Mike Ward, Founder & Executive Chairman of Armalytix, talks all things ROE
Following the invasion of Ukraine, the Economic Crime (Transparency and Enforcement) Act 2022, which had been slowly working its way through parliament since 2018, was accelerated and rapidly passed. Alongside other measures designed to combat financial crime, a key component of it was the new Register of Overseas Entities.
What is the Register of Overseas Entities (ROE)?
Effective from 1st August 2022, overseas entities are required to provide greater transparency over their beneficial ownership to aid efforts to crack down on money laundering.
Overseas entities transacting property or land in the UK must now register with Companies House, identifying the beneficial owners behind these entities.
The new regulations will also apply retrospectively to overseas entities who transacted on or after 1st January 1999 in England and Wales and 8th December 2014 in Scotland; the deadline for this registration is 31st January 2023.
If these entities do not register with Companies House, they will not have an ROE code and will not be able to register change of interest at the HM Land Registry, in practice prohibiting that entity from buying or selling properties in the UK.
Why is it in place?
Money laundering is estimated to account for up to 5% of global GDP, equivalent to a value of $2tn. In the UK, there is a significant amount of dirty money flowing through the country – most notably in the property sector. Laundered money has become a significant issue within society and companies have been given plenty of warnings about the consequences of not following anti-money laundering regulation, on both the financial and societal side.
Looking at London in particular, its continued rise as an international capital and desirable destination has driven a booming and high value property market. This combination of desirability and high property and investment values, when set against openness to international money, has created the ideal conditions to allow financial crime to grow.
It is often popular for wealthy investors to buy property via corporate entities and often these are offshore. Whether deliberate or not, this can prevent observers from seeing who the ultimate beneficial owners are. These structures are as rife as they are opaque and are the perfect place for bad actors to hide.
This is an issue for both commercial and residential property. Since 2010, overseas ownership of residential property has tripled, now sitting at over 1% of all UK properties. It is also not confined to London – in the last 10 years, foreign investment in property has spread out across the UK.
What needs to be done now
If you are an overseas entity, you must register with the ROE. As part of the various questions and disclosures, the key requirement is that you must disclose who has the beneficial interest behind the entity.
Even if you are not buying and selling property or land, you need to register your overseas entity before the above deadlines. The fines are large, currently sitting around £2.5K / day and you could be liable to up to five years in prison. You should be doing this now if you are an overseas entity and you have property interests in the UK.
Individual entities cannot register themselves.
To get registered, there are three key parties involved:
- The beneficial owner(s)
- The corporate structure / entity
- The agent
The first step therefore is to engage a registered agent.
Who are these agents?
The agents are a third party you will have to engage with in order to complete your verification and registration. These agents will verify and ratify the information given to them to identify the beneficial owner of the entity. Once they are satisfied, they can apply to Companies House to get a ROE code. If Companies House is satisfied, a code will be issued via the agent.
Who can be an agent?
Eligible firms will have to register with Companies House to become an agent. Broadly, as a minimum, agents have to be subject to the Money Laundering, Terrorist Financing, and Transfer of Funds Regulations (2017). In practice this means financial institutions, accountants, lawyers, and can also include estate agents. It’s worth noting that some of the representative bodies of these professions have urged caution about becoming an agent as it requires specific subject matter expertise and entails taking on the risk and liability of correctly verifying the information given to them by entities.
Are there considerations where you may be transacting with an Overseas Entity?
When looking to buy and sell property involving an overseas entity there can be risks involved for other parties. Specifically, if you are acting upon or are one of the parties involved in the purchase, there will be a need to ensure that contractually you have allowed for the ROE requirement so you do not run into issues down the line. An obvious example is for a conveyancer whose seller involves an overseas entity. If the ROE requirement is not satisfied, the recipient could potentially be liable for having received criminal funds, which is in itself an offence. This is also more risk now to parties in a property transaction where there is an Overseas Entity in the chain.
In the short term at least, this is likely to mean that any overseas entity will find it more difficult to get things done, even if they are registered on the ROE.
The ROE is expected to be an extremely effective step in reducing financial crime undertaken by bad actors hiding behind overseas entities. Everyone should be aware of it and everyone should be mindful of it when it comes to contracts.
Links to further guidance:
- Gov.uk: Register an overseas entity and tell us about its beneficial owners: https://www.gov.uk/guidance/register-an-overseas-entity
- Law Society: Register of overseas entities in force on 1 August: how property lawyers can comply: https://www.lawsociety.org.uk/topics/property/register-of-overseas-entities-coming-into-force-on-1-august-how-property-lawyers-can-comply
- Law Society: Register of overseas entities: what solicitors should know about verification: https://www.lawsociety.org.uk/topics/property/register-of-overseas-entities-what-solicitors-should-know-about-verification
- HMLR: Register of Overseas Entities: How it affects land transactions: https://hmlandregistry.blog.gov.uk/2022/07/13/register-of-overseas-entities-how-it-affects-land-transactions/
This article was submitted to be published by Armalytix as part of their advertising agreement with Today’s Conveyancer. The views expressed in this article are those of the submitter and not those of Today’s Conveyancer.
