Offshore owners of British property will be forced to reveal their true identities or face jail sentences and unlimited fines under draft laws that aim to end the UK’s reputation as a high-risk jurisdiction for money laundering.

The legislation follows years of scandals involving the acquisition of high-value UK property by offshore companies, and concerns that a lack of regulation was allowing corrupt money into the housing market.

The National Crime Agency said three years ago that overseas criminal gangs were using British property transactions to launder billions of pounds in corrupt funds. Parliament’s foreign affairs committee went further earlier this year, saying that corrupt Russian funds laundered through the UK, including via property, posed a threat to national security.

Under the new legislation, overseas companies that own UK properties will be required to identify their true owners on a publicly available register. The government said the register was part of a wider crackdown on money laundering in the property sector, and would make it easier for law enforcers to seize criminal assets.

The anonymous ownership of property via offshore companies is perfectly legal, but it has also been a subject of concern for housing campaigners concerned about an influx of foreign money forcing up house prices.

The draft legislation introduces a series of new penalties for those seeking to circumvent the register, including:

  • A ban on a foreign entity selling or leasing a property without declaring its beneficial owner, with jail of up to five years and an unlimited fine for those failing to comply
  • Up to two years imprisonment and an unlimited fine for individuals who fail to register or attempt to file false information

Transparency campaigners, some of whom have battled current rules for several years, welcomed the legislation.

“These proposals finally put to paper a long-promised tool that will help lift the veil of secrecy over property ownership that corrupt individuals exploit here. After several years of campaigning and advocacy we are pleased that the first steps to introducing this important register have been made,” said Duncan Hames, the director of policy at Transparency International UK.

“For too long the UK has welcomed corrupt money and very often it has been our property market that has provided a hiding place. This bill should eventually leave corrupt individuals one less place to stash their dirty money. Once this consultation concludes we expect the government to make this legislation an urgent priority.”

Chido Dunn, an anti-corruption campaigner at the NGO Global Witness, described the new legislation as a game-changer. “The government has finally shown it is serious about stopping criminals and the corrupt from using UK property to launder dirty cash. We’re excited to find out who really owns our cities,” she said.

The National Association of Estate Agents also welcomed the proposals. “Property is a high-risk sector for money laundering because any foreign company can buy property in the UK without having a presence in the country,” said Mark Haywood, the group’s chief executive.

“Criminal funds can be concealed and made to look legitimate through an untraceable ‘company’ and subsequently the purchasing of property. When agents try to determine the true, or ‘beneficial’ owners, they find only documents listing shell companies.

“Furthermore, houses bought with laundered money often sit empty, taking homes away from the market that could be used for families and having a further negative impact on the wider community. To maintain integrity in our housing market it is vital to know who the ultimate owner of a property is.”

David Cameron proposed a public register for the beneficial ownership of propertyafter the revelations of the Panama Papers two years ago. The Guardian identified at least £7bn of British property owned by offshore companies in the leaked documents, and found at least £170bn of property was owned through tax havens.

There are also concerns that allowing overseas buyers to anonymously purchase UK property as an investment has brought a flood of money into the housing market, forcing up prices and exacerbating the housing crisis. Two years ago a Guardian investigation identified a skyscraper with 50 residential apartments, a quarter of which were owned by offshore companies.