Enforcing the United Kingdom’s PSC register

In a previous post, we examined the requirements for the United Kingdom's People with Significant Control (PSC) Register. Since April 2016, the PSC Register, also referred to as the Beneficial Ownership Register, has required that all UK companies and English Law LLPs create and maintain a list of individuals and registrable legal entities that wield significant influence within the company. This measure aims to increase transparency over the ownership and control of UK companies in hopes of combating money laundering, tax evasion and the funding of terrorist activity. Now we'd like to turn our attention to the ways in which the law encourages compliance and self-policing through a combination of legal action and company-imposed sanctions. Then we'll take a look at the effect the register has had in the year and a half since it was adopted.

Legal Responsibilities for Companies

Several portions of the law carry with them direct legal ramifications for non-compliance. Some of these consequences affect individuals; others spread across the company. The following responsibilities apply to companies preparing a PSC Register:

• Failure to Register. Any company that simply does not keep a PSC Register, or does not maintain it properly, runs afoul of the law. As a result, every officer of the company or every designated member of the LLP is liable to pay ''1,000.
• Failure to Take Reasonable Steps to Identify PSC. All companies preparing a PSC Register are obligated to review their rolls of members and shareholders to determine whether any individual or entity holds more than 25 percent of shares or voting rights. If it is determined that these reasonable steps have not been fulfilled, the company and its directors, or the LLP and its designated members, are liable to a conviction of a maximum of two years in prison and/or a fine.

The fact that the penalties mentioned above affect not just a company's director, but every company officer, seems to imply a shared responsibility and to encourage a level of self-policing within the company in order to avoid legal consequences.

Legal Responsibilities for PSCs

The obligations for an individual considered a PSC also carry legal ramifications. A person or legal entity identified as a PSC can incur legal penalties for the following:

• Failure to Respond. If a company knows, or has reason to believe, that a person or entity meets one or more of the requirements to be a PSC, the company must serve notice for the purpose of adding said person to the company register. A person on whom that notice is served has one month from the date of the notice to respond. Those people or entities choosing not to respond risk imprisonment or a fine, unless they can prove that the information requested was trivial or ill-intended.
• Failure to Notify. There is a separate penalty built into the law for people or legal entities that know they qualify as a PSC, but have not yet been served notice by the company. If this condition continues for more than a month, then it is the responsibility of the individual or legal entity to contact the company and provide it with all of the details necessary to fulfill its PSC obligations. Again, those who choose not to notify companies of their status are liable to be fined or imprisoned.
• Failure to Update Information. A person or entity listed among a company's PSC Register must provide up-to-date information to the company. Any changes in business address or legal residence, for example, must be reported to the company so that it may update its register. If said person or entity knows, or ought to reasonably know, that there is a relevant change to the PSC register and they do not contact the company, they stand in violation of the law and can be punished by fines or imprisonment.
• Failure to Provide Accurate Information. The final offense regulated by the law concerns making a false statement in response to requests for PSC information. Persons or entities who provide information they know to be false in the 'material particulars' also risk fines or imprisonment.

Company-Imposed Sanctions

In addition to the legal ramifications listed above, the law also empowers companies to restrict the shares or business rights of any person or entity it feels is blocking its ability to faithfully complete its PSC Register. Once such restrictions are imposed, the individual can derive no benefit from the shares or rights. Details of this effect are as follows:

• The interest cannot be sold or transferred; any agreement to sell or transfer the interest is void
• Likewise, no rights associated with the interest can be sold or transferred; previous agreements to sell or transfer the rights are also void
• No rights may be exercised in respect of the interest
• No shares may be issued in right of the interest
• No payment may be made by the company in respect of the interest

As a final step, it is possible for a company to sell restrict interest if these sanctions do not encourage the individual to release the relevant PSC information. This measure may be taken if the company feels that the individual's noncompliance is negatively affecting their ability to conduct business. The proceeds from the sales will be held by the court to be claimed by the original owner.

The Effectiveness of the PSC Register Thus Far...Does it Have Teeth?

Since its implementation more than year and a half ago, the PSC Register has brought a level of transparency for a majority of UK businesses, but this has not come without complications. According to reports released just after the April 2016 deadline, companies committed a 'glut of mistakes' when filing their PSC Register, including 9,800 that listed their beneficial owner as a foreign company. While these mistakes may be blamed on faulty data gathering, the Companies House stated: “97 percent of the companies on the active register have now complied with the requirements.” This reduced the number of companies that failed to register from 130,000 to roughly 90,000. Interestingly, despite the legal penalties outlined above, no criminal charges have yet been brought against any company or individual in relation to the PSC Register. According to a spokesperson for the Companies House, “Compliance is Companies House primary aim, rather than prosecution.” What remains to be seen is how the law is ultimately enforced. Some sources indicate that the Companies House could release a 'shame' list of all companies in noncompliance. Given that the Register was implemented in response to concerns regarding money laundering and terrorist funding, the true cost of noncompliance may be reputational rather than legal.