Panama Papers – London Property Market

08.04.16

The spotlight on the London property market as a destination for colossal sums of money has intensified after the so-called Panama Papers leak.

The documents — more than 11.5 million encrypted internal documents from Mossack Fonseca, a Panamanian law firm — have led to various reports detailing the foreign ownership of multiple prime London properties, sparking fears that some multimillion-dollar deals are being financed with laundered money.

The Guardian reported last week that around 2,800 Mossack Fonseca companies appear on a U.K. land registry list of overseas property owners dating from 2014. The Financial Times also reported that associates of Bashar al-Assad, the Syrian president, had bought property in the capital.

The money-laundering process involves processing money from a criminal or sanctioned sources and shuffling it from country to country and company to company until its original source cannot be traced.

London property is a compelling choice; the country's political stability, image of respectability and lavish lifestyle offerings make the capital an attractive place to buy a trophy asset.

The city also has a highly competent and extensive professional services industry to provide all of the financial, advisory and legal support necessary to buy a house. These agents are tasked with raising red flags if they suspect corrupt money is in play but United Nations data show only a minuscule fraction of deals involving laundered money are ever flagged.

The United Nations estimates only 1% of global laundered money flows are detected. The contribution from U.K. estate agents was a total of 355 suspicious activity reports in 2015, equating to 0.09 percent of all the reports filed in 2015, according to the National Crime Agency.

The U.K. government has made some attempts to improve transparency by creating a publicly accessible database that will be launched later this year which will show the ultimate owners of U.K.-registered companies. However, this will not help unravel who owns the 36,342 London properties held by offshore registered companies.

Another negative side effect is said to be a prioritisation in recent years by developers of building luxury developments instead of desperately needed affordable accommodation in response to the demand for prime properties, often from offshore registered vehicles.

Transparency International cites house price manipulation and the growth of "ghost" areas as concerns. Indeed, an Evening Standard investigation in 2014 revealed £3 billion worth of London mansions sit empty, with the negative knock-on effects for local services and communities.

At a time of such an acute housing shortage and the rapidly declining ability of those who work and pay taxes in London to afford a house to live in, the clamour is growing for a tightening of rules to stop illicit money soaking up London property. The Panama Papers' revelations have added momentum to those demands.

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