The incoming EU Fourth Money Laundering Directive will require businesses operating within the EU to provide detailed information on the beneficial ownership of the company. Identifying and verifying the identity of individuals with a controlling interest in companies is vital if the risks associated with murky corporate structures facilitating financial crime are to be reduced.
Despite beneficial ownership being a critical issue in AML initiatives, countries like Jersey and the British Virgin Islands still do not require the disclosure of beneficial ownership information from companies registered within their territories. This makes it far easier for offending companies to hide their transactions and very difficult for compliance professionals and law enforcement agencies to fulfil regulatory requirements and track down individuals involved in corruption and money laundering.
A number of problems have evolved from this issue, but one is hitting close to home. As reported this week a large number of London's most expensive properties, worth hundreds of millions of pounds, are owned by companies that are registered in offshore locations. The companies listed as the registered owners of these properties act as fronts for individuals, who use the high-value properties to launder the proceeds of international crime and corruption.
The Metropolitan police estimate that since 2004, more than £180 million worth of high-end property in the UK has been funded by the proceeds of corruption. 75% of UK properties that have been brought under investigation for corruption use secret offshore companies to hide the true identity of the owner.
Transparency International (TI) is calling for a change in the law following the general election in May 2015. The group is calling for the new government to establish transparency of ownership behind the companies that are the registered as owners of high-value UK property. For this to happen, before a property purchase by an overseas company is finalised, the company should be required to submit to Land Registry the same details that UK registered companies must submit to Companies House.
Half of the 144 properties investigated by Scotland Yard were registered to companies in Jersey, which does not automatically declare the identity of the beneficial owner. Transparency International (TI) wants the government to require every foreign company that purchases property in the UK to reveal the names of beneficial owners before they complete the purchase. Fraud experts agree that more stringent regulation is needed and TI is calling on a combined effort from the UK Government, estate agents, lawyers and British Overseas Territories.
So, what can business do to prevent supporting the laundering of money and corruption through UK property?
Currently UK regulations only require property sellers to undergo due diligence checks by the estate agent, on the assumption that the buyer will have already been scrutinised by their solicitor. Therefore estate agencies are at risk of unknowingly perpetuating the laundering of money, financing terrorism and aiding corruption. To help mitigate this financial and reputational risk, business should take steps to ensure they are carrying out their own due diligence, screening potential buyers against PEPs and Sanctions lists, adverse media, Companies House data as well as legal information. Having an proactive anti-corruption process in place will not only demonstrate compliance to the regulator, but also protect businesses from costly fines and unnecessary reputational damage.
ps 3 ways you can apply this information right now to better understand your supply chain