2The draft Bill in context
12.This chapter describes the legislative and policy context in which the draft Bill sits. It looks at the scale of overseas property ownership in the UK, and its varying distribution across the country. Next, it summarises wider efforts against money laundering, and recent efforts at the UK, EU and global levels to combat these crimes. It considers initiatives such as the People with Significant Control (PSC) register, and the EU’s Fourth and Fifth Anti-Money Laundering Directives (4AMLD and 5AMLD).
13.The second half of the chapter explains what the Government intends to achieve with the proposed Register, and how it consulted on the draft Bill. It describes the proposed provisions in the legislation, including its “teeth”—the requirement to register land transactions, and its sanctions for non-compliance—to provide a context for the analysis which comes in later chapters.
Overseas ownership of UK land
14.In comparison with other jurisdictions, the United Kingdom has a relatively open and welcoming approach to the ownership of land by individuals or entities based overseas. There are no legal restrictions on the ability of foreigners to purchase and hold land in this country.10 This compares with, for example, New Zealand, Thailand, India, and Switzerland, which have varying legal restrictions on the ownership of land by non-nationals, or those who cannot demonstrate a family connection to those countries.11 Crown Dependencies such as Jersey and Guernsey also impose restrictions on the ownership of land by non-residents.12
15.A result of this liberal attitude to overseas ownership, and of the stable investment environment discussed in the previous chapter, is that the UK has become a very popular destination for overseas individuals and entities wishing to purchase property.13 One property company estimated that, within the high-end “prime London” market, 32 per cent of buyers in 2013/14 were international.14 Another report found that of “prime London” sales worth over £1 million, 49 per cent were to foreign nationals.15 Research commissioned as part of the Mayor of London’s inquiry into the impact of foreign investment on London’s housing market suggested that overseas buyers accounted for 36 per cent of sales in “prime” boroughs of London, compared to 5.7 per cent in outer London.16
16.Most research into overseas ownership of property in the UK centres on London and the South East, which have the greatest concentration of property with owners based abroad. But throughout the country, land and property is in the hands of such owners, and there is some indication that property in towns and cities outside London is seeing growing interest from overseas investment.17 The lack of comprehensive information about overseas investment in land outside London and the South East further underlines the importance of this draft legislation, to increase transparency and enable similar research in the rest of the UK.
17.The level of overseas investment in UK land has led to public concern about the affordability and availability of housing. Continuing investment from overseas can raise the price of property, making it unaffordable for residents. There is also concern about under-occupation of foreign-owned housing, with research indicating that high-value homes in prime areas of London owned by overseas buyers are less likely to be occupied than UK-owned homes.18 While it is not the overt intention of the draft Bill, the deterrents that the legislation will give to illegitimate foreign owners may bring about the incidental benefit of decreasing under-occupation.19
18.Various Governments have attempted to reflect this public sentiment in policy, through the introduction of measures such as the Annual Tax on Enveloped Dwellings (ATED, or the “Envelope Tax”), a levy on properties with a taxable value above £500,000. ATED’s aim was to make it less attractive to hold high-value UK residential property indirectly, for example through a company (known as “enveloping” the property), in order to avoid or minimise taxes such as stamp duty land tax.20 However, beneficial owners who paid the levy were able to retain anonymity. Research commissioned by HM Revenue and Customs (HMRC) suggests that following the introduction of this tax, instances of “de-enveloping” properties from their companies were rare, and that “for some owners the benefits of the envelope far outweighed the cost of paying ATED”.21 The willingness of beneficial owners to spend a sizeable amount to avoid their identity being made public suggests that establishing a truly transparent Register of overseas entities will represent a substantial task for the Government.22
Money laundering
19.A further area of public concern about overseas investment in UK land derives from the use of land and property to launder the proceeds of crime. Money laundering is broadly defined in the UK. It is a process which conceals the proceeds of crime to make them appear legitimate.23
20.A recent House of Commons Treasury Committee report concluded: “The scale of economic crime in the UK is very uncertain […] it is exceptionally difficult to measure economic crime, given [that] those undertaking it are actively trying to hide it.”24 Evidence that we received suggests that this holds true for money laundering within the UK property market. When asked to assess the scale of this problem, Prof Fisher QC told us: “The essence of the activity of the fraudster is to conceal what they are doing and what they are gaining from it. Therefore, it will be incredibly difficult to estimate, if not impossible.”25 Alison Barker, Director of Specialist Supervision at the Financial Conduct Authority (FCA), agreed: “It is difficult to estimate the total amount of money laundering. It is by its nature covert.”26
Figure 1: A ‘heat map’ demonstrating the number of Greater London properties owned by companies with at least one owner incorporated in “secrecy jurisdictions”
Provided by Global Witness and based on Land Registry data from January 2018. Base map © OpenStreetMap and Carto.
21.Transparency International has nevertheless attempted to make such an estimate. In 2017 they identified 160 properties worth over £4 billion purchased by high corruption-risk individuals.27 Our witnesses from the National Crime Agency (NCA), the Serious Fraud Office (SFO), and the Office for Professional Body Anti-Money Laundering Supervision (OPBAS) agreed that this estimate was reasonable.28 Between 2004 and 2017, £180 million of UK property was subject to criminal investigation as suspected proceeds of corruption,29 but this was described by Transparency International as “the tip of the iceberg”.30 In total, Global Witness identified 86,000 properties in England and Wales owned by companies incorporated in “secrecy jurisdictions”.31 In 2015, Transparency International identified that 9.3 per cent of all properties in the City of Westminster and 7.3 per cent of those in Kensington and Chelsea were owned by companies registered in an offshore “secrecy jurisdiction”.32
22.Law enforcement investigations are often hampered by an inability to access information about the individuals who ultimately own or control overseas entities which have been used to conceal the proceeds of crime and corruption.33 The proposed Register will be viewed by practitioners as one of several mechanisms to combat money launderers investing in land, and in the UK economy more broadly. Donald Toon, Director of the National Economic Crime Centre at the NCA, told us:
“Certainly the Register will be of assistance, but it has to be seen alongside all the other tools, the suspicious activity reporting regime, the PSC register, the changes that are likely to strengthen the position under the Fifth Anti-Money Laundering Directive, as well as the prioritisation and targeting of that activity by law enforcement.”34
Existing anti-money laundering measures
23.The draft Bill is one of a series of pieces of legislation to emerge from the Government’s efforts to tackle money laundering. Former Prime Minister, the Rt Hon David Cameron MP, laid out his ambitions in this field at the 2016 Global Anti-Corruption Summit, held in London and attended by 43 countries. At the summit, the Government committed to establish a public register of beneficial owners who buy or sell land in the UK.35
24.Since then, various legislative initiatives have attempted to deal with the issue of money laundering in the UK. In June 2016 the Government amended the Companies Act 2006 to introduce the People with Significant Control register.36 This requires most UK entities to provide information about their ultimate owners and controllers to the Registrar of Companies (“Companies House”). As we show in the following chapters, the PSC register can offer many instructive lessons for the Register of Overseas Entities. The Government will also need to ensure that the requirements placed on practitioners by the two registers complement, rather than contradict, each other.
25.There are three further important mechanisms with a bearing on anti-money laundering efforts. The Criminal Finances Act 2017 introduced ‘unexplained wealth orders’ (UWOs). These court orders give UK law enforcement agencies more latitude to seize the proceeds of corruption.37 Prof Fisher QC told us that UWOs and the proposed Register were “weapons in the armoury. I see them sitting together rather happily; there is certainly no inconsistency.”38 The Proceeds of Crime Act 2002 requires regulated professionals (such as estate agents or accountants) to disclose, through ‘suspicious activity reports’ (SARs), if they know, suspect or have reasonable grounds for knowing or suspecting that a person is engaged in money laundering.39 In January 2018, the Government created the Office for Professional Body Anti-Money Laundering Supervision. This body, part of the Financial Conduct Authority, oversees the UK’s 22 accountancy and legal professional body anti-money laundering supervisors. It ensures that these organisations meet the Government’s anti-money laundering standards, and has powers to investigate and penalise those which do not.40
The Fourth and Fifth EU Anti-Money Laundering Directives
26.The EU has also taken action in the anti-money laundering (AML) arena. The Fourth AML Directive, agreed by the European Parliament and Council of the European Union in 2015, introduced a requirement for legal entities to hold adequate, accurate, and current information about their beneficial ownership. The European Commission’s aim for the Fifth AML Directive—adopted in July 2018 and due to come into force by 10 January 2020—is that beneficial ownership registers will be made public, and that Member States will put in place mechanisms to verify the information collected by these registers.41
Background to the draft Bill
27.Following the 2016 Anti-Corruption Summit, the Government launched a public consultation on its plans to establish a public register of the beneficial owners of overseas entities owning land in the United Kingdom. Once that exercise was complete, the Government announced that it would publish a draft Bill for scrutiny in the summer of 2018 with the aim of introducing the Bill to Parliament in 2019, and the Register becoming operational in 2021. The draft Registration of Overseas Entities Bill was laid before Parliament on 23 July 2018.42
Figure 2: Timeline of the draft Bill
Source: Department for Business, Energy and Industrial Strategy. Please note that certain dates within the timetable, such as introduction date, are indicative, for planning purposes, and subject to change to take into account the new Parliamentary session.
28.The Government claims that the Register will be the “the first register of its kind in the world”.43 Its desired outcome is to “to deliver transparency about who ultimately owns and controls overseas entities that own land in the UK”. The Government states that the Register
“is intended to act as a deterrent to those who would seek to hide and launder the proceeds of bribery, corruption and organised crime in land in the UK. Wider benefits will include improving confidence and trust among the wider public and legitimate investors as to whom they are doing business with in any land transaction.”44
29.In its call for evidence on the draft Bill, the Government went even further: it described the aim of the Bill as giving “assurance that the UK is a hostile environment for hiding the proceeds of corruption or laundering money”.45
The draft Bill: a summary
30.In broad terms, the Government wishes to establish a Register, held by Companies House, into which overseas entities which own or wish to purchase land in the UK would be required to enter information about their beneficial owners.46 The “teeth” of the Bill would bite whenever the entities sought to buy or sell land—in the legal terminology of the draft Bill, whenever they sought to register proprietorship or “disposition” of certain interests in property. This provision would therefore require coordination between Companies House and the land registries of England and Wales, Scotland, and Northern Ireland.
31.Overseas entities would be deemed “non-compliant” if they failed to enter the requisite information when registering, or if they failed to register at all. The draft Bill contains sanctions for such entities. Perhaps the most consequential would be restrictions on dispositions: restriction of the ability to transfer the legal title of the land, or let or create a charge over it.47 But criminal sanctions are also proposed.48
32.The Bill envisages an 18-month transition period before its sanctions would be enforceable on overseas entities which already own UK land and fall within the Bill’s scope.49 This is designed to give existing entities owning UK property enough time to declare their beneficial ownership information. In Chapter 5 we explore the consequences of this proposed timeframe for entities wishing to evade the Bill’s prescriptions.
33.If it is to be successful, the proposed Register of Overseas Entities must cohere with the other aspects of the Government’s anti-money laundering efforts outlined above. Tom Keatinge, Director at the Centre for Financial Crime and Security Studies, Royal United Services Institute (RUSI), offered a helpful metaphor:
“Perhaps I could use an image. Over recent years, the Government have taken the economic and financial crime jigsaw out of the cupboard, where it has languished for many years, and are starting to find the edges of the picture of the solution we are looking for. The Bill is one of the important edges, but an awful lot in the middle still needs to be addressed, and I am sure that we will come on to points about resourcing, and all those sorts of things. But this Bill is a welcome edge, which we have found and are starting to implement.”50
34.It is our hope that, by improving the legislation proposed by the Government, the work of this Committee will help to fill in some of the gaps in the UK’s current anti-money laundering efforts.
35.We have approached this draft Bill on the clear understanding that while the Register is an important piece of the anti-money laundering jigsaw, it is only one piece. The Government should not lose sight of how this proposal fits with other anti-money laundering measures in its commendable efforts to design as effective a Register as possible.
Figure 3: The anti-money laundering jigsaw
10 Bryan Bletso, Sarah Cardew, Georgie Collins, Laurence Gavin, Ian Silverblatt, Mandeep Khroud and Rachel Adams, ‘Investing in the UK (England and Wales)’, Practical Law Country Q & A (2018): https://uk.practicallaw.thomsonreuters.com/2-602-9807?transitionType=Default&contextData=(sc.Default)&firstPage=true&comp=pluk&bhcp=1
11 International Living, To Have or to Lease: A Global Guide to Property Ownership Rules and Restrictions: https://internationalliving.com/global-property-ownership [accessed 6 April 2019]; Jones Lang LaSalle, Restrictions on Property Ownership, http://www.joneslanglasallesites.com/investmentguide/country/india/restrictionsonpropertyownership [accessed 6 April 2019]; Jones Lang LaSalle, Restrictions on Foreign Property Ownership: http://www.joneslanglasallesites.com/investmentguide/country/china/restrictionsonforeignpropertyownership [accessed 6 April 2019]
12 Nathan Brooker, ‘UK property: the Channel Islands debate’, Financial Times (6 March 2015): https://www.ft.com/content/36ebfd20-bdc6-11e4-8cf3-00144feab7de [accessed 10 April 2019]; ‘The Observer view on the need for a crackdown on non-resident property owners’, The Guardian (19 August 2018): https://www.theguardian.com/commentisfree/2018/aug/19/observer-view-on-cracking-down-on-non-resident-property-owners [accessed 10 April 2019]
13 House of Commons Library, Foreign Investment in UK Residential Property, Briefing Note, Number 07723, July 2017
14 Savills, Spotlight, The World in London: Capital appreciation - How London’s status as a world city is reflected through its residential buyers (2013) p 5: https://pdf.euro.savills.co.uk/residential---other/spot-worldlondon-lr.pdf [accessed 8 May 2019]
15 Knight Frank, International Buyers in London (October 2013) p 2: https://web.archive.org/web/20151123012525/http:/content.knightfrank.com/research/556/documents/en/oct-2013–1579.pdf [accessed 8 May 2019]
16 University of York Centre for Housing Policy, Overseas Investors in London’s New Build Housing Market (June 2017) p 8: https://www.london.gov.uk/moderngovmb/documents/s58641/08b2c%20University%20of%20York%20data%20report.pdf [accessed 20 April 2019]
17 ‘London mayor launches unprecedented inquiry into foreign property ownership’, The Guardian (30 September 2016): https://www.theguardian.com/cities/2016/sep/29/london-mayor-sadiq-khan-inquiry-foreign-property-ownership [accessed 11 April 2019]
18 University of York Centre for Housing Policy, Overseas Investors in London’s New Build Housing Market (June 2017) p 21: https://www.london.gov.uk/moderngovmb/documents/s58641/08b2c%20University%20of%20York%20data%20report.pdf [accessed 20 April 2019]
19 ‘The Observer view on the need for a crackdown on non-resident property owners’, The Guardian (19 August 2018): https://www.theguardian.com/commentisfree/2018/aug/19/observer-view-on-cracking-down-on-non-resident-property-owners [accessed 10 April 2019]
20 Lexis PSL, Annual tax on enveloped dwellings (ATED) — overview,: https://www.lexisnexis.com/uk/lexispsl/tax/document/393773/5BR0-C761-F18C-V13M-00000–00/Annual_tax_on_enveloped_dwellings__ATED__overview [accessed 11 April 2019]
21 HM Revenue & Customs, Views and behaviours in relation to the Annual Tax on Enveloped Dwellings (September 2015): https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/457946/HMRC_Research_Report_384_-_Views_and_behaviours_in_relation_to_the_Annual_Tax_on_Enveloped_Dwellings.pdf [accessed 12 April 2019]
22 HM Revenue & Customs, Annual Tax on Enveloped Dwellings (ATED) (April 2019): https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/791573/ATED_1718_Commentary.pdf [accessed 25 April 2019]
23 Proceeds of Crime Act 2002, section 329
24 Treasury Committee, Economic Crime - Anti-money laundering supervision and sanctions implementations, (Twenty-Seventh Report, Session 2017–19, HC 2010) , paras 15–16
27 Transparency International UK, Overseas corruption pricing londoners out of the capital (March 2017): https://www.transparency.org.uk/press-releases/faulty-towers [accessed 30 April 2019]
29 Home Office, Economic crime factsheet (December 2017): https://homeofficemedia.blog.gov.uk/2017/12/11/economic-crime-factsheet [accessed 22 April 2019]
30 Transparency International UK, UK corruption on your doorstep: how corrupt capital is used to buy property in the UK (February 2015): https://www.transparency.org.uk/publications/corruption-on-your-doorstep [accessed 27 April 2019]
31 Global Witness, Two years on, we’re still in the dark about the UK’s 86,000 anonymously owned homes (December 2017): https://www.globalwitness.org/en-gb/blog/two-years-still-dark-about-86000-anonymously-owned-uk-homes [accessed 18 April 2019]
32 Transparency International UK, UK corruption on your doorstep: how corrupt capital is used to buy property in the UK, Report (February 2015): https://www.transparency.org.uk/publications/corruption-on-your-doorstep [accessed 27 April 2019]
36 Companies Act 2006, Chapter 2, Part 21A
37 Criminal Finances Act 2017, sections 1 and 4
39 The Law Society, Suspicious Activity Reporting (August 2018): https://www.lawsociety.org.uk/support-services/advice/articles/suspicious-activity-reporting [accessed 18 April 2019]; Proceeds of Crime Act 2002, section 330
40 HM Treasury, UK launches new anti-money laundering watchdog (January 2018): https://www.gov.uk/government/news/uk-launches-new-anti-money-laundering-watchdog [accessed 18 April 2019]
41 European Commission, Anti-money laundering and counter terrorist financing (July 2018): https://ec.europa.eu/info/policies/justice-and-fundamental-rights/criminal-justice/anti-money-laundering-and-counter-terrorist-financing_en [accessed 6 April 2019]
42 Department for Business, Energy & Industrial Strategy, Overview Document: Draft Registration of Overseas Entities Bill (July 2018): https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/727901/2._FINAL_Overview_document__1___1_.pdf [accessed 1 April 2019]
45 Department for Business, Energy & Industrial Strategy, Overview document: Draft Registration of Overseas Entities Bill, (July 2018), p 11: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/727901/2._FINAL_Overview_document__1___1_.pdf [accessed 1 April 2019]
46 Overseas entities which already own UK land will also be required to register if they registered legal title to the land after 8 December 2014 in Scotland and 1 January 1999 in England and Wales. There is no requirement for existing owners to register in Northern Ireland. See paragraph 194.
47 Department for Business, Energy & Industrial Strategy, Draft Registration of Overseas Entities Bill, Cm 9635, July 2018, Schedule 3, part 1, new Schedule 4A, for England and Wales. Schedule 4, Part 1, new Schedule 1A for Scotland. Schedule 5, new Schedule 8A for Northern Ireland
48 See Draft Registration of Overseas Entities Bill, Clause 8, ‘Failure to comply with updating duty’, Clause 14, ‘Failure to comply with notice under section 11 or 12’, and Clause 28, ‘General False Statement Offence’
49 Draft Registration of Overseas Entities Bill, Schedule 3, Part 2 for England and Wales, and Schedule 4, Part 2 for Scotland