Transparency in the Land Reform Bill: the only effective solution is disclosing the human being, the ‘beneficial owner’, behind companies owning land

by Megan MacInnes, Land Advisor with Global Witness

The Scottish Government has responded to the Rural Affairs, Climate Change and Environment Committee’s Stage One Report on the Land Reform (Scotland) Bill and rejected its recommendation that companies that wish to own land in Scotland should be retired within an EU member state. I will be publishing a wider commentary on this in the next few days. In this Guest Blog, Megan MacInnes, Land Advisor with Global Witness, explores this issue and recommends an alternative solution.

As the new year brings us to the next stage in the debate over the Land Reform (Scotland) Bill, one issue continues to be controversial – whether we shall get to learn who really owns Scotland’s land?

This controversy relates to the fact that large areas of Scotland are owned by companies registered in secrecy jurisdictions known for providing anonymity from the prying eyes of the State and public scrutiny. The Government has made repeated commitments that this Bill will improve transparency of land ownership, but the measures proposed so far have been widely criticised. In their Stage 1 report on the Bill, the members of the Rural Affairs, Climate Change and Environment (RACCE) Committee concluded that “people in Scotland have a right to know who owns, controls and benefits from the land” but that currently the relevant sections of the Bill would “not achieve the policy objectives of improving transparency of land ownership”.

So if the Bill’s current proposals are not enough, what more can be done? Most of the discussions so far have focused on the proposal (originally made by the Land Reform Review Group) to require anyone who wants to buy land in Scotland via a company, to have to have incorporated that company within the EU. But a simpler and more direct solution exists with the potential to be much for effective in letting us really know who owns Scotland’s land – the requirement that when you register a land title with the Land Register under the name of a company, you also have to provide the names of the human beings who own or control that company. Technically, this means the registration of the ‘beneficial owner(s)’ of the company.

The RACCE Committee recommended both requirements be introduced to the Bill. In its response the Government ruled out the EU company registration requirement entirely but with regard to the requirement to register the names of the people owning or controlling those companies, the Government stated that there are “many complex legal and practical issues” being considered and that they will respond in more detail in due course.

The Bill’s current provisions for transparency, under what it calls the “right of access to information on persons in control of land” in fact provide no ‘rights’ at all. Section 35 enables only those who can prove they are directly affected by a landowner to submit a request about who owns or controls that land to a so-far unidentified “request authority”, who would then attempt to obtain that information. Section 36 enables the Keeper of the Registers of Scotland to also make such requests. Applications for such information are first made to the landowner, but if there’s no response then it is expected (but not specified in the Bill) that the request will be passed on to the authorities of the jurisdiction where the company owning the land is registered.

Not only are these ‘rights’ to request such information limited, they will not even work in practice. Neither provision require the landowner to hand such details over, but more importantly, these powers are meaningless in the secrecy jurisdictions where many companies owning land in Scotland are registered. This is because the reputations and economies of these jurisdictions (including Overseas Territories and Crown Dependencies of the UK) depend on providing safe haven and anonymity from prying eyes. These jurisdictions either are only able to share such information with tax authorities (for example, Jersey and the Cayman Islands, where the 71,000 acre Glanavon and Braulen Estate is registered), or are where the relevant authorities don’t maintain company ownership details in official records (for example, Panama, where the 56,000 acre Loch Ericht Estate is registered). Consequently any requests made by either the Keeper or request authority for information on who actually owns either estate will almost certainly be turned down.

The most comprehensive solution to knowing who owns Scotland’s land lies instead in publicly disclosing the names of those who ultimately own or benefit from the company which is buying the land, as the title is being registered. In doing so, the Scottish Government brings these transparency requirements directly within its own purview, rather than relying on the regulations of other countries. It also includes such requirements within existing administrative procedures, rather than burdening the Keeper and request authority with the task of trying to identify who is behind endless structures of shell companies expertly hidden away. If based on the model of the Crofting Register, then we’d not only learn about those behind newly owned parcels of land as they are registered, but this information would also be updated every time the smaller details of the title changed, so-called trigger or update events.

Ironically, despite the RACCE committee’s recognition of the right of people in Scotland to know who owns land in their Stage 1 report on the Bill, much greater consideration so far has been paid to how such transparency provisions would impact on the rights of landowners to privacy and property. Under the European Convention of Human Rights article eight protects an individual’s right to privacy and article one of protocol one protects the right to property. But, neither is absolute; States are allowed to interfere with both, as long as it is in the public interest and such action is proportionate – by which they mean that what is proposed will achieve the desired objective and is deemed to be reasonably necessary.

The public interest arguments for this disclosure are clear and supported widely across Scotland, including associations representing land owners. A number of existing laws and policies (not least the Community Empowerment (Scotland) Act 2015 and other sections of the Land Reform (Scotland) Bill) are likely to be compromised unless we have full knowledge of the ownership of land. But more broadly, land use and its management impacts on all of Scotland’s citizens and therefore there’s a legitimate reason for why everyone should have access to such information. For example, our participation in public consultations, such as the current one underway on Scotland’s 2016-2021 Land Use Strategy, are hindered by not knowing who owns land or the land-use decisions they are making.

Would such a change in the registration requirement also be proportionate? Asking those who ultimately own or benefit from land in Scotland to disclose their names to the Land Register is the most straight forward way to access that information. Critically, it is the only measure available which the Scottish Government can itself enforce.

So it appears that we shall not learn if we are ever to find out who owns Scotland’s land until the Government tables its amendments to the Bill on the 13th January. It’s hard to imagine how the continued anonymity behind such large areas of our land and heritage can continue to be justified. But until the human beings behind anonymous shell companies used to own land are required to disclose themselves, we may be left within nothing in this Bill but empty promises.

23 Comments

  1. Richard Wakeford

    In the interest of transparency and better appreciation of what government funds are buying in ecosystems services through CAP etc, it would be only right to know who the contract is with and what it is intended to buy. Not comprehensive, but a start?

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  2. The suggestion that land be owned only via EU entities would never have achieved anything, for the simple reason that the shareholders behind such entities could simply themselves be other non-EU corporations.
    As the only reasons for non-disclosure are avoidance, either of tax or of liability for ecological and other crime, there should be no argument against full disclosure and in a manner which does not burden Scottish public bodies such as the Land Register.
    Thus full disclosure of beneficial ownership on transfer is an obvious, very simple step, but leaves the problem of existing ownerships, where foreign corporations may change hands, sometimes with a complete absence of paperwork e.g. in the case of Panama.
    Consideration should be given to a requirement for existing non-natural persons who are owners to register a statutory declaration of beneficial ownership periodically. I appreciate that expropriation for non-compliance might be challenged but a sanction in the form of a tax charge could I suggest be acceptable.

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    • The only RATIONAL reason for hiding ownership probably does lie in tax minimisation, but many people, emotionally, like to keep their dealings private.

      I bought a new shirt yesterday (yes, such extravagance) in Rohan’s sale – paying cash, I was niggled to be asked for my PostCode so that I could be identified. I wasn’t avoiding tax, just being private!

      So don’t automatically question the motives for private landowners, but just require disclosure of beneficial ownership, as a condition of registration, with the result that an undisclosed owner wouldn’t get a saleable title!

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  3. Registers of Scotland is on a mission to get all titles to land in Scotland on the Ordnance Survey map based Land Register. With no beneficial ownership disclosure requirements coming down the legislation track the value of the exercise is compromised.
    When banks lend to offshore companies who take title to Scottish land they have to like any professional service provider ” know their client ” for money laundering purposes amongst others. This is often depicted like a family tree tracing through the layers of ownership to identify the beneficial owner – the real customer. Why shouldn’t the same KYC approach apply to the Land we live on ?
    Creating an effective beneficial ownership disclosure requirement is a daunting task and deserves to be taken seriously and not given the brush off.

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  4. The Crofting Register doesn’t require disclosure of beneficial ownership of crofting interests so I’m not sure how it’s a model for what’s proposed.

    Requiring disclosure of beneficial ownership as a condition of registration of ownership in the Land Register (or Crofting Register) is a more sensible approach than restricting corporate ownership to the EU (because it has never been demonstrated that the company law of all member states involves disclosure of beneficial ownership) but still suffers from the flaw that how can we ever know whether the information tendered at registration about the beneficial ownership is correct? I don’t think big league baddies leave verifiable paper trails behind them. I have it in the back of my mind that someone (Professor Cheshire?) made this point quite forcefully to the Scottish Affairs Committee enquiry and led him to characterise disclosure of beneficial interests as “essentially voluntary” (correct me if I’m wrong on that).

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  5. The only solution to this, as to many other property issues, is a Land Value Tax. Land ownership and beneficial interests must be registered, and the tax paid, or the land made subject to confiscation. Unfortunately the Scottish Government do not appear to have the will to take on powerful vested interests, and hide their cowardice behind claims of legal complexities. All of their actions thus far, and much of the community buyout plans look vulnerable to legal challenge, and not for the first time, several lawyers will make a fortune taking their cases to the European Court of Human Rights.

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    • Agree, John. I’m very disappointed by the Scottish Government’s failure on this crucial issue as I’m sure many people are. It will certainly affect my voting decisions in May.

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      • John, I have been frustrated by the slow pace of change at local level by the Scottish Government so far, but I hope that I can take some encouragement by some official latest speeches which imply that they will at last take a serious look at this issue.

        I know a little about LVT and need to know better how it will work in a practical way, but it does seem a far more appropriate way to go. Let’s hope 2016 is as ambitious as Nicola Sturgeon wants it to be.

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      • Sadly,so true-in complete agreement

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  6. Thanks all for your comments, I wanted to respond to a few points, some of which are related, so I am just going to list them in order …

    Ewan you asked about how we would have this requirement applied to existing land owners. There are two ways of doing this: a) the requirement would also be applied retroactively, with the result that land owners with titles already in the Land Register would have to update this information within an agreed number of years; or, possibly more simply, b) this requirement would affect not just the moment when the land title is added to the Register, but also when any small changes to the title are made, so-called “trigger” or “update events”. These might include for example changes in the boundary of the title, remortgaging or changes in servitude’s, which often take place fairly regularly (eg. within 5 years).

    This means of making sure the information is updated is one of the reasons I made a comparison to the Crofting Register, Neil, which also requires details about crofting ownership to be regularly updated, through what the 2010 Crofting Reform Act calls ‘trigger’ events.

    The main reason I used the Crofting Register though, Neil, was that when the 2010 Act was brought in, crofting registration changed from being essentially voluntary, to a binding requirement on crofters and the information on crofters was no longer available through the Crofters Commission (on a request basis only), but now fully publicly available, via the Registers of Scotland. At the time, the Government didn’t consider this change to have any impacts on the human rights of crofters. However, we are now proposing the same changes are made to how the human beings ultimately owning Scotland’s land are registered and their names made publicly available (ie. registering the name(s) being a binding requirement in the publicly accessible land register), but this time there are serious concerns being raised about the human rights impacts on land owners of such changes.

    Neil you also raised the problem of how any information on beneficial ownership can be verified. I agree, this is still a major problem. However, having at least a database where we can access this information which is regularly updated is a starting point and takes us significantly further forward than what we have at the moment – with only access to the names of shell companies. We shall have to see what happens in the coming weeks as the amendments to the Bill are debated, but I am optimistic that this will provide the time to discuss the details about how verification can be addressed and what sanctions should be introduced if this information is not provided, or incorrect.

    Finally, Derek, yes its ironic that this information is already provided to banks and other agencies, through the “know your client”, anti-money laundering systems, but yet we don’t take steps in Scotland to know who owns (or is considering purchasing) such large swathes of land ….

    Looking forward to more discussions,

    Megan

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  7. I fully support the requirement for transparency of who is the beneficial owner of land in Scotland. I cannot understand the reason why this really contravenes one’s human rights. When I go into my local shops the shopkeepers know my name and where I live; does this contravene my human rights? We need to look at why this human rights privacy refers to land holding and ask ourselves who does this benefit , the local communities or the landlord? As has been said before what do these landowners have to hide that they don’t want to be identified.
    Why can’t we look for a similar system to Denmark where I believe that you have to have your primary address in Denmark before you can purchase land in Denmark, radical yes, but from my experience locally living landlords usually create a more vibrant community than an absentee landlord.
    Transparency of land ownership to me is a key issue of land reform and I hope this will be pushed for by the Scottish government.

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  8. Dear Megan

    Thanks for your further comments.

    I honestly don’t think it’s unduly onerous to require existing owners to register a notice of beneficial ownership. Owning a substantial tract of land that has not been fought over for about 270 years must be very attractive to a lot of wealthy foreigners and it’s a small price for them to pay simply to say who they are.

    It seems that some recent prosecutions for wild life crime have been stymied by owners hiding behind forego in corporations, so it’s only fair that the rules should apply equally to all.

    I think the human rights angle is over-played, as I suspect the UK is almost alone in allowing secrecy. Perhaps someone with knowledge of the position in for example Denmark or Eire will comment.

    I look forward to some further discussion.

    Yours

    Ewan

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  9. Money laundering is a crime which the National Crime Agency must investigate, and those doing it get prosecuted and punished by the state. What are the accountants of these landowners doing?! If they haven’t undertaken customer due diligence, then they are also culpable.

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  10. Someone should set up a Great Scottish Land Grab party to challenge the SNP in the May elections, win that election and then grab back the land, redistributing it to the people of Scotland…

    Oh wait… Been done before.

    What are the SNP afraid of here? For all their supporters claims they are the best party for Scotland, the only party that can lead Scotland to independence, why is it that the SNP are unwilling to change the status quo?

    Perhaps too few of us are connected to our land. Certainly the SNP’s core supporters will have little access and fewer will own their own land. To risk bold changes in land reform could disturb enough of Scotland that the SNP would lose their current majority. If so, maybe we are condemned to continually have governments that will do anything to hang onto power. Perhaps only revolution would force real change that could truly bring justice.

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  11. Mark

    The main fear is E C H R .

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  12. How about a backdated compulsory registration policy backed by a 10 year amnesty after which any unregistered land is reclaimed by the state? That way in 10 years we’d have a completed register and the opportunity to implement a land valuation tax ( bye bye grossly unfair council tax!)

    Chris

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  13. What is the biggest issue facing the people of scotland? Answer- Housing and the “shortage” of it, lack of affordability, and the uneven distribution of it.
    Wage rises or benefit rises are no use to anyone if the landlord merely uses it to put up the rent.
    The recent fall in the price of petrol will probably lead to rent increases in rural areas.
    The price of housing is directly related to the lack of regulation in that market, unlike the 70,s when i grew up, property was cheap and regulation high to prevent buy to let .
    What is needed is a Renters party, to fight for tenants rights in every sector, housing, business and farming.
    The labour party used to fill this role, but now sit with the landlords, while some of us thought the SNP would fill it, but will they?

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    • hector, I agree with you. This is what irritates me about so-called land reform – 95% of it misses the point completely what with fartarsing around appointing Gaelic speaking land commissioners etc. etc. What would be rather more to the point would be to alter the planning regime to free up more house sites (thereby bringing down the price of them) and at the same time funding local authorities to go and build more affordable houses (thereby ditto) and reminding them that, if landowners are reluctant to part with the required land, they have a power of compulsory purchase. All this can be done under existing legislation as well.

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    • Housing and land reform is part of a programme of work being taken forward by the Scottish Government right now following the recommendations made in the LRRG. You can see some details here. The Bill was never envisaged to be about housing and this Bill, of course, is not the sum total of land reform. There is a lot of work being done around housing and land supply. Expect some interesting ideas in party manifestos for Holyrood 2016.

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  14. I’m afraid this has all the hallmarks of the classic stitch-up of a well-intentioned campaign for reform. The examples are legion and the way they play out is painfully familiar.

    First, some vocal people demand more regulation and/or taxation of something. Second, cynical politicians realise they can win some votes by picking up this issue and running with it. Third, the most powerful vested interests, realising they may well be able to subvert the process of reform to ensure that they can actually benefit from it, quietly work with the politicians to produce a mutually-satisfactory form of regulation and/or taxation. The politicians then deliver the new rules which nicely play to the media gallery and allow them to claim that they’ve served the public interest. But on close inspection it turns out that the powerful vested interests have ensured that the new rules are disproportionately or even entirely applicable only for the little guys and thus give the big guys an even greater competitive advantage.

    Recent tax changes to go after borrowing which funds the purchase of residential property for letting are another great example: what’s really happened, looking beyond all the predictable political grandstanding at Westminster about getting more tax off landlords, is that the corporate lobby have successfully ensured these changes won’t apply to them so it’s only the small investor who is their rival who will actually suffer. The teacher who want to buy an off-plan flat to top up their pension will be hit but not the company registered in the Caymans that borrows heavily to buy the rest of the block.

    It sounds to me like the Scottish government have, as usual, been “got at” by corporate interests to provide the necessary exemptions for people like them from the proposed disclosure requirements in land reform. Really: whodathunkit?

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  15. Nick

    Totally agree with you .
    Once again , the ‘ establishment ‘ have influenced the people who try and run the country .
    They run rings round them .

    Reply

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