Real Estate Blog: The Economic Crime (Transparency and Enforcement) Act 2022 (‘the Act’) Part 1
Part 1 of 4 – The aim of the Act and when it will be in force.
Following on from Alice Dockar and Paul Tomkins’ blog back in March, the following article is the first of four looking at the provisions of the Economic Crime (Transparency and Enforcement) Act 2022.
As a result of Russia’s invasion of Ukraine, the Act was fast-tracked through Parliament, and received Royal Assent on 15 March 2022. However, the concepts within the Act are not new; they were first proposed to build on the ‘persons with significant control’ (PSC) regime, following the London Anti-Corruption Summit, held in 2016. The Draft Registration of Overseas Entity Bill, was published in 2018, with a view to becoming law in 2021, but failed to progress as planned, due to the COVID-19 pandemic.
Aim of the Act
The aim of the Act is to increase the transparency of ownership of UK property by overseas entities, by identifying the beneficial owners of those entities. ‘Overseas entities’ owning ‘qualifying property’ (i.e. freehold titles or leases for more than seven years) are required to register and provide beneficial ownership details to Companies House.
An ‘overseas entity’ is a legal entity governed by laws outside of the United Kingdom (which includes England, Northern Ireland, Scotland & Wales, but excludes the self-governing ‘Crown Dependencies’ of the Isle of Man, Guernsey & Jersey). A ‘legal entity’ is a body corporate, partnership, or any other entity that has separate legal personality under its governing laws.
If an overseas trust (involving individuals, not a legal entity) holds UK property directly, that trust will be excluded from the requirements of the Act. However, where a trustee holds qualifying property through a corporate nominee (which has a separate legal personality) that would be caught.
A ‘beneficial owner’ can be an individual, legal entity or government or public authority that either holds more than 25% of the shares, or the voting rights in an overseas company (either directly or indirectly), or exercises/has a right to exercise significant control over the overseas entity. This includes anyone who has a direct or indirect right to appoint or remove the majority of the board of directors of the overseas entity.
The obligations under the Act in England & Wales (there are some variations for Scotland and Northern Ireland) will apply retrospectively to all overseas entities that applied to become registered as proprietors of qualifying property on, or after, 1 January 1999. Such overseas entities will need to apply for registration at Companies House within the ‘transitional period’ (which is six months from the date the new registration regime comes into force).
Although the Act introduces measures to help combat money laundering (the register, the expansion of unexplained wealth orders and increased sanctions), the Act applies equally to all overseas entities, not just those from countries like Russia. For example, companies that are incorporated in Guernsey for tax purposes, such as some pension schemes, will also be affected.
When will the Act come into force?
Part 3, ‘Chapter 2, Sanctions’ of the Act is already in force. The Economic Crime (Transparency and Enforcement) Act 2022 (Commencement No 1) Regulations 2022 (SI 2022/519) brought Part 2 into force on 15 May 2022 (amending unexplained wealth orders regime under the Proceeds of Crime Act 2002).
The remainder of the Act will come into force after further regulations are enacted. A Government statement issued on 26 April 2022 confirmed that drafting of the regulations and guidance will commence ‘imminently’.
If you would like any further information in relation anything covered in this Real Estate Blog, please do not hesitate to contact Alice Dockar, Aamir Hussain or Lucy Johnson. Look out for the second blog in the series, which will explore the impact on registration of UK property purchases.
The content of this page is a summary of the law in force at the date of publication and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.
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