The Economic Crime (Transparency and Enforcement) Act 2022 – What you need to know

Graham Caddock, 25 April 2022

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Background

The Economic Crime (Transparency and Enforcement) Act came into force on 15 March 2022 and will have a significant impact on the affairs of overseas entities owning, acquiring, or disposing of residential and commercial land in the UK. 

The Act, which was rushed through parliament in direct response to the war in Ukraine, aims to improve financial transparency by providing additional powers to identify the wealth derived from economic crime, and the ability to impose criminal or civil sanctions for significant breaches. The government is hoping the Act will go some way to help address "disguised" foreign investment in the UK.

Register of Overseas Entities 

A key component of the Act is the establishment of a publicly accessible Register of Overseas Entities owning UK land purchased on or after 1 January 1999. The register will be held at Companies House (aided by the Land Registry), although at present it is not clear when it will be up and running.

An overseas entity (principally companies, partnerships, and other “legal persons”) will need to register if they have acquired UK land since 1 January 1999 or made a disposal after 28 February 2022. The initial deadline will be 6 months from a date to be confirmed by regulations (presumably once Companies House have established the process).

The Act places a responsibility on an overseas entity to provide information about itself and its beneficial owners. For the entity, such information will include its name, contact details, country of incorporation, legal form, and the law by which it is governed. With regards to beneficial owners, the information required will include their name, date of birth, the date they became a beneficial owner of the entity and the basis upon which they are deemed to be a beneficial owner.

Broadly, a beneficial owner is anyone who holds more than 25% of the shares or voting rights, can appoint or remove most of the directors, or can otherwise exercise significant influence or control.  This information will be required on initial registration and will need to be updated annually. Failure to do so may result in a daily default fine.

Unexplained Wealth Orders 

The Act also makes changes to the existing rules surrounding Unexplained Wealth Orders (UWO's). These orders can be made to require a recipient to explain how they obtained (and funded) an interest in certain property. The Act now brings individuals holding property in the UK (via an overseas entity) within the scope of the UWO powers.  

Offences, Penalties and Sanctions. 

The Act also creates several offences that could lead to up to 5 years in prison, fines of up to £2,500 per day of default, public "shaming" or  restrictions on acquiring or selling UK land. Some of these offences include: 

  • Not declaring, without reasonable cause, the details of beneficial owners
  • Failure to comply with the annual updating duty
  • Failure to comply with an information request from the registrar
  • Providing the registrar with misleading, false, or deceptive information.
  • Failing to update the register in respect of the sale of UK land between 28 February 2022 and the date of implementation.

What to do next?

Although the Act was fast-tracked, the full implementation will depend on Companies House putting procedures and infrastructure into place. However, these reforms are likely to have a significant impact now and in the future. We are likely to see an increased impetus on disclosure and enforcement and the need to act quickly to avoid what could be draconian penalties. 

We will share further details once the implementation date is confirmed or the administration becomes clearer. We will be well placed to support overseas entities in dealing with these new filing requirements in order to minimise the risk of default.

In the meantime, if you require any further guidance on the implications of this new Act, please contact Graham Caddock (grahamcaddock@lubbockfine.co.uk) or your usual contact 

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