The United Kingdom has long been criticized for its attractiveness to unverified, and undoubtedly at times, highly problematic wealth from abroad. Withering criticism stems from the UK’s failure to control inflows of cash from oligarchs from Russia and other former Soviet States, who have acquired everything from luxury property to football clubs. Despite years of extensive reporting across national and international media, books and documentaries demonstrating the UK’s role in laundering oligarchs’ cash and offering them a comfortable home base, little was done on the part of successive UK Governments to combat these issues. Information regarding the personal connections between senior government officials in the UK and a variety of oligarchs has graced the pages of UK newspapers for over two decades, and as a result political appetite to take on these issues has been minimal.
Criticism of the UK’s lackadaisical attempts to confront the issue has focused in part on the ease with which it has been possible to own property that cannot be traced back to an ultimate beneficial owner (“UBO”). It is widely understood that large swathes of some of the most valuable real estate in the world are opaquely owned by individuals via corporate entities registered abroad. The absence of any way to verify who rather than “what” owns a particular parcel of land or property has allowed for huge amounts of both to be acquired by Russian oligarchs and others, allowing ill gotten gains to be converted into valuable property holdings in one of the world’s most stable countries.
Renewed and increased public criticism in the wake of the Russian invasion of Ukraine in February 2022 appears to have lit something of a fire under the UK Government to address some of these longstanding issues in a meaningful way, though the impact of the proposed changes remains to be seen in practice.
On March 15, 2022, the UK Parliament passed the Economic Crime (Transparency and Enforcement) Act. The bill, which received royal assent a week after Ukrainian President Volodymyr Zelensky addressed a joint session of the UK Parliament, introduced requirements that property purchased in the UK since 1999, and any property purchased in the future, by ‘overseas entities’ provides private information on its ultimate beneficial owner(s) including names, addresses and dates of birth. The information (with some personal information removed for privacy) will be publicly searchable when implemented, and failure to comply will result in fines and up to a five-year prison sentence. Similarly, transactions of property already held by overseas entities will not be permitted until the relevant information is provided to the register.
In theory, the implementation of the register represents a substantial step forward in transparency for UK property ownership. A publicly searchable register allows for verification of the ownership of properties held via foreign firms for the first time, and there is little doubt that there is much to uncover. The UBO register should thus significantly reduce the UK as a target destination for illicit funds, and will lose much of its long held luster as somewhere that ill-gotten gains can easily and securely be stashed.
However, the act itself is not without flaws or potential loopholes. For example, beneficial ownership reporting only applies when someone owns or controls more than 25 percent of an entity, potentially allowing for the use of family members or close associates as ‘straw’ shareholders to disguise the involvement of certain individuals. Similarly, there will be a six-month grace period (start date of the grace period yet to be specified) before any of these requirements take effect, potentially giving bad actors significant room to maneuver in advance of implementation.
Despite these pitfalls, and others no doubt that will become apparent as the regulatory particulars are finalized, the Economic Crime Act of 2022 appears to be a firm, if potentially flawed, step in the right direction for the UK Government as it seeks to tackle inflows of illicit finance. For anti-corruption campaigners, and businesses conducting due diligence, source of wealth investigations or litigation support, the potential to identify the true ownership of vast amounts of property represents a significant achievement.