWOs have been made and applied for in England and Wales.
As noted at the outset the Bill has now been ratified to become an Act of Parliament. The scope and interpretation of the Bill will become clearer in the coming weeks with the publication of the Regulations and guidance. Any persons likely to be impacted by the new register of beneficial ownership of overseas entities holding UK real estate should urgently consider their reporting obligations ahead of incoming deadlines.
It’s also apparent that other jurisdictions will be obliged to follow the UK. Discussions are already underway with the UK government for the Registers of Beneficial Ownership in British Overseas Territories (including the BVI, Gibraltar, Cayman Islands and Turks & Caicos Islands) and the Crown Dependencies (Isle of Man, Jersey and Guernsey) to be made public by the end of 2023.
If you believe that the proposed changes may have an impact on your structure, now is a good opportunity to review them to ensure they meet reporting obligations ahead of pending deadlines because failure to comply could result in financial penalties and criminal actions.
At the same time as announcing the Bill, the UK government published a White Paper setting out its plans for further reforms to Companies House, include requiring directors and PSCs to verify their identity with Companies House, and allowing companies to have only one ‘layer’ of corporate directors, which must be UK-based. Overseas agents will be prevented from forming UK companies, unless they are subject to a UK-equivalent supervisory regime. Companies House will also be given powers to reject filings, question information that may be false or inaccurate, and share information with law enforcement authorities.
These reforms will form part of a second Economic Crime Bill that is expected in the coming months. Other measures to be included in the second Bill include new powers to seize crypto assets, enhanced anti-money laundering powers to encourage businesses to share information on suspected economic crime, and measures to restrict the misuse of limited partnerships.