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Financial Crime Due to Hidden Ownership in Real Estate

Hidden ownership in real estate poses a significant challenge in efforts to combat financial crime in Norway. With increased focus, nationally as well as internationally, this issue has become a central aspect in the fight against money laundering and other types of financial crime.

A well-known method used to launder illicit funds is to conceal beneficial ownership in real estate. Through complex corporate structures, the use of shell companies and straw persons, both individuals and legal entities can obscure the origin of these funds. By identifying the true owners, authorities can make the real estate market less attractive for criminals to use as part of the money laundering process.

Internationally, hidden ownership is a widespread issue. The investigative project “Dubai Unlocked” has revealed how criminal actors from Sweden purchases real estate in Dubai to conceal revenue from illegal activities. This method allows criminals to hide substantial assets, posing a challenge to global efforts against financial crime. Additionally, hidden ownership represents serious security policy challenges. Norwegian authorities, including the PST (Norwegian Police Security Service) and the Norwegian Intelligence Service, have warned that concealed ownership in Norwegian properties pose a security threat, particularly in light of sanctions against Russia. Russian oligarchs have been known for using hidden ownership structures to circumvent sanctions, which undermines Norway’s ability to effectively monitor and implement measures to protect national interests.

This article is based on findings from the master’s thesis that my co-student and I did on this topic. The study combines a thorough literature review with in-depth interviews with key stakeholders within public authorities, such as Økokrim (the Norwegian National Authority for Investigation and Prosecution of Economic and Environmental Crime, the Norwegian FIU) and the Norwegian Tax Administration, as well as obliged entities such as banks, real estate agents, and law firms. The analysis examines how authorities and obliged entities work to prevent and detect money laundering and tax evasion related to hidden ownership, as well as the major challenges and limitations of current measures and practices.

The following will present the main findings of the study.

Preventive and Investigative Measures

The authorities have implemented several measures to combat financial crime related to hidden ownership within real estate. Økokrim, the Norwegian Financial Supervisory Authority, and the Norwegian Tax Administration have all strengthened their control routines and work closely with each other, international actors, and obliged entities. The study examines what these actors actually do, rather than merely analyzing the formal requirements.

Obliged entities conduct extensive customer due diligence measures to prevent illicit funds from entering the real estate market. This includes implementing KYC (Know Your Customer) procedures, risk assessments and routines, identifying beneficial owners, and reporting suspicious activities and transactions to the FIU. Among the registries utilized for this purpose are the National Population Register (Fokeregisteret), the Shareholder Register (Aksjonærregisteret), and open-source intelligence, mainly conducted through Google. The latter is widely used by real estate agents who, unlike banks, do not have access to equally advanced registries.

The study shows that obliged entities are and have been doing significant investments in this area, especially within the real estate and financial sectors, where complex corporate structures and transaction patterns demand increased monitoring and control. Økokrim has also intensified efforts by handling an increasing number of suspicious activity reports. However, Økokrim’s resources are not on par with the efforts and controls conducted by the obliged entities, creating challenges in the fight against financial crime. This imbalance has led to frustration among the obliged entities, which has led to several media articles about this issue.

Despite significant efforts and resources used to combat money laundering and tax crime, the study indicates that substantial challenges remain regarding access to necessary ownership information. This is primarily due to fragmented registers, limited access, and confidentiality that hinders effective information sharing between obliged entities and authorities.

Poor Data Quality

One of the major challenges related to the prevention of hidden ownership within real estate is the lack of access to up-to-date ownership information for authorities and obliged entities to use. Real estate agents and other actors in the real estate sector currently have limited access to registries like the National Population Register, making it challenging to identify beneficial owners and uncover hidden ownership. Furthermore, information in the Shareholder Register is known to often be outdated, as updates occur annually and not as these updates are registered. This leads to important changes in ownership potentially going undetected for extended periods. Since these registries rely on information reported by the companies themselves, the risk of inaccuracies, omissions, and incorrect information increases.

Another key issue is that the beneficial ownership register, to be operated by the Norwegian company registry (Brønnøysundregisteret), introduced to promote ownership transparency, is still not in use despite it being eight years since it was decided to establish the registry. Meanwhile, companies continue to operate with hidden ownership through complex corporate structures, significantly hindering the authorities’ ability to monitor the ownership.

Introducing a real-time shareholder registry would ensure that ownership information is automatically updated with every change. In the case of real estate, the problem is often that the beneficial owner may differ from the registered owner, and the current practice—where owners often submit information themselves—carries risks of delays and inaccuracies.

Establishing a beneficial ownership registry would be an important step in providing a clear overview of the true owners of companies and furthermore real estate. This registry would have a higher degree of reliability if the authorities themselves collected and verified the information. Furthermore, the definition of “beneficial owner” in the Act on the Register of Beneficial Ownership should be adjusted to align with the definition in the Anti-Money Laundering Act, as the act was implemented to ensure compliance with anti-money laundering requirements.

Additionally, real estate agents should be granted full access to the National Population Registry to strengthen their resources with the necessary tools. This would provide obliged entities with real-time information on ownership information including family relationships, simplifying the process of identifying beneficial owners, and at the same time make it more difficult to use real estate investments to launder illicit funds and conduct tax and/or sanction evasion.

Legal and Regulatory Limitations

Privacy and confidentiality regulations can be a limiting factor for effective information exchange between supervisory authorities, law enforcement, and obliged entities like banks and real estate agents. For example, banks may terminate a customer relationship based on suspected money laundering without being able to inform the new bank of this suspicion when a new customer relationship is established. The challenges are even greater for real estate agents and banks, who frequently engage in the same transactions yet cannot share essential information with one another.

The voluntary registration system and the use of blank deeds make it challenging to track the beneficial owners of real estate. The Tax Administration has estimated that Norway loses significant tax revenues due to unregistered property transactions.

Profession-specific confidentiality among lawyers also poses challenges for authorities’ and other obliged entities’ ability to obtain information about potential financial crime.

The ” Labor Crime Information Regulation” of 2022 has improved information sharing related to labor market crime, enabling participating agencies to share and analyze information to a greater extent. Similar regulations are proposed for the real estate market.

One possible measure to facilitate the exchange of information between obliged entities is to introduce guidelines that allow relevant information sharing between banks, real estate agents, and lawyers when there is suspicion of financial crime, while still safeguarding privacy and confidentiality.

Several stakeholders, including Økokrim, have proposed mandatory property registration and a ban on blank deeds to increase transparency in the real estate market. However, the study shows skepticism toward mandatory registration, as this could be perceived as a political intervention significantly impacting “the average person”. Therefore, it is recommended that such a requirement be introduced with certain exceptions to protect legitimate interest.

A revision of confidentiality regulations is also proposed to allow for more effective information sharing in cases where lawyers provide financial advice outside traditional legal practice.

Resource Challenges

An additional challenge is the asymmetrical development between obliged entities and Økokrim. The Norwegian Financial Supervisory Authority are also facing resource constraints that weaken its capacity to monitor the financial market and ensure that actors comply with laws and regulations. An illustrative example is that only three full-time positions at Finanstilsynet are responsible for supervising over 800 real estate agencies.

The resource shortage at both Økokrim and Finanstilsynet limit their ability to effectively combat financial crime, potentially leading to serious cases not being detected in time. This lack of resources and capacity at Økokrim may also be considered a violation of the requirements in Art 32 of the EU Anti-Money Laundering Directive. Article 32 of EU Directive 2015/849 (AMLD IV) requires each Member State to establish an FIU (Financial Intelligence Unit) with sufficient financial, human, and technical resources to effectively prevent, detect, and combat money laundering and terrorist financing. AMLD VI upholds the requirements outlined in Article 32 of AMLD IV.

Increased funding and access to resources for both Økokrim and Finanstilsynet are necessary to manage growing workloads and ensure better oversight and investigation.

Advantages and Disadvantages of Allowing Hidden Ownership

The discussion of the advantages and disadvantages of allowing hidden ownership is also addressed in the study. A key argument for hidden ownership is the right to privacy, rooted in Article 8 of the European Convention on Human Rights (ECHR). Hidden ownership can offer protection of financial information for individuals who desire anonymity, such as politicians, public figures, or business leaders. For example, a politician may wish to conceal ownership to avoid unwanted scrutiny from journalists or political opponents. Similarly, a business leader who has caused financial losses may want to protect their ownership to avoid harassment or hostility. Such examples can, in some cases, justify the desire for hidden ownership as a means of protecting privacy.

By concealing ownership through complex corporate structures, foreign companies or the use of blank deeds, properties can be shielded from seizure in cases of debt enforcement. This can also be used as a means to avoid wealth and property taxation. While this benefits individuals, it represents a significant disadvantage for society and tax collection. The use of hidden ownership for tax evasion purposes and creditor protection primarily benefits criminal actors and undermines societal fairness.

One of the most serious consequences of hidden ownership is lost tax revenue. When ownership is concealed, the state misses out on substantial income that could have contributed to the financing of public services. This can either result in higher taxes for law-abiding citizens or reduced welfare services. Additionally, hidden ownership erodes trust in the system, as it creates an impression that financial crime is widespread and that the authorities are unable to address the problem.

Furthermore, hidden ownership poses a security risk, particularly when used by foreign actors attempting to circumvent international sanctions. For example, Russian oligarchs may hide their ownership of Norwegian property to evade sanctions related to Russia’s invasion of Ukraine. A system with greater transparency regarding ownership would make it easier for authorities to enforce sanctions and protect national security interests.

The study concludes that the broader interests of society outweigh the need to allow hidden ownership.

Legal-Policy Perspective

Issues related to hidden ownership have received increased media attention recently. The Government White Paper (Stortingsmelding) on Financial Crime, Meld. St. 15 (2023-2024), marks an initial step toward addressing these issues. However, the study points out that the paper only reflects the government’s future assessment of potential measures, and that implementation may take time without concrete legislative proposals. It emphasizes that it is time to act, as the consequences of the challenges mentioned could become severe within the next 5–10 years.