U.K. Register of Overseas Beneficial Owners Raises Concerns

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By Ali Qassim

The U.K.’s plan to create a beneficial ownership register of overseas companies that own U.K. property isn’t necessarily the silver bullet in the fight against money laundering and tax evasion.

Instead, a register could end up dampening future investment in the U.K.’s property market and creating costly administrative burdens for businesses, while failing in its ultimate aim of deterring criminals, according to tax practitioners interviewed by Bloomberg BNA.

Register Will Shine ‘Light on the Shadows’

A supporter of the register, Rachel Davies, Head of Advocacy at Transparency International UK, told Bloomberg BNA that more than 75 percent of properties under investigation for corruption in a recent 10-year period used offshore corporate secrecy, “showing that it is a major vehicle for this kind of activity.”

To address the problem, the government has devised a register it describes as “the first of its kind in the world” to which all overseas entities will be obliged to disclose information about their beneficial owner or face restrictions on buying and selling property in the U.K.

The proposals—for which organizations are invited to submit comments until May 15—will also cover overseas firms seeking to bid for U.K. government procurement work.

“This register will go some way to shining a light on the shadows where corrupt individuals are currently able to stash their wealth,” Davies said.

The government also argues that tougher reporting rules for overseas firms are fairer to British companies, which since last year have been required to give information on those with significant control to U.K. agency Companies House for a so-called PSC Register.

As Ion Fletcher, director of finance policy at the British Property Federation, told Bloomberg BNA, a second register would “establish a level playing field between U.K. and overseas business.”

Will Register Deter Foreign Investors?

But as the government acknowledges in its call for evidence on its proposals, “the downside” of planning the first such register in the world “is that we do not have a model to work from.”

David Stevens, who as integrity and law manager at the U.K.'s chartered accountants body ICAEW oversees economic crime and ethics, concurs. “In many ways, the success of the register may be dependent on other countries following suit” and “that remains to be seen,” he told Bloomberg BNA.

Without similar action in other jurisdictions, Dawn Register, a partner in the tax dispute resolution team at London-based tax and accounting firm BDO, agreed that foreign investment into the U.K. property market “could be diverted to another stable economy in Europe.” There is “clearly a disadvantage of going first,” she told Bloomberg BNA.

The BPF, whose members include real estate firms and institutional investment and investment banks, is only too aware of the potential negative impact on real estate. “The important thing will be to strike the right balance between more extensive disclosures and minimizing burdens on legitimate commercial activity,” Fletcher said.

Will Disclosed Data Be Credible?

Stevens asked whether information that overseas firms would be required to disclose would be credible. As the registrar of companies in the U.K., Companies House tends to “accept what they’re given and files it,” he said. “There is no quality control, no due diligence on information on point of submission.”

He highlighted that “if there is something” that the Panama Papers scandal showed, “it is that beneficial ownership information can be manufactured. Time will tell about the quality of information that ends up in the register.”

BDO’s Register agreed. “If you’re a determined, hardened criminal involved in money laundering or drug dealing or from a corrupt government, you will find ways around by using a false name or a front man,” she said.

In the meantime, for the majority of those “already compliant people,” the new requirements will “create another layer of regulation” as well as “more administrative burdens,” she said, pointing out that the government will need to undertake a study on potential business costs.

Privacy, Security Concerns

Tougher disclosure rules may also deter individuals overseas from “unstable” countries—at war, for instance—who may “want to conceal their identity,” according to Register.

There are also cases of “celebrities and high profile people who uses entities to avoid having their name appear on registers. They may be fully compliant with tax but don’t want the public to know for security reasons,” she said.

Most Effective Enforcement

The government’s current enforcement proposals include criminal sanctions, which Register argues may be “too harsh” for those firms which are generally compliant but have failed to disclose information due to an oversight.

Register isn’t convinced the National Crime Agency, for instance, requires more information or transparency to prosecute overseas firms suspected of money laundering, arguing it would be more effective to “follow the money.” The government has new tools at its disposal, such as implementing the common reporting standard on automatic exchange of information.

The IAEC also considers that it would be more helpful to establish the credibility of the sources of funds used by overseas firms for the purchase of property, he said. One current proposal that he thinks the government has “reasonably though out” involves freezing a firm’s appropriate assets if it fails to fulfill the information disclosure requirements.

More widely though, Stevens questioned the deterrent value of sanctions for failing to provide information to the Register. “If I’m an international drug lord, I don’t know if I’d bat an eyelid if the offense of providing false information to Companies House is added to my misdemeanors,” he said.

To contact the reporter on this story: Ali Qassim in London at correspondents@bna.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bna.com

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