Lavinia Ion
Property Paralegal
Overview
The Economic Crime Transparency and Enforcement Act 2022 (the “Act”) came into force on 13 January 2023 with the aim to expand the understanding of overseas entities and financial crime in the United Kingdom. The act requires overseas entities that acquire real estate in England and Wales on or after 1 January 1999 to identify and register any beneficial owners on Companies House, this includes entities incorporated in Jersey and the Isle of Man. For Scotland, purchases made on or after 8 December 2014 will have to be registered.
The Act consists of three main components: firstly, it has created the Overseas Entities Register; secondly, it has amended the Unexplained Wealth Order; and lastly, it has amended the legislation on UK sanctions.
Impact
The government aims to deliver transparency about owners of ‘overseas entities’ and strengthen money laundering regulations in the UK. As a result of the Act, the UK Companies House Register will have a third register for ‘Overseas Entities’ and its ‘Beneficial Owners’ to be registered.
According to the Act, a person is a beneficial owner of an overseas entity if the following criteria apply:
- If they directly or indirectly hold more than 25% of the company shares;
- If they directly or indirectly hold more than 25% of voting rights;
- If they hold the right to directly or indirectly appoint or remove a majority of the board directors;
- If they have rights to exercise, or actually exercise, significant influence or control over trusts and partnerships.
Exemptions to the Act
The Secretary of State has the discretion of giving written notice to a person and exempting them from registering the overseas entity. However, such discretion must be applied either in the interest of national security or for the purpose of preventing or deterring serious crime. Section 18 of the Act elaborates further on this point.
Schedule 1 of the Act outlines the information required for the registration of overseas entities and the information that a beneficial owner needs to provide.
Deadline to Register
The deadline to register relevant overseas entries on the Companies House Register is the 31 of January 2023. Any transfer, charge, or grant of a new lease must be put on hold until the overseas entity has disclosed its beneficial owners to Companies House and has been granted the status of Registered Overseas Entity. This includes freehold estates and leasehold estates in land granted for a term of more than seven years. If the real estate in question was owned by an overseas entity on or after 1 January 1999 and has been disposed of by 31 January 2023, there is still an obligation to disclose the information about the overseas entity and its beneficial owners on the Companies House Register.
If no beneficial owners can be identified, then there is an obligation to provide information about the overseas entity’s managing officers. This includes the director, manager, or company secretary of the overseas entity. Professional advice may need to be sought to ascertain the beneficial owner.
Registration Process
When registering overseas entities at the Companies House Register, an “overseas entity ID” will be issued. After this, a UK-regulated agent will carry out a verification check on all the beneficial owners and managing officers of the overseas entity before it can be registered into Companies House.
The government has set out an accessible list of agents that can carry out these verification checks.
There is a requirement for overseas entities to provide a verification statement within fourteen days of its registration. The UK-regulated agent can complete the statement as part of the registration service, otherwise, someone who works in the company can make the application on behalf of an overseas entity.
Penalties
It is an offense to deliver and register false information or to be non-compliant with the requirements of the Act. Such actions will constitute criminal liability and will prevent the overseas entity from buying, selling, or mortgaging UK property in the future.
A transfer of land by the overseas entity in breach of the required registration protocol will result in a criminal offense being committed by the entity, with every officer being liable for punishment by fine or imprisonment. Furthermore, the Office of Financial Sanction Implementation has the power to impose a fine of £1 million or 50% of the value of the non-compliant transaction.
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