Economic Crime (Transparency and Enforcement) Act - Part 2

In particular, we explore:

• the information required for registration
• the duty to update the register of overseas entities
• HM Land Registry's power to place a restriction on the registered titles of property owned by overseas entities, which will prevent disposition of the property
• the potential penalties overseas entities may face for non-compliance with the Act

Registration Information and the Duty to Update

Overseas entities owning property in the UK must take reasonable steps to identify any registrable beneficial owner in relation to the entity. A registrable beneficial owner is an individual, a legal entity or a government or public authority who has the ability to exercise a degree of control over the overseas entity, as was discussed in more detail in our previous article.

Once the overseas entity has identified its registrable beneficial owners it is required to make an application for registration as an overseas entity at Companies House. On an application for first registration the overseas entity is required to deliver a statement and the relevant required information.

The statement must confirm that the overseas entity has either:

• identified one or more registrable beneficial owners, has no reason to believe there are more and it is able to provide the required information about each owner
• has no reasonable cause to believe that it has any registrable beneficial owners
• has reasonable cause to believe it has not identified all beneficial owners and/or the entity cannot provide the required information for one or more registrable individual

As relevant, the required information is as follows:

In addition, the overseas entity is required to provide information on any registrable dispositions it has made during the period 28 February 2022 to the date of the application for registration.

However, the duty does not end there. Having registered for the first time and had the information verified by Companies House, an overseas entity will be issued with an 'entity ID'. The overseas entity will also be provided with information in respect of its duty to update the register, which it will be required to do every 12 months from the date of first registration. The overseas entity will be required to deliver to Companies House the following:

• a statement of the same form required at first registration, detailed above
• a statement of a specified form, detailing whether there has been a change to the register since last filing
• a statement that the entity has complied with its duty to identify registrable individuals
• any documentation which is required by Regulations (there are none at the time of writing)
• the name and contact details of an individual to be contacted about the above

An individual can become exempt from the reporting requirements by receiving written notice from the secretary of state on grounds of national security or prevention of serious crime, meaning most individuals will need to be registered. In any event, overseas entities will likely only become aware of an exemption by sending the information notice.

Restrictions on Dispositions

Schedule 3 of the Act provides for amendments to the Land Registration Act 2002 to include a new Schedule 4A relating to overseas entities. Included in those amendments is provision for HM Land Registry to enter a restriction onto the registered title of any freehold estate or registrable leasehold estate ie a lease granted for a term of more than seven years owned by an overseas entity where the overseas entity became registered proprietor on or after 1 January 1999.

The restriction will prohibit the registration of any disposition unless:

• the entity is a registered overseas entity, or is an exempt overseas entity, at the time of the disposition
• the disposition is made pursuant to a statutory obligation or court order, or occurs by operation of law
• the disposition is made pursuant to a contract made before the restriction is entered in the register
• the disposition is made in the exercise of a power of sale or leasing conferred on the proprietor of a registered charge or a receiver appointed by such a proprietor
• the Secretary of State gives consent to the registration of the disposition
• the disposition is made by a specified insolvency practitioner in specified circumstances

The restriction is to be entered onto the registered title of overseas entities as soon as reasonably practicable but in any event before the end of the six month transitional period.

In addition, regardless of whether HM Land Registry has registered the restriction against the title to a property, no disposition to an overseas entity is to be registered by HM Land Registry after the date the Act came into force unless the above provisions have been complied with.

It will therefore be important in any registrable conveyancing transaction to consider whether an overseas entity is involved and ensure that the registration obligations in respect of that overseas entity have been complied with.

Non-Compliance and Enforcement

Updating Duty

Failure on the part of an overseas entity to comply with its duty to update the register is an offence committed by the entity itself and every officer of the entity who is in default.

A person guilty of a failure to update is liable to a minimum daily fine of £2,500.

Failure to Comply with Notice

The overseas entity as part of its registration has a duty to identify any registrable beneficial owner in the entity. The overseas entity must give notice to any person it knows or has reasonable cause to believe is a registrable beneficial owner requiring the person to state whether they are a registrable beneficial owner and to confirm relevant information about that person.

Failure to comply with such a notice or to give false information is an offence and the relevant person is liable to imprisonment for up to twelve months or a fine, or both.

False Statements

It is an offence to provide any document which is misleading, false or deceptive or to make any statement which is misleading, false or deceptive. A person guilty of such act is liable to a fine or, where the person knows that it is misleading, false or deceptive, in addition to a fine, imprisonment of up to two years.

Final Thoughts

Despite being hurried through the law making process due to the current geopolitical situation, the Act shows the stance of policy makers in relation to transparency and traceability of assets. Overseas entities and their officers will therefore need to comply with the provisions of the Act or face the risk of severe penalties, regardless of knowledge or involvement and those penalties will apply to both the entity itself and its individuals.

In addition, even if you are not an overseas entity, care will need to be taken in transacting with one to ensure that any disposition will be registered at HM Land Registry.

Although time has not yet started on the 6 month transition period, it would be wise to start making arrangements to accommodate such considerable changes to reporting requirements.

NOTE: The Act will also apply to land owned or to be acquired by overseas entities in Scotland and Northern Ireland however the comments above are limited to those provisions in respect of England and Wales.

If you are involved with or operate an overseas entity or are a beneficial owner of one and would like to know how we can assist you to comply with the Act, whilst also mitigating the possible effects of the changes, please contact Steven Faragher in our Real Estate team on 07788 214179, or complete the form below.

Contributors: Jon Durham; James Piper; Jonathan Bywater