More than 70% of properties held in overseas shell companies have not published information about who owns them due to serious design flaws in the government’s overseas register
The beneficial owners of around 109,000 properties in England and Wales are missing or the information is withheld on Companies House’s new Register of Overseas Entities, according to a report by researchers from the London School of Economics (LSE).
This amounts to 71% of the total properties held by overseas entities, which currently stands at 152,000 properties.
Around 15,000 properties (10%) known to be held via an overseas entity are totally missing from the register at Companies House, while a further 39,000 properties (25%) have not reported essential information. Trusts are also being used to hide ownership details, accounting for 63% of all properties with obscured overseas ownership affecting 69,000 properties.
Andy Summers, associate professor at LSE Law School, said: ‘There is no point building a dam halfway across a river. These gaps are threatening the efficacy of the entire register and the government should close them at the earliest opportunity.’
The register was introduced in response to the Russian invasion of Ukraine with a pledge to ‘require anonymous foreign owners’ of UK property to reveal their identities.
Several major gaps in the legislative scope of the register means that sanctioned individuals, money launderers or other corrupt individuals could be benefiting from these properties.
Around 2,000 to 6,000 properties cannot be matched due to poor data quality resulting in missed information and out-of-date records.
Trustees have reported details to HMRC for 1,300 properties, but the remaining 17,000 properties it are not reported to any arm of government.
In its current form, the Economic Crime Bill will not be sufficient to close these gaps, the LSE report said. Amendments proposed by Lord Agnew would shut this loophole, but the government continues to oppose these amendments.
The government is also opposing changes that would require nominees and trustees owning shares to tell Companies House who they are acting for.
Flaws in the register of owners of UK companies, the Persons of Significant Control (PSC) register, could also be facilitating corruption, the report warned.
The report said: ‘One problem is that the PSC Register is notorious for non-compliance. A 2018 report by Global Witness documented a host of issues including circular ownership structures and PSCs that were companies registered in secret jurisdictions.
‘We recognise that Companies House must operate within resourcing constraints and is also responsible for enforcement of other major new initiatives such as the PSC register.
‘But it should think of itself less like HM Passport Office and more like HMRC. In particular, we recommend development of a programme of targeted and random compliance checks, learning from the approach to tax compliance adopted by HMRC.
‘This would allow Companies House to target its resources using a risk-based approach and to obtain representative evidence of non-compliance across the full population.’
The House of Commons is due to consider Lords’ amendments to the Economic Crime Bill, aimed at closing some of these loopholes, this week.
The report was produced by researchers from LSE, the University of Warwick, and the Centre for Public Data.