David Cameron was always going to be looking to deliver a headline-grabbing intervention at the anti-corruption summit next month in London. This week it became clear that the intervention will focus on this sector.
The first-of-its-kind Anti-Corruption Summit will “step up global action to expose, punish and drive out corruption in all walks of life. As well as agreeing a package of actions to tackle corruption across the board, it will deal with issues including corporate secrecy, government transparency, the enforcement of international anti-corruption laws, and the strengthening of international institutions”.
And with words like “exposé”, “corporate secrecy” and “transparency” at the heart of the notice trumpeting the event, property was always going to be a target for David Cameron.
According to The Times on Thursday, the PM is now minded to end anonymity for overseas companies buying UK real estate. Details of offshore companies buying property in the UK will be displayed on a publicly available register. And only those foreign companies listed on the register will be permitted to purchase UK bricks and mortar.
“It could be of no consequence,” said one observer this week. “Or it could be colossal.” That captures the division of early opinion.
On the one hand it is hard to argue against measures to inject transparency into the sector.
Between 2004 and 2014, more than £180m of property in the UK was investigated by UK law enforcement agencies as suspected proceeds of corruption. More than 75% of those properties used offshore corporate ownership. One in four firms of solicitors has supposedly experienced clients attempting to use property transactions to launder money or commit fraud.
No one would argue against measures designed to end illegal use of UK property. (Nor should anyone oppose measures to stop the 8,768 individuals currently facing government sanctions investing anonymously in UK property through corporate structures).
On the other hand there are plenty of legitimate investors who use offshore vehicles to invest in real estate in the UK. History should not be rewritten on the use of legally available structures to minimise tax even if the government chooses a different path from now on.
Nevertheless there is little that is surprising in what the government seemingly plans to do next.
It is an issue which has been rumbling on for some time. Last July the prime minister spoke of the importance of addressing corruption and combatting illicit financial flows. Property merited its own section in a consultation paper on beneficial ownership transparency issued in March. And the Panama Papers have only heightened the compulsion to continue action that is already under way: from June the UK will become the first G20 country to establish a publicly accessible central registry showing who really owns and controls UK companies.
So the British Property Federation was right to welcome the measures this week. And rightly it identified the legislative challenges facing government: how to ensure the measures and sanctions have enough bite to catch the non-compliant, without the majority of law-abiding investors in overseas companies being inadvertently penalised.
Government doesn’t always strike the right balance in these situations. This industry should help it do so.
Establishing some broad principles should help minimise unfairness. Measures should not be retrospective. And legislation should be accompanied by efforts to level the playing field with other jurisdictions. (Indeed with more than 70% of overseas-owned property in the UK held through Crown Dependencies and Overseas Territories, where the UK can only corral not compel, this is absolutely necessary). And reasonable time should be granted for legitimate companies to make alternative arrangements.
Much of that is easier said than done. But successfully delivered, any negative market impact would be minimised.
In principle though, transparency has to be the right way to go.
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