Organisations such as those in the property sector, can be more prone to targeted money laundering. What is it that makes them so attractive to potential money-launderers? Simply put they can launder large amounts of money in a single transaction, whilst also concealing their activities due to the complexity and vast size of the global property market.
There are potential problems for the property market becoming a hub for worldwide money laundering which have now been widely recognised. We are frequently being introduced to new anti-money laundering legislation, with The Money Laundering Regulations 2017 also known as the 4th Anti-Money Laundering Directive being the most recent examples.
Property Developers – Comply or not Comply? That is the Question
The answer is to Comply. Not complying with the regulations would be costly, both financially and reputationally. It is therefore critical that all professionals working in the property sector are acutely aware of the issues and appropriately trained to identify and report any suspicious activity (SAR).
When the 4th Money Laundering Directive 2017 was first introduced, there was speculation about how property developers would be affected under the new regulations. The launch of the 4th Anti-Money Laundering Directive provided clarity on guidance for Property Developers /Estate Agents. Anyone who engages in estate agency work, like property developers or plot sale vendors (now also regarded as 'supervisors'), must conform to the regulations.
Property developers may be Estate Agents if they help a potential buyer sell their current property by:
- Introducing the potential buyer to another Estate Agent; or acting as an Estate Agent
- Introducing the potential buyer to a company who may wish to purchase the potential buyer's current property, e.g. a company in the house builder's group
Regulation changes consolidated
The keywords here are 'Due Diligence'. Completing appropriate Due Diligence is now a requirement of property developers. In most cases, basic client Due Diligence is insufficient, therefore businesses are obliged to carry out extensive ID verification to both contracting parties in a real estate transaction, including domestic Politically Exposed Person checks (PEP). Developers are also required to determine the origin of buyer's funds.
Compliance – putting AML procedures into place
Procedures demanded by the 4th Money Laundering Directive include:
- Confirming a client's identity before entering a business relationship (buyers and sellers)
- Ongoing monitoring of a business relationship (especially in high risk transactions or high risk jurisdictions)
- Checks and controls to anticipate and prevent money laundering (including company-wide AML evaluation)
- Staff training
- Appointing a nominated officer or money laundering reporting officer (MLRO) and giving them suitable resources to carry out that function
- Retention of Client records in-keeping with GDPR 2018 Regulations.
The consequences for not complying
The news of three estate agents being collectively fined £246,665 by the Office of Fair Trading (now incorporated into HMRC) for "significant and widespread" anti-money laundering oversights was widely covered in the press.
These real-life examples of fines being imposed on Estate Agents are a warning to everyone involved in the property market. Along with the new legislation they are meant to decrease the sheer amount of fraudulent transactions within the sector.
Many businesses see the new regulations as an unnecessary cost of doing business. Without a doubt more resources are required, nevertheless seeing it as a possibility to comply with the law and knowing more about the clients could be very beneficial for the company's reputation.
Referring to the above-mentioned example, not complying is highly inadvisable. Businesses who fail to follow the regulations could face considerable financial sanctions or a prison sentence for individuals within the firm. Damage to the company's reputation also shouldn't be underestimated.
With the 5th Anti-Money Laundering Directive currently under development it seems that AML legislation will only become more rigorous. Finding a system that allows meticulous checks to help make informed business decisions is now more important than ever.
Should you like to further discuss your ID & AML requirements, our specialist AML & Compliance Team can be contacted on 0117 918 1468.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.