(BLOOMBERG) - Investors are not the only ones who are snapping up all the best homes in London.
The UK property market is increasingly a prime target for money laundering, with London's most expensive homes attracting criminal buyers as a way to hide dirty cash.
There is now a high likelihood of buyers using real estate in the United Kingdom to disguise illegal activity, up from a medium risk three years ago, the British government said in a recent report assessing money laundering and terrorist financing last year. The findings also upgraded the risk to the estate agency sector to medium.
"It is likely that criminals favour locations with high-value properties such as London, Edinburgh or university towns, with London in particular considered highly desirable for overseas entities to operate a residential or commercial base in," the report said.
The Covid-19 pandemic has only made the sector more vulnerable to dirty money, as shaky demand for extravagant homes increases the chances of getting a discount. While criminals may also exploit struggling businesses to obtain real estate sold out of desperation or bankruptcy, residential property is seen as a higher risk than commercial, aided by the speed and ease of deals, the report found.
Transactions done by corporate structures or trusts in tax havens such as the Cayman Islands make the practice hard to track - three-quarters of properties linked to corruption are owned by firms registered in such locations, according to Transparency International.
The non-governmental organisation has found over 500 properties in the UK that have been bought with suspicious wealth, with a combined value of over £5 billion (S$9 billion), the report said. That is probably only a fraction of the real value of dirty money hidden in UK real estate, it added.
In a crackdown on overseas corruption, the wife of a jailed Azeri banker has been ordered to give the British authorities information on her assets after losing a Supreme Court challenge to a so-called unexplained wealth order. Ms Zamira Hajiyeva can no longer sell or transfer a golf club outside London and her home near luxury store Harrods, assets which the National Crime Agency said are worth more than £22 million.
The government also had a victory in an attempt to crack down on dirty money in October, when the National Crime Agency used the controversial power to come to a £9.8 million settlement with a Leeds businessman over accusations, including criminal ties to build a property portfolio.
Mr Mansoor "Manni" Mahmood Hussain handed over more than 45 properties across the country, including two apartments in the swanky Knightsbridge neighbourhood of London.