Finance Monthly. 28 Bus i ne s s & Economy What is the impact of money laundering on the property industry and the wider UK economy? In reality, the full scale of money laundering throughout the UK property sector is unknown. However, Transparency International UK has been collating information on questionable funds being invested in UK property since 2016 and believes this figure currently stands at £6.7bn. Transparency International have identified 513 properties in the UK that have been bought with suspicious wealth - three of those properties have a combined value of more than £5bn. This is just a small proportion of the total proceeds of crime invested in UK property. Information obtained and affirmed by Pandora Papers, which comprised circa 12 million documents exposed secret dealings and hidden assets of the world’s richest and most powerful, in particular the revelation of secret owners of more than 1,500 UK properties with an estimated value in excess of £4bn worth of property assets purchased via offshore companies. This is just the tip of the iceberg. Why is the property industry so attractive to money launderers? Traditionally, property has always been viewed as a reliable form of long-term investment, and despite the current economic outlook, it remains a popular choice of investment – particularly for wealthy individuals with excess cash. Aside from genuine wealthy individuals, UK property attracts sophisticated criminals who need to disguise their proceeds of crime. Buying property is an easy way and means of money laundering while enabling criminal networks to continue to thrive. UK property can be bought by using offshore companies. Whilst Companies House now requires a certain amount of due diligence and information to be provided on the beneficial owner, this does not seem to be the case for companies registered overseas and especially in countries with well-known secrecy jurisdictions. The flip side to this is that the true purpose and origin of financial transactions remain unclear. Proper and accurate due diligence on property buyers must be conducted to ensure firms and banks know who they are dealing with and know the true origin of the funds. It is clear also from the number of fines meted out by some of the UK Money Laundering Supervisors that institutions are still falling short in this area. HMRC recently revealed that almost half of those falling foul of AML regulations are property firms. Why is the industry failing to meet their AML obligations? In direct response to the HMRC October 2022 headline - it focused on Estate Agents who either failed to register with the HMRC for AML purposes or the firm had registered but had failed to put in place adequate risk assessments and other relevant policies and procedures to ensure the firm met its required AML obligations. These offences attracted numerous fines and in one particular case a sentence of 120hrs unpaid community service. Until August 2022, it was perfectly legal for offshore companies to purchase property in the UK without providing details of the beneficial owner, which effectively allowed the beneficial owner to remain anonymous. “Traditionally, property has always been viewed as a reliable form of long-term investment, and despite the current economic outlook, it remains a popular choice of investment – particularly for wealthy individuals with excess cash.”
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