Register of Overseas Entities: ‘Extreme caution’ warning for solicitors

The government’s anti-money laundering (AML) drive continues; meanwhile, more law firms than ever are suffering the fallout following AML compliance breaches.

It’s just been reported, for instance, that the Solicitors Regulation Authority (SRA) issued 37 financial penalties against firms in the financial year 2021-2022 compared to just six fines in the year 2017-2018.

Conveyancing is, perennially, a particularly high-risk area for financial crime but the new Register of Overseas Entities takes the risk within the property, commercial and corporate legal sectors up a notch. The register, introduced under the Economic Crime (Transparency and Enforcement) Act 2022, was finally launched on 1 August after much fanfare.

The new rules require foreign companies seeking to buy UK property formally to register the details of beneficial ownership and control of the property. Crucially, solicitors need to know that the statutory requirement has retrospective effect, with the effect that any overseas entity that acquired freehold or leasehold land in the UK after 1 January 1999 and still owns it must also register their beneficial ownership.

The aims are laudable – increasing corporate transparency and accountability by exposing the identity of anonymous foreign owners (eg, Russian oligarchs) and their entry onto a public register. This should have a deterrent effect on money laundering by foreign criminals.

Regulatory burden increases

However, the regulatory burden on lawyers has become heavier as a result. The Law Society has warned solicitors to exercise “extreme caution”, having previously expressed significant concerns about the expectations which may be placed on solicitors to verify the accuracy of information placed on the register.

The Society has published welcome guidance on the register and solicitors’ verification responsibilities, which those affected would do well to read. It specifically warns any law firm acting as a verifier will face significant challenges and expose itself to significant risk.

Under section 32 of the 2022 Act, it will be an offence for someone to “deliver or cause to be delivered to the registrar for the purposes of this Part any document that is misleading, false or deceptive in a material particular” or make such a statement to the registrar. Crucially, actual ‘knowledge’ that a statement is misleading, false or deceptive is not required for an offence to be committed.

Solicitors could be jailed for up to five years or fined up to £2,500 each day for failures in the way they verify entries on the register. They could also face regulatory sanctions, along with the potential reputational, practical and costs consequences of breaches, such as not being able to register the new ownership at HM Land Registry. The fallout is a further risk.

Meanwhile, the SRA has just been handed greater powers, enabling them to impose significantly higher fines for breaches – a move that is expected will allow the regulator to focus on the most serious breaches. Fines of up to £25,000 can now be imposed, compared to the previous £2,000 limit. This should reduce the number of referrals to the Solicitors Disciplinary Tribunal.

Susan Humble, regulatory partner at RIAA Barker Gillette and a former CEO of the SDT, says the SRA has been seeking extended fining powers for at least 10 years. She comments: “It has now been successful to a limited extent in the context of increased political interest in the enforcement of the sanctions regime and AML regulations. The limit of £25,000 recognises the inherent danger of a regulator acting as investigator, prosecutor, and judge in terms of perception of independence and transparency.”

Finally, a mention of the 2021 AML guidance for lawyers from the Legal Sector Affinity Group which has been amended to take into account verification of the identities of overseas beneficial owners. Now that it has been approved by HM Treasury, the guidance has full standing under the 2017 Money Laundering Regulations.


Posted on 31.08.22