5th July 2017

BEIS - Clamping down on corruption

The Conservative Party's manifesto for the election earlier this month included a pledge to update the rules governing takeovers to allow for greater scrutiny of foreign investment in UK companies. Furthermore, on 5 April 2017 the department for Business, Energy and Industrial Strategy (BEIS) published a call for views on a proposal to establish a register of beneficial owners of overseas entities that either own UK property, or engage in UK government procurement. The new register would require the same information as the existing PSC register, while the proposed timeframe for renewing entity details in the overseas register would be two years.

The Conservative Party's manifesto for the election earlier this month included a pledge to update the rules governing takeovers to allow for greater scrutiny of foreign investment in UK companies. Furthermore, on 5 April 2017 the department for Business, Energy and Industrial Strategy (BEIS) published a call for views on a proposal to establish a register of beneficial owners of overseas entities that either own UK property, or engage in UK government procurement. The new register would require the same information as the existing PSC register, while the proposed timeframe for renewing entity details in the overseas register would be two years.

Purchase of land or real property

The Land Registry presently records the name of non-UK companies that own real property, and the country in which they are registered. The Land Registry can also ask for constitutional documents, but this information is not publically available. BEIS found that the information that is currently required does not provide sufficient transparency as to ownership which is a particular concern given that property is a convenient way of hiding the proceeds of crime, with 75% of the properties investigated for suspected corruption being held through offshore corporate ownership. BEIS recommended that an overseas company looking to acquire UK property should have to supply its beneficial ownership information to Companies House. An individual registration number would then be provided which the overseas entity would need to use to register the title of property to the Land Registry

If an entity already owns property in the UK, it would have a year’s grace period to provide details of the beneficial owners and receive a registration number. If no details were provided then it would be unable to sell or buy any further property, by virtue of a restriction placed on the register.

Procurement

The government is also considering requiring any overseas entity bidding on a contract with the UK government to identify its beneficial owners. This proposed requirement would not be retrospective and would only apply to governmental contracts valued at more than £10 million. The suggestion is that whilst it will be mandatory for central government procurements, the scheme would be discretionary for wider public bodies. The system would give the government the opportunity to view the ownership of all companies in the bidding process with complete transparency.

BEIS suggests three possible ways in which the government could obtain the beneficial owner details from companies:

  1. any winner of a bid could be required to disclose beneficial owner information as a form of "final confirmation";
  2. any entity that does not provide beneficial ownership information when requested would have its bid excluded from the bidding process; or
  3. any bid not containing information about its beneficial owner would be rejected outright.

Enforcement and sanctions

There are many potential issues with sanctioning either a failure to provide beneficial ownership details or the provision of inaccurate details. Whilst the domestic PSC register has criminal and fiscal penalties, it is more difficult to enforce these to an overseas entity. Possible alternatives include: imposing a daily fine or sanctions that link to the company’s business activities; implementing a ban on buying and selling property; or barring the entity from taking part in bidding for public contracts.

For further information on this matter or advice on the implications of an overseas PSC register for your company, please contact John Richardson (jrichardson@thrings.com) on 0117 930 9522.


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