Labour’s proposed crackdown on “dirty money” risks making the UK unattractive to legitimate wealth creators and adding to costly red tape, City lawyers have warned.
High-end law firms hit out at plans unveiled by the shadow foreign secretary David Lammy last week to stop illicit money from flowing through London, which he said is still a “laundromat”.
Labour has pledged to widen registration requirements for UK trusts to stop them being used for illegal activity and boost transparency around trust ownership of property.
The legal experts, who work with billionaires and multi-millionaires, warned that the rules risk doing little to identify dirty money while making the UK less attractive to the ultra-rich and their investments.
It comes after stark warnings of a wealth creator exodus from tightening rules on rich foreigners claiming non-dom status in the UK to avoid paying taxes on income from overseas assets.
Nicholas Holland, a partner at McDermott Will & Emery, said the UK was already at the forefront of the fight against money laundering and corruption rather than a “global laggard”.
Going further could harm cost-effectiveness and raise privacy concerns, according to Mr Holland.
Mr Holland said: “The UK’s professionals are by and large duly following some of the world’s most stringent due diligence requirements and must meet exacting ongoing education in respect of these evils.”
In Europe, many countries are starting to move away from public registers after court rulings that they compromised legitimate privacy expectations on human rights grounds, he noted.
Mr Holland said: “There is a serious concern that if these interests are not properly considered and court oversight to protect them is undercut, this will affect the attractiveness of the UK to immigrants.”
His concerns are shared by partners at high-end boutique law firm Withers, who said it would make the UK less appealing to their clients with legitimate fortunes.
Charlie Tee from Withers said: “A lot of clients are concerned that they’ve already provided all of this information, there’s no more information they really can provide. The UK is going further and faster than other countries. There is this political edge to it.”
He added: “This is rather like the frog in the slowly boiling water. It’s another factor that people are aware of that does make the UK a little less attractive.”
Another partner in the firm, Christopher Groves, said that the narrative around there being “massive tax evasion” by wealthy people buying up properties in central London and hiding their identity was “utter nonsense”.
There is a “very developed reporting regime that requires disclosure of trusts and ultimate beneficial owners”, he said.
Anyone getting around those rules would have “successfully lied to people who are trying to do their job” and would still do so if there was an enhanced public register, he said.
His concerns were shared by Dominic Lawrance, a partner at international law firm Charles Russell Speechlys.
Mr Lawrence warned that ultra rich clients often had legitimate concerns about public registers of beneficial ownership, especially if they include the value of assets or information that could be used for identity theft.
He said: “Such registers engender worries about fraud, kidnap or perhaps just adverse and unjustified publicity, and arguably infringe the right to a private life, which is enshrined in the UK by the Human Rights Act.”
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