UK will open the owners of real estate, decorated on offshore
On July 23, the Parliament of Great Britain introduced a new draft law on the creation of a public registry in which foreign companies owning real estate in the country would have to disclose the names of their final beneficiaries. Those who hide this information or enter false information in the register will face fines and imprisonment up to 5 years for nominal ownership of real estate for the purpose of money laundering. If the law is adopted, the register of foreign companies will begin to operate by 2021. The UK will be the first country in the world to create such a tool.
Who gets into the new registry
The register will contain information on legal entities that own assets in the UK, but are registered outside of it. This is a significant market share. In 2016, The Guardian found out from the “Panamanian archive” that offshore companies own British property in the amount of 170 billion pounds sterling. In particular, among such owners were Russian businessmen Leonid Fedun (at that time he owned an apartment worth 23 million pounds in the London One Hyde Park complex) and German Khan (he owned a 62 million pound building in Eaton Square).
A survey by research firm IFF Research, which conducted 30 interviews with professionals in the British real estate market, showed that most of the real estate properties in the Land Registry of Her Majesty (HM Land Registry), issued to foreign companies, belong to the “dummies”. Two thirds of these companies are registered in tax havens: in the British Virgin Islands, Jersey, Guernsey and on the Isle of Man. Such fictitious companies are not prohibited by law, but they are often used for tax evasion and money laundering, and until recently, “dummy” provided anonymity for property owners.
How will the market change
The draft public registry is one of the long chain links. It followed the 2017 Criminal Finance Act (Criminal Finances Act 2017), according to which British law enforcement officers were able to oblige the property owner to disclose the sources of funds for its purchase. A new open database will help law enforcement agencies more quickly and easily identify financial criminals and withdraw assets that were acquired with illegally earned money.
Consulting company JLL called the UK property market the most transparent in the world in 2018. According to 72% of respondents of IFF Research, with the introduction of the new registry, it will become even more transparent. However, 41% of respondents believe that the country will become less attractive to foreign investors in real estate: companies will not be able to optimize taxes as they did before.
Obviously, when the registry is opened, anonymous ownership of real estate in the UK and opening a dummy company will be too risky. Probably, some of those investors who have something to hide, instead of Great Britain, will start to consider other countries for capital allocation. Alternatives can be the United States, Australia or countries of continental Europe.
It should be understood that the whole world is committed to transparency, and other countries will gradually learn from the UK’s experience in tracking owners of foreign legal entities. Thus, the fourth directive of the European Parliament has already obliged every European country to create a register of final beneficiaries of companies and trusts registered in its territory.