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Update on the UK Economic Crime (Transparency and Enforcement) Bill

Insight 15 March 2022

Update on the UK Economic Crime (Transparency and Enforcement) Bill

On 1 March 2022, the UK Government released its Economic Crime (Transparency and Enforcement) Bill (the “Bill”). The Bill, which received Royal Assent on 15 March, was unveiled in the aftermath of the conflict between Russia and Ukraine.

The objective of the Bill is the identification of foreign owners or prospective owners of UK land.[1] “Overseas entities” will be required to disclose information on their beneficial owners to Companies House through a new register of overseas entities.

[1] freehold or a leasehold of seven or more years.

An “overseas entity” is defined as a “legal entity that is governed by the law of a country or territory outside the United Kingdom”, where “legal entity” means a “body corporate, partnership or other entity that is a legal person under the law by which it is governed”. As a result, entities located in Jersey or Guernsey would be considered to be overseas entities.

The register will consist of:

  1. a list of registered overseas entities (i.e. entities that have applied and have not been removed from the register),
  2. documents delivered to the registrar, and
  3. any other information required to be included in the register.

Beneficial Owner

  • Ownership of shares: holds, directly or indirectly, more than 25% of the shares in another entity.
  • Voting rights: holds, directly or indirectly, more than 25% of the voting rights in another entity.
  • Right to appoint or remove directors: holds the right, directly or indirectly, to appoint or remove a majority of the board of directors in another entity.
  • Significant influence or control: has the right to exercise, or actually exercises, significant influence or control over another entity.

Trusts, partnerships, etc

  • the trustees of a trust, or the members of a partnership, unincorporated association or other entity, that is not a legal person under the law by which it is governed meet any of the conditions specified above (in their capacity as such) in relation to another entity, and
  • has the right to exercise, or actually exercises, significant influence or control over the activities of that trust or entity.

Registrable Beneficial Owner

  • an individual
    • being the beneficial owner of the overseas entity, and
    • not exempt from being registered
  • a legal entity
    • being the beneficial owner of the overseas entity
    • subject to its own disclosure requirements, and
    • not exempt from being registered.
  • a government or public authority
    • in all cases where it is a beneficial owner of the entity.

Overseas entities will be required to apply to Companies house and be expected to submit:

Statement

Information

A statement that:

a)   The entity has identified one or more registrable beneficial owners and that it has no reasonable cause to believe there are others, and

b)   The entity is able to provide the “required information” about each registrable beneficial owner it has identified.

1. Required information about the entity.

2. Required information about each registrable beneficial owner that the entity has identified.

A statement that the entity has no reasonable cause to believe that it has any registrable beneficial owners.

1. Required information about the entity.

2. Required information about each managing officer of the entity.

A statement that:

a)   The entity has reasonable cause to believe that there is at least one registrable beneficial owner that it has not identified,

b)   The entity is not able to provide the required information about one or more of the registrable beneficial owners it has identified, or

c)   Paragraphs (a) and (b) both apply.

1. Required information about the entity.

2. Required information about each managing officer of the entity.

3. Required information about each registrable beneficial owner that the entity has identified or so much of that information as it has been able to obtain.

Upon registration, overseas entities will be allocated an Entity ID, which will be determined by Companies House.

Registered overseas will be required, on an annual basis, to update Companies House with:

  1. the statement and information listed in the Application Process table,
  2. a statement that the entity has complied with its duty to take steps to identify registrable beneficial owners,
  3. anything under the Bill on the verification of registrable beneficial owners and managing officers,
  4. the name and contact details of an individual who may be contacted about the statements and information, and
  5. information pursuant to the below table:

Statement

Information

Statement that the entity has no reasonable cause to believe that anyone has become or ceased to be a registrable beneficial owner during the update period.

Statement that the entity has reasonable cause to believe that at least one person has become or ceased to be a registrable beneficial owner during the update period.

1. Required information about each person who has become or ceased to be a registrable beneficial owner during the update period, or so much of that information as the entity has been able to obtain.

2. Date on which each of them became or ceased to be a registrable beneficial owner, if the entity has been able to obtain that information.

The Bill specifies that information on the register will be made publicly available, except for sensitive information (e.g., date of birth, residential address).

The required information mentioned in the tables above will vary depending on the nature of the registrable beneficial owner:

Overseas entities

  • name;
  • country of incorporation or formation;
  • registered or principal office;
  • a service address;
  • an email address;
  • legal form and governance law;
  • any public register in which it is entered and, if applicable, its registration number in that register.

Individuals

  • name, date of birth and nationality;
  • usual residential address;
  • a service address;
  • the date on which the individual became a registrable beneficial owner in relation to the overseas entity;
  • which of the ownership conditions is met in relation to the registrable beneficial owner and a statement as to why that condition is met.

Governments and public authorities

  • name;
  • principal office;
  • a service address;
  • legal form and governance law;
  • the date on which the entity became a registrable beneficial owner;
  • which of the ownership conditions is met in relation to the registrable beneficial owner and a statement as to why that condition is met.

Other legal entities

  • name;
  • registered or principal office;
  • a service address;
  • legal form and governance law;
  • any public register in which it is entered and, if applicable, its registration number in that register;
  • the date on which the entity became a registrable beneficial owner;
  • which of the ownership conditions is met in relation to the registrable beneficial owner and a statement as to why that condition is met.

Individuals

  • name[1], date of birth and nationality;
  • usual residential address;
  • a service address (which may be stated as the entity’s registered or principal office);
  • business occupation (if any);
  • a description of the officer’s roles and responsibilities in relation to the entity.

Others

  • name;
  • registered or principal office;
  • a service address;
  • the legal form of the entity and the law by which it is governed;
  • any public register in which it is entered and, if applicable, its registration number in that register;
  • a description of the officer’s roles and responsibilities in relation to the entity;
  • the name and contact details of an individual who may be contacted about the managing officer

[1] And any former name, if applicable

A person who is a beneficial owner of an overseas entity is “exempt from being registered” if:

  1. the person does not hold any interest in the overseas entity other than through one or more legal entities,
  2. the person is a beneficial owner of every legal entity through which the person holds such an interest,
  3. as respects any shares or right in the overseas entity which the person holds indirectly the legal entity through which the shares or right are held is a beneficial owner of the overseas entity and is subject to its own disclosure requirements, and
  4. as respects any shares or right in the overseas entity which the person holds indirectly, at least one of the legal entities in the chain is a beneficial owner of the overseas entity and is subject to its own disclosure requirements.

The register would apply to future acquisitions of ownership in UK land, as well as, and importantly so, to overseas owners that already own land in the UK:

  • England and Wales: land acquired since 1 January 1999,
  • Scotland: which was acquired since 8 December 2014.

Article 41 of the Bill will also require a confirmation about whether the overseas entity has disposed of UK land between 28 February 2022 and the date of its application. If it is the case, further disclosures will be required as part of the entity's application to the register of overseas entities.

Failure to comply with the reporting obligations will be an offence subject to a fine of approximately £2,500 daily for the period of non-compliance.

Given the political situation in Europe, it is expected that the Bill will be approved more rapidly than usual. The UK Government had originally intended to endorse the bill during the summer of 2022.

We highlighted similar regulations from the U.S. Financial Crimes Enforcement Network (“FinCEN”) to obtain beneficial ownership information on foreign and domestic companies[1], which is part of a broader Biden Administration (the “Administration”) effort to counter financial crime and corruption. On December 6, 2021, the Administration released a first of its kind “United States Strategy on Countering Corruption[2] (the “Strategy”) identifying five anti-corruption “pillars”:

  • Modernizing, coordinating, and resourcing U.S. Government efforts to fight corruption;
  • Curbing illicit finance;
  • Holding corrupt actors accountable;
  • Preserving and strengthening the multilateral anti-corruption architecture; and
  • Improving diplomatic engagement and leveraging foreign assistance to advance policy goals.

Beneficial ownership collection and inter-agency sharing is squarely within the first pillar, but it also includes the conditioning of foreign aid on anti-corruption efforts and the creation of new executive branch investigation and enforcement team. In his State of the Union Speech on March 1, 2022, President Biden announced the creation of one such team within the Department of Justice (“DOJ”) - “Task Force Kleptocracy”, linking it directly to the Russian invasion of Ukraine and its supporters in Belarus and among the Russian oligarchy.[3]

According to a DOJ release the following day[4], the task force will be run out of the Office of the Deputy Attorney General and led by an experienced AML prosecutor, but will include elements from the National Security Division, the U.S. Attorney ‘s Office, the FBI, the U.S. Marshals Service, the U.S. Secret Service, the Department of Homeland Security, the IRS, and the U.S. Postal Inspection Service. Its mission has four pillars of its own:

  • Investigating and prosecuting violations of new and future sanctions imposed in response to the Ukraine invasion, as well as sanctions imposed for prior instances of Russian aggression and corruption;
  • Combating unlawful efforts to undermine restrictions taken against Russian financial institutions, including the prosecution of those who try to evade know-your-customer and anti-money laundering measures;
  • Targeting efforts to use cryptocurrency to evade U.S. sanctions, launder proceeds of foreign corruption, or evade U.S. responses to Russian military aggression; and
  • Using civil and criminal asset forfeiture authorities to seize assets belonging to sanctioned individuals or assets identified as the proceeds of unlawful conduct.

The Administration has also signalled a strong desire for continued international cooperation and cross-border enforcement in line with pillars four (multilateral anti-corruption architecture) and five (diplomatic engagement and leveraging foreign assistance) of the Strategy. The Strategy also states an intention to enhance US AML regulation, essentially aligning them with EU standards by, among other things, regulating gatekeepers (such as attorneys, accountants and corporate servicers), and extending Bank Secrecy Act/AML regulations to investment advisers.

[1] https://www.sannegroup.com/our-thinking/insights/2022/update-on-fincen-s-proposed-rule-on-beneficial-ownership-reporting-requirements/

[2] https://www.whitehouse.gov/wp-content/uploads/2021/12/United-States-Strategy-on-Countering-Corruption.pdf

[3] The Administration is certainly not focused solely on Russia, as it created a similar task force targeting Latin America in October 2021: https://www.justice.gov/opa/pr/justice-department-anticorruption-task-force-launches-new-measures-combat-corruption-central

[4] https://www.justice.gov/opa/pr/attorney-general-merrick-b-garland-announces-launch-task-force-kleptocapture

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Reach out to our team of experts to find out how Sanne can assist you or your business.

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Stephanie Hopkins Head of Sanne Jersey - Jersey
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Mark Grenyer Head of Jersey Real Assets - Jersey
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Paul Séjournant Director, Product Development - United Kingdom
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Daryoush Niknejad General Counsel, North America - Dallas
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