Property ownership transparency measures may not catch ultimate beneficial owners, says expert

Out-Law News | 16 May 2016 | 11:38 am | 2 min. read

Plans to force disclosure of the beneficial owners of foreign companies that hold or wish to buy UK property, or to bid for government contracts, may not in fact have the desired effect, an expert has said.

Prime minister David Cameron announced that non-UK companies will be required to join the UK's new public register of beneficial ownership information before they will be permitted to buy UK property or bid for public contracts. However, tax expert Jason Collins of Pinsent Masons, the law firm behind Out-Law.com, said the measures would not necessarily make it public who really owns and controls those companies.

"If the companies that own the property are ultimately held by a trust, the company may only need to note the trustee on the register," he said. "I suspect there will be a clamour for the rules to require settlors, protectors and the ultimate beneficiaries of those trusts to be disclosed."

"A lot of high net worth individuals will think that is pushing transparency too far at the expense of their privacy. Most of these people will have a very legitimate reason for wishing to maintain privacy. Public registers may just promote vigilantism and voyeurism. Those with something to hide will probably find ways to beat the system anyway – there do not seem to be many ideas on how resources will be deployed to make sure the information on the registers is accurate," he said.

Since 6 April, UK companies and limited partnerships have been obliged to keep a register of 'people with significant control' (PSCs); meaning individuals who hold more than 25% of their shares or voting rights, have the right to appoint a majority of directors or have the right to exercise, or actually exercise, significant influence or control over the company. Companies will have to supply this information to Companies House from 30 June 2016 when they file the company's confirmation statement; which is the replacement for the annual return. A company's PSC register can be inspected free of charge by those with a 'proper purpose' and most of the information supplied to Companies House will be publicly available.

It is not yet clear what information will be required of companies owning UK property or participating in government contracts, although an announcement from the Prime Minister's Office referred to "beneficial ownership information". The announcement also confirmed that the same information will be required of foreign companies that already own property in the UK and not just those wishing to buy. Foreign companies currently own around 100,000 properties in England and Wales, of which over 44,000 are in London, according to UK government figures.

"Clearly, any step by the government to identify who ultimately owns these properties is a good thing in an open society," said civil fraud and asset recovery expert Alan Sheeley of Pinsent Masons.

"However, it is unfair to bash all the offshore jurisdictions in isolation and force the UK companies to identify their true owners without also looking across the pond to the US. If governments are to stand united in the fight against fraud it is imperative that the US forces through the same measures, and a key measure is a public register of true company ownership," he said.

Writing in the Guardian ahead of a global anti-corruption summit in London, Cameron said that the government was also "consulting on reversing the burden of proof, so that if we suspect people of using stolen money to buy property we can force them to prove they accumulated their wealth legitimately - or they will face having it stripped from them by a court". The government is consulting on giving the courts new powers to issue unexplained wealth orders (UWOs), with linked civil forfeiture powers, as part of anti-money laundering reforms published last month.

Last month, the EU's five largest economies committed to automatically exchange company beneficial ownership information between them. However, this information will not necessarily be made publicly available in the same way as in the UK. As part of the anti-corruption summit, the UK government has announced that 40 jurisdictions will now participate in this pilot project, including a number of Overseas Territories and Crown Dependencies with major financial centres; and that France, the Netherlands, Nigeria and Afghanistan have committed to making their own registers public.