Many real estate firms see anti-money laundering (AML) compliance as an unnecessary cost and hassle. As a result, some may often prefer to do a slap-dash job and run the risk of non-compliance, opting to simply pay the fines when regulators catch them, rather than invest in robust AML procedures.

However, this short-sighted approach can have serious reputational and financial consequences over time.

LEAST RESISTANCE

Paying fines may seem like the path of least resistance, avoiding the perceived hassle of customer due diligence and documentation. After all, the penalties imposed by HMRC may seem paltry at first glance; a £1500 fine for breaches of customer due diligence, risk assessment and record keeping may be shrugged off by some.

But HMRC should not be easily dismissed. Earlier this year it named and shamed 240 supervised businesses which were fined between 1 July and 31 December 2022.

RISK ASSESSMENTS

This included Xpress Money Services which, while not real estate-focused, was hit with a fine of £1.4 million for failing to carry out risk assessments, not having appropriate anti-money laundering controls and failing to conduct proper due diligence checks.

Clearly, the potential for much larger fines to be enforced is there, if deemed necessary.

The potential damage of non-compliance is far greater than a one-time fine too. Reputations are difficult to rebuild once tarnished, not to mention that turning a blind eye also enables immense harm, as laundered money nearly always originates from criminal networks exploiting innocent victims.

MORE MANAGEABLE

There can be an approach in the real estate industry that sees paying AML fines as easier and more manageable than conducting effective customer due diligence (CDD) and AML compliance. Regulators can be seen as a nuisance and ‘unnecessary’ paperwork a waste of time and resources.

It’s true, compliance has a cost, with money, time and resources. But the damages brought about by non-compliance can be far-reaching and end up costing far more. While real estate companies may be happy for their bank account to take a hit, reputations are far harder to recover.

LESS INCLINED

If people are less inclined to do business with a company or be associated with them as a result of their fine history, that company’s finances and ability to attract new business will suffer in the long run. It can be assumed that the 68 estate agents who were named for breaches in 2022 felt a similar impact.

And from a moral and ESG standpoint, turning a blind eye to AML is also turning a blind eye to the incredibly damaging and harmful effects attached to money laundering.

No money is laundered for the sake of laundering it; it comes from a dark underworld of criminal activity and networks often exploiting innocent victims for their personal gain.

ROBUST COMPLIANCE

That being said, creating a robust AML compliance programme takes some time and investment. But once up and running, it can become a smooth process that means companies adhere to AML regulations, avoid regulatory fines and reputational damage, and form another line of defence against money laundering.

A pivotal aspect to this is creating a culture of compliance. This starts at the top, and leaders have a responsibility to build this culture – if they lead by example, employees will follow.

REGULAR TRAINING

This culture can be built up by offering regular training and education on common money laundering red flags and creating clear lines of communication for employees to discuss any concerns and report suspicious cases.

Technology can roll out this change across a company. The latest AML software can automate and digitise the compliance process, conducting CDD checks, identifying beneficial owners, breaking down complex entity structures and updating with the latest regulations. This information is all housed on a central platform accessible company-wide (depending on access restrictions which bolster data privacy). This central database allows employees to monitor cases and easily create alerts for red flags, which can then be passed on to the relevant authority.

CLEAN DIRTY CASH

The nature of real estate lends itself to money laundering activity. Purchases or transactions often involve large amounts of money swapping hands between numerous parties and complex financial and entity structures which can mask true ownership. It’s an effective way for bad actors to clean their dirty cash.

The passing of the ECCTA and reforms to Companies House bring a much needed boost to AML processes and offer more stringent protection against these methods in 2024. But criminals are always innovating their approaches using the latest tech advancements, and the compliance profession can often lag behind.

WORK TOGETHER

Regulatory bodies, compliance agencies and real estate companies all need to work together to implement the latest AML technology, create a consistent reporting process and not only react to new money laundering methods but use technology to preempt them. There is also a need for better international cooperation for reforms and regulations to truly have an impact.

If real estate organisations are willing to take fines over compliance, then problems will persist. A truly robust regime requires all parties pulling their weight and adhering to regulations. With the damaging effects of money laundering all too visible in the news agenda, the industry has a moral duty to be compliant – education, training and awareness by compliance professionals can go a long way to showing these effects.

For 2024, the sector needs to know it shouldn’t be fine with fines.

Simon Luke (main picture) is UK Country Manager at First AML