Who are the foreign owners of UK Land. Are they laundering their loot?
image (c) Mr Lightman
The Register of Overseas Entities came into force in the UK on 1 August 2022 through the new Economic Crime (Transparency and Enforcement) Act 2022.
Overseas entities (defined as “Companies registered outside UK”) which want to own, buy, sell or transfer real property (land, or interests in land) in the UK, must register with Companies House and tell it who their registrable beneficial owners or managing officers are.
It is one step in the fight to prevent ownership of land in UK by criminal enterprises. Whilst of course for criminals it will be just one more thing to try to get around – and successful criminals are inventive if nothing else – for the honest and genuine foreign investor it becomes another level of bureaucracy to deal with. It will be time consuming and difficult for them to manage from wherever they are in the world, so they will need an agent in UK.
If the company ignores the new requirement the penalties which can be imposed include fines of £2,500 per day. Which punishment applies at least theoretically, to the entity itself and also every officer of it personally. Click Here. Also, imprisonment.
In particular, it is a pain in the neck for such businesses because unlike most new law in UK, the registration requirements are retrospective.
So, a foreign Company may have owned land in UK for over twenty years, with no need for registration in UK as an Overseas Entity, but now that is no longer possible.
No one has yet been punished in this way, but these are relatively early days, so perhaps we are in a “phoney war” period.
The rules apply retrospectively to overseas entities who bought property or land on or after:
- 1 January 1999 in England and Wales
- 8 December 2014 in Scotland
The date for registration has passed – it was 31 January 2023.
The current estimate seems to be that there are some 31000 such overseas entities which own land and that over 28000 have now complied and are registered.
How have they done it? – it’s not straightforward. Imagine you are a Company Director working hard in Germany or somewhere, making widgets all day and fully occupied. Your company owns office premises in England. Now you must register. And for ever after, update annually.
You need a UK based agent to do this for you.
Prior to registration, the information you wish to give must be verified by an independent UK-based agent who is supervised under the UK’s Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.
Clearly this is a very onerous job. Do you want to do it?
What do you have to tell Companies House every year?
Every “beneficial owner” of the foreign entity needs to be listed at Companies house, with
- Name.
- Date of birth.
- Nationality.
- Residential address.
- Service address.
- Date at which the individual became beneficial owner of the entity.
- Nature of control of the entity.
- Whether the individual is on sanction lists.
Well at least the definition of Beneficial owner is fairly clear? Think again. (No, it’s not.)
Easy enough in a small family concern with a married couple owning 50% of the shares each. Bit more complex when there are hundreds of shareholders and directors.
And once you have decided which of those persons actually is a “beneficial owner”, bear in mind that you also, as the agent most easily locatable to be arrested and carry the can, are personally at risk of the punishments listed above – £2500.00 daily, five years jail, for non-registration, late registration or incorrect registration.
Solicitors are usually people keen to embrace a new role if there is the opportunity to open a new income stream. They may think – here is some new onerous work which it is essential for foreign Companies to pay for. Otherwise, the company cannot sell the land it owns in UK or buy additional land here. Let’s jump into this and earn some money.
But the Law Society is advising Solicitors to be very cautious indeed.
Here is published guidance for Solicitors, from the Law Society. “WHAT ARE THE RISKS FOR SOLICITORS ACTING AS VERIFICATION AGENTS? “
Despite the commercial opportunities, this is not an area of work to be taken on lightly. Some of the core risks for solicitors include:
- Lack of understanding or competence in the register of overseas entities process, and/or applicable legal skills to unpick corporate and trust structures in overseas jurisdictions. Specialist overseas counsel may be required.
- Acting under the mistaken assumption that verification is the same as identity verification under the Money Laundering Regulations. It is not. For instance, the definitions of ‘beneficial owners’ differ. And as things stand, verification is not conducted under the ‘risk-based approach’ we are all familiar with.
- Receiving documents from the overseas client in foreign languages and in unfamiliar formats. Notarised translations may be required.
- Missing a deadline to submit Companies House applications, where this is a part of the retainer, could result in a negligence claim.
- Caving to intense pressure from overseas clients to complete verification without the required independent and reliable information. The stakes are high for those requiring registration, potentially curtailing their UK property investments, and presenting criminal liability. Solicitors will need to be able to robustly resist pressure.
Solicitors undertaking verification without the required skills and expertise are likely to be in breach of the SRA Code of Conduct. The regulator has already hinted that ‘there may be issues’ for law firms acting as verification agents, and would be well advised to heed the caution contained in The Law Society guidance.
Professional indemnity insurance cover may also be an issue, and firms need to check that acting as a verification in this new and potentially risky area is covered.
In the worst-case scenario, there is criminal liability for verification agents who misrepresent the beneficial ownership of an overseas entity to Companies House.
It is perhaps a job only for firms of Solicitors with offices in many countries and the ability to employ staff to act as verification agents and do nothing else.
Of course, if solicitors don’t do it, someone else will fill the void. Not me though, thanks.
Although if you are an owner or officer of a foreign company owning or wanting to own UK land, I can put you in touch with suitable agents.
A relevant song? Not really, but I like it. Click Here Living in a Foreign Land
Please do contact us whenever you need Notarial certification or Legalisation for your Documents– at http://www.atkinsonnotary.com – or phone us on 0113 816 0116 (internationally 0044 113 8160116)
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