August 11, 2022 Mind the Gap: The Register of Overseas Entities and Beneficial Owners
As a UK-regulated agent, Elemental is working closely with clients to help them identify their Beneficial Owners and complete the full registration and verification requirements of the Register of Overseas Entities. However, the legislation underpinning the Register (Economic Crime (Transparency and Enforcement) Act 2022 (“ECTEA“) is missing powers to require beneficial owners to provide the evidence needed to complete the verification.
Identifying the beneficial owners and relevant information
Before making an application for registration, an overseas entity must take reasonable steps to identify its registrable beneficial owners (s4 ECTEA) and to obtain the required information about each registrable beneficial owner and the required information about any relevant trust.
To assist with this, there are powers under s12 and s13 of ECTEA for the overseas entity to serve notices on a potential beneficial owner and any other person to provide this information. These rules are heavily based on the provisions under the Persons with Significant Control legislation and are fairly well settled.
These notices are also backed up by criminal sanctions under s15 ECTEA and failing to respond (or recklessly or knowingly making a false statement) can be punished by a fine or up to two year’s imprisonment.
Verifying the beneficial owners
Before the overseas entity can make an application to register on the Register of Overseas Entities, the relevant information must be verified by a regulated agent (such as Elemental) in the UK. As part of this, we will obtain independent evidence on the beneficial owners. This will include evidence such as the passport of the beneficial owner and proof of address (amongst other things).
Failure to verify the beneficial owners
In most cases, the beneficial owner is happy to provide this information. However, if they are not willing to provide this information and there are no other sources, then we will not be able to verify the information. If the information cannot be verified, then the overseas entity cannot be registered and, once the transition period ends, the overseas entity will be in breach of ECTEA and potentially liable to fines and criminal sanctions.
We are not aware of any power that would enable the overseas entity to force the beneficial owner to provide this evidence.
If the overseas entity cannot identify its beneficial owner(s) or it cannot obtain all the relevant information, there are provisions that enable registration to go ahead notwithstanding this. However, if the overseas entity has identified all of the information but cannot provide the evidence to the UK agent (ie Elemental) to verify, we cannot see any way of completing the registration in a truthful manner.
It feels like only a legislative change will be able to correct this. Section 14 ECTEA provides for the Secretary of State to make regulations for further provision about the giving of notices under section 12 or 13. It may be possible to use this to expand the role of the notices under sections 12 and 13, although we have doubts as to whether this would work.
How we can help
Our Register of Overseas Entities service has been in place since the law came in to force on Monday 1 August 2022. At the time of writing, we are one of only a small number of firms that have successfully used the register. For more information on how we can our process and fees, please contact us.