The latest draft legislation aimed at preventing "McMafia-style" money laundering contains a number of loopholes which could undermine its purpose, a Parliamentary Joint Committee has concluded. The Draft Registration of Overseas Entities Bill has been designed to implement the creation of a transparent register of overseas entities that own UK property, and of individuals that actually control them, in order to combat money launderers who use property to clean or conceal illicit funds. Law enforcement investigations are often hampered by an inability to access information about the individuals who ultimately own or control overseas entities which have been used to conceal the proceeds of crime and corruption. In 2017 160 properties worth over £4 billion were identified as being purchased by high corruption-risk individuals, and 86,000 properties in England and Wales have been identified as owned by companies in secrecy jurisdictions.
The draft legislation provides that when an overseas entity seeks to buy or sell land such entities would be deemed “non-compliant” if they failed to enter the requisite information when registering, or if they failed to register at all. The draft Bill contains sanctions for such entities, the most consequential being restrictions of the ability to transfer the legal title of the land, or let or create a charge over it (although criminal sanctions are also proposed).
The Joint Committee which has scrutinised the draft legislation has determined that there are several loopholes and deficiencies which it recommends are addressed. These are as follows:
- The Bill should cover trusts, which it does not currently as trusts are not technically "entities".
- The Bill allows the Government to exempt certain entities from publishing their information, but the Bill does not make clear exactly which entities can be exempted. The Joint Committee recommended that it should be made clear exactly which entities can be exempted and the Government should publish an annual statement to Parliament the number of times the exemptions are used.
- The Joint Committee recommended that vendors of property must update their ownership information annually and before any proposed transactions take place to prevent information being out of date and ensure accuracy.
- Verification checks should be implanted to prevent individuals from submitting false information.
- Enforcement requires more 'teeth' to ensure that the new law is effective and the Joint Committee suggested that civil penalties may be easier to enforce than criminal penalties against entities abroad, and against land and other assets in the UK.
These are wholly sensible recommendations aimed at ensuring that the proposed legislation achieves its goals. Assuming the Bill is eventually passed into law, it will nevertheless require cohesive practical implementation to ensure its efficacy, namely by having close cooperation between Companies House and the land registries of England, Wales, Scotland and Northern Ireland.