What is the Register of Overseas Entities?
The new Register requires all overseas companies (or similar legal entities) governed by the law of a country or territory outside the UK that own UK freehold land or property or who are tenants of a lease of more than seven years in length (residential or commercial), to declare their “beneficial owners” or “managing officers”. Those who do not comply will face "severe sanctions", including cumulative fines and blocks on transacting their property. In addition, knowingly providing false information risks a criminal offence leading to a fine or imprisonment.
When is the deadline for registration?
As we have outlined in previous newsletters on 29th July 2022 and 21st October 2022, the ROE requirements came into effect on 1st August 2022, and 31st January 2023 is the registration deadline. This is a short timetable for ensuring compliance – especially given that more than 30,000 overseas entities are affected, and non-compliance attracts potentially significant financial penalties and criminal sanctions.
Why has the UK Government introduced this legislation?
The UK's National Crime Agency has estimated that hundreds of billions of pounds of criminal money flow through the City each year despite obligations on Banks to monitor and prevent such illegal activity. Much of this activity is focused on the London property sector, where illegal funds are used to acquire such assets. As a result, the Government has come under increasing pressure to act, and the ROE as part of the Economic Crime (Transparency and Enforcement) Act 2022 is the result.
Who is a Registrable Beneficial Owner?
A beneficial owner is someone who (directly or indirectly):
- holds more than 25% of the shares or voting rights in the overseas entity
- or holds the right to appoint or remove a majority of the board of directors
- or who exercises significant influence or control over the entity.
Where there is a registrable beneficial owner (or more than one), relevant information must be obtained, independently verified, and made public.
What happens if there is no Registrable Beneficial Owner(s)?
Where there is no registrable beneficial owner, for example, because the shareholdings do not reach the threshold, S.4 of the Economic Crime (Transparency and Enforcement) Act 2022 requires that the relevant information be provided about "each managing officer". The Companies House guidance also states, "… [if] no beneficial owners have been identified, you will need to tell us about each managing officer…"
So, who is a Managing Officer?
- S.44 of the Act stipulates that "managing officer" includes "a director, manager or secretary [of the overseas entity]".
3CS believes that the interpretation of "managing officer" should be made case-by-case. Essentially, we are looking for those officers who "manage" the business. It is clear to us, however, that all (and not just some) directors should be included.
Verification and getting it wrong
- Regulation 6 of the Registration of Overseas Entities (Verification and Provision of Information) Regulations 2022 provides that the relevant information needs to be verified (e.g. through appropriate documentation and objective checks).
- S.32 of the Act makes it a potential criminal offence to provide a statement under the legislation that is "misleading, false or deceptive". Providing information on only some directors rather than all, or deliberately providing insufficient information, for example, would run the risk of being caught by this section.
Shortage of ROE verifiers?
The verification agent must be UK based and supervised under the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017. One issue is that most UK law firms and accountants have opted to refrain from registering as verification agents. Given the consequences of getting it wrong, the Law Society and the Institute of Chartered Accountants have warned their members that this is an area to avoid unless they are confident about having the necessary expertise.
How 3CS can help
3CS is happy to advise on how the rules apply and to assist with identifying registrable beneficial owners and all managing officers where applicable. 3CS can also report on the potential impact of the Act on any pending property transactions.
3CS is an authorised UK verification agent, and our experienced London-based team can assist with registration and the verification process required for compliance. However, please note that demand is increasing rapidly due to the impending deadline; therefore, urgent action is needed. For further help and advice, please get in touch with your usual 3CS contact.
