Economic Crime Act in UK - new register for foreign companies
Following Russia's invasion of Ukraine, the UK government has taken a number of new measures to combat money laundering and improve transparency around corporate and real estate ownership. On March 15, 2022, the United Kingdom passed the Economic Crime (Transparency and Enforcement) Act (the "Act"), which aims to combat economic crime and sanctions evasion. Under the Act, a new register of overseas companies (Register of Overseas Entities) will be established and maintained by Companies House. The register will be effective from August 1, 2022.
The most important point is that the register is a list of controllers of foreign companies that own land in the United Kingdom. The new register requires foreign companies that own land in the UK to disclose their beneficial owners or officers. Foreign companies can only buy, sell, transfer or lease land in the UK, or create a charge over the land, if they are registered at Companies House. Until now, the property registry in England and Wales has been run by HM Land Registry and consists of three divisions: The Property Register, the Owners Register and the Encumbrances Register.
An application for registration must contain the details of all registrable beneficial owners identified by the foreign entity. For example, for individuals, this information includes name, date of birth, nationality, usual residential address, and which of the following beneficial ownership criteria are met. For U.K. entities, certain information about an individual is not normally disclosed (e.g., date of birth and home address).
Failure to comply with the law could result in a fine of up to £2,500 per day or imprisonment for up to 5 years. In addition, there could be restrictions on buying, selling, transferring, leasing or encumbering real estate or property in the United Kingdom.
However, the new registry has met with much criticism because it may have weaknesses, particularly with regard to the possibility that individuals can legally circumvent the rules by holding real estate or land in the name of a trust or simply sharing ownership with more than four relatives or friends. This workaround works because disclosure is only required if someone holds more than 25% of the company's shares. This means that 5 people who each hold 20% of the shares are exempt from the registration requirement.
In addition, experts assume that the register will not be able to effectively control and verify the information either in terms of personnel or organization. It therefore remains to be seen whether this register will actually make an effective contribution to combating money laundering or remain a paper tiger.
About the author
Selna Bilibashi has been a consultant at CURENTIS AG since 2021. She is a highly experienced consultant with strong expertise in anti-money laundering and banking process analysis.
[1] New register of overseas owners of UK properties 'riddled with flaws', The Guardian
