Symposium on systems of financial secrecy summary report

  • Publication date: 06 March 2024
  • Author: Open Ownership

Session two

Systems of financial secrecy in the UK: Understanding the UK’s global role and evaluating current and future policy solutions

This session took a deep dive into the operation of systems of financial secrecy within the UK, focussing particularly on the recent reform to bring about transparency to ownership of UK property held through offshore entities, the impact domestically and internationally of financial secrecy in the UK, and gaps and policy solutions.

  • Dame Margaret Hodge, Member of Parliament for the United Kingdom

Dame Margaret Hodge, MP opened session two. She began by acknowledging the stain on the UK’s reputation that comes from being associated with financial secrecy around the world. Half of the leaks in the Panama Papers were in the British Virgin Islands, and the Paradise Papers showed a range of international actors and politically exposed people including King Charles and the former Queen.

“The more and more you’re known for dirty money, the less clean money you’ll get.” – Dame Margaret Hodge, MP

She argues that this presents a great security risk for the UK, most clearly seen in ownership of property. The Register of Overseas Entities (ROE) of UK property [introduced in 2022] has been far less effective than hoped, as people hide behind trusts. In 7/10 cases, essential information about the beneficial owner of the overseas entity is unknown. This is a major loophole. It has become impossibly difficult to properly implement the register, although the law passed without political contention, and with great cross-party support.

Public registers for Overseas Territories are sorely needed. Labour must consider options to legislate for the Crown Dependencies, Dame Margaret said, and funding and enforcement are needed to build and use such registers. She shared that she has seen strong legal opinion that it would be possible for the UK to legislate for the implementation of Public Registers of Beneficial Ownership to cover the Crown Dependencies and not just the Overseas Territories. “We need to be bold,” she said, advising the advocates in the room: “Don’t think a compromise will get you anywhere”.

  • César Poux, Research Assistant, LSE III

César gave his keynote speech on Hidden ownership of real estate in the UK: the route to transparency, sharing research from his co-authored working paper.

The research sought to explore offshore corporate ownership of UK real estate, and used data from the ROE. César explained that people set up offshore entities to own UK property for several reasons, including limiting corporate or individual tax liability (despite many loopholes being closed in the last 10 years); seeking to obscure their ownership for privacy reasons, and that the secret ownership of property through offshore entities represents high risk of financial crime, money-laundering, and sanctions evasion; and, finally, tax evasion. Of the 152,000 properties owned by foreign companies in 2023, 92% were incorporated in a tax haven.

Despite accounting for a relatively small number of transactions, properties worth over GBP 30 million account for almost half of the total value of the properties owned by foreign companies where records can be linked to a transaction price in the Land Registry’s Overseas Companies Ownership Data (OCOD) database, and many of these are in London. Of the registered beneficial owners in the ROE, 48% are foreign residents or foreign nationals. The researchers also found that the gaps in the data in the ROE are mainly caused by the use of trust structures.

The research finds that for 71% of properties owned by offshore entities, essential information on the owners is still inaccessible to the public. The largest loophole for transparency requirements is the ubiquitous use of trust structures.

César suggests implementing the “parity principle” would help strengthen the ROE as a measure to reduce financial secrecy. He believes that the holding structures should not affect the nature or level of an entity’s transparency, and that distinctions should only be based on asset type (e.g. UK land, UK company, foreign company supplying UK government, etc.) and taking into account characteristics of the owner (e.g. protecting vulnerable individuals).

  • Dr Kristin Surak, Associate Professor of Political Sociology, LSE and Johnathan Inkley, Research Assistant, LSE

Kristin and Johnathan presented Why hide? The dynamics of secrecy and tax in UK property holdings, sharing their research on the UK’s ROE.

Johnathan explained that the UK, and especially London, has become a hub for international finance. Individuals use holding companies for properties in the UK for two main reasons: tax and secrecy, and these factors drive the way UK property is held offshore. Studying datasets on who owns property versus who benefits from property, they used data from the Centre for Public Data Freedom of Information, the OCOD dataset from HM Land Registry, the ROE, and the International Consortium of Investigative Journalists (ICIJ) Offshore Leaks database.

Kristin and Johnathan found that only a third of entries have identifiable, individual beneficial owners in the ROE data. However, there is evidence that the information on the identified owners cannot be totally trusted - a degree of "strawman" use seems to be occurring.

Individuals from 143 countries have been reported as owners in the ROE data, with 35% of all reported owners listed as British. The British Virgin Islands is a jurisdiction of choice for individuals from most foreign countries using a holding company to own UK property, though people from Kuwait and the USA tend to use Jersey, and people from Botswana and South Africa tend to use Seychelles.

In the Q&A, Kristin addressed questions about policy solutions and secrecy adaptation. She highlighted the limitations to national policy solutions, saying that there is not much that individual governments can do about avoiding displacing secrecy to other jurisdictions if only local policy solutions are used, and highlighted the issue of subnational carve-outs such as freeports which can undermine national transparency policies.

  • Jeanne Bomare, PhD researcher, Paris School of Economics and Research Fellow, EU Tax Observatory

Jeanne presented Avoiding transparency through offshore real estate: Evidence from the United Kingdom, outlining research from her co-authored working paper.

It is estimated that about 8% of global household financial wealth is held in tax havens. In 2013-2014, the OECD’s CRS was a major step to tackle these issues. The CRS is an automatic exchange of information with third-party reporting of foreign financial assets (it currently does not include real estate). Based on previous research on the implementation of the CRS, there has been a reduction in cross-border bank deposits held in tax havens.

Jeanne’s research has found that with the onset of the CRS, an increase was seen in real estate investments, with an additional USD 45 billion entering the UK real estate market over 2013-2016. A back-of-the envelope calculation suggests that 9% of financial assets that flowed out of tax havens following the CRS were ultimately invested in the UK real estate market. As such, Jeanne argues that asset ownership registers, as well as automatic exchange of information agreements covering real estate assets, are needed.

  • Matthew Collin, Senior Economist, EU Tax Observatory

Matthew presented The end of Londongrad? The impact of beneficial ownership transparency on offshore investment in UK property, sharing research from his recent co-authored report.

The Panama Papers show GBP 4 billion in secret UK property transactions. Matthew and his colleagues’ research is interested in whether the UK's Economic Crime and Corporate Transparency Act can lead to a significant decline in offshore investment in UK property; if it is possible to separate the effects from Russia’s 2022 invasion of Ukraine; and where there might be substantial effects on local property markets, using data from OCOD, the Land Registry, and the ICIJ’s Offshore Leaks database.

Matthew’s research found that new requirements in the Economic Crime Act for offshore companies to file their beneficial owners led the offshore market to stall, though GBP “44-76 billion worth of UK real estate is still owned by companies based in tax havens”.

  • Robert Barrington, Professor of Anti-Corruption Practice, Centre for the Study of Corruption, University of Sussex

As a discussant, Robert noted that there are significant headwinds, including the changing political context caused by a year of elections in the UK and many other countries, including the US. He raised concerns about how well-equipped the UK government is to deal with issues relating to grand corruption and kleptocracy, and how effective a future Labour government could be on issues of corruption - as well as the need for a more robust evidence base linking corruption to national security.

He spoke about the relative merits of greater law enforcement vs norm-changing, the need to move the focus beyond just property, the expertise of civil society in tackling the complexities of trusts, and the role of professional enablers in facilitating the UK’s role in global corruption. Regarding professional enablers, he highlighted the weak regulation of key sectors such as law. He drew on new research he is conducting with Georgia Garrod (Sussex) which suggests that the legal profession within England and Wales is largely still in denial about its contribution to enabling kleptocracy and grand corruption.

Robert said that the UK’s anti-corruption apparatus is currently not fit for purpose, explaining that there is no anti-corruption agency in the country, but challenges such as Covid and the Teesside Freeport had highlighted how corruption can operate within the UK. Robert concluded that the UK is ill-equipped to deal with grand corruption and money-laundering, and that researchers and campaigners need to be better at taking this into account when they are seeking policy change.

Next page: Session three