New register of foreign owners of UK properties ‘riddled with flaws’ | Immovable

Business Secretary Kwasi Kwarteng has promised the legislation which comes into force on Monday will have an “immediate chilling effect on oligarchs trying to hide their ill-gotten gains, ensuring the UK is a place for legitimate business”.

However, a string of lawyers, tax experts, MPs, accountants and transparency campaigners are warning that the long-awaited register of foreign entities, which was swiftly passed by parliament after the invasion of Ukraine by Russia, is ‘riddled with loopholes and loopholes’ and will have no bearing on forcing corrupt oligarchs to reveal the British mansions they own.

The register is intended, in the government’s words, to “flush out corrupt elites laundering money through British ownership” by forcing secret foreign companies to reveal the true owner or risk “stiff fines” or even up to to five years in prison.

Labor MP Margaret Hodge, who has long campaigned for a crackdown on secret overseas ownership of British property, complained the register was ‘more of a lead balloon’ than the ‘quick fix we’re being told’ promised that she would end abuses like money laundering in our real estate sector.”

She said: “The new register is riddled with loopholes and loopholes which mean that oligarchs and organized criminals will still be able to escape scrutiny and secretly buy upscale properties in London, such as Highgate mansions or Kensington townhouses.

“To truly stop the flow of corrupt wealth into our housing market, the government must urgently put in place an open register of the real owners of land and property in the UK, not just those owned by companies. Anything less would demonstrate once and for all that this government is really lenient with dirty money.

John Cullinane, director of public policy at the Chartered Institute of Taxation, the main body representing tax accountants, said oligarchs and other members of the corrupt elite could easily exploit “gaping holes” in the new rules.

He said individuals could legally circumvent the rules by holding property or land in the name of a designated corporation, or simply sharing ownership with more than four relatives or friends.

“We have highlighted a particular shortcoming in the new law, namely that the legislation only requires the identification of the beneficial owners of the company in question, and not those of the land or the property itself. It’s important because the company could hold that land as an agent for someone who doesn’t own the company,” Cullinane said.

“The company may be owned by a Caymanian or Panamanian law firm, for example, which holds legal ownership of many properties on behalf of high net worth clients. In this scenario, the names on the registry would likely be the law firm’s partners, or possibly no one at all. The name of the oligarch would not be found.

Cullinane said that even if an oligarch owned shares in an offshore company that has British ownership, “if he owns 25% or less of the shares in that company, nothing should be disclosed.” He said: “A family of six could each hold a 16.67% share of the company, thereby excluding them from registration requirements.”

He pointed out that Alisher Usmanov, who has been subject to British sanctions and described by the government as “one of Vladmir Putin’s favorite oligarchs”, said he transferred properties in irrevocable trusts on behalf of members of his family, potentially placing them beyond punishment.

Cullinane also said a fine of up to £2,500 a day for breaking the rules was unlikely to have a deterrent effect on the ultra-wealthy targets of the legislation.

Tory MP Andrew Mitchell, who has long called on the government to do more to tackle international corruption, said: “It is probably true that the wrong people will find loopholes to prevent full transparency. If so, it will be up to the government to fill these gaps quickly and efficiently.

Steve Goodrich, head of research and investigations at Transparency International UK, said the law “isn’t perfect” but “it’s a good start”.

He said: “If applied correctly, this register will reveal who controls offshore companies holding property in the UK. For decades, criminals and kleptocrats have used opaque corporate structures to launder dirty money into high-end real estate. Now they will have to do it without as much coverage.

“Criminals are always trying to stay one step ahead of the law, and we’ve flagged potential loopholes to the government that they might want to exploit. While some will still try to play with the new rules, there will be far fewer shadows to hide in. Soon kleptocrats and oligarchs will have to break the law in order to keep their real estate portfolios anonymous.

A spokesperson for the Department for Business, Energy and Industrial Strategy said: ‘The Foreign Entity Register will crack down on foreign criminals using UK property to launder money and achieve greater transparency in the marketplace. UK property – with the 25% ownership threshold being a global standard.

“The potential daily fine of £2,500 for those who fail to comply is just one element of the penalties. Individuals could face up to five years in prison and any non-compliant foreign entity will have a hard time selling , rent or charge for its land.