Clamping down on money laundering
“There is a strong public need to clamp down on money laundering and ensure that criminals can not easily access the proceeds of their crime, but sadly this Government have not yet shown the agency to end the practice”.
Britain’s real estate market has become a hotbed for the facilitation of crime. The high value of prime London property, as well as the lack of regulations to monitor activity in this area, has made it the prime location for money laundering. Thankfully, it seems the Government, spurred by a desire to sanction Russia, have finally decided to introduce legislation to clamp down on this through their Economic Crime (Transparency and Enforcement) Act 2022. Part 1 of this legislation, which mandates that all overseas entities owning land in the United Kingdom must be registered, is worth careful consideration, since this has the potential to be the most impactful area of the new Law.
When one realises the sheer dearth of proper enforcement of property based money laundering it is not a surprise that this is such a profitable industry. By purchasing undervalued property, criminals can re-sell that property, or re-finance it based upon their alleged “improvement” to convert money acquired illicitly into a seemingly legitimate source of income. This allows criminals to enjoy the profits of their crimes without raising the eyebrows of tax authorities. The reason property is such a useful device for criminals is the housing crisis means that their investment is very unlikely to lose value, and it is extremely easy to purchase property anonymously through a third party or company.
The Government has attempted to address this through their new Overseas Entities Register. This will mean that the beneficial owner of the overseas entity that owns a given estate shall have to be registered. This is intended to make it clearer which individuals are purchasing real estate, so authorities can better supervise transactions to ensure that laundering does not occur. The example of the Qatari royal family demonstrates this point well – the Pandora Papers revealed that through an offshore company they were able to purchase over £650,000,000 worth of property. The new register would require that the beneficial owners of the offshore companies purchasing these properties would be declared, allowing us to know which individuals are worth investigating.
However, these dreams of creating a list of the worst foreign criminals will not be achieved through this legislation. In many of the worst cases the overseas entity is holding the land as a mere nominee. Where this occurs, then the ultimate beneficial owner will not be declared on the list. It is highly likely that this would become more common for those seeking to launder money since the list makes it such an obvious way to get around the Law. Moreover, the administration of the register will be done by the already dreadfully under-funded Companies House. Companies House struggles to fulfil its current functions with their budget; it seems impossible to think that their role could be expanded successfully without massive increases in funding and reform.
Like much of what the Government does this register has good intentions but fails in the details. The Government still has an opportunity to fine tune the register to make sure it works to its desired effects, but in its current state it will not. There is a strong public need to clamp down on money laundering and ensure that criminals can not easily access the proceeds of their crime, but sadly this Government have not yet shown the agency to end the practice.
Tom Spencer is the Chief Organiser for London New Liberals and is a student at the City, University of London Law School.
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