On 14 March 2022, the Economic Crime (Transparency and Enforcement) Act 2022 (“the Act”) was passed into law. The Act is part of a long term effort by the government to monitor the operation of “overseas entities” who hold property in the UK, but has recently been accelerated into law by the war in Ukraine.
It can be broken down into three parts:
- The creation of a register for overseas entities,
- New provisions regarding Unexplained Wealth Orders,
- Sweeping changes to the operation of sanctions in financial crimes.
The purpose of the Act is to identify those who are beneficiaries of stolen money. The Proceeds of Crime Act 2002 allows the police to seize property belonging to the Head of an Organised Crime group. Using the Proceeds of Crime Act 2002 where the Head of an Organised Crime group has hidden funds overseas has proved difficult though and the new Act intends to remedy this.
For existing overseas clients the new registration requirements are likely to be frustrating, and the penalties severe. An overseas entity includes a company or organisation governed by the law of a country or territory outside the UK. This includes persons, companies, charities, and public bodies so is wide ranging. To remain compliant the ECA requires that all overseas entities that own or intend to purchase UK property
- register with Companies House;
- take reasonable steps to identify registerable beneficial owners; and
- provide information to Companies House in relation to those owners.
If you believe you are part of an overseas entity or a beneficial owner you will also be required to serve on all beneficial owners an information notice requesting further details. Any persons served with an information notice requesting information must respond within one month or face criminal sanctions.
Beneficial owners, for the purposes of the Act are those who:
- hold more than 25% of the shares or voting rights of the entity;
- have the right to appoint or remove a majority of the board of directors; or
- have significant influence or control over the overseas entity
in relation to trusts, the corporate trustees of that trust and any registrable entity who has the right to exercise, or actually exercises, significant influence or control over the activities of that trust is also a Beneficial Owner. Where no beneficial owners can be identified then the will instead be required to identify their managing officers.
Those affected have until 31 January 2023 to allow this information to be registered. The Act applies retrospectively to all property bought by overseas owners in England and Wales after 1 January 1999, and after December 2014 in Scotland but applies only from implementation in Northern Ireland.
There is also an additional ongoing responsibility to update registration within a 14-day annual update period. Overseas entities must also notify Companies House when a beneficial owner and/or managing officer is required to be removed from the New Register. Serious criminal penalties are proposed for those who fail to comply, including custodial sentences.
The land registration elements of the act came into force on 5 September 2022. Failure to register could be a criminal offence or could result the restriction of buying, selling, transferring, leasing or charging their land or property as well as other serious financial penalties.
For further information on this topic or on any other legal area, please contact John Szepietowski or Kay Stewart at Audley Chaucer Solicitors on 01372 303444 or email admin@audleychaucer.com or visit our Linkedin page.
John Szepietowski
September 2022