The UK is increasingly becoming a haven for “corrupt capital”, with billions in illegally gained wealth invested in high-end properties, particularly in London, global ethics watchdog Transparency International has warned.
Blaming UK rules that allow properties to be bought by secret offshore companies, the watchdog said lax regulations ensure “that money-laundering checks can be bypassed with relative ease”.
More than £180 million worth of property deals have been investigated since 2004, but the organisation claims this covers just 1 per cent of the sales, particularly in London, in the last decade.
Illustrating the scale of the secrecy in place, the watchdog said one in 10 properties in Westminster are now owned by secret off-shore trusts, compared with almost 8 per sent in Kensington and Chelsea and one-in-20 in the City of London.
In all, nearly 41,000 London property titles are held by foreign companies, but 89 per cent of them are held by companies in the British Virgin Islands, Jersey, the Isle of Man and Guernsey, where secrecy rules apply.
“The high-end real estate sector is particularly vulnerable to money-laundering, in part due to its capital-intensive nature. Luxurious properties in the UK provide a much-sought badge of wealth and respectability, and represent a very safe bet for criminals,” IT says.
“Buying such properties allows the corrupt to launder considerable amounts of stolen money with a single purchase. Large amounts of money can be ‘parked’ in a high-end property and then re-invested somewhere else with very little risk of capital loss.
“A property can also produce further income by letting it or even using it to conveniently launder even more money by signing bogus lease contracts with fake tenants,” the Berlin-headquartered organisation said.
Soaring prices
Neither has London’s dramatic property price rise over the last six years discouraged money-launderers, says Transparency International. “On the contrary, they represent an opportunity. The higher the prices, the more money can be laundered into property and through property to other assets.”
Last year, almost £25 billion worth of property in the UK was bought by foreign buyers, putting the UK far ahead of the second-placed country, Germany, where £16 billion was purchased, say international accountants, KPMG.
Corruption, even if it is concentrated on high-end properties “raises average prices, particularly in certain London boroughs, with a reportedly widespread ripple effect down the property price chain and beyond London”.
Meanwhile, the potential gains shift property developers’ “priorities towards luxury flats and houses and away from affordable homes” and help to create “ghost communities”, where buildings stand idle.
Transparency International is seeking changes to registration rules. Foreign- based companies used by wealthy foreign buyers should be required to name the real owner of the property by the UK land registry, it says. Such details should then be published by the registry, which should also be required to publish price information. Meanwhile, a cap should be placed on the cash that can be exchanged in deals, it says.
