Register of Overseas Entities (Delivery, Protection and Trust Services) Regulations 2022

Lord Callanan Excerpts

Tuesday 12th July 2022 Grand Committee

Moved by

[Lord Callanan]

That the Grand Committee do consider the Register of Overseas Entities (Delivery, Protection and Trust Services) Regulations 2022.

Relevant document: 7th Report from the Secondary Legislation Scrutiny Committee

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)]

My Lords, I beg to move that the draft Register of Overseas Entities (Delivery, Protection and Trust Services) Regulations 2022, which were laid before the House on 22 June 2022, be approved. These regulations are a particular delight for me because I promised the House that we would have them before the summer holidays, so I thank all those officials who worked so hard to deliver them. It shows what you get if you make rash promises—officials will work overtime to get them delivered for you.

These regulations form part of an essential tranche of secondary legislation needed to implement the Register of Overseas Entities, which I will refer to for ease as “the register”. It will be created—as noble Lords opposite me who took part in the debates will know—under Part 1 of the Economic Crime (Transparency and Enforcement) Act, which gained Royal Assent earlier this year. I thank the House, and the Opposition in particular, for helping us to expedite that legislation.

The register will help to crack down on dirty Russian money, and any other kind of dirty money, in the UK, and other foreign corrupt elites abusing our open economy. The register will require overseas entities owning or buying property in the UK to give information about their beneficial owners and/or managing officers to Companies House. It will provide more information for law enforcement to help them to track down those using UK property as a money-laundering vehicle.

During the Act’s passage through Parliament, I undertook to deliver the register as soon as practicable. Subject to the approval of Parliament of this and two other instruments, the register will begin operating over the summer. The three UK land registries, together with Companies House, have been working at pace—I think “at pace” is probably an understatement—to build the systems and processes to ensure that we can get the register up and running as quickly as possible and that it works as intended.

The two other instruments I have just mentioned were laid before the House on 30 June and are subject to the negative resolution procedure. The subject of today’s debate is the only instrument subject to the affirmative resolution procedure. These regulations together will ensure that the register is ready to come into operation. It is worth saying that some further instruments necessary to underpin the register’s steady-state operation—and again this is subject to the hard work of officials over the summer—will be made in the autumn.

Overseas entities in scope that currently hold land in England, Scotland and Wales will have six months from the date that the register goes live to register their beneficial owners. We think the six-month transition period—and noble Lords will remember the debate we had—strikes a balance in allowing for the free enjoyment of property and helping to maintain the UK’s reputation as a stable investment environment while ensuring that property owners register their beneficial owners. It is worth saying that, if an overseas entity does not comply with these new obligations or submits false filings, the overseas entity and every officer in default can face tough criminal or civil penalties, and ultimately it will not be possible to sell the property in question.

These regulations being debated today must be in force when Part 1 of the Act is commenced in order for the register to operate effectively.

I turn to the details of these regulations, which are laid under the powers in the Act and two powers in the Companies Act 2006. They deal with three main elements. First, they require certain documents to be delivered to Companies House by electronic means. Secondly, they will set up a protection regime, which will allow individuals to apply to have their information made unavailable for public inspection. To apply, individuals must provide evidence that they are at serious risk of violence or intimidation if their link to the overseas entity is publicly disclosed. This mirrors an existing provision for the person of significant control of UK companies. Thirdly, they set out that legal entities governed by the law of a country or territory outside the United Kingdom that provide trust services regulated by a supervisory authority, and which are subject to their own disclosure requirements, are classed as “registrable beneficial owners”.

On the first of these measures, Part 2 of the instrument sets out that certain documents are to be delivered to Companies House by electronic means. Regulation 3 specifically sets out a duty on overseas entities to deliver certain information to the registrar by electronic means. These regulations state that the following information must be delivered to the registrar: an application for registration; the statements, information and anything required for the updating duty; an application for removal; the replacement of or additional documents delivered to the registrar for the purpose of resolving inconsistencies in the register; and an application to rectify the register. Regulation 4 sets out an exception to this duty to deliver documents by electronic means.

Mandating electronic delivery for certain documents enables the registration process to be streamlined and efficient, and is intended to avoid delays in processing valuable property transactions. Therefore, it is important that electronic delivery to the registrar can be mandated in most cases through these regulations.

The duty to deliver a document by electronic means will not apply where the document relates to an application which contains information about individuals who have applied for their details to be protected. The aim of this limited exception is to provide for those who may be at risk of serious harm to apply for protection from having their details publicly available on the register. Their details would need be handled in a sensitive manner. As such, electronic communication might not be appropriate in those cases.

On the second measure, Part 3 sets out details of the protection regime. This allows beneficial owners and managing officers, or the relevant overseas entities, to apply to have their details protected from disclosure and from inclusion in the public register, if they or someone who lives with them are at serious risk of violence or intimidation because of their link to the overseas entity. Evidence must be provided to the registrar to support the application. As I said, this approach is very similar to the one currently applied in the equivalent regime for people with significant control—PSC—of UK companies.

It is also important to note that an application for information to be protected from public disclosure will not exempt an overseas entity from the requirements of the Act in general. The required information must still be supplied to Companies House and will be available to law enforcement agencies if required.

As for the measure on corporate trustees, Part 4 provides a description of legal entities subject to their own disclosure requirements. Schedule 2 to the Act provides that beneficial owners who are legal entities must be subject to their own reporting requirements in order to be registrable beneficial owners. The aim of this measure is to ensure that corporate trustees fall within the definition of a registrable beneficial owner. If this definition is satisfied, overseas entities must take reasonable steps to obtain and provide to the registrar the required information about those trusts. This reflects the requirements already imposed where trustees are individuals. This will provide greater transparency about the true owners and beneficiaries of the land.

I thank the House’s Secondary Legislation Scrutiny Committee for examining this instrument and note that it was included as an instrument of interest in its recent report. I confirm that UK Crown dependencies and overseas territories that own property in the UK will be required to register details of their beneficial owners with Companies House in the same way that all others do.

In conclusion, I emphasise that the measures in these regulations are crucial for the effective operation of the register of overseas entities. I was grateful for the opportunity to demonstrate the operation of the register to a number of noble Lords last week. I hope that aided understanding of the measures and the objectives. Therefore, I commend the draft regulations to the Committee.

--- Later in debate ---

With the Summer Recess coming very shortly, the next steps will take even longer, so I have some key questions for the Minister. When can we expect the full implementation to take place? From when will ownership of UK properties have to be logged? When will it finally become public? With that, we support these regulations.

[Lord Callanan (Con)]

I thank noble Lords for their support and their valuable contributions. I think the measure has a wide measure of support. I too pay tribute to the officials who have worked long and hard to bring this into operation.

Before I talk about this, I will answer the point from the noble Lord, Lord Clement-Jones, about economic crime 2, as we are not in fact referring to it; we are not allowed to call it that, for some strange reason, but it is the next tranche of economic crime legislation that we expect to introduce to Parliament shortly after the Summer Recess. The measure is being worked on now. I am afraid I cannot promise him that all the measures he outlined at length will be contained in it—I am sure we will have some debate about that—but we intend to take action on some or many of the things he mentioned, particularly reforms to Companies House.

The Government are committed to ensuring that this register strikes the right balance between improving transparency and minimising the burdens on legitimate commercial activity. The measures contained in this instrument will play a key part in the effectiveness of the register from its launch. To pick up on the point from the noble Lord, Lord McNicol, I hope we can bring the register live on 1 August. That is the intention.

These regulations are essential for the register of overseas entities to operate effectively from the outset. To answer the point from the noble Lord, Lord Clement-Jones, they will enable it to operate. I am afraid they are not the end of the regulations—we will need some additional ones to further clarify the operation, et cetera—but they will enable it to commence and the six-month countdown period to start. All existing entities, including those that have made transactions since 28 February, will have to register in that period. That was a discussion we had during the passage of the Act.

[Lord Clement-Jones (LD)]

I thank the Minister for the detail. Can he say whether that will be by an affirmative or a negative process?

[Lord Callanan (Con)]

Four affirmative and six negative, I am informed by the experts. So we will be back, yes. We will return, as they say.

These regulations are essential for the register to operate, so we can commence it and get the six-month countdown period started. There has been some debate about whether we might expect a large rush of applications as soon as the register goes live. I reiterate that the vast majority of these overseas entities are legitimately owning property. They are corporations and others that legitimately own land, commercial properties, et cetera, in the UK. They will want to ensure that they are in compliance from the outset.

Mandating digital delivery for certain documents ensures that the registrar is able to receive and process information in a timely manner. An effective protection regime will protect those at real risk of serious harm because of their link with the overseas entity from the public disclosure of their details. I say again that this information must still be provided and will still be available to law enforcement. I will say a few more words about that shortly.

The measure on trustees allows for a consistent approach to dealing with corporate and individual trustees. It is a complicated area, but I assure noble Lords that we are attempting to close every possible potential loophole. We will also have some further measures in the economic crime Bill to tackle this issue of trustees, which, as the noble Lord, Lord Vaux, is always reminding me, is extremely complicated. But we are determined, and we will not hesitate, to return to this if any inadvertent loopholes are discovered. But we want to make it harder for corporate structures to be altered to avoid reporting requirements.

The main point raised—predictably—by noble Lords was the issue of protections. To try to alleviate concerns, I will give some of the statistics for the existing regime. There are something like 4.9 million companies registered on the UK companies register. Since 2016 there have been 436 applications for protections from that register, of which 163 have been granted—163 out of 4.9 million. Bearing that in mind, there are about 35,000 overseas entities; it is possible, given their nature, that a slightly greater proportion of the persons with significant control of overseas entities will want to be exempted, but I hope I can reassure noble Lords that the system is not being abused and that, given the proportions, tiny numbers of applications are being granted. Of course, I will make sure that this is closely monitored and that there is no excessive use of this provision. It will be only for those who have a very real need for that protection. But I think we can see from the use of it—it is pretty much an identical regime for the persons with significant control—that it is a tiny proportion, and an even smaller proportion of applications are granted. As I said, only 163 of 436 applications were granted.

This will be a public register. All information will be displayed, aside from, as I mentioned, protected information, such as date of birth and residential address information. Of course, again, that will be available to law enforcement and other public bodies. Companies House does have experience of determining these applications for protections since the PSC regime was introduced in 2016. We will ensure that the mechanism is robust and we will require applicants to provide evidence as to why they think there is a serious risk of violence or intimidation. If necessary, we will refer cases to the appropriate law enforcement agency. I reiterate that the protection does not exempt the person from disclosing this information to Companies House and all protected information is still available to law enforcement. So there is no place to hide.

I will give the figures once again. There were 436 applications under the previous regime, and 163 of them were granted.

The noble Lord, Lord Vaux, asked about verification. Agents who will provide the verification will be UK anti-money laundering supervised professionals—

[Lord Clement-Jones (LD)]

Before the Minister moves on to verification, I just wanted to probe a little further on the Regulation 7 points he was talking about. It is reassuring that it will be a limited number, but my question was about Regulation 7(3):

“The grounds on which an application may be made are that the applicant reasonably believes that if that protected information is available for public inspection or disclosed by the registrar … the activities of that overseas entity; or … one or more characteristics or personal attributes of the relevant individual when associated with that overseas entity, will put the relevant individual or a person living with the relevant individual at serious risk of being subjected to violence or intimidation.”


How is Companies House going to assess that? Is it going to consult other crime prevention authorities? Is there an evidence-checking process?

[Lord Callanan (Con)]

The answer to that question is: absolutely. It is kept deliberately—not vague; that is the wrong word. There is a wide scope here, because different individuals will be affected in different ways. They might be foreign diplomats, to take one example. There could be a number of different opportunities depending on their personal circumstances, but the Act is very clear: they will have to provide evidence. That evidence will be checked and verified, and if necessary the head of Companies House, the registrar, will consult the law enforcement agencies.

Noble Lords can see that 163 out of the 436 applications made were granted under the previous regime, so it is clearly a rigorous process and they will have to provide the appropriate evidence. We will monitor it and make sure that the system is not abused. I reiterate that the information is still available to law enforcement; it is just not on the public register. It is also worth saying that there is considerable interest in this from transparency organisations, who I am sure, once the register goes live, will—correctly—crawl all over it and point out any obvious errors or omissions, or anybody who is attempting to avoid the provisions.

I move on to the verification of agents. They will be UK anti-money laundering supervised professionals, and most of those individuals already carry out due diligence when completing property transactions. Those who seek to circumvent the requirements of the Act, including any who provide misleading, false or deceptive information, are liable to criminal or civil sanctions. The identity of the person carrying out the verification will be made public and appear on the face of the register, and if necessary there will be future enhancements for making that information more accessible. We are determined that there is no place to hide for either those seeking to acquire property maliciously or the professionals who enable them to do so.

Companies House will engage with the verifier’s supervisory body, but ultimately the enhanced false filing offence may be used in this circumstance, if necessary. Some of the feedback we have had from professional organisations—I shall not mention them—think that these provisions are too draconian; they are unwilling to put their name to some of them. I did say that there was unlikely to be much sympathy in the House for that position.

The noble Lord, Lord Clement-Jones, questioned the impact assessment. The secondary legislation does not make any significant changes that were not anticipated in the primary legislation impact assessment, and for this reason, in line with the better regulation framework, for which I am also responsible, we did not think another impact assessment was necessary and one has not been produced.

The noble Lord also rightly raised the point of tackling the enablers of economic crime. As I said, the information about agents and verifiers will be published on the register. We believe the supervisory regime we have in the UK is comprehensive. We regulate and supervise all businesses most at risk of facilitating money laundering, including accountants, estate and letting agents, high-value dealers, trust or company service providers, the art market, et cetera.

HMRC’s civil and criminal enforcement powers and capabilities are an integral part of government work to collect and protect revenue and build a trusted, modern tax and customs department. Our enforcement powers allow us already to tackle a minority who attempt to cheat the system and whose actions cause wider harms. HMRC uses a range of supervisory enforcement powers robustly, to address money laundering and terrorist financing risks caused by non-compliant businesses. The aim of this register is to help them in that task.

As always, of course, the Government keep the law under regular review to ensure that there is a robust legislative framework. Following concerns that parts of the criminal law may not be fit for purpose and calls for legislative certainty around the prosecution of corporate bodies for economic crime, the Government sought to establish whether there was a case for change. In 2020 the Government commissioned the Law Commission to undertake a detailed review of how the legislative framework could be improved to appropriately capture and punish criminal offences committed by corporations, with a particular focus on economic crime. That paper was published on 10 June this year. We are carefully assessing the options presented and are committed to working quickly to reform corporate criminal liability.