Commons Library analysis: Shining a light on beneficial ownership: what's happening in the UK and elsewhere?

This briefing paper examines

• The meaning of beneficial ownership and its difference from legal ownership
• The current scarcity of public registers of beneficial ownership
• Current rules and legislation concerning beneficial ownership of companies in the UK
• Beneficial ownership of land and real property in the UK, especially concerns that “dirty money” is being laundered through the UK property market
• Beneficial ownership in Crown Dependencies and British Overseas Territories and
• Beneficial ownership elsewhere

Shining a light on beneficial ownership: what's happening in the UK and elsewhere?

The ongoing debate about transparency of ownership tends to highlight two separate (but related) issues:

• the exchange of information between government and law enforcement agencies and
• the making public of information about beneficial ownership.

The Financial Action Task Force (FATF) has defined a beneficial owner as “the natural person(s) who ultimately owns or controls a customer and/or the natural person on whose behalf a transaction is being conducted (…)”.

There are longstanding concerns that, when companies, land or real property are bought through shell companies, so disguising their true ownership, the resulting lack of transparency may allow corruption or crime to flourish. It has been said, for example, that “dirty money” is being laundered through property purchases in prime areas of London.

Many commentators have argued that not only should information about beneficial ownership be gathered by government bodies concerned with tax, property ownership and kindred matters, that information should be published and easily accessible to the public. This latter point remains contentious, with very many jurisdictions not yet committed to the creation of public registers and some having explicitly ruled it out.

The international anti-corruption summit in May 2016

Working to increase transparency around beneficial ownership was therefore one of the themes of the international anti-corruption summit held in London in May 2016. No agreement emerged there about whether information about beneficial ownership, once obtained by tax or other government bodies, should be made public. The summit communiqué pledged firm collective action on beneficial ownership. It did not, though, offer a firm commitment to publication of registers of beneficial ownership but, rather, suggested that this might happen:

"It may include establishing public central registers".

In April this year, Transparency International (an NGO concerned with the general area of corporate and political corruption) published an assessment of progress towards establishing public registers of beneficial interest and named the UK, Ukraine, Norway and the Netherlands as committed to public registers of beneficial ownership.

The Guardian reported after the summit that the number of countries which had committed to creating public registers of beneficial ownership had grown to six, which it named as the UK, Afghanistan, Kenya, France, the Netherlands and Nigeria (thus not naming Norway and Ukraine). The Guardian’s report also summed up other summit commitments concerning beneficial ownership:

• Eleven countries will join the now 29-strong group where lists of beneficial owners are drawn up and shared between governments, although not publicly. Those countries include Cayman Islands, Jersey, Bermuda, the Isle of Man and the UAE.
• The British prime minister used his opening speech to warn foreign companies that own around 100,000 properties in England and Wales that they will be required to disclose their ownership, one of a number of measures aimed at cleaning up London as an international centre for money laundering.
• The US is one of the countries which did not sign up to the pledge to share registers of beneficial ownership, and Cameron said he would keep pushing the Americans to be more accountable, as well as efforts to improve transparency on island tax havens like the British Virgin Islands, which also did not sign up to sharing information.

The countries considering moving towards public registers of beneficial ownership are Australia, New Zealand, Jordan, Indonesia, Ireland, Argentina and Georgia; their respective country statements released after the summit generally speak in terms of “exploring” feasibility.

Public Finance International suggested that the small number of countries pledging to create registers of beneficial ownership and make them public was a measure of the summit’s limited impact:

Barry Johnson, head of advocacy at ActionAid, said that as a result the summit will be “remembered for what has not been achieved”.

What’s happening in the UK?

In the UK, recent debate has centred on beneficial ownership of companies and beneficial ownership of land and real property.

Beneficial ownership of companies in the UK

The Government introduced provisions concerning transparency of beneficial ownership of companies through part 7 of the Small Business, Enterprise & Employment Act 2015, which amended the Companies Act 2006 to require companies to keep a register of “people who have significant control over the company”, often known as PSCs.

Companies were required to have a register of PSCs from 6 April this year. That information must be declared to Companies House from 30 June 2016, with the company’s annual statement, and Companies House’s register should therefore be complete by 29 June 2017.

Companies House published several guidance documents for various types of company and partnership. Amongst them were

• a lengthy guidance document offering non-statutory guidance for companies, societates europaeae and limited liability partnerships and
• another offering guidance for PSCs themselves and
• the PSC register summary guidance. This is an illustrative guide to how the PSC regime applies to some simple company structures (companies with more complex structures being covered in the full guidance).

The guidance on the meaning of significant influence or control for companies and the draft guidance on this for limited liability partnerships is statutory.

The Department for Business, Innovation and Skills’ (BIS) first consultation paper on beneficial ownership – Beneficial ownership transparency: Enhancing transparency of beneficial ownership information of foreign companies undertaking certain economic activities in the UK – was published in March 2016. Chapter 3 dealt with property and noted that there may be changes to the PSC legislation.

Beneficial ownership of land and real property in the UK

Regulation and guidance on beneficial ownership of land and real property is nowhere near as advanced.

Although other concerns have also been expressed - such as about the effects on the housing market and the undesirability (as some commentators see it) of having many properties, especially in central London, that are left empty – much of the concern about beneficial ownership of UK land and real property centres on links with organised crime and money laundering.

Is “dirty money” being laundered through the UK property market?

Of course, most property sales are legitimate and there may be valid reasons why property should be bought through an offshore company. Even so, it is widely accepted that some property in London is being bought with “dirty money”, obtained through corruption or other crime.

The London Evening Standard disclosed in October 2015 that law enforcement agencies in the UK had investigated property sales worth more than £180 million as likely involving the proceeds of crime.

Chapter 6 of BIS’ consultation paper in March 2016 also drew attention to the apparent scale of the problem of offshore companies investing the proceeds of corruption in UK property:

Between 2004-2014, over £180m worth of property in the UK has been investigated by UK law enforcement as suspected proceeds of corruption. Moreover, over 75% of these properties use offshore corporate ownership. This is believed to be the tip of the iceberg in terms of the scale of the proceeds of corruption invested in UK property through offshore companies.

What does the Government intend to do?

Chapter 6 of the BIS consultation paper set out the current position, the problems and the solutions as the Government sees them, which would entail extending the PSC regime to ownership of land and real property and increasing the information provided to the Land Registry and made public.

The Land Registry proposals would apply to England and Wales, but the paper also sought views on whether the Government should work with the devolved administrations to ensure a UK-wide approach. The closing date for responses was 4 April 2016.

One further question is whether public access to the register would be free of charge. The consultation in March 2016 on the possible privatisation of the Land Registry set out how charges are currently prescribed and might be prescribed in the future.

What happens next?

BIS is currently analysing the feedback received in response to the Land Registry consultation and the first consultation on enhancing transparency.

That consultation was seeking agreement to the principle of establishing a register. There will be a second consultation (probably later in 2016) on some of the detail of how it should be done, such as who should hold the register and what the sanctions for non-compliance should be.

It is probable that the register would need to be introduced through primary legislation, as it would deal with companies currently not covered by the Companies Act 2006.

Is foreign investment in UK property driving up property prices?

Much of the debate around the effects of foreign investment on the London property market is conjectural, as it is hard to separate the effects of that investment from other factors which might also be in play.

The Government has not conducted any specific studies into the potential impact of foreign investment on property prices.

Is foreign investment in the London property market likely to remain at current levels?

Money Week has argued that the supply of foreign investors may be drying up and the increasing supply of prime property is forcing down prices. An article in the Spectator remarked that prime London property had long been “held aloft” by overseas investors and that a decision to leave the EU would make little difference to non-EU investors, who were the majority of overseas investors.

Does London benefit from foreign investment in property?

Some commentators point to the benefits for London of foreign investors buying property. The business organisation London First has published a briefing note arguing that London is an international business city and that some of its housing investment is financed by selling property overseas. It argues too that the building of new properties enables the creation of affordable homes and the financing, through a levy, of infrastructure projects such as Crossrail.

What’s happening in the Crown Dependencies and British Overseas Territories?

The Cabinet Office and Foreign and Commonwealth Office (FCO) have published a compendium of the arrangements between the UK and Crown Dependencies and British Overseas Territories for the sharing of information about beneficial ownership. Lord Ashton of Hyde confirmed on 26 May 2016 that all the Crown Dependencies and British Overseas Territories would be sharing information with the UK.

Given that some of the Crown Dependencies and British Overseas Territories have already (as set out below) said very firmly that they will not be creating public registers, it seems likely that any further negotiation towards such registers will not be easy.

Registers of legal and beneficial ownership: how public are they?

Crown Dependencies

• Guernsey has committed to do further work (in consultation with Alderney and Sark) on gathering beneficial ownership information. Proposals will be put forward for parliamentary approval, but these will not include a public register.
• The Companies Register in the Isle of Man is searchable. It also provides information about local legislation on beneficial ownership. The Isle of Man has rejected the proposal for a public register, noting that most respondents to its consultation did not support the creation of a central register, regardless of whether it was public.
• The current Companies Register in Jersey is searchable. Jersey’s stance on public registers was set out in Jersey Finance Ltd’s response to the BIS consultation on enhancing transparency around ownership of land and real property, where it was suggested that a public register could be both a disproportionate response – from which Jersey ought to be exempt - and a deterrent to legitimate investment.

British Overseas Territories

• Anguilla has agreed to the establishing of the ”Anguilla platform” for sharing beneficial ownership information with national enforcement agencies.
• Bermuda has a long-established central register of company beneficial ownership.
• The responses to a consultation on creating a public register of beneficial ownership in the British Virgin Islands were decisively against the proposal.
• The register of beneficial ownership in the Cayman Islands will be neither central nor public.
• Gibraltar is committed to implementing the 4th money laundering directive, including its provisions relating to a register of beneficial ownership.
• The Turks and Caicos Islands will establish the “Turks and Caicos platform”. It was reported in April 2014 that the Turks and Caicos government was considering a creating a central register and making it public and it was reported last month that the government was inviting views on how to adopt the international standard.

How have other countries with dependent territories dealt with these issues?

An IMF report in 2013 observed that France had strengthened its arrangements for advising and liaising with its overseas departments and territories:

The United States’ government’s statement following the international anti-corruption summit mentioned (amongst many other things) new rules on transparency and beneficial ownership of companies formed within the United States. Last month, the White House blog discussed what President Obama had done to increase transparency and disclosure.

The Tax Justice Network has drawn attention to a July 2015 report from the IMF, which highlighted shortcomings in the US approach to transparency and disclosure of beneficial ownership. The Network has also alleged that “outrageous” things are happening in the US’ own territories:

And the U.S. seems to be hosting and tolerating outrageous activities on its own territories, such as Guam. A new “Guam trust incentives program“, for example, boasts 100 percent tax-free trusts. Coupled with the fact that [the US Department of the Treasury’s Financial Crimes Enforcement Network] won’t even bother to investigate these things, we have the makings of yet another toxic cocktail, courtesy of Uncle Sam.

US policy on international tax avoidance is discussed in a briefing from the Congressional Research Service. Examining tax evasion within and outside the US, the briefing remarks that past programmes have not required beneficial ownership to be disclosed. The briefing goes on to consider the options for improving compliance, such as requiring the disclosure of beneficial ownership.

Beneficial ownership elsewhere: how will the registers work?

• In its country statement following the international anti-corruption summit, Afghanistan committed (amongst other things) to increasing transparency and publishing and sharing information on beneficial ownership.
• France committed itself to the “most advanced standards”. Its registers for trusts and legal persons would, it said, be public, but the statement made no mention of France’s overseas departments and territories.
• In its country statement, the Netherlands set out its commitment to a public register. The Financial Transparency Coalition website has also described how the register will work in the Netherlands, but questions whether the register will be open data:
• Kenya said that the summit’s focus on beneficial ownership was consistent with its anti-corruption trajectory and offered some firm commitments, including that it would “take measures in line with her new Companies regulatory framework to establish public central registers of company beneficial ownership information”.
• Similarly, Nigeria’s country statement set out its commitment to transparency about beneficial ownership, including a central, public register.
• In its country statement after the summit, Norway pledged to explore creating central public registers of information on beneficial ownership. The Norwegian Parliament has already voted in favour of a register and has set out its views of how it should work. The Tax Justice Network website describes the background.
• Ukraine, following the summit, pledged to improve the quality of its information on beneficial ownership. English language sources describing in any more detail the Ukrainian system for handling beneficial ownership information appear to be few but, in a factsheet, the Extractive Industries Transparency Initiative has commented on how the register has been working and some of its limitations. A European Commission report last December outlined anti-money laundering measures in Ukraine.

The Commons Library briefing on the May 2016 international anti-corruption summit (CBP 07580, 20 May 2016) offers a brief history of UK legislation on beneficial ownership in the context of the summit and what has so far emerged from it.

The Commons Library briefing Foreign investment in UK residential property (CBP 07723, 3 October 2016) asks whether overseas investment is a problem and examines the evidence for whether it affects (for example) affordability or availability.

Other Commons Library briefings on related topics are available on Parliament’s topic pages for financial services and financial institutions, in particular:

Transparency, corruption and bribery (SN 03806 19 December 2013)

Tax avoidance: a General Anti-Abuse Rule (SN 06265, 19 April 2016)

Evolution of UK money laundering law (SN 02592, 21 April 2016)

Corporate economic crime (CBP 07359, 2 November 2015) and

Banking services: reform and issues (CBP 07234, 20 April 2016)