Knocking on kleptocrats' doors

Limited real estate data in Australia, Canada, UK and US makes tracking down corrupt more difficult

Image: Transparency International

18 December 2020

For kleptocrats, real estate is much more than a roof over their heads.

Buying property is one of the favourite methods for corrupt officials – from Gabon all the way to Venezuela – to launder ill-gotten gains. As a bonus, by investing in the world’s most sought-after cities, they can get even richer. In some European Union countries, they can even bet on acquiring residency or citizenship rights.

At the same time, major cities like London, San Francisco, Sydney and Vancouver are becoming increasingly unaffordable for ordinary people, contributing to the often-ignored crisis – homelessness.

Real estate data is an underrated mechanism for solving the problem that affects us all: from low-income countries suffering from capital flight to the advanced economies whose property markets are bursting with dirty cash.

Eye on the prize

When public officials take bribes or steal from the people they are meant to serve, the money usually has to be cleaned before it can be enjoyed.

In 2017, Transparency International looked at the real estate sector in four key markets to see just how resilient they are to dirty money.

Our report, Doors wide open, identified significant anti-money laundering weaknesses that enable corrupt individuals and other criminals to easily purchase luxurious properties anonymously and hide their stolen money in Australia, Canada, the United Kingdom and the United States.

Layers of anonymity

Lack of information on the real people buying properties is an important piece of the puzzle. The fact that in the great majority of countries information about the real owners of properties is not directly available – not even to competent authorities – makes it much more difficult to detect and investigate money laundering through real estate.

The ease with which anonymous companies or trusts can buy property and launder money is directly related to the insufficient rules and enforcement practices in attractive markets. 

Limited data on real estate deals and on ultimate, beneficial owners of companies, in particular, means that we still know very little about who owns properties in major cities, and whether they have been purchased with dirty money.

This is still the case in the four markets – Australia, Canada, the United Kingdom and the United States – we had analysed in 2017.

Real estate data: Shining a light on the corrupt

Our new report shows we still know very little about who owns properties in the world's most sought-after cities, and whether they have been bought with dirty money.

Next year, in collaboration with the Anti-Corruption Data Collective, Transparency International will expand the analysis to other countries to produce an index on real estate opacity.

Australia

Who really owns properties in Australia and the extent of money laundering through its real estate remains a pandora’s box, including to the authorities.

We looked at available real estate data in Queensland, New South Wales and Victoria and found that none collect or disclose information on the real individuals owning properties.

Australia does not have a beneficial ownership register to collect this information, nor does it require real estate agents, lawyers and accountants involved in real estate deals to identify the beneficial owners of legal entity clients.

This makes Australia a go-to destination for money laundering in the property market, especially for the proceeds of corruption in the Asia-Pacific region.

Canada

In Canada, the availability of real estate ownership data varies widely between provinces.

While none of the jurisdictions analysed – British Columbia, Montreal and Ontario – currently collects or discloses information on the beneficial owners of properties, steps are being taken to improve transparency in real estate ownership and the availability of data. British Columbia, where the Land Owner Transparency Act of 2019 determines the establishment of a beneficial ownership register for properties, is the most advanced.

Prior to this legislation, an analysis of the Vancouver property market conducted by Transparency International Canada showed one-third of the 100 most valuable residential properties are owned through shell companies, while at least 11 per cent have a nominee listed on their title.

These trends were confirmed in the 2019 report from the Expert Panel on Money laundering in BC Real Estate, which estimated up to CAD 5.3 billion was laundered the previous year through the province’s real estate market, raising housing prices by up to 5 per cent.

United Kingdom

For properties held by UK companies, it is technically possible to obtain beneficial ownership information by cross-checking information on the land title with the Companies House People with Significant Control register.

However, if properties are owned by foreign companies, knowing who the individual behind that company is will depend on whether a beneficial ownership register is available at the place of incorporation of the company so the information can be cross-checked. This is because foreign companies can purchase real estate in the UK without having to register with the UK Companies House.

This is particularly problematic as research by Transparency International UK has shown that over 75 per cent of properties subject to criminal investigations between 2004-2015 used offshore anonymous companies to hide their owners’ identities.

The UK government has committed to close this loophole by introducing a register of beneficial ownership for property. However, its implementation has been subject to significant delays but is currently scheduled for implementation in 2021.

United States

The Washington metropolitan area has long attracted African rulers. The Gambia’s former dictator Yahya Jammeh and Equatorial Guinea’s President Teodoro Obiang are known to be next-door neighbours in Potomac, Maryland – though perhaps not for much longer.

Miami is another hotspot for corrupt money, where multiple Venezuelan kleptocrats are reported to own luxury properties, despite being sanctioned by the United States.

This has been possible because real estate registers in various states do not contain information on beneficial owners.

What’s more, real estate agents are not required to ask questions about the real individuals behind companies purchasing real estate, nor report suspicious transactions to authorities.

The landmark bi-partisan Corporate Transparency Act, which recently passed the US Senate and is awaiting signing into law by President Donald Trump, has the potential to close these major vulnerabilities through ending anonymous companies in the country.

If enacted, the bill will also require the Department of Treasury to prepare a report to identify a “permanent solution to collecting information nationwide to track ownership of real estate.”

The power of real estate data

Real estate data can be a powerful tool for detecting potential money laundering and other criminal activities.

Access to property-related data – such as legal and beneficial ownership, historical ownership data, value and dates of purchase – can go a long way towards exposing corruption risks and money laundering red flags for authorities, journalists and activists.

In Brazil, for example, the availability of ownership data, price paid and dates of purchase of real estate properties in the State of Rio de Janeiro served to identify a potential money laundering scheme involving the son of President Jair Bolsonaro.

Across borders, shining a light on the laundered wealth of the corrupt and curbing their use of real estate for concealing and stashing their illicit gains depends on reforms in jurisdictions like Australia, Canada, United Kingdom and the United States.

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Knocking on kleptocrats' doors

Eye on the prize

Layers of anonymity