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Loophole worries must be addressed

20 May 2019

The Registration of Overseas Entities Bill does not do enough to deter money laundering in the UK property market, says the Joint Parliamentary Committee scrutiny report.

It believes international criminals laundering their cash though the UK property market will be able to exploit the “significant loopholes” without changes to the planned legislation.
The committee points out that 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.

The committee pointed out that in 2017 some 160 properties worth over £4bn 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.

Committee chairman, Lord Faulks QC, 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.”

The committee has listed fine key concerns:
*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 the draft bill.
*Exemptions – the bill allows exemptions of certain entities from publishing their information, and in some cases from disclosing it at all. The Government needs to make it clear in the legislation exactly which entities are exempt. It should also publish in an annual statement to parliament the number of times these exemptions have been 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*Updating – out-of-date information will mean the Register is not fit for purpose.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, and without enforcement the bill risks being an ineffective deterrent. The report suggests that civil penalties will be easier than criminal sanctions to enforce abroad, and against land or other assets in the UK.

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