Why is it relevant to...
Purchasing property in the UK is a common method used by serious organised criminals to launder the proceeds of criminal activity. The sheer size of the property market in the UK and the high value of property assets means that extremely large amounts of criminal funds can be ‘cleaned’ in a single transaction.
Property is often seen as a gateway to money laundering and it is essential that estate agents are aware of their duty in carrying out the right checks and reporting any suspicious activity. As a Board, we will be seeking to ensure a step-change in how the UK tackles economic crime and the role that the private sector can play in doing so.
The Fifth Money Laundering Directive expanded the scope of obliged entities within the property sector to include the letting agency sector for high-value transactions with a monthly rent of EUR 10,000 or more.
The new regulations introduced, create a level playing field in the sales and auctions market and we welcome this. The regulations have also been expanded to include the letting agency sector for high-value transactions with a monthly rent of 10,000 euros. Those letting agents who fall within the scope of regulated businesses and manage tenancies that meet the threshold will need to register for anti-money laundering (AML) supervision. Despite the HMRC’s online register not being operational until May 2020 letting agents will need to comply with the regulations from 10th January 2020 and if they’re found to be non-compliant with the regulation’s agents may face civil penalties or criminal prosecution.
A high value dealer is a business (firm or sole trader, who or whose employees) that deal in goods or services and makes or accepts cash payments over the value of €10,000 (or its equivalent in another currency) whether that is in a single payment or a series of payments.
This includes chattels auctioneers where proceeds of crime can be 'cleaned' through purchases of high value items such as jewellery and cars.
High Value Dealers must do more than just be wary of buyers paying with cash or using intermediaries. They need to actively train staff on implementing the Money Laundering Regulations.
Under the Fifth Money Laudnering Directive the rules are extended to persons trading or acting as intermediaries in the trade of works of art, including when this is carried out by art galleries and auction houses, where the value of the transaction or a series of linked transactions amounts to €10,000 or more.
What are we calling for?
Private rented sector
Money Laundering Regulations should include Landlords and letting agents to reduce the risk of cash payments being used to ‘clean’ dirty money. The UK Government should remove the EUR 10,000 monthly rent threshold and set this at zero to create consistency and cover all tenancies let in the private rented sector.
Supervision
Professional bodies should expand their roles to take on Anti-Money Laundering supervision rather than relying upon HMRC to act as a regulatory body for several diverse sectors. Self-regulatory bodies acting as supervisors understand their sectors and gather information about developing risks and anti-money laundering methodologies.
Improved guidance
Alongside guidance on filling in a suspicious activity report, guidance from HMRC should include real-life examples from estate agents who have given reports to the National Crime Agency (NCA), to illustrate the process and explain the steps required. This would help to better explain to staff and MLROs about how long the process can take and what the outcomes can be.
Regulate the sector
Whilst the property sector remains largely unregulated, and without minimum standards, the industry is vulnerable to attack.
Increasing the number of Suspicious Activity Reports (SARs)
Staff in businesses affected by the must raise an internal report where they know or suspect another person is engaged in money laundering (whether a transaction has taken place or not). Propertymark is working with the National Crime Agency (NCA) to educate agents about when a SAR is necessary and the consequences for failing to do so.
How to make a SAR
If any staff know or suspect a potential customer is engaged in money laundering, they must raise an internal report to your MLRO. Basic examples of suspicious activity include; difficulty getting paperwork off the customer to complete due diligence checks, fake or incomplete paperwork, it difficultly establishing the beneficial owner, requests to pay via installments in attempt to bring payments under the thresholds.
The MLRO will need to assess whether there are grounds to pass the report onto the National Crime Agency (NCA). The NCA will determine whether you can proceed with the transaction. Contact HMRC for advice about money laundering and how to report suspicious transactions. If HMRC needs to contact you about anything confidential they will reply by phone or post.
Register of overseas entities
NAEA Propertymark has long called for a public register of overseas beneficial owners. Property is a high-risk sector for laundering money, with the true identity of owners often hidden through the illegal use of overseas shell companies. We believe:
- The Register should work alongside the requirements of the Money Laundering Regulations.
- The UK Government should seek to ensure that the Register does not operate on a self-certified basis.
- For the Register to be effectively administrated and monitored, Companies House needs to be properly resourced.
Giving evidence to the Treasury Select Committee
Following our written submission to the Treasury Select Committee’s Inquiry into Economic Crime, Mark Hayward gave oral evidence to MPs. Despite a ramping up of compliance activity since the introduction of the Money Laundering Regulations 2017 Mark argued:
- Agents were not given sufficient time to adapt to the changes.
- De-risking by banks is preventing some estate and letting agents from opening client accounts.
- Fines for those agents flouting the rules are not publicly being made known.
- Only interim guidance was available.
- There is a need for better guidance for reporting suspicious activity.
- The rules do not cover letting agents.
- There needs to more tools to help regulated agents understand enhanced due diligence.
- The public register of overseas companies owning property in the UK must be set up as soon as possible.
- There is no single Act of Parliament that sets out the UK financial sanctions regime.
We continue to engage with the UK Government, including meeting with HMRC, the Home Office, HM Treasury and the Department for Business, Energy, Innovation and Skills (BEIS) to represent members and ensure that the Government’s Anti-Money Laundering and Terrorist Finance regime works for the property sector.
Related news and resources
More transparency on land ownership in Scotland
The Scottish Government is introducing a new Register of Persons Holding a Controlled Interest (RCI) in land on 1 April 2022 which is part of their commitment to improve transparency and will be free to access.
Benefits of having a client account
By keeping money ring-fenced from other business activities agents can use a client account for the sole purpose of handling and distributing deposits, rents, and fees and client accounts come in a few guises – designated or pooled/undesignated.
Digital identity scheme moves to live testing
Propertymark has been instrumental in the development of the digital identity trust scheme, MyIdentity, which has moved into the Financial Conduct Authority (FCA) sandbox environment, which allows for controlled live testing.
Economic Crime Bill receives Royal Assent
The new Economic Crime (Transparency and Enforcement) Act received Royal Assent today, 15 March, following an expedited passage through Parliament.
Regulation of Jersey estate agents getting closer
The Economic and International Affairs Scrutiny Panel of the States of Jersey Assembly (the parliament of Jersey) has published a report recommending the introduction of regulation of estate agents.
Regulation checks to keep agents credible
Propertymark’s Compliance Team carried out 1,762 checks on member agents’ websites in 2021 to raise the industry standards and help members be compliant and avoid enforcement penalties.