In the aftermath of the Russian invasion of Ukraine, the UK government promised to clean up dirty money flowing through London. As part of this, new legislation passed last year was supposed to make it harder for kleptocrats to use the UK property market to launder ill-gotten gains.
Introducing the measures, Boris Johnson, then the prime minister, said in March 2022 “what we are bringing forward now is the exposure of the ownership of properties in London, and across the whole of the UK”.
But the legislation that was passed hasn’t achieved this. There is not one, but five, ways in which a foreign kleptocrat can continue to benefit from the ownership of UK land and property without you or I knowing about it.
First, a kleptocrat could just continue to own the property via the foreign company and not bother to register with Companies House. This is definitely against the rules. But at the moment, 6-9% of companies who should have registered appear to be noncompliant. In principle this is a risky strategy but until we see more enforcement action it isn’t clear how risky this is. The register is riddled with spoof directors and shareholders, some of them more obvious than others. Since “Adolf Tooth Fairy Hitler” only recently stepped down as a company secretary listed at Companies House, and “Miser Lord Truman Michael Scr00Ge-Spypriest” is still considered a valid director, he may not be too worried.
Second, if he didn’t want to simply break the rules, he could decide to share ownership of the company equally with his wife and three children. If their shareholdings are all less than 25%, neither he nor they need to be reported as beneficial owners.
Third, if he doesn’t trust his family, he could instead give the property to an offshore trust company, under which he is the sole beneficiary. Now the names of whoever owns the trust company will go on the register as the “owners” of the property, even though they neither supplied the money to buy the property nor receive any benefits from it. The public and law enforcement are now left to incorrectly think they can see the beneficial owner, and no one is the wiser (unless he decides he wants to volunteer this information to HMRC).
Option four works similarly, but using a partnership rather than a trust. The kleptocrat sets up a partnership, has someone else nominally managing and controlling it, and gives the property to them as an asset of the partnership. As a “silent partner”, who does not manage or control the partnership’s activities, he can still benefit from the property without needing his name to be reported anywhere.
Finally, option five is to have the overseas company owned by a UK company. Since it is technically “subject to its own disclosure requirements”, the kleptocrat’s name doesn’t have to be associated with the overseas company. If the UK company is acting as a trustee for the kleptocrat, his name doesn’t have to be associated with that one either, and again, his ownership is obscured to the public and the law.
On Monday the economic crime and corporate transparency bill comes back to the House of Commons. Amendments made in the Lords are aimed at closing many of these gaps, closing some of the loopholes in last year’s Economic Crime Act. Inexplicably, the government is set to oppose many of these amendments. The amendments are technical and rather dull. That makes it hard to rally support for them. But if the UK is serious about wanting to stop dodgy money flowing through its property market, it needs to back up the lofty rhetoric with the technical details that actually close these gaps.
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