Flaws in Register for Overseas Entities- 70% of UK Overseas Properties Owners Unknown

September 6, 2023

109,000 out of 152,000 overseas shell companies in the United Kingdom don’t publish information about who owns them, reveals a report by the London School of Economics, University of Warwick, and Centre for Public Data. The stats seem surprising considering the UK government’s strong resolve to launch a crackdown on overseas shell companies in the backdrop of Russia-Ukraine war that resulted in the introduction of the Register for Overseas Entities.

For 54000 out of 152,000 properties, law enforcement agencies don’t know about the true identities of beneficial owners. For 15000 properties which make the 10% of the total, there are no entries in the Register of Overseas Entities. Furthermore, the report noted that in case of 39000 properties which constituted 25% no essential information had been reported.

Why Are Discrepancies in Beneficial Ownership Information in UK Register for Overseas Entities?

The research work titled Catch Me if You Can: Gaps in Register of Overseas Entities highlights some of the surprising reasons behind the lack of information about overseas property owners. It points out that the government’s deliberate choice to keep information out of the scope of legislation could have contributed to the flaws in beneficial ownership reporting.

The report found rule-breaking in six to nine percent of cases, while out-of-date or poorly documented records were found in four to seven percent of cases. However, for a majority of companies constituting 87%, beneficial ownership information was missing due to flaws in the scope of the legislation.

Difficulty in Tracking Ownership Due to Trust Structure

Combining insights from Companies House and HM Land Registry data, research finds that the use of trusts could be a major reason behind missing data on beneficial owners.  It further highlights the flaws in PSC registers that could make it difficult to track the ultimate beneficial ownership of properties, contributing to the challenge of anonymous ownership.

Beneficial owners for 27% of properties are not made public as they are a part of the trust structure. 3% of overseas properties are acting as trustees as the trusts’ information is not reported to the company’s house.

2% of overseas properties have incorporated a partnership structure implying that there could be silent partners. Furthermore, 34% of overseas entities have reported to have a corporate beneficial owner while for 17% of cases, registration as a corporate beneficial owner is not justified.
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The study also points out that despite the prerequisite that beneficial ownership information about trusts should not be made public but should be available to government agencies only, in 38% of cases the information is not even available to the government.

The report makes key recommendations like tying up any regulatory loopholes and a few of them are as follows.

  1. Increasing enforcement action against overseas entities that fail to register
  2. Reducing the shareholding threshold needed to trigger the identification of beneficial owners from 25% to 5%,
  3. Publishing the information that companies households about trusts
  4.  amending PSC register to require nominees and trustees to report on whose behalf they are acting

The report identifies a number of reasons for missing beneficial owner information in the Register of Overseas Entities for shell companies. However, the challenges in ultimate beneficial ownership compliance are not limited to privacy concerns, regulatory gaps, or evil intent of owners; they can include the compliance costs as well; Hence regulation that doesn’t make compliance a burden is much-needed to ensure financial transparency.
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