Is London property really based on dirty money?

A report by anticorruption organisation Transparency International has cast a very dark shadow across the London property market amid accusations that billions of pounds of laundered money has found its way into the UK. This is not the first time that the London property market has been mentioned as a potential money-laundering magnet but some of the figures and some of the information released by Transparency International are truly astounding.

There have been concerns for many years now the London is attracting more than its fair share of the criminal fraternity with many seeing London real estate as a perfect home for their illicit gains. So why are people so concerned?

Secret companies

In excess of 36,000 properties across London have been acquired through secretive companies based in an array of offshore tax havens around the world. However, we need to say that there are many legitimate reasons why individuals would want to maintain their anonymity but this is also a popular strategy used by criminals. When you bear in mind the average cost of a London property and the fact that in excess of 36,000 are held through these offshore companies, we can only estimate the value of the property in question!

Has this impacted London property prices?

There is growing concern that not only has the purchase of London real estate using illicit funds led to an increase in London property prices but this may well have had a ripple effect across the UK. At the end of the day, the various elements of the UK property market are valued in relative terms so, if one market moves higher the rest will likely follow to maintain that “relative balance”. We can only estimate the impact this has had on the cost of UK property as more and more first-time buyers are forced to move into rented accommodation.

Liquid assets

The London property market is perhaps one of the most liquid in the world and therefore the ability to buy property using funds from criminal activity is a useful way to wash it through the system. A report by the Metropolitan Police Proceeds of Corruption Unit suggested that 75% of those involved in criminal investigations own their property through these secretive companies. Many are now blaming the relatively lax UK rules on the disclosure of property ownership and there is now growing pressure on the government to do something about this.

Why are the current money-laundering rules not working?

It is difficult to know why the current money-laundering rules are not working but, as we mentioned above, this may be down to UK rules on the disclosure of property ownership. London is the banking capital of the world with billions upon billions of pounds of transactions carried out across an array of investment markets each and every day. Against this background can we assume that the authorities have failed the UK investment arena and in particular the London property market?

Conclusion

A simple tightening of property ownership disclosure rules in the UK would reduce the number of opportunities for the criminal fraternity to wash their money through the property market. While some of the information released over the last few days may give the impression that London is awash with criminal money this is not necessarily correct. There are many reasons why the London property market has been so popular in years gone by, much of which is to do with the strength of the UK economy, strength of the UK property market and the fact that UK governments of years gone by refused to join the doomed Euro.