Criminals Are Using Your Dream Home To Clean Dirty Money
Written by Vishal Marria
Published: 12th May 2018
The property sector is immune to sanctions and is much less scrutinized than stocks or other offerings from financial institutions, making it susceptible to corruption. The lack of regulations surrounding real estate makes the housing market a refuge for criminals to clean illegal funds or for people to avoid taxes. Billions of pounds worth of properties are owned by companies located in secretive tax havens, which make it extremely difficult to establish who the true owner is. Quite often these companies are shell companies, a non-trading company existing only on paper that is used for financial maneuvers.
It is precisely this lack of transparency and the capital-intensive nature of real estate that makes property an attractive choice for those who don’t want to explain the origin of their funds. Property is also a popular investment for tax avoiders as the costs remain stable whilst the value of the property slowing increases over time.
Corruption Is Damaging The UK Property Market
The number of properties purchased by overseas buyers or with proceeds of crime has had a huge impact on the UK property market. Criminals’ interest in property has caused the average prices of homes to rise, especially within London boroughs, which has had a widespread effect on the rest of the market. Developers are now prioritizing more profitable high-end luxury homes that are popular with foreign investors.
Many believe that these occurrences have been a huge contributing factor the housing shortage, as overseas buyers remove the availability of housing stock for UK citizens. This corruption extends beyond a purely economic impact. When overseas homeowners leave a house unoccupied, not only does this lead to a decline in local taxes, but it also affects the local area by creating ghost communities that are unappealing to live in.
How The UK Is Fighting Against Real Estate Corruption
In a bid to stop criminals using illegally-acquired funds to buy houses, the UK government are increasingly going after property assets and are encouraging estate agents to speak up about suspicious cases. From April 2017 to March 2018, estate agents submitted just 710 suspicious activity reports, in comparison to 5,036 submitted by accountants and 2,660 submitted by independent legal professionals. Estate agents can now face prosecution if they fail to comply with money laundering regulations.
The UK government recently published a draft bill for the registration of overseas entities, which plans to put place penalties for those who fail to declare a property’s beneficial owner. This new legislation requires overseas companies that own UK properties to identify their true owners on a publicly available register, which would better enable law enforcement to prevent money laundering in real estate.
The introduction of Unexplained Wealth Orders will also be used in the government’s clampdown on criminal assets. The first successful use of a UWO targeted a house worth £11.5million in West London, which was purchased by a company in the British Virgin Islands. As Zamira Hajieva, the wife of an IBA banker convicted for embezzlement, was found to not be the beneficial owner of this company, the UWO required her to explain how she could legitimately afford the property.
The Future of Anti-Money Laundering and the Property Market
Meaningful action must be taken to tackle the purchasing of property with dirty money. Over in the US, the Treasury Department announced it has expanded an AML data program that requires title insurance companies to reveal the owners of shell companies buying luxury real estate. The UK’s recent crackdown on tax evasion has also made hiding money offshore increasingly difficult. Having greater transparency in the property market will deter criminals from using this as a viable way to launder money.
Estate agents are also key players in preventing money laundering through property. The UK government is working with property experts to target estate agents who fail to report suspicious purchases. For example, if someone is purchasing a high-value property but declares a low income, this warrants investigation. There is a wealth of public data that can be used to enrich businesses internal data so they can get a more comprehensive view of the property buyer.
To summarize, businesses, the government and law enforcement must work together to report and prevent suspicious activity in the property sector. It is fundamental for estate agents, lawyers and accountants to comply with new regulations and ensure properties are tied back to a human entity, as opposed to companies. Hopefully, as laundering money through real estate becomes tougher and regulations become stricter, we will see improvements in the UK property market.
Originally featured on Forbes, click here to read.
You may be interested in…
Context and the fight against forced labor, modern slavery and human trafficking
How Banks Can Use Data to Emerge From the Crisis Ahead of the Competition
Banks are among those hardest hit by the pandemic. Find out how to seize the opportunity to accelerate out of this crisis and emerge more profitable and well-balanced organizations
How to Adapt to a Changing World Using Situational Awareness
As COVID-19 continues to impact our global economy, financial institutions are under increasing pressure to service unprecedented demand from their business customers. Situational awareness empowers you to overcome new challenges, protect your organization against emerging threats, and seize new opportunities.
How can we overcome the threat of mule fraud during COVID-19? (Part 1)
The way in which criminals operate is shifting as a result of COVID-19. Financial institutions must adapt to change quickly to prevent criminals from using mule fraud to take advantage of the vulnerable.
AML for financial markets: The paradigm shift to contextual monitoring
Industry expert Scott Nathan, Head of Innovation for AML and Risk at State Street, has been working with Quantexa on a new approach to AML in markets, one that harnesses contextual decision intelligence for more efficient and effective risk detection in financial markets.
COVID-19, organized crime and managing financial crime threats
As many legitimate businesses worldwide continue to adjust to new ways of working during the COVID-19 pandemic, criminal organizations are ahead of the curve in adapting their operations to take advantage of arising opportunities.
Reveal hidden risks and detect criminal activity faster. Reduce false positives to manage the cost of compliance. And improve investigations to make faster and more consistent decisions at scale.
Identify potentially fraudulent activity by looking at people or transactions in isolation. Understand the context surrounding the organizations you do business with to make fast, accurate decisions.
Understand your customers, their business structures and supply chains. Make better lending decisions, faster. And support digital risk transformation.
Know Your Customer
Reduce significant manual effort across onboarding, refreshes and remediation. Automate checks, implement continuous monitoring, and focus on contextual decision making.
Generate a complete view of the context around your customers and prospects to build better relationships, reduce attrition and find hidden opportunities.
Master Data Management
Connect all data—internal and third party—to create a joined-up, contextual view of all the relationships between your customers and every other domain.
See how we help to reduce costs and improve coverage for financial crime compliance.
See how our platform uses contextual analysis to turn data into a high value asset.
See how our platform uses financial crime technology to enhance your existing IT ecosystem.