Companies House has published details of its enforcement powers for the Register of Overseas Entities, including information on the penalties for companies that fail to comply with regulatory requirements.
The guidelines were published at the end of June (21 June 2023) and were followed two days later by the publication of The Register of Overseas Entities (Penalties and Northern Ireland Dispositions) Regulations 2023, which gives Companies House the power to impose financial penalties for non-compliance.
The Register of Overseas Entities was introduced under the Economic Crime (Transparency and Enforcement) Act 2022, which came into force on 1 August 2022. It requires overseas entities who want to buy, sell, or transfer property or land in the UK to register with Companies House and declare their beneficial owners or managing officers.
Ministers hope the register will reveal who ultimately owns property in the UK and stop foreign criminals from using UK real estate to launder money.
The Economic Crime Act gave overseas entities owning UK property a six-month transitional period, which ended at the end of January 2023, to register their beneficial ownership with Companies House.
However, reports in May revealed that the UK government had failed to enforce fines of around £1bn to foreign firms that had not complied with requirements to declare their owners.
The new legislation means that Companies House will now start taking enforcement action on entities that were required to register by 31 January 2023.
Sanctions can include fines or criminal proceedings, though Companies House is expected to initially focus its enforcement action on applying civil financial penalties, with criminal penalties reserved for the most serious of cases.
There is no cap on the level of fines that Companies House may impose for the ‘failure to register’ offence. To determine the financial penalty amount, the Registrar will assess the ‘culpability’ and the ‘harm’ involved in each case.
Companies House has also indicated that for offences relating to the Register, the value of an entity’s property portfolio will be used to estimate the size of harm.
The greater the value of the property portfolio, the greater the scale of the potential economic crime facilitated by the offence, for example, the risk of money laundering through the properties.
The value of each property will be estimated based on data including council tax bands, business rateable value, and the House Price Index. This will give each property a low, medium, or high penalty rating. The total penalty will reflect the value of the whole property portfolio.
For property values rated ‘low’, the penalty per property will be £10,000, which will double to £20,000 for ‘medium’ rated properties. The penalty for each high-value rated property will be £50,000.
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As the UK continues to clamp down on money laundering, it is crucial that all regulated businesses stay up to date with the latest AML requirements. Failure to act could result in severe sanctions. The UK government and industry regulators have imposed record fines on companies not meeting their responsibilities.
It is always wise to make any changes before any deadlines are imposed to ensure your company and its policies, controls, and procedures are compliant.
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