Estate and letting agents deemed as medium risk in money laundering report

The National Risk Assessment of Money Laundering and Terrorist Financing 2020 report was published yesterday, 17 December, increasing estate agents from low to medium risk as well as introducing letting agents as medium risk.

The full scale of laundering through the UK property sector is unknown but money laundering likely only makes up a small part of overall property transactions, although the amounts moved are still significant.

Corrupt foreign elites continue to utilise the UK property market, especially in London, disguising corruption proceeds, purchasing through complex systems of overseas shell companies, thereby disguising the true purpose and origin of money transactions.

The report stated that overall, agents continue to have a lot of weaknesses in their anti-money laundering and counter-terrorist financing (AML/CTF) controls. Common failings are the lack of bespoke policies, controls, and procedures aligned with an appropriate risk assessment of each agent’s clients and agents should make sure to follow the HMRC Estate Agency Guidance on risk assessments:

  • Your risk assessment is how you identify the risks your business is exposed to. You must be able to understand all the ways that your business could be exposed to money laundering and terrorism financing risks, and design systems to deal with them.
  • You must take note of the information on risk and emerging trends from sources including the National Risk Assessment and HMRC's risk assessment and amend your procedures as necessary.

Estate agents

The change to the risk factor in the estate agency business (EAB) is due to law enforcement agencies observing increased overseas buyers and overseas cash flows into the UK property market. Many EABs do not handle client money however, their relationships with both the buyers and sellers of properties can provide crucial information to identify suspicious transactions. Conducting customer due diligence checks on both the buyers and sellers of properties, as required by the Money Laundering Regulations (MLRs), collects important information on the beneficial owner of properties and their source of funds. Failure to conduct these checks can mean an EAB unwittingly facilitates the laundering of funds.

The report concludes that many EABs have failed to register with HMRC. In 2019, HMRC identified that 50 per cent of EABs advertising properties for sale at £5 million had failed to register with them for AML supervision or had failed to pay their annual fees. Of those registered, HMRC found insufficient training in place for staff, and a lack of consideration of risks of property location e.g., failing to recognise that higher-priced London property is at higher risk of money laundering. This is particularly true of EABs that operate solely online, with no face-to-face relationship with clients.

Likewise, many EABs do not conduct sufficient ID checks, particularly on customers based overseas, with some having an overreliance on ID checking software which they do not fully understand. HMRC has identified that larger EABs with multiple branches usually have the right policies and risk assessments in place but fail to adequately audit their branches for compliance.

A lack of information sharing between EABs, lawyers, and lenders further hinders the identification of money laundering. This also applies to information sharing between the relevant money laundering supervisors where identification and collaboration on common issues could be coordinated.

Letting agents

Letting agents came under the Money Laundering Regulations (MLRs) from 10 January 2020 where they let residential or commercial property for more than €10,000 per month. Although there is still a lack of complete understanding of the mitigations and vulnerabilities in the lettings agency business (LAB) sector, the ability to conceal the beneficial owners and destination of funds, and the regular flow of funds, make it attractive for money laundering. Therefore, the NRA assesses the risk of money laundering through LABs to also be medium.

It is too early to determine the compliance levels of letting agents now in the scope of the MLRs. As only a small proportion of letting agents and lets are subject to the MLRs, large gaps remain in mitigation of the money laundering risk in the sector. HMRC analysis suggests there are only around 100 LABs that will be in the scope of the regulations, many of whom are already registered as EABs.

All LABs are required by law to perform Right to Rent checks on tenants, however, customer due diligence (CDD) is only required on the small number of tenancies over €10,000 per month. As a result, it is possible for there to be high levels of anonymity within the lettings sector, including the landlord, tenant, and other interested parties and clients. Landlords may have purchased the property with illicit funds, tenants may be paying the rent with illicit funds (as a realisation of their proceeds), or the landlord and tenant may be part of the same criminal group, laundering their funds under the guise of rent payments.

The publication of the report fires a warning shot to estate and letting agents that the perceived level of money laundering in the sector risk is rising. It is shocking to see that some estate agents, especially in the top end of the market, have failed to register with HMRC on AML. This in itself is a criminal offence, and we urge all members to adopt the correct policies and procedures. Propertymark has mechanisms in place to ensure members adhere to the highest AML standards and urge everyone to ensure they are compliant. Reports like today will increase focus on our sector and damage trust in agents, that is why it is so important that we are playing our role in stamping out money laundering from the housing market.
Mark Hayward Propertymark Chief Policy Advisor

Propertymark training and resources to help with AML compliance 

There is a range of useful resources to help agents comply and understand their responsibilities on our website, including information on customer due diligence, producing suspicious activity reports (SARs), the requirements of a money laundering officer (MLO) as well as a How to Comply with the Money Laundering Regulations Guide, webinars, and virtual online training.