Dirty cash, clean solutions
Are you on the money? Lisa Isaacs discovers that just 12 per cent of agents understand their AML obligations.
Not fully understanding or adhering to AML compliance is more common than you think. Jerry Walters at FCS Compliance – with 25 years of financial crime enforcement experience – says failings vary, from Customer Due Diligence (CDD) issues (not certifying documents correctly or not obtaining evidence of the current home address), to placing overreliance on other regulatory bodies, including lawyers.
By not understanding these structures, an agent is not able to identify the crucial ‘ultimate beneficial owner’ of the structure and the risk they present in terms of AML. Jerry Walters, FCS Compliance.
Pressure to reduce risk
Despite intricacies that go beyond selling and letting a property, agents have noticed increased pressure to comply with AML regulations. It’s a burden Emma Burdis at Iamproperty finds when speaking to agents, “Under this regulatory environment, it’s never been more important to undertake a thorough examination of each and every sale, using whatever tools agents can encompass to reduce the impact on their business.” The burden is very heavy, as the non-compliance penalties are harsh.
A customer attempting to sell a property that they don’t legally own is a sign of trouble – HMRC says agents should ascertain the legal ownership information, which they sometimes miss. Emma Burdis, Iamproperty.
Staying ahead of the AML curve
A round of applause for agents who fully understand the latest AML regulations but it doesn’t mean your agency is protected for tomorrow – there’s a new directive every few years (we’re on the fifth, which also applies to letting agents). Thankfully AML partners, with specialist skills to provide AML assurances, reduce exposure and decrease an agent’s workload.
AML doesn’t have to be all-consuming
John Dobson at SmartSearch acknowledges that agents are not there to act as a crime prevention unit. Although a degree of AML knowledge is needed, it shouldn’t bog agents down, “They require a strong grasp of what they need to do, not extensive AML training when third-party solutions are available.”
The SmartSearch system is updated to reflect regulatory changes, such as the recent 5th MLD. Daily monitoring alerts users to any change in clients’ status in terms of sanctions or PEP lists. John Dobson, SmartSearch.
Ben Robinson at Landmark Estate Agency Services says agents have due diligence to do before they appoint a company, “Becoming familiar with the 5th AML directive (5MLD) is the best way to find a supplier who can give the added value that’s worth its weight in gold.”
When the 5th Money Laundering Directive launched in January 2020, it increased its endorsement of electronic checks to help agents conduct their Customer Due Diligence. Ben Robinson, Landmark.
Essential AML product features
Ben adds that agents seeking an electronic AML solution need to ensure the supplier uses a wide-ranging blend of databases to identify who an individual says they are and then gives guidance. “Because agents are ultimately responsible for deciding whether to proceed with a transaction or not, clear results and help interpreting the findings is crucial. It’s vital that agents choose an AML partner that complements their own robust risk assessment process and makes it easier for them to complete their due diligence.”
Help for MLROs
Money Laundering Reporting Officers (MLROs) carry an extra responsibility in branch so it’s only fair they get specialist support. Suppliers like SmartSearch are there to help with streamlining and sense-making, providing essential training and offering counsel in the process.
MLROs will appreciate SmartSearch’s online platform, which provides a real-time watching brief for individuals with compliance responsibility, ensuring they are aware of any reportable incidents. In addition, all search input data and outcomes are hosted for clients so they can retrieve information and demonstrate full compliance to auditors or regulators.
“The SmartSearch system is updated to reflect regulatory changes, such as the recent 5th MLD. We also provide ongoing daily monitoring to alert users to any change in their clients’ status in terms of sanctions or Politically Exposed Persons (PEP) lists,” adds John.
PEP talk
Agents uncovering a concerning individual can find a huge rise in workload, especially with a popular name, with many matches. A ‘belt and braces’ approach is achieved at Landmark Estate Agency Services, with key cross referencing. They check individuals who appear on the PEP register with the Dow Jones watch list, and provide all the corresponding details on matched/flagged individuals so the agent can complete enhanced due diligence from their desk.
Easy ownership verification
Emma points to another ‘red flag’ that agents often overlook: “A customer attempting to sell a property that doesn’t legally belong to them is an obvious signal of trouble, though HMRC guidelines say agents should ascertain the legal ownership information, they sometimes miss this step.”
The iamproperty compliance tool was designed and built by and for estate agents. This tool has Land Registry integration, which automatically fills in the gaps left inadvertently by agents. It was built in partnership with Compliance Matters, giving additional advice from compliance experts.
Automatic advantages
AML products offer time-saving automated advantages and provide a useful role in the CDD process, especially with verification of documents, proof of address, identifying PEPS and financial sanctions checking.
The SmartSearch system delivers a clear pass/fail result incorporating an initial sanction & PEP check in seconds. It also conducts enhanced due diligence where a match is made against sanctions or PEP lists, so false positives are almost eliminated.
“Our ongoing monitoring also ensures our users get immediate updates if the status of one of their clients changes, and the system is updated to reflect regulatory changes. It is a complete solution for all an agent’s AML, ‘knowing your customer’ and due diligence needs,” says John Dobson.
Ease of integration
While most AML products offer automated solutions, the services offered can vary wildly. Ben suggests asking suppliers about their level of one-to-one support and ability to train branch staff, as well as additional resources.
Landmark Estate Agency Services offers the added benefit of a fully integrated solution which links to an agent’s existing management system, without a log into a third-party system to run checks. As the data is inputted, there’s a massive reduction in the need for agents to ‘double key’ data.
We are detectives
While automation should form a part of the KYC process, there are parts of CDD that can’t be automated. It is essential for an agent to clearly identify the source of funds being used for a property purchase and this is difficult to automate, especially regarding overseas companies and trusts. This is when agents – especially those marketing high value homes to high-net worth individuals – should lean on the experts.
The FCS Compliance team members all have a law enforcement background, with the skills to unravel aspects that agents (rightly) don’t have the time or expertise to properly investigate. “Those in property or the law may fail to understand complicated structures, including offshore trusts and shell companies,” says Jerry at FCS Compliance. “By not understanding these structures and to get to the information needed, an agent is not able to identify the crucial ‘ultimate beneficial owner’ of the structure and therefore the risk they present in terms of AML.”
FCS Compliance’s proposition drills down into complex structures to identify the ultimate beneficial owner and – just as importantly – to establish the source of funding for a potential house purchase. “We’re able to pinpoint the risk that a client might pose – with the purchaser potentially the biggest threat,” adds Jerry.
ID checks and COVID-19
With non-essential travel banned, remote working and worries over potentially contaminated paperwork, asking clients to present documents in person doesn’t happen – so what next? “Coronavirus spells the end for document-based ID checks and due diligence,” says John.
Even before COVID-19, electronic ID checks were mooted as the way forward, says Ben, “When the 5th MLD launched in January 2020, it increased its endorsement of electronic checks to help agents conduct their CDD. As most electronic checks do not require human intervention, they are now seen as a more reliable and independent source to verify clients.”
Electronic verification usually only requires a name, address and date of birth to get started. This gives access to full credit reporting data, which is practically impossible to forge, whereas physical documents are increasingly vulnerable. “There’s no need for a client to be present, no need for agents to handle sensitive data. Full checks can be performed online or via our fully integrated app,” John adds.
The next step: checking sellers
Although it’s not generally within the remit of an agent to establish how a seller acquired the property they are selling, there is mounting evidence to suggest the background activity of vendors will form a crucial part of the future AML process – adding extra layers of time-consuming checks for an agent to undertake.
Jerry says that in the last 12 months FCS Compliance encountered situations where a property was held by individuals who have been subject to criminal allegations or prosecutions in their home country – all within a time frame that coincides with when the property was purchased. Suspicions are also aroused when a seller comes back to the sales market after only recently purchasing a given property.
The future of AML?
“It’s interesting to see the increasing number of recent unexplained wealth orders coming to light that relate to properties that were purchased a number of years ago. I suspect we’ll see a lot more of these in the months and years ahead,” concludes Jerry.
