A draft bill tackling money laundering risks ‘failing in its central policy aim’ because of legislative loopholes, peers and MPs warn today.
The draft Registration of Overseas Entities Bill aims to increase the transparency of who owns land in the United Kingdom. It proposes a register, held by Companies House, into which overseas entities trying to buy land in the UK have to enter information about their beneficial owners.
However trusts are not obliged to register, as they do not count as ‘entities’, the pre-legislative scrutiny report says.
Among those who advised the committee was the Solicitors Regulation Authority, which warned that owners might move property into trusts to avoid registration.
The Fifth Anti-Money Laundering Directive, which will be introduced in January 2020, does require certain types of trusts to register. However the report says that the government ’will need to exercise great care in ensuring that trusts do not slip into any gaps between the two frameworks’.
Chairman of the joint committee, Lord Faulks (Edward Faulks QC), said: ‘The legislation is well drafted, but there are still some loopholes in the draft bill which, if unaddressed, could jeopardise the effectiveness of this important piece of legislation. Time is of the essence: the government must get on with improving this bill and making it law.’
Duncan Hames, director of policy at campaign group Transparency International UK, told the committee: ’If we leave big loopholes, at the same time as taking strong action in one area, we should not be surprised if they are fully exploited.’
He later added: ‘The report is not just a green light for this draft legislation, it is an urgent cross-party call from parliament to act now on secretive ownership of UK real estate.’
Tom Beak, an associate in the real estate team at London firm Kingsley Napley, said: ’Whilst the recommendations strengthen the bill, it is unlikely to make it impossible to launder money, just much harder.
‘It seems inevitable that the bill’s effectiveness will rely on the enhanced due diligence of acting solicitors to ensure that proposed buyers or sellers are appropriately registered.’
Between 2004 and 2015, £180m of UK property was subject to criminal investigation as suspected proceeds of corruption. It is feared this is just the tip of the iceberg. The committee’s witnesses suggested that a lack of information about anonymous owners often stands in the way of criminal investigations.
The Department for Business, Energy and Industrial Strategy said it would respond to the recommendations ‘in due time’.
Law Society president Christina Blacklaws said: ’We look forward to seeing clear guidance from the government on how the definition of “overseas entity” should be interpreted. The process of registering companies will be key to this as we may find new company structures emerging from overseas which are tricky to unpick. Companies house has a key role in this.’