Economic Crime and Corporate Transparency Bill

The aim of the new Bill is to further “strengthen the UK’s reputation as a place where legitimate business can thrive, whilst driving dirty money out of the UK”.  The Bill and associated documents can be found on the Bill’s webpage.

Sweeping reform of Companies House

One of its key features is a sweeping reform to Companies House, granting the Registrar broad investigative and enforcement powers, which the Government says will include: 

• introducing identity verification for all new and existing registered company directors, People with Significant Control, and those delivering documents to the Registrar. The aim of this is to improve the accuracy of Companies House data, to support business decisions and law enforcement investigations;

• broadening the Companies House Registrar’s powers so that the Registrar can take on a role as a more active gatekeeper over company creation and custodian of more reliable data, including new powers to check, remove or decline information submitted to, or already on, the companies register;

• improving the financial information on the register so that the register is more reliable, complete and accurate and reflects the latest advancements in digital technology;

• providing Companies House with more effective investigation and enforcement powers and introducing better cross-checking of data with other public and private sector bodies. Companies House will be able to proactively share information with law enforcement bodies where they have evidence of anomalous filings or suspicious behaviour;

• enhancing the protection of personal information provided to Companies House to protect individuals from fraud and other harms; and

• broader reforms to clamp down on misuse of corporate entities.

The Bill also includes reforms to prevent the abuse of limited partnerships, such as:

• tightening registration requirements;

• requiring limited partnerships to maintain a connection to the UK;

• increasing transparency requirements; and

• enabling the Registrar to deregister limited partnerships which are dissolved, no longer carrying on business, or where a court orders that it is in the public interest to do so.

More tools to fight financial crime 

The Bill also contains a number of proposals which aim to assist in the ongoing fight against financial crime, such as: 

• giving enforcement agencies additional powers to seize and recover suspected criminal cryptoassets;

• introducing reforms to give businesses more confidence to share information in order to tackle money laundering and other economic crime; and

• introducing new intelligence gathering powers for law enforcement.

What’s already in force? A reminder of the Economic Crime (Transparency and Enforcement) Act 2022

We shall track the journey of this new Bill through Parliament, but in the meantime, a reminder of the key implications of the Economic Crime (Transparency and Enforcement) Act 2022 is set out below.

The new UK register for overseas entities opened at Companies House on 1 August 2022.  Overseas entities that own registered land in the UK are now required to register at Companies House and provide information about their beneficial owners.  The Land Registration changes came into effect on 5 September 2022, which means that overseas buyers must now have obtained their overseas entity ID number before they can buy UK property.  If they don’t have it, they cannot apply to the Land Registry to register their purchase.  Existing overseas owners have a transitional period until 31 January 2023 to obtain their overseas entity ID, so the clock is also ticking for them.

Key Dates

28 February 2022: from this date, details of leases of over seven years, charges or transfers of registered leaseholds or freeholds by overseas entities must be provided to Companies House.

1 August 2022: the register of overseas entities opened at Companies House.

5 September 2022: the Land Registration changes took effect.

31 January 2023: the transitional period will end.

Who, what, when

Who

An overseas entity includes a company, partnership, trust or other legal entity.  The overseas entity will have to provide information about itself and its beneficial owners.  If there are no beneficial owners, the overseas entity has to state that this is the case and provide information about its managing officers.  Information required includes name; country of incorporation; registered or principal office; service address; email address; legal form of the entity and the law by which it is governed; any public register in which it is entered and its registration number on that register. 

A person is a beneficial owner if, in relation to the overseas entity, it:

• owns directly or indirectly more than 25% of the shares or voting rights;

• can appoint or remove a majority of the board of directors; or

• has the right to exercise or actually exercises significant influence or control over the overseas entity.

These tests are based on the current Persons of Significant Control register.

What

Once registered, Companies House will issue an overseas entity ID which will allow an overseas entity to apply to be registered at the Land Registry as the new owner of property. This is required for purchases, leases of over seven years or charges. 

Overseas entities who already currently own UK property have been given until 31 January 2023 to register at Companies House and obtain an ID number. At some point after 5 September 2022, the Land Registry will place a restriction on the title which will become effective after 31 January 2023 and will restrict transfers (other than surrenders), long leases and charges unless one of the exemptions applies. The most important exemption will be registration at Companies House evidenced by the overseas ID number. 

Note that to continue to be effectively registered at Companies House, the overseas entity will need to comply with an “updating duty” at least every 12 months from the date of registration. 

When

Overseas entities should register at Companies House as soon as possible. Overseas entities should also factor into their timelines the information notice that has to be given to their beneficial owners, requiring them to respond within a month. This is important for an overseas entity who is buying a UK property as they will now need to have registered at Companies House before any application can be made to the Land Registry.  The Land Registry application will be rejected outright if the overseas entity ID is not provided.    

For existing overseas entities who own UK property, the details of any disposals made since 28 February 2022 must be provided to Companies House.  The relevant disposals involve a freehold or leasehold granted for a term of more than seven years or a charge.

Amelia Stawpert of our Investment Funds team comments, “We recommend that any investor who uses non-UK companies, partnerships or trusts to hold UK property should consider as soon as possible if they need to make a filing. Identifying the correct registrable beneficial owners, even for commonly used holding structures, may be complex and will require careful analysis. Fund managers should also consider whether any large or influential investors in their funds could be beneficial owners, and if so, how they can obtain the necessary information.”

Verification- the devil’s in the detail

Certain information about the beneficial owners and managing officers of an overseas entity has to be verified by a “relevant person” as defined in the Money Laundering legislation.  These include a wide range of UK based professionals including financial institutions, auditors, accountants and independent legal professionals.  The verification requirement is a potential stumbling block for overseas entities as it is an offence for a person, without reasonable excuse, to deliver any document that is misleading, false or deceptive in a material way, and the verifier will be liable to a fine and potential criminal liability.

Only those with a solid understanding of the new regime, trusts law and overseas corporate forms are likely to be comfortable with verifying along with an understanding of the underlying Persons of Significant Control regime which is currently applicable to UK companies.

Non-Compliance

An existing overseas entity (and its officers) who owns land but has failed to register at Companies House before 31 January 2023, will commit an offence, potentially punishable by imprisonment or a fine or both.  Failing to comply with the updating duty is also subject to a fine.  

Next Steps

Overseas entities should register on the new register at Companies House as soon as possible. 

Those with active properties such as shopping centres where a number of dispositions have occurred since 28 February 2022, may find the Companies House application process more prolonged at the outset so should allow plenty of time to register.

We shall actively monitor the passage of the Economic Crime and Corporate Transparency Bill through Parliament and keep you updated. 

An earlier version of this article was published in React News on 9 November 2022

Authored by Stella Bliss, Ingrid Stables and Daniela Vella.