Draft Register of Overseas Entities (Penalties and Northern Ireland Dispositions) Regulations 2023

Seema Malhotra Excerpts

Monday 22nd May 2023 General Committees

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

It is a pleasure to serve under your chairship, Dame Angela. This is a very important statutory instrument and one that I am sure the Minister will agree with me is well overdue; it was seven years ago that the then Prime Minister, David Cameron, made the first of many promises to introduce a register of overseas owners of UK property.

The SI implements aspects of the register of overseas entities by conferring a power on the registrar to impose a financial penalty on a person if they are satisfied, beyond reasonable doubt, that the person has engaged in conduct amounting to an offence under part 1 of the Economic Crime (Transparency and Enforcement) Act, and by allowing the Secretary of State to consent to the registration of a land transaction that would otherwise be prohibited in relation to Northern Ireland, bringing it in line with England, Scotland and Wales.

We should remember that the Act was passed last year as emergency legislation in the light of the situation in Ukraine and the need to sanction Russian oligarchs. Its primary purpose was to set up a register of overseas entities and their beneficial owners and require overseas entities who own land in the UK to register in certain circumstances.

Back then, we said that the Government had dragged their feet on stopping dirty money flowing through our economy. These steps were first promised in 2016, and since then £1.5 billion-worth of property has been bought by Russians accused of corruption or links to the Kremlin. In 2016, the UK implemented a register of beneficial ownership of UK companies that is called the people with significant control register and provides information to Companies House about who holds significant control of UK companies. However, there was ongoing concern about overseas entities owning property in the UK to obscure their identity when concealing illicit funds or laundering money through UK property.

The establishment of the register of overseas entities introduced a requirement for any legal entity governed by the law of a country other than the UK to register the details of individuals who own property in the UK who would otherwise hide their identity behind a foreign company. There is no doubt that we need it as part of our tools to deter and disrupt economic crime and money laundering, as well as to protect our financial systems and our economic security and, frankly, to know who owns what in Britain. During the passage of the Act, we debated at length the speed with which action was required, so it is utterly frustrating that going through these important SIs to ensure that the registrar has the necessary powers is taking so long.

The provisions of this SI are common sense and we support them, but the delays have had a cost. We want to see action stepped up against those failing to comply with the new legislation who have yet to face financial penalties, and we want the system to be robust enough to operate as a deterrent against further economic crime.

The register was set up on 1 August 2022, and overseas entities had a transitional period of six months to register. Failing to update the register, failing to respond to an information notice, responding with false information, or selling land before the transitional period ended without providing information about its status are some of the offences in the Act to which the penalties that we are debating could apply.

Transparency International claimed in February 2023 that almost half of the companies required to declare their ownership—more than 18,000 companies, which between them hold almost 52,000 properties—had failed to do so. Last month, I asked the Minister how many were yet to comply, and at that point around 7,000 companies had yet to register. In our last SI debate, the Minister sought to reassure me—as he does today—that

“Companies House is…preparing cases for enforcement”—[Official Report, First Delegated Legislation Committee, 24 April 2023; c. 8.]

against some of those companies. I will come back to the respect in which that enforcement preparation is under way, and how quickly some of the powers will be used.

This is important, because a BBC investigation noted a few days ago that 5,000 firms with property in England or Wales have failed to submit their details, three months after the January deadline. The Minister says today that the figure is more like 3,000 firms. He suggested some of the reasons why, and he may have evidence for that. He also suggested that around 750 overseas entities that sold their property before the end of the transition period had complied with legislation by sending their information through to Companies House. Are there some that did not do so? It would be helpful if the Minister could update me on that and provide more information; he can do so in writing after the Committee, but perhaps he can go back over some of the figures he provided.

The 2022 Act set a fine of up to £2,500 a day for overseas companies that own UK property but do not declare their owners. That was increased in Committee from a measly £500—that figure was challenged, and an amendment was accepted that made it £2,500 a day—but I understand that, because it has taken so long since the Act was passed to implement the power to impose financial penalties, no person or entity has been issued with a penalty. That includes firms that have been linked to oligarchs such as Roman Abramovich.

I would be grateful if the Minister could confirm that it is the case that no warning notices have gone out and, therefore, no financial penalties have been issued, and that no penalties will be able to be applied in respect of the three and a half months since January. Perhaps the Minister can clarify that, because there may be something in the legislation that I have missed that suggests that it may be possible for a fine to be retrospective. Estimates from the BBC investigation suggest that had we been imposing fines since the January deadline, they could have added up to £1 billion.

I will ask the Minister about the detail of the SI, so that we can all be confident that it will be fit for purpose. First, how soon after the passing of the SI will the registrar be able to issue financial penalties? I imagine warning notices will have to be issued first, unless there has been any provision for warning notices to be sent out in advance of the SI being passed, so financial penalties can be issued immediately.

Secondly, on the warning notices the dates of appeal suggest that a period of 28 days needs to be passed. We had some debate around that previously, and I was not very clear on it then. The draft regulations state that the period contained within any warning notices

“must be at least 28 days beginning on the day after the date of the warning notice”.

Is the period within which a company or entity would have to make a representation to the registrar if they disagreed with what was in the warning notice within 28 days or a minimum of 28 days? That was not very clear, and it is important for it to be clear.

If any warning notices have been issued—I am not fully clear on the detail of the legislation, which seems to imply that warning notices and financial penalties can be issued only after the SI is passed—have any written representations been received? Draft regulation 5(2)(f) in part 2 also refers to 28 days. It would be helpful to be clear whether any payments sought in relation to a penalty, whether it is a fixed penalty or a daily penalty, have to be paid within 28 days. Is that the case prior to the interest accruing? I would be grateful for clarity on that. For those who have billions to spare, is that just what will happen? Will it be 28 days, plus the interest accruing?

How does the £2,500-a-day fine that was discussed during the passing of the parent legislation align with the bands that the Minister has talked about today? I think the amounts that he described were £10,000, £20,000 and £50,000. I think that would be significantly lower than a fine of £2,500 a day, but perhaps he can clarify how that will be calculated, and how the period since 31 January has been accounted for. What assessment has he made of the level of resources and whether they are sufficient for the analysis that needs to be done, the issuing of notices and financial penalties, and penalty enforcement, which, as he outlined, is also an important part of the SI?

As I have raised previously with the Minister, there are still issues with the register of overseas entities not covered by the SI. I thank him for responding to my concerns around the 25% threshold for beneficial ownership, on which I think we still disagree, but I note that in his written response to me dated 9 May he did not respond to my concerns about another major loophole: the use of opaque offshore trusts, which enable overseas entities to access UK property and markets behind a cloak of anonymity. I would be grateful if he came back to me on that point in my previous correspondence.

In summary, the Opposition support the changes introduced by the SI, but it is utterly vital that the Government get their act together on dealing with economic crime, tackling loopholes and ensuring that we can take action quickly. It is years since action was initially promised, and there is a financial and security cost to that delay. I look forward to the Minister’s response.