Forthcoming legislation is set to create a new property register to reveal the identities of overseas owners, which is likely to be an unwelcome development for money launderers. The Overseas Entities Bill should act as an important weapon in the battle against money laundering having been laid out by a cross party parliamentary committee. Further details can be found in a draft bill published on the GOV.UK website. Providing progress is made, the register will launch in 2021.
How will the register work?
While more on the detail is needed, it is known that overseas firms will apply to be on the register via Companies House. Those who fail to register will not be able to obtain the full legal title. There will be enforcement through civil penalties for those who fail to comply and criminal sanctions for non-payment of fines. The aim is to stop criminal sales going through and so deter money laundering. Information on the register should be updated every year and before property transactions take place.
There is momentum gathering to see the legislation passed, and according to Lord Faulks QC, chair of the committee, this will be “much-needed legislation” adding that:
“It’s pretty outrageous that great chunks of our country are owned by people whose identity we are uncertain of and that the source of their funds remains a mystery.”
The committee’s report on the bill estimated that in 2017, some 160 properties worth over £4 billion were bought by ‘high-corruption-risk individuals. Further, some 86,000 properties in England and Wales have been identified as being owned by companies in tax havens. The committee also believes more than £90 billion a year is laundered through the UK annually and property, particularly in London, is a favored asset. Often, criminals will buy via a shell company that hides their identity.
Certainly, this is viewed as a key step forward if criminals such as those portrayed in the BBC drama McMafia are to be prevented from using the UK as a location to launder money and reap large rewards.
According to lawyer Tom Beak, associate in Kingsley Napley’s real estate team:
“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, it is unlikely to make it impossible to launder money, just much harder.”
Indeed, even prior to launch, the bill has attracted criticism over fears that there will be insufficient verification checks, meaning criminals could still get away with submitting false details. A further issue is trusts, which are not viewed as ‘entities’ and so are excluded from the bill. There is however, a solution for this – the Fifth EU Anti-Money Laundering Directive will be introduced at the same time as the Overseas Entities legislation and will be applied to the UK even after Brexit takes place. The directive will require transparency where trusts are used and so the loophole could be closed.
It has also been said that the bill will contain some exemptions to the register, expected to be foreign governments, but again this is an area that will no doubt be subject to scrutiny within the draft.
This is only the latest in a series of moves by the UK government to boost transparency and so reduce money laundering. In 2016, the government introduced a public register of owners of British companies and in 2018, unexplained wealth orders came into force, which are issued by courts and compel an individual to reveal the source of any unexplained wealth.
The new property register is a step forward, but those behind global money laundering are rarely easy to apprehend – even when the register is here and wrongdoing is suspected, it may be difficult to pursue individuals if they operate abroad. This crime is not going to disappear, but it should make the UK a less welcoming environment in which to shelter ill-gotten gains.