The property industry has long been suspected by regulators and prosecutors as an easy ‘mark’ for money launderers, and estate agents are the front line of the industry.
The OFT were previously responsible for the regulation of estate agents, but as of 1 April 2014 that responsibility has been transferred to HMRC, and in June 2014 they duly issued fresh guidance to the profession.
The regulators’ primary concerns focus on the source of funds and an increasingly worrying development: the passing off of stolen property, often sold at property auctions.
Estate agents must concentrate on KYC (‘Know Your Client’), which means checking to see if there has been any change in transactions, whether the property fits the client profile, scrutinising the source of the funds, and knowing when to make Suspicious Activity Reports (SARS).
Before the OFT handed over regulatory responsibility for the profession they investigated and fined three firms of estate agents for ‘significant and widespread’ anti-money laundering (AML) regulatory breaches. The fines totalled £246,665 which represents a huge increase on fines previously levied for similar breaches.
The OFT found that the firms:
- Failed to apply adequate customer due diligence measures;
- Failed to conduct ongoing monitoring of business relationships;
- Failed to establish and maintain appropriate policies and procedures, adequate record keeping, internal controls or risk assessments;
- Failed to train relevant employees to recognise deals or transactions which maybe related to money laundering and terrorist financing.
The property market is very vulnerable to abuse by money launderers, and real concerns lay in the huge influx of foreign buyers who have entered or are seeking to enter the market, and who are looking for a safe haven for their money. Some will be seeking to avoid the long tentacles of their domestic tax authority, and money that has evaded tax will be deemed to be the proceeds of crime. This potential issue presents an enormous headache for estate agents and all property professionals.
How should you as a property professional protect yourself?
- Confirm the customer’s identity before entering into a business relationship;
- Ensure ongoing monitoring of the business relationship;
- Retain records relating to the business relationship;
- Install checks and controls to anticipate and prevent money laundering;
- Appoint a Money Laundering Reporting Officer (MLRO);
- Train your staff;
- Ensure regular reviews of policies, procedures and trends in the market, or changes in customer activity.
What of the future?
The property market only has to look at how regulators have dealt with the banks to see how they may react. As they fully turn their attention to the property market this promises to be more regulatory enforcement, higher penalties and even criminal prosecutions.
We have specialist solicitors who have extensive experience in financial compliance, regulatory enforcement, criminal prosecutions and business (internal) investigations, who are ranked in the Legal 500, Chambers UK and Superlawyers UK.
Contact Lewis Nedas Specialist Solicitors
If you are affected by any of the issues above, please contact our experienced solicitors by calling 020 7387 2032 or completing our online enquiry form here.
