A wake-up call for the property sector

 COMMENT As the US elec­tion approach­es, I don’t want to depress any­one fur­ther, but it is worth remem­ber­ing that Trump is one of yours – 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.

Christopher Steele, Radius Data Exchange, Oct 30, 2020, 

While I am not sug­gest­ing that Trump is reflec­tive of your indus­try, I would say that the prop­er­ty sec­tor needs to learn from him and take stock of the lev­el of risk you are pre­pared to take in your own businesses. 

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.

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. 

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. 

Banks at present are required to com­ply with KYC require­ments: “Know your cus­tomer”. In oth­er words, ver­i­fy their iden­ti­ties, con­firm they’re not on any pro­hib­it­ed list, and assess 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. 

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

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 is direc­tor and co-founder of Orbis Business Intelligence and author of the Trump-Russia dossier

Radius Data Exchange

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