Over the past few weeks, the shadowy side of the real estate world has been brought to the forefront.
It was reported that an Azeri tycoon used dirty money to acquire a £50 million property empire in London and a former Bangladeshi land minister in the UK has quietly amassed over 350 properties, totalling nearly £200 million.
These incidents raise significant questions about how effectively we monitor foreign money entering the market. These were sophisticated schemes but there’s no doubt conveyancers, estate agents and lenders will need to be increasingly vigilant to do their part in preventing money laundering.
The property market remains a hotbed for dirty money. However, we can strengthen compliance by using technology that promotes transparency and upholds the integrity of the financial ecosystem.
AZERBAIJANI
Last week, the National Crime Agency (NCA) alleged that Azerbaijani politician and businessman, Javanshir Feyziyev and his wife Parvana acquired 22 homes, mostly purchased jointly, using the proceeds of crime and corruption. They used a complex network of shell companies across various jurisdictions, including the Marshall Islands, Seychelles and the British Virgin Islands, to channel funds for properties in the UK, such as two in Belgravia’s Chelsea Barracks.
The NCA claims the scheme involved forged invoices, false accounting, and deceptive transactions, including those labelled as “payment for nutritious baby food.”
This story is one of many that we see cropping up in the news and demonstrates there are loopholes, especially with funds flowing through multiple countries. Verifying sources of funds and strengthening international cooperation and information-sharing among regulatory authorities could help address these cross-border challenges.
LAUNDERING PROBLEM
The UK has a long-established money laundering problem in the property sector, particularly in the lavish streets of London. Transparency International’s 2023 ‘Through the Keyhole’ report details how almost 52,000 UK properties are still owned anonymously despite a new transparency law designed to reveal their true owners.
High asset values, complex ownership structures, large financial transactions and gaps in legislation make it easier for criminals to legitimise dirty money via the property market, making it a prime target. As a result, laundered money infiltrates the economy, weakens stability and distorts market dynamics.
Generally, there are too many areas in the UK’s financial institutions where dubious funds can slip through the net. An example in property is that the conveyancing sector has strict rules on establishing the source of funds, while mortgage lenders don’t have similar scrutiny on lump sum mortgage repayments.
PLUG HOLES IN A DAM
Regarding anti-money laundering (AML), it’s like trying to plug holes in a dam. While implementing source of funds checks during property purchases acts as a significant hurdle, money launderers are now actively seeking alternative weak points throughout the entire property ownership process.
Ensuring the legitimacy of funds is a shared responsibility for all involved parties, but legal firms often bear the brunt of conducting source of funds checks. Despite their best efforts to align with AML standards, the number of operating firms within the sector presents a considerable challenge for regulators. The diverse landscape of legal entities engaged in property transactions adds complexity to the regulatory landscape, emphasising the need for comprehensive and adaptable oversight in this crucial aspect of financial compliance.
OPEN BANKING
Every day, property and conveyancing businesses are swamped with huge amounts of paperwork, slowing down processes and making the truth harder to keep track of. Open Banking gathers key information from a buyer or seller’s account to determine where the funds have come from. This technology, together with AI and machine learning, is key to unlocking effective AML checks as it provides transparency for all parties involved, and can help firms identify riskier customers.
It eliminates the need to manually verify a client’s funds as well as ownership of accounts. A client check can also be conducted across multiple bank accounts, providing the required information from those accounts in a single report. Ultimately, this also makes it easier for legal professionals to conduct necessary AML checks and spend less time on data collection and verification, both lengthy tasks.
FINANCIAL BEHAVIOUR
Open Banking enables legal professionals to focus on the reasons for the financial behaviour, rather than the data itself. This is especially useful for legal firms based in areas of the country with high property prices, like London, which must take extra care when processing property funds.
Cracking down on dirty money pumping through the UK is simpler than we think.
In essence, we must reduce our relationship with paperwork and use technology that makes property transactions quicker and more transparent. At the same time, regulators and industry players must work together to implement and enforce robust AML protocols to cover all parties involved in a property purchase.
Mike Ward (main picture) is Executive Chairman of Armalytix
