The Economic Crime Act: the new register of overseas entities and asset tracing

Tuesday 13 December 2022

Sara Thomas Arano
Michelmores, London​​​​​​​
sara.thomasarano@michelmores.com

The Economic Crime Act: the new register of overseas entities and asset tracing 

The Economic Crime (Transparency and Enforcement) Act 2022 (the Act) received Royal Assent on 15 March 2022. The Act – fast-tracked through Parliament following Russia’s invasion of Ukraine – was introduced to strengthen and accelerate the way in which the UK imposes sanctions and tackles the proceeds of financial crime, and ‘crack down on dirty money in the UK and corrupt elites’.1

However, since its introduction, doubts have been raised as to whether the Act will have an impact on the UK’s longstanding issues with dirty money. Some argue that these measures have been long overdue and should have been introduced much earlier.

The Act has made significant changes to the following key areas: 

•    the sanctions regime; 
•    unexplained wealth orders, which were introduced under the Criminal Finances Act 2017; and 
•    the introduction of a register of overseas entities – the focus of this article. 

What does the new register of overseas entities do? 

Money laundering can be hidden behind opaque and complex offshore corporate structures, making it difficult to uncover the ultimate beneficial owner of a property. The Act seeks to address this issue by creating a register of overseas entities (the Register), administered by Companies House. All overseas entities that own UK property (both residential and commercial) are obliged to be on the Register (unless exempt). 

This will require overseas entities that own UK property to take steps to identify its ‘registrable beneficial owner’2 (RBO) and provide details of the overseas entity to Companies House so that they are added to the new Register. 

The exact information to be included on the Register concerning the RBO will depend on whether the RBO is an individual or a legal entity. Where the RBO is an individual, the information to be provided includes name, date of birth, nationality, residential address and whether the individual is a ‘designated person’ (ie subject to sanctions). 

Overseas entities that own UK property must file an application to register within the transition period, being six months of the commencement date of the Act (14 September 2022). The requirement to register also has retrospective effect; any overseas entity that acquired property in England and Wales after 1 January 1999 is obliged to file an application to register, in addition to those acquiring property in the future. 

The Act prohibits disposals of UK property (ie sale, acquisition, mortgage etc) in circumstances where a qualifying proprietor/purchaser is not on the Register. In effect the property will be frozen by restrictions on title imposed by the Land Registry, with the owner unable to lease or sell it, or raise a mortgage. Failure to register is a criminal offence, as is the provision of false or misleading information. This has serious consequences, including a fine of up to £2,500 per day or a prison sentence of up to five years. Company officers and trustees can face personal criminal liability. The Register is open for inspection by any person (subject to certain exceptions).

Asset tracing 

There is no doubt that this new measure will affect offshore structures and place a significant administrative burden on overseas entities and individuals owning property in the UK, but besides law enforcement agencies, who else might benefit? The Register could prove to be particularly useful for those seeking to trace assets.

As most readers will be fully aware, asset tracing has always been fundamental to locating and identifying assets that have been stolen. The introduction of the Register could therefore assist claimants (and their legal representatives) looking to locate and identify property belonging to a defendant (whether a legal entity or individual) in the UK. Previously, the Land Registry only provided publicly available information about properties in the UK owned by a corporate entity or individuals. Now, however, beneficial owners based overseas owning properties in the UK must provide information to this new register which is made readily available to the public. Clearly, this is still subject to correct information being submitted to Companies House for inclusion on the Register. 

The UK is not the only jurisdiction which has introduced measures to promote greater transparency and accountability. There has ostensibly been a global shift towards addressing the issue of fraud and money laundering, for example in the British Virgin Islands (BVI). The BVI government stated in late 2020 that it would be introducing public registers of beneficial ownership for companies incorporated in the BVI by 2023. This was a ‘signal of the UK family's commitment to tackle the global problem of illicit finance’,3  although, as yet, there have been no further updates on the BVI's progress towards this aim. Other British Overseas Territories such as Anguilla, Bermuda and the Falkland Islands have also committed to providing public ownership registers by 2023. The creation of these public ownership registers highlights the ongoing determination to tackle financial crime worldwide. 

Enforcement and jurisdiction against assets in UK 

Under section 25 of the Civil Jurisdiction and Judgments Act 1982,4 the courts of England and Wales have the power to grant freezing orders over assets held in the UK in support of certain foreign proceedings. For a claimant to obtain a freezing order over assets in the UK, there must be a real and connecting link between the specified assets and England, it must not be inexpedient for the English court to make an order, and it must be ancillary to the foreign proceedings.5

The information contained within the Register could therefore be invaluable to foreign litigants seeking freezing orders in the English courts against assets held by overseas individuals or entities in the UK. At the time of writing, overseas entities and individuals still have several months to provide the relevant information for the Register so it is difficult to know exactly how useful this will prove to be when tracing assets in the UK. It will, however, be interesting to see to what extent the Register is used as evidence of assets being connected to the UK going forward. 

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1.  ‘Government takes landmark steps to further clamp down on dirty money’ (UK Government, 28 February 2022), see www.gov.uk/government/news/government-takes-landmark-steps-to-further-clamp-down-on-dirty-money, accessed 21 November 2022.
2. Schedule 2, Part 1 of the Act.
3.  Baroness Sugg, Foreign Minister for Overseas Territories, 2020.
4.  Since the UK left the European Union, the EU Regulation 1215/2012 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters has ceased to have effect. 
5.  S 25, Civil Jurisdiction and Judgments Act 1982.