Developing countries, including Pakistan, continue to be deprived of their legitimate earnings and assets, thanks largely to the legalized import of dirty money by the real estate in developed countries. Even in this age of fatal global pandemic and despite even the hanging sword of FATF, money laundering from poor countries continues to get soaked up in the real estate markets of rich countries. And the menace thrives in these rich countries either because the governments in these countries willingly promote it in their own economic interests or do it because they do not know how to curb it. And presumably, they live in total ignorance of the fact that a part of this dirty money continuously gets leaked to terror financing.
In Pakistan itself, the real estate has become the most secure avenue for parking dirty money and no government in the past had mustered the courage to take the bull by its horns and the current one seems totally oblivious of its disastrous impact on the overall economy. In fact, the generous concessions offered to the construction industry by the PTI-led coalition government of Prime Minister Imran Khan on the excuse of powering accelerated all round industrial activity seem to have opened the floodgates for expanding the menace manifolds. Luxury housing societies are mushrooming all over the country, while the Naya Pakistan Housing Schemes for the not-so-rich launched recently seems to have attracted the private sector only marginally.
What, however, is a matter of major concern, is the total insensitivity of governments in rich countries towards the devastation that this menace of money laundering continuous to wreak on the economies of poor countries.
According to a Transparency International blog published in IT's newsletter dated December 18, 2020 (Knocking on Kleptocrats' doors) buying property in rich countries is one of the favorite 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 get even richer. In some European Union countries, they 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.
In 2017, Transparency International looked at the real estate sector in four key markets to see just how resilient they are to dirty money.
TI's report, 'Doors wide open', identified significant anti-money laundering weaknesses that enable corrupt individuals and other criminals from developing countries to easily purchase luxurious properties anonymously and conveniently hide their stolen money in Australia, Canada, the United Kingdom and the United States.
Lack of information on the real people buying properties is said to be 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 - is said to make 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 considered to be 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 one still knows very little about who owns properties in major cities, and whether they have been purchased with dirty money.
According to the TI report, this is still the case in the four markets - United States, the United Kingdom, Canada and Australia- it had analyzed in 2017.
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 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."
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 closing 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.
CANADA
In Canada, the availability of real estate ownership data varies widely between provinces.
While none of the jurisdictions analyzed - 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 a 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.
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.
TI 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.
According to TI research, at least £4.4 billion (US$5.5 billion) worth of property in the UK has been bought with suspicious wealth. In Germany, around US$30 billion of money with unclear origins entered the real estate market in 2017 alone. In Canada, at least CAN$20 billion (approx. US$15 billion) appears to have entered the housing market in the Greater Toronto Area over the past 10 years without oversight from anti-money laundering authorities.
However, there are concrete measures that make it significantly more difficult for the corrupt to stash their dirty money in property.
Public declarations of assets before and after officials are in office should be universal practice. In Sri Lanka, TI has worked with members of parliament to take historic steps towards such disclosures becoming the norm.
Real estate transactions are rarely between just the buyer and seller. Agents, banks and brokers all play their role, and have opportunities to stop corrupt money entering the market. Money laundering through real estate is much harder when these professions act with integrity and are required to conduct checks on the real owner and the source of funds. They should have access to all the information they need, and should face consequences for not flagging suspicious transactions.
Finally, a central register online that simply shows who owns what property would go a long way to creating greater accountability over the origins of money in the market, particularly when it includes the names of real beneficiaries of the property. This would make investigations by journalists and civil society much easier, and also help law enforcement join the dots as they pursue cases.
Copyright Business Recorder, 2020
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