Lifting the veil of secrecy – foreign companies operating in the UK property market

Lifting the veil of secrecy: Enhancing transparency of beneficial ownership information of foreign companies operating in the UK property market

In order to address corruption more effectively, the UK government has recently outlined proposals to improve transparencies in ownership and control of foreign companies which purchase land or property in England and Wales.

Property can be a vehicle for concealing the proceeds of crime. The high values of property in London can present an opportunity for criminals to launder considerable sums of money in one transaction. In the ten years between 2004 and 2014, over £180m worth of property in the UK was investigated by UK law enforcement bodies as being suspected proceeds of corruption. Over 75% of these properties used offshore corporate ownership.

This year, the Government has required UK incorporated companies to maintain their own register of People with Significant Control (PSC), which will contain information on the company’s beneficial ownership and control. This enhances existing disclosure requirements such as the requirement to register company directors at Companies House. By June 2017, Companies House will hold PSC information for most UK incorporated companies and it will be made available in a public register. The UK PSC register will include information on an individual with their name, date of birth, nationality, address and details of their interest in the company.

The following five conditions define a person (individual or entity) having ‘significant control’ over the company:

1. directly or indirectly holding more than 25% of the shares in the company;
2. directly or indirectly holding more than 25% of the voting rights in the company;
3. directly or indirectly holding the right to appoint the majority of the board of directors;
4. having the right to or actually exercising significant influence or control over the company; and
5. exercising significant influence or control over a trust or firm that itself meets the control conditions, where that trust or firm is not a legal person.

The new approach the Government is considering will be based on requiring foreign companies to provide information on their beneficial ownership before they are able to buy land/property in England or Wales.

One option for holding the information would be to establish a further register managed by Companies House alongside the UK PSC Register. A foreign company on the register would be provided with a unique identifier number, which would enable them to purchase land or property in England or Wales.

The Government intends to develop the above proposals this year and these proposals need to be considered in light of the UK’s obligations under the existing EU framework. The EU’s Fourth Money Laundering Directive (4MLD), requires Member States to ensure that entities incorporated in their territory are required to obtain and hold adequate, accurate and current information on their beneficial ownership. Member States are also required by 4MLD to ensure that this beneficial ownership information is held in a central register in that territory. EU Member States must implement 4MLD by no later than June 2017.

The Government will consult later this year on the measures that it proposes to bring forward to meet the 4MLD requirements, including changes to PSC legislation where required.  At present it is unclear how the 4MLD will be implemented in other EU Member States. While some Member States may follow the UK in introducing public registries of company beneficial ownership information, it is unlikely that all will do so. This will affect the analysis that the Government is undertaking, as to the extent to which we can require the beneficial ownership information of EU companies involved in property ownership in the UK, to be made available on a public register. It is also not yet clear the extent to which information held on another Member State’s beneficial ownership register will be accessible to third parties. As UK companies will have to provide beneficial ownership information under domestic legislation, some may agree that foreign companies purchasing land or property in England and Wales should be under a similar obligation.

The Government is of the view that financial crime and corruption undermine development and reduce government revenues. The ability to transfer illicit funds overseas through opaque domestic or foreign company structures facilitates corruption and drains resources. The Government is addressing company misuse in order to reduce corruption in the UK and overseas and is of the view that this may encourage other countries to implement a similar approach.

For further information regarding this topic or any other property and construction matter, please contact Stephen Brower – Head of Property, Hayley Cloherty – Associate, or any member of Edwin Coe Property team.

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