Call for Evidence on a New Beneficial Ownership Disclosure Regime for Overseas Legal Entities
On 5 April 2017, the Department for Business, Energy and Industrial Strategy (BEIS) published a call for evidence on a new public register showing who controls overseas legal entities that own UK property or participate in significant UK public procurement (the Overseas Entity Beneficial Ownership Register, or OEBO Register). The OEBO Register will be maintained by Companies House and be publicly available at no cost. Once relevant entities have provided information to the OEBO Register, they will receive a registration number which will be required in order to complete certain transactions, as detailed below.1
Which overseas entities will be required to comply?
The requirements will apply to all overseas legal entities that can hold property, or bid on significant UK public procurement contracts. The triggers for registration will be the: (1) purchase, holding, sale or mortgage of a UK property (both freehold and certain types of leasehold property); or (2) entry into a tender for a UK public contract worth more than GBP 10 million. Entities that are incorporated in countries with equivalent beneficial owner disclosure requirements will be exempt from these new UK requirements.
What is a "beneficial owner" of an overseas entity for these purposes?
The definition of a beneficial owner of an overseas entity (Beneficial Owner) will be aligned with the definition of a person with significant control, or "PSC", for the purposes of the current UK beneficial owner disclosure regime (the PSC regime). For further information on the PSC regime, see our previous client alert by clicking here.
What information will need to be provided about the Beneficial Owner?
The information required about the Beneficial Owner will be the same as for a PSC under the PSC regime. It will not be necessary to identify a company's ultimate, indirect Beneficial Owner if it is possible to identify an intermediate legal entity which is subject to its own beneficial owner disclosure requirements. In order to ensure the information is up-to-date and accurate, the relevant overseas entity will need to check the information with their Beneficial Owners prior to disclosing it for inclusion in the OEBO Register. In addition to information about its Beneficial Owners, the overseas entity will need to provide certain limited information about itself.
Where entities cannot provide information about their Beneficial Owners, they will be required to record one of the following reasons as a statement on the new register: (1) they are unable to get full confirmed information from their Beneficial Owners despite taking reasonable steps to contact them; (2) they are unable to establish if they have any Beneficial Owners; or (3) they have carried out investigations and concluded that they do not have any Beneficial Owners as no person meets a condition for control. Where a relevant entity does this, they will need to provide information about their managing officers instead. Managing officer will be broadly defined as not all legal entities will have an officer equivalent to a director.
Updates to the Register
Relevant entities would be expected to update the OEBO Register at least once every two years.
Consequences of Non-Compliance?
The Government will introduce a restriction on the purchase, sale, grant of long lease or mortgage of a UK property by an overseas entity unless that entity is fully compliant with the OEBO regime (the "Restriction"). This will be implemented by placing a note regarding the Restriction on relevant property titles at the Land Registry. In addition, the proposals envisage that when an overseas entity applies to register itself as the new owner of a UK property, the land register application form will require an overseas registration number, without which the form will be rejected by the Land Registry and the application will be cancelled. With this mechanism, there is a risk that sellers may end up holding a relevant property on trust for an overseas entity that has not obtained a valid registration number prior to completion and the Government is exploring ways to ensure that this does not happen.
There will be a transitional period of 12 months for overseas entities that already hold property in the UK to compile information about their Beneficial Owners. These entities will be notified of their obligations once the rules come into force, and again three months before the end of the 12 month transitional period. At the end of the transitional period, irrespective of compliance, a note regarding the Restriction will be placed on the property title.
For overseas entities participating in a public contract tender worth more than GBP 10 million, without a registration number showing compliance with the OEBO regime, the relevant entity will either not be able to: (1) take part; or (2) satisfy the conditions of being awarded the contract. The Government is also considering dealing with compliance in the contract conditions so that, where a bidder has provided false or inaccurate Beneficial Ownership information, or not kept its information up-to-date during the course of the contract, the contracting authority would have the right, but not the obligation, to terminate the contract.
Making a false or misleading statement to Companies House regarding the new OEBO Register will be a criminal offence. The Government is also considering whether to make the following criminal offences: (1) failing to register details of Beneficial Ownership during the 12 month transitional period for overseas entities that already own UK property; and (2) failing to keep Beneficial Ownership information up-to-date.
The Government will ensure that any restrictions on title will not prevent an accredited or legitimate bank or lender enforcing its security and selling property affected by the OEBO regime, where necessary.
The Protection Regime
The PSC regime has a protection regime whereby some, or all, of the information on the PSC register can be withheld if making the information public would put the individual at risk of harm or would create a wider public safety risk. There will be a similar protection regime for Beneficial Owners, though the Government is consulting on a slightly more extensive regime providing for protection when linking a property or entity to an individual would lead to an "elevated public safety risk".
There is a long way to go before proposals are finalised and much will depend on what the final regulations look like. Nevertheless, if the proposals are implemented as set out in the call for evidence, they will clearly have a significant impact on overseas organisations that hold property in the UK and/or frequently tender for high value UK public contracts.
The impact will be softened for entities incorporated in the EEA, though, due to the implementation of the Fourth Money Laundering Directive by the end of June 2017, meaning that those entities are likely to fall within the exemption for entities incorporated in jurisdictions with equivalent disclosure regimes. Similarly, it seems likely that there will be an exemption equivalent to the PSC regime exemption for entities with voting shares admitted to trading on certain markets in Switzerland, the USA, Japan and Israel. Other overseas entities that hold property in the UK and/or frequently tender for high value UK public contracts will face a considerable additional compliance burden. However, the Government has indicated that it is sensitive to the concerns that these rules may result in a flight of investment out of the UK, and will be carefully considering its economic impact assessment with this in mind.