Opinion: Money laundering in the property world

Picture a lorry load of Ferraris, Maseratis and Bugattis worth over €5m being hauled off a Parisian street. No, this isn’t an episode of Top Gear, these cars are being impounded by the police. They were the spoils of Teodorin Obiang, the eldest son of Equatorial Guinea’s president, Teodoro Obiang Nguema Mbasogo, who thanks to Transparency International France and lawyers at the NGO Sherpa, was tried in absentia in France two years ago for embezzlement, money laundering, corruption and abuse of trust. Obiang also lost a €107m mansion at the same time.

The money used to pay for these assets was stolen from his people, some of the most impoverished on earth, half of whom take home less than $2 a day in earnings. The contrast between the lifestyle lived by its leaders and its citizens becomes more galling when you realise Equatorial Guinea is rich in oil deposits and has a population slightly larger than that of Birmingham. It is not beyond the means of these people to develop a strong economy and a higher standard of living, yet they remain repressed and robbed by their leaders.

Corruption and the numbers

It is almost impossible to calculate how much money around the world is lost to corruption each year, but this case provides a vulgar yet all-too-familiar example of how much can be accumulated by just one individual and where it ends up. There has been growing attention in recent years to dirty money like this being invested in high-end property, much of it in London.

In the 2017 report Faulty Towers, our analysis of open source data found that at least £4.2bn of residential real estate in the capital has been bought with suspicious wealth. Given detection rates are widely regarded to be worryingly low – around 1% according to the World Bank – the real figure is likely to be significantly higher.

The picture elsewhere is less clear. Journalists and police forces have found dodgy cash used to buy penthouses and palatial mansions in other major cities, including New York, Dubai and Florida. However, more could be done to get a better understanding of transactions that bear all the hallmarks of money laundering.

Across Europe, professionals engaged in higher-risk activities, such as real estate and banking, are supposed to know who they’re doing business with. If the client turns out to be someone entrusted with high public office, or someone close to such people, they are expected to be subjected to heightened scrutiny given their access to entrusted power that can be abused for private gain. If there is something that doesn’t add up – say a client wants to buy a £20m pad with an income of £40,000 – they should be reported to the police.

Tightening up regulations

Despite this, evidence worryingly shows that many of those who are subject to these rules don’t understand them, don’t follow them or, in some serious cases, turn a blind eye when they spot something they should report. According to the most recent data from HM Revenue & Customs – the UK’s regulator for these checks in the property sector – more than one-third of those it audited failed to comply with these basic rules. With law enforcement stretched for resources, it’s critical that businesses play their part. The UK government has tried to raise awareness among professionals, urging them to “flag it up” if they see something they think could be money laundering. If more of us work together to spot this activity, there’s a greater chance of others like Obiang finally being held to account.

Duncan Hames is director of policy at Transparency International UK

The global professional statement, Countering bribery and corruption, money laundering and terrorist financing, is now mandatory for all RICS professionals and firms. Familiarise yourself at rics.org/aml

• This article originally appeared in the Talent issue of Modus (September 2019)