House prices and crime

Here are two stark statements, side by side. They are both true, and yet they don’t match.

Law firms have introduced impressive compliance regimes to cope with money laundering. Of course, I don’t know all firms in sufficient detail to be sure that this is true.

But, as a small example, I was on a money laundering panel last week at the IBA conference panel in Vienna, and compliance partners from two of them, one a magic circle firm and the other not, gave eloquent performances of their sophisticated systems for detecting wrongdoing. Their procedures are not, I believe, unusual. The squeak of a shady mouse would not get through the safeguards.

And yet London house prices have reached fantastic levels. Ordinary people have become millionaires for no reason other than putting down a modest deposit some 20 years ago, and then paying off a modest mortgage. The director of the National Crime Agency’s economic crime command is clear why this has happened (and we all know it anyway): ‘I believe the London property market has been skewed by laundered money. Prices are being artificially driven up by overseas criminals who want to sequester their assets here in the UK.’

The prime minister himself, in a speech in Singapore in July, admitted that some properties - some! - were being bought with plundered and laundered cash, and that the UK should no longer be a haven for corrupt money. London property owners are the direct beneficiaries of others’ crimes (and everyone desperate to find a place to live has become a further victim of crime).

How can it be true both that solicitors have impressive compliance regimes and that property prices continue to rocket upwards because of the inflow of millions in criminal gains? The Financial Times has stated that more than 100,000 property titles are registered to overseas companies, with more than 36,000 properties in London owned by offshore firms. In total, at least £122bn of property in England and Wales is owned by offshore companies.

There are a number of possible theories, both good and bad for solicitors. It could be that all the relevant transactions for these 100,000 property titles went through a handful of corrupt solicitors, and not through those with impressive compliance regimes.

It could be that one of the facts I have cited is not true: that compliance regimes are generally not impressive or that there is no illegal cash driving up prices. Or it could be that no current compliance regime, however impressive, can detect the wrongdoing taking place. I leave it to you to answer. But, whichever you pick, the elaborate and cumbersome regime imposed on the legal profession by the government looks more absurd at every estate agent’s window that is passed.

There is another question, much bigger than any of those just mentioned. It is whether it should be up to solicitors at all to tackle crime on such a massive and sophisticated scale. The answer is clearly no. Passing the buck to solicitors hasn’t worked so far. Solicitors are not crime-fighters, although the government has tried to turn us into such.

Solicitors are trusted advisers, necessary in a democracy under the rule of law, and crime-fighting sits elsewhere within a properly constructed framework. In fact, crime-fighting directly conflicts with the role of a trusted adviser.

Does the government have the stomach, whatever its leader protests in Singapore, to take the proper action to stop illicit money being parked in the UK property market? The FT reports that the Treasury received a £150m windfall in the three months up to July from a tax on properties purchased by companies, trusts and investment funds, rather than individuals. So the government is another beneficiary of the crimes committed elsewhere.

Or is there a call from homeowning voters for the government to take action to stop their properties rising in value so fast because of criminal cash? We know the answer. Other than the further victims of crime in the UK (the homeless, those trying to get on the property ladder, those having to rent in a crowded market), we are all complicit, as we happily benefit from others’ illegal acts.

So there is an even more difficult question for the government than the ones previously posed. The current money laundering regime has failed to stop criminal cash turning lucky homeowners into millionaires. It has worsened the position considerably for those unable to become homeowners.

Will you tackle it with serious intent? (And before you try to heap more crime-fighting duties on solicitors as your agents, please provide evidence that doing so will have any impact on the problem – the evidence so far is underwhelming.)

Jonathan Goldsmith is a consultant and former secretary-general at the Council of Bars and Law Societies of Europe, which represents around a million European lawyers through its member bars and law societies. He blogs weekly for the Gazette on European affairs