Public register of beneficial ownership of UK property by companies and other legal entities registered outside the UK

Sanctions and Anti-Money Laundering Bill [Lords] – in a Public Bill Committee at 2:30 pm on 6th March 2018.

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“(1) In addition to the provisions made under paragraph 6 of Schedule 2, for the purpose of preventing money laundering in the UK property market and public procurement, the Secretary of State must create a public register of beneficial ownership information for companies and other legal entities registered outside of the UK that own or buy UK property, or bid for UK government contracts.

(2) The register must be implemented within 12 months of the day on which this Act is passed.”.—

This new clause would require the Secretary of State to create a public register of beneficial ownership information for companies and other legal entities registered outside of the UK that own or buy UK property, or bid for UK government contracts, within 12 months.

Brought up, and read the First time.

Photo of Helen Goodman Helen Goodman Shadow Minister (Foreign and Commonwealth Affairs)

I beg to move, That the clause be read a Second time.

In 2015, David Cameron said:

“London is not a place to stash your dodgy cash.”

That is why he wanted to set up a register of the real owners of UK property owned by companies registered overseas. Unfortunately, the timetable for that has slipped. Following his announcement in 2015, the Government made an announcement shortly before Christmas saying that they now expected to set up the register in 2021. That is six years. In the other place, it was Tory peers who pressed for this to be speeded up. Our new clause does precisely the same thing.

Last week, the right hon. Member for Newbury mentioned unexplained wealth orders. Indeed, the Security Minister got an excellent splash on the implantation of this part of David Cameron’s package on 3 February. It was headed:

Russians in Britain told to reveal their riches. McMafia-style crackdown on ‘corrupt’ oligarchs.”

It said:

“The government estimates that about £90 billion of illegal cash is laundered in Britain every year.”

The Minister said:

“McMafia is one of those things where you realise that fact is ahead of fiction…It’s a really good portrayal of sharp-suited wealthy individuals, but follow the money and it ends up with a young girl getting trafficked for sex.

What we know from the Laundromat exposé is that certainly there have been links to the [Russian] state. The government’s view is that we know what they are up to and we are not going to let it happen any more.”

He then explained that unexplained wealth orders were coming into effect.

I cannot understand why, given that those orders are coming into effect, a start has not been made on one with the purchase from the Ministry of Defence of Brompton Road tube station by a Ukrainian gas magnate. For colleagues who have not been following this long-running issue, Dmytro Firtash is a friend of ex-President Yanukovych and an associate of both President Putin and Paul Manafort. He was arrested in Vienna on corruption charges at the request of the FBI. Latterly, attempts have been made to extradite him to the United States, first on Magnitsky charges and later in relation to his alleged role in masterminding an international racket that aimed to sell titanium to Boeing.

Like all rich people, he operates indirectly. For example, his foundation, New Century Media, paid for the £800 ticket to a summer ball for the Minister here today—the right hon. Member for Rutland and Melton—according to the Minister’s entry in the Register of Members’ Financial Interests from 2010. He also gave £85,000 to the Conservative party centrally. I would have thought that he was a prime candidate to receive an unexplained wealth order, and I hope that Ministers will see if that can be pursued.

Photo of Alan Duncan Alan Duncan Minister of State

Is the hon. Lady saying that New Century Media is owned by Mr Firtash?

Photo of Alan Duncan Alan Duncan Minister of State

It is owned by David Burnside—a former Member.

Photo of Helen Goodman Helen Goodman Shadow Minister (Foreign and Commonwealth Affairs)

I think Mr Burnside is employed by Mr Firtash. That is the issue. These things are not exactly transparent.

Let us return to the question of whether the current state of the law is adequate. The Times also had a leading article which said:

“Three difficulties may blunt the effectiveness of the wealth orders. First, all the agencies involved in investigating and prosecuting those suspected of laundering dirty money in Britain are already over-stretched. They need experienced staff used to digging through multiple layers of shell companies and intricate business transactions, and they do not have enough of them.

Second, the orders freeze assets for an interim period and are only one early step in the process of bringing oligarchs to heel. The government has to be braced for legal marathons contested by the rich and corrupt. That requires political will.

Above all, the red carpet for crooks has to be rolled up. Too many people in the City of London, in the divorce and libel courts, in the art world and in high-end estate agencies have failed to look closely at the cash coming their way. An overdue step would be a public register revealing the true owners of overseas companies that own property in Britain.”

Until we have the public register, it is not going to be possible to identify who owns the properties and whether the wealth invested in them has been gained legitimately or illegitimately. In other words, are the wealth orders explained or unexplained? I am not quoting the Morning Star or the Daily Mirror—I am quoting The Times.

We think that this is all taking too long; it is a problem that it is taking too long. It is a problem because of its size, which I will describe. It is also a problem because Ministers are giving time to people to rearrange their affairs and to reorganise them in order to avoid the measures which are in train. A concrete example of that would be the use of trusts. That is why further we have tabled a new clause on trusts.

Global Witness and Transparency International believe that 86,397 properties in England and Wales are owned by companies registered in offshore secrecy jurisdictions; 87% of properties owned by foreign companies have owners in secret jurisdictions. Half of them are in London and half are in other parts of the country. The 10 most expensive properties owned by companies in tax havens are worth £1.5 billion. Furthermore, Transparency International believes that there are suspicions about £4.4 billion-worth of UK properties, over half of which—£2.36 billion—belongs to companies registered in the British Virgin Islands. They also say that these properties in secret jurisdictions account for 75% of all UK properties under investigation for corruption. If hon. Members or members of the public are interested in seeing what is going on, I recommend going to the Global Witness website where they can type in their postcode and see how many of those secretly owned properties with overseas owners are located on a map.

The Home Affairs Committee held an inquiry on the proceeds of crime in the 2016-17 Session. It thought that £100 billion was being laundered through London every year and that property was the easiest way of cleaning money because you can buy the property, then have a stream of clean income in perpetuity. The other thing that is alarming, and which tells us that there is something seriously wrong, concerns the enforcement and confiscation rates for the proceeds of crime. If we are talking about a crime that is worth less than £5,000, 95% of the orders are enforced. If we are talking about a crime where the proceeds are worth over £1 million, only 20% is being enforced. It is absolutely typical that the bigger the fish, the easier it is for them to swim away. One thing that was rather strange about the Minister’s response when this was debated in the other place was that he said he wanted to look at the impact of introducing this register on foreign direct investment. That does not make sense. I asked the Library for the proper definition of “foreign direct investment”. Obviously, we all want foreign direct investment when it means Nissan building a car factory in Sunderland. However, when it means some shifty, corrupt, former public official buying an expensive house in Mayfair, there is no great benefit to the British economy. The Library told me:

“Inward FDI is concerned with foreign company investments in UK companies”,

and that the standard measure for giving an FDI

“an ‘effective voice’ is measured as 10% of the share capital of a company”.

I therefore hope we are not going to have a rather foolhardy exploration of foreign direct investments as an excuse for putting back and delaying the introduction of this very important register.

Another problem with this £90 billion or £100 billion washing into the London property market is what it is doing to London property prices. Again, we discussed this on Second Reading. The fact is that people are now buying property not to live in but to stash their cash—and we have a lot of empty properties. That makes property unaffordable: we are at an all-time low for people in their 20s and 30s owning property. Rents are shooting up, and the number of children in temporary accommodation has gone up to 120,000. One cannot help noticing that these 86,000 properties would comfortably house the families of these 120,000 children. I really think that Ministers need to get their skates on. We need to see this on the timetable promised by David Cameron.

Photo of John Glen John Glen Minister of State (Treasury) (City), The Economic Secretary to the Treasury 2:45 pm, 6th March 2018

May I say what a pleasure it is to serve under your chairmanship once again, Dame Cheryl? I acknowledge that the amendment seeks to set in legislation an obligation on the Government to implement, within 12 months of Royal Assent, our commitment to establish a public register of company beneficial ownership information for foreign companies that already own or buy property in the UK or who bid on UK central Government contracts. It puts an accelerated timetable on something that the Government are doing anyway. In the next few minutes, I will remind the Committee of the timetable to which the Government are committed for delivery of this policy. I will set out the challenges and complexities of the policy and demonstrate why setting an early and artificial deadline for implementation would inadvertently undermine its aims. I know that these are supported across the House, so it is important to ensure that we get the detail of the policy right.

In listening to the remarks made by the hon. Member for Bishop Auckland, I acknowledge the frustration around this; but this Government are committed to continue to lead by example and improve corporate transparency. Over the past five years, the reforms delivered by the Department for Business, Energy and Industrial Strategy have made the UK a global leader on corporate transparency issues. We were the first country in the G20 to establish a fully and publicly accessible company beneficial ownership register and, across the world, non-governmental organisations lobby their Governments to follow the UK example. There is a reason we have that world-leading reputation: it is because of the quality of the measures we have passed and it is a reputation we would lose if this measure were accepted. A 12-month timetable to draft and pass primary and secondary legislation, empower the responsible agencies and commence the obligations is not realistic. The rush to meet such an unrealistic deadline would inevitably lead to loopholes that would be readily exploited by those seeking to evade the new requirements.

Photo of Alex Norris Alex Norris Labour/Co-operative, Nottingham North

We are not just talking about a 12-month timetable; this was first announced by a Conservative Prime Minister in 2015. What have Ministers been doing since then?

Photo of John Glen John Glen Minister of State (Treasury) (City), The Economic Secretary to the Treasury

I will come on to explain the history of this and why we are where we are. I am happy for the hon. Gentleman to intervene if he does not feel satisfied at the end of that.

Mindful that the eyes of the world are on us, hon. Members should recognise that this legislation would be a world first. Successful delivery raises significant challenges and it is right that the Government achieve the right balance in an effective regime with robust enforcement that does not have a negative impact on land registration processes across the UK. I acknowledge that some have accused the Government—and we have also been accused this afternoon—of not acting swiftly enough to implement this policy. Let me address those concerns.

We have committed to publishing a draft Bill before the summer to introduce the Bill early in the second Session and for the register to be operational in 2021. Publishing a Bill in draft is the right approach. As I said before, this register will be the first of its kind in the world, and it will affect people’s property rights, including not just new purchasers but existing owners. This is a sensitive and delicate area. Getting it wrong would have significant adverse consequences.

Photo of Anneliese Dodds Anneliese Dodds Shadow Minister (Treasury)

The Minister is being generous. He has kindly set out for us a three-year timetable, adding on a couple of years before that when Government committed to this. Is he aware of the Private Eye map, which has been in existence for some time? Through civil society and journalistic activity, Land Registry and Companies House data were put together and a map produced. That appears to have been done quite quickly.

Photo of John Glen John Glen Minister of State (Treasury) (City), The Economic Secretary to the Treasury

I am not familiar with that particular map but I would be very happy to examine it. For clarity, and addressing the hon. Lady’s previous point, the register will capture the details of beneficial owners of all non-UK companies—including those in the overseas territories—that own UK property. This will be a world first, so we are moving as fast as possible, while ensuring that the register is as comprehensive as possible.

As the Government set out in last year’s call for evidence, for the register to be effective the sanctions to be applied for non-compliance must be a meaningful deterrent. Enforcement must be energetic. Simple criminal sanctions may not be sufficient in isolation. The draft Bill will include enforcement through land registration law. Where an overseas entity buys property, it will never be able to obtain legal title to that property without having complied with the register’s requirements. Similarly, a restriction on the title register for property owned by an overseas entity will signal to third parties that the overseas entity must comply with the regime before selling the property, creating a long lease or legal charge. Those are significant steps on which it is right to consult.

Hon. Members will recognise that there are separate Land Registries in Scotland and Northern Ireland, as well as the Land Registry for England and Wales. The approaches taken to land registration and overseas entities by each of those Land Registries have been different until now. That too will need be streamlined. Delivery of an holistic outcome that complements all three land registration regimes is an exercise touching multiple teams across Government and the Land Registries. Put simply, it is an exercise that will take time to get right and a further demonstration of why publishing the legislation in draft is the appropriate next step if we are to get it right. Although I appreciate that the motive underlying the new clause supports the policy as a whole and demonstrates a desire for early delivery and implementation, it does not take account of the complexities that I have set out or the challenges of delivery and implementation.

The register will further demonstrate the Government’s commitment to combating money laundering through the property market. Hon. Members will have seen recent press reports—the hon. Member for Bishop Auckland drew our attention to the splash on 3 February—that two unexplained wealth orders have been obtained by the National Crime Agency in connection with two properties worth £22 million.

Those are the first orders obtained under the relevant powers conferred by the Criminal Finances Act 2017, which commenced at the end of January. They were obtained only a few days after it came into effect. As the Minister for Security and Economic Crime has said, the orders are an important addition to the UK’s ability to tackle illicit finance, and it is great to see them already in use.

The Government will continue to take action. BEIS’s response to last year’s call for evidence will be published shortly, and it will set out the Government’s approach to areas of particular complexity. BEIS has already made significant progress in preparing draft legislation; the work with the office of the parliamentary counsel to draft the Bill is under way.

Separately, BEIS is working to quantify the impact of the legislation on the UK. The impact assessment will quantify the register’s potential impact on the property market and investment flows, around which foreign direct investment is very specific, to pick up on the point made by the hon. Member for Bishop Auckland. The register will rightly make the UK more hostile to illicit flows of money, but we must understand the potential impact on legitimate inward investment.

All those issues were considered in last year’s call for evidence. Scrutiny of the draft Bill will further stress-test whether it will be effective. I hope that that process demonstrates the Government’s continued commitment to enact the policy, and our commitment to get it right. For those reasons, I hope that the hon. Lady will withdraw the new clause.

Photo of Alan Duncan Alan Duncan Minister of State

On a point of order, the hon. Member for Bishop Auckland earlier asserted that New Century Media is owned by a disreputable Ukrainian oligarch called Dmytro Firtash. That is completely untrue. New Century Media is owned by a former Member of this House, Mr David Burnside, whose reputation she has inadvertently maligned. I ask her to withdraw her comment immediately, or to say the same thing outside the House and take the full legal consequences of doing so.

Photo of Dame Cheryl Gillan Dame Cheryl Gillan Conservative, Chesham and Amersham

That is not really a point of order for the Chair, but the Minister has made his point of order and put it on record.

Photo of Alan Duncan Alan Duncan Minister of State

I am offering the hon. Lady the opportunity.

Photo of Dame Cheryl Gillan Dame Cheryl Gillan Conservative, Chesham and Amersham

Unless any other Member wants to rise on a point of order, we will move on. If the hon. Lady wishes to respond, she may.

Photo of Helen Goodman Helen Goodman Shadow Minister (Foreign and Commonwealth Affairs)

My understanding is—and this has been in the public domain and stated outside this House—that Mr Burnside was the executive chair, but that New Century Media represented the personal foundation of Dmytro Firtash.

Photo of Dame Cheryl Gillan Dame Cheryl Gillan Conservative, Chesham and Amersham

The hon. Lady has made a response, but it is really not a point of order for the Chair. Members have managed to put it on record, and we will move on. I apologise to Mr Norris, who did not catch my eye before I called the Minister. I call him now.

Photo of Alex Norris Alex Norris Labour/Co-operative, Nottingham North

You are very kind, Dame Cheryl. I am not a very good bobber—I find myself inadvertently bobbing in the wrong place or staying in my seat. My wife is currently doing the 100 squat challenge, and I wonder whether an afternoon of questions on a particularly good statement is a good way to make a down-payment on that. That is not the point I rise to make, however—proud of her though I am.

The new clause comes back to our place in the world after Brexit. There are very legitimate anxieties across the House, which are often played out in the Chamber, that post-Brexit, Britain will become the low standards capital of Europe: people will have all the benefits of being in Europe, but will not have to put up with those pesky regulations. We have what we consider to be very legitimate concerns about workers’ rights, product regulations and environmental standards that we raise frequently, and we hear back from Ministers—to their credit, we always hear back—“No, that is not our plan post-Brexit. That is not the Britain we want to live in.” We say that we will hold them to that, as we will.

The Ministers are exceptionally lucky that this is a good opportunity to raise that flag and demonstrate that. The Bill will send a strong signal about what Britain will be like and about our role in the world. The Ministers have said that it will be the first of its kind, which is a good thing. We should seek to lead on such important issues. We have a chance to lead and show that Britain is a high-standards, high-quality economy to occupy and if people come to Britain, they should expect to have the relevant level of scrutiny if there are questions over the assets that they bring or purchase. So it is time: that is what campaigners tell us and what we feel too. We are not asking for this to be done overnight. This is something that Ministers have had since 2015 and that will still have another year after this legislation passes, which is some way away. It is time.

Photo of Richard Benyon Richard Benyon Conservative, Newbury 3:00 pm, 6th March 2018

I think it is worth saying for the record that there is a chill wind blowing through the financial lives of some of the people who have used our economy, particularly our property sector, for nefarious purposes and money laundering. From my conversations with a current Security Minister, and from what I know the Government are doing to implement the asset freeze legislation, I have no doubt that that is being taken forward aggressively and in a determined way. That is being recognised abroad; it is certainly being recognised by some of those people who have used the ability of our economy, through good title deeds, to make property a means by which to bury nefarious funds.

We are talking about legislation to hold future Governments to account. I entirely accept my hon. Friend the Economic Secretary’s assertion that this a complex situation to get right. I would like a little more clarification, and I am prepared to cut him some slack on this because if this is not done properly, it will be exploited and people will be able to move wealth in a globalised economy in a much freer way. It should be tied down in a way that encourages people still to invest in this country. I welcome the fact that people want to invest in our property, whether commercial or residential, but not, as the hon. Member Bishop Auckland says, just to leave homes empty. I recognise that that is a real issue, but there is the sheer importance of making sure that all of the provisions are correct. I know it has been complicated: in the asset freeze legislation, there was institutional resistance to what are called Magnitsky-lite measures that were introduced. In a classic piece of good ministerial play, the Government faced down those institutional problems that existed in parts of the civil service and elsewhere and took that forward. To their credit, they are now implementing the measures. I would just like some more assurance from my hon. Friend that this complexity will be tackled with urgency.

Photo of John Glen John Glen Minister of State (Treasury) (City), The Economic Secretary to the Treasury

I am grateful to my right hon. Friend the Member for Newbury and to the Member for Nottingham North for their further observations. I understand the sentiments of frustration and impatience with the Government on this matter. I hope I have spelled out in some detail—in the areas of land registration; alignment around the different parts of the United Kingdom; and making sure that the penalties are appropriate and that the enforcement measures are set to meet the challenge—that the Government have bold ambitions to get this right and to be a world leader in this area. I acknowledge that this has taken rather longer than it would have done in ideal circumstances, but I can confirm and reiterate to my right hon. Friend that the Government are fully committed to delivering this as soon as possible, and that there is a commitment across multiple Departments and the ministerial team to ensure that this reflects the bold aspirations that we have as a nation. I hope that that would be sufficient for us to move on.

Photo of Helen Goodman Helen Goodman Shadow Minister (Foreign and Commonwealth Affairs)

Ministers have heard that this is an issue of significant concern, and interest in making speedy progress has been expressed on both sides. We will return to this on Report and, that being the case, I do not intend to press it to a vote. I beg to move that the clause be withdrawn.

Clause, by leave, withdrawn.

New Clause 6