Register of Overseas Entities (Definition of Foreign Limited Partner, Protection and Rectification) Regulations 2023

Lord Wallace of Saltaire Excerpts

Tuesday 2nd May 2023 Grand Committee

[The Minister of State, Department for Business and Trade (The Earl of Minto) (Con)]

My Lords, I beg to move that these regulations, which were laid before the House on 15 March 2023, be considered. These regulations form part of a series of secondary legislation needed to effectively implement the register of overseas entities, which I will refer to as the register.

The register was created under Part 1 of the Economic Crime (Transparency and Enforcement) Act, which gained Royal Assent last year. The register will help to crack down on dirty Russian money in the UK and corrupt foreign elites abusing the openness of our economy. It requires overseas entities owning or buying property in the UK to give information about their beneficial owners or managing officers to Companies House, and provides greater information for law enforcement officers to help them track down those using UK property as a vehicle for money laundering.

The register went live on 1 August 2022 and the deadline for registration was set at 31 January this year. There has been a high rate of compliance, with over 27,500 overseas entities registering to date. A further 700 have provided details to Companies House, having disposed of all their interests in land before the end of the transitional period. This means that over 28,000 entities have complied with the requirements. While that likely leaves a few thousand entities still to register, some of these are believed to have been dissolved or struck off while others have not kept their address details up to date with the Land Registry. Companies House continues to work to increase compliance even further; it is now also assessing cases for compliance action.

Noble Lords will recall my noble friend Lord Callanan introducing the first tranche of regulations last year. These included the Register of Overseas Entities (Delivery, Protection and Trust Services) Regulations, the Register of Overseas Entities (Verification and Provision of Information) Regulations, and the Land Registration (Amendment) Rules. The subject of today’s debate is the first regulations in the latest tranche that is subject to the affirmative resolution procedure. Other instruments are being prepared to ensure that the register can function even more effectively.

I turn to the details of this instrument. These regulations are laid under the powers of the Economic Crime (Transparency and Enforcement) Act 2022, which I will refer to as the Act. They deal with three main elements: first, prescribing the characteristics of a foreign limited partner for the purposes of the Act; secondly, allowing for information held within the register to be removed on application under circumstances; and, thirdly, amending the protection elements of the Register of Overseas Entities (Delivery, Protection and Trust Services) Regulations 2022.

The first part of this instrument sets out the characteristics of a foreign limited partner for the purposes of the register. These regulations provide that such individuals participate in a foreign limited partnership as a limited liability participant or hold shares or a right, either directly or indirectly, in a legal entity that participates in a foreign limited partnership as a limited liability participant. The regulations also define exactly what is meant by a foreign limited partnership and how a person would qualify as a limited liability participant in such a partnership. These provisions will assist overseas entities in identifying registerable beneficial owners under the legislation for the register.

As regards the measure on rectification, Regulation 4 sets out the grounds for rectifying the register. There may be occasions when information submitted to and visible on the register is factually inaccurate, forged, or has been submitted without the consent of the overseas entity. This regulation therefore allows for the register to be rectified by removing such information.

Regulation 5 of the instrument establishes the criteria for those entitled to receive notice of an application for rectification. It also specifies the information that must be included in the notice.

Accordingly, Regulation 6 lays down the grounds for interested parties objecting to such an application while confirming how objections should be made and the time limit for making them. Regulation 6 also sets out how the register is to determine whether to accept an application for rectification where an objection has been received.

Without these regulations, it would not be possible for a person to apply for the removal of inaccurate or forged information from the register. These measures therefore strengthen the accuracy and utility of the register.

On the third measure, on protection, Regulation 7 sets out details of an amendment to the existing protection regime. The regime deals with the protection of personal information from public inspection; “protection” means that information is not displayed by Companies House on the public register, although protected information must be provided to Companies House and is available to law enforcement. As it stands, protection can be granted only on an application subject to strict criteria. Applicants must provide evidence that they are, or a person living with them is, at risk of serious violence or intimidation if their details are publicly disclosed. Such a disclosure must result directly from their link with the overseas entity.

The amending provision will remove the requirement to demonstrate the risk of violence or intimidation arising directly from the individual’s association with the overseas entity. The measure will subsequently allow applications for protection that are needed because an individual is at serious risk. They would still need to demonstrate that risk before protection is granted but the risk would no longer need to be linked to the overseas entity.

The amendment will also allow for relevant individuals’ usual residential addresses to be protected if, for example, an individual provides a usual residential address as a service address without realising that it will be displayed on the public register. The person will then have to provide an alternative address to protect their usual residential address. These changes are necessary because it has become apparent that the current criteria lack flexibility. Without these changes, there is a real risk that, by publicly disclosing their details, some people will be in danger of serious violence or intimidation due to the ease with which a link could be made to their residential address.

To sum up, the measures in these regulations are crucial for the effective operation of the register of overseas entities. I hope that noble Lords will support these measures and their objectives. I commend these draft regulations to the Committee.

[Lord Wallace of Saltaire (LD)]

My Lords, we welcome this small adjustment to last year’s Act. I think we all approach it from the angle of the Committee on this year’s economic crime Bill, and the Minister is well aware that the largest concern coming out of its successive sittings is about how serious the Government are on enforcement. That question will continue all the way through our consideration of that Bill and it relates to this SI a little.

We are aware of the problem we have with properties in London owned by foreign companies, particularly where it is not clear who owns them, and, to a more limited extent, with land across the UK. We are conscious that this leads to a loss of tax revenue because, if you cannot identify the owner, you cannot get the rates paid or whatever. I have not yet seen an assessment of how much revenue is being lost to local councils and others from this hole, but it must be considerable.

I was told that 40% of properties in the Nine Elms development around Battersea Power Station have been sold to people from outside the UK. That is a large amount, and we know that there are a considerable number of areas, including Belgravia, where the lights are off.

Over the weekend, I was quite surprised to get some interesting statistics from an organisation with which I was not previously familiar called Open Ownership. I note that Transparency International is one of the entities that funds and supports this new body. It gave me some very interesting figures including that, of the beneficial owners personally registered, some 70 appear to be under the age of 12, one appears to have been born in 1897, which makes him 126 now, and another was born in 1907, which makes him 116. There are possibly one or two inaccuracies in what is being reported. Perhaps the Minister will say a little about how checks will be made on what comes in, so that rectification can take place.

I was even more interested to discover that the overwhelming majority of individuals identified as beneficial owners so far were British, by both nationality and residence. I had expected more to be from Asia—Hong Kong, mainland China and Singapore—and areas of eastern Europe, Cyprus and elsewhere. The large majority of companies mentioned as beneficial owners were registered in either the UK or the three Crown dependencies. If what I have received is accurate, it suggests a considerable amount of a different sort of economic crime under way here, which is called tax evasion. There may be a substantial loss of revenue to the United Kingdom that, as we proceed further down this line, we might at last begin to tackle.

While I welcome this small step forward, we have a long way to go. There are a lot of questions about what we do with this information as we gather it and if this information is correct. One of the questions raised in the Committee on the Bill was how much capacity Companies House will have to go through this and trigger action on it, and with which agencies the Government will then pursue that action.

I apologise to the Minister for not having given notice of the questions I have just thrown at him, but I received this SI only two or three days ago. I welcome the regulations, but we still have a lot of other things to do in this large and complicated area in which the United Kingdom Government and, as we know from other areas of economic crime, British citizens lose a lot of money.

--- Later in debate ---

[The Earl of Minto (Con)]

I thank both noble Lords for their valuable contributions to the debate. The Government are committed to ensuring that the register of overseas entities is robust and effective at tackling the use of UK property to launder money. These regulations provide the mechanisms that ensure that the register of overseas entities operates effectively. A clear definition of “foreign limited partner” provides greater certainty concerning registrable beneficial owners of overseas entities; I have a full definition for the noble Baroness that I can share. Applicants will be able to identify registrable beneficial owners more easily with a definition that is recognisable across multiple jurisdictions.

The amendment to the protection regime will address the unintended consequences of the regulations as they stand, by removing the requirement to demonstrate the risk of violence or intimidation arising directly from the individual’s association with the overseas entity. The measure on rectification ensures that errors on the register, whether deliberate or accidental, are identified and removed. The points raised by noble Lords highlight the necessity of the measures in these regulations, and I will answer some of them now.

The noble Lord, Lord Wallace, raised the question of accuracy—that is definitely ongoing. I do not think Companies House fully knows the number of inaccurate entries, but it still stands by the estimate it has used before of there being 32,000 registrable entities in total. We are up above 28,000 now. Although there will be some inaccuracies, I hope that by continuing to approach these organisations, Companies House will iron them out. I have not been involved in this sort of thing before but, despite the fact that it has taken some time to get there—it took the atrocious situation in Ukraine to bring this to the fore—it has certainly made some significant progress in getting that many people to register in such a short period of time. However, the point is well made that the accuracy of the register is paramount, including in terms of lost revenue.

On the younger people mentioned, I understand there are issues of family trusts, particularly with UK beneficial owners. That point, too, was well made. I could go through what is meant by the “foreign limited partner”, but I would rather share that with the noble Baroness. I hope that answers some of the more direct questions, and I will write to noble Lords if there is anything that I have not answered.

[Lord Wallace of Saltaire (LD)]

May I ask two questions, not to be answered now but perhaps in a letter? First, checking the accuracy of everybody’s name on the register will not be easy. Particularly for those that are not registered in Britain—those relying on co-operation from foreign authorities—it raises a large number of questions about how we get other authorities to co-operate with us and what multilateral network there is to ensure that they provide accurate information. I would appreciate knowing more about that.

Secondly, we are all familiar with the cascade of companies that one often finds—you go to the first company, which is owned by two different companies in two different jurisdictions and so on. If we are serious about this, how are we going to work through that, given that we are dealing not simply with overseas territories officially under British sovereignty but with other offshore financial centres which do not have a good record of co-operating to provide accurate information?

[The Earl of Minto (Con)]

Behind the noble Lord’s question is the question of resource. Companies House has 120 full-time equivalent staff working on this and pursuing precisely what the noble Lord referred to. I hope that will continue to improve the situation as time moves on, but the point was very well made.