The Economic Crime (Transparency and Enforcement) Act 2022 (the “ECA”) and the Register of Overseas Entities
The ECA – why was it introduced and who has to register?
The ECA was introduced into the House of Commons on 1 March 2022 and received Royal Assent on 15 March 2022 in an attempt to improve transparency on ownership of property in the UK, which could previously be shrouded in layers of secrecy. The ECA’s passing was fast-tracked following the outbreak of the Russian conflict with Ukraine, when concerns emerged about the use of overseas entities to launder money in the UK.
The ECA has introduced a new Register of Overseas Entities (“ROE”) requiring any ‘overseas entity’ that owns land or property in the UK to register the identity of the beneficial owners of that overseas entity with Companies House and to keep that register up to date.
Notably, unlike in England and Wales, the ECA’s provisions will only apply to NI prospectively. Therefore, overseas entities which currently own land in NI do not need to register with Companies House within the 6-month transition period as is the case in England and Wales. However, before any future disposition can be made, the relevant overseas entity must be registered on the ROE, meaning that it would be prudent for overseas entities who own NI property to register as soon as possible following the ECA’s enactment.
What is deemed to be an overseas entity?
An ‘overseas entity’ is defined under the ECA as a legal entity (being a body corporate, partnership or other entity that is a legal person under its governing law) that is governed by the laws of any country or territory outside the UK. This means that companies and LLPs incorporated in the Republic of Ireland and offshore jurisdictions such as Jersey, Guernsey and the Isle of Man will therefore potentially be caught by the ECA, subject to any exemptions.
Note ownership of an overseas entity is only required to be registered on the ROE if the overseas entity is deemed to have a ‘qualifying estate’ in the land in question, that being:
- ownership of a freehold estate in land; or
- ownership of a leasehold estate in land granted for a term of more than 21 years (or 7 years in England and Wales).
The Land Registration Act (NI) 1970 has been amended by the ECA to require overseas entities (from the commencement date of the ROE) to be registered with the ROE (and to comply with their updating duty as set out in section 7 of the ECA) when making an application for registration of new ownership of a ‘qualifying estate’ and for registrations of subsequent dispositions thereof with the Land Registry of Northern Ireland (“LR”).
The application processes
An application by an overseas entity for registration with the ROE must be delivered to Companies House and must contain a specific statement which best describes its beneficial ownership, together with details of its beneficial owner(s) (which will vary depending on the type of beneficial owner). A £100 registration fee will also be payable with the application.
In terms of the additional information required from an overseas entity in order to make an application, it will need to provide:
- entity name.
- country of incorporation or formation.
- registered or principal office.
- a service address.
- an email address.
- the legal form of the entity and the law by which it is governed; and
- any public register in which it is entered and, if applicable, its registration number in that register.
Identifiable registrable beneficial owners
This is an important element of the registration process. Prior to the making of an application for registration by an overseas entity, it must take reasonable steps:
- to identify any registrable beneficial owner in relation to the entity; and
- if it identifies any, to obtain the information required about:
- each registrable beneficial owner; and
- in respect of any registrable beneficial owner who is a trustee, the trust.
A potential ‘registrable beneficial owner’ may be an individual, a government or public authority and/or any other legal entity, where that legal entity is subject to its own disclosure arrangements. Linked to that, a ‘beneficial owner’ is defined as an individual person, other legal entity, government or public authority which:
- holds, directly or indirectly, more than 25% of the shares in the entity;
- holds, directly and indirectly, more than 25% of the voting rights in the entity;
- holds the right, directly or indirectly, to appoint or remove a majority of the board of directors of the entity; and/or
- has the right to exercise, or actually exercises, significant influence or control over the entity.
Upon identifying a registrable beneficial owner, the relevant overseas entity must give an ‘information notice’ to any person that it knows, or has reasonable cause to believe, is a registrable beneficial owner in relation to that entity. The information notice requires the recipient:
- to state whether or not they are a registrable beneficial owner;
- to confirm or correct any of the required information about them or supply unknown information; and
- if registrable beneficial owner by virtue of being a trustee, to confirm or correct any of the required information about the trust or supply unknown information.
The recipient must comply with the notice within a period of one month, and that timeframe should be specified within the notice.
In summary, where an overseas entity undertakes anything in connection with its registration at Companies House (e.g. submits an application for registration, updates the information held on the register etc.), the information it provides must be independently verified.
Only individuals or firms within the following categories are permitted to verify information for the purposes of the ROE regulations:
- credit institutions;
- financial institutions;
- auditors, insolvency practitioners, external accountants and tax advisers;
- independent legal professionals;
- trust or company service providers; and/or
- estate agents and letting agents.
A verification must be completed no more than 3 months before an overseas entity is registered (or before the overseas entity performs any other activity in relation to its registration) and, in making such verification, the relevant individual or firm will be required to deliver a statement to Companies House confirming:
- it has undertaken the verification of the relevant information;
- that the verification has complied with the requirements of the regulations and the ECA;
- the date on which the verification was undertaken;
- the names of the registrable beneficial owners and, if relevant, the managing officers whose identity has been verified, but where it has not been possible to obtain full names, so much of that information as it has been possible to obtain;
- the relevant person’s service address;
- the relevant person’s email address;
- the name of the relevant person’s supervisory authority (such as the FCA and Law Society, as specified by regulation 7 of the Money Laundering Regulations);
- (where available) the relevant person’s registration number, or a copy of the certification details, given to them by their supervisory authority; and
- the name of the individual with overall responsibility for identity checks, where different to the relevant person.
Once an overseas entity has been registered on the ROE, the registrar of companies will:
- record the date of registration;
- allocate a valid overseas Entity ID reference number to the entity (“OEID”); and
- record the OEID in the register.
The OEID will be a similar concept to the registered company number of UK companies. It will be unique to the entity and once the entity has been allocated a permanent ID, it will not change.
Note registered overseas entities must comply with an annual updating duty within 14 days after each “update period”, such period being:
- the period of 12 months beginning with the date of the overseas entity’s registration; and
- each period of 23 months beginning with the day after the end of the previous update.
Overseas entities may shorten an update period by following the procedure outlined within the ECA. If the entity has chosen to do so, this resets the clock in respect of when the next update is due.
Are there any exemptions to registration?
An individual or legal entity will be exempt from registration as a registrable beneficial owner if:
- they do not hold an interest in the overseas entity other than through one or more legal entities;
- they are the beneficial owner of every legal entity through which the person holds an interest;
- they indirectly hold any shares or rights in the overseas entity through a beneficial owner of the overseas entity that is subject to its own disclosure requirements; and
- at least one of the legal entities through which these shares or rights are held is a beneficial owner of the overseas entity and is subject to its own disclosure requirements.
By way of example, a beneficial owner will be exempt from registration if it holds its interest in the overseas entity through a UK company which complies with the ‘persons of significant control’ regime (or an overseas entity that is subject to registration under the ECA).
The ECA also allows the Secretary of State to give written notice to a person to exempt them, if satisfied that it is necessary in the interests of national security and/or for the purposes of preventing or detecting serious crime.
How does the ROE registration requirement ultimately affect land transactions?
The ECA has amended the Land Registration Act (NI) 1970 to require overseas entities (from 5 September 2022) to be registered with the ROE (and comply with their updating duty as provided by the ECA) at the time of their making an application for:
- registration of a new ownership of a ‘qualifying estate’ (as referenced above); and
- registrations of subsequent dispositions with LR.
In essence therefore, without an OEID, the overseas entity cannot be registered as a legal owner of the property, thus preventing the entity from acquiring new property or being able to sell, grant a lease for more than twenty-one years or grant a legal charge over a qualifying estate, as the disposition will be incapable of being registered with LR.
Sanctions for non-compliance
Aside from the barrier to dispositions of land as referenced above, if an overseas company fails to comply with the new obligations, the entity and its managing officers can face civil and criminal sanctions, including daily fines and/or imprisonment.
Should you require tailored legal advice in this area for a specific set of circumstances or a particular transaction please do not hesitate to contact us.