|Foreign Companies must Disclose Ownership before Buying English Property|
The UK government is proposing to force foreign companies to reveal their beneficial owners before being allowed to buy land and property in England or Wales.
The principal aim is to stop the proceeds of corruption and organized crime being laundered through investments in high-value property, particularly in London. According to the Department for Business, Innovation & Skills (BIS), which is conducting the consultation, a March 2013 survey by the Solicitors Regulation Authority found that a quarter of solicitors' firms had experienced clients attempting to use property transactions to launder money or commit fraud.
The high values of property in London in particular presents an opportunity for criminals to launder considerable sums of money in one transaction, says BIS. Over GBP180 million worth of property in the UK was investigated by UK law enforcement as suspected proceeds of corruption during 2004–2014. BIS cites a report by the lobbying organization Transparency International claiming that over 75 per cent of these properties were owned by offshore firms. This, it says, is 'believed to be the tip of the iceberg in terms of the scale of the proceeds of corruption invested in UK property through offshore companies'.
UK companies will very soon have to provide information about their beneficial ownership (or Persons with Significant Control) to a publicly available central register. But this will not apply to foreign companies.
At the moment, where a non-UK company registers its legal ownership of land in England and Wales, the Land Register shows the name of the company and its territory of incorporation. All companies are also under an obligation to provide their beneficial ownership information to their legal representatives during a property or land purchase as part of the due diligence process.
However, the government believes that the due diligence requirement does not provide sufficient transparency on beneficial ownership information, as it can be circumvented by not using legal representatives. Even where information is provided, it is not made public. Moreover, says BIS, the degree to which the information provided is verified depends on the risk assessment applied by the lawyers handling the transaction, which may not be stringent enough.
Proposed new regime
The government is thus considering a new regime under which a foreign company planning a UK property investment would have to submit beneficial ownership information in a form that is easily accessible to 'law enforcement and investigatory organizations’'. It would then be allocated a unique identification number, which it would have to provide to the Land Registry when registering a purchase of land or real property in England and Wales, as domestic UK companies already have to do. (Property transactions are a devolved matter, so that Scotland and Northern Ireland would have their own rules.)
As a first step, the Land Registry is publishing a data-set containing the legal owner and addresses of all properties owned in the UK by foreign companies.
There may be an exemption for foreign companies incorporated in jurisdictions which already have an accessible central register of beneficial ownership information – which will include all EU member states once the Fourth Money Laundering Directive is implemented. This would avoid the need for them to provide the same information to a UK register.
The BIS discussion paper admits that there will be difficulties in enforcing the new regime, both for existing properties owned by foreign companies and for new purchases. This and many other aspects of the plan are open to public consultation, which ends on 1 April.
An aspect of the consultation envisages that foreign companies bidding for public procurement contracts in England will also be subject to the new transparency rules. Money laundering is again cited as a justification, though no details are provided as to how public contracts can be used for the purpose.
The opinions expressed do not constitute investment advice and specialist advice should be sought about your specific circumstances.
Published on our website on Mar.11, 2016