Compliance
The Global Fight Against Money Laundering – Where Are We Now?

The author of this article argues that until anti-money laundering is addressed consistently across the globe, there will still be room for the criminals to operate, but in a free society the challenges are clear. Â
The war against money laundering never ends, and for years, one of the conduits for dirty money has been property. In this article, Katherine Campbell, counsel and head of real estate disputes at law firm Reed Smith, considers the state of play. The editors of this news service are pleased to share these views and invite replies. The usual editorial disclaimers apply. Jump into the conversation! Email tom.burroughes@wealthbriefing.com
For years, the property markets in the major European and US cities have provided a lucrative outlet for money launderers across the globe. The key to their success is the complex web of offshore companies and trust structures that can be created to channel the proceeds of crime, coupled with the lack of transparency in most countries’ corporate and land registries.
The result is that it has been far too easy in the past for the
ultimate beneficial owners of these property investment vehicles
to hide their identity. The war in Ukraine and corruption amongst
Russian elites has only served to bring into sharp focus the
serious work that needs to be done in this area.
In the UK, The Economic Crime (Transparency and Enforcement) Act,
which came into force in 2022, now requires all foreign companies
that own property in England and Wales to register their ultimate
beneficial owner at Companies House. Many companies have
completed the complex process of registering and verifying the
information, but, although the deadline for registration was 31
January 2023, thousands of companies are yet to register.
Those companies will be subject to criminal penalties, including
daily fines and imprisonment of officers, together with arguably
the much more effective sanction of having restrictions placed on
titles at the Land Registry, which will prevent them from selling
existing properties, purchasing any new real estate, or
refinancing existing property. If any transactions are found to
have been carried out in breach of the new laws, the proceeds are
also likely to be caught under the Proceeds of Crime legislation
and will be liable to confiscation.
So far, so good. Steps are being taken in the right direction,
designed to draw the UK in line with the EU. At the same
time, however, the EU Court of Justice has taken a seriously
backwards step, ruling on a claim brought in Luxembourg by
various companies and individuals against a 2019 Luxembourg Law
that established just such a register of beneficial
ownership.
In the EU, public registers of beneficial ownership were
introduced in 2018 by the EU’s fifth anti-money laundering
directive; they are truly public, with much personal information
about individuals being available to anyone who cares to search.
Luxembourg had enshrined this into its national law in 2019.
Previously, the fourth directive had limited access to competent
authorities and those with a legitimate interest.
In the Luxembourg case, the Court of Justice found that a
potentially unlimited number of people would be able to find out
about the personal and financial status of a beneficial owner
under Luxembourg’s law. It also found that once the data had been
made available to the public, it could also be freely
disseminated, leading to potentially serious misuse of the
information.
Among the arguments made in the Luxembourg District Court had
been the rather persuasive one that, due to one of the beneficial
owners’ role in a real estate company, he was required to travel
to countries with unstable political regimes and disclosure of
personal information might significantly increase the risk of his
being kidnapped.
The court therefore found itself balancing the benefits of the
right to the information from an anti-corruption point of view
with the interference with the privacy rights of the individual.
Ultimately, the court said that public access to the information
“constitutes a serious interference with the fundamental rights
to respect for private life and to the protection of personal
data” enshrined in Articles 7 and 8 of the Charter of Fundamental
Rights of the European Union.
As a result of the EU ruling, EU national courts must also comply
and some EU countries are now closing their registers, albeit
temporarily, while the court process plays out, so as not to fall
foul of the ruling. This is clearly a severe blow for the
international fight against money laundering; the tension between
data protection and anti-corruption is an obvious corollary of
the EU’s action to date to combat money laundering.
Many take the view that the EU had taken a step too far with the
fifth directive to a point where a search is no longer limited to
what is strictly necessary or proportionate, as was the position
under the previous directive, but rather where anyone can access
private personal data and pass it on.
In the UK, this has been addressed by ensuring that information –
such as home addresses, dates of birth and email addresses – does
not have to be disclosed on the register. But the divergence
between the UK and the EU creates very real problems for
international property holding companies which are subject to
disclosure across the globe. The homogeneity that the UK
legislation was trying to create has, at least for the time
being, been knocked off course.
Meanwhile in the US new rules are also to be introduced through
the Corporate Transparency Act 2021, effective from 1 January
2024, whereby most corporations and companies created or
registered in the US will be required to report information
concerning their beneficial owners.
This followed a report in September 2022 by the Financial Crimes
Enforcement Network (FinCEN) on the Anti-Money Laundering Act
2020, which set out new rules for the reporting of beneficial
ownership information. The approach in the US is more property
based than privacy based. Consequently, US law enforcement is
perceived to have been given a wider remit than their EU
counterparts in combatting corruption and money laundering. It
should be noted, however, that even the US approach will not
permit completely unrestricted public access to the information
recorded.
The Luxembourg case illustrates the growing privacy divide
between the EU and the US, which will do nothing to alleviate the
continuing compliance challenges for those benign global
companies who will have to navigate through the differing
regimes. The scale of the challenge in the UK is daunting – it
was only topped by the US in a recent ranking of global
money-laundering hotspots, with an estimated ÂŁ88
billion laundered through the UK every year. It is too early
to say if The Economic Crime Act is making a dent in this huge
shortfall. Until anti-money laundering is addressed consistently
across the globe, there will still be room for the criminals to
operate, but in a free society the challenges are clear.