The UK’s Criminal Finances Bill – a boost for Gulf property investors?

Dr. Mohamed A. Ramady
Dr. Mohamed A. Ramady
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The UK Brexit vote and uncertainties over future links to the European Union has taken a toll on the pound sterling , making the UK, especially the London property market attractive to investors from the Gulf and other nationals, especially from Russia and China.

However, investors of all nationalities have to be more careful going forward, as the UK Parliament is in the process of approving a Criminal Finances Bill, introduced in October 2016, which, if passed by both Houses of Parliament , and upon receipt of a Royal Assent , will impose tough new screening on the source of funds for UK property purchases over £ 100,000. The aim is simple: to enhance the reputation of London as a credible financial center and a healthy real estate market that is not a magnet for international money laundering.

The bill is designed to close a loophole, which has left UK authorities seemingly powerless to seize property from identified overseas criminals, unless they are first convicted in their country of origin. British law enforcement agencies will now be given new and enhanced powers to seize proceeds of crime and, above all for investors to explain the origins of their wealth or risk having their assets seized.

This will come as a rude shock to many potential Gulf investors who are accustomed to making property purchases well in excess of the £100,000 threshold through their banks and UK solicitors, with few detailed questions asked as to the origin of their wealth. The Panama Papers leaks from law firm Mossack Fonseca, have caused a lot of embarrassment, with its revelation of the diverse number of foreigners owning properties in the UK, putting pressure on the UK government for increased transparency.

Will this new bill, if enacted, stop Gulf investors from bargain hunting in the still desired London property market? It depends on the investors and how much they are prepared to divulge as to their sources of income and wealth, thus forcing some into the spotlight when they prefer to be in the shadows. The new bill will also affect properties held thorough another favored vehicle – offshore companies owning the property as a nominee.

The Criminal Finances Bill will now force offshore companies to reveal their ultimate owners, as a recent study found a quarter of solicitor’s firms surveyed had experienced clients attempting to use property transactions using such vehicles to launder money. Under the proposed new law, not just property but all other “listed assets “ such as jewelry, cash and bank accounts over £100,000 can be seized if the source of such wealth cannot be explained.

The onus is now on some investors to comply with so-called court sanctioned “Unexplained Wealth Orders” or UWO’s, requiring investors to explain the nature and extent of property in their possession and how they obtained the property, and to produce documents to prove this, especially for “politically exposed persons” (PEPs), their family members and associates.

The London property market is still one of the most attractive to Gulf investors, given their familiarity of the market, the UK’s stable political and legal system, and still welcomes those who have nothing to hide concerning their source of wealth

Dr. Mohamed Ramady

Lawfully obtained

There is no guidance in the bill to suggest what type of documents might be requested in order to sufficiently prove it was lawfully obtained. In many parts of the world, including the Gulf, successful businesses are often family owned private entities with minimum public financial disclosure.

With no personal income tax returns, providing such detailed sources of income becomes difficult, but not impossible, especially with the assistance of professional local accountants. This should not discourage genuine private investors, as the bill seems to be implicitly targeting PEP’s and their associates following the Panama Paper revelations.

Approval of parliamentary bills in the UK has to pass several hurdles and phases before it is enacted. This involves two separate readings, a committee stage, a report stage and a final third reading by both the House of Commons and the House of Lords, before it is submitted for final consideration of amendments and then submitted for Royal Assent to become law.

For investors who wish to track progress, The Criminal Finances Bill of 2016-17 has passed the first two reading stages, and is next to be considered at the House of Commons report and third reading stages, but a date for these remaining stages have not yet been announced.

The London property market is still one of the most attractive to Gulf investors, given their familiarity of the market, the UK’s stable political and legal system, and still welcomes those who have nothing to hide concerning their source of wealth. The burden of proof however, is increasingly shifting and wealthy individuals would be wise to start keeping appropriate financial records and many will do so.

For those who feel that these new requirements and processes are an unnecessary burden, the Gulf property market will become a more attractive investment outlet.
Dr. Mohamed Ramady is an energy economist and geo-political expert on the GCC and former Professor at King Fahd University of Petroleum and Minerals, Dhahran, Saudi Arabia.

Disclaimer: Views expressed by writers in this section are their own and do not reflect Al Arabiya English's point-of-view.
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