The ECA, designed to make it easier and quicker to impose sanctions and identify and trace illicit wealth, received royal assent on 15 March 2022. The ECA introduces new provisions relating to:
- Sanctions;
- Unexplained Wealth Orders; and
- Registration of Overseas Entities.
In this second of a series of three notes which will cover the changes introduced by the ECA in all three of these areas, we are focusing on the provisions of the ECA relating to registration of overseas entities that we think businesses need to know about.
You can find our first note regarding the changes to the sanctions regime here.
What has changed?
The ECA creates a new legal obligation for the registrar of companies for England and Wales to keep a register of overseas entities. It also imposes obligations on overseas entities to provide specific information when making applications to register, to update their information annually, to register where they own certain land in the UK and when they apply to be removed from the register. Importantly, the ECA creates a range of criminal offences for contravention of requirements relating to these obligations.
1. The register of Overseas Entities
The ECA requires the creation of a register of any legal entity (body corporate, partnership or other entity) that is governed by the law of a country outside the UK (an “Overseas Entity” or “OE”). The requirement will apply to any Overseas Entities that currently appear on the register maintained by Companies House and any that wish to register in the future.
Applications for registration – Overseas Entities
Applications for registration by an Overseas Entity must state;
- That one or more “registrable beneficial owners” (“RBOs”) have been identified and that the OE has no reasonable cause to believe there are any others and provide the required information about each RBO; or
- That the OE has no reasonable cause to believe that it has any RBOs; or
- That the OE has reasonable cause to believe that there is at least one RBO, that the OE is not able to provide the required information about any one or more of the RBOs.
What is a Registerable Beneficial Owner?
Broadly, if an individual, legal entity or government or public authority holds more than 25% of the shares or voting rights of the OE or has the right to appoint or remove a majority of the board, that individual entity or government or public authority will be an RBO. Alternatively, regardless of the nature and extent of its shareholding, if the individual, entity or authority has the right to exercise or actually exercises, whether as an individual, trustee, member of a partnership, unincorporated association or other entity that is not a legal person, significant influence or control of the OE, then it will be an RBO1.
In addition to the statements outlined above, applications for registration by Overseas Entities must contain ‘required’ information in respect of the entity itself and any RBOs. The ‘required information’ includes full names, addresses for service and confirmation of whether or not the any RBOs or the OE itself are subject to international sanctions. RBOs must also confirm the date they became designated as such and the basis for the same.
‘Proactive Duty’ to Identify RBOs, Information Gathering Powers
In making an application to register, an OE is required to take reasonable steps to identify any RBOs. Unusually, in order to assist that process, the ECA provides the OE with information gathering powers (on pain of criminal sanction), including the ability to issue an information notice to any person the OE knows or has reasonable cause to believe, is an RBO, requiring them to comply with the notice within a period of one month. An information notice is a notice requiring the person to whom it is given:
- to state whether or not they are an RBO
- if they are an RBO, confirm or correct any of the required information specified in the notice and supply any information which the OE requires for the purposes of an application relating to the RBO, and
- if they are an RBO by virtue of being a trustee to confirm the required information relating to the trust.
Overseas Entities may also issue an information notice to any person it has reasonable cause to believe knows the identity of a person or legal entity that is an RBO.
Requirement to Update Information
A registered OE must on an annual basis confirm whether or not any of the information it provided when it applied to register has changed. If it has, then it must provide whatever information relates to that change. The same duty to take reasonable steps to identify any RBOs applies for the purposes of the updating duty.
2. Requirement for OE to register where it owns a relevant interest in land
The secretary of state can give notice to an OE to apply for registration within a period of 6 months from the date of the notice if, at the time the notice is given:
- The OE is the registered proprietor of a relevant interest in land, and
- The OE is not registered as an OE, has not made an application for registration and is not exempt.
The Notice will lapse if before the notice period ends the OE ceased to be the registered proprietor of a relevant interest in land or becomes exempt.
A relevant interest in land is where the OE is the registered proprietor of land under the Land Registration Act 2002 and became so registered pursuant to an application made on or after 1 January 1999.
3. Applications for removal from register
An application for removal from the register must state:
- That the OE is not the registered proprietor of a relevant interest in land;
- State the information required in making an application for registration relating to the identity of RBOs;
- Whether any information relating to an RBO has changed; and
- That the OE has complied with its duty to take reasonable steps to identify RBOs.
If the OE is the registered proprietor of a relevant interest in land, the application for removal will be refused.
4. Exemptions
The secretary of state may exempt a person from the requirements outlined above if satisfied that it is necessary to do so either because it is in the interests of national security to do so or for the purposes of preventing or detecting serious crime.
5. Offences
The ECA creates a number of criminal offences as follows:
| Offence |
Applicable to |
Penalty |
| Failure to comply with updating duty |
OE and all of its officers |
Summary offence punishable by a fine only |
| Failure to comply with notice to register as owner of a relevant interest in land |
OE and all of its officers |
Each way offence punishable by up to 2 years imprisonment (officers) and a fine |
| Failure to comply with an information notice |
Recipient |
Each way offence punishable by up to 2 years imprisonment |
| In complying with an information notice, makes a statement known to be false in material particular or recklessly makes a statement that is false in a material particular |
Recipient |
Each way offence punishable by up to 2 years imprisonment |
| Without reasonable excuse, deliver/cause to deliver documents that are misleading, false or deceptive in a material particular |
OE and all of its officers |
Each way offence punishable by up to 2 years imprisonment |
| Without reasonable excuse, make to the registrar any statement that is misleading, false or deceptive in a material particular |
OE and all of its officers |
Each way offence punishable by up to 2 years imprisonment |
| An unregistered OE disposes of a relevant interest in land at any time after 28 February 2022 up to the date when the OE register comes into effect and thereafter is not a registered OE, or made an application, or is not exempt and it has not provided any of the information required for the purposes of making an application to register |
The unregistered OE and all of its officers |
Summary offence punishable by a fine. |
Outlook
The prevalence of so called ‘illicit wealth’ making its way into the UK economy is no secret and the provisions outlined above will be seen by many a significant development in the UK’s efforts to combat the same.
In addition to the potential for increased enforcement activity as the UK takes a more aggressive approach to such issues, the proactive obligations imposed by the ECA and the risk of criminal sanction if you get it wrong mean we are likely to see an increased level of due diligence in respect of deals and transactions generally and particularly where those transactions involve entities or individuals based overseas.
DAC Beachcroft’s business crime specialists are experts in advising on sanctions compliance and enforcement. Jonathan Brogden, Chris Dyke and Gareth Hall are key contacts.
1This definition is subject to certain exemptions in Part 4 of Schedule 2
