5Information held on the Register
132.As we have seen, the policy aim of the draft Bill is to combat money laundering in the UK property market by increasing the transparency of beneficial ownership information. We heard convincing evidence that the efficacy of the Register in reaching this goal will depend upon the accuracy and veracity of the information that it holds.
133.This chapter considers the information that the proposed Register will contain. It gives first an overview of the Register, examining how it will function. It then examines the categories of information in the Register, and asks whether it would be pertinent to include any other information. Lastly, it examines mechanisms for determining the accuracy of the information held on the Register. Ensuring accuracy will, we suggest, be vital to the Register’s effectiveness.
134.To gain a sense of how interested parties would use the Register, we asked BEIS to provide a ‘mock-up’ of the proposed layout.142 At this stage, the Department was unable to do so.
135.We recognise that commercial sensitivities, the volume of work required, and the timescales involved may have prevented the Government from providing a model version of the Register so that we could ascertain how well it might work for users.
136.However, we urge the Government to publish such a model as soon as possible, so that potential users—and particular those working in the conveyancing profession—can be fully prepared for the implementation of this Bill.
Information held on the Register
137.Overseas entities must submit information about themselves and their beneficial owners. Schedule 1 sets out the required information about the beneficial owner:
- For an individual: (a) name, date of birth and nationality; (b) usual residential address; (c) a service address; (d) the date on which the individual became a registrable beneficial owner in relation to the overseas entity; (e) which of the conditions in paragraph 6 of Schedule 2 [the conditions defining a beneficial owner] is met in relation to the individual.
- For governments and public authorities: (a) name; (b) principal office; (c) a service address; (d) its legal form and the law by which it is governed; (e) the date on which the entity became a registrable beneficial owner in relation to the overseas entity; (f) which of the conditions in paragraph 6 of Schedule 2 is met in relation to the registrable beneficial owner.
- For other entities: (a) name; (b) registered or principal office; (c) a service address; (d) the legal form of the entity and the law by which it is governed; (e) any public register in which it is entered and, if applicable, its registration number in that register; (f) the date on which the entity became a registrable beneficial owner in relation to the overseas entity; (g) which of the conditions in paragraph 6 of Schedule 2 is met in relation to the registrable beneficial owner.143
138.Most of our witnesses were content with the categories of information that the draft Bill requires.144 Mr Hames of Transparency International said: “Broadly we think it is right.”145
Updating period
139.Clause 7 of the draft Bill requires that overseas entities update or confirm their beneficial ownership information every 12 months. This provision will be enforced by a cumulative fine for non-compliance.146 Global Witness stated that the annual update provides:
“only a ‘snapshot’ of the entity’s beneficial ownership information at the date of registration and on the date of each annual update thereafter, meaning that any changes throughout the year (including any aimed at concealing the owner’s identity) would not be caught”.147
140.It was suggested that the update requirements for the Register of Overseas Entities should equate to those for the PSC register. The PSC register is updated on an “event basis”: a company must notify Companies House within 28 days of a change to its beneficial ownership information. There is some suggestion that this “event basis” has improved the quality of information held in that register: “The move from annual to event-driven reporting for the PSC register was a big boost for proactive compliance, and has been key in making it possible for Companies House to follow up with companies on their PSC filings,” Mr Hames reported.148 Ms Lee from Global Witness suggested that difficulties might arise from any incongruity between the proposed Register and the PSC regime:
“Having it as an annual reporting standard, as opposed to triggered by events, would put UK companies at a competitive disadvantage and might encourage people to [use] foreign companies because they would have to register less regularly.”149
141.It appears that the purpose of the annual update requirement in the draft Bill is to ensure clarity and predictability for overseas entities and those who transact with them.150 Non-compliance with this update requirement will be enforced with criminal sanctions and restrictions on the transfer of land.151 Ms Griffiths from BEIS told us that the aim of this provision was “to find the balance between making something as robust as we can and not interrupting legitimate transactions”.152
142.To ensure the transfer of legal title, a third party transacting with an overseas entity would need to check that the entity was compliant. With an annual update, a third party could easily confirm compliance or non-compliance by ascertaining whether the update had been filed (though this would be no guarantee of the accuracy of the update). However, if updates were required on an “event basis”, a third party would have no means of knowing whether an “event” had occurred, thereby triggering the update requirement. The third party might therefore transact unknowingly with a non-compliant entity; as such, it might not be able to transfer or obtain the legal title. The Deputy Director of Company Law, Transparency and Tax at BEIS, Matthew Ray, emphasised the importance of predictability to third parties:
“We think it will be better for both parties, including the innocent buyer, if they can be absolutely certain when they look at the Register that: ‘Right, this entity was due to file its annual updates last January. They did it. Fine, we can transact with this body.’ With an ‘event-driven’ approach, there will always be that slight worry in their mind: ‘How do we know that they are keeping their information up to date?’ There will be no way of knowing that for certain.”153
143.Clause 7(6) gives the Secretary of State the power, by regulations, to alter the update period if necessary. These regulations would be subject to the affirmative resolution procedure.
144.We believe that the efficacy of the Register proposed by this Bill will be damaged should the proposed Register not be kept up-to-date, and that the Bill should make specific reference to this necessity.
145.We acknowledge that an “event-driven” update requirement might adversely affect third parties. We therefore suggest that, in addition to the annual update requirement, the Bill should include a specific requirement on the overseas entity to update the Register before any disposition is made. This will capture information at the point of transaction, where any potential money laundering might occur. In addition, a third party should be able to request enough information to ascertain whether the overseas entity had complied with its duty.
146.Legitimate transactions will be likely to amass a quantity of information about all parties involved in the transaction. This requirement should not, therefore, prove onerous. It would also provide predictability for third parties: the prospective passing of title would be an “event”, thereby triggering the update requirement.
Scotland: possible double-reporting?
147.In June 2018, the Scottish Government launched a consultation on the proposed Land Reform (Scotland) Act 2016 (Register of Persons Holding a Controlled Interest in Land) (Scotland) Regulations.154 These regulations proposed the establishment of a new Register of Persons Holding a Controlled Interest in Land, containing information about the persons who influence or control owners or tenants of land. It is envisaged that this register will be operational in 2021. An analysis of responses to this consultation was published on 17 April 2019.155
148.The draft regulations focus more closely on land reform than on determining beneficial ownership, but there is a possibility of double-reporting requirements with the proposed Register of Overseas Entities. We are aware that the Scottish Government has engaged with BEIS on this possibility, and has stated that it will continue to monitor the further development of the draft Bill prior to publishing the final regulations.156
149.Land law is within the devolved competence of the Scottish Government. We welcome the discussions which have taken place between the Scottish Government and the Department for Business, Enterprise and Industrial Strategy on the possibility of double-reporting between the Register of Persons Holding a Controlled Interest in Land and the Register of Overseas Entities.
150.We urge the two governments to continue to engage on this matter, and to consult and communicate with interested parties about any future reporting requirements.
Verification
151.The draft Bill aims to increase the transparency of information about who really owns UK land. The information provided on the Register must therefore be accurate. Without a verification mechanism to ensure that the information provided is true and correct, the information on the Register will not provide the requisite level of transparency.
152.OpenCorporates offered a useful definition of ‘verification’. It is a three-stage process:
1. Ensuring that the person making a statement about beneficial ownership is who they say they are, and that they have the right to make the claim (authentication and authorisation);
2. ensuring that the data submitted is legitimate (validation);
3. ascertaining that the statement made is true (truth verification).157
153.Clause 14 of the draft Bill provides that submission of false information would be an offence punishable by a fine or a prison sentence. A determined fraudster giving false information would risk identification by a professional involved in a property transaction—who could report the fraudster to the NCA—or by a reader of the Register—who could ‘flag’ the information to Companies House.
154.At no point, however, would the fraudster undergo any official checks to verify that the beneficial ownership information that they submitted to the Register was true and correct (truth verification) or that they were who they said they were (authentication and authorisation). Licensed professionals would conduct their own checks on the client’s identity, but there is no obligation in the draft Bill for an entity to use a licensed professional, and, as discussed below, reporting regimes used by licensed professionals are unreliable at best.158 Readers (for example transparency campaigners) who comb through the Register would no doubt notify Companies House of any false information, but this does not amount to a verification process.
155.Mr Condliffe of the Investment Property Forum described the lack of verification checks as an “inherent limitation” of the proposed Register.159 The Institute of Chartered Accountants for England and Wales wrote that “for the information held on the Register to be of any value, some form of verification of the information gathered” was necessary.160 The International Financial Centres Forum stated:
“Verification of information is essential to ensure the Register may be relied upon by HMRC, law enforcement, and courts. Law and tax enforcement, and the Financial Action Task Force, view unverified, self-contributed data as being of limited use for this reason.”161
156.Several organisations believed that the Register should be subject to verification checks. These included the Law Society of Northern Ireland, NAEA Propertymark, the Solicitors Regulation Authority, Transparency International, the City of London Police, and UK Finance.162
157.Mr Keatinge of RUSI suggested that, in the absence of verification checks, professional services companies might unknowingly use inaccurate information held on the Register of Overseas Entities in carrying out the due diligence checks required by the Money Laundering Regulations.163 There might therefore be a “reinforcing loop of weakness”, he believed.164
158.Among other transparency measures, the Fifth EU Anti-Money Laundering Directive calls on Member States to draw up registers of the beneficial ownership information of companies in their jurisdiction. It requires Member States to “take adequate measures to ensure that only the information […] that is up-to-date and corresponds to the actual beneficial ownership is made available”.165 Transparency International wrote that the Directive required the Government to ensure that UK company ownership data was accurate and that the Government “should apply these standards for overseas entities”.166 According to BEIS officials, the PSC register has answered these requirements: “The PSC register is pretty much compliant with the requirements of […] the Fifth Anti-Money Laundering Directive.”167
159.One aspect of Companies House practice could provide a useful tool to ensure the accuracy of the information held on the Register of Overseas Entities. Companies House told us that its ‘Report it Now’ function, which enables any member of the public to let Companies House know if they think any information on the companies register is incorrect, had been “an improvement that helps with the integrity of the register”. The mechanism “allows those inspecting the companies register to quickly and easily report back any discrepancies or anomalies they spot”.168
160.It is regrettable that, as currently conceived, the proposed Register of Overseas Entities will have insufficient verification checks to deter criminals who wish to submit false information. It therefore seriously 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.
161.With the introduction of this draft Bill and the Fifth Anti-Money Laundering Directive, the Government has a clear opportunity to strengthen the efficacy and transparency of its efforts against financial crime. It should grasp this opportunity, by establishing workable verification mechanisms for each of the registers that it has established.
162.The Government should ensure that the Register includes a mechanism allowing users of the Register to “flag” suspicious or potentially incorrect information and that mechanisms are in place to examine this information. It could replicate the successful ‘Report it Now’ function of the Companies House register in its design of the Register of Overseas Entities.
Verification: a role for Companies House?
163.Martin Swain, Director of Policy, Strategy and Planning at Companies House, reported that his organisation was currently unable to conduct verification checks. He referred to the role of Companies House in verifying information on the PSC register, where it is constrained by the Companies Act 2006:
“The principle of the Companies Act is that information is properly delivered to us. If it is correct within the constructs of the Companies Act, it is the responsibility of the Registrar to place that on the register. We do not have the power to check the accuracy at this time. The principle of the Companies Act is about proper delivery. If it is delivered in that way, we legally have to put it on the register.”169
164.Companies House can conduct data integrity checks, and has around 80 members of staff who carry out this work.170 Above, we refer to these processes as “validation”. The organisation can take certain actions when data is incorrect. For example, it can remove information from registers, or refer it to other agencies such as the Insolvency Service, a BEIS agency which addresses financial misconduct.171
165.Many of our witnesses suggested that Companies House should play a larger role in ensuring the veracity of the data held on the Register of Overseas Entities. Transparency International believed that demanding further information from a beneficial owner (such as a requirement to prove their identity and their ownership of an entity) would allow Companies House to carry out basic verification checks.172 Mr Keatinge told us that Companies House was becoming an “increasingly important tool in securing the integrity of the UK financial system. It should be empowered to play that role, and if that means that we have to strengthen its responsibilities as a result, yes, absolutely, we should.”173
166.Global Witness made the same suggestion, recommending that resources should be provided alongside a verification mandate: “The UK Government should clearly mandate and resource Companies House to verify beneficial ownership data submitted to both the PSC and Property Registers and sanction non-compliance.”174 Ms Lee of Global Witness stated: “We think [Companies House] should be given more resources and the powers to do that, including powers not just to verify but to police the Register when it is not being adhered to properly.”175
167.We heard that the role played by Companies House in ensuring the accuracy of information was currently under review. The Minister, Ms Tolhurst, explained that she was planning to consult on checks that Companies House might perform:
“One thing that we are going to consult on with regard to the reform of Companies House is the validity of checks. I will bring that forward. Actually, I anticipate bringing it forward as quickly as possible […] I recognise, not necessarily in relation to this Bill, the absolute necessity of verifying that data.”176
168.Mr Swain of Companies House told us: “We support and are working closely with BEIS on the potential reform of Companies House.”177 We have since heard from the Government that the consultation on Companies House was launched on 5 May 2019. It considers reforms to the overarching anti-money laundering framework, and to the role of Companies House in verifying the identities of users and improving the accuracy of the data that it holds.178
169.We urge the Government to move forward as quickly as possible with reforming the role of Companies House to ensure that it can conduct checks on the veracity of the information that it holds. We recommend that Companies House be provided with sufficient resources to undertake these additional tasks.
Verification: a role for regulated professionals?
170.Mr Hames of Transparency International proposed that professional service providers regulated by the Money Laundering Regulations could play a role in verifying information: “A UK professional registered with a UK anti-money laundering supervisor [could] verify the beneficial ownership information that is being filed for any overseas entity seeking to buy UK property.”179 The International Financial Centres Forum wrote:
“To ensure that [the information] is of suitable quality and usable by law enforcement, it should be verified by a UK professional except where it can be demonstrated that verification takes place systematically and by an equivalent or superior system elsewhere.”180
171.Global Witness elaborated on how this might work:
“Regulated professionals should play a role in the verification of beneficial ownership information. All entities and arrangements wishing to own property in the UK should be required to appoint a UK-based professional such as a solicitor, bank or accountant (or any professional accredited by a supervisory body and covered by the UK’s Money Laundering Regulations) who will be responsible for verifying the beneficial ownership of that company. The name of that professional should be publicly declared on the Property Register. This will charge professionals with the task of verifying the information that is provided by non-UK companies to the UK Government, and will provide a point of contact in the UK that law enforcement can take action against in the event that incorrect or false information has been provided.”181
172.We heard concerns about the additional administrative and cost burden that this responsibility might place upon entities. The draft Bill’s Impact Assessment estimated the cost per entity of obtaining external advice at £35.60 for learning about the new requirements, and £9.10 for identifying beneficial owners and collecting their information.182 The International Financial Centres Forum was concerned that “the costs of verification would be significantly greater—perhaps a hundred times greater—than the £9.10 per transaction that the Impact Assessment claims,”183 and Valerie Holmes of the Society for Licensed Conveyancers thought that the figure “should have a few noughts added to it”.184 The Law Society of Scotland was concerned that “in practical terms, it may be difficult to create processes to verify much of the information without incurring unreasonable costs and potentially delays.”185
173.Section 1063 of the Companies Act 2006 entitles Companies House to charge fees. We understand that the Government may be recompensed for the cost of running of the Register, at least in part, by the overseas entities that use it. The Government should ensure that Companies House is fully equipped and properly resourced for the likely surge in demand from overseas entities that refrain from registering until the end of the 18-month transition period.
174.We are concerned that the Government has wholly underestimated the likely true cost to entities of obtaining external advice from regulated professionals. Costs would almost certainly rise if additional responsibilities were placed on professionals.
175.Licensed professionals are already bound by the Money Laundering Regulations to perform checks on their clients. It may be possible to make use of these requirements in relation to this Register. It may also be possible to exempt entities registered in certain jurisdictions from the requirement to obtain verification from a regulated professional if the jurisdictions have already conducted verification checks.
176.We therefore recommend that the Government should explore the viability of requiring regulated professionals to verify beneficial ownership information submitted to the Register.
143 Draft Registration of Overseas Entities Bill, Schedule 1, Part 3
151 Draft Registration of Overseas Entities Bill, Clause 8. “Failure to comply with updating duty” institutes a criminal offence and criminal sanctions for failure to update information. Restrictions on the disposition of land for entities are included in Schedule 3, part 1, 7(1) (England and Wales), Schedule 4, part 1, 7(2) (Scotland), and Schedule 5, part 1, 7(1) (Northern Ireland). These provide that entities which fail to comply with the update duty are not to be treated as registered overseas entities.
154 Scottish Government, ‘Delivering improved transparency in land ownership in Scotland: Consultation on draft regulations’ (November 2018): https://consult.gov.scot/land-reform-and-tenancy-unit/transparency-in-land-ownership [accessed 1 May 2019]
155 Scottish Government, Improving the transparency of land ownership: consultation on draft Regulations (June 2018): https://www.gov.scot/publications/delivering-improved-transparency-land-ownership-scotland-consultation-draft-regulations/pages/2/ [accessed 17 April 2019]; Scottish Government, Analysis of responses - Delivering improved transparency of land ownership in Scotland - Consultation on draft Regulations, Final Report (April 2019): https://consult.gov.scot/land-reform-and-tenancy-unit/transparency-in-land-ownership/results/analysisofresponses-delivering-improved-transparency-land-ownership-scotland-consultation-draft-regulations-final-report-april-2019.pdf [accessed 1 May 2019]
156 Scottish Government, Delivering improved transparency of land ownership in Scotland: Consultation on draft Regulations: A consultation on the proposed draft Land Reform (Scotland) Act 2016 (Register of Persons Holding a Controlled Interest in Land) (Scotland) Regulations (June 2018), p 4: https://consult.gov.scot/land-reform-and-tenancy-unit/transparency-in-land-ownership/user_uploads/sct06188595101–01.pdf [accessed 17 April 2019]
158 See also Treasury Committee, Economic Crime - Anti-money laundering supervision and sanctions implementation (Twenty-Seventh Report, Session 2017–19, HC 2010)
160 Written evidence from the Institute of Chartered Accountants of England and Wales (ROE0005), para 10
162 Written evidence from the Law Society of Northern Ireland (ROE0012); NAEA Propertymark (ROE0001); the Solicitors Regulation Authority (ROE0002); Transparency International UK (ROE0004); City of London Police (ROE0016); UK Finance (ROE0003)
163 The money laundering, terrorist financing and transfer of funds (Information on the payer) Regulations 2017 (SI 2017 No 692)
165 Council Directive 2018/843 of 30 May 2018 amending Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, and amending Directives 2009/138/EC and 2013/36/EU, OJ L 156/43 (19 June 2018)
178 Department for Business, Energy & Industrial Strategy, Corporate transparency and register reform: Consultation on options to enhance the role of Companies House and increase the transparency of UK corporate entities (May 2019): https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/799662/Corporate_transparency_and_register_reform.pdf [accessed 7 May 2019]
182 The total estimated compliance cost per entity was £1,860. Department for Business, Energy & Industrial Strategy, Impact Assessment, (July 2018), table 5: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/727827/3._ROEBO_final_stage_impact_assessment.pdf [accessed 30 April 2019]