Department for Communities and Local Government call for evidence: improving the home buying and selling process SUBMISSION FROM TRANSPARENCY INTERNATIONAL UK INTRODUCTION There is undoubtedly a serious and continuing problem with corrupt money – wealth stolen from state budgets and extorted in bribes – finding its way into the UK property market. In a recent study using open source analysis Transparency International UK identified over £4.2 billion worth of property bought with suspicious wealth in London alone. The high-end real estate sector is highly vulnerable to money laundering, in part due to its capital intensive nature. Luxury properties in the UK provide a badge of wealth and respectability, and represent a ‘safe bet’ for criminals: buying such properties allows the corrupt to launder considerable amounts of stolen money with a single purchase. The knock-on effects of money laundering for consumers in the UK property market are thought to include rising average prices, a decrease in the availability of housing stock for UK citizens, a shift in developers’ priorities away from affordable homes, and an increase in ‘ghost communities’ where unoccupied houses can lead to a decline in local taxes, business, and community. Below, Transparency International UK outlines its key recommendations for preventing money laundering in order to stop corrupt wealth being funnelled into the UK property market.
Q4. SHOULD THE GOVERNMENT INTRODUCE MORE REGULATION FOR ESTATE AGENTS? IF SO, WHAT SORT OF REGULATION WOULD BE APPROPRIATE? The estate agency sector is exposed to very high levels of foreign investment from highcorruption risk jurisdictions, and is characterised by substantial holdings by offshore corporate entities. In theory, anti-money laundering provisions should act as a safeguard to mitigate money-laundering risks in the sector. However, the anti-money laundering (AML) regime relies on lawyers to cover any estate agency risks, which ignores the risk of complicit lawyers. The historic lack of regulatory sanctions for AML breaches in the sector is another concern, along with low levels of awareness of the sector’s AML responsibilities.
Key recommendations:
Estate agents should not be permitted to complete a property transaction with an overseas company unless they are registered with HMRC for AML purposes.
The anti-money laundering supervisor for estate agents, HMRC, should conduct a detailed review of money laundering risks and the extent of compliance shortcomings in the sector, as other UK supervisors have done in other sectors, to ensure that their regulatory activity is risk-based.
More information on these recommendations is available in Corruption on Your Doorstep (TI-UK 2015): www.transparency.org.uk/publications/corruption-on-your-doorstep/
Q11. HOW COULD OTHER PARTS OF THE HOME BUYING AND SELLING PROCESS BE IMPROVED THROUGH BETTER USE OF DIGITAL TECHNOLOGY? There is evidence to suggest that the housing market for the average UK citizen is affected by the influx of corrupt financial flows into the top end of the property market. Although Transparency International UK has not attempted to assess the quantitative impact of the flow of corrupt capital on the property market in the UK, the following potential effects of large scale foreign investment in luxury UK property have been widely identified by property commentators: 1. raising average prices, particularly in certain London boroughs, with a reportedly widespread ripple effect down the property price chain and beyond London 2. removing the availability of housing stock for UK citizens 3. due to the interest of foreign buyers in high-end property, a shift in developers’ priorities towards luxury flats and houses, and away from affordable homes 4. ghost communities, in which the presence of unoccupied houses with foreign owners leads to a decline in local taxes, affecting local businesses and community life Given the vulnerability of the high-end property sector to money laundering, it is likely that corrupt money contributes to these effects, albeit to an unknown extent.
Key recommendation: Corrupt individuals are able to funnel their illicit wealth into the UK property market by using secretive corporate structures that allow them to make their purchases anonymously. They can do this either by using a non-UK based company (companies registered overseas can buy UK property without disclosing their real owners - more on this below in answer to Q25), or they can do this using companies registered here in the UK, which are a frequent vehicle of choice for money launderers. Better use of the UK’s current open data technologies can help stop UK companies being used in money laundering schemes and enabling corrupt wealth to flood the top end of the UK property market. In particular:
The Government should ensure the integrity of the UK’s register of persons of significant control by providing Companies House with sufficient resources to enable it to identify suspicious activity. This would allow Companies House to take a more thorough approach to rooting out inaccurate submissions to the register, and assisting the Insolvency Service and law enforcement agencies in investigations into financial crime.
More information on this recommendation is available in Hiding in Plain Sight (TI-UK 2017): http://www.transparency.org.uk/publications/hiding-in-plain-sight/
Q25. WHAT ELSE SHOULD THE GOVERNMENT BE DOING TO HELP IMPROVE THE HOME BUYING AND SELLING PROCESS, AND REDUCE THE COST FOR CONSUMERS? Corrupt money in the UK property market is likely to be having negative effects on the average UK consumer. These effects are outlined above in answer to Q11. To mitigate these risks corrupt individuals should have no way of funnelling their illicit wealth into the UK property market – but they do, through the anonymous use of overseas companies. The Government committed to resolving this issue by introducing legislation for a public register of the beneficial owners of overseas companies buying UK property by April 20181, and reiterated its commitment with an announcement on 11 December 2017 that the Government will ‘[p]ublish a draft bill in this session of parliament for the establishment’ of this register2. The Government must now table this legislation with renewed urgency; cross-party support in Parliament has already been promised. Until then, every day that passes is another of corrupt individuals enjoying the anonymity that allows them to launder their stolen cash through our economy and stash it in empty houses on our streets.
Key recommendation:
To ensure the UK Government delivers on its commitment to introduce legislation for a beneficial ownership register of overseas companies buying UK property by April 2018, the Government should immediately share the results of the consultation which closed in May3 and establish a date for introducing legislation to the House.
More information on this recommendation is available in Faulty Towers (TI-UK 2017): http://www.transparency.org.uk/faulty-towers/
About Transparency International UK Transparency International (TI) is the world’s leading non-governmental anti-corruption organisation. With more than 100 chapters worldwide, TI has extensive global expertise and understanding of corruption. Transparency International UK (TI-UK) is the UK chapter of TI. We raise awareness about corruption; advocate legal and regulatory reform at national and international levels; design practical tools for institutions, individuals and companies wishing to combat corruption; and act as a leading centre of anti-corruption expertise in the UK. We work in the UK and overseas, challenging corruption within politics, public institutions, and the private sector, and campaign to prevent the UK acting as a safe haven for corrupt capital. On
1
https://www.gov.uk/government/publications/uk-open-government-national-action-plan-2016-18/uk-opengovernment-national-action-plan-2016-18#commitment-1-beneficial-ownership 2 http://www.parliament.uk/business/publications/written-questions-answers-statements/writtenstatement/Lords/2017-12-11/HLWS325/ 3 https://www.gov.uk/government/consultations/property-ownership-and-public-contracting-by-overseascompanies-and-legal-entities-beneficial-ownership-register
behalf of the global Transparency International movement, we work to reduce corruption in the high risk areas of Defence & Security and Pharmaceuticals & Healthcare. We are independent, non-political, and base our advocacy on robust research.
CONTACT Rose Zussman, Advocacy & Campaigns Officer +44(0)20 3096 7698, rose.zussman@transparency.org.uk Transparency International UK 7-14 Great Dover Street London SE1 4YR