The UK regulatory regime for the property market has a number of weaknesses that allow for money-laundering proceeds to easily enter the country. First and foremost, is the ability of off-shore companies to purchase UK properties without disclosing their Ultimate Beneficiary Owners (UBOs). Other weaknesses include: lack of recorded sale price by the Land Registry; cumbersome legal procedure for confiscation of illegally acquired properties; lack of regulation in the segment leading to low AML awareness; and, unregulated operators serving as conduits for stolen funds.
A number of specific policy recommendations follow:
NO ANONYMOUS OWNERS. In order to prevent proceeds from crime and tax evasion entering the UK property market, the Land Registration Act of 2002 should be changed to: disallow purchases of residential real estate into (off-shore) corporate entities; and, require all transaction prices to be recorded in the Land Registry. For existing off-shore property owners, transparency standards similar to those of the UK Companies House should be introduced. The Land Registry should receive and keep updated the records of the identities of the UBOs of all properties held in off-shore corporations and the evidence of the purchase
price paid for these properties, in the manner set forward by the EU Money-Laundering Directive 4.
- ROBUST CONFISCATION RULES. In order to ensure efficient execution of the AML measures in the property market, the Proceeds of Crime Act of 2002 should be changed in a way that would allow robust confiscation of all properties registered in off-shore corporate names if their UBOs are engaged in money laundering or tax evasion similar to the standards of “criminal conduct” introduced in the Act. A similar mechanism for property confiscation should be employed if the UBO declared to the Land Registry is proven not to be the actual owner and economic benefactor of the off-shore corporation.
- INVESTIGATION OF OFFSHORE OWNERS. NCA’s Economic Crime Command should investigate all instances of attempted conspiracy to launder money and complacency as depicted in the documentary. It should, furthermore, conduct a review into all those off- shore corporations that are established in tax havens and that own UK properties. The owners of these corporations should be investigated for money laundering and tax evasion where appropriate.
- ENFORCEMENT: There is currently little to no enforcement of existing anti-money laundering legislation in property. Heavy fines and jail terms must be introduced for violators of existing laws requiring suspicion activity reports. This system is currently little used.
- ESTATE AGENTS REGULATION. The UK property market regulation should be concentrated in HMRC, wherein a specialised unit should be formed for this purpose. This unit should ensure that a compliance function is introduced in all estate agencies, throughout the UK, in such manner that all perspective buyers at the time of submission of a formal offer should be subject to the ‘know-your-customer’ procedures and AML checks that are routinely conducted in the financial industry.
- REGISTRATION SYSTEM. HMRC should institute registration procedures for all estate agents. Such registration should include passing a computerised test of AML and POCA principles, periodic registration reviews, and a further programme of internet-based education. The Land Registration Act of 2002 should be amended to prohibit estate agents without the appropriate registration from being employed in the property sector. Breaches of the AML regulations, together with other code of conduct violations on behalf of the agents, should lead to the removal of the registration and potential criminal responsibility.
- NO UNREGISTERRED INTERMEDIARIES. Businesses and intermediaries without HMRC registration for real estate operations should be prohibited from acting on behalf of their customers in the property market. The legal framework needs to be amended in such manner that family offices, concierge firms, and other intermediaries should not be able to facilitate or assist their clients with real estate transactions.
- ANTI-CORRUPTION PLAN REVIEW. The UK Anti-Corruption Plan of 2014 should be amended to include a chapter on property. As things stand, property is not mentioned once in this document. This amendment should reflect all of the above points and become an integral part of the UK anti-corruption policy.