Monday morning, sitting down with a coffee and having breakfast before work, where an alert flashes on my phone. I look up to see that the International Consortium of Investigative Journalists (ICIJ) has published new confidential documents detailing how Isabel do Santos (one of Africa’s richest women) exploited her family and built an empire on corruption and unscrupulous deals. Sadly, this is not shocking news. Many a time we hear of people that have made their fortune in a highly illegal way and yet even when found guilty or convicted of wrongdoing, they can have safe haven in London without fear of consequence.
How can assets in their home country be seized, yet they can simplify carry on their way of life here in the UK. It is individuals such as these that contribute to the skyrocketing prices of London based real estate…and with what? ‘Dirty-Money’.
The London property market has long been criticised for loopholes offering hiding places for corruption. The Land Registry lists the names of all property titleholders in the UK but owning a property through an offshore company can provide anonymity to owners.
New research from non-governmental anti-corruption organisation Global Witness shows that 85,000 properties in the UK are kept by companies whose ownership is unidentified to authorities, as a result of being based in countries known for their anonymity such as British Virgin Islands or the Maldives. The top ten most expensive properties owned by anonymous owners are worth over £1.5 billion.
In June 2017, new UK Money Laundering Regulations (4AMLD) were implemented, increasing Know Your Customer and Anti-Money Laundering requirements for estate agents, which was furthered with the introduction of 5MLD this month when the UK transposed the directive in the Money Laundering and Terrorist Financing (Amendment) Regulations 2019 (MLR2019).
5MLD amends 4MLD, and includes some lessons learnt from the Paris and Brussels terrorist attacks and the Panama papers. Key changes which will affect the real estate industry are:
Tighter controls relating to high risk third countries: 5MLD prescribes enhanced due diligence measures for business relationships or transactions involving high-risk third countries;
Increasing transparency of beneficial ownership of corporates: There will be wider access to each Member State’s central register of beneficial ownership of corporates. Any member of the general public can access basic information without the need to demonstrate a ‘legitimate interest’ (this is already available in the UK on Companies House). There is also a new ‘discrepancy reporting requirement’ which will require OEs to report any discrepancies they find between the information that they hold, and the information on the register; and
Beneficial ownership of trusts: 5MLD extends beneficial ownership reporting requirements to any legal arrangement that is similar to a trust, which is a common acquiring vehicle for property.
There is an argument that 5MLD still does not go far enough - with anonymous offshore companies being listed as buyers of so many properties, allowing potentially corrupt buyers. There also needs to be provisions in place to assess those that have purchased property over the value of £10million, (for example) in the last 10 years. If property has been purchased with ‘dirty’ money, and those individuals spend a significant amount of time in the country, then the likelihood is that their lifestyle whilst residing here is also funded by such money.
All estate agents must therefore be able to demonstrate a risk-based approach. In order to comply with 5AMLD, estate agents must be able to identify the level of risk posed by both buyer and seller from an AML perspective, and have an AML officer in place. Failure to do so can result in large penalties from HMRC as well as well as the possibility of prosecution.
By Lauren Parmenter, Junior Consultant at Lysis Group