Wednesday, May 22, 2024

Dechert’s Global White-Collar Team Member Caroline Black Explains New UK Anti-Corruption and Dirty Money Law

For years Russian oligarchs have taken advantage of the UK’s “golden visa” scheme to build up land and assets in the UK. More than half of all golden visas have reportedly been awarded to Russian and Chinese investors since 2008. Russia’s invasion of Ukraine and the resulting sanctions have shone a stark spotlight on the source of funds for such foreign ownership. Dechert’s Caroline Black gives her insights into the new Economic Crime (Transparency and Enforcement) Act, passed on 15 March.

This isn’t the first time the UK has attempted to tackle the sources of dirty money. Unexplained wealth orders (UWOs) were launched in 2018 with some fanfare. UWOs allow law enforcement agencies to confiscate criminal assets without having to prove first that the property was from criminal activity.

To date, UWOs have been used by the National Crime Agency (NCA) in only four cases. In one, the NCA failed to defend in court the issuance of several UWOs against properties owned by a Kazakh family. As Dechert’s Caroline Black commented in a recent article in The Sunday Times, UWOs have been “less than successful.”

The Economic Crime (Transparency and Enforcement) Act takes enforcement a few steps further.

“The most significant change is the creation of a new, public Register of Overseas Entities (ROE) to be held by Companies House,” says Dechert’s Caroline Black. “This is aimed at uncovering the non-UK-based ownership of land interests in the UK.”

An obligation to report beneficial ownership is nothing new in the UK: The People with Significant Control (PSC) register has been publicly available since 2016. A “beneficial owner” is the individual who ultimately owns or has significant influence or control over a company. The UK has had plans for an additional public register aimed at overseas entities for a while, with a bill in the offing. Events in Ukraine led to the expedited passage of the tweaked bill through Parliament as part of the UK’s urgent response. That bill is now the Economic Crime (Transparency and Enforcement) Act.

Dechert’s Caroline Black Analyzes the ROE

“The ROE has two primary objectives,” explains Dechert’s Caroline Black. “First, to prevent and combat overseas entities using UK land to launder money. Second, to increase transparency and public trust in overseas entities who own or buy land in the UK.”

The Act will have a significant impact on law-abiding overseas purchasers as well as nefarious ones. Administrative obligations have been amplified, such as providing and updating information on beneficial owners. These obligations are backed by the threat of significant financial and criminal penalties. The land registration system has also been changed. Overseas companies will be prevented from making disposals unless they have properly registered with the ROE. “This stipulation affects land purchases dating back to 1999, so it is retrospective in its scope. This is a big change and so it is important that companies get it right,” says Dechert’s Caroline Black.

What Are Registrable Beneficial Owners as Mentioned in the Act?

A registrable beneficial owner (RBO) can be an individual, a legal entity, a government, or public authority. The Act defines an RBO by the kind of interest it has in the overseas company in question. These include:

— Holding more than 25% of the shares or voting rights;

— Having the right to appoint or remove a majority of the board of directors;

— Having the right to exercise significant control over the company;

— Being a trustee or trust (or member of a partnership etc.) that fulfils these conditions.

Beneficial ownership can be direct or indirect, through a chain of companies or via a complex corporate structure. “Information on RBOs will have to be provided all the way up the ownership ladder,” explains Dechert’s Caroline Black.

The Act will affect all overseas companies, not just RBOs. An application for registration on the ROE will have to be made, as well as a statement as to whether or not they have any RBOs. If RBOs are identified in the course of registration, further information will be required.

Criminal Penalties

The Act introduces a range of punitive measures, based on the severity of the infringement. These range from a £2,500 fine to five-years imprisonment and/or an unlimited fine for making a prohibited disposal of the land. The penalties apply to the overseas company and every officer that’s in default. In the case of failing to comply with the annual updating duty, daily default fines will apply: the sum of £2,500 per day until the company complies.

“The ROE will mirror as far as possible the PSC regime, but in imposing criminal sanctions for certain land disposals it goes further,” says Dechert’s Caroline Black.

Exceptions to the ROE Regime

The Home Secretary can make exemptions to the ROE regime. An example of this is if an overseas company has registered the beneficial ownership information already in its own jurisdiction. The UK government must consider those registers equivalent to the ROE. The Home Secretary also permits exemptions on a case-by-case basis. These grounds include national security, the nation’s “economic well-being” and for the purpose of preventing or detecting serious crime.

Final Comment on the Act by Dechert’s Caroline Black

“Overseas companies preparing to register will have to quickly get to grips with new powers to require parties to provide information. The Act contains new obligations to file in some cases extremely private and personal information correctly. To not do so is to risk breaches of UK, EU, and local privacy laws,” says Dechert’s Caroline Black.

Black also draws attention to the daily default fines and other penalties. “These will rack up quickly. Company officers and directors could also find themselves defending criminal proceedings in the UK with the threat of imprisonment hanging over them.”

As global leaders in white-collar, compliance and investigations, Dechert’s specialist practitioners such as Caroline Black are well placed to advise clients. Now that the Act is in force, obtaining legal assistance with identifying, obtaining, and filing information on RBOs is a must for many.

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