Articles / Transparency and Anti-Corruption in the UK: Compliance [Guidance: 2022]
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Transparency and Anti-Corruption in the UK: Compliance (Guidance: 2022)
The UK Economic Crime Act of 2022, often called Transparency and Enforcement, took effect on March 15, 2022. It was sent through the UK parliament quickly after Russia invaded Ukraine, but it’s actually been on the agenda of many conservative governments since 2016.
At the time, Prime Minister David Cameron claimed that all foreign countries holding UK property had to disclose information about their beneficial ownership, which is part of the anti-corruption regime of the UK government.
Note: Companies in the UK might also be affected by the new Norwegian Corporate Transparency Act.Contact Us
The Overall Objective with Transparency and Enforcement
Overall, the objective of this UK Transparency Act is to make it easier to trace and identify illicit wealth related to economic crimes and money laundering. The Act focuses on three major changes:
- The UWO(Unexplained Wealth Order) regime must expand to offer enforcement and intelligence agencies more avenues for getting information about property ownership. The UWO was first implemented by the 2017 Criminal Finances Act.
- Companies House, a UK company registry, must operate a new “register of overseas entities” section that includes the beneficial ownership information for all foreign entities that are considered registered proprietors of land interests in the UK. That may mean appearing on the title register for the property.
- The UK sanctions regime must be amended to ensure that the Office of Financial Sanctions Implementation can impose appropriate monetary penalties when sanction regulations are breached.
The Act applies to the whole of the UK, but some provisions could be applied differently in Scotland, North Ireland, Wales, and England.
What are Register of Overseas Entities?
With the new Act comes a Register of Overseas Entities. This requires a non-UK entity with relevant interests in UK lands to identify themselves as registrable beneficial owners, registering with Companies House.
Most significantly, this Act is retrospective, so any land acquired in Wales and England by foreign entities since January 1, 1999, or in Scotland from December 8, 2014, is caught up in this.
It’s unusual for Acts to have extensive retrospective effects. Still, the primary goal of those new requirements is to offer more transparency and deter businesses and individuals outside the UK from using its property to launder money.
An overseas entity can include any corporate, body, partnership, and other entity that’s governed by laws in countries other than the UK, such as Guernsey or Jersey. This foreign entity has a relevant interest in land when it’s the registered proprietor of any qualifying estate, such as a leasehold or freehold title longer than seven years in Wales and England.
The UK Land Registry
The UK Land Registry cannot register any foreign entity as the proprietor of the qualifying estate unless they are already registered with Companies House at the time of their application or are exempt from the Act’s requirements.
Generally, the Act doesn’t affect an overseas person from owning UK land through its UK-incorporated company. These UK companies must already disclose the beneficial owners to Companies House because of the PSC (People with Significant Control) register.
Parliamentary Debate about the Act
Instead, the Act should put those overseas entities that are registered proprietors of land on a similar footing because of the disclosure requirements that relate to beneficial ownership. During the parliamentary debates for the Act, legislation described it as an iterative process, so the Act’s scope might be extended.
A beneficial owner can include a person:
- Holding, indirectly or directly, over 25 percent of the voting rights for the foreign entity
- Holding, indirectly or directly, over 25 percent of the shares for the foreign entity
- Who exercises or could rightfully exercise significant influence over that foreign entity
- Holding the right, indirectly or directly, to appoint/remove the majority of the directors’ board of that foreign entity
It’s all similar to the approach the UK government took with the PSC register. Schedule 2 in the Act expands the thresholds that apply to defining a beneficial owner, reserving the power to alter or replace them by the secretary of state.
Trusts aren’t included in the definition of “overseas entity,” but they could be caught in it if the overseas entity uses a trust to hold qualifying estates within the UK. For example, trustees might be caught up because they are the beneficial owner of some freehold title. Any of the above conditions are met, so they must give information to Companies House about the trust.
Foreign entities that are registered proprietors of qualifying estates should provide information about the beneficial owners to Companies House, which is now part of the overall registration process.
The Act also specifies what information is included from the overseas entity:
- Registered office
- Incorporation number
- Service address
The registrable beneficial owners must provide:
- Date of birth
- Service address
- Residential address
- Date of becoming a beneficial owner
Restrictions on Title Register for Land
The land registry includes restrictions on a title register for land within the Act’s scope. This prevents a disposition registration unless the foreign entity can show that it holds the land and is exempt or has complied with the Act. If land caught by this Act gets disposed of after February 28, 2022, and before the foreign entity made its registration application, it is still required to register and include the date of the disposition.
Generally, the secretary of state can exempt people from registration under the Act through a written notice. However, those exceptions are very limited and unlikely to help most beneficial owners and foreign entities. Likewise, the secretary of state can only grant exemptions for national security interests or to prevent and detect serious crimes.
The UK’s government originally wanted to implement a short transition period of 18 months for foreign entities to comply with the new requirements. However, Parliament opposed this, so the transition period dropped to six months and hasn’t been implemented yet. Overall, the clock countdown starts after it’s confirmed by the secretary of state.
Currently, it’s unknown when the Act will take effect. However, it might happen in short order because some property owned by Russian entities and individuals are being targeted because of the Russian-Ukrainian war.
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What are the Penalties for Not Complying with the Act’s Requirements?
If a person (entity or officers) doesn’t comply with the requirements of registration or provides misleading or false information to Companies House, there could be penalties. This includes imprisonment of up to five years for serious offenses and monetary fines.
Subject to Fines and even Imprisonment
Likewise, the foreign entity might fail to register within that six-month transitional period. They could be subjected to fines, and officers might be imprisoned for two years. They may also be restricted from purchasing, selling, and mortgaging UK land. Once the Act is running, the register has to be updated regularly, and failure to do that is also a criminal offense.
The Economic Crime Act also amended UK sanctions and implemented these changes:
Strict Liability Regime
This removes the requirement for a person to have suspected, known, or believed they were breaching sanction prohibitions to be subjected to a determination that the breach occurred. However, this isn’t in force yet. Apparently, the expansion for civil liability of sanction breaches is modeled from the US approach to sanctions. It features a strict liability schedule and a strong record of taking action. The Act doesn’t amend the framework for criminal sanctions, and this regime only applies to civil penalties.
Urgent Designation Procedure
This lets a person be designated for sanctions with no reasonable grounds to suspect they were involved in sanctionable conduct. It applies in two cases: 1. The person was subjected to similar sanctions in Canada, Australia, the EU, or the US, or by other specified countries, and 2. It’s in the public interest to make the designation. Urgent procedure designations will end after 56 days unless the person is considered involved by that time. The procedure went into force on March 15, 2022, and is being used by the UK to provide more blocking sanctions.
Reporting on Sanction Breaches
The HM Treasury can publish reports indicating that there haven’t been monetary penalties imposed if it’s satisfied (through a balance of probabilities) that the person breached a prohibition. Currently, this isn’t in force.
Why Work with Transparency Gate
While some Act provisions aren’t in effect yet, they could be implemented quickly.Contact us
Transparency in Business Builds Trust
It’s best to take appropriate steps now and review your UK property portfolios to ensure compliance with the Act’s registration requirements. Companies selling assets to overseas entities must make sure that the buyer complies with the Act, or those transfers might not go through.
Though some individuals use the overseas entity feature to safeguard privacy when buying UK real estate, they might get caught up in the Act, as well. Leaders must ensure that all requirements are considered for qualifying estates that are purchased or might be bought.
While this is a good thing for everyone and supports due diligence in all aspects of land ownership, it’s crucial to keep things organized.
Software for The Transparency Act
Transparency Gate is a digital platform that helps companies create tailored portals to assist with transparency compliance. It’s built for compliance with the Norwegian Transparency Act, but then, has the same functions that you`d need in a digital software in the UK aswell.
We are information source for topics surrounding legislation that supports the UN and OECD convensions, aswell as transparency laws.
Test our software for free to see how it can benefit you, or contact us to learn more.
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David Cameron (UK ex-prime minsiter)
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