Companies House – Register of Overseas Entities – what, why and when?
On 1 August 2022, in no small part due to pressure following Putin’s invasion of Ukraine, the Economic Crime (Transparency and Enforcement) Act came into force. A critical component of the Act is a new Register of Overseas Entities, which requires anonymous foreign owners of UK property to reveal their identities.
Solicitors hold a vital responsibility when it comes to verifying overseas entities purchasing property in the UK. Failure to comply with the new law could lead to severe consequences, including criminal prosecution and allegations of professional negligence. As such, compliance is essential and robust AML checks for solicitors have never been more important.
A quick summary of the Register of Overseas Entities to explain more.
What is the Register of Overseas Entities?
Companies House requires foreign companies and other legal entities that engage in property or land transactions in the UK to provide details of their beneficial owners. These entities have their information stored in the Register of Overseas Entities (ROE). Beneficial owners are individuals or entities (e.g., companies, trusts, governments, etc.) that own, control, or have significant influence over another legal entity.
The UK government maintains the ROE database, which collects names, addresses, dates of birth, passport, and other identification details. Although certain information, such as the residential addresses of individuals, is kept private, the ROE is accessible to the public and can be searched by anyone.
Failure to register with Companies House will result in the buyer/seller not obtaining an overseas entity ID. Without this ID, they cannot engage in property or land transactions in the UK.
HMRC administers the ROE, while the Department for Business, Energy and Industrial Strategy (BEIS) provides oversight.
Why do we need the Register of Overseas Entities?
A significant amount of corrupt Russian money has flowed into the UK. The National Crime Agency has estimated that at least £100 billion of laundered capital enters the country annually. The property sector is a key target for criminals looking to hide the source of their wealth.
Through the ROE (alongside other AML measures), the UK government aims to promote transparency in the property market and tackle its dirty money problem. Essentially, its goal is to create barriers for foreign criminals who seek to launder money through UK property. Identifying and disclosing beneficial ownership is a critical tool in preventing money laundering, terrorist financing, and other financial crimes.
Before the ROE, foreign owners of UK companies were required to disclose beneficial ownership on the government’s Companies House register. However, the lack of statutory measures needed to verify the accuracy of the information provided made it relatively easy to circumvent this obligation.
When did the Register of Overseas Entities come into force?
After struggling for years to gain the necessary support to become law, the Economic Crime (Transparency and Enforcement) Act 2022 was finally passed by the UK in April 2022.
The legislation is intended to address the country’s problem with illicit funds, which has become a significant concern due to the war in Ukraine. Then, Prime Minister Boris Johnson stated that the bill would serve as a warning to those supporting Putin, explicitly targeting Russian oligarchs and kleptocrats who use the City of London to funnel illegal funds.
As well as applying to all transactions made after 1 August 2022, the regulations also apply retrospectively to overseas entities who bought property or land on or after:
- 1 January 1999 (England and Wales)
- 8 December 2014 (Scotland)
The deadline for retrospective registration is 31 January 2023. There is no retrospective requirement to register property or land bought in Northern Ireland, although transactions after 1 August 2022 apply.
As well as limitations on a foreign entity’s ability to engage in property transactions in the UK, a failure to adhere to the provisions of the Act could also result in a fine, a prison term, or both.
How solicitors can reduce the compliance risk
Engaging in a property transaction with a foreign entity can carry inherent risks. As such, all parties involved in such transactions must be up-to-speed with the requirements of the Register of Overseas Entities to avoid encountering any problems. Crucially, any solicitor or conveyancer whose client involves an overseas entity must comply with the new regulations; otherwise, they may be liable for accepting illicit funds, which is a criminal offence.
The Law Society has provided guidance to help property solicitors comply with the ROE. These guidelines apply if a legal professional is acting for an overseas entity or if they are acting for clients who are not overseas entities but are buying from or leasing to an overseas entity.
Law firms are not obligated to conduct verification for ROE purposes. They should only do so if they are 100% comfortable with the information they are able to verify and the circumstances of a transaction. Nevertheless, clients will likely expect their legal representatives to perform this function. To ensure compliance, the Law Society advises solicitors to “approach verification with diligence and caution, only verifying what is within their actual knowledge or is based on a qualified, reliable and independent source.” It also recommends firms willing to verify “put in place rigorous internal procedures for the approval of ROE verification requests”.
In a blog for Companies House, our Chairman Mike explains more about what ROE is and when it applies, and you can read this here.