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Economic Crime Act: will the new properties register become a vital tool for asset tracing?


United Kingdom

The Economic Crime Act 2022 has brought in new provisions in response to the Russian invasion of Ukraine designed to stop the flow of 'dirty money' through the UK. One of the foremost provisions is a new property register that will require anonymous foreign owners of UK property to reveal their identities rather than hiding behind secretive chains of offshore shell companies. The new register requires overseas companies and individuals to declare the beneficial owners of all property bought in England in Wales over the past 20 years. Those who do not declare their beneficial ownership will face restrictions over selling their property, fines, and up to five years in prison.

The new register has, however, come in for significant criticism owing to a number of loopholes. Whilst the register requires those with "significant control" of an offshore entity (i.e. ownership of 25% of more) to declare their beneficial interest, one way of getting around this is to set up the offshore entity in equal shares of 16.67% with five other individuals or entities in order to avoid the 25% threshold. In addition, there will be no checks on the information provided to the register and therefore that information can simply be given falsely. The enforcement provisions can also be seen as weak, given that there are no provisions allowing the government to seize property for non-compliance.
Notwithstanding the flaws in the Act, the creation of the new register could prove a useful tool for lawyers and investigators for the purposes of tracing assets in civil proceedings. Claimants, particularly in fraud claims, are often faced with a complex exercise determining the location and enforceability of a defendant's assets when that defendant has employed a web of offshore entities to hide such assets and make enforcement prohibitive. Whilst there is a significant amount of publicly available information on offshore entities owing to various database leaks such as the Panama Papers, such information is becoming dated and less reliable with the passage of time. Although the new overseas property register faces the aforementioned issue that information given will not necessarily be true, it will likely prove valuable for claimants in civil fraud claims to identify properties belonging to defendants in the UK against which judgment can be enforced or in order to determine a jurisdictional gateway through which to initiate proceedings.
The existence of a property in the UK which is linked to a defendant can be invaluable in establishing jurisdiction for the purposes of obtaining a freezing order in support of proceedings abroad pursuant to section 25 of the Civil Jurisdiction and Judgments Act 1982. A s.25 freezing order can in principle be obtained even if the proceedings abroad are only about to be commenced. But a jurisdictional link to the UK is a key requirement. A claimant must demonstrate that the relevant defendant has a "real and connecting link" with the English jurisdiction, which the beneficial ownership of a UK property would likely provide.
It is also notable that the register requires information pertaining to properties acquired over the past 20 years. Claimants that may have obtained judgments against defendants in the past, but were unable to successfully enforce those awards owing to lack of targetable assets, may find that new targets emerge on the register. Claimants with judgment awards that have not been fully enforced, but who may be aware that the relevant defendant might have held assets in offshore structures, would be well-advised to scrutinise the new register for the possibility of enforcing against UK property.

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