The secret dealings and hidden assets of some of the richest and most powerful people in the world have been exposed in the biggest ever leak of offshore data.
Known as the Pandora Papers, the 12million documents were leaked to the International Consortium of Investigative Journalists (ICIJ) in Washington who shared access with select media partners including the Guardian and BBC Panorama.
The documents show the clandestine offshore activities of hundreds of public officials, celebrities and business leaders who, amongst other covert dealings, are using shell companies in tax havens to buy real estate all over the world.
The UK property market is well-known as a target for money laundering, due to the significant amount of capital that flows through it and the low levels of transparency with ownership by overseas individuals often involving complex and opaque ownership structures. In response to an increase in foreign ownership in recent years, the UK property sector’s risk of money laundering was recently recategorised from medium to high. And it seems that assessment was accurate, as The Pandora Papers reveal more than £4bn worth of UK property bought by offshore accounts.
While owning UK property through an offshore firm is not illegal, the fact that buying a property through a company enables the ultimate beneficial owner to remain anonymous hugely heightens the risk of money laundering - not to mention enabling the ultimate beneficial owner (UBO) to avoid paying UK tax.
John Dobson, CEO at anti-money laundering specialists SmartSearch, said: “When the Panama Papers were leaked in 2016, the lack of transparency surrounding shell companies was brought to the fore. They revealed the multitude of ways that shell companies and other corporate vehicles were being used by the rich and powerful to hide the ownership of a legal entity for a whole host of reasons, including tax evasion and money laundering."
“In response to the Panama Papers, the global regulatory landscape underwent significant reform to strengthen and enhance the beneficial ownership requirements. This included the 4th European Money Laundering Directive in 2017, which introduced mandatory UBO registers, and the BSA’s Final Rule, which came into effect in January 2021, and requires US financial institutions to identify and verify beneficial owners."
“But sadly, it seems that five years on, despite new rules and regulations, the threat of money-laundering through the purchase of property is still high.”
Dobson says that, for those working in the property purchase chain, offshore buyers should raise a red flag. While legal to own property through an offshore firm, it is key to identify who is actually providing the funds.
He said: “We know how frustrating it is for firms who need to establish the identity of the UBO to find themselves lost in a labyrinth of multiple business names which have shares in the corporation - our electronic verification system cuts through the corporate fog to get a clear picture of the ultimate beneficial owner quickly.”
SmartSearch will identify who is the beneficiary of the transaction, and even screen them against global sanction lists to identify whether they, or anyone they are close to is involved in illicit activities.
Dobson concludes: “The government is assessing how to prevent money-laundering through legislation, we’d strongly recommend they mandate the use of electronic verification to dramatically reduce money-laundering through offshore funds.”
To find out more about how SmartSearch can help you with identifying Ultimate Beneficial owners, visit https://www.smartsearch.com/resources/whitepapers/smartsearch-unveils-ultimate-beneficial-owner-ubo-service-to-cut-through-corporate-fog