Unlike some other countries, the United Kingdom permits the ownership of land by individuals or entities based overseas. The UK is valued for its democratic political environment, its independent legal system, and its rigid financial protections. While these advantages have made property in this country popular among legitimate investors, they also appeal to those, such as money launderers, who may wish to use property to conceal illicit funds. Criminal investigations are often hindered because enforcement agencies cannot access information about the individuals who own or control overseas entities which have been used to launder the proceeds of crime and corruption.
The draft Registration of Overseas Entities Bill aims to increase the transparency of information about who really owns land in the United Kingdom. It will establish a publicly accessible Register of the beneficial owners of overseas entities purchasing land, and of those who already own land. Beneficial owners are the individuals who ultimately profit from the overseas entities’ investment. Such entities will be required to enter their beneficial ownership information with Companies House. If they are deemed “non-compliant”—if they fail to enter the necessary information when registering, or if they fail to register at all—they will face sanctions.
In this report we assess whether the draft Bill is likely to achieve its aim. We have concluded that in general terms, the Bill is timely, worthwhile, and, in large part, well drafted. But we believe that the legislation will be improved—and will be more likely to achieve the Government’s stated objectives—if our conclusions and recommendations are accepted.
We are concerned, for example, that trusts could be used to circumvent the draft Bill’s obligation on entities to register. The Government told us that the provisions of the Fifth EU Anti-Money Laundering Directive would be applied in the UK whether or not the UK leaves the European Union with a deal, and that the UK’s implementation of the Directive would aim to close the trusts loophole. The Directive must be transposed into UK law by January 2020. Given the significant congruence between the Directive and the draft Bill, the Government has an important opportunity to introduce both measures simultaneously. The Government should therefore not tarry in implementing this draft legislation. And it must exercise great care in ensuring that trusts do not slip into any gaps between the two frameworks.
The Government plans to introduce the Bill to Parliament later in 2019, and to launch the Register in 2021. The Register will work alongside other anti-money laundering measures. These measures include the People with Significant Control (PSC) register, unexplained wealth orders, and suspicious activity reports. The proposed Register is an important piece of the anti-money laundering jigsaw, but it is only one piece. We recommend that the percentage of ownership thresholds that the draft Bill uses to define beneficial ownership, as well as the definition of what it means to have “significant influence or control” over an entity, must therefore reflect those used in the PSC framework. Such an approach should avoid unnecessary administrative burdens on users, and promote the coherence and efficacy of the two registers.
The draft Bill proposes powers to exempt certain entities from the requirement to register. Such powers would give exemptions not only from the requirement to publish beneficial ownership information, but also from providing that information to Companies House. The Government should consider introducing a new clause to protect only the information registered by certain types of entities—such as foreign governments—from public disclosure. And it should publish, in an annual Written Statement, the number of occasions when such exemptions are used.
The report argues that the efficacy of the proposed Register will be damaged should it not be kept up-to-date. We therefore suggest that, as well as a requirement to update information once a year, vendors should update information about a proposed transaction before it takes place. This will capture information at the point where any potential money laundering might occur.
We are also concerned that the proposals lack verification checks to deter criminals wishing to submit false information. Without such checks, the draft Bill risks failing in its central policy aim: to provide a reliable and transparent record of the beneficial ownership information of overseas entities investing in the UK property market. But a workable verification mechanism could, for example, delegate verification responsibilities to Companies House or regulated professionals.
We recognise that there will inevitably be hurdles to enforcement and that the purpose of the legislation is to deter significantly the use of UK property for money laundering. However, effective sanctions are also required. In this context, civil penalties may well be easier than criminal sanctions to enforce abroad, and against land or other assets in the UK. Furthermore, they could be backed up by criminal sanctions for non-payment.
Provided that the Government takes our recommendations into account, we are satisfied that the overall effect of the draft Bill on the UK property market will be beneficial for those involved in land transactions. But the Government should continue to consult with the public as it implements the legislation, and communicate clearly to individuals and entities about how they may be affected by its provisions.