We often talk about scams and fraud prevention on this blog – but that’s not the only type of financial crime lawmakers need to worry about.
Another big concern is money laundering: activity where criminals use a business or purchase to make it look as though the money they’ve made illegally was actually earned through legitimate sources.
In light of Russia’s invasion of Ukraine, there has been more attention on one specific form of money laundering, which occurs when foreign owners buy property in the UK as a means of disguising the origin of their income. Currently, foreign owners of UK properties will often make their purchases anonymously, making it difficult to know exactly who is behind the transaction.
However, new legislation introduced this month means those buying UK property will now be required to reveal their true identity, and companies purchasing property will need to declare their ‘beneficial owner’. This doesn’t just bring a new layer of transparency to proceedings; it also means that it should be easier for our government to enforce Unexplained Wealth Orders – a type of court order that can help to confiscate criminal assets.
Speaking about the new legislation, Business Secretary Kwasi Kwarteng said: “The new register will shine a light on who owns what in the UK so we can flush out the oligarchs, criminals and kleptocrats who think they can use UK property to hide their illicitly obtained wealth.”
What is money laundering?
Money laundering can be quite a complex process, but the principles behind it are pretty simple. Essentially, criminals need to place their money into general circulation, disguising the fact that it has been generated from illegal activity.
The money will be used to make a transaction – perhaps repaying a loan, exchanging it into a different currency or investing in property. It then needs to change hands again, and is often moved overseas in a process known as ‘layering’. The idea is for the criminals to disguise the money’s original source as thoroughly as possible. Finally, it will be returned to the original owner, but under the illusion of having come from a legitimate transaction.
Fortunately, rigorous legal activity and anti-money laundering checks by financial institutions mean that it’s getting harder and harder for crooks to clean their dirty money. Asking people to prove their identity and the source of their income when making large transactions can help make this kind of criminal activity more difficult.
How is the law changing?
The introduction of a new Register of Overseas Entities means that foreign owners buying property in the UK will no longer be able to hide behind shell companies, ensuring better transparency within the housing market. The register will also now apply to properties that were purchased within the last 20 years (for England and Wales) or since December 2014 (Scotland).
The move has been welcomed by industry experts. Head of Policy & Campaigns at Propertymark, Timothy Douglas said: “To maintain integrity in our housing market it is vital to know who the ultimate owner of a property is and it is imperative that the register is set up as soon as possible.
“The longer we wait for the register, the longer corrupt individuals will be able to use the UK property market to hide their wealth.”