Last year, the Register of Overseas Entities (“ROE”) was launched. Intended to be a public register of all overseas entities owning UK property and their beneficial owners, it was hoped the ROE would increase the transparency of opaque offshore structures owning UK land and buildings. Kate Howard and Pia Mithani analyse the ROE from a civil litigation perspective.

The information on the ROE about overseas entities and their beneficial owners should assist with identifying assets and individuals for the purposes of service and enforcement. In cases of fraud, it may also improve understanding of complex asset structures and those who might have assisted in their creation.

Six months on from its launch, the ROE has already revealed property held by various criminals, individuals under investigation and those subject to sanctions. However, with the 31 January deadline for registration having passed with around 40% of overseas entities failing to register, it is clear there remain some limitations.

Background

On 1 August 2022, the ROE was launched pursuant to the Economic Crime (Transparency and Enforcement) Act 2022 (“ECA”).

The purpose of the ROE was to increase transparency in relation to offshore entities that own UK property by requiring them to disclose their registrable beneficial owners. It was also hoped the ROE would act as a deterrent to those who attempt to use opaque offshore structures to launder money through the UK property market or disguise their ownership for tax purposes.

Companies House maintains the ROE. Overseas entities who buy, sell or transfer property or land in the UK must now register on the ROE in advance (and update the information annually). They must also declare their beneficial owners and/or managing officers. The registration requirement applied retrospectively, meaning overseas entities who owned land or held leases longer than a certain length in the UK, if purchased after 1 January 1999 in England and Wales, were required to register by 31 January 2023.

A success?

That deadline has passed, and the UK government estimates that 19,510 of 32,440 registered overseas organisations have declared their beneficial owners.

For the 60% of overseas entities who registered on time, the ROE does appear to have started serving its purpose, namely revealing criminals, individuals under investigation and those subject to sanctions as owners of UK property.

For example, Ruja Ignatova, currently on the FBI’s “Ten Most Wanted Fugitives” list, has been revealed as the owner of a London penthouse. She has been accused of defrauding investors out of around $4bn in a cryptocurrency-based pyramid scheme but has been missing since 2017.

The litigation angle

From a litigation perspective, this sort of information, if accurate, could assist with service and enforcement, making it easier to identify and freeze assets and locate individuals. It could also give insight into suspicious corporate structures or a person’s use of agents and intermediaries.

Limitations

On paper, the Companies House ROE is an important tool to combat attempts to conceal assets purchased with illicit funds. However, the ROE and new regimes in place have not been stress tested against sophisticated opaque asset holding structures.

The ROE does not necessarily cater for layered overseas nominee structures or frequently used complex cross-border trusts. With public finance and resourcing of law enforcement already stretched to capacity, it is worth questioning whether there is enough in the tank to enforce violations of the rules.

1. The resource to enforce where an entity fails to register

If an overseas entity failed to comply with the 31 January deadline and cannot demonstrate it is exempt from registering or has an application pending, the entity and every officer of that entity commits an offence and could be liable to a fine, imprisonment or both.

In its press release of 1 February, the government suggested Companies House is currently assessing and preparing cases for enforcement action.

Companies House and the Insolvency Service will also gain enhanced powers from the Economic Crime and Transparency Bill, which has passed the Commons and is currently at the committee stage in the Lords. It is hoped the investment of up to £20m in allocated spending will boost their ability to tackle money laundering and aid law enforcement.

Unregistered overseas entities are now automatically rejected by the Land Registry from registering ownership of new land. In addition, UK buyers are unable to transfer title to any property bought from unregistered overseas entities.

Is this enough? Companies House has historically been unsuccessful in preventing fraud. With over 10,000 entities having missed the registration deadline, there is a significant amount of work to do.

2. Risk of inaccurate or non-compliant filings

Even where overseas entities have registered, the reliability of the data contained on the ROE will depend on:

• individuals honestly submitting the correct information (ie information that genuinely reflects the ownership and complies with the requirements of the ECA); and
• the identification of any non-compliant filings by those responsible for monitoring and verifying that information.

In terms of (i), this already appears to be an issue. In its February 2023 report, “Through the keyhole”, which summarises its analysis of the ROE as at 1 February, Transparency International UK suggests it has identified numerous filings as potentially being non-compliant.

Although beneficial owners can be individuals and companies, Schedule 2 of the ECA provides that such companies can only be registrable beneficial owners if they are subject to their own disclosure requirements. According to Transparency International UK, this means “overseas entities cannot simply declare another opaque company as their owner – there needs to be some form of published ownership chain upwards to a real person. Reporting another secretive offshore company to the register is not permissible in most circumstances.”

Despite this, Transparency International suggest that 3,151 overseas entities (collectively holding 15,217 properties across England and Wales) listed as their beneficial owner at least one offshore company not subject to similar transparency requirements, indicating a possible breach of the rules.

Whether or not this non-compliance is deliberate is a separate question. For now, it is clear that non-compliant filings are a risk and that work needs to be done to ensure these are identified and rectified.

3. Potential shortcomings in requirements, including as regards beneficial owners, nominees and trusts

The ECA technically only requires the beneficial owner of the overseas entity to be disclosed and not the ultimate underlying beneficial owner of the property. As such, the beneficial owner listed on the ROE might not be the true beneficial owner of the property but might be acting as a nominee or trustee for the true beneficial owner. Although permissible under the ECA, this provides an example of situations where the ROE will not necessarily render opaque offshore structures transparent. In these circumstances, such trust and nominee arrangements may fall within the scope of the UK trust register. Additionally, they may have to provide certain information to Companies House pursuant to the ECA. However, this information will generally not be available to the public.

Additionally, there are ways an entity could be structured such that no individual falls within the definition of a registrable beneficial owner under the ECA. For example, from a share ownership perspective, Schedule 2 of the ECA defines a beneficial owner as someone who holds 25% or more of the shares. Multiple owners could therefore reduce individual ownership to a point where no individual is technically the beneficial owner.

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