The Problem with Trusts and AML

Introduced in August 2022, the Register of Overseas Entities (ROE) was designed to thwart foreign criminals attempting to launder money through UK property. By forcing anonymous foreign owners to reveal their identities, the UK government hoped the Register would promote transparency in the property market and tackle its dirty money problem.

However, loopholes in the legislation have enabled some foreign owners to continue concealing their identities, as over two-thirds of properties held by overseas shell companies remain anonymous. One such loophole is trusts.

Trusts are afforded special treatment when it comes to anonymity. While there is a requirement to provide information about trusts to Companies House, the public cannot view this data. Primarily because “most trusts are family affairs, and many are set up for minors or other vulnerable people”.[1] In fact, while most of the information on ROE is freely available to search, including by estate agents, some information is automatically withheld. At present, this includes almost everything about trusts. This means an individual could own an overseas company with UK property assets, and not be listed on ROE.

According to researchers from LSE, the University of Warwick, and the Centre for Public Data, “The biggest reason for missing or inaccessible information on beneficial owners is the use of trusts. These account for an astonishing 63 per cent of all properties where beneficial owners are hidden from the public (69,000 out of 108,000).”[2] This is a problem, as criminals are currently using trusts to conceal who owns the assets held within them.

Nevertheless, changes are afoot. In addition to a suite of reforms to the Economic Crime (Transparency and Enforcement) Act 2022 (ECCTA) introduced in March, the government has recently closed its consultation on whether to share more information on trusts and their beneficial owners under the ROE regime (with likely exemptions for vulnerable individuals that meet specified criteria).

Promises of increased transparency are good news for estate agents struggling to meet their AML commitments. However, such information is not expected to be made publicly accessible. Instead, amends to the legislation will likely extend the disclosure of trust information to a wider class of persons. As highlighted by Propertymark, estate agents must be included in the list of professionals who can access the enhanced ownership details.

In its response to the proposed changes, Propertymark highlights that, as well as improving the effectiveness of AML processes, direct access to clear information about land ownership would also make it easier for agents to:

  • Identify liable landlords for remediation works in high-risk buildings
  • Contact relevant freeholders for lease extensions and changes
  • Identify owners of derelict or underused shops and other commercial premises

You can read Propertymark’s response in full here.

Details of how the proposed changes to ROE will operate are limited at this time, and at Legal Eye, we are watching developments in this area with interest. Nevertheless, any reforms that make it easier to identify who really owns property are likely to advance the fight against dirty money in the UK, and that can only be a good thing.

[1] Lord Johnson, Hansard Vol 831, 20th June 2023.


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