Anti-corruption campaigners Global Witness has called for more transparency about UK property ownership after reviewing alleged links between a former Kazakh secret police chief accused of money laundering and a £147m property portfolio.
In a report published on Wednesday, the anti-corruption organisation highlights the complex structures through which swaths of UK property are owned. It urges the government to introduce a legal requirement for the ultimate owners of property to be made publicly available in the Land Registry and to enhance due diligence requirements for real estate agents.
Much of the property boom in recent years — particularly in luxury real estate — has been attributed to foreign buyers who see the UK, and London in particular, as an attractive place to invest.
But there is a darker side. Experts have long acknowledged the vulnerability of real estate transactions as vehicles for money laundering. UK police said in most grand corruption cases that they investigated, proceeds of were used to buy high-value properties. Scotland Yard has investigated 144 property purchases worth £180m since 2004.
The Land Registry, which covers properties in England and Wales, lists legal owners, which include 2.2m UK companies and more than 90,000 entities registered in tax havens but not beneficial owners.
The government has vowed to introduce a publicly accessible registry of beneficial ownership of companies in Britain by early next year. The new rules do not apply to overseas companies, however.
A Financial Times investigation last year established that at least £122bn in real estate in England and Wales is owned through offshore tax havens. Nearly half of those properties are in London.
In many offshore jurisdictions, company shareholder information is not available publicly and can be difficult even for law enforcement to trace.
“Anyone with something to hide — from African dictators to Russian oligarchs — is potentially able to use the UK’s property market as a money laundering vehicle,” said Chido Dunn, a senior campaigner at Global Witness. “It is hard to know just how big the problem is because it is all hidden behind layers of secret companies.”
Jonathan Fisher QC, who specialises in financial crime cases, said: “In this country we are known for having a stable, sound property market and we also have a sophisticated financial services offering. So I don’t think it is any great surprise that money launderers would want to use the opportunities that the UK offers, abusing them for money laundering purposes.”
Enquiries by Global Witness focused on properties clustered around the Baker Street area of London, near the Sherlock Holmes Museum tourist attraction, and elsewhere in the city. It found many links between companies associated with Rakhat Aliyev, the former son-in-law of Kazakhstan’s President Nursultan Nazarbayev, and the companies that own the properties.
Aliyev died this year in an Austrian prison where he was being held on murder charges. He was investigated in several EU countries on allegations of money laundering, according to international press reports. Before his death he dismissed the claims as politically motivated.
Global Witness was unable to ascertain the ultimate beneficial owner of the properties in question, which are held through several UK companies that in turn were controlled by a series of British Virgin Islands entities, according to corporate documents reviewed by the group.
Such structures are commonly used to avoid inheritance tax liability or keep the true owner from public view.
Representatives of the companies that own the properties denied that Aliyev was the beneficial owner or that they had done any business with him.
“The UK authorities need to work out who owns these properties and where the money came from, and the laws need changing so that this kind of cash is no longer hidden behind a wall of secret companies,” Ms Dunn said.
Global Witness’s proposals also urge the government to extend real estate agents’ anti-money laundering responsibilities to include due diligence checks on buyers of properties rather than just on sellers.
Andrew Mitchell QC, an authority on money laundering, said: “The estate agents should not be putting their client at risk by introducing into the system a buyer who may be suspicious. They should be putting the eagle eye on the buyer. They [the agents] are the first gatekeeper.”
Peter Bolton King, global residential director at the Royal Institution of Chartered Surveyors, said: “We agree that both parts of a transaction should be checked out.” However, he added it was often difficult for estate agents to ascertain and verify such information.
Estate agents are covered by anti-money laundering regulation and are required to submit suspicious activity reports to the authorities. In 2013-14 estate agents filed 179 such reports — 0.05 per cent of all suspicious activity reports submitted to the National Crime Agency. Buyers would usually have a lawyer, who would have to comply with anti-money laundering regulations.
A Channel 4 documentary aired recently highlighted the potential dangers of property purchases made with corrupt funds. An undercover anti-graft campaigner posed as a corrupt Russian official looking to buy a multimillion-pound property in London. Estate agents featured in the programme agreed to continue with the potential purchase despite being informed of the illicit origin of the cash to be used in his investment.
The National Association of Estate Agents and the Rics said after the programme they would investigate the revelations. Luay al-Khatib, Rics’ director of regulation for UK and Ireland, called it “a sad indictment of standards” in some parts of the industry. “It will no doubt be a blow to public confidence in the wider property profession,” Mr al-Khatib said.
Mark Hayward, managing director of the NAEA, said he was “horrified” at the behaviour of the estate agents featured in the programme.
If any members were found to have breached anti-money laundering rules, a disciplinary process could lead to a fine of up to €5m.
New York City has introduced disclosure requirements for shell companies engaged in property transactions to aid law enforcement officials in their quest to trace illicit money entering the city’s property market. This followed aarticles in The New York Times, which revealed how property was acquired through shell companies by international buyers who had been investigated by government authorities.
The new rules require all members of a limited liability company to be identified, rather than just one but stop short of requiring identification of the beneficial owner.
Mr Fisher warned that transparency registers were not a panacea, especially in cases where a property was owned through a discretionary trust.
“Here, the beneficiary is not named on the face of the trust deed. The trustee is told to exercise his discretion as to who is to be the beneficiary of trust income and trust capital. The transparency arrangements will not work if money launderers can still use, or more accurately abuse, the vehicle of a discretionary trust,” he said.
THE FINANCIAL TIMES, July 22, 2015