A Parliamentary committee has claimed that 160 properties in the UK are owned by “high corruption-risk individuals” and wants more to be done to deter money laundering activities in the real estate industry.
The Joint Committee on the Draft Registration of Overseas Entities Bill, in a report out this morning, says it welcomes the Bill’s objectives to reduce or eliminate money laundering in the UK property market - but it says more must be done.
It says the UK is valued for its democratic political environment, its independent legal system, and its rigid financial protections but says: “While these attributes have made the property market popular for legitimate investors, it also appeals to money launderers who use property to conceal or clean illicit funds.”
The committee claims that between 2004 and 2015 some £180m of UK property was subject to criminal investigation as suspected proceeds of corruption “and this may be just the tip of the iceberg.”
It continues by saying that in 2017 some 160 properties worth over £4 billion were identified as being purchased by high corruption-risk individuals, and 86,000 properties in England Wales have since been identified as owned by companies incorporated in “secrecy jurisdictions” where it is difficult or impossible to establish transparent ownership information.
The committee - which has been taking evidence in recent months - adds that its witnesses have suggested that a lack of information about anonymous owners, often stands in the way of criminal investigations.
“It has been more than three years since the Government pledged to introduce a transparent register of the foreign entities that own UK property, and of the individuals who actually control them. Time is of the essence and regardless of the effect of Brexit on the parliamentary timetable, this legislation is needed now” says the joint committee, which is charged with exercising a pre-legislative review of laws put before MPs and Lords.
It adds that: “The Serious Fraud Office has recently pledged to speed up investigations into fraud and corruption, and with an effective Register of Overseas Entities there is now a real chance to add another tool to the UK’s anti-money laundering toolbox.”
This morning’s report strikes a completely contrary note to a study by the Economist Intelligence Unit and the LexisNexis risk compliance firm - which we reported here on Friday - suggesting that estate agency may no longer be one of the highest-risk sectors vulnerable to money launderers.
Today’s report from the Joint Committee expresses five key concerns over the
Registration of Overseas Entities Bill as currently framed by the government.
1. Trusts: The Bill does not cover trusts. Since trusts are not technically “entities” there are concerns that they will be used to circumvent this law. The committee says the government’s plan to ensure that trusts are transparent – the Fifth EU Anti-Money Laundering Directive – must therefore be introduced at the same time as this draft Bill.
2. Exemptions: The Bill allows the government to exempt certain entities from publishing their information, and in some cases from disclosing it at all. The committee says the government should make clear in the legislation exactly which entities can be exempted, and to be as transparent as possible, the government should publish in an annual statement to parliament the number of times these exemptions are used.
3. Updating: The committee suggests that out of date information will mean the register is not fit for purpose. Vendors of property should update their ownership information once a year, but also update information about proposed transactions before they take place – capturing information at the point where most money laundering occurs.
4. Accurancy: The current proposals “lack verification checks to deter individuals, including criminals, who want to submit false information” the committee claims. Without such checks the draft Bill risks failing to achieve its primary aim of increasing transparency about who really owns land.
5. Enforcement: Enforcing this new law may be difficult. The report therefore suggests that civil penalties will be easier than criminal sanctions to enforce abroad, and against land or other assets in the UK.
Chairman of the Joint Committee, Lord Edward Faulks QC, says: “The legislation is well drafted, but there are still some loopholes in the draft Bill which, if unaddressed, could jeopardise the effectiveness of this important piece of legislation.
“In the current political climate, anti-money laundering may not seem an immediate priority. But the evidence we took shows there’s a huge problem, and it’s not going away. Time is of the essence: the government must get on with improving this Bill and making it law.”