Action Needed for Cayman Companies that Own UK Property

As Russia’s invasion of the Ukraine continues, the United Kingdom has pushed its hunt for Russian Oligarch’s assets into high gear and has fast tracked the Economic Crime (Transparency and Enforcement) Act 2022 (the “Law”) into force. The Law was given Royal Assent on 15 March 2022 and the register for overseas entities opened at Companies House in the UK on 1 August 2022. HSM’s Head of Corporate and Commercial, Peter de Vere, covers everything you need to know in this article.

This new legislation is intended to increase transparency and aid active enforcement of sanctions.

Of primary importance to clients will be the requirement in the Law for any ‘overseas entity’ owning UK property to register with Companies House in the UK and provide details of their beneficial owners.

What is an ‘overseas entity’?

An overseas entity is a legal entity that is governed by the law of a country or territory outside of the UK (note, this captures entities formed in the Cayman Islands).

For these purposes a ‘legal entity’ includes any entity which is a legal person under the law by which it is governed.

The above definition would appear to exclude Cayman Islands Trusts as these do not have a separate legal personality (but those Trusts which hold UK property indirectly through an overseas entity will still be caught by the Law).

What to do if your Cayman entity owns property in the UK or intends to do so?

Overseas entities that acquired property in the UK after 1 January 1999 or that acquire UK property in the future must apply for registration on the Register of Overseas Entities.

The overseas entity will need to provide basic details about itself (name, country of incorporation/formation, registered/principal office, service address, legal form and applicable governing law, details of any overseas public register which it is entered on and any registration number).

The entity will also need to deliver one of the following three statements about its registrable beneficial owners and the required information for that statement:

What is the ‘Required Information’ mentioned in the above table?

*designated persons’ means—

(a)        persons designated under any power contained in the UK anti-money laundering regulations that authorizes an appropriate Minister to designate persons for the purposes of the regulations or of any provisions of the regulations, or

(b)        persons named by or under United Nations Security Council Resolutions.

What is a registrable beneficial owner?

A ‘beneficial owner’ can be an individual, a legal entity or a Government or public authority. The Law provides that a person (X) is a “beneficial owner” of an overseas entity or other legal entity (Y) if one or more of the following conditions are met:

Condition one is that X holds, directly or indirectly, more than 25% of the shares in Y.

Condition two is that X holds, directly or indirectly, more than 25% of the voting rights in Y.

Condition three is that X holds the right, directly or indirectly, to appoint or remove a majority of the board of directors of Y.

Condition four is that X has the right to exercise, or actually exercises, significant influence or control over Y.

Condition five is that (a) the trustees of a trust, or the members of a partnership, unincorporated association or other entity, that is not a legal person under the law by which it is governed meet any of the conditions specified above (in their capacity as such) in relation to Y, and (b) X has the right to exercise, or actually exercises, significant influence or control over the activities of that trust or entity.

Penalties for non-compliance?

Failure to register (or submitting false information) would be a criminal offence under the Law and would prevent the entity from being able to buy or sell UK property in the future.

A transfer of land in breach of the registration requirement would also amount to a criminal offence on both the entity and its responsible officers (such as a director), including fines of up to GBP£2,500/US$3,090 per day (for example for failing to register) or unlimited fines (for example for making false statements) or a prison sentence of up to 5 years.

Timing

Overseas entities who already own land in the UK will be given 6 months to register their beneficial owners or managing officers. This 6 month period is currently running and will be due to end on 31 January 2023.

Any new purchasers will need to register with Companies House from 5 September 2022.

HSM Corporate Services Ltd. encourages those who may be affected to start making arrangements now and our team is ready to assist.