Closing the London laundromat could be Cameron's greatest legacy

If the Prime Minister's words match his actions, Britain will be at the head of the pack in tackling laundered cash

August 03, 2015
A view across the "London laundromat". © DncnH
A view across the "London laundromat". © DncnH

London’s bricks have become a global currency for corruption. Why? The answer is simple: you can buy them anonymously. The perfect Bitcoin for kleptocrats. Because when nobody knows who you really are, nobody knows where your money really comes from. And that’s exactly what criminals want.

The sums are startling: the National Crime Agency (NCA) estimates that “hundreds of billions” are now being laundered in London a year. “I believe the London property market has been skewed by laundered money,” said economic crime command director Donald Toon. “Prices of high-end property are being artificially driven up by the desire of overseas criminals to sequester their assets here in the UK. What they are doing is distorting the market.”

This is not empty, anonymous cash. Corruption kills. The UN estimates pillaged budgets—healthcare, chemotherapy, road building—kill 3.6m people a year globally. The end result is morally no different from conflict diamonds—“blood mansions”.

Your bog standard Brit can’t buy a property anonymously, of course. He has to declare himself. But the loophole is that foreigners (or Brits) can buy property though fictitious (a.k.a. “shell”) companies registered offshore. What exactly are these? Essentially they are pieces of paper granting non-entities the legal standing of real companies—without having any meaningful assets or operations of their own. A startling £122bn worth of property is now owned this way in UK.

Think of these as masks—hiding the identities of Russian secret police chiefs, Egyptian generalissimos or African dictators, who would otherwise be exposed red-handed with plundered money from national budgets.

In Russia, especially among democrats, London is becoming a dirty word. Following the screening earlier this month of a Channel 4 documentary that I helped conceive, From Russia With Cash, where an undercover reporter investigated the manner in which London estate agents deal with foreign buyers, the leader of the Russian opposition Alexey Navalny called on his 1.14m Twitter followers to shame MPs and Number 10 special advisers into action. Many of those bombarded on Twitter from Russia and Ukraine were forced to note that London now has an image problem.

Last week Cameron became the first British Prime Minister to both admit to the existence of, and commit to start closing down, the London laundromat. “This is my message for foreign fraudsters,” he said during an anti-corruption speech in Singapore, a symbolic location given its founder Lee Kuan Yew’s reputation. “London is no place to stash your dirty cash.”

“We need to stop corrupt officials,” said Cameron “or organised criminals using anonymous shell companies to invest their ill-gotten gains in London property, without being tracked down.” This is a groundbreaking promise. The Number 10 Policy Unit has been the spearhead behind this initiative, working for some months on the issue.

Cameron deserves credit for this speech. No Prime Minister has focused on such corruption before, despite decades of ample evidence. London’s money laundering business really got going in the 1970s. It has come to define the city: there are now over 36,000 properties with secret owners in London—that’s over 2.25 square miles and spreading. Many sit empty, even crumbling. Estate agents have long boasted that “the safe haven effect” or “foreign luxury buyers” are partly fuelling London’s property prices.

Does Number 10 mean business? “There is no place for dirty money in Britain,” said Cameron. Rarely does the Prime Minister nail his name so fast to an issue. “We have got to find ways to make property ownership by foreign companies much more transparent,” he said. “There may be a number of ways we can do this, for example extending what we currently ask of UK companies to foreign companies too. And we will consult on the best way forward.”

This would be a very personal initiative from the Prime Minister and his Policy Unit. There is has been little interest among Conservative MPs in corruption—for example a recent Early Day Motion, signed by 38 MPs, calling for a swift end to property anonymity was signed by just one Tory. Osborne is understood to want to move cautiously, given Britain’s fiscal position, and the unexpected £150m windfall from a new tax earned on properties brought via companies the Treasury has earned in the last three months alone. This is why Cameron has launched a “consultation” on how to achieve the goal he set out in Singapore.

Cameron was notably unsuccessful in putting words into action on Britain’s offshore tax havens. However, on London’s property laundromat he does not have to engage with other governments, and can act alone.

If he turns his words into action and ends purchaser anonymity it would be a huge step that could in a stroke stop London property being a reserve currency of global kleptocracy. Should he push this through, it would put Britain at the head of the pack, battling to bring the world’s $2 trillion worth of laundered cash to light. Ending London’s corruption could be Cameron’s great reform legacy.