What exactly is being proposed?
A public register of the beneficial owners of UK property held by overseas companies and other legal entities. Beneficial owners of overseas firms involved in central Government procurement would also be recorded.
The register would be the first of its kind in the world. It would detail the name, nationality, country of residence, year and month of birth, contact address, and nature and dates of control of beneficial owners; although if owners were able to show that making particular details public would put them at risk of harm then they could ask to have them omitted.
Existing owners of UK property would have a year to declare their ownership. Prospective new buyers would have to register beneficial ownership information with Companies House.
Like the existing register of beneficial ownership of companies, the information would be held by Companies House and made freely available to the public.
Who’s behind the proposals?
The proposals come from the UK Government, specifically from the Department for Business, Energy and Industrial Strategy (BEIS).
They were first announced in May last year, against the backdrop of campaigns by anti-corruption organisations about the volume of illicit money in the UK property market. These included Global Witness’ ‘Mystery on Baker Street’ and Channel 4’s documentary ‘From Russia with Cash’.
The proposals have been backed by the National Crime Agency (NCA) and the National Association of Estate Agents.
Why is a register needed?
The popularity of the UK as a destination for laundered money is well-documented. As KYC360 reported in February, the scale of the problem is so significant that some have labelled the UK ‘the most corrupt place on Earth’.
As the Government sets out in the proposals, UK law enforcement agencies have identified over £180 million of property in the UK as suspected proceeds of corruption. Around £25 million of property is currently frozen in connection with ongoing NCA investigations. In about three quarters of cases, overseas companies are used to disguise beneficial ownership. These figures pale in comparison to the estimated scale of the problem, which various organisations price in the billions of pounds.
The proposed beneficial ownership register could also substantiate some of the new powers granted to law enforcement by the Criminal Finances Bill, which comes into force later this year.
Transparency International, which is strongly in favour of the proposals, told KYC360 that the register would be an ‘important piece of the puzzle’ for new Unexplained Wealth Orders to achieve their potential. Unexplained Wealth Orders put the burden of proof on people suspected of obtaining goods with illegal funds to explain the source of their money. They risk having the goods seized if they fail to do so. But law enforcement agencies need a respondent to make use of the Orders—if the owner of a property is hidden by a chain of overseas companies then there’s no one to challenge.
There are, however, commentators who are sceptical about what a register of beneficial ownership would achieve. They point to the whack a mole nature of financial crime: if transparency is introduced in one system, criminals simply look for other ways to obscure the truth.
How would it be enforced?
Almost everyone commenting on the proposals has raised this question. Various options are available to the Government. Prospective new owners could be prevented from completing purchases if they fail to provide beneficial ownership information, and existing owners could face restrictions on selling or leasing their property. Or the Government could go further, imposing monetary or even criminal penalties on companies and individuals who fail to comply.
Will it actually happen?
The proposals were first announced in May last year and recently opened to a call for evidence, which closes in a few weeks’ time.
Unlike the recent call for evidence on corporate liability for economic crime, most commentators suggest that these proposals will eventually make it into law. But matters are complicated by Brexit: the weakened pound has made foreign investment in UK property particularly attractive and there will be resistance to any measures that could slow the inflow of cash.
In addition, the consultation has taken place quite late in the year and it is unlikely that any legislation will be tabled until the Autumn at the earliest—especially if Theresa May secures her snap general election on 8th June. Transparency International advise paying attention to the upcoming Queen’s speech. If the proposals are mentioned it’s a strong sign that the government is serious about seeing them become law.