By Christopher Steele

The property sector has been highlighted as an area of concern for both money laundering and the proceeds of crime. The time has come for real estate professionals to put in place good systems of due diligence to future-proof their business.

With the US election on everyone’s mind, it is worth remembering that Donald Trump is a property guy. As the author of the Trump Dossier into his relationship with Russia, I more than anyone understand the risks he was prepared to take to get business done.

While I am not suggesting that Trump is reflective of the property sector, I would say that the property sector needs to learn from him and real estate professionals should take stock of the level of risk they are prepared to take in their own businesses.

Don’t ask, don’t tell

There is a perfect storm brewing – the challenging business environment from the last few years of Brexit and Covid-19 alongside the avalanche of foreign “investment” coming into the UK makes it tempting to adopt a “don’t ask, don’t tell” approach to getting deals over the line.

I would like to state at the outset that I am very much in favour of an open, liberalised, international economy. My belief that this has to be matched by tough due diligence regulation, which is likely to be strengthened in the UK, is coupled by concern for international reputational damage that is undoubtedly going to impact companies that hide their head in the sand.

ISC Russia report

It is a fact that the property sector has been highlighted as an area of concern for both money laundering and the proceeds of crime. Many of these issues were highlighted in the Intelligence and Security Committee Report recently published on Russia, which I contributed to. You are already under scrutiny.

London is very much at the heart of the globalised economy. There is a fundamental tension, which politicians have been reluctant to address head-on, between the need to attract investment and the need to protect our integrity and our institutions from corruption. Effective legislation to guarantee transparency around foreign agents is essential for safeguarding our institutions from investors acting in bad faith.

Identifying bad actors

Change is coming. It is very likely that a registration requirement for foreign agents is imminent in the UK, fashioned on the US Foreign Agent Registration Act, or the Australian equivalent. Such an act would extend beyond the current, narrow lobbying act and should have at least some element of criminal sanction without stifling business; companies will need to prepare for it and be aware of its implications going forward.

Anyone operating in super-prime property should be keeping a close eye on unexplained wealth orders, introduced some years ago to aid government authorities in uncovering how assets were acquired. Individuals subject to UWOs must explain how the relevant property was obtained and demonstrate the origin of the income (whether lawful or potentially unlawful) used in obtaining the relevant assets. The effectiveness of the nascent UWO regime is still to be ascertained.

Earlier this year, the National Crime Agency lost a legal challenge to three UWOs that targeted three London properties valued at £80m owned by the daughter and grandson of Kazakhstan’s autocratic former president, Nursultan Nazarbayev.

Leading change effectively

Banks at present are required to comply with ‘know your customer’ requirements. In other words, verify their identities, confirm they’re not on any prohibited list, and asses their risk factors. This should and will be extended to the property sector. A proposal under consideration relevant to the property sector is whether property should be allowed to be bought, sold or rented legally in the UK using offshore entities, where the ultimate beneficial owner is not clearly identified.

From a business point of view, it is not all bad news if you take decisive action and have in place good systems of due diligence in transactions and deals early on in the business relationship. The Magnitskiy Act movement sees a trend to move away from sanctions against whole countries which are regarded as ineffective, towards identifying leadership and individual bad actors.

Learn from the lessons of Trump. We will all benefit from identifying the bad actors before you do the deal.

Christopher Steele, Director & Joint Founder, Orbis Business Intelligence