Offshore finance: critics highlight flaws in plan for UK register of overseas entities
The UK government’s Draft Registration of Overseas Entities Bill has come under renewed scrutiny. The Bill – which is due to go before parliament later this year with the register going live in 2021 – would establish a publicly-accessible register of overseas entities that own or buy UK land.
‘This Bill has the potential to be groundbreaking,’ says Ava Lee, Senior Anti-Corruption Campaigner at international NGO Global Witness. ‘For the first time we could find out who really owns this country.’
However, in May, a Joint Parliamentary Committee highlighted a number of concerns, including the fact that the Bill does not cover trusts.
‘Since trusts are not technically “entities”, there are concerns that they will be used to circumvent this law,’ the Committee’s report says. ‘The Government’s plan to ensure that trusts are transparent – the Fifth EU Anti-Money Laundering Directive – must therefore be introduced at the same time as this draft Bill.’
Under the terms of this Directive, information on the beneficial owners of trusts will be accessible without any restrictions to relevant authorities and to professional sectors subject to anti-money laundering rules, such as lawyers and banks. Such data will also be available to other persons who can demonstrate legitimate interest.
‘As this bill is part of a suite of tools to combat money laundering, it would make sense if we had a more coherent mass of legislation coming in at the same time rather than just saying “we’ll deal with that when we have to”’, says Neil Swift, a partner at Peters & Peters.
Daniel Simon is a senior partner at Collyer Bristow and a former Co-Chair of the IBA Private Client Tax Committee. ‘No one can accept money from any kind of an entity, whether a trust, an individual, or a corporation, whether onshore or offshore, without doing the necessary due diligence that solicitors must do and banks must do to understand the source of wealth. This is done privately but to the satisfaction of the institution receiving the funds. It is open to the proper enquiry of the authorities but not to the general public via a register.’ And, he says: ‘adding trusts to the mix would be to sweep away a thousand years of English jurisprudence’.
Unexplained Wealth Orders (UWOs) offer a more sensible and proportionate approach to fighting money laundering than making everyone join a register, says Simon. UWOs, introduced by the Criminal Finances Act 2017, can be issued when there is an obvious gap between the value of an asset – which must be worth at least £50,000 – and the income of the person who appears to own it.
Like UWOs, the new register proposed in the Bill should be seen in the context of the wider drive for transparency to counter money laundering and financial crime, says Jessica Parker, Co-Chair of the IBA Business Crime Committee. ‘This includes other measures such as the person with significant control (PSC) register in respect of companies, also held at Companies House.’
A loss of privacy must be weighed against the effectiveness of these registers. ‘This consideration is reflected in two key conclusions of the Joint Committee report which concern the accuracy of the register and the ability to bring enforcement under it,’ says Parker, a partner at Corker Binning. ‘As with the PSC register, the information recorded will only be as accurate as that provided. A law-abiding person who wishes to maintain their privacy will be required to provide the information, whereas a person who is determined to obscure their ownership will easily be able to defeat it by using a bogus or cloned identity.’
“A person who is determined to obscure their ownership will easily be able to defeat [the register] by using a bogus or cloned identity
Jessica Parker
Co-Chair, IBA Business Crime Committee
To establish the accuracy of the information, it is likely that confirmation would need to be obtained from the person listed as the beneficial owner. ‘The system therefore stands and falls on the ability to compel that person to verify the information, which in most cases could only be achieved via cooperation in the jurisdiction where they reside and a legal mechanism in that jurisdiction to compel them to provide it,’ Parker says.
Jurisdictions with closed registers suggest that the fact that the information in their registers is verified, although not public, makes their systems preferable to the UK’s approach of making public information that has not been verified, says Swift. ‘A closed register with access for law enforcement seems to me to tick all the boxes. But clearly a political decision has been made to have a public register, so that ship has sailed.’
Swift adds that it’s not unusual for those in positions of power to have a network of associates whom they trust and who are prepared to have property registered in their name as nominees. With a public register, they can claim this is because they value their privacy, which they cannot do with closed registers. ‘Those who are determined to hide their illicit wealth will find a way round this.’
‘If I wanted to be provocative, I would say this register is a charter for snoopers, stalkers and general mischief makers and is unlikely to catch or deter genuine criminals,’ says Simon. ‘We already have a first line of defence in that the solicitor helping you make a purchase has to understand where your wealth comes from. A clever criminal can fool a lawyer, but he or she can also run rings around this. It is not difficult to have a nominee owner. Yes, they would be lying on the register, but how would you know? Verification can become a huge bureaucratic exercise.’
The UK government’s next step will be to issue a response to the Joint Committee’s report.