UK sets out punitive enforcement regime for Register of Overseas Entities

UK Companies House issued, on 1 May, new guidance on its approach to compliance and enforcement in respect of the Register of Overseas Entities that was introduced under the Economic Crime (Transparency & Enforcement) Act (ECTEA) to capture information about beneficial ownership of Overseas Entities that own UK land.

Under the ECTEA, Overseas Entities (OEs) that own UK property or land are required to declare their beneficial owners or managing officers. OEs cannot buy, sell, transfer or lease land, or create a charge against the land in the UK unless they have registered with Companies House.

This information is then held on the Register of Overseas Entities (ROE) and OEs are further required to update their information at least once a year. Most of the information is publicly available.

The ROE was launched on 1 August 2022. In scope OEs that already owned property or land in the UK were required to register within a six-month transition period, by 31 January 2023.

The new Companies House guidance sets out its approach to compliance and enforcement. There are a wide range of potential offences for contravention of the ECTEA that apply to OEs, their beneficial owners and, in some cases, their managing officers. A person found guilty of an offence could receive a prison sentence, a fine, or both. The fines are punitive.

Sovereign Corporate & Trustee Services (SCATS) is a UK-assured agent for the purposes of the ROE. It has been issued with an Agent Assurance Code that is required to authenticate a verification statement when an OE is registered or when an Update Statement is filed. We can assist with all enquiries about your ROE compliance.

Enforcing compliance

Where help and advice does not secure compliance with regulatory requirements, Companies House will use a consistent and proportionate approach to enforcement.

On 20th May 2024 the Companies Act 2006 was amended with the insertion of s.1092A that grants a power to the Registrar to require a person to provide information to determine whether a person has complied with the obligation to deliver a document to the Registrar; and may specify the form and the manner it’s to be provided and the period within which it’s to be provided.

It will take account of the seriousness of the breach of the law; the risk and impact to people, the economy or the integrity of the register; the cost and benefit; and the public interest.

Companies House will prioritise resources according to intelligence, focusing on offences where there has been persistent, repeated and wilful non-compliance. Where appropriate, alternatives to criminal prosecution may be considered to secure compliance with regulations.

Types of sanction

• Restrictions – OEs that have failed to register with Companies House, or which fail to comply with the updating duty, will face restrictions on selling, leasing or raising charges over their land. They will also be prohibited from purchasing any new UK property without a valid registration.
• Prosecution of criminal activity – Companies House may refer the most serious cases to the Insolvency Service and other law enforcement agencies to be considered for prosecution. Once a case has been referred, all decisions about investigation, charging and prosecution rest with the prosecuting authority.
• Civil financial penalties – The Registrar may impose a civil financial penalty when satisfied beyond reasonable doubt that an offence has been committed. Depending on the offence, this can be a fixed penalty, a daily rate penalty or a combination of both.

Warning notices

If it suspects an offence has been committed, the Registrar will issue a warning notice to the OE. This will set out the grounds for suspicion and a warning that the Registrar may issue a penalty if the entity fails to contact Companies House within a specified time – at least 28 days – or if the response is not considered to be acceptable.

Penalty notices

If satisfied that an offence has been committed, the Registrar will issue a penalty notice to the OE. The amount will depend on the level of culpability and harm involved in each case. Factors including evidence of intent and previous penalties or conduct will be assessed.

For offences relating to the ROE, the Registrar will use the estimated value of each property, based on its Council Tax band, to estimate the scale of the potential economic crime facilitated by the offence. If Council Tax data is unavailable, it will consider the business rateable value when calculating the penalty.

The Council tax bands differ between England, Wales and Scotland but the penalty rates are punitive.

If neither the Council Tax banding nor business rateable value is available for a property, the Registrar will consider the House Price Index when calculating the penalty.

If none of this data is available, the Registrar will assume the property has a value that attracts a medium level penalty. The medium level penalty is £20,000.

To determine the penalty amount, the Registrar will also consider any representations by email or in writing from an entity or individual. This can include information about financial means and ability to pay a penalty.

If an OE complies with the requirements before the end of the warning notice period, the matter will be reconsidered.

To appeal a penalty notice, an OE or individual must seek the permission of the court within 28 days of the date of the penalty notice. An OE or individual must also notify the Registrar, include the grounds for appeal, by email or in writing within seven days of applying for permission to appeal.

If a penalty is not paid within 28 days of the date of the penalty notice, the Registrar may seek to enforce the debt through the courts. This may result in a charge being placed on the entity’s property.

In the case of continued non-compliance with the requirements following the issue of a financial penalty, the Registrar may issue further penalties for continued contravention. The ongoing nature of the offence will be considered when determining the penalty amount.

Types of offence

• Failure to comply with updating duty – If a registered OE fails to comply with the duty to update the register, an offence is committed by the entity and by every officer of the entity who is in default. A person will be in contravention of the ECTEA until the registered OE has delivered the statements and information required. Every officer of the registered OE commits an offence in the case of continued contravention, regardless of their role in the initial offence. A person guilty of this offence may be liable to a fine, and, if the contravention continues, a daily default fine.
• Failure to register by the end of the transitional period – If an OE is required to register by the end of the transitional period but does not, the OE and every officer of the OE commits an offence. A person found guilty of this offence could receive a prison sentence, a fine, or both.
• Failure to comply with notices – A person commits an offence if they fail to comply with a notice and cannot provide a ‘reasonable excuse’ for this failure. If a person also commits an offence if they make, or recklessly make, a statement that they know to be misleading, false or deceptive in a material particular when responding to a notice. If either of these offences is committed by a legal entity, the offence is also committed by every officer who is in default. A person found guilty of either offence could receive a prison sentence, a fine, or both.
• Resolving inconsistencies in the register – If the Registrar believes information delivered by an OE is inconsistent with other information on the ROE, it may give notice stating that it requires the OE to take steps to resolve this inconsistency. Any documentation to resolve the inconsistency must be delivered to the Registrar within 14 days of the date of issue of the notice. The OE and every officer of the OE commits an offence if it fails to submit the documentation within this time. A person found guilty of an offence could receive a prison sentence, a fine, or both.
• False filing offences – It is an offence for a person to deliver or cause to be delivered to the Registrar any document that is misleading, false or deceptive in a material particular or to make any statement that is misleading, false or deceptive in a material particular. Without ‘reasonable excuse’, a person guilty of this offence is liable to a fine. Each case will be considered on its individual facts.
• Aggravated false filing offences – If a person knowingly delivers, or causes to be delivered, a document or statement to the Registrar that is misleading, false or deceptive, it is considered an aggravated offence. A person guilty of this offence could receive a prison sentence, a fine, or both.
• Failure to register if required by the Secretary of State for the Department for Business & Trade – The Secretary of State may, by notice, require an OE to apply for registration within six months of the notice. The offence is committed by the OE and every officer of the OE who is in default. A person found guilty of the offence could get a prison sentence, a fine, or both.
• If an entity disposed of land between 28 February 2022 and the end of the transitional period – It is an offence if, at the end of the transitional period, an entity that is not an exempt OE, has not:
  • Registered as an OE.
  • Made an application for registration as an OE that is pending.
  • Provided the required information about the situation immediately before disposing of land.
  • Provided the required information about the disposal of land.

The offence is committed by the OE and every officer of the OE who is in default. A person found guilty of the offence could receive a fine and, for continued contravention, a daily default fine.

Any OE or individual who is unsure of their compliance with the ECTEA should seek further advice. Please contact SCATS urgently if you have any enquiries about your compliance. As a UK-regulated agent for the purposes of the ROE and an ‘Assured Agent’ with Companies House, SCATS can assist with registration, annual updates, verification of information, responding to warning or penalty notices, or applying to remove your OE from the ROE.