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Last year Britain took a critical step towards ending its role as a haven for illicit finance and sanctions evasion with the creation of the ‘Register of Overseas Entities’. This new tool was designed to stop kleptocrats and oligarchs hiding their ownership of UK property via secretive offshore companies. Instead of waiting for leaks like the Panama, Paradise and Pandora Papers to out them, the owners of these offshore firms would be made public as part of an official record.
Parliament rushed through emergency legislation to introduce these new measures – in the Economic Crime (Transparency and Enforcement) Act 2022 (ECTE Act) - after Russia’s re-invasion of Ukraine, to help crack down on the wealth of those close to the Kremlin stashed in the property market.
The register has had some early success, revealing UK property holdings of sanctioned individuals as well as politically connected individuals with unexplained wealth. However, because of the speed of reform, there are understandably some wrinkles in the new regime that are limiting its effectiveness. These need to be ironed out in order to make this tool more effective.
Last week, a cross-party group of senior figures in the House of Lords, led by former Minister Lord Agnew of Oulton, called on the government to close loopholes which leave the register open to exploitation by those seeking to hide their identities.
As we have revealed previously, there are two key loopholes in the law that allow the corrupt and other criminals to withhold their ownership of UK assets from public view: the ownership of overseas companies through opaque trusts, and the use of complex nominee arrangements.
In last week’s debate, former minister at the Cabinet Office and HM Treasury Lord Agnew of Oulton argued in favour of his amendment to the Economic Crime and Corporate Transparency Bill that would lift the lid on secretive trusts used to hide the real owners of property assets in the UK. His calls were backed by other senior figures in the House of Lords, including former Justice Minister Lord Faulks KC, who chaired a joint committee in 2019 on draft legislation for the register of overseas entities, and former Solicitor General Lord Garnier KC.
We welcome these interventions and support Lord Agnew’s amendment to bring much needed transparency to trusts which would help the police, journalists, civil society organisations and the public scrutinise previously hidden property ownership information.
The issue of nominee arrangements was also touched on in the debate. These are where professional service providers can obscure the names of property owners by using their own offshore corporate companies to hold different properties for their clients. Law firms have already proven wise to this loophole, with some openly highlighting it as a means of avoiding transparency requirements. Addressing this could be as simple as expanding the meaning of “beneficial owner” in the legislation to capture those that benefit from nominee arrangements created with overseas companies to hold land on their behalf. There should also be an associated amendment allowing Companies House to publish the details of parties to trusts with a controlling interest in firms caught by the new law – something they’re currently prohibited from doing.
Failure to address these issues would lead to tens of thousands of properties in the UK remaining owned in secret. Last year our analysis identified £6.7 billion worth of property bought with suspect wealth, much of which owned through offshore companies. Whilst the new register has put some of this information in public view, the same loopholes raised in the House of Lords have allowed considerable amounts of this property to remain anonymously owned.
Given this weight of evidence it is important that the UK Government now heeds the calls from senior figures on its own benches to address this issue. Accepting Lord Agnew’s amendment and making some tweaks to the definition of who is a beneficial owner should help this law deliver its intended purpose – giving oligarchs and kleptocrats no place to hide in the UK.