In squeaky-clean Singapore on Tuesday, David Cameron warned that British property is “being bought by people overseas through anonymous shell companies, some with plundered or laundered cash”. Well, yes, prime minister, that much has long been obvious. Sorry, let’s be serious. The PM’s imprimatur does raise the stakes. Property lawyers, agents and owners will now be asking: “Crikey! Are we culpable? How serious is this all going to get? Or is this just one of those ‘crackdowns’ politicians are always announcing?”
“Are we culpable?” may now be the wrong question. Respectable firms have anti-money laundering protocols which require individual misgivings to be passed to a reporting officer. Nobody wants to a be a fink and crash a deal. Stay quiet and protest innocence in the unlikely event of being hauled down the nick is the silent working assumption. But it might now be worth making a crueller working assumption. For there is now a far more searching question firms might need to ask about suspicious dealings: “How might this look in court?”
Why? How serious is this going to get? Last week the head of economic crime at the National Crime Agency, Donald Toon, said, “hundreds of billions” of pounds is being laundered via property every year, “skewing” top-end house prices. An over-dramatic remark. But the NCA cannot be safely ignored. Toon said last autumn that a “strategic response” to money laundering was being drawn up, one “that is likely to lead to further criminal and regulatory action”. The PM on Tuesday promised regulatory action this autumn.
To properly answer the “how serious?” question, look at how serious the subject has become. Start with the G8 summit in Northern Ireland in June 2013, when Russia was still in attendance. Cameron promised to end the era of “secretive companies in secretive locations”. Look back and laugh at a subsequent Deutsche Bank report suggesting £100bn of laundered Russian cash lies in London. Look at the ongoing squeeze of offshore tax havens. See how the Land Registry plans to include beneficial ownership on title deeds from this autumn.
Pressure group Transparency International said in the spring that 36,342 London properties are held offshore. Please note: this includes commercial property. I covered the report in sanctimonious detail on 14 March, in an article ending “beware”. On Monday there was no plan to return to the subject. But the PM’s intervention, plus the opportunity to say, “I told you so” is irresistible. This is further helped by a Treasury disclosure last week that £142m in “mansion tax” was raised between January and March – way more than predicted. All from crooks?
The uproar over who owns which tacky mansion masks a more salient issue for EG readers. Money laundering laws are “sector-blind”. In 2011, Tony Key of Cass Business School calculated that £95bn of the £385bn “investible” commercial property was in overseas ownership. More than 100,000 titles in England and Wales are registered to overseas companies. Commercial property won’t make the headlines, but the sector will, of course, be caught in any Quakerish tightening of laundering regulations.
So, was Cameron grandstanding? A bit, but sluicing away money launderers is part of a wider strategy to wash clean the UK’s financial reputation. Are prosecutions pending? Presumably, why else would the NCA be making noises? “There is a clear direction of [policy] travel,” I said here in March. But this is a hard road, much travelled by those who know the back routes to avoidance. They will likely pay a higher risk premium to those willing to wash dirty money.
“Crackdown” implies dawn raids, dramatic arrests, flashing cameras. The timetable on this issue will be more like a year-by-year turning of a screw. Squeezing money launderers into smaller and smaller hidey holes. The political torque comes from a toxic mix of xenophobia, jealousy and genuine disgust on the residential front. The commercial sector will have to suck this up, slowly but surely. No need to panic, unless someone starts hammering on your door at 5:30am.
