Beneficial ownership register: draft Bill published

Back in March we wrote about the Government’s response to a call for evidence on the introduction of a beneficial ownership register of overseas companies that own UK property. The response outlined how the register would be implemented and included plans to publish a draft Bill this summer.

The draft Bill has now been published and the register remains on track to be operational by 2021.

Reason for the register

There is a concern about the lack of transparency around who ultimately owns land in the UK, particularly where the land is registered to an overseas entity. The information currently available is limited and will usually only include the name of the entity and its country of incorporation. It is therefore very difficult to establish who owns and controls the entity itself and, therefore, the land.

Overseas entities can be used as vehicles for corruption and criminal investigations can be hampered as there is limited information available relating to them.

The PSC register, which applies to UK-registered entities, has helped to increase transparency, and tackle money laundering and other corrupt practices nationally. The new register of overseas entities will be similar to the PSC regime, which is seen as a recognised and trusted framework. In particular, the criteria for identifying beneficial owners of overseas entities holding UK land will be the same as for identifying persons with significant control under the PSC regime.

How will the register operate?

The main objective of the register is to prevent and combat the use of land in the UK by overseas entities for the purposes of laundering money or investing illicit funds by increasing transparency in overseas entities which own land in the UK.

The register will require an overseas entity wishing to own land in the UK to take steps to identify its beneficial owners and then provide information about those beneficial owners to Companies House. Once registered, the overseas entity will be assigned a unique ‘overseas entity ID’ which must be provided when updating this information at Companies House.

To comply with the reporting requirements, the overseas entity must annually deliver up to date information, or confirm that information already on the register is up to date.

Consequences of a failure to register

An individual who fails to register an overseas entity could face up to two years in prison and an unlimited fine. The same penalty applies to any individual who tries to knowingly deceive Companies House by providing false and misleading information.

If an overseas entity sells or leases a property without publicly declaring its beneficial owners this could result in the individual who failed to register the entity facing up to five years in prison and an unlimited fine.

In addition to these criminal penalties for non-compliance, failure to register will also result in the overseas entity being unable to obtain full legal title to the land or register certain transactions.

Essentially, any failure to register an overseas entity will affect that entity’s ability to either sell or lease the land, or create a charge over it. Other parties will be reluctant to transact with an overseas entity which is not registered at the Land Registry as they will not have the ability to register any transactions, such as mortgages or any other interests in the land.

Procurement

Previously it was thought that the preferred bidder on any government procurement contract would be required to submit information to the register and this would be a condition of being awarded any government contract. However, the draft Bill sets out that the information required will be published separately from the other information on the register.

The required information is equivalent to that required for registration on the register and it will be published in an equally transparent manner. The Government believes that this approach will enable the public to easily identify the beneficial owners of entities awarded government contracts.

Comments are requested on the draft Bill by 17 September 2018 after which it is hoped the register will be operational by 2021.