We know that criminals and the corrupt love real estate. It’s one of their favorite ways to launder money and enjoy ill-gotten gains. And for far too long, corporate secrecy had been their friend.
With transparency reforms in recent years, it should now be significantly harder to buy and hold valuable properties anonymously in many parts of the world. In France, authorities collect both company and real estate ownership data. This information has also been made available to the public since 2021.
To understand how the landscape may or may not have changed, we teamed up with Transparency International France and the Anti-Corruption Data Collective (ACDC). It was not a straightforward task, but we were able to scrape and cross-analyse ownership information from both datasets – the same datasets that underlie the new investigations from the Organized Crime and Corruption Reporting Project (OCCRP).
The new report from Transparency International France, Transparency International and the Anti-Corruption Data Collective uncovers significant loopholes through which criminals can still launder and invest their money in French real estate.
Many company owners still anonymous
At the heart of the problem lies companies’ non-compliance with their obligation to disclose their real, or “beneficial”, owners. Despite being required to do so since 2017, over 1.53 million companies – nearly one-third of all active companies registered in France – have still not declared any beneficial owner.
We conducted a series of tests to elicit patterns and identify which kinds of companies were more or less likely to properly report their ownership. We discovered that non-compliant French companies share a significant number of red flags that could indicate suspicious activity.
Sociétés civiles immobilières (SCI) are a type of private limited company in France created for the purpose of owning and managing real estate properties. SCIs are particularly at risk of being abused for money laundering through the real estate sector. And yet, we found that only 63 per cent of SCIs have declared their beneficial owners – one of the lowest rates across all categories of corporate vehicles. Despite beneficial ownership disclosure obligations, SCIs remain opaque and continue to enable potentially shady actors to anonymously own properties in France.
When it comes to the beneficial owners themselves, we found that at least 5 per cent of companies only listed their legal representatives. This is permitted only when no beneficial owner who fits the definition can be identified. We have no way of independently verifying whether this is the case for these companies. In addition, as it is not always clear from the data whether the declared beneficial owner is truly the owner or merely a legal representative, there could be many more such cases that remain undetected.
Many individuals in the dataset also appear to be the owners of multiple companies. The data show that 7,137 individuals own more than ten companies. Of those, 271 people are the beneficial owners of more than 50 companies.
We also found that companies with non-French representatives are less likely to comply with their reporting obligations, suggesting that companies managed or controlled from abroad are complying at lower rates. While the majority of beneficial owners listed in the database declared their nationality to be French, there are 190 nationalities represented in the data. In addition, nearly 4,000 beneficial owners reported multiple nationalities. Some of these appear to have “golden passports” from Cyprus and Malta.
Majority of real estate owners still a mystery
In a first-ever attempt to connect French company records to real estate ownership information, we cross-referenced company ownership data with the ownership information available for parcels, the smallest subdivision of the French land registry plan. Each parcel may contain one or multiple individual properties.
In theory, the available data in France should enable journalists, civil society and authorities to identify the real owners of French real estate. In practice, non-compliance with beneficial ownership disclosure obligations and loopholes in the current framework enable real estate owners to remain anonymous.
We found that at least 10.35 million parcels include real estate owned by companies. We were able to identify beneficial owners in only roughly 30 percent of these parcels. Meanwhile, the real owners of properties in nearly 71 per cent of all corporate-owned French parcels remain unknown. The vast majority of these companies have not provided data on their real owners, or else do not appear in France’s beneficial ownership register at all.
When we took a closer look at the 1.3 million SCIs that own real estate across 2.89 million parcels in France, we could identify beneficial owners only about half the time. In the Paris region, beneficial owners could not be found for properties in 72 percent of parcels that are owned via SCIs. Considering that SCIs are particularly at risk of being abused for money laundering through the real estate sector, these reporting rates are alarmingly low.
We also found that foreign beneficial owners appear to be the actual individuals behind companies owning real estate in almost 200,000 parcels. These include Russian politically exposed persons whose companies own real estate in over 1,000 parcels across the country, from villas in Saint-Tropez to ski chalets in the Alps and luxury apartments in Paris. For the most part, however, we found that foreign companies can acquire real estate without having to comply with beneficial ownership disclosure rules.
One of the shortcomings of the French beneficial ownership register is that it does not make historical information easily available.
Recent efforts to trace assets connected to Russian elites has helped shed light on the need for ownership data over different periods of time. There have been reports of Russian elites transferring shares or the control of companies or trusts just before or soon after being designated.
For example, Elizaveta Peskova, the daughter of Vladimir Putin’s spokesperson Dmitry Peskov, used to be listed as the beneficial owner of a company called SIRIUS in France. On 29 April 2022, she transferred her shares in the company to her mother. At the time, Peskova had already been sanctioned by the United States. Five weeks later after she transferred her shares, EU sanctions followed. This raises questions about whether the move was to protect her French assets from being frozen. Current information on the beneficial ownership register shows the company is fully controlled by her mother and her own name no longer appears among the beneficial owners. One of the documents included in the register (accessible upon registration), however, confirms the transfer of shares. The company owns at least one property in France.
From patterns to reform
Needless to say, this analysis would not have been possible had the French government not made and maintained company and real estate ownership data freely available. But authorities still have a lot of work to do to unlock the potential of these powerful transparency tools.
As a matter of urgency, French authorities need to raise compliance rates with beneficial ownership disclosure rules. Companies that are in breach of their obligations must be sanctioned. Authorities also need to put in place a robust verification mechanism to improve data collection and validation in order to detect misleading or incorrect filings. The types of companies that are particularly at risk of money laundering – such as SCIs – should be subjected to enhanced checks.
When it comes to real estate, French authorities should start by requiring foreign companies that own or wish to invest in the French real estate sector to disclose their beneficial owners. Guidelines for real estate professionals and compliance checks of agents in critical regions should also be strengthened.
Finally, the French authorities themselves should make better use of available databases like the beneficial ownership data in order to continuously analyse and assess the specific risks of money laundering in the real estate sector – just as we have done together with Transparency International France and ACDC.
In fact, ahead of publication, we shared our findings with the French authorities, who then undertook an analysis of their own to respond to our request. Their findings were slightly different; for example, they arrived at an overall beneficial ownership disclosure rate of 83 per cent, which according to our research, is at 61 per cent. We were unable to independently verify the government’s figures, so authorities should try to understand where the discrepancies come from.
July 5, 2023 Published by The Transparency International.