The UK’s long-promised Register of Overseas Entities

Jonathan Watson, IBA Finance CorrespondentWednesday 21 September 2022

A new register of overseas entities in the UK promises to prevent individuals hiding ill-gotten gains. Global Insight assesses what it’ll achieve.

In early August the UK government launched the Register of Overseas Entities, which requires anonymous foreign companies owning or seeking to buy UK land to reveal their true owners. The government says it will stop criminals hiding their money behind shell companies.

The register was created by the Economic Crime (Transparency and Enforcement) Act 2022, which received royal assent in March. ‘Our new Register of Overseas Entities, the first of its kind in the world, will have an immediate dissuasive effect on oligarchs attempting to hide their ill-gotten gains, ensuring that the UK is a place for legitimate business only’, claimed the Rt Hon Kwasi Kwarteng MP, now Chancellor of the Exchequer.

Any foreign company that wants to buy UK property must identify its beneficial owner and present verified information to the UK’s corporate registry, Companies House, before any application to the UK’s land registries can be made. Overseas entities that already own land in the UK that’s in scope have a six-month transition period – from 1 August – to register their beneficial owners or managing officers.

Companies that fail to comply could face criminal sanctions, including fines of up to £2,500 per day. Prison sentences of up to five years could also be handed down.

The government was keen to note that the register had been quickly set up. ‘By getting this first of its kind register up and running at breakneck speed, we are lifting the curtain and cracking down on those criminals attempting to hide their illicitly obtained wealth’, said Lord Callanan, the Parliamentary Under Secretary of State (Minister for Business, Energy and Corporate Responsibility).

In reality, the register has been in development for many years.

Urgently needed in 2016

‘We […] know that some high-value properties, especially in London, are being bought by people overseas through anonymous shell companies, using plundered or laundered cash’, said then UK Prime Minister David Cameron back in 2016. ‘So we will insist that all foreign companies that own properties in the UK will also have to register publicly who really controls them, and that no foreign company will be able to buy UK property or bid for central government contracts without joining this register.’

Following this pledge, there were many proposals and consultations, but for years it seemed that nothing would actually happen. Margaret Hodge MP, who chairs the All-Party Parliamentary Group on Anti-Corruption and Responsible Tax, highlighted in a report published by King’s College London in May that the legislation to create the register had been ‘literally “oven ready” since 2018 and the present Government has yet to bring a bill before Parliament’.

This was despite the government committing to it in both the 2019 Queen’s Speech and the 2021 G7 summit in Cornwall. ‘One is left wondering whether the delay is intentional and whether the Government does not actually want to protect this market in money laundering that is flourishing in Britain’, said Hodge.

However, Russia’s invasion of Ukraine, which began in February, forced political leaders to look for ways of showing they were going to get tough on the oligarchs. The ‘oven ready’ register must have felt like a slam dunk.

Its launch is ‘an important and welcome step forward’, says Kathryn Westmore, a senior research fellow at the Centre for Financial Crime and Security, part of the Royal United Services Institute. Rebecca Lee, Chief Impact Officer at OpenCorporates, an open database of companies, calls it ‘a significant step for corporate transparency’.

The register ‘should help start to lift the veil of secrecy over offshore companies,’ said Rachel Davies Teka, Head of Advocacy at Transparency International UK, while Spotlight on Corruption said it was ‘a crucial first step’.

This less than wholehearted praise is telling. Many doubts remain. ‘If implemented properly and penalties for non-compliance are properly enforced, the register could be the world’s most transparent and accurate source of information on foreign ownership of property’, said Spotlight on Corruption. The ‘if’ here is key.

Fundamental flaws

There are several reasons to be doubtful. Oliver Bullough, author of Moneyland and Butler to the World, believes the government has had ‘more than enough time to design, implement, stress-test, reconsider, redesign, and roll out something that is genuinely brilliant’. Instead, ‘they sat on the plan for five and a half years, then bungled it through in a hurry, and we ended up with something riddled with loopholes’.

One key drawback is that the legislation doesn’t actually require the ultimate beneficial owner of the property to be disclosed. It just has to be the beneficial owner of the overseas entity which in turn owns the property. This is an important distinction. If someone buys a UK property through a limited company of which they are the owner, then their personal details will be recorded on the register under the new rules, as they are the owner of the company. But if an offshore services company buys the property and holds it for that person as a nominee, then their name won’t appear on the Companies House register, as they don’t own the service company. Only the names of the service company’s owners would.

Even those names will only appear if they own more than 25 per cent of the service company. This is because the legislation setting up the register defines a beneficial owner as someone who owns 25 per cent or more of a company’s shares.

Multiple owners could bring the individual ownership down below 25 per cent to the extent that no one is a beneficial owner. Also, the legislation seems to make no provision for related or ‘connected’ parties. A family of six could each own a 16.67 per cent share of a company, bringing them outside the registration requirements. Joint ownership is mentioned, but this will not cover wider associated ownership.

An individual might, for example, transfer properties into irrevocable trusts in the names of members of their family. This could put them beyond sanctions.

Trusts, in general, are being treated differently. Companies House, in a letter to overseas entities who already own or lease property or land in the UK and need to join the register, provided an explicit undertaking to trustees that information they disclose about beneficiaries, current or past beneficial owners, settlors, grantors and interested persons will not be available to the public. It will only be shared with law enforcement and other public authorities such as His Majesty’s Revenue & Customs.

The Chartered Institute of Taxation has suggested that the UK government looks at the Scottish approach, which is to reveal the person who has ‘significant influence or control’ over the owner or long-lease tenant of land and property in Scotland. The Scottish government claims that this makes it possible to ‘look behind every category of entity in Scotland, including overseas entities and trusts, to see who controls land’. This information has been available since April.

‘The Register intentionally focuses on identifying the true owners of overseas entities holding land in the UK by requiring the registration of the beneficial owners and nominees are not permitted to be registered in that capacity’, a spokesperson for the UK Department for Business, Energy and Industrial Strategy told Global Insight.

Insufficient funding

Another significant issue is the potential for the register’s requirements to be circumvented simply by lying, for example by using a bogus or cloned identity.

A lack of resources has long been identified as a major obstacle to the UK’s attempts to fight corruption. One of Transparency International’s key demands is for the government to ‘empower and resource’ Companies House, including by significantly raising company registration fees, so that it can ‘effectively monitor, verify and investigate suspicious companies’.

Such a move seems unlikely in the current political climate in the UK. It was reported in July that, as part of a cross-Whitehall cost cutting exercise, both the National Crime Agency (NCA) and the Serious Fraud Office have been asked to model the impact of cutting their staff headcounts by up to 40 per cent.

Spotlight on Corruption has warned that the UK is ‘losing the fight against economic crime’ and that agencies like the NCA and Companies House are being ‘out-gunned’ by an army of ‘enablers’ – such as accountants and estate agents – hired by corrupt individuals.

Unless the government devotes serious resources to the problem, then there’s no point wheeling out minister after minister to say how great their shiny new register is – there will still be work to do.