Government Unveil Plans To Unmask Secret Foreign Property Owners

A cross-house, joint committee draft bill has pledged to establish a register, held by Companies House, which will ‘force overseas entities, looking to purchase land in the UK would be required to enter information about their beneficial owners’.

The UK has been long known for its democratic political environment, independent legal system and strict financial protections; an inviting environment for both legitimate and unscrupulous investors looking to launder their illegal loot.

In 2017, it was suspected that over 160 properties valued over £4 billion were purchased by high-corruption-risk buyers.

In March, it was revealed that £56 billion (taken from Land Registry statistics in 2017) worth of UK property was secretly owned.

Based on current property prices, this secret haul could be worth more than £100 billion.

Across the UK, anti-corruption campaigners ‘Global Witness’, found that 57,000 properties are secretly owned, or owned by companies incorporated in UK tax havens.

As potential money launderers look for profitable places to squirrel their illicit gains, it is unsurprising that almost 42% (40,747) of the 97,746 properties were acquired in London and its surrounding boroughs.

The committee agreed that allowing beneficial owners to purchase property anonymously provides criminals with an overwhelming loophole to exploit the current system.

According to the Draft Registration of the Overseas Entity Bill, the register would need to be updated any time an overseas entity sought to register proprietorship of certain interests in property.

Currently, overseas entities have enjoyed the ability to remain opaque in regards to the official owners of UK property. However, the new strict guidelines would deem all overseas entities ‘non-compliant,’ issuing fines, restricting the ability to transfer the legal title of the land, or let or creating a charge over it and even issue criminal sanctions if the beneficial owners are omitted from the register.

Now the Bill, first considered by David Cameron as far back as 2015, is gathering pace.

Speed is something that the Bill will need if the government are to tie up the potential loophole permitting overseas trusts to retain anonymity. As trusts are not technically entities, they are not obliged to comply with the register’s legal requirements. The committee report cites a concern that trusts could be used to bypass the register.

However, the provisions of the fifth EU Anti-Money Laundering (AML) Directive, which will be applied to the UK despite Brexit, will close this potential loophole.

The government aim to launch the Bill and EU directive simultaneously in order to stop overseas entities from hiding their identities and exploiting any UK leniency in the law.

Given the EU’s Fifth AML Directive is set to come into law by January 2020, the government will have to work swiftly and collaboratively to ensure the Draft Registration of Overseas Entities Bill is able to come into law at the same time.

Lord Edward Faulks QC, Chairman of the Joint Committee on the Draft Registration of Overseas Entities Bill, said:

“We welcome this much-needed legislation as one of the vital tools required to create a hostile environment for money launderers who want to use the UK property market to hide unlawful funds. 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.”

Tom Beak, Associate in the Real Estate team at Kingsley Napley LLP, says:

“The Bill is undoubtedly a positive step towards lifting the corporate veil and increasing the transparency of ownership in the UK property market.

“Whilst the recommendations strengthen the Bill and provide greater insight into how it would work in practice, the Bill is unlikely to make it impossible to launder money, just much harder.

“Reliance on the implementation of EU directive and concerns regarding the enforcement of sanctions, suggest that the Bill is not perfect. But whilst the window of opportunity remains open to launderers, allowing them to restructure or dispose of properties in the meantime, it may be time to put this legislation to the test.”

Michael Harris, Director Financial Crime Compliance and Reputational Risk at LexisNexis® Risk Solutions, commented: 

“These latest findings once again prove that too many properties in the UK are bought through shell companies in secrecy havens – a key contributor to the UK’s reputation as a hub of ‘dirty money.’ With such havens in the spotlight once again, it’s hoped that the increased pressure will push the government to speed up the implementation of the beneficial ownership register. However, this is likely to be a tall order given the numerous vested interests at play, both at government and business level.

“Until then, estate agents play a vital role in helping to detect and deter illicit funds being fed through UK properties. As the gatekeepers to transactions, estate agents need to take it upon themselves to conduct the due diligence required to identify the ultimate beneficial owners of all properties. Without this, the UK’s reputation will only continue to be tarnished.

“In any event, it seems inevitable that the Bill’s effectiveness will rely on the enhanced due diligence of acting solicitors to ensure that proposed buyers or sellers are appropriately registered.”

Will this Bill help to make a more transparent system for the UK property market? Will this Bill help reduce money laundering? Are you concerned by anything in the Bill?

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