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MPs criticise 'loopholes' in plans to expose foreign buyers of UK property

Monday, 20 May, 2019

A parliamentary legislative scrutiny committee has criticised what it calls 'loopholes' in the government's plans to force foreign businesses who own UK property to publicly disclose their beneficial owners.

The Draft Registration of Overseas Entities Bill was published for consultation last July, following a government promise in 2016 to introduce a transparent register of the foreign entities that own UK property, and of the individuals who actually control them. Overseas entities that wish to hold UK property will have to register with Companies House and identify their beneficial owners.

Now, the Joint Committee on the Bill says it is welcome and timely, but still contains flaws. In particular, said Committee Chairman Lord Faulks, the definition of 'overseas entity' in clause 2 of the legislation does not encompass trusts, which would thus not be required to register.

'Though the government argues that other current and future measures will require the registration of trusts, such registers will not be public', he said. 'Furthermore, the land registries will have no ability to restrict transactions by non-registered trusts. Someone wishing to launder money could establish a trust, allowing the trustees to hold property on their behalf. Although the trust would usually be recorded by the Trust Registration Service, this would not be public information'.

Whether this is correct is unclear. The Bill itself states that all overseas legal entities, not just companies, will fall within its scope, and the term 'overseas entity' refers to 'a non-UK registered body with legal personality that can own property in its own right'. Moreover, the ultimate owner would be caught by condition 4 of the draft Bill, since they would exercise significant influence or control over the trustees. However, Faulks believes it is unlikely that this information would ever be made known to the Register of Overseas Entities.

The committee's report insisted that the Bill should clarify which entities will be exempted from publishing their information, or even disclosing it at all. It also recommended that the Bill should be introduced at the same time as the transposing legislation for the EU Fifth Anti-Money Laundering Directive (5AMLD), which will contain measures regarding the transparency of trusts. That legislation is still under consultation.

Other recommendations in the report include:

  • Publishing an annual statement of the number of times that property buyers claim exemptions from the Bill's disclosure rules;
  • Requiring property vendors to update their ownership information once a year, and update information about proposed transactions before they take place;
  • Requiring verification checks; and
  • Replacing the draft Bill's criminal sanctions with civil penalties that will be easier to enforce abroad, and that can be applied against land or other assets in the UK.

'Time is of the essence and regardless of the effect of Brexit on the parliamentary timetable, this legislation is needed now,' commented Lord Faulks. 'The government must get on with improving this Bill and making it law.'

Tom Beak of Kingsley Napley's real estate team said that both the reliance on the implementation of 5AMLD and the concerns regarding the enforcement of sanctions suggested that the Bill is not perfect. But, he said, it seems inevitable that its effectiveness will rely on the enhanced due-diligence of acting solicitors to ensure that proposed buyers or sellers are appropriately registered. 'The bill is unlikely to make it impossible to launder money, just much harder', said Beak.

Sources