Loopholes in the draft legislation must be addressed, says Joint Committee

20 May 2019 01:48 PM

The Joint Committee on the Draft Registration of Overseas Entities Bill yesterday published its pre-legislative scrutiny report. The Committee welcomes the Bill, but calls for its concerns to be rectified to ensure that the legislation successfully deters money laundering in the UK property market.

Overview

The UK is valued for its democratic political environment, its independent legal system, and its rigid financial protections. While these attributes have made the property market popular for legitimate investors, it also appeals to money launderers who use property to conceal or clean illicit funds.

Between 2004 and 2015 £180million of UK property was subject to criminal investigation as suspected proceeds of corruption, and this may be just the tip of the iceberg.
In 2017 160 properties worth over £4 billion were identified as being purchased by high corruption-risk individuals, and 86,000 properties in England and Wales have been identified as owned by companies incorporated in secrecy jurisdictions.
The Committee's witnesses suggested that a lack of information about anonymous owners often stands in the way of criminal investigations.

It has been more than three years since the Government pledged to introduce a transparent register of the foreign entities that own UK property, and of the individuals who actually control them. Time is of the essence and regardless of the effect of Brexit on the parliamentary timetable, this legislation is needed now. The Serious Fraud Office has recently pledged to speed up investigations into fraud and corruption, and with an effective Register of Overseas Entities there is now a real chance to add another tool to the UK’s anti-money laundering toolbox.

Chairman’s comments

Chairman of the Committee, Lord Faulks QC, yesterday said:

"We welcome this much-needed legislation as one of the vital tools required to create a hostile environment for money launderers who want to use the UK property market to hide unlawful funds. The legislation is well drafted, but there are still some loopholes in the draft Bill which, if unaddressed, could jeopardise the effectiveness of this important piece of legislation. In the current political climate, anti-money laundering may not seem an immediate priority. But the evidence we took shows there’s a huge problem, and it’s not going away. Time is of the essence: the Government must get on with improving this Bill and making it law."

Conclusions and recommendations

Trusts – The Bill does not cover trusts. Since trusts are not technically "entities", there are concerns that they will be used to circumvent this law. The Government’s plan to ensure that trusts are transparent – the Fifth EU Anti-Money Laundering Directive – must therefore be introduced at the same time as this draft Bill.
Exemptions – The Bill allows the Government to exempt certain entities from publishing their information, and in some cases from disclosing it at all. The Government should make clear in the legislation exactly which entities can be exempted. And to be as transparent as possible, the Government should publish in an annual statement to parliament the number of times these exemptions are used.
Updating – Out-of-date information will mean the Register is not fit for purpose. Vendors of property should update their ownership information once a year, but also update information about proposed transactions before they take place – capturing information at the point where most money laundering occurs.
Accuracy – the current proposals lack verification checks to deter individuals, including criminals, who want to submit false information.
Enforcement – Enforcing this new law may be difficult. Without enforcement the Bill risks being an ineffective deterrent. The report therefore suggests that civil penalties will be easier than criminal sanctions to enforce abroad, and against land or other assets in the UK.

Further information