The UK this week has unveiled plans for a new public register that, beginning in 2021, will require overseas companies that own or buy property in the UK to provide details of their ultimate owners, as part of an effort to crack down on criminals who make use of such properties to launder “dirty” money.
The plans to set up such a public register of UK property owners have been under discussion for years, but on Thursday the Government for the first time unveiled a legislative timetable for making such a register a reality, beginning with a commitment to publish the necessary draft legislation this summer.
Once drafted, the legislation would then be submitted to a committee of MPs and Lords for “pre-legislative scrutiny”, as is the normal procedure with such regulations, according to a statment from the Department for Business, Energy & Industrial Strategy.
The announcement of the public register came after the House of Lords on Wednesday, as reported, voted down a proposal that would have called for six British overseas territories with financial services industries to implement a publicly-accessible register of beneficial ownership by 1 January, 2020.
The vote took place during a debate on a proposed Sanctions and Anti-Money Laundering Bill, of which the plan to introduce a public beneficial ownership requirement had been put forward as a possible amendment, as Parliament attempts to respond to calls for greater transparency of cross-border financial activities.
Such calls have grown louder in the wake of the so-called Panama Papers and Paradise Papers exposés in 2016 and 2017, respectively.
In its statement announcing the establishment of the new timetable for making the public register of the beneficial owners of overseas companies that own UK property a reality, the Government noted that since 2004, an estimated £180m worth of property in the UK had ended up being investigated as the suspected proceeds of corruption.
What’s more, of the properties currently under investigation for possible corruption links, more than 75% have been found to have made use off-shore corporate secrecy, “a tactic regularly seen by investigators pursuing high-level money laundering”, the statement added.
By requiring overseas companies that own or buy property in the UK to provide details of their ultimate owners the Government believes the opportunities for criminals to use shell companies to buy properties in London and elsewhere, in order to launder their illicit proceeds, would be significantly be reduced, as it would make it easier for law enforcement agencies to track criminal funds and take action.
The register would also provide the government with greater transparency on overseas companies seeking public contracts, according to the Government.
A ‘world first’
In a statement accompanying the announcement of the timetable for setting up the register, business secretary Greg Clark noted that the register would be a “world first”.
“We are committed to protecting the integrity and reputation of our property market, to ensure the UK is seen as an attractive business environment,” he added.
“This register will build on our reputation for corporate transparency as well as helping to create a hostile environment for economic crimes like money laundering.”
Under discussion post-Panama Papers
In 2016, in the wake of the release by the International Consortium of Investigative Journalists of the package of leaked documents known as the Panama Papers, the idea of a requirement that beneficial owners of UK property be identified was being discussed at high levels, as reported.
In 2015, the UK satirical publication, Private Eye, reported that overseas investors had snapped up at least £100bn of property across London during the previous six years, and that Land Registry data it had obtained through freedom of information requests revealed that two-thirds of these purchases had been made by companies registered in just four jurisdictions: Jersey, Guernsey, the Isle of Man and the British Virgin Islands.
Critics, meanwhile, have argued that in addition to providing criminals with a place to launder their money, the ability of foreign entities to use London property as a kind of “bank” in which to stash cash in secret, and enjoy capital growth without having to pay tax on it, had established it as a new global “asset class” for high-net-worth individuals, a trend that has also been observed in a number of other key markets around the world.
As reported, London’s Observer newspaper reported last March that more than 200 wealthy foreigners were choosing to pay £218,200 a year in tax rather than declare the fact of their ownership of their luxury UK properties worth more than £20m.
The report, which The Observer said was based on HM Revenue & Customs data, showed, it said, that “owners of mega-mansions are choosing to pay the annual tax rather than register their London properties under their real names”.
The UK Government introduced this annual tax – known as the Annual Tax on Enveloped Dwellings, or ATED, covering residential properties owned via “non-natural persons”, such as offshore companies – in 2013, to crack down on “dirty money” used to secretly buy up high-end residential property. Often, the property isn’t lived in, as the reason for its ownership is strictly financial.
Other countries have also been seeking to cool property markets that they say are becoming over-heated by foreign investors who see homes in particular as investments rather than places to live. At least five Australian states have introduced taxes on foreigners who buy properties, ranging from 3% to 8% of the purchase price, while Canada has also seen the introduction of taxes on foreign property buyers.
Even China – where many of the buyers said to be inflating Australia and Canada’s housing markets are said to come from – has looked to cool its raging residential housing markets, by banning the re-sale of properties within one or two years of their purchase.