Where to start. Property is an increasingly attractive way of laundering money. In fact, the latest UK National Risk Assessment (published in December 2020) raised the money laundering risk score for the property sector overall from ‘medium’ to ‘high’ – highlighting the attractiveness of bricks and mortar as a fraudulent façade.
“The risk score for estate agency businesses (EABs) has been raised from ‘low’ to ‘medium’ and the report also identified a risk score of ‘medium’ for AML’s newcomer, letting agency businesses (LABs),” comments Nick Sharp, Deputy Director of Economic Crime, Fraud Investigation Service, HMRC. The latter’s debut probably reflects the Home Office’s observation of ‘high levels of anonymity within the lettings sector’.
The risk score for estate agencies has been raised from ‘low’ to ‘medium’ and the report also identified a risk score of ‘medium’ for AML’s newcomer – letting agency businesses. Nick Sharp, HMRC (crime investigation).
A changing regulatory framework
One of the biggest issues facing agents in 2021 is having the time, resources and processing capacity to keep up with the frequency at which AML compliance changes. “Money laundering regulations are reviewed and updated regularly as criminals don’t stop money laundering when it is made difficult,” says Emma Burdis at iamproperty. “Instead, criminals seek ways to circumvent AML controls.”
Money laundering regulations are reviewed and updated regularly as criminals don’t stop money laundering when it’s made difficult; they seek ways to circumvent controls. Emma Burdis, iamproperty.
For those keeping track, we’re currently on the fifth AML directive and the sixth is due to come into force on 3rd June 2021. These guidelines are embedded in EU law for member states and a little thing called Brexit has changed the UK’s AML path.
‘Non’: no traces of the EU
‘The Money Laundering and Transfer of Funds Regulations 2019’ was part of UK Exit Regulations, which removed all traces of the EU in its introduction and levelled up the UK’s AML with that of our old European counterparts. As the Government points out, our own, newly-bolstered domestic framework is robust enough for agents not to have to transpose the sixth directive but the property industry does need to familiarise itself with home-grown legislation to operate compliantly.
B is for… breaking the law and Brexit
Brexit is also a topic of conversation over at FCS Compliance, with Jerry Walters highlighting how our departure may provide extra motivation for those looking to launder money through property: “There may be a perception among criminals that Brexit means less cooperation among those working in law enforcement, making it easier to commit financial fraud.”
Jerry also warns agents that a new year will bring new criminal trends. “The closing of borders and cash intensive businesses, such as money bureaus, will ensure that property remains high on money launderers’ shopping lists.”
Where it always used to be Russia and West Africa, the last few years have seen countries that were part of the old Soviet Union, such as Azerbaijan and Kazakhstan. Jerry Walters, FCS Compliance.
C is for Covid and criminals
Covid may also be perceived as a weak link, with Ben Robinson at Landmark Estate Agency Services citing fewer face-to-face meetings with clients as a reason for agents to be more vigilant in 2021: “Current restrictions in place due to Covid-19 mean it is harder for agents to meet buyers, sellers, tenants and landlords in person, so property could indeed be an easier target for criminals to launder money.”
Covid restrictions mean it is harder for agents to meet buyers, sellers and landlords in person, so property could indeed be an easier target for criminals to launder money. Ben Robinson, Landmark.
Covid is a new threat that’s also ringing alarm bells with John Dobson at SmartSearch but for slightly different reasons. “Understaffing due to furlough, isolation and shielding is making it difficult for agents to stay on top of their compliance. And with the Stamp Duty holiday putting even more pressure on agents, things like AML may go to the back of the queue,” comments John.
Additionally, any dip in the housing market will put increasing pressure on agents – especially if sales tighten after 1st April 2021. “There has been talk recently that prime agents are at particular risk from money laundering,” says John. “Selling multi-million-pound homes is very difficult in the current climate and many are feeling pressured into cutting corners for fear of losing the sale. Recent reports suggest that as many as half of agents advertising properties for sale for £5million or more are not registered for AML or their renewals had lapsed.”
Selling multi-million-pound homes is very difficult in the current climate and many prime agents are feeling pressured into cutting corners for fear of losing the sale. John Dobson, SmartSearch.
Around the world
Although we may be shutting borders due to a pandemic or making enemies thanks to Brexit, there are plenty of international visitors wanting to grace our shores, even if it is metaphorically using money. FCS Compliance is noting a number of new entrants into the world of money laundering via property. “Where it always used to be Russia and West Africa, the last few years have seen countries that were part of the old Soviet Union, such as Azerbaijan and Kazakhstan, presenting a significant problem,” says Jerry.
Emma, meanwhile, advises agents to brush up on their geography when it comes to shell companies – a common purchasing vehicle used by what ARLA calls ‘corrupt foreign elites’. “It helps to have an understanding of where shell companies/tax havens are typically set up,” says Emma.
“The British Virgin Islands, The Channel Islands, Cyprus and Panama are just a few of the more commonly known havens. If you know you are dealing with a company registered in one of these locations, this is a red flag that should prompt further investigation, as is a business registered in one country with their business account held in another.”
WHERE AGENTS GO WRONG
According to HMRC, the top five common breaches for estate agency businesses are:
- not carrying out bespoke, comprehensive and robust risk assessments;
- not having in place, as an intrinsic part of the business, the correct policies, controls and procedures;
- failures in conducting due diligence;
- not verifying a customer’s identity and, where applicable, the identity of beneficial owners, before entering into a business relationship or occasional transaction, and
- unsatisfactory record keeping.
Many agents still don’t understand their legal obligations when it comes to AML. “To illustrate, on a recent training course I ran, a high percentage of agents thought a SAR was filed with HMRC and not the National Crime Agency,” says Jerry Walters.
It’s a frightening thought when there could be some challenging months ahead. “HMRC won’t hesitate to take action where a business’s approach to AML regulations is inadequate, inconsistent or perfunctory. Possible sanctions for non-compliance include fines and suspensions or cancellations of business registrations. In the most serious cases we could consider criminal prosecution,” says Nick Sharp.
In the most serious cases we could consider criminal prosecution.
Spot checks on sellers, not just buyers
Agents are mistaken if they think money laundering is all about buying activity and not selling, as Olly Thornton-Berry at Thirdfort points out. “In-keeping with AML regulations, estate agents should make sure they carry out KYC/AML verification on both sellers and buyers. Traditionally, criminals looking to launder money will be buying a property, which they invariably go on to either sell or rent, so they can appear to have a legitimate source of income. Therefore, it’s key for estate agents to carry out checks on sellers too.”
Being able to request information directly from a client’s bank significantly reduces the chance of tampering or manipulation… data is more reliable. Olly Thornton-Berry, Thirdfort.
Is lettings a weak link?
As with sellers, property investors should not be allowed to slip through the net and agents already have to carry out AML checks on landlords who earn over 10,000 Euros a month. Ben feels rising rents in London give money launderers access to higher profits, therefore making the high-value rental sector a target but the crime isn’t confined to the Capital. “The rise of ‘county lines’ means we are hearing about more instances of drug gangs spreading into smaller cities, towns and rural areas. This could lead to properties in new locations being targeted by money launderers,” adds Ben.
5 ways AML is being made easier for agents
Call it box ticking, red tape or a level of investigation that steps on the toes of the police, AML compliance is essential. Many agents, however, have a legitimate reason to worry whether their diligence and administrative game is strong enough. Thankfully, there are a number of complementary proptech conveniences and partner companies that can help agents become caped crusaders without the crushingly-heavy time and financial investment.
Requesting and providing paper bank statements is arduous for client, conveyancer and agent, so Open Banking’s ability to digitally link to customers’ accounts to obtain data is appealing. What’s more, Open Banking adds an extra security layer, says Olly: “Being able to request information directly from a client’s bank significantly reduces the chance of tampering or manipulation, and means that data is provided in real time, making it more reliable.”
There are a number of proptech and partner companies that can help agents become caped crusaders without the crushingly-heavy time and financial investment.
John feels that Electronic Verification (EV) is a game changer in our socially-distanced times. Checks can be performed remotely, without needing to see the client face-to-face, running on tech as simple as an app on a smartphone. Client details are verified against global databases and watchlists, employing the most sophisticated facial recognition software that can even handle a customer’s ‘selfie’ video.
Near Field Communication (NFC) chips have been flagged up by Thirdfort as a future line of AML defence. Conveyancers have already been encouraged to scan these chips in HMLR’s ‘Safe Harbour’ announcement, and it’s likely to appear on estate agents’ radar as a way of matching a digital signature and extract biometric information with the evidence supplied by a client.
For all its holograms, stamps, perforations and photographs, sophisticated launderers will find a way to replicate originals or alter valid documents. Artificial Intelligence (AI) is superior and speedier at spotting fakes when compared to the human eye, often picking up ID and statements that have been tampered with before they get into the system.
Support from HMRC
Key to HMRC’s approach is helping businesses to protect themselves. “We provide a range of support to help agents, including detailed written guidance, recordings of educational webinars and a bespoke EAB at-a-glance online summary guide,” says Nick. As well as GOV.UK, HMRC recently published a new, succinct risk overview guide Understanding risks and taking action for estate agency and letting agency businesses to provide agents with everything they need to know to put AML processes in place.
For The Negotiator’s comprehensive online guide to AML compliance, go to www.thenegotiator.co.uk/anti-money-laundering
Useful further reading: