Anti-Money Laundering in UK Property Ownership

Registration of foreign entities under ECA 2022

While regulating overseas ownership of British property has been the subject of discussion for years, it was Russia’s invasion of Ukraine that ultimately accelerated the passage of the Crimes Act. Economy (Transparency and Enforcement) (“the ECA”) in March this year. . Part 1 of the ECA aims to provide greater transparency regarding the ownership of land by foreign entities in the UK through the creation of a publicly accessible register. Companies House has announced that this new register will launch on August 1, 2022, bringing into effect an ongoing obligation for qualifying foreign entities to disclose details of their beneficial owners.

The new rules mirror many of the provisions of the Register of Persons with Significant Control (PSC) introduced in 2016, under which companies incorporated in the UK are subject to stricter disclosure requirements. In a similar vein, a non-public register of beneficial owners for trusts was created in 2017 as part of the UK’s implementation of the Fourth Anti-Money Laundering Directive. The CEC can therefore be interpreted as part of a broader effort to quell economic crime and, in particular, growing concerns about the concealment and laundering of ill-gotten wealth overland.

Who is affected by the new requirements?

The ECA applies to any legal entity governed by a non-UK jurisdiction that wishes to own land in the UK and requires that entity to take reasonable steps to identify and declare its beneficial owners. Once successfully registered, Companies House will issue an identity document to the foreign entity. Without such identification, a foreign entity cannot be registered as the legal owner of the property. Domestic buyers, lenders, tenants and other parties may also be affected since any transaction involving a foreign entity will not be registrable until it is duly compliant with the ECA.

The registration requirement will apply retrospectively to any “relevant interest”, defined under the ECA as full ownership or a lease of more than seven years. Where a foreign entity became the owner of such an interest on or after January 1, 1999 in England and Wales, it will be subject to the new disclosure rules. The trigger date in Scotland will be 8 December 2014, but the registration requirement will only be applied prospectively in Northern Ireland.

With only a six-month grace window to comply with the ECA once the register is launched, companies need to act quickly to consider any potential new obligations. The threat of criminal penalties, ranging from fines to five years imprisonment, will likely ensure widespread compliance.

What is the scope of the new provisions?

The new disclosure obligation, however, may not be as extensive as it first appears. Notably, the ECA does not extend to land ownership trusts. Therefore, non-UK trusts as well as UK entities holding trust property for overseas entities will not be covered by the new requirements.

Along with many non-ECA trust agreements, it is also important to note that not all beneficial owners need to be disclosed. Alongside the current CSP regime, the registration requirement will only apply to beneficial owners holding more than 25% of an entity’s shares or voting rights, those who have the power to appoint or remove majority of the directors, or to those who have other significant influence or control over the entity. However, the ECA contains an ongoing obligation for the entity to update the information at least once a year, so there will be an administrative compliance burden.

Comment

Between the PSC scheme and the register of trusts run by HMRC, the introduction of registration requirements for foreign entities with UK property interests is obviously symptomatic of the current political climate. Although it is still too early to assess the impact of the new disclosure rules, it is clear that the administrative burden faced by legitimate foreign investors must be weighed against the potential of the ECA to combat the activities criminal cases involving land in the UK.

About Wanda G. Warren

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