Criminals are pushing up house prices for average citizens by laundering billions of dollars through high-end property purchases in the U.K., and especially London, the U.K. National Crime Agency said in July.
Donald Toon, director of the agency’s economic crime command, told The Times that a growing number of properties are bought through offshore corporations, in some cases using laundered funds.
“I believe the London property market has been skewed by laundered money. Prices are being artificially driven up by overseas criminals who want to sequester their assets here in the U.K.,” he said.
According to the National Crime Agency – the equivalent to the U.S. Federal Bureau of Investigation – hundreds of millions are laundered in London every year. Recent high-profile money laundering cases included the London properties of Muammar Ghaddafi’s son Saif and those of the former governor of Nigerian Delta State, James Ibori, who was sentenced to 13 years in prison on money laundering and fraud charges.
A Financial Times review of Land Registry data estimated the value of U.K. properties owned by offshore entities is at least US$191 billion, although the real value is likely to be higher since about a third of Land Registry records in the U.K. do not contain a purchase price.
Corporate entities, many established offshore, are the preferred vehicles for property transactions because their use can have certain tax benefits and often enables the buyers to remain anonymous.
Two years ago, the U.K. upped stamp duties for expensive properties and introduced a special tax on properties held by companies, trusts and investment funds, the so-called annual tax on enveloped dwellings (ATED). But this added cost has not dampened the interest of foreign buyers in high-value London real estate.
In fact, revenue from the tax jumped from $157 million for the full tax year 2013/14 to $235 million in the first three months of this year alone.
An analysis by Candy & Candy of the global prime property sector found that buying high-end properties in London remains attractive compared with many other top cities around the world, both in terms of low property taxation and price.
In 2012, more than 400 London properties valued at more than 5 million pounds (US$7.85 million) were sold for a total value of $6.44 billion, nearly half to foreign buyers.
As a side-effect, those purchases at the top end of the market have pushed London house prices to between 10 and 20 times the average annual income and out of the reach of ordinary buyers.
Although only a portion of the property purchases can be attributed to money laundering, the desire of overseas criminals to sequester their assets in the U.K. has led to a distortion of the housing market, claimed Toon. To execute the money laundering, however, criminals need the support of professional service providers, including real estate agents.
“If they [estate agents] have a suspicion that there may be money laundering involved, then they absolutely should be submitting a suspicious activity report,” Toon said. “You are at risk of committing a criminal offense if you do not do that.”
Despite the buoyant market, the number of suspicious activity reports around properties in the U.K. has declined. In 2013-14, estate agents filed only 179 suspicious activity reports out of a total of 354,186 for the entire U.K. – down 17 percent from the previous year.
The number of suspicious activity reports filed by lawyers has also decreased significantly, from more than 11,000 in 2006/07 to about 3,300 in 2013/14.
In its strategic assessment, the National Crime Agency identified the U.K. and Crown dependencies as a destination for millions of pounds of European criminal proceeds. The organization stated “it is known that millions of pounds from the proceeds of corruption and bribery offenses committed by some international politically exposed persons have been laundered through U.K. financial systems and property investments.”
Toon believes more than investigating and prosecuting cases is needed to fight money laundering. “It is about changing the attitude across the professions who are essential to the provision of what is essentially money laundering as a service,” he said.
This may prove difficult. Lawyers, accountants, tax advisers and realtors will not forgo the additional revenues from their enabling services lightly, nor will the U.K. economy as a whole perform as well without the additional foreign capital flowing into the country.
Drew Sullivan, editor of the Organized Crime and Corruption Reporting Project, noted at the Offshore Alert conference in Miami in May that at the highest levels “the U.K. knows that it takes a tremendous amount of stolen money.”
“But the problem is if you try to remove that money from the system you will see a demonstrative effect on the standard of living of the British people,” he said, because proceeds of corruption and crime from Russia and elsewhere invested in the U.K. lead to lower interest rates, easier access to capital and asset growth.
“If the U.K. were to quit the equivalent of their heroin addiction they would be in deep trouble,” Sullivan added.
Prime Minister David Cameron, meanwhile, maintained in a speech in Singapore “that the U.K. must not become a safe haven for corrupt money from around the world” and announced that the U.K. will increase the transparency of property owned by foreign companies.
To prevent criminals and corrupt officials from using corporate entities to buy properties in the U.K., Cameron committed to launching this fall a central register of land owned by overseas companies, and he announced a public consultation on the introduction of a register of beneficial ownership of land.
Currently, the land registry contains information on ownership but in the case of corporate entities, including offshore companies, the identity of the beneficial owners is not disclosed.