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What is the Register of Overseas Entities?

Following the introduction of the Economic Crime (Transparency and Enforcement) Act 2022 (the “Act”) earlier this year, a new public register controlled by Companies House, the Register of Overseas Entities (the “ROE”), launched on 1 August 2022. The Act had been expected to be introduced for a number of years, however, following Russia’s invasion of Ukraine, the Act was fast-tracked to the top of the political agenda and received royal assent on 15 March 2022. The main purpose of the ROE is to provide transparency by recording details of foreign owners of property and land in the UK to ensure these individuals cannot hide their identity behind a chain of shell companies. This should allow law enforcement agencies to investigate suspicious wealth more effectively.

Who does the ROE affect?

Most companies, or similar legal entities with a separate legal personality, that are governed by the law of a country or territory outside of the UK and own land or property in the UK are required to register their details on the ROE. Whether an overseas entity is required to register will depend on where in the UK the property is located.

• In England and Wales, an overseas entity is obliged to register on the ROE if it owns land or property and it was acquired on or after 1 January 1999.
• In Scotland, registration is required where an overseas entity owns land or property and it was acquired on or after 8 December 2014.
• In Northern Ireland, overseas entities only need to register where land or property has been bought on or after the date the ROE was introduced, i.e. since 1 August 2022.

Notably, the ROE will not only record information relating to the overseas entity. The Act also requires individuals who have significant influence or control over that entity, e.g. in the case of a company, they hold 25% or more of the shares or voting rights, to submit their details to Companies House to be held on the ROE.

In order to ensure the accuracy of the ROE, a further step has been introduced whereby verification checks must be carried out by a UK-regulated agent, such as a legal professional, before an overseas entity and its beneficial owners can submit the necessary details to Companies House. Once an application by an overseas entity has been accepted, it shall receive an overseas entity ID, which must be provided to the relevant land register whenever it buys, sells or transfers land or property in the UK.

It is important to note that overseas entities on the ROE must file an update one year after first registering. Updates must be filed on an annual basis thereafter. The overseas entity will be required to provide any necessary updates to the information held on the ROE or will need to confirm that the information held remains accurate.

When do overseas entities need to register?

Overseas entities which currently own land or property in the UK have until 31 January 2023 to register on the ROE and provide details of their beneficial owners. It should be noted that the new ROE does not only catch overseas entities that currently own land or property in the UK. Overseas entities that have disposed of land or property in the UK after 28 February 2022 also need to register on the ROE and give details of such disposals.

Further provisions that govern how transactions to or by overseas entities concerning UK land and property are to be registered will come into force on 5 September 2022. From this date, for any overseas entity to acquire land or property in the UK, it, and its beneficial owners, must be registered on the ROE to register the acquisition on any UK land register.

What are the consequences of non-compliance with the Act?

Failure by an overseas entity to register on the ROE when required to do so will result in significant sanctions. Fines of up to £2,500 per day or a prison sentence of up to 5 years can be imposed on the overseas entity’s managing officers. Civil sanctions can also be imposed on an overseas entity in the form of financial penalties and severe restrictions on the overseas entity’s ability to buy, sell, transfer, lease or charge property or land in the UK.

Does the Act go far enough to monitor suspicious wealth?

Critics of the Act warn that the ROE does not go far enough to prevent corrupt oligarchs from identifying themselves as the owner of land or property in the UK. Two key loopholes have been identified in the new rules.

Firstly, only identification of the beneficial owners of an overseas entity that owns the UK land or property is required. This means a nominee company, being a company set up to hold assets on behalf of an individual or entity, could be used to hold the land or property in the UK. For example, an offshore law firm could hold the shares in the nominee company on behalf of a foreign individual. In terms of providing details of beneficial owners to the ROE, this would likely be the partners of that particular law firm. This is a clear flaw with the Act which would allow foreign oligarchs to continue to hide their identity.

Secondly, in the case of a company, given that the beneficial owners of overseas entities only require to register their details on the ROE if they own 25% or more of the shares or voting rights, registration could easily be avoided by sharing ownership between family and friends. For example, a family of five who share ownership in the overseas entity would own 20% of the shares each and thus all being outside the scope of the registration requirements.

While there are some clear gaps in the Act that require to be considered by the UK Government, it is clear that the introduction of the ROE is a step in the right direction to prevent foreign oligarchs from hiding suspicious wealth by owning UK land or property. The ROE and the anticipated introduction of the land registration provisions of the Act bring some significant changes to the way ownership of land and property in the UK is monitored and places onerous obligations on those overseas entities that are caught by the legislation. It is vital that overseas entities are compliant with the Act to ensure significant penalties, including criminal liability, are avoided.

Do not hesitate to contact a member of the Commercial Property Team or Corporate Team at Stronachs for advice in connection with the changes to the way land and property ownership in the UK for overseas entities is recorded and registered.