UK government consults on access to trust data amid allegations of ‘gaps’ in Register of Overseas Entities

Jonathan Watson, IBA Finance CorrespondentMonday 15 January 2024

Research carried out by the University of Warwick’s CAGE Research Centre has suggested significant gaps in the UK’s Register of Overseas Entities (ROE). The ROE was pushed through in summer 2022 in response to the Russian invasion of Ukraine. Its promise is that, in the UK government’s words, it’ll ‘require anonymous foreign owners of UK property to reveal their real identities to ensure criminals cannot hide behind secretive chains of shell companies’.

In May 2023, Companies House – tasked with implementing the ROE – explained how the ROE was ‘delivered in just 109 working days and now has more than 27,000 registered overseas entities, with the register itself searched 405,178 times [up to 30 April] […] Information on beneficial owners has been accessed 89,574 times.’

The CAGE Research Centre’s report, Catch me if you can: Gaps in the Register of Overseas Entities, found that 152,000 properties in England and Wales are currently held by overseas entities. However, for 71 per cent of them, essential information about their beneficial owners is still missing or publicly inaccessible.

And for 35 per cent of properties owned via overseas shell companies – 54,000 out of 152,000 – even law enforcement agencies don’t know who really owns them. In 10 per cent of cases, amounting to 15,000 properties, the company is missing from the ROE altogether, and in a further 25 per cent, essential information hasn’t been reported. ‘Although the ROE is a major step forwards in tackling corruption and improving transparency of land ownership in the UK, there is no point building a dam halfway across a river,’ says the report. ‘The existence of major gaps is threatening the efficacy of the entire register, whether measured against the government’s previous statements or current policy position.’

If you don't know who is behind a company, how can you enforce sanctions?

Simone Nadelhofer
Anti-Corruption Committee Liaison Officer, IBA Business Crime Committee

One of the key problems identified is that if properties are part of a trust structure, the beneficial owners of the property aren’t made public. One law firm has described this as a ‘lacuna’ that ‘would seem to defeat the purpose of the legislation’.

The report recommends that the information Companies House holds about trusts should be published, unless covered by the protection regime for vulnerable individuals. The government claims that trust information is special because ‘most trusts are family affairs, and many are set up for minors or other vulnerable people’. The CAGE Centre’s report also recommends requiring overseas entities to provide trust information to Companies House where they are acting as trustees or nominees.

The report was published a short time before the UK Parliament debated the Economic Crime and Corporate Transparency Bill (ECCTB). Campaigning organisation Transparency International and others wanted the House of Commons to support an amendment introduced by peer Lord Agnew and passed by the House of Lords. This would have enabled Companies House to publish information about trusts controlling offshore companies holding land in the UK.

‘We must deal with trusts without further delay, without further consultation and without kicking the can further down the road,’ said Member of Parliament (MP) Alison Thewliss during the House of Commons debate on the ECCTB. ‘Here is the opportunity to do that […] trusts are being used to hide the ownership of thousands of overseas entities under the current regime.’

Margaret Hodge MP, who chairs the UK’s All-Party Parliamentary Group on Anti-Corruption and Responsible Tax, claimed that in 87 per cent of cases where information is either missing or inaccessible, ‘it is because of Government choices in the design of the scheme. It is not because people are not obeying the law. It is because the Government have chosen to design the scheme in that way’.

The government didn’t accept the amendment and the ECCTB received Royal Assent and became UK law in October. ‘Information currently held by Companies House was submitted by overseas entities in the expectation that it would not be available for public inspection,’ said Kevin Hollinrake MP, Parliamentary Under-Secretary of State for Enterprise and Markets. ‘Making such information available for public inspection would come with a number of risks, including the possibility of legal challenge.’

However, when the bill became law, it provided powers for the government to create regulations granting access to trust data on application, in circumstances to be detailed in those regulations. At the end of 2023, it launched a consultation as part of this process. One of the options proposed is that data identifying the beneficial owners of land held by trusts would be public by default, subject to ‘safeguards’ to prevent criminal use of the information.

‘We urge the government to put a system in place that allows access for civil society and journalists to the register of ROE trusts information itself – the full data set, not just individual entries upon request – to enable the kind of network analysis that ensures colleagues like mine can identify suspected criminal activity and share this with UK law enforcement,’ says Rose Zussman, Senior Advocacy Manager at Transparency International UK.

The drive for transparency continues across Europe. Even in Switzerland, there’s a similar initiative, says Simone Nadelhofer, Anti-Corruption Committee Liaison Officer on the IBA Business Crime Committee and a partner at Lalive, Zurich. ‘Switzerland has held a consultation on plans for a register in which companies must record their beneficial owners,’ she says.

This consultation ended in late November and a first draft is expected to be presented to the Swiss parliament later in 2024. ‘This is controversial,’ explains Nadelhofer, ‘because it represents a change of paradigm for Switzerland, where there is a long tradition of secrecy.’

This anti-money laundering (AML) initiative is mainly being driven by intergovernmental organisation the Financial Action Task Force – which sets standards and promotes measures to fight money laundering, terrorist financing and other threats to the financial system – and the EU. But sanctions are also a factor behind it. ‘If you don't know who is behind a company, how can you enforce sanctions?’ Nadelhofer says.

Switzerland isn’t planning a public register. Instead, its register ‘will be a tool for the authorities to check beneficial owners,’ Nadelhofer says. ‘That could be the criminal authorities, AML authorities or tax authorities, along with financial intermediaries who need to carry out “know your customer” AML due diligence, like banks and asset managers.’

The IBA has recently launched an anti-corruption survey for the legal profession. Available in four languages (English, French, Spanish and Portuguese), we want to understand the issues faced by lawyers around the world, their awareness of the risks, the laws and the international implications. Only with data can we determine the most effective action. Take the survey here.

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