Regulation  

How to spot money laundering red flags in overseas property purchases

  • Describe the challenges the property sector faces over money laundering
  • Explain the signs to look out for when money laundering is suspected
  • Identify the uses of electronic verification
CPD
Approx.30min
How to spot money laundering red flags in overseas property purchases
(Bruno Neurath Wilson/Unsplash)

If all the UK’s residential properties registered to overseas individuals were in the same place, they would make up a city bigger than Southampton. 

Foreign ownership of homes in England and Wales trebled between 2010 and 2020, and almost 250,000 residential properties are now registered to individuals based overseas. 

The UK property market has been consistently attractive to foreign investors but a supply shortage, low interest rates – for now, at least – and fast-rising house and rent prices are making it even more so. 

Office for National Statistics data shows that the average cost of a house in the UK has risen by 53 per cent in the last decade.

If you exclude regional differences then the investment is potentially even more profitable – parts of the south east, like Kent and East Sussex, and the south west, like up-and-coming areas in the city of Bristol, have seen prices rise by up to and even beyond 100 per cent. 

Buying to let offers similarly lucrative returns. ONS data reveals that UK rental prices went up by 3.4 per cent in the last year. These figures exclude London, which at 1.1 per cent has seen the lowest increases of any English region, which is mainly attributed to the coronavirus pandemic and a rise in remote working.

But buy-to-let investors who throw their nets further afield will find rent increases of 8 per cent in Nottingham, 6 per cent in Sheffield, Liverpool and Birmingham and 5 per cent in Manchester. 

In short, UK property remains a compelling investment opportunity.

Property’s dark side

But there is also a downside to the attractiveness of Britain’s property market. It has long been targeted by organised criminals to launder dirty money. 

So much so that Transparency International UK estimates that up to £6.7bn of suspicious funds has been invested in UK property since 2016. 

In 2020, the UK Government published its national risk assessment of money laundering and terrorist financing report and re-categorised the property sector from medium to high risk for money laundering purposes. 

Russia’s invasion of Ukraine has exacerbated this problem. 

Before Russia invaded Ukraine, it was already facing something like 2,700 sanctions. Within two weeks of the first attack, the number of sanctions had doubled and has been rising and is being frequently updated ever since. 

The new sanctions have introduced further restrictions on individuals, entities, and their subsidiaries, and led to legislation to limit deposits held by Russian nationals in UK bank accounts.

But dirty money continues to flow into the UK economy. A recent damning report from the Foreign Affairs Committee revealed that the government was still failing to tackle Russian kleptocrats who were laundering cash illegally through the UK – and claimed that some of it was being used to finance Vladimir Putin’s invasion of Ukraine.