1Introduction
Transparency and the UK property market
1.The United Kingdom benefits from a long-established democratic political environment, an internationally well-regarded legal system, and robust financial mechanisms. These advantages make investment in the UK an enticing prospect for overseas investors seeking a country in which to buy property.
2.But the very factors which attract legitimate investors also appeal to those with more malign intent. In the first oral evidence session of our inquiry, Professor Jonathan Fisher QC, barrister at Bright Line Law, told us:
“If you asked the fraudsters […] they would tell you that it is a very stable regime. They are very comfortable with the political environment […] London property has always been a good bet. We see evidence of organised criminals buying property outside London as well. It is broadly the stability element that attracts them.”1
3.This tension—between the continuing desire to encourage investment from abroad and the need to discourage illegitimate activity—creates a policy priority for the Government. The property market is built on trust. That trust builds, in turn, on the expectation of vendors and buyers that they operate within an equitable and transparent legal framework, and that they know, with every possible certainty, with whom they are dealing. The draft Registration of Overseas Entities Bill (“the draft Bill” or “the Bill”) aims to increase the transparency of information about who really owns UK land. It seeks to establish a publicly accessible Register (“the Register”) of the beneficial owners of entities purchasing land, and of those who already own land, in the UK—that is to say, the individuals to whom profit from investment in land ultimately accrues.2 It was the task of this Committee to examine whether the draft Bill is likely to achieve this aim.
4.As we explain in the following chapter, the proposed Register will be one tool in a larger “tool box” of measures designed to combat money laundering.3 The Minister responsible for the Bill, Parliamentary Under-Secretary of State for Small Business, Consumers and Corporate Responsibility Kelly Tolhurst MP, told us that transparency—“together with information sharing and our enforcement agencies—is just one of the tools that we know work together to combat criminality, money laundering and all those things.”4 Our report considers the draft Bill in the context of complementary anti-money laundering measures, and asks how the key goal of achieving transparency in property ownership might be informed by lessons learned from implementing other legislation.
Our inquiry
5.The Joint Committee was appointed by the House of Commons on 19 February 2019 and the House of Lords on 25 February 2019 to conduct pre-legislative scrutiny of the Government’s draft Bill. Both Houses instructed the Committee to report by 10 May 2019.5 Pre-legislative scrutiny is the detailed examination of an early draft of a Bill, carried out by a Parliamentary Select Committee before the final version of the Bill is drawn up by the Government and laid before Parliament. This process is not applied to every draft Bill.6 Six Members of the House of Commons and six Members of the House of Lords were appointed to the Committee, which was chaired by Lord Faulks.
6.Within the short timescale that we were set, a range of witnesses had the opportunity to express their views. We held six oral evidence sessions and issued a public call for written evidence which received 21 responses. Our witnesses included representatives of enforcement agencies, professional associations, land registries, Companies House, academic and legal experts, conveyancing professionals, and the Minister and her civil service colleagues. A full list of those who gave oral and written evidence is attached to this report. We take this opportunity to express our gratitude to all those who submitted evidence or appeared before us, often at necessarily short notice. We are also most grateful to the Government’s Bill team for their thorough and prompt assistance throughout this inquiry in responding to our various queries.
Report structure
7.The report is set out as follows. Chapter 2 describes the existing anti-money laundering framework in which the Bill will operate, and provides a brief summary of the provisions and powers that it contains. Chapter 3 explores the draft Bill’s definition of “overseas entities”, which will be required to enter their beneficial ownership information on the proposed Register. It asks whether this definition is sufficient to capture the full range of entities investing in the UK property market. It looks, in particular, at whether trusts should fall under the scope of the Bill. Chapter 4 considers how the term “beneficial owner” is defined, and assesses the adequacy of this definition for the purposes of the legislation. Chapter 5 examines the information that entities will need to enter into the Register, and asks whether the information held will be accurate, up-to-date, and pertinent to achieving the stated aim of the Bill. Chapter 6 questions whether the enforcement mechanisms laid out in the Bill are practicable, and whether they can be improved. A consolidated list of our conclusions and recommendations can be found after Chapter 7, the conclusion.
8.Appendix 5 contains a list of possible loopholes that could be used to evade the requirements of the draft Bill. In Appendix 6 we present a range of technical drafting points that we put to the Government’s Bill team during the inquiry. The Government’s response to those points is also included, and in one case, our recommendation in response. Appendices 3 and 4 contain analyses of the draft Bill provided by the House of Lords Delegated Powers and Regulatory Reform Committee (DPRRC), and the Joint Committee on Human Rights (JCHR). The Rt Hon Lord Blencathra, Chair of the DPRRC, wrote: “The DPRRC has nothing which it wishes to draw to the attention of the Joint Committee […] the delegated powers are proportionate.”7 We have referred to our communication with the JCHR where appropriate below.8
9.Appendix 6 is a glossary of some of the terms that we use most frequently in the report. We acknowledge that the draft Bill deals with an area of law that is often complex, and we hope that the glossary will go some way to reducing that complexity. We have endeavoured throughout our report to use as clear language as possible, and to explain technical terms wherever we can. Pre-legislative scrutiny reports necessarily deal with draft Bills in significant and sometimes technical detail. Since this draft Bill seeks to tackle money laundering, a crime with far-reaching impacts on our economy and society—more than £90 billion a year is estimated to be laundered through the UK—we hope that our report will be read by a wider audience than those individuals who will be most immediately affected by the Bill.9
10.Our inquiry is just the start of parliamentary and public debate on this Bill, but we believe that the Bill will be improved—and will be more likely to achieve the Government’s stated objectives—if the recommendations of this report are accepted. It is in this spirit that we commend our report to both Houses of Parliament.
11.We support the Government’s ambition to improve the transparency of overseas beneficial ownership in the United Kingdom property market. Overall, we feel that this draft legislation is timely, worthwhile, and, in large part, well drafted.
2 “Beneficial ownership refers to the person(s) who ultimately own(s) or control(s) an asset (for example, a property or a company) and benefit(s) from it. The concept of beneficial ownership exists because the direct legal owner of an asset is not necessarily the person ultimately controlling and benefitting from the asset. For example, the direct legal owner of a residential property may be an anonymous company registered overseas.” House of Commons Library, Registers of beneficial ownership, Briefing Paper, Number 8259, 15 March 2019
5 House of Commons, Order Paper No. 253, 19 February 2019; House of Lords, Order Paper No. 259, 25 February 2019
6 UK Parliament, Pre-legislative scrutiny: https://www.parliament.uk/site-information/glossary/pre-legislative-scrutiny [accessed 1 April 2019]
7 See Appendix 3.
9 ‘Counting the cost of money laundering’, The Independent (5 February 2018): https://www.independent.co.uk/news/business/news/counting-the-cost-of-money-laundering-a8122916.html [accessed 8 April 2019]